TMI Tax Updates - e-Newsletter
September 5, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Highlights / Catch Notes
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Income Tax:
Validity of block assessment u/s 158BD – There was nothing in the language of the provisions, which suggested that the satisfaction note cannot be recorded upon completion of the proceedings u/s 158BC of the Act against the “searched person” - HC
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Income Tax:
Deduction u/s 37 - Guarantee commission paid to State Government – allowed as revenue expenditure - HC
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Income Tax:
Sale of TDR rights – the TDRs have a direct nexus with the business of the assessee and cannot be treated as any other source of income - AT
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Income Tax:
Deduction u/s 10A - Application of section 80IA(10) - claim excess deduction showing excessive (extra ordinary) profit - revenue arising from its oversees Associated Enterprises (AEs) - Whether sec. 80IA(10) applies when the second party to the transaction is a non-resident - held No - AT
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Income Tax:
The provisions of statute, as contained in sub-section (8) of section 144C, clearly prohibits the DRP to delegate its power to the AO i.e., to set aside the variation or issue any direction to carry out any further enquiry by the AO- AT
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Income Tax:
LTCG on sale of agricultural land – Land constitute capital asset as defined u/s. 2(14) or not - the fact of non-agricultural use by the buyer will not alter the character of land in the case of seller. - AT
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Income Tax:
Addition u/s 40(a)(ia) - Non deduction of TDS u/s.194C - Payments made to labour contractors for casual labor through single voucher - TDS not required to be deducted - AT
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Income Tax:
Expenses on abandoned project – the expenditure has been incurred for the project which could not be accomplished and it was intended to facilitate the assessee's business activity to be carried out more conveniently and profitably, the expenditure is an allowable revenue expenditure - AT
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Income Tax:
Delay in depositing employee’s contribution to Provident Fund/ESIC - there is no ambiguity in the language of sections 2(24) (x)and 36(1)(v)of the Act - It is the assessee, who wants to bring ambiguity in these sections by importing the language of section 43B - AT
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Income Tax:
Transfer pricing Adjustment - determination of ALP u/s 92CA(6) - when the discounting factors are considered for transactions with unrelated party, then the data with respect to unrelated party are to be taken into account for arriving at the discounting factors - AT
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Customs:
The manufacturer or exporter is not barred from seeking a determination of the Brand Rate of drawback under Rule 7 merely because, at the time of export, he had applied for and granted drawback at the All Industry Rate as determined under Rule 3 - HC
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Customs:
Principle of natural justice - Intimating to the party the date of hearing that by itself cannot be said to be in compliance of the principles of natural justice. - HC
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Service Tax:
Import of services - design service - proof that the design services in question were received prior to 18.04.2006 or prior to 01.06.2007 - We find and repeatedly that the Tribunal in undue haste and uncalled hurry proceeds to pass the orders which have to be often set aside by this Court - HC
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Service Tax:
Levy of service tax on Development of residential projects - taxability prior to 1.7.2010 - The view of the Department that Circular No.108/2/2009-S.T., dated 29.1.2009 is in their favour, is, prima facie, not tenable - HC
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Service Tax:
Eligibility to claim benefit of abatement 67% - completion and finishing services in relation to building or civil structure - assessee not entitled to claim abatement - matter remanded back to consider exemption under notification no. 12/2003 - extended period of limitation to be invoked - AT
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Service Tax:
Services of supply of tangible goods - adjudicating authority held that the transit mixtures are kept at the disposal of the readymix concrete manufacturers hence there is a supply of tangible goods. - prima facie case is in favor of assessee - AT
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Central Excise:
Rebate / Refund claim - export of goods - Rule 18 of the Central Excise Rules, 2002 - fake transactions between the petitioner and M/s. Universal Textile - rebate claim rejected - HC
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Central Excise:
Refund claim - period of limitation - Aforesaid two letters dated 5-10-1995 and 5-12-1995 could only be regarded as the letters of protest - period of limitation not applicable - HC
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Central Excise:
Recording of audio cassettes on duplicating music system amounts to ‘manufacture’ as blank audio cassette is distinct and different from pre-recorded audio cassette and two have different use and name - AT
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VAT:
Denial of input tax credit - the word ‘business’ as occur in Sub-section (6) of Section 2 is independent and therefore, input tax credit on the purchases such as fertilizers, chemicals, pesticides etc. used in agricultural/horticultural activity cannot be granted. - HC
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VAT:
Central Sale - movement of goods from one State to another - assessee contended that the goods which were moved from Bangalore to Delhi are not the finished product and are in the nature of components or parts of the goods and therefore, the CST Act is not attracted - levy of CST confirmed - HC
Articles
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2014 (9) TMI 143
Determination of ALP – International transaction with AE - validity, legality and propriety of the procedure adopted by the TPO – Held that:- The assessee has used data of different companies pertaining to the period from April, 2001 to February 16, 2004 - the assessee has used data of the preceding two financial years and partly of the current financial year, from April 1, 2003 to February 16, 2004 - under Indian Transfer Pricing Regulation, for the purpose of comparability analysis, an assessee is bound to use the data of relevant financial year, in which it has entered into international transaction - Under Rule 10B(4), it says the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction, shall be the data relating to the financial year in which the international transaction has been entered into. Thus, as per the above provisions, user of data of the current financial year, in which international transaction has been entered into by an assessee, is mandatory. There is no option but to use the data of only the relevant financial year, in which the international transaction has been entered into by the assessee, for comparability analysis - Though, in the proviso below the Rule 10B(4), it says that data relating to the preceding two financial years may also be considered, if data reveals facts which could have an influence on determination of transfer prices in relation to the transactions being compared, since in the instant case, the assessee has not been able to reveal any facts pertaining to the earlier financial years which had an influence on the determination of transfer prices with reference to those comparable companies, the TPO justified in using the data of only the current financial year 2003-04, for determining the ALP – relying upon Honeywell Automation India Ltd. v. Dy. CIT [2009 (2) TMI 736 - ITAT PUNE] – Decided against Assessee. Selection of comparables – Exclusion of gain on account of foreign exchange fluctuation – Held that:- The exchange fluctuation gains arise out of several factors, for instance, realisation of export proceeds at higher rate, import dues payable at lower rate - the gain or loss is on account of exchange fluctuation arising in the normal course of business transaction, it should be considered while computing the net margin for the international transactions with the AEs of the assessee – relying upon SAP LABS India Ltd.(P.) Ltd. v. ACIT [2010 (8) TMI 676 - ITAT, BANGALORE] - if the gain on account of foreign exchange rate fluctuation is to be taken as operating gain in nature, the net margin declared by the assessee for the international transaction with the AEs, goes up still further - if the loss of the comparable is abnormal and there is no trading activity of whatsoever, data of such company cannot be considered – the AO is directed to consider the data of MCS Ltd. as comparable while computing the ALP and to exclude other two companies from comparables. Loss making companies to be treated as comparable or not – Held that:- Determining of ALP is depend upon the comparables of identical or similar in controlled transactions in similar or comparable circumstances and thereafter suitable adjustment has to be made to set off the difference to make the transaction commercially comparable - only abnormal loss making companies are to be taken out from the comparables – relying upon DCIT Versus Quark Systems Pvt. Ltd. [2009 (10) TMI 591 - ITAT, CHANDIGARH] - when companies which are loss making are excluded from comparables, then super profit making companies are also to be excluded from the comparables for determining the ALP- the AO has to recalculate the ALP after excluding only the data of the companies which have losses due to extraordinary reasons – Decided in favour of Assessee. Controlled transaction with related parties – Held that:- Related party disclosure in Ace Annual Report shows no services are provided to Apex Data Services - Relationship has to be examined as per definition of Associated Enterprises (AEs) as per section 92A of the Act - Apex Data Services is having 7% share capital in Ace Software Exports Ltd. - Even otherwise provisions of section 92A(2)(i) deems two companies as AEs only, if 100% goods are purchased and sold - Though the transactions with related parties cannot be considered for the purpose of comparison, in the present case considering the facts, rejection is not justified – Decided in favour of Assessee. Computation of net margin – Held that:- Segmental financial data is to be considered for the purpose of arriving at the net margin on an international transaction with the assessee's enterprises in respect of transactions carried on by the assessee - segmental data of the company F.I. Sofex Ltd., ought to be considered as comparable if there is normal loss - there is abnormal loss on account of extraordinary reasons, then it is not comparable and to be excluded from comparables – Decided in favour of Assessee. Salary cost as percentage of the total cost is very abnormal - Held that:- The employee's cost to total cost ratio is worked out at 2% as compared to the industry average of 30 to 40% - The assessee's employee's cost to total cost ratio is worked out at 47% - the employee's cost form major cost base in ITES service industries, the low ratio of comparables implies that it would not be providing services by employing its own sources - the assessee is not alike to M/s. Vishal Information Technologies Ltd. Accordingly, M/s. Vishal Information Technologies Ltd., cannot be considered as comparables and it is to be excluded from comparables. Computation of deduction u/s 10A – Reduction of communication expenses - Held that:- Following the decision in ITO v. Sak Soft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] - for the purpose of applying the formula under subsection (4) of section 10B, the freight, telecom charges and insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are numerator and denominator, respectively in the formula – the order of the CIT(A) is upheld. Expenditure pertaining to internet services utilised from VSNL – Payment falls under the category of fees for technical services or not – Failure to deduct TDS – Held that:- In availing such service facility from VSNL, there is involvement of human skill - efforts of technical personnel were involved in availing the said internet connection and the incidental services availed from VSNL - payment made by the assessee to that service provider has to be treated as fees for technical services and hence the assessee was under obligation to deduct tax at source from the same – thus, for non deduction of tax at source, the AO was justified in disallowing the amount u/s. 40(a)(ia) of the Act – Decided against Assessee. Ad-hoc disallowance @ 15% upheld - Rent, electricity charges, communication charges, insurance and foreign exchange loss excluded – Held that:- Though the assessee has clarified about the nature of various expenditure claimed by it, it has not been explained as to why and under which circumstances it could not produce the books of accounts and those bills and vouchers for verification before the AO during the assessment proceedings - the assessee has not produced the books of accounts and bills and vouchers for verification on that date – the action of the CIT(A) in disallowing a part of expenses claimed by the assessee is upheld.
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2014 (9) TMI 134
Validity of block assessment u/s 158BD – Satisfaction note recorded after passing block assessment order u/s 158BC – Held that:- The reasoning and ratio of the Tribunal is contrary to the law as decided in Commissioner of Income Tax-III versus Calcutta Knitwears, Ludhiana [2014 (4) TMI 33 - SUPREME COURT] wherein the relevant provisions of Chapter XIV-B of the Act were considered and it has been held that Section 158BD was a machinery provision inserted in the statute for the purpose of carrying out assessment of persons other than the searched persons - a satisfaction note regarding undisclosed income belonging to another person must be recorded, but the satisfaction note need not be recorded before the block assessment order was passed in the case of the person searched - There was nothing in the language of the provisions, which suggested that the satisfaction note cannot be recorded upon completion of the proceedings u/s 158BC of the Act against the “searched person” - Tribunal was not correct in holding that the block assessment proceedings were barred and invalid because the satisfaction note was not recorded by the AO before he had passed the block assessment order u/s 158BC in the case of the person searched – Decided in favour of revenue.
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2014 (9) TMI 133
Deduction u/s 37 - Guarantee commission paid to State Government – Payment not provided u/s 7 SFC Act – Held that:- The record is not clear as to, for how many years the assessee has borrowed amounts, to create additional capital or whether the State Government had offered guarantee u/s 7 of the SFC Act, and if so, the conditions therefor - It was only from the year 1995 onwards, that the deductions were made in the form of the Guarantee Commission, paid to the State Government for its offering guarantee for repayment of amounts referable to Section 7 of the SFC Act - the fund created under the G.O. stands on a higher footing, and sub-serves a greater purpose, since the entire guarantee commission and not part of it, as contemplated u/s 35A is diverted to this - The objective is to make it available for payment of dividends, if in a given financial year, the Corporation did not post any profits. The Tribunal was guided more, by the manner in which the Guarantee Commission came to be paid - it gained an impression that the then Managing Director of the appellant had volunteered to pay the commission with a view to avoid payment of income tax - This can be blushed aside, if one takes into account, the fact that the amount was brought into the fund through a G.O., to be kept at the exclusive disposal of Corporation for payment of dividends, whenever profits are not posted, a different impression becomes possible – thus, the order disallowing the Guarantee Commission paid to the State Government as allowable deduction is set aside and the amount is deductible u/s 37 – Decided in favour of assessee.
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2014 (9) TMI 132
Deduction of TDS on city compensatory allowance – Interest payable on failure to pay dues – Held that:- The income tax authorities are guided by the provisions of the Act - The Act does not require any amount to be claimed from the assessee merely because he may have admitted the claim which was not contemplated by the statute - The principle is that consent cannot confer jurisdiction - Merely on the basis of consent of the assessee, the claim could not have been lawfully raised - Consent cannot give jurisdiction to the authorities to realise tax which is not payable – Decided against Revenue.
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2014 (9) TMI 131
Deduction on sales tax entitlement from windmill – Sales Tax Entitlement as Capital Receipt or Revenue Receipt - Held that:- Following the decision in M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat [2014 (1) TMI 234 - ITAT AHMEDABAD] - The scheme was framed as a part of Government's initiative to encourage modernization of existing industries in underdeveloped areas - The main purpose of the scheme was to accelerate the industrial development and to disperse industries to under-developed areas as well as to provide additional employment - The scheme was primarily concerned with the modernization of the existing industries - It was not a scheme either for development of new industries in specified areas, or for mere expansion of the existing production capacities of the industries - The main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas - The industries will find it difficult without Government's incentive to undertake large-scale modernization with the use of modern technology.the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to-day functioning of the business, or for making the industry more profitable - The principle aim of the scheme was to cover the capital outlay already made by the assessee in undertaking special modernization of its existing industry – the matter is remitted back for fresh adjudication – Decided in favour of assessee. Deduction u/s 80IA - Profits from electricity generation from wind mill – Held that:- Following the decision in M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat [2014 (1) TMI 234 - ITAT AHMEDABAD] - in all the appeals under consideration the initial year chosen by the assessee for claiming deduction is after 1-4-2000 when the amended provision of section 80IA was applicable - it is a non- obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income - the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year - losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. The Tribunal has not erred in holding that there was no rectification possible u/s 80-I for reasons somewhat different from those which prevailed with the Tribunal - There was no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year – re-computation of income for the purpose of computing permissible deduction u/s 80-I for the new industrial undertaking was not required in the present case - the assessee has not suffered any loss in the year - no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed u/s. 80IA of the Act – Decided in favour of assessee. Various expenses u/s 14A disallowed – Held that:- The assessee received exempt dividend income - The AO was of the opinion that expenditure incurred for earning the exempt dividend income was not allowable to the assessee and the assessee has not disallowed any expenditure towards the earning of the exempted dividend income, he by invoking the provisions of Section 14A computed expenditure attributable to the earning of exempt dividend income under Rule 8D of the Income-tax Rules and made disallowance for interest expenditure and administrative expenses – relying upon Commissioner of Income Tax II Versus Hitachi Home And Life Solutions (I) Ltd. [2013 (7) TMI 359 - GUJARAT HIGH COURT] - no disallowance towards interest expenditure incurred for earning exempt income can be made - disallowance u/s. 14A read with Rule 8D cannot exceed the exempt dividend income - the disallowance of administrative expenses is restricted to being the exempt dividend income earned by the assessee – Decided partly in favour of assessee. Disallowance u/s 40A(2)(a) – Held that:- The AO found that the assessee has purchased tea from outside parties at an average rate of 103.56/kg, whereas tea was purchased from related parties at an average rate of 127.67/kg - the AO added the difference amount paid by the assessee to related parties to the income of the assessee – relying upon M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat [2014 (1) TMI 234 - ITAT AHMEDABAD] - Decided against Revenue. Amount paid to sister concern disallowed u/s 40A(2)(b) – Held that:- Following the decision in M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat [2014 (1) TMI 234 - ITAT AHMEDABAD] - by comparing weekly average the CIT(A) found that the average price of the assessee from its associate concerns were lower than the average price of purchase from others - no material was brought on record by the Revenue to rebut the contention of the assessee that the tea which the assessee purchased from its sister concerns were in turn purchased by those sister concerns in auction from un-related parties and the price at which similar concerns sold those tea to the assessee were merely 2% higher than the auctioned price and the difference of 2% also includes actual expenses which sister concerns had to incur in the transactions - the disallowance was made on a wrong footing - the disallowance u/s 40(A)(2)(b) of the Act in its entirety – Decided in favour of assessee.
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2014 (9) TMI 130
Assessment u/s 153A - Preliminary expenses disallowed – Interest u/s 36(1)(iii) disallowed - No incrementing material found - Held that:- No incrementing document was found during the search operation with regard to preliminary expenses - such addition/disallowances could not have been made in the assessments finalized as a result of search u/s 143(3)/153A of the Act - there is nothing clear either from the assessment order of the AO or from the order of the CIT(A) with regard to the nature of the preliminarily expenses - It is also not clear whether such expenses were allowable at all – True nature of transaction regarding interest u/s 36(1)(iii) was not ascertained by authorities below - The true nature of transaction and legal contentions has not been considered by the authorities below - thus, the matter is to be remitted back to the AO for fresh adjudication. Gain on FCCb due to repayment – Held that:- Held that:- The issue was raised first time by the CIT(A) - the time period before the CIT(A) was too short to thrash out the new issue in detail - several factual and legal issues have not been dealt in detail by the CIT(A) - there was inadequate opportunity to the assessee at the level of the CIT(A) for making the enhancements of income – thus, the matter is to be remitted back to the AO for fresh adjudication. Addition of bogus purchases disallowed - Held that:- CIT(A) has made certain observations while confirming the disallowance which were not confronted with the assessee - CIT(A) has not made anything clear with regard to the names of the suppliers whose premises were covered in search operation - What evidences were gathered with regard to the accommodation entries is also not clear - The issue regarding the non-substantiating the purchases by the sister concerns was never confronted to the assessee – thus, the matter is to be remitted back to the AO for fresh adjudication. Deduction u/s 80IB - profit derived from Jammu Unit – Opportunity of being heard not provided - Held that:- The issue was decided without providing adequate opportunity of being heard to the assessee - adverse observations were also not confronted with the assessee – thus, the matter is to be remitted back to the AO for fresh adjudication. Deduction u/s 80IA – suppression of profit on purchase and sale - Held that:- Although the disallowance was made by the AO for claim of deduction u/s 80IA - the CIT(A) has sought compressive details/information from the assessee - the time period of hearing before the CIT(A) was just over three months which was not adequate having regard to the complex nature of the business of the assessee and geographical scattered branches of the assessee from where the assessee was required the details to be submitted before the CIT(A) - in such a short period the required/asked details could not have been collected by the assessee to comply the query raised by CIT(A) - Certain requirements of confronting the assessee were not specifically met by the CIT(A) by giving specific opportunity on these issues - for making a huge addition for not allowing deduction u/s 80IA of the Act, which was allowed in some of the assessment years while framing the assessment u/s 143(3) of the Act a detailed and adequate opportunity needs to be provided to the assessee – the matter is required to be remitted back to the AO for fresh adjudication. Suppression of profit by making transactions of purchases and sales – Held that:- Assessee contended that no incrementing material found during the course of search hence no disallowance is to be made while framing the assessment u/s 143 (3)/153A of the Act - no adequate opportunity was given by the AO – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee.
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2014 (9) TMI 129
Sale of TDR rights – business income or income from other sources - Held that:- The TDRs have not been recognized as capital asset in the books of account of the assessee - the treatment given by the assessee in the books of accounts when TDRs were sold clearly show that the same were considered as business asset of the assessee - The other circumstances brought out by the AO in the order of assessment, that income on sale of TDRs was in the normal course of business and had to be considered as income from business - the assessee is not in the business of dealing in TDRs and therefore income from sale of TDRs cannot be regarded as income from business - the property was treated as business asset and on its transfer, the assessee derived TDRs - When such TDRs were sold, it cannot be said that the sale proceeds of TDRs are not income from business - the TDRs have a direct nexus with the business of the assessee and cannot be treated as any other source of income – Decided against assessee. Reimbursement of interest free refundable deposit payable under the principal lease deed – Details not furnished - Held that:- The non-resident was an architect and engaged by the assessee for the purpose of carrying out the architectural study for development of the property obtained on lease - A payment equivalent to US $ 10,000 was allowed by the AO as there was a supporting invoice from the non-resident - the assessee made three payments to the non-resident of US $ 10,000, US $ 7500 and US $ 10,000 as second, third and fourth instalments - While making remittances of these payments to the non-resident, the assessee did not deduct tax at source and in this regard filed a certificate of CA for non- deduction of tax at source - the fact that the payment was second, third and fourth instalment has been duly recorded - the payment was for architectural fee and had to be allowed as a deduction to the assessee - the assessee be allowed a further deduction as expenditure in the matter of determination of income from such lease of the property – Decided in favour of assessee.
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2014 (9) TMI 128
Deduction u/s 10A - Application of section 80IA(10) - claim excess deduction showing excessive (extra ordinary) profit - revenue arising from its oversees Associated Enterprises (AEs) - Whether sec. 80IA(10) applies when the second party to the transaction is a non-resident – Held that:- Plain reading of sub-sec.(10) of sec. 80IA makes it explicit that the AO of the assessee having eligible business is empowered to scale down the profits where it appears to him that owing to the close connection between the assessee carrying on eligible business and ‘any other person’, the course of business is so arranged that the business transacted between them produces to the assessee more than the ordinary profits, which might be expected to arise in such eligible business - there should be shifting of profits from one taxable entity in India to another taxable entity in India, as a pre-condition for invoking sub-section (10) - There is no such stipulation in the provision that the increase in the profits of the assessee having eligible business must correspond with the decrease in the taxable profits in India of the person carrying noneligible business - This provision is simply concerned with the increase in the profits of the assessee having eligible business - To argue that unless there is corresponding decrease in the profits of the other assessee, also a resident of India, the mandate of sub-sec. (10) is not activated, is akin to reading more than the actual content of the provision, which is obviously impermissible - section 80IA(10) applies notwithstanding the fact that the other related person is resident or non-resident. Whether it should be an arranged course of business between the related persons to produce more than ordinary profits – Held that:- It is only when the existence of` ‘arrangement’ is proved in this manner that the provisions of sub-section (10) can be employed to reduce the extraordinary profits resulting from such lower payments or excess recoveries to/from the related person - the higher profit shown by the eligible assessee is the end point of the exercise to be undertaken by the AO in this regard, starting with expressly showing as to how the transactions were specifically arranged to produce more than ordinary profits to the assessee carrying on the eligible business - The mere higher profit earned by such eligible assessee can be no reason to conclude that the assessee transacted in such an `arranged’ manner with its related persons so as to produce more profits to it - At the cost of repetition, the higher profit should be the ‘effect’ of an ‘arrangement’ and cannot be a substitute of such ‘arrangement’ itself, which is a ‘cause’ for invoking sub-section (10) of section 80IA - the AO has simply treated high profit earned by the assessee as a reason to summon sub-section (10), without even remotely demonstrating the existence of any ‘arrangement’ between the assessee and its AEs aimed at producing extra ordinary profits in the hands of the assessee. Effect of insertion of proviso to sub-section (10) w.e.f. 1.4.2013 – Held that:- The AO simply relied on the TP study report submitted by the assessee to form a bedrock for the disallowance of the part of the amount of deduction u/s 10A, without firstly showing that there existed any arrangement between the assessee and its overseas related party, by which the transactions were so arranged as to produce more than the ordinary profits in the hands of the assessee - The assessment year under consideration is 2009-10 - Neither the proviso to sub-section (10) existed at that time, nor such a proviso can be applied as we are dealing with an international transaction and not specified domestic transaction - Under these circumstances, the order upholding the invocation of sub-sec. (10) of sec. 80IA cannot be countenanced to this extent - it is held that the CIT(A) erred in sustaining the disallowance made by the AO by restricting the amount of deduction u/s 10A of the Act as claimed by the assessee – the deduction is allowed to be claimed - Decided partly in favour of assessee.
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2014 (9) TMI 127
Power of DRP to delegate its power to the AO - Taxability of income from contract business in India – Violation of section 144C(8) – Held that:- The maxim of delegatus non potest delegare would be squarely applicable, which envisages that when a power has been conferred upon a person, then he must exercise that power alone, unless expressly empowered to delegate it to another - when the statute prescribes a particular body or authority to exercise power, then it must be exercised by that body or authority alone - The provisions of statute, as contained in sub-section (8) of section 144C, clearly prohibits the DRP to delegate its power to the AO i.e., to set aside the variation or issue any direction to carry out any further enquiry by the AO - there is a clear cut violation of section 144C(8) by the DRP- there is a further violation by the AO in the final assessment order, as he went step further in interpreting the direction of the DRP, by carrying out further enquiry and recording the statement of project manager, Shri K.G. Ramesh - right from the stage of issuance of the direction by the DRP to the stage of passing of the final assessment order, there has been a gross violation of statutory provisions and the powers given therein - the DRP is a quasi-judicial authority and, therefore, while dealing with the lis it is obliged to ascribe cogent and germane reasons as to why the assessee's objections are not maintainable and there should be absolutely clarity on the directions to the AO, because the law does not envisage for providing further opportunity to the assessee at the stage of passing of final assessment order - the order / direction of the DRP, as a whole, is not in consonance with sub-sec. (5) r/w sub-sec. (8) of section 144C. If an authority has not carried out the function or exercised power, as provided in the statute or it has transgressed the statutory power, then it amounts to gross irregularity of exercising of power and such an irregularity is not fatal, so as to declare the entire proceedings as null and void resulting into quashing of the entire order - A distinction has to be made between illegal assumption of jurisdiction provided in the statute and irregular exercise of statutory power - If a jurisdiction is to be assumed under a statute by a particular authority to act or to initiate action or there is an issue of limitation within which certain action is to be taken or an order is to be passed, then any violation of such a statutory provisions or assumption of jurisdiction or taking any action after the period of limitation, is an illegal exercise of statutory function or provision, which cannot be obliterated or cured and such an action has to be quashed at the threshold. Insofar as the issue of P.E. is concerned, they have expressed their opinion, however, they have ultimately left to the AO to decide the issue after taking into consideration various evidences filed by the assessee - instead of deciding or clearly adjudicating the issue, the matter has been delegated to the AO which should not have been done – relying upon M/s. Vodafone India Service Pvt. Ltd. (formerly known as 3 Global Services Pvt. Ltd.) Versus Union of India, Ministry of Finance, Addl. Commissioner of Income-tax, Asst. Commissioner of Income-tax [2013 (9) TMI 680 - BOMBAY HIGH COURT] - the TPO's lack of jurisdiction to proceed with the issue which were not in the realm of international transaction as per objections of the assessee, would not render the entire proceedings as void – thus, the matter is to be remitted back to the DRP for consideration – Decided in favour of assessee.
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2014 (9) TMI 126
Transfer pricing adjustment - Selection of comparables - Infosys B P O Ltd. – Huge difference in turnover - Held that:- The contentions of the comparability on turnover ratio of assessee with this company on the ground that assessee’s turnover is about ₹ 42.06 crores, as against turnover of ₹ 1016 crores of the Infosys is accepted - other contentions with regard to the brand value and brand building exercise, having huge asset base, can be considered to arrive at the conclusion that Infosys BPO is functionally not similar to that of assessee - Infosys BPO stands on its own as an exclusive BPO of the Infosys Technologies and in earlier years, generally Infosys BPO is excluded in many of the cases. Considering these aspects, we are of the opinion that even though the profits of the Infosys BPO Ltd. is reasonable and no super profits are earned, because of its big brand value this company has to be excluded on the grounds of functional dissimilarity on FAR Analysis – the AO is directed to exclude this company. Genesys International Ltd. – Eclerx Services Ltd. - Functionally different unit – Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - geospatial services means the services relating to the relative position of things on the earth’s surface - These basically include 3D mapping, Navigation maps, Image processing, Cadastral mapping, etc. If we take into account the nature of services provided by the assessee, being financial and retirement security, health, productivity of employees and employment relationships and then try to compare them with those rendered by Genesys, it is manifested that both are totally incomparable - there is a vast difference which make one quite distinct from the other - In view of such functional incomparability between assessee and Genesys, this company cannot be treated as comparable – Eclerx Services is involved in diverse nature of services, and there was no segmental data for diversified service port folio - the company can be considered as KPO and we are of the opinion that this company is not comparable to assessee’s services - the AO is directed to exclude this company. Cosmic Global Ltd. – Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - Outsourcing charges constitute 57.31% of the total operating costs - The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore - If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO - this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment – the AO is directed to exclude this company. Acropetal Technologies Ltd. - R&D activity and developing sophisticated delivery system – Held that:- The company is involved in engineering design services and has products also, which makes it functionally not comparable - Even at the segmental level, it provides engineering design services, which was considered as high end – relying upon Hyundai Motors India Engineering P. Ltd. Versus The ITO, Ward 2(2), Hyderabad [2014 (3) TMI 680 - ITAT HYDERABAD] – the AO is directed to exclude this company. Accentia Technologies Limited. – different business strategies – Held that:- This company operates in a different business strategy of acquiring companies for inorganic growth as its strategy - on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded - the acquisition of some companies by that company may have impact on the profit – relying upon M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - the AO is directed to exclude this company. Crossdomain solutions P. Ltd. – Held that:- The Annual Report and most of the Revenue of this company is from services only - Company is in the pay roll service activity - the company is functionally similar to the activities of the assessee company which is in the ITES field – exclusion of this company on the basis of functional dissimilarity cannot be granted - the AO/TPO is directed to examine the variation in Revenue between the information in Annual Report and the figures adopted by the TPO. Exclusion of internet expenses from the export turnover – Computation of deduction u/s 10A – Held that:- Following the decision in The Commissioner of Income Tax Versus M/s. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - communication charges, though have to be excluded from the export turnover for the purpose of computing deduction u/s 10A of the Act, it should also be excluded from the total turnover - the AO is directed to compute the deduction u/s 10A, after reducing the communication expenses both from the export turnover as well as total turnover – Decided partly in favour of Assessee. Setting off of brought forward business losses – Held that:- Following the decision in Assistant Commissioner Of Income-tax, Circle - 4, Ahmedabad. Versus Goldmine Shares And Finance (P.) Limited [2008 (4) TMI 405 - ITAT AHMEDABAD] - if brought forward losses pertains to the undertaking which was claiming the deduction u/s 10A, even if they are set off against other income in respective years, the same should be notionally set off against the income of this year - the AO is directed to give an opportunity to the assessee and examine the brought forward losses issue, and then make the disallowance, if any – Decided partly in favour of Assessee.
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2014 (9) TMI 125
Transfer pricing adjustment – selection of comparables - Infosys B P O Ltd. – Held that:- The contentions cannot be accepted that the comparability on turnover ratio of assessee with this company on the ground that assessee’s turnover is about ₹ 129.8 crores, which as against turnover of ₹ 1016 crores of the Infosys - the brand value and brand building exercise, having huge asset base, can be considered to arrive at the conclusion that Infosys is functionally not similar to that of assessee - Infosys BPO stands on its own as an exclusive BPO of the Infosys Technologies and in earlier years, generally Infosys BPO is excluded in many of the cases - even though the profits of the Infosys BPO Ltd. is reasonable and no super profits are earned, just because of its big brand value, this company has to be excluded on the grounds of functional dissimilarity on FAR Analysis. Genesys International Ltd. – Functionally different unit - Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective clients - the mere fact that two services are placed under this category do not become automatically comparable - If a case providing one category of services under ITES is claimed as comparable with another in the category of service under ITES as per this circular, then it must be shown ex facie that it is broadly similar - the services rendered by Genesys fall under clause (vi) with the heading ‘Geographical Information Systems Services’, whereas those rendered by the assessee fall partly under clause (vii) with the heading ‘Human Resources Services’ and partly under clause (xi) with the heading ‘Payroll’ - there is a vast difference which make one quite distinct from the other - there is vast difference between the functions of the above company and that of assessee - This company cannot be treated as comparable on FAR analysis – the AO was directed to exclude this company. Cosmic Global Ltd. – Outsourcing of main activity - Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] – Outsourcing charges constitute 57.31% of the total operating costs - The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore - If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO - this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment – the AO is directed to exclude this company. Accentia Technologies Limited. – different business strategies – Held that:- This company operates in a different business strategy of acquiring companies for inorganic growth as its strategy - on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded - the acquisition of some companies by that company may have impact on the profit – relying upon M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - the AO is directed to exclude this company. Allsec Technologies Limited – Held that:- The exclusion has been done by increasing the limit in filter to 75% as against 25% applied by the assessee because the percentage was 74.45%. If the actual ratio in this case had been more than 75%, and the Revenue hell bent on excluding this case, then it would have resorted to increasing the ceiling in the filter to 80% or still more so as to ensure that it remains outside the limit set by it – it cannot be excluded for such a minuscule difference if it is otherwise comparable - this company should be included as a comparable. Contribution to the Gratuity Fund maintained with LIC – Held that:- Following the decision in Commissioner of Income Tax, Coimbatore Versus M/s Textool Co. Ltd. [2009 (9) TMI 66 - SUPREME COURT] - the DRP has allowed the claim of the assessee, as the issue is crystallized in favour of the assessee – Decided against Revenue.
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2014 (9) TMI 124
LTCG on sale of agricultural land – Land constitute capital asset as defined u/s. 2(14) or not - Held that:- The CIT(A) was of the opinion that the report cannot be given credence since the factual position reported pertains to the year 2013 and not before 5 years i.e., 2006 which is the year in which the assessee sold the land - CIT(A) observed that the AO did not given any opportunity to the assessee to rebut the contents of the report and cross examine the authorities who has received the report – relying upon CIT vs. Sashiben [2006 (7) TMI 105 - GUJARAT HIGH COURT] - the fact of non-agricultural use by the buyer will not alter the character of land in the case of seller. Determination of sale consideration – Held that:- The lands sold by the assessee are agricultural lands and the assessee satisfied most of the tests which are laid down in Sarifabibi Mohmed Ibrahim And Others Versus Commissioner of Income-Tax [1993 (9) TMI 10 - SUPREME Court] - the CIT(A) has observed that the AO had not given opportunity to the assessee to rebut the contents of the report called for from the MRO, Ghatkesar Mandal on 28.1.2013 - no opportunity of cross examination of the authorities who had issued the report was given to the assessee - CIT(A) was constrained in giving a direction to the AO inasmuch as many years have lapsed from the time the transaction taken place which was in the year 2006-07 and also the case was heard by the CIT(A) which was on 4.10.2013 - giving the benefit of doubt to the assessee, the MRO, Ghatkesar had given a report evidencing the correct status of the land wherein he has mentioned that agriculture operations were being carried on the land - the lands sold by the assessee are agricultural lands, and the CIT(A) has rightly allowed the assessee's appeal – Decided against Revenue.
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2014 (9) TMI 123
Transfer pricing adjustment – selection of comaparables - Infosys BPO Ltd. – Huge difference in turnover – Held that:- The contention of the assessee is accepted that the comparability on turnover ratio of assessee with this company on the ground that assessee’s turnover is about ₹ 15.79 crores, as against turnover of ₹ 1016 crores of the Infosys - Infosys BPO stands on its own as an exclusive BPO of the Infosys Technologies and in earlier years, generally Infosys BPO is excluded in many of the cases - even though the profits of the Infosys BPO Ltd. is reasonable and no super profits are earned, because of its big brand value this company has to be excluded on the grounds of functional dissimilarity on FAR Analysis – the AO is directed to exclude the company – Decided in favour of Assessee. Genesys International Ltd. - Functionally different unit - Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective clients - the mere fact that two services are placed under this category do not become automatically comparable - If a case providing one category of services under ITES is claimed as comparable with another in the category of service under ITES as per this circular, then it must be shown ex facie that it is broadly similar - the services rendered by Genesys fall under clause (vi) with the heading ‘Geographical Information Systems Services’, whereas those rendered by the assessee fall partly under clause (vii) with the heading ‘Human Resources Services’ and partly under clause (xi) with the heading ‘Payroll’ - there is a vast difference which make one quite distinct from the other - there is vast difference between the functions of the above company and that of assessee - This company cannot be treated as comparable on FAR analysis – the AO was directed to AO to exclude this company. Cosmic Global Ltd. – Outsourcing of main activity - Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - Outsourcing charges constitute 57.31% of the total operating costs - The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore - If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO - this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment – the AO is directed to exclude this company. Acropetal Technologies Ltd. – Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - the major source of income for the company is from providing Engineering Design Service and Information Technology Services - The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee - The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions – the company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO] – the company is functionally similar at segment level - the issue of adopting the segmental results in analyzing the profit and PLI is restored to TPO/AO for fresh examination. Accentia Technologies Limited. – Different business strategies - Held that:- This company operates in a different business strategy of acquiring companies for inorganic growth as its strategy - considering the profit margins of the company and insufficient segmental data, this company cannot be selected as a comparable – the AO is directed to exclude the company as comparable. Crossdomain solutions P. Ltd. – Functionally similar - Held that:- The company is functionally similar to the activities of the assessee company which is in the ITES field - this company cannot be excluded on the basis of functional dissimilarity, as contended by the assessee - The AO /TPO is directed to work out the PLI after giving proper opportunity to the assessee and considering the objections of the assessee – Decided partly in favour of assessee.
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2014 (9) TMI 122
Deduction u/s 80IB(10) – Profits arising from construction of buildings – Held that:- The completion certificate was applied for before 31-3-2008 i.e. on 12-3-2008 - the application of the assessee has been approved by the local authority without raising any amendment or objection, as has been asserted by the assessee all along and the delayed issuance of the completion certificate by the local authority on 5-5-2008, albeit after the mandated date of 31- 3-2008 cannot be attributed to the assessee - the assessee has complied with the condition of completing the construction of the project within the mandated date of 31-3-2008 even with regard to building 'E' - the order of the CIT(A) denying the benefit of deduction u/s.80IB(10) for non-receipt of completion certificate is set-aside – Decided in favour of Assessee. Deduction u/s 80IB(10) - Building Nos. B and F not constructed – Held that:- The buildings A, C, D, E and the 17 row houses are constructed on a plot area of more than 1 acre, none of the flats/row houses is beyond 1500 sq.ft. and the completion thereof has been over before 31-03-2008 – relying upon M/s. Rahul construction Co. Vs. ITO [2012 (6) TMI 319 - ITAT PUNE] - whatever portion completed by the assessee which satisfies the conditions prescribed u/s.80IB(10) is eligible for deduction - the assessee is eligible for deduction u/s.80IB(10) in respect of building No. A,C,D, E and the 17 row houses – Decided in favour of assessee. Once it has been held that the assessee is entitled to claim deduction u/s.80IB(10) of the Act with regard to buildings 'A to F' which were completed before prescribed limit of time and complied all conditions laid down under the provisions of section 80IB(10) of the Act - The assessee's claim for deduction will not be effected even if the assessee has not constructed buildings G & I because the assessee claim u/s.80IB(10) of the Act is justified in respect of Buildings 'A to F' on standalone basis. The buildings J & H were retained by partners of the assessee and no question of claim u/s.80IB(10) of the Act arises - The claim of the assessee in respect of building cannot be denied in respect of buildings 'A to F' irrespective of the fact that area of buildings / Bungalows J & H exceeded 1500 sq. ft. in respect to which, no claim has been made - the assessee is entitled for deduction u/s 80IB(10) of the Act in respect of profits arising from construction of buildings 'A to F' for A.Y. 2006-07 which constituted separate independent project – Decided in favour of assessee. Comparability of profitability between different projects – Held that:- It was only in this assessment year that the gross profit rate appears to be much different, but it has been explained by various factors by the assessee - The indirect expenses which have been allocated in the Shivanand Garden Project is now reduced - The reallocation, which results in a reduction in expenditure in the Shivanand Garden Project, has resulted in enhancement of the profit – thus, the addition in respect of the profits of the Shivanand Garden Project is sustained and the remaining was deleted – Decided against Revenue.
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2014 (9) TMI 121
Addition u/s 40(a)(ia) - Non deduction of TDS u/s.194C - Payments made to labour contractors for casual labor through single voucher - Held that:- The CIT(A) was rightly of the view that the labourers employed by the appellant come from remote areas who normally do have bank accounts - under such circumstances, payments have to be made in cash – assessee on being asked has submitted some affidavits specifying that payments have been received by those persons on behalf of and for their family members or relatives or acquaintances who have together worked at various sites of the appellant on a daily wage basis - a site record was maintained by the site supervisor and payments were largely made to the head of the family or a gangman who received money on behalf of several persons known to them being their family members or friends or relatives - It would have been impractical for the assessee to prepare individual vouchers for several labourers - only one voucher was prepared, the payment appeared to have exceed ₹ 50,000/- for every person but on an individual basis, the same would not exceed ₹ 50,000/- per person - the payments were made to casual labourers who were working for the appellant on daily wages - They were not regular employees of the assessee but worked under a direct supervision and control of the assessee - the CIT(A) was justified in holding that the provisions of section 40(a)(ia) will not be applicable in this case also - It is purely incidental that both Shri Nalawade and the assessee were road contractors - there was no justification for invoking the provisions of section 40(a)(ia) - order of CIT(A) needs no interference who has allowed the appeals of assessee by reasoned order – Decided against Revenue. Excessive labour charges added – Held that:- The assessee did not file an appeal against the decision of the CIT(A) for A.Y. 2002-03 - following the order of the CIT(A) delivered in the earlier assessment year, the claim of the assessee is restricted to 0.8% of the total expenses, which worked out to ₹ 2,12,045 - the assessee's counsel argued that the CIT(A) was not justified in confirming the adhoc disallowance of labour payment at ₹ 2,12,045/- @ 0.8% - The disallowance is on purely adhoc basis and without challenging a genuineness of expenditure and it cannot be sustained - the assessee has not chosen to file an appeal to the higher forum on the similar issue for AY 2003-03, it is inferred that the assessee in principle accepted the addition at the rate of 0.8 % - There are no changes in facts for this year under consideration - the order of the CIT(A) is rightly upheld in restricting the disallowance of labour payment @ 0.8% which works out to ₹ 2,12,045/- for this year – Decided against Revenue. Undervaluation of immovable property – Held that:- CIT(A) rightly observed that there appears to be a discrepancy in the statement made in the assessment order and in appellate proceedings and in the narration in the computation of income against the amount of ₹ 5,83,000 - It is not clear from the computation of income whether this pertains to an income on account of under valuation declared under section 132(4) or it pertains to some other income - The AO is directed to verify the head under which this income was offered for taxation in the AY 2007-08 - If he finds that it pertains to the agreed addition of ₹ 5,83,000/- which has been held to be taxable in assessment year 2006-07 then, he shall delete the addition in assessment year 2007-08 - same income cannot be taxed twice in different AYs - an income has to be taxed in the year in which it accrued and arises and not otherwise – Decided against Revenue.
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2014 (9) TMI 120
Notice for reopening of assessment u/s 147 r.w section 148 – True and full disclosure - Held that:- The AO issued notice u/s.148 on 27-03-2012 which is after a period of 4 years from the end of the relevant AY - From the reasons recorded u/s.148 which have already been reproduced, there is no allegation by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment - In the computation statement the assessee has clearly reflected the amount of short term capital gain on sale of equity shares and fund from 01-04-2004 to 30-09-2004 - he has also disclosed short term capital gain on sale of debt funds - The brought forward loss of AY 2004-05 which has been set off against the short term capital gain on sale of equity shares/funds and short term capital profit on sale of debt funds are clearly reflected in the computation statement – when there was no allegation by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment has held the reopening of the assessment as void ab-initio - there is no allegation by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment – thus, the reassessment proceedings are held as void - Decided against Revenue.
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2014 (9) TMI 119
Expenses on abandoned project – capital or revenue in nature - expenditure was incurred by the assessee for the purpose of construction/erection of cellular towers which were abondoned due to the reason that the same were not found suitable - Held that:- the towers were being erected for the purpose of assessee's own business of providing cellular services to its customers - when the towers are not exclusively meant for leasing out to third parties for earning the revenue but used for transmission of telephone signals of assessee's own cellular services then it cannot be said that the towers which are used for the assessee's own business are new source of income - A cellular tower can be a new independent source of income if it is erected exclusively for leasing out to the other operators - to examine the allowability of such expenditure u/s 37(1), the only requirement which has to be seen is that the expenditure is of revenue nature and not capital nature – relying upon CIT Vs. Tata Robins Fraser Ltd [2012 (10) TMI 59 - JHARKHAND HIGH COURT] - the expenditure has been incurred for the project which could not be accomplished and it was intended to facilitate the assessee's business activity to be carried out more conveniently and profitably, the expenditure is an allowable revenue expenditure – Decided in favour of assesssee. Claim u/s 35ABB disallowed – Amortization of license fee - Held that:- The assessee has claimed the amortization of license fee relating to the TATA Cellular Ltd only for post amalgamation period of three months w.e.f 1.1.2000 to 31st March 2001, however during the course of assessment proceedings the assessee made a claim for the entire year u/s 35ABB for the license fee paid in respect of the TATA Cellular Ltd amalgamated with the assessee - The restriction on the jurisdiction for entertaining a fresh claim otherwise than a revised return is applicable only of the AO and not of the appellate authorities – relying upon National Thermal Power Corporation Ltd. Vs. CIT [1996 (12) TMI 7 - SUPREME Court] - there is no bar in entertaining the present claim in question by the CIT(A) even without filing the revised return - the provisions of section 35ABB(6) permits such claim only in the hands of the amalgamated company and not in the hands of the amalgamating company - Sub-section (6) makes it clear that in a scheme of amalgamation if the amalgamating company sales or transfer the license to the amalgamated company then license fee paid for the entire year is eligible for amortization u/s 35ABB only in the hands of amalgamated company - the claim of amortization of license fee relating to Tata Cellular Ltd merged with assessee for entire year u/s 35ABB – Decided in favour of assessee. License fee u/s 37(1) – Held that:- So far as the admissibility of the fresh claim first time before the appellate authority is concerned, the SC in National Thermal Power Corporation Ltd. Vs. CIT [1996 (12) TMI 7 - SUPREME Court] has dealt with the issue when it is found that non taxable item is taxed or a permissible deduction is denied, there was no reason as to why the assessee should be prevented from raising that question before the Tribunal first time so long as relevant facts are on record in respect of that item - when a claim which is otherwise allowable /permissible but was not allowed as the assessee did not claim the same in the return of income, there is nothing under law to prevent the assessee to raise the claim before the appellate authorities if the facts relating to new claim are already on record and do not require any investigation –Decided in favour of assessee. Foreign exchange loss disallowed – Principle amount not utilized for acquisition of capital assets – Held that:- As decided in assessee’s own case it has been held that, the CIT(A) was justified in coming to the conclusion that the exchange loss claimed by the assessee in P&L Account relates to loan availed for the purpose of meeting revenue expenditure - when the revenue is consistently allowing the claim of the assessee or taxing the gain arising from the foreign exchange fluctuation as income of the assessee for all three assessment years prior to the assessment year under consideration and four subsequent assessment years, there was no reason to interfere with the order of CIT(A) in allowing the claim of the assessee - Decided against revenue.
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2014 (9) TMI 118
Delay in depositing employee’s contribution to Provident Fund/ESIC - Addition u/s 36(1)(va) – Held that:- The provisions dealing with late payment of the employees’ contribution and employer’s contribution towards certain funds are not same – in The Commissioner of Income Tax Versus M/s Kichha Sugar Company Ltd. [2013 (6) TMI 98 - UTTARAKHAND HIGH COURT] it has been held that due date mentioned in 36(1)(va)is the due date mentioned in section 43B(b) of the Act - If the legislature in its wisdom thought it fit to introduce amendment in section 43B and to leave the provisions of section 36(1)(va) intact then we have to follow its decision and intention - Allowing an assessee to keep the employees’ contribution beyond grace period envisaged in the respective Acts would result in undue enrichment of that assessee - once the contribution from the employees’ is received by an assessee, it becomes custodian of the contribution and it has no right to keep it beyond due date or to use it - there is no ambiguity in the language of sections 2(24) (x)and 36(1)(v)of the Act - It is the assessee, who wants to bring ambiguity in these sections by importing the language of section 43B - there is no confusion or ambiguity in the definition of income as envisaged by the section 2(24)(x)of the Act nor there can be any difference of opinion about the provisions of section 36(1)(v). - Decided against the assessee. Payment of technical-service fees – Capital expenses or not – Held that:- The agreement with HAL and DIL were entered in to by the assessee in the year 2000 and 1995 respectively for the first time - Agreements with HAL provided that the assessee would not sell directly the trolley to any other party in or out India during the currency of the agreement, that HAL might give licence to the assessee to use the know how to manufacture Trolley for export, that it was in application up to July, 2005, that it would treat the design, reports, processes, drawings, specialisation and technical information pertaining to manufacture of trolley as confidential and would not divulge to any third party without prior permission of HAL - the assessee was allowed to use know-how and technology only and it could not part with the knowledge without the permission of HAL - The assessee was barred from disclosing information with third party - it cannot be held that expenditure incurred by it towards payment to the two companies was of capital nature, as assessee had not acquired a thing that resulted in providing enduring benefits - the provisions of section 32(1)(ii) of the Act were applicable from 01.04.1998 and the agreements were entered in to before first day of April, 1998 – invocation of the provisions by the AO cannot be held to be justified - in the case of KCL agreement was for providing consultancy to the assessee at a fix rate for a specified time - expenditure incurred by the assessee towards payment to KCL was of revenue nature – Decided in favour of assessee. Computation of deduction u/s 80HHC – Computation of profit of business instead of returned income – Held that:- Assessee had raised a specific issue about deduction to be computed u/s. 80HHC, but it was not adjudicated by him - AO had erred in working out the deduction u/s 80HHC by considering the returned income instead of the assessed income for the purpose of computing the profits of the business - FAA had not decided the issue, though he had deliberated upon the other issues related with computation of 80HHC deduction – thus, the matter is to be remitted back to the FAA for fresh adjudication – Decided in favour of Assessee.
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2014 (9) TMI 117
Transfer pricing Adjustment - determination of ALP u/s 92CA(6) - reduction of Project Management Cost – discounting factors - Held that:- The assessee had determined its ALP by reducing its gross margin ratio on cost of production from 69.65% to 6.97% by loading discounting factors with respect to long term contract 20.90%, technology transfer 10.45%, Project Management Cost 27.86% & Credit and Credit Risks 3.48% - TPO rejected these factors however, accepted the project management cost factor at 14.14% - In arriving at 14.14% discounting factors on project management cost, the TPO accepted the same method adopted by the assessee however, shifted the computation by adopting total value of sales of unrelated party with the related parties - This stand of the TPO with respect to the discounting factors on project management cost is reasonable, because when the discounting factors are considered for transactions with unrelated party, then the data with respect to unrelated party are to be taken into account for arriving at the discounting factors - TPO had further rejected the discounting factors with respect to credit risks because the same was considered for arriving at the discount factors with respect to project management cost - TPO had not duly considered the discounting factors with respect to long term contract and technology transfers, which was adopted by the assessee at 20.90% & 10.45% respectively. There was no merit in the order of the CIT (A), there were no discussions on the computation made by the appellant or by the TPO in his order - the discounting factors adopted considered by the assessee appears to be relevant, computations with respect to the aforesaid discounting factors are not explained and they also do not emerge from the orders of the Revenue or from the submissions and paper book submitted by the assessee - AO to adapt the discounting factor of 15% for long term contract, and 6% for technology transfer being 70% & 60% approximately as that was accepted by the assessee – the AO is directed to arrive at the ALP based on the acceptable discount factors as given in the table – the method of computation to be adopted for determining the ALP modified, and also uphold the inclusion of the salary paid to technical persons by the appellant in computing the direct cost – Decided partly in favour of revenue.
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2014 (9) TMI 116
Unexplained, unverifiable and undisclosed income u/s 68 – Held that:- How the information has been initially blocked and thereafter made available only as a result of the appeal before the CIC there can be no two opinions that justice has not been done - The actions of the AO in mis-recording suppressing and thereafter obstructing necessary flow of information namely receipt of reply received by a director does not speak well of the manner in which the proceedings have been conducted –there was no reason to believe that the reply has not been followed up with appropriate action however the fact remains that in the facts of the present case justice has not been done - The tax collecting authority is presumed to act fairly and transparently while exercising its quasi-judicial powers. Though numerous arguments on facts have been raised by the assessee in regard to statement of unconcerned persons relied upon in regard to the functioning of the assessee from a specific place and ignoring the statements of concerned persons furnished in response to information sough u/s 133(6) or in regard to the legal consequences qua the genuineness of empowering a specific person to operate the bank accounts on behalf of the Directors – revenue has relying on the order mainly confined himself to stating that he has no objection if the issue is restored - it is not appropriate to address the arguments at any stage any view expressed now would pre-decide the issue wherein both sides have not advanced their argument - it is appropriate to set aside the order and the matter id remitted back to the AO for fresh adjudication – Decided in favour of Assessee.
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Customs
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2014 (9) TMI 145
Claim of Brand Rate of drawback under Rule 7 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, after having availed of the All Industry Rate of drawback under Rule 3. - claim the differential amount - Held that:- we do not find that there is any prohibition set out in the Drawback Rules which debars an exporter from seeking determination of the Brand Rate of drawback under Rule 7, merely because at the time of export, he had already claimed the All Industry Rate of drawback under Rule 3. In fact, to our mind, the Rules seem to suggest otherwise - if the rate of drawback as determined under Rule 3 is more than 4/5th (80%) of the duties or taxes paid on the inputs/input services used, then the application made under Rule 7(1) would have to be rejected. The manufacturer or exporter is not barred from seeking a determination of the Brand Rate of drawback under Rule 7 merely because, at the time of export, he had applied for and granted drawback at the All Industry Rate as determined under Rule 3. - Decided in favor of assessee.
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2014 (9) TMI 144
Principle of natural justice - Whether Betel Nut - Industrial Grade imported by the petitioner are permissible for import under the Duty Free Import Authorization (DFIA) Scheme under the Foreign Trade Policy (FTP) read with the Standard Input Output Norms (SION) thereunder, and are entitled to exemption under Customs Notification No. 40/2006, dated 1-5-2006 - Held that:- Taking the second ground first, the principles of natural justice are not to be observed on paper only. Its importance lies in its effective compliance. It does not lie in the mouth of the authority that it has complied with the principles of natural justice when the authority called upon the party to remain present on 10-5-2011, wherein notice was served on the party on 6-5-2011 and when the party prays for time on 10-5-2011, the authority proceeded to pass final assessment order on 12-5-2011. Intimating to the party the date of hearing that by itself cannot be said to be in compliance of the principles of natural justice. It is step towards compliance of natural justice. Intimation of date of hearing to the party affected is initial part of compliance of principles of natural justice as the “hearing” is inevitable aspect of natural justice. Intimation is not “hearing”. - order passed on 12-5-2011 is vitiated, as it is passed without complying with the principles of natural justice. - Decided in favor of assessee. Validity of panchnama-cum-seizure order - Held that:- The seizure order dated 29-12-2010 is also bad and illegal. It is the panchnama-cum-seizure order. Such composite order is unheard off. - Technically, asking the party to submit fresh PD Bonds for a period of six months on one hand and proceeding to seize the goods on the other hand may not perhaps be faulted with, however, burden lies on the authority to explain rationale to rush into seizure/confiscation of the goods in such circumstances, the reason is the ‘proper officer’ cannot proceed to seize the goods under Section 110 of the Act unless he has reason to believe. - Unexplained inconsistent conduct makes dent on the belief. It would shake the basis and vitiate the seizure. We had a privilege to have a brief journey into the world of ‘Areca nut/betel nut’. Parties have produced some material in support of their respective submissions, viz. on ‘tannin’ contents of ‘Areca nut’. It was pointed out that ‘Areca nut’ may be dry, hard, whole or cut or it may be fresh, green, soft, etc. That it undergoes three stages of development. It was asserted by the respondent that the ‘Areca nut’ cannot be commercially viable for the ‘tannin’ purposes. It is not for this Court to give any opinion on ‘tannin’ content of Areca nut or to say about propriety of reading Areca nut in SION. It is for the D.G.F.T. to say on this. The say of the D.G.F.T. is in favour of the petitioner. - Decided in favor of assessee.
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Service Tax
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2014 (9) TMI 153
Import of services - design service - proof that the design services in question were received prior to 18.04.2006 or prior to 01.06.2007 - levy of service tax where payment was made in the year 2008-2009 for the invoices raised by the service provider on the Appellants for the year 2004-2005 and 2005-2006 - Held that:- once the Adjudicating Authority while passing the order-in-original proceeds on the assumption that there is material on record with regard to rendering of services, but the controversy is whether the tax or taxable event occurred after the notification or rule being brought into force or not, then, the Tribunal was obliged in law to consider this aspect and in its entirety. It ought to have then commented upon the presumption or the basis on which the Adjudicating Authority proceeded. If the Adjudicating Authority proceeded on an erroneous basis and there was indeed no material which would support the legal argument of the Assessee, then, the Tribunal could have observed that the legal argument is not required to be answered in the absence of necessary factual basis. If the services were received during the period 2004-2005 and the stand of the Assessee is that no service tax is liable to be paid on the said services and which have been availed of prior to the date of notification or rule coming into force, then, there was some material on record and in the form of at least Audit Report. These documents and in comparison to the contents of the Ledger Account, dates of bills/ invoices should have been considered and thereafter, a proper and complete finding should have been rendered by the Tribunal. We find and repeatedly that the Tribunal in undue haste and uncalled hurry proceeds to pass the orders which have to be often set aside by this Court. This Court has repeatedly reminded the Tribunal that it is the last fact finding authority and which the Assessee and the Revenue approaches so as to have complete adjudication on facts and law. In these circumstances it was bounden duty of the Tribunal to have referred to the findings of the Adjudicating Authority and in their entirety. - Matter remanded back to tribunal - Decided in favor of assessee.
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2014 (9) TMI 152
Waiver of pre-deposit - Levy of service tax on Development of residential projects - taxability prior to 1.7.2010 - Finance Act, 2010, with effect from 1.7.2010, introduced an explanation to Section 65(105)(zzzh) - Construction of Complex service - Held that:- The view of the Department that Circular No.108/2/2009-S.T., dated 29.1.2009 is in their favour, is, prima facie, not tenable. The applicability of the said circular can be divided into two limbs. The first limb states that ..... the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of agreement to sell . Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of self-service and consequently would not attract service tax. The second limb of the said circular states that if the ultimate owner enters into a contract for construction of a residential complex with a promoter / builder / developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of residential complex . However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax. If the department accepts that the sale in favour of the ultimate owner, even then by virtue of the prior agreements for construction and sale of undivided share, it would fall under the second limb of paragraph (3) of the circular dated 29.1.2009 and to that extent the appellant has a prima facie case. The circular further makes it clear that in both the situations, if services of any profession like contractor, designer or a similar service provider are received, then such a person is liable to pay service tax. That clarifies the stand of the assessee that in the nature of the transaction entered into in the present case, there is no liability to pay service tax up to 1.7.2010. On and from 1.7.2010 the explanation to Section 65(105)(zzzh) of the Finance Act, 1994 makes the present transaction liable to service tax and we are not on that issue. At present, we are concerned with the period prior to 1.7.2010. The Tribunal has unfortunately not considered the said factor which prima facie enures to the benefit of the appellant. Stay granted - appeal restored before the tribunal. - Decided in favor of assessee.
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2014 (9) TMI 151
Condonation of delay for filing an appeal before Commissioner (appeals) - delay of three months and 23 days - Ext. P1 order saddling him with the liability to pay service tax erroneously states that an appeal can be preferred within a period of three months from the date of receipt of the order. The petitioner contends that he was guided by the said statement in Ext. P1 order and that was why he preferred an appeal within the condonable period of one month after the said period of three months. - Held that:- the petitioner should not suffer due to a fault on the part of the adjudicating authority even though Ext. P2 order of the first respondent is well founded on the basis of the statutory provisions. - delay condoned - this judgment shall not be treated as a precedent at all. - Decided in favor of assessee.
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2014 (9) TMI 150
Eligibility to claim benefit of abatement 67% - completion and finishing services in relation to building or civil structure - Notification No. 15/2004-ST dated 10.09.2004 and Notification No. 1/2006-ST dated 01.03.2006 - exemption Notification No. 12/2003-ST dated 20.06.2003 - exemption towards value of material - Held that:- It is seen that during the adjudication or in their appeal before CESTAT the appellants have not contended that they are eligible for the benefit of exemption under Notifications No. 15/2004-ST and 1/2006-ST. Thus the adjudication authority was right in denying the benefit of the said two notifications to the appellants. The classification of service is to be determined as per the definitions of various taxable services prevalent during the relevant period and merely because the classification changes with the introduction of a taxable service under which an existing service gets more specifically covered in no way means that the said service was not necessarily taxable during the period prior thereto. Regarding applicability of Notification No. 12/2003, as discussed earlier the benefit of exemption Notification No. 12/2003-ST cannot be granted merely on the basis of overall estimation/approximations put forth and without any documentary proof specifically indicating the value of goods and materials sold in respect of the individual recipients of service as per the contracts entered into by the appellants with each of them. They have failed to produce such documentary proof so far. The appellants insist that they have such documentary proof and would be able to produce the same. In such a situation, it is only fair that the case is remanded to the adjudicating authority to enable the appellants to do so. - Decided partly in favor of assessee. Extended period of limitation - Held that:- the fact that the appellants did not inform the department that they were claiming the said exemption notifications in respect of completion and finishing services coupled with the fact that they so brazenly and blatantly indulged in claiming the benefit under the said notifications in spite of the fact that the said notifications were so expressly, conspicuously and unambiguously not applicable for the said services establishes suppression of facts on their part unquestionably at least on the basis of preponderance of probability. - Decided against the assessee.
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2014 (9) TMI 138
Waiver of pre-deposit - services of supply of tangible goods - adjudicating authority held that the transit mixtures are kept at the disposal of the readymix concrete manufacturers hence there is a supply of tangible goods. - Held that:- Appellant has been transporting the readymix concrete to the site as directed by the manufacturers; that he employs his own drivers and cleaners for such transportation is the prima facie view that can be deduced from the agreements and documents produced before us. Counsel has made a responsible statement that for such transportation of the goods, the manufacturer / recipient of the readymix concrete discharges the goods transport agency services tax, though it is not evidenced in any form. Taking the responsible statement made by the Ld. Counsel on its face value, we find that on a similar issue, in the case of M/s. Ajay Transport [2014 (8) TMI 454 - CESTAT AHMEDABAD], this bench had an occasion to look into the issue of hiring of tankers by M/s. Ajay Transport to M/s. ONGC. We also find that the co-ordinate bench of the Tribunal in the case of M/s. Mesco Airlines Limited (2013 (3) TMI 522 - CESTAT NEW DELHI) had also an occasion to consider a similar issue in respect of hiring of helicopters by the appellant therein and granted an unconditional waiver holding that such hiring out is not supply of tangible goods - appellant in this case has made out a prima facie case for the waiver of the pre-deposit of the amounts involved. - Stay granted.
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2014 (9) TMI 137
Waiver of pre deposit - Renting of Immovable Property - Held that:- Demand of service tax on the various fees would be examined at the time of appeal hearing. However, we agree with the learned Authorised Representative in respect of the demand of tax on “Renting of Buildings”. The learned Authorised Representative submits that the Hon'ble Supreme Court in the case of P.K. Hospitality Services P. Ltd. Vs Union of India reported in [2014 (8) TMI 820 - Supreme Court of India] upheld the constitutional validity of the levy of Service tax on “Renting of Immovable Property,” while granting the interim order directed that the entire amount in dispute is to be deposited in three equal instalments. On a query from the Bench, the learned Counsel submits, the demand of tax in respect of “Renting of Building” would be about ₹ 23,00,000 - Partial stay granted.
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Central Excise
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2014 (9) TMI 149
Dutiability of packing material - Valuation of soda ash for the period 1981 to 1985 - arrangement for return of the packing material - Held that:- the appellant fairly submitted that he does not intend to press the issue with regard to durability and returnability. He has confined his submission with regard to levy of excise duty on the packing material supplied by the buyer. - if the packing materials are supplied by the buyer, the levy could not have been imposed. The said contention is absolutely correct in view of the law laid down in M/s. Hindustan Polymers Vs. Collector of Central Excise [1989 (8) TMI 77 - SUPREME COURT OF INDIA] - matter remanded back to the Tribunal exclusively for delineation on the said issue. - Decided in favor of assessee.
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2014 (9) TMI 148
Classification - Manufacture - whether the process of dyeing, bleaching and printing of embroidery on grey fabrics, which is the work carried out by the Respondent, would be a process of manufacture and, therefore, classifiable under sub-heading 5805.19 - following the decision in the case of Amar Fabrics Pvt. Ltd. [2011 (3) TMI 244 - SUPREME COURT OF INDIA], matter remanded back to tribunal for de novo consideration.
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2014 (9) TMI 147
Rebate / Refund claim - export of goods - Rule 18 of the Central Excise Rules, 2002 - On inquiry it was found by the Department that the entire transactions were fake and as such they were only billing transactions only with a view to get the CENVAT credit as well as the rebate - Held that:- there are concurrent findings of fact given by all the authorities below with respect to the fake transactions between the petitioner and M/s. Universal Textiles, we are of the opinion that all the authorities have examined the case in detail and as such no interference is called for. The conclusions arrived at by the authorities below are on the basis of evidence on record and such conclusions are not pointed out to be perverse. Under the circumstances, as such no interference in exercise of powers under Articles 226 & 227 of the Constitution of India, therefore, can be made. - present Special Civil Application fails and the same deserves to be dismissed - decided against the assessee.
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2014 (9) TMI 146
Refund claim - period of limitation - whether the petitioner’s letters dated 5-10-1995 and 5-12-1995 clearly amount to lodging protest - Held that:- The language and contents of the letter dated 5-10-1995 leave nothing to doubt or guess that the assessee had pleaded, in unequivocal terms, with the department that duty was not payable on the additions made to the assessable value of goods towards transportation, insurance and handling/delivery charges. The contents of the letter dated 5-12-1995 further make it clear that despite the assessee having lodged the protest by the letter dated 5-10-1995, the department had been insisting for making such payment and hence the assessee put on record emphatic denial of the department’s propositions; and the statement had been even to the extent that the insistence for such a payment would be unjust and against the principles of justice. Aforesaid two letters dated 5-10-1995 and 5-12-1995 could only be regarded as the letters of protest. - Indisputably, no specific form of protest has been provided in the Rules. - A bare look at the second proviso to sub-section (1) of Section 11B makes it clear that the question of limitation does not arise in the case where the duty has been paid under protest. - Decided in favor of assessee.
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2014 (9) TMI 136
Eligibility to concessional rate of duty under Sl. No. 1C of Notification No. 4/2006-C.E. dated 1.3.2006 - Whether the consumers like Contractors, Apartment Builders, Developers, Construction Companies, etc. are classifiable as industrial / institutional consumers in terms of Legal Metrology (Packaged Commodities) Rules, 2011 - Held that:- Commissioner has accepted the fact that the appellant had produced declarations in respect of the industrial consumers, even though breakup had been given, amount has not been reduced while confirming the demand. - the requirement of pre-deposit is waived and the impugned order is set aside and the matter is remanded to the original adjudicating authority for fresh adjudication after considering the precedent decisions of the various judicial fora and the submissions which may be made by the appellants - Decided in favour of assessee.
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2014 (9) TMI 135
Valuation of services - Under valuation of Pre-recorded Audio Cassettes - Non inclusion of cost of DTA, Royalty paid by music companies to the artists for obtaining title rights - Held that:- Demand is for the period May, 1997 to September, 1997 and the Chapter Note 7 of Chapter 85 of the Central Excise Tariff was introduced vide Finance Bill 1997, as per Chapter Note recording of sound will amount to manufacture. Further, we find that Hon’ble Supreme Court in the case of Gramophone Co. of India Ltd. (1999 (11) TMI 62 - SUPREME COURT OF INDIA) held that recording of audio cassettes on duplicating music system amounts to ‘manufacture’ as blank audio cassette is distinct and different from pre-recorded audio cassette and two have different use and name. In these circumstances, the finding in the impugned order that recording of sound does not amount to manufacture is not sustainable. The impugned order is set aside and matter is remanded to the Commissioner (Appeals) to decide issue of valuation - Decided in favour of Revenue.
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CST, VAT & Sales Tax
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2014 (9) TMI 142
Valuation - Whether Tribunal was justified in allowing deduction of postage charges from the total contract value, when dealer had opted for composition Scheme u/s 6A of the Maharashtra Sales Tax on transfer of property is goods involved in the execution of works contract (Re-enacted) Act, 1989 (in short "Works Contract Act), for the levy of works contract tax on the contract of printing, binding and delivery of balance sheet to the share holders, which contract was in fact one whole indivisible contract of work - Held that:- Tribunal should have referred the above reproduced question of law for an opinion of this court. The tribunal's finding that job-work of franking and mailing the balance sheets, annual reports is an independent contract and could be termed as the contract of service and distinct from the works contract, although incorporated in the same document/contract, raises a question of law and which needs to be answered by this court - reference application should not have been dismissed by the tribunal. The order passed in that behalf by the tribunal, a copy of which is to be found on page 48 of the paperbook at Annexure "E" dated 11th June, 2013 is quashed and set aside. Matter remanded back - Decided in favour of Revenue.
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2014 (9) TMI 141
Denial of input tax credit - Whether the appellants-assessees, who are engaged in growing of tea/coffee plants and so also in manufacturing of tea/coffee as marketable commodity are entitled to take tax credit of inputs such as fertilizers, chemicals, pesticides, agricultural implements etc., used in the process of its growing/cultivation - Held that:- tea plantation and coffee plantation are agricultural/horticultural activities and that it would not be correct to say that tea and coffee are either not agricultural/horticultural produce or its cultivation does not amount to agricultural activity. In fact, both are true. But, for the purpose of this Act agricultural produce namely “tea”, once made fit for consumption, stand excluded from being agricultural produce. A bare look at the definition of ‘business’, shows that the legislature has recognized the word ‘business’, wider than the words ‘trade, commerce, or manufacture etc.’. Any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture or adventure or concern is also business irrespective of the fact whether or not it makes any profit. The definition of business though has brought within its purview any trade, commerce, manufacture or any adventure or concern or any transaction in connection therewith, in our opinion, would not either directly or indirectly include agriculture/horticulture or agricultural/horticultural activity. From bare perusal of the provisions contained in Section 10 read with definition of ‘input’ and the definition of ‘business’, it appears to us that unless agriculture/horticulture or agricultural/horticultural activity is held to be a ‘business’, an assessee, such as, the assessees in the present case, is not entitled for input tax credit. The basic requirement to seek input tax credit on purchases of goods, such as fertilizers, chemicals, pesticides, etc. is that they are purchased by a dealer “in the course of his business” for resale or for use in the manufacture or processing or packing or sorting of other goods or any other use in business. The agriculture/horticulture or agricultural/horticultural activity or the business as contemplated by the relevant definitions, it is clear that the word ‘business’ as occur in Sub-section (6) of Section 2 is independent and therefore, input tax credit on the purchases such as fertilizers, chemicals, pesticides etc. used in agricultural/horticultural activity cannot be granted. Decided against assessee.
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2014 (9) TMI 140
Levy of tax under section 3(a) read with section 6 of the Central Sales Tax Act, 1956 - movement of goods from one State to another - assessee contended that the goods which were moved from Bangalore to Delhi are not the finished product and are in the nature of components or parts of the goods and therefore, the CST Act is not attracted. - Held that:- the essence of an interState sale or purchase is the movement of goods from one State to another. If the movement of goods from one State to another is a result of a covenant or an incident of the contract of sale, then the sale is an interState sale, no matter in which State the property in the goods passes. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding interState movement must be specified in the contract itself. It would be enough if the movement was in pursuance of or incidental to the contract of sale. Therefore only when sale or purchase of goods occasions movement of goods from one State to another, the liability to pay tax under the Act is attracted. If the goods are manufactured and transported to another State merely because before delivery of the goods in terms of the contract some additional fixture were embedded to that manufactured goods, it would not nullify the effect of the goods being transported after it is being manufactured from one State to another. The effect of an inter-State sale is not effaced by such additions to manufactured product. This court in its revisional jurisdiction cannot interfere with the finding of fact recorded by the appellate authority based on legal evidence. Therefore the contention that what is transported from Bangalore to Delhi was only a part of the rolling stock and it was not a finished product has no substance. In a contract of this nature, what is to be seen is, what is the dominant nature. If the contract is looked into from that angle, it is very clear that after importing material from Korea, after getting locomotive part from Kolkata, Chennai and Coimbatore, at BEML, these rail coaches were assembled, fabricated, manufactured, tested and only after they found road worthy, they were despatched from Bangalore to Delhi on rails. Therefore the goods agreed to be sold under the contract of sale were moved from Bangalore to Delhi in terms of the agreement of sale and sold at Delhi. Therefore all the ingredients which have to be satisfied to attract the liability of tax under section 6 are fulfilled in this case. Agreement of sale occasioned movement of goods from Bangalore to Delhi the tax to be levied is on the value of the goods. After it reaches its destination at Delhi, if there are any value additions, that cannot be the subject-matter of levy of tax under the Act by the State of Karnataka under section 9 of the Act. It was further contended that as at the point of actual sale, the Government of India had not granted exemption from payment of customs duty and excise, all of them have added to the value of the goods. Therefore, the tax levied under section 9 is on the total value. Once Government of India granted exemption from payment of customs duty and excise duty, corresponding value of the goods is to be reduced and tax leviable under section 6 is to be confined only to that net value of the goods which were manufactured at Bangalore and transported to Delhi. If it is so it is open to the assessee to approach the authorities by furnishing the particulars which are relevant and if the authorities are satisfied firstly that there was value addition at Delhi and the cost of the goods includes customs duty as well as excise duty which is exempted, certainly, they would work the liability of tax payable under section 6 in accordance with law. That would meet the ends of justice - Decided against assessee.
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2014 (9) TMI 139
Confiscation of goods - Demand of value of the goods confiscated - consignor contend that in the absence of any order under section 33C of the Act, for withholding the refund of the amount of sale proceeds, the Department has no authority in law to retain the amount - whether the goods were intended to be further transported from Vijayawada and Ichchapuram to their destinations where the so-called consignees had business as contended by consignor/transporter or as contended by the Department they were brought to Andhra Pradesh for effecting clandestine sales in the State by evading payment of tax under the Act - Held that:- The provisions dealing with prevention of tax evasion have considerable bearing on the controversy raised before this court. Hence, it is necessary to briefly refer to them. Every person licenced or registered, and every dealer who is required to get registration under the Act shall keep and maintain true and correct account (section 24). Section 27 requires the owner or other person in charge of the goods vehicle to carry with him a bill of sale or delivery note, goods vehicle record or trip sheet and other documents with all the particulars relating to the goods under transport. Confiscation of the goods would be necessitated if there is evasion of tax, if there is an attempt to evade the tax, and if the owner of the goods is not ascertainable. In case confiscation is not warranted, as per sub-rule (6), the officer who seized the goods shall return the goods to the owner or any person authorized by him if they had not been sold in public auction. If the goods are already sold in public auction, the proceeds of the sale less expenses incurred on the sale, if any, shall be refunded to the owner of the goods or any person authorized by him. The same procedure would be followed even where the order of confiscation is set aside or modified on appeal or revision. A reference may also be made to sub-rule (7) which provides for an opportunity to the owner of the goods to appear before the officer who ordered confiscation, satisfy him with relevant records regarding the bona fides of the goods in question and regarding the reasons for his non-appearance. If the concerned officer is satisfied that there has been no evasion or attempt to evasion, he may release the goods confiscated or refund the money realized in auction, as the case may be. The driver or any person in-charge of the vehicle carrying goods coming from any place outside the State shall have to obtain a transit pass from the check-post officer. The driver or the person in-charge of the vehicle shall have to carry the transit pass while passing through the State and shall have to deliver it to the check-post officer at the exit check-post, i.e., the last check-post of barrier before exit from the State of Andhra Pradesh. If transit pass is not obtained or the transit pass is not delivered at the exit check-post, the legal consequence is that it shall be presumed that the goods carried by the vehicle have been sold within the State by the owner or the person in-charge of the vehicle. In such a deemed sale, the goods are exigible to tax and penalty can always be levied in accordance with the provisions of the Act. In every case of non-delivery of transit pass, at exit check-post or while passing through the State of Andhra Pradesh, the burden of proving that the goods actually moved out of the State shall be on the owner or person in-charge of the vehicle. In such a situation, it is rather difficult to accept the plea that section 28(6) of the Act has no application. Even where the goods seized from the godown are allegedly in the process of inter-State movement to the place of consignee, if the proof is not offered as required under the proviso to section 29B, the officer can always seize and confiscate the goods allegedly in transit under section 28(6) of the Act. Therefore, we are convinced that the Tribunal decided the question of law erroneously by misdirecting itself. The confiscation order was passed by the jurisdictional CTOs drawing inferences and applying the presumption of sale in the State from the following undisputed facts. The consignor is not registered under the Nagaland sales tax—the consignor was not available at the address given in the travel documents; the transport vehicles took a circuitous route avoiding nearest route to the place of consignees; the first consignee was indulging in doubtful activities without carrying any business from the registered premises at Delhi; the second consignee was not even registered with the Maharashtra sales tax authorities and he had given a wrong address. Examining these aspects with reference to the material and records collected and gathered by the Department, the learned Tribunal sought to justify the lacuna pointed out by the confiscating authorities in invalidating the confiscation proceedings. The finding that there was no proper notice or opportunity prior to seizure and confiscation are belied by the very fact that during the seizure, the manager or concerned person employed by BARL was present, notices were issued, consignor sent three representations and all were considered by the confiscating authorities. It is very curious that during the proceedings either before the CTO, Vijayawada or CTO, Kasibugga, consignees never appeared claiming the goods. The Tribunal in our considered opinion also lost sight of the provisions of sections 29A, 29B and rules 46, 47 and 48 and failed to see that admittedly the transporter did not produce all the duplicate copies of the transit passes when all the 45 lorries entered via the border check-post at Kasibugga passed through Vijayawada and allegedly moved out of Andhra Pradesh. Even the conduct of the consignor militates against her. Initially having taken a plea that the goods were sold to the consignees at Delhi and Bombay, subsequently she came forward offering to pay the tax component on the goods seized. The respondent thus failed to discharge the burden which lies on them under section 7A and the proviso to section 29B in which event it shall be presumed that the goods have been sold in the State which attracts section 28(6) when there is a tax evasion. In our considered opinion, the Tribunal ignored the relevant provisions regarding the burden of proof and proceeded in a manner which is not appropriate to the facts and circumstances of the case. The Tribunal also decided the questions of law erroneously requiring interference in these revisions - Decided in favour of assessee.
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