TMI Tax Updates - e-Newsletter
September 7, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
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Income Tax:
Disallowance of rental deposits written off - revenue or capital in nature - the write off of the interest free deposit made by the assessee to the licensor against rental properties was a loss incidental to the business and, hence, the assessee was entitled to claim the same as allowable deduction - AT
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Income Tax:
Deduction u/s. 80IB(7B) - Even if separate books of account are not maintained for convention centre, if the assessee is in a position to show the true and correct profit from the convention centre, the deduction u/s. 80IB is to be granted. Nonmaintenance of separate books of account for convention centre itself cannot be a reason for out rightly rejecting the claim u/s. 80IB of the Act - AT
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Income Tax:
Nature of compensation received towards cancellation of share purchase agreement - Capital receipt (non taxable) or revenue receipt - failure to fulfill the terms of agreement - The compensation received for failure of such decision being taken in the course of carrying on its normal line of business was rightly held to be taxable receipt in the hands of the assessee - AT
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Income Tax:
Expenses incurred for issue of debenture for the purpose of extension of business has to be considered as capital expenditure and, accordingly has to be amortized under section 35D. - AT
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Income Tax:
Disallowance of depreciation - The assessee simply purchased software delivered along with computer hardware for utilisation in the day-to-day business. There is no intangible asset involved in this and the assessee's claim of depreciation cannot be disallowed under section 40(a)(ia) on the ground that no TDS u/s 194J has been deducted - AT
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Income Tax:
Nature of income which is received by the VCC or VCF from the Venture Capital undertaking - The income received by the assessee from IVF is taxable in the manner as prescribed u/s 115U – Since the Assessing Officer has assessed the income as short term capital gain; therefore, the claim of the assessee as short term capital loss has to be allowed - AT
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Income Tax:
Transfer pricing Adjustments - ALP - Once internal comparable was available, along with the segmental details, TPO was required to examine the same and carry out the comparability analysis. It is only when internal TNMM fails, the TPO can go into search for external TNMM because external comparable require lot of functionality test and adjustments - AT
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Income Tax:
Exemption u/s 10B of the Income Tax Act - manufacturing of special purpose plants - whether assembly activity is manufacturing activity - Held yes - even if export is made dissembled forum for the purpose of transportation, deduction allowed - AT
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Income Tax:
Transfer price adjustment - Bank guarantee commission - There was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been charged at arm's length price. - AT
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Income Tax:
Deduction u/s. 35ABB - change in Telecom policy enhancing license period from 10 to 20 years - Since the Revenue is not in appeal on the directions of CIT(A) in earlier years, whatever amount is quantified therein, similar amounts on that basis are to be allowed in this year, being consequential. - AT
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Income Tax:
Building repair expenditure - The building is completed in the present year because depreciation is duly allowed by the AO with regard to such new mill building, then how it can be expected that no expenditure in respect of colour and paints etc. were incurred for this new mill building - expenses not allowed as revenue expenditure - AT
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Income Tax:
Jurisdiction u/s 263 - Revision - there was an error in the order of the assessing officer inasmuch as that the assessing officer has not recorded his reasons for reaching a conclusion - that a speaking order must speak for itself and a reference to show cause notice is uncalled for - AT
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Customs:
Benefit of Notification No. 21/2002 - Import of Naphtha - Not fulfillment of the End Use Condition - Duty confirmed with interest - but Confiscation and penalty not justified - AT
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Customs:
Condonation of delay - the order of Committee of Chief Commissioners was passed after expiry of period of three months from the date of communication - There was no question of condoning by the Tribunal of the delay in exercise of the power by the Committee under Section 129D(1) - AT
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Service Tax:
Nature of Service – Collecting funds from investors - Demand of service tax was made by the department on the ground that amounts spent by various trusts which were known as ‘Funds’ and which were engaged in the activity of collecting funds from investors and investing them were liable to tax - prima facie case is against the assessee - AT
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Service Tax:
Penalty u/s 78 of the Finance Act, 1994 - Once all the facts are reflected in the ST-3 Returns as well as in the Balance Sheet, the allegation of suppression of facts is untenable and accordingly, imposition of penalty under Section 78 of the Finance Act, 1994, is unwarranted - AT
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Service Tax:
Cenvat Credit - Duty paying documents - Most the invoices which are in the name of head office could be endorsed in the appellant's name - Services are undisputedly used for the purpose of the manufacturing activity of the appellant - credit allowed - AT
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Service Tax:
Incidence to levy Service tax on waste disposal facility - Business support service - waste management - The word “service” is a noun of the verb “to serve” - organizational set up of a concern does not decide taxability - Prima facie case is against the assessee - AT
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Central Excise:
CENVAT Credit – Storage of Inputs outside the factory premises - appellant had not observed the procedure prescribed for relaxation to store inputs outside the factory premises - demand confirmed. - HC
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Central Excise:
SSI Exemption - two units owned by Husband and wife respectively - If both the units are complete by itself, capable of manufacturing the goods without any help from the other unit, it has to be held that both the units are independent units - No clubbing - AT
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Central Excise:
Cenvat Credit - Removal of Capital Goods removed – Rule 3(5) of the CENVAT CREDIT Rules, 2004 – the manufacturer shall pay the amount equal to Cenvat Credit taken on the said capital goods reduced by 2.5% for each quarter of year or part thereof from the date of taking the Cenvat Credit - AT
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Central Excise:
Payment of duty by 100% EOU - What was required to be done for the purpose of calculating duty payable by a 100% EOU was to calculate the customs duty payable (by calculating 25% of the normal rate as per the exemption notification), add CVD and thereafter treat the amount as excise duty and pay Cess on the same which would be the Cess payable on central excise duty worked out as per the formula. - AT
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Central Excise:
Non-discharge of Duty Liability – Period of Limitation - surprisingly it was also curious to note that the show cause notice specifically stated that the statement of the employee of the appellant was recorded only for invokement of five years i.e. extended period - demand set aside - AT
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VAT:
Reassessment under UP VAT - Refund of Tax – There was no fresh material nor any tangible evidence was brought in any survey or in subsequent years which may have indicated that the discounts were actually not received by the consumers and that it was only a paper transaction by credit notes - HC
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2013 (9) TMI 205
Disallowance of LTA and medical reimbursement - TDS on LTA and medical reimbursement - Survey u/s.133A - Held that:- exemption in respect of medical expenditure and leave travel is considered after collecting and verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of rule 2B are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the requirements of rule 2B and the process adopted in considering the exemption under section 10(5) and proviso to section 17(2). The assessee is a law abiding Company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption - The AO does not dispute non-fulfillment of conditions for allowing exemption u/s.10(5) of the Act or proviso (iv) to Sec.17(2) of the Act. The liability of the person deducting tax at source cannot be greater than the liability of the person on whose behalf tax at source is deducted. The AO has ignored this aspect and has proceeded to pass the order u/s.201(1) and 201(1A) of the Act. His order was rightly held to be unsustainable by the CIT(A) - Decided against Revenue.
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2013 (9) TMI 204
Transfer price adjustment - Bank guarantee commission - Details of the creditworthiness of the AEs not given - CIT upheld partial adjustment of arm's length price - Held that:- a financial loan guarantee is a commitment entered into by the assessee company with a third party lender of its Associated Enterprises which obliges the assessee company to cover the risk of default by its Associated Enterprise and this act thus involves performance or carrying out of service to cover the risk of default for which "price" has to be charged. Even the OECD Transfer Pricing Guidelines 2010 supports this view in para 7.13 where it is explained that where higher credit rating of Associated Enterprise is due to a guarantee by another group member, such association positively enhances the profit making potential of that Associated Enterprise. There was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been charged at arm's length price. The commercial relationship between the assessee and its Associated Enterprises is distinct and separate from the transactions of giving guarantee and such transactions have to be considered and examined independently in order to determine the arm's length price. - Decided against the assessee. Rate of guarantee commission - Arm's length price of guarantee commission was determined by the TPO by applying CUP method and the arithmetic mean of 1.5% of the guarantee commission charged by the HSBC Bank in the range of 0.15 to 3% was taken as arm's length price - CIT(A) upheld the CUP method applied by the TPO but adopted the rate of 0.25% of guarantee fee as arm's length price - Held that:- The universal application of rate of 3% for guarantee commission cannot be upheld in every case as it is largely dependent upon the terms and conditions, on which loan has been given, risk undertaken, relationship between the bank and the client, economic and business interest are some of the major factors which has to be taken into consideration - A.O. is directed to recompute the commission for guarantee given by the assessee to its Associated Enterprises @ 0.5% being the arm's length price - Decided partly in favour of Revenue. Disallowance of software expenses - Amortised the entertainment software expenses - Held that:- details of television entertainment software expenses were not furnished by the assessee before the A.O. and the same furnished for the first time before him were relied upon by the ld. CIT(A) to give relief to the assessee on this issue without giving any opportunity to the A.O. to verify the same - Decided in favour Revenue. Arm's length price - The assessee did not charge any interest on overdue payments - After a period of time of normally 30 days, would be the expected normal arm's length price - The quantification of notional interest was done by adopting interest at 2.19 % LIBOR on overdue amount beyond 30 days - A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction - What can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into - It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues – Held that the impugned addition of ₹ 12,51,175 is unsustainable in law – Decided against Revenue.
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2013 (9) TMI 203
Disallowance of cash discount - details of parties not available - Similar procedure followed in immediately preceding year - Held that:- It is seen that the facts in the present year are different from the facts in assessment year 2004-05 and 2005-06 and, therefore, the decision of the learned CIT(A) cannot be upheld on the basis of principle of consistency - total amount debited under the head cash discount is of Rs.72.83 lacs and the credit under that head is of Rs.3.32 lacs. Apart from that, a debit of Rs.0.55 lacs is on account of rate difference and total net debit is of Rs.70.06 lacs. For such huge amount of claim of the assessee regarding net cash discount, the assessee should have furnished at least the name and addresses of those parties to whom major amount was allowed as discount. In the absence of any details regarding name and addresses of the persons to whom such discount was allowed, it is always possible that there may be some instance of write off of the discount in respect of advances for capital goods etc. or even loans etc. and, therefore, some disallowance is justified on account of this failure of the assessee to furnish reasonable details for such a huge claim of expenditure of more than Rs.70 lacs approximately. The disallowance made by the AO is to the extent of 10% of such claim but we feel that in the facts and circumstances of the present case, ends of justice would meet if such disallowance is restricted to 5% of the total such claim of Rs.70 lacs approximately. Hence, disallowance of Rs.3.50 lacs is confirmed and balance disallowance is deleted. Disallowance of expenditure - Building repairing expenses - Capital or revenue expenditure - Held that:- While the assessee has claimed expenses for fitting of kota stone on various dates in respect of construction of new mill building, but no expenditure is incurred in respect of purchase of kota stone and such expenditure for purchase of kota stone is included in building repairing expenditure without including any labour charges on that account. This supports the stand taken by the AO that these expenses were in fact incurred for construction of new mill building and not for any repairing purpose. Similarly, the details regarding construction of new building as available in the paper book have not included any expenditure on account of colours and paints. The building is completed in the present year because depreciation is duly allowed by the AO with regard to such new mill building, then how it can be expected that no expenditure in respect of colour and paints etc. were incurred for this new mill building and such expenditure included in the details of building repairing is not in fact related to construction of new mill building. In the light of these facts and discussions above, we are of the considered opinion that the deletion of this disallowance by the learned CIT(A) is not on a valid basis Disallowance of dalali (commission) expenses - Held that:- In view of the absurd increase in payment of dalali on sales in terms of percentage of turnover from 0.0284% in the assessment year 2007-08 to 0.0516% in the present year, we feel that the disallowance of small amount of Rs.37,496/- made by the AO is very much reasonable and the order of the learned CIT(A) regarding deletion of the same is not sustainable - Decided partly in favour of Revenue.
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2013 (9) TMI 202
Jurisdiction u/s 263 - Revision - Ordered passed by the AO is unreasoned - an order erroneous or prejudicial to revenue - Held that:- It is obligatory on the part of the assessing officer to record reasons in the assessment order. Recording of reason would not only enable the revisional / appellate authorities to discharge their function effectively but also repose confidence in the system. Therefore, we are of the considered opinion that there was an error in the order of the assessing officer inasmuch as that the assessing officer has not recorded his reasons for reaching a conclusion - that a speaking order must speak for itself and a reference to show cause notice is uncalled for. It is also well settled principles of law that judicial order shall speak for itself and the reason for the conclusion reached in the judicial order shall contain in the order itself. Reason for a decision cannot be substituted or supplemented by way of an affidavit or otherwise - Commissioner of Income-tax has rightly exercised his powers u/s 263 of the Act. However, he ought not to have disallowed the claim of the assessee straight away. In other words, the Administrative Commissioner ought to have directed the assessing officer to examine the books of account in the light of provisions of section 40(a)(ia) and 40A(3) of the Act. Accordingly, the assessing officer is directed to examine the books of account in the light of provisions of sections 40(a)(ia) and 40A(3) of the Act and thereafter decide the issue in accordance with law without being influenced by any of the observations made by the Commissioner of Income-tax in the impugned order. The order of the Administrative Commissioner is modified to this extent - Decided against assessee.
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2013 (9) TMI 201
Reassessment u/s 147 - Notice u/s 148 - Reassessment after 4 four years - Held that:- Department has no material to show that the income which is said to have been escaped is on account of failure on the part of the assessee so as to reopen the assessment when the original assessment was completed u/s. 143(3) of the Act. Provisions of section 147 prescribed that no action should be taken u/s. 147 after the expiry of four years from the end of the relevant assessment year, unless income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make a return u/s. 139 or in response to notice issued under subsection (1) of section 147 or section 148 or to disclose fully and truly all material facts necessary for its assessment for that assessment year. Department was not able to point out applicability of these provisions to assessee's case. Unless these conditions are fulfilled assessment cannot be held to be valid - initiation of re-assessment proceedings for the assessment year 2004-05 by means of notice u/s. 148 dated 25.2.2011 after a period of more than 4 years is clearly barred by time limit - Decided in favour of assessee. Penalty u/s 271(1)(c) - Disallowance of depreciation on plant and machinery - Held that:- The facts remain that the assessee is having bona-fide belief that it is entitled for depreciation as per the lease agreement and the assets have been duly reflected in the Balance Sheet. The assessee has furnished the entire facts relating to this issue which was not found favourable with the Department. The Revenue authorities rejected the claim of granting of depreciation. It was up to the Revenue authorities to accept or reject the claim of the assessee. Merely because it was rejected, it does not lead to the conclusion that the assessee is liable for penalty - Decided in favour of assessee. Deduction u/s. 80IA - business of manufacturing of pipes for water supply and sewerage scheme and turnkey contractors in infrastructure sector, claimed deduction u/s. 80IA. - CIT allowed the deduction holding that the business of the assessee was that of a developer of infrastructure facility as envisaged in the provisions of section 80IA of the Act. - Held that:- Order of CIT(A) confirmed - deduction allowed.
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2013 (9) TMI 200
Deduction u/s. 35ABB - Expenditure for obtaining licence to operate telecommunication services - Held that:- As there is a change in Telecom policy enhancing license period from 10 to 20 years on payment of one time entry fee /migration fee, the deduction is to be allowed on revised basis. The issue of revised claim was decided by Ld. CIT(A) in earlier years with certain directions to AO which are yet to be implemented. The basis of revised amount for deduction is required to be determined in the respective years by AO. Since the Revenue is not in appeal on the directions of CIT(A) in earlier years, whatever amount is quantified therein, similar amounts on that basis are to be allowed in this year, being consequential. AO is directed to determine accordingly the eligible amount in this year - Decided in fsvour of assessee.
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2013 (9) TMI 199
Adjustment of arm's length price - Corporate Gurantee given to associated enterprise - Bank guarantee commission - Held that:- As rightly held by the ld. CIT(A), a financial loan guarantee is a commitment entered into by the assessee company with a third party lender of its Associated Enterprises which obliges the assessee company to cover the risk of default by its Associated Enterprise and this act thus involves performance or carrying out of service to cover the risk of default for which “price” has to be charged - there was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been charged at arm’s length price. The commercial relationship between the assessee and its Associated Enterprises is distinct and separate from the transactions of giving guarantee and such transactions have to be considered and examined independently in order to determine the arm’s length price - Decision in case of Assistant Commissioner of Income-tax - 11(1)Versus Nimbus Communications Ltd. [2013 (9) TMI 204 - ITAT MUMBAI] followed - Decided in favour of assessee. Arm's length price - The assessee did not charge any interest on overdue payments - After a period of time of normally 30 days, would be the expected normal arm's length price - The quantification of notional interest was done by adopting interest at 2.19 % LIBOR on overdue amount beyond 30 days - A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction - What can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into - It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues – Held that the impugned addition of Rs. 12,51,175 is unsustainable in law – Following decision of Nimbus Communications Limited Versus. Assistant Commissioner of Income Tax [2011 (1) TMI 68 - ITAT MUMBAI] - Appeal is allowed. It is clearly manifest from the order of the DRP that a specific case was made out by the assessee in support of its claim for deduction on account of sundry/old balance written off before the DRP for the first time and since the case so made out by the assessee required verification by the A.O., the DRP having no power to set aside the case, declined to interfere with the decision of the A.O. Keeping in view this position, we consider it fair and proper and in the interest of justice to set aside this issue to the file of the A.O. with a direction to decide the same afresh after verifying the stand of the assessee as taken before the DRP from the relevant record.
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2013 (9) TMI 198
Disallowance(100%) on the ground of being a bogus purchase - In respect of purchases from M/s. Vishal Traders, 100% disallowance was made by the A.O. by holding that the entire purchase is bogus purchase – Held that:- assessee has furnished quantitative tally of the purchases and sales and no defect has been pointed out by the A.O. in the same and the A.O. has accepted the sales made by the assessee. Yield reported by the assessee in the present year is better than the preceding year and the same is almost 100% and, therefore, it cannot be said that any extra quantity of purchase has been declared by the assessee for which deduction has been claimed by the assessee is not justified – Action taken by A.O. regarding 100% disallowance is not sustainable – Decided in favor of Assessee. Part disallowance is justified or not – Held that:- In view of various conflicting statements of Mr. Dharampal J Pandya, Mr. Madanlal R Chandak and Shri Piyushbhai B Acharya, this is not beyond doubt that there may be some over invoicing in the present case. But this is very important fact that the sale price as per the bills of Vishal Traders is comparable with other suppliers - Assessee has maintained quantitative details in which no defect is pointed out by the assessing officer and the yield percentage of the present year is better than the preceding year - GP and NP rate of the present year are better than the previous year - Only a token disallowance will meet the ends of justice in the facts of the present case as noted above - 5% disallowance out of purchase from Vishal Traders will meet the ends of justice in the facts of the present case – Partly decided in favor of Assessee. Disallowance on the applicability of section 40A(3) of the Income Tax Act - Reliance placed by the Ld. D.R. on the judgement of Hon'ble Gujarat High court rendered in the case of Hynoup Food and Oil (P) Ltd. [2005 (2) TMI 99 - GUJARAT High Court], on this contention that the provisions of Section 40A(3) are to be invoked in the present case and disallowance has to be made of the entire amount – Held that:- Facts of the present case are different from the abovementioned case - As per the facts of that case, the assessee was engaged in an illegal business and the transactions were not reflected in its regular books of account maintained by the assessee. It was also found that assessee has paid Rs.43.36 lacs in cash in respect of purchases made in relation to the said business. Under these facts, it was held by Hon'ble Gujarat High court that the provisions of Section 40A (3) are applicable and exceptions carved out in Rule 6DDJ were not available to the assessee and disallowance was confirmed - In the present case, the facts are different. As per the books of accounts of the assessee, entire purchases from Vishal Traders are accounted for and the payments were made by way of a/c payee cheques. Hence, it becomes clear that the payments in respect of purchases from Vishal Traders was not made in cash and, therefore, there is no occasion to even consider the applicability of provisions of Section 40A(3) in the present case – Decided in favor of Assessee. Disallowance of speculation loss - section 43(5) - Held that:- Revenue could not establish that the transaction undertaken by the assessee is not hedging transaction and, therefore, this issue is squarely covered in favour of the assessee by this judgement of Hon'ble Gujarat High court rendered in the case of Pankaj Oil Mills (1976 (5) TMI 3 - GUJARAT High Court)
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2013 (9) TMI 197
Exemption u/s 10B of the Income Tax Act - manufacturing of special purpose plants - whether assembly activity is manufacturing activity - export in dissembled forum for the purpose of transporation - Assessee company was located in 100% EOU situated in Noida Export Processing Unit, Noida, U.P. This zone was custom bounded area - There is no indirect cost - The expenditure on the electricity for the year was nominal – Held that:- Equipment were purchased by assessee as per its technical specifications and drawings and after inspection they was assembled together to make a Down Shop Lead for the Electrically Operated Travelling Crane (EOT). After testing for current carrying capacity and other factors they were disassembled and properly packed. Facts show that the plants are supplied in the form of sub-assemblies and components manufactured or after getting manufactured as per the prescribed specifications. These sub-assemblies and components were manufactured outside transported to the NSEZ, Noida and thereafter, certain operations are carried out and disassembling was done prior to export the subassemblies and components to the ultimate destination. This process is also required for containerization and packing of these items on account of size which is necessary for transportation and installation. Reliance has been placed upon the judgment in the case of CIT vs. Jackson Engineers Ltd [2009 (12) TMI 649 - Delhi High Court ], wherein it was held that activity of assembling gensets from various components amount to manufacture or production – Apart from it, reliance has been placed upon various other case laws s.a. CIT vs. I. Tech Electronics [2012 (4) TMI 223 - Gauhati High Court ]; CIT vs. Chiranjjeevi Wind Energy Ltd [2011 (1) TMI 421 - MADRAS HIGH COURT], wherein it was held that assembling amounting to manufacture – In the present case, relying upon the judgments in above cases, it was held that assessee was engaged in the manufacturing of assembling the plants which were disassembled for exports – Relief granted u/s 10B of the Income tax act – Decided against the Revenue.
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2013 (9) TMI 196
Deemed dividend - whether refund of Share application money to be treated as loan and advance - Applicability of section 2(22)(e) of the Income Tax Act – Held that:- Share application money or share application advance is distinct from the ‘loan or advance'. Although the share application money is one kind of advance given with the intention to obtain the allotment of shares/equity/preference shares etc, such advances are innately different form the normal loan or advances specified both in section 269SS or 2(22)(e) of the Act. Unless the mala fide is demonstrated by the AO with evidence, the book entries or resolution of the Board of the assessee become relevant and credible, which should not be dismissed without bringing any adverse material to demonstrate the contrary - Share application money when partly returned without any allotment of shares, such refunds should not be classified as ‘loan or advance' merely because, share application advance is returned without allotment of share. In the instant case, the refund of the amount was done for commercial reasons and also in the best interest of the prospective Share applicant. Further, it is self explanatory that the assessee being a ‘beneficial share holder', derives no benefit whatsoever, when the impugned ‘share application money/advance' is finally returned without any allotment of shares for commercial reasons. In this kind of situations, the books entries become really relevant as they show the initial intentions of the parties into the transactions. Books entries suggest clearly the ‘share application' nature of the advance and not the ‘loan or advance'. As such the revenue has merely suspected the transactions without containing any material to support the suspicion. Therefore, the share application money may be an advance but they are not advances which are referred to in section 2(22)(e) of the Act. Such advances, when returned without any allotment or part allotment of shares to the applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or refunded in the same year or later years after keeping the money for some time with the company – Reliance has been placed upon the Madras High Court judgment in the case of CIT vs. Rugmini Ram Ragav Spinners P Ltd [2007 (7) TMI 237 - MADRAS HIGH COURT] and also on the judgment of the Hon’ble Tribunal, Delhi bench in the case of Ardee Finvest (P) Ltd[2000 (11) TMI 291 - ITAT DELHI-E ] – Decided against the Revenue. Limitation – Condonation of delay in filing cross-objection – Appeal of the Department was received by the respondent on 19th March, 2012, the cross objection ought to have been filed u/s 253(4) by 18th April, 2012. As the Cross Objection is being filed on 18th July, 2012, there is a delay of 90 days -Respondent submits that the said delay was inadvertent and was caused due to the Respondent not being aware of the judgment of the Special Bench of the Tribunal (All Cargo Global Logistics Ltd vs DCIT) which is dated 6th July, 2012 – Held that:- It is a settled law that while condoning the delay, the Court needs to take a lenient view considering the preciousness of the right of appeal granted to parties aggrieved. On considering the SB decision based reasons, the explanation is bona fide and reasonable one – Condonation of delay granted – Decided against the Revenue. Allowability of exemption u/s 54F when the capital amount invested in two adjacent residential flats - Held that:- Reliance has been placed upon the judgment in the case of CIT vs. Gita Duggal [2013 (3) TMI 101 - DELHI HIGH COURT] and applying the ratio of the decision of the abovementioned case to the facts of the present case it has been held that two flats in question are not adjacent and they are not functionally one residential house with two adjacent units. Revenue has not brought any contrary decision to notice of the ITAT – Decided against the Revenue. Construction of a residential house with several independent units - Held that:- The judgment relied upon is CIT vs. Gita Duggal [2013 (3) TMI 101 - DELHI HIGH COURT], wherein it has been held that Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied - There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, income tax authorities cannot insist upon that requirement - Residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under section 54/54F. It is neither expressly nor by necessary implication prohibited. - Decided in favor of assessee.
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2013 (9) TMI 195
Transfer pricing Adjustments - ALP - Preference in choosing comparable, be it internal or external - Held that:- the application of proposed arm's length requires comparison of conditions in a controlled transaction with the condition of uncontrolled transaction and for a difference between the situations, reasonable adjustment of profit can be made to offset the effect of such difference, if any. Thus such a comparability analysis has to be carried out to compare the controlled transaction with the conditions of uncontrolled transactions and then only the arm's length price can be determined. Once the determination of arm's length price is triggered, it has to be determined by following any of the prescribed methods under the statute i.e. prescribed in section 92C of the Act read with Rule 10B. There is no other way ALP can be examined in transfer pricing mechanism. In this case, admittedly neither CUP method nor Cost Plus Method is applicable because in CUP, the price at which a controlled transaction is carried cut is compared to the price obtained in a comparable uncontrolled transaction. In CPM, ALP is determined by adding an appropriate gross profit margin to an AE's cost of producing products or services. None of the factors required in both the methods are existing for carrying out the comparability analysis in this case. The only method which could be said to be applicable for bench marking the margin of international transactions of the assessee, as admitted by both the parties before us can be TNMM. Once internal comparable was available, along with the segmental details, TPO was required to examine the same and carry out the comparability analysis. It is only when internal TNMM fails, the TPO can go into search for external TNMM because external comparable require lot of functionality test and adjustments - It is only when the internal comparable and its segmental details are not found to stand the test of comparability analysis, then external comparable's should be looked into. In such a situation, the TPO will carry out fresh search after taking into consideration all the assessee's objection and submission - All those contentions about search/filter criteria, comparable companies, can be raised before the TPO. Though this will be done only when analysis on internal TNMM is not workable at all - Restored this matter to the file of the AO to verify the segmental details of the AE as well as non-AE and carry out comparability analysis for arriving at the margin of both parties and, accordingly, determine the arm's length price – Decided in favor of Assessee.
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2013 (9) TMI 194
Validity of reassessment u/s 153A - The issue before us is relating to the reassessment proceedings u/s 153A in respect of Assessment Year 2005-06 only and not for all the six Assessment Years - There was no incriminating material found during the course of search and seizure action; therefore, the initiation of proceedings u/s 153A is unwarranted - Assessee has not challenged the validity of reassessment u/s 153A for the other five years – Held that:- The legislature though has clearly identified two types of situation; first when the assessment of any Assessment Year falling within six Assessment Years is pending on the date of initiation of search u/s 132 or making of requisition u/s 132(A) as the case may be, shall abate. Therefore, the assessment u/s 53A in respect of those Assessment Years which stand abated because of the reason of pending on the date of initiation of search or requisition shall be the original/first assessment. In the second category, where the assessment or reassessment has already been completed on the date of initiation of search or making of requisition as the case may be the assessment u/s 153A would be in the nature of reassessment. Thus, the legislature has carved out the nature of assessment u/s 153A as assessment or reassessment in the respective situation. Since the assessment was completed vide assessment order dated 7.11.2007 prior to the date of initiation of search on 15.11.2007. Therefore, this case falls under the category of reassessment u/s 153A. - following the decision in Pratibha Industries Ltd (2012 (12) TMI 760 - ITAT MUMBAI) - Decided against the assessee. Disallowance u/s 14A of the Income Tax Act – Held that:- Rule 8D is not applicable for the Assessment Year under consideration in view of the decision of the Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Therefore, the disallowance made by the Assessing Officer in the reassessment proceedings u/s 153A by applying rule 8D without detecting any material or record to show that the assessee had incurred any expenditure for earning of the exempt income is not justified – Decided in favor of Assessee. Disallowance of short term capital loss and restricting deletion of addition u/s 115U of the IT Act - Held that:- section 115U mandates that the nature of income which is received by the VCC or VCF from the Venture Capital undertaking and further distributed to the investor shall be taxable in the hands of the investor by treating the same nature of income like long term capital gain, short term capital gains, dividend or other income such as interest etc., and accordingly be taxed as per the provisions as applicable under different heads of the income. Hence, section 115U prescribes the principle of pass through by treating the VCC or VCF as a pass through vehicle and further, grants some concession in the shape of non-applicability of provisions of Chapter XIV-D, XII E or XVII B; but does not provide that the income received by the investor from VCC or VCF is exempt - Even otherwise, if the objective of introduction of sec. 115U is to exempt the income received by investor from VCC or VCF, then the provisions should have found place u/s 10 in a similar manner as provided under clause 23FB of section 10. Adjustment of short term capital loss against short term capital gains - Held that:- The income received by the assessee from IVF is taxable in the manner as prescribed u/s 115U – Since the Assessing Officer has assessed the income as short term capital gain; therefore, the claim of the assessee as short term capital loss has to be allowed - There is merit and substance in the alternative plea of the ld AR regarding the claim of short term capital loss against the short term capital gains. - Decided in favor of Assessee.
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2013 (9) TMI 193
Disallowance of provident fund amount and of employees' State insurance corporation as these were paid belately i.e after due date of payment – Held that:- Seen from the chart prepared in the Assessing Officer's order, most of the payments were paid within the grace period itself or within the year itself - The amounts were paid before filing the return of income in any case – Relying upon the judicial principles established in the case of CIT v. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] for the proposition that since the amounts were paid within the financial year/before the filing of return itself, the amounts should be allowed the amount is allowed as deduction – Decided in favor of Assessee. Ad-hoc disallowance on the ground of non-verifiable internal vouchers - Assessing Officer disallowed 15 per cent. of the repairs and maintenance and 20 per cent. of the vehicle expenses on the reason that the supporting evidence furnished was not verifiable as they were self-serving vouchers – Held that:- There is no need for any disallowance of expenditure in repairs and maintenance or vehicle maintenance on ad hoc basis. If the Assessing Officer is not satisfied either about the maintenance of vouchers or verifiable nature of the vouchers, he should identify them and disallow the entire amount under section 37(1), rather than resorting to ad hoc disallowance. The reasons for disallowing are very general in nature without any specific mistakes being pointed out by the Assessing Officer. Considering that the assessee is an agro-based chemical company and also a public limited company the ad-hoc disallowance is not sustainable. Disallowance of loss due to fire attributable to building and machinery treating the same to be capital in nature - The company made its own assessment of damages requiring repairs/replacement expenses and lodged the claim and debited a sum to the insurance company of Rs. 1.51 crores. The insurance company appointed the surveyor who after detailed assessment restricted the claim to Rs. 1,26,35,274. After discussions, the assessee agreed for the claim at the reduced amount. Thereafter the insurance company further reduced the amount for various technical reasons and paid only an amount of Rs. 1,04,66,973 - Amount of difference between the agreed claim which was debited to the insurance company and received claim was treated as loss due to fire – Held that:- Loss is revenue in nature - Any expenditure of this nature was incurred and debited to profit and loss account and when reimbursed the same is credited to the profit and loss account in the year of receipt. Any short fall would not give rise to any loss separately. If it is only an entry passed against the insurance company and has short received this amount, whether the assessee has spent the amounts for repairs and maintenance needs to be examined. Whether there is any claim in the repairs and maintenance account separately or the assessee incurred the expenses in an earlier year and debited to insurer and part received the amount could not be verified as the details are not on record - If the amounts as claimed by the assessee are spent for the purpose of repairs and not claimed separately in profit and loss accounts but adjusted in the insurer's account, then short receipt from the insurance company gives rise to revenue loss – Decided in favor of Assessee. Valuation of closing stock - Claim for devaluation of closing stock to an extent of Rs. 14,25,705 - Assessee has devalued its closing stock to Re. 1 - The assessee furnished the details of various packing materials, quantity, rate and value as available in the books and submitted that most of the material pertains to packing material in which batch numbers, price, etc., were already printed and these could not be used in the assessee business after a lapse of time. Therefore, these packing materials have no value to the company – Assessee also explained that the company has brought forward certain slow and non-moving items in its inventory valued at Rs. 14,25,706 as on April 1, 2004 as the same remained unsold for the whole year – Held that:- Under the normal accounting principles, the closing stock has to be valued either at the cost price or at the market price, whichever is less - Assessing Officer and the Commissioner of Income-tax (Appeals) wrongly considered the issue in disallowing the amount. The assessee submits that the packing material cannot be utilised in the business. Therefore, they are downwardly valued. The learned Commissioner of Income-tax (Appeals) confirmed the Assessing Officer's action on the reason that the assessee did not furnish any details of utilisation/subsequent sales thereof. When the assessee submits that the packing material cannot be used, how all the details of the utilisation can be furnished is not explained by the Commissioner of Income-tax (Appeals). The only way for subsequent sales which can be in the circumstances is by disposing of the packing material at scrap value. In that case, the assessee would certainly account for scrap sale but the assessee cannot sell the packing material as such and so the subsequent sales also cannot be furnished in the absence of its utilisation as the packing material in the production of its products – Reliance has also been placed upon the judgment in the case of Emersons Process Management India (P.) Ltd. vs. Additional Commissioner of Income-tax, Range 3(1), Mumbai,[ 2011 (8) TMI 427 - ITAT MUMBAI] - Since the assessee has not used the above packing material and has to be discarded off by way of destruction or sale as scraps, the assessee has rightly reduced the value – Decided in favor of Assessee. Disallowance of depreciation on software purchase - On the reason that purchase of software is essentially purchase of copyright which attracts TDS provisions under section 194J, the Assessing Officer invoked provisions of section 40(a)(ia) and disallowed the depreciation claimed – Held that:- Mere purchase of software, a copyrighted article, for utilisation of computers cannot be considered as purchase of copyright and royalty. The assessee has purchased a sort of asset and capitalised it to the computers account and claimed depreciation. The assessee has not purchased any copyright or royalty nor claimed any depreciation on royalty as intangible asset. The assessee does not acquire any rights for making copies, selling or acquiring which are generally meant to be considered within the definition of "royalty". The Explanation 2 of section 9(1)(vi) cannot be applied to purchase of a copyrighted software, which does not involve any commercial exploitation of the same - In this case the assessee simply purchased software delivered along with computer hardware for utilisation in the day-to-day business. There is no intangible asset involved in this and the assessee's claim of depreciation cannot be disallowed under section 40(a)(ia) – Decided in favor of Assessee.
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2013 (9) TMI 192
Allowance of additional depreciation - Plant and machinery on which such depreciation is being claimed was used in office and not in the manufacturing activity of the assessee - It is an admitted position that assessee was already engaged in manufacturing activity – Reliance has been placed upon the judgment in the case of VTM Ltd [2010 (10) TMI 925 - MADRAS HIGH COURT], wherein it has been held that it was not necessary for a new plant and machinery to have operational connectivity to products already being manufactured – In the present case, computer software was SAP R/3 generally used in managing inventory as well – Additional depreciation allowable – Decided in favor of Assessee. Apportionment of expenditure on Research & Development to the units on which assessee had claimed deduction under Section 10B of the Act - Assessee mentioned that the products manufactured in the units for which 10B was available, were time tested products so the new product developed from the R&D could not be used – Held that:- Nothing is available on record to show what tangible benefit, if any, assessee had derived on account of the research work. Whether any such earlier research had helped the assessee with regard to its activities in the units on which it had claimed deduction under Section 10B of the Act, is also not on record - Matter requires a fresh look by the Assessing Officer. Assessing Officer has to verify whether the research done by the assessee had any tangible benefit vis-ŕ-vis the activities carried on by it from the units on which deduction under Section 10B was claimed – Remitted this issue back to Assessing Officer for consideration afresh – Decided in favor of Assessee for statistical purpose. Set off of loss in 10B units against profits of non-10B units – Held that:- Reliance has been placed upon the Hon'ble Bombay High Court decision in the case of Hindustan Unilever Ltd [2010 (4) TMI 206 - BOMBAY HIGH COURT] – It is allowed to set off of loss in the 10B units with profits in other non-10B units by putting reliance upon the above named case – Decided in favor of Assessee. Disallowances made under Section 40(a)(i) of the Income Tax Act - Held that:- Recipients of the payment made by the assessee had not made available to the assessee any new technique or skill which assessee could use in its business. The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. The logistics service rendered was essentially warehousing facility. This cannot be equated with managerial, technical or consultancy services. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said non-residents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act - Assessee was justified in having a bona fide belief that the payments did not warrant application of Section 195 of the Act – Assessee could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act – Decided in favor of Assessee. Disallowance of additional depreciation u/s 32(1)(iia) – Held that:- A perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that additional depreciation is allowable on the plant and machinery only for the year in which the capacity expansion has taken place which has resulted in the substantial increase in the installed capacity. In the assessee's case this took place in the assessment year 2005-06 and the assessee has also claimed the additional depreciation during that year and the same has also been allowed. Each assessment year is separate and independent assessment year. The provisions of section 32 of the Act do not provide for carry forward of the residual additional depreciation, if any. Disallowance of expenses incurred for purchase of software license - The nature of software, which was acquired by the assessee, is not at all clear from the orders of authorities below. Except for mentioning that it was for purchasing "Virtual Lab Durable Software for Fatigue Rig", no other information is forthcoming – Held that:- . The question whether the payment was made for acquiring right for using a software or for a copyrighted software cannot be answered without such data - The facts are not sufficient to come to a rational conclusion – Matter remitted to the file of A.O. for consideration afresh.
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2013 (9) TMI 191
Transfer pricing adjustments - ALP - Selection of comparables with functional dissimilarities - Turnover filter - Purchase of software, a revenue or capital expenditure – Held that:- Assessing Officer/TPO directed to exclude, after due verification, those comparables from the list with the related party transactions or controlled transactions in excess of 15% of the total revenue for the financial year 2006-07. It is to be mentioned here, Geometric Ltd. is also to be removed from the comparable list, since that company was having RPT at 19.98% (going by assessee's own calculation), however, no argument was raised for its exclusion by the assessee, probably, on account of low margin of Geometric Ltd. Reimbursement of expenses - Held that:- these reimbursements were not received against any specific services rendered by the assessee to its AEs. These were pure cost reimbursements (travel expenses, hotel stay expenses and other related expenditures) which the assessee had incurred on behalf of its AE for administrative convenience and later got reimbursed at cost. Therefore, the DRP has erred in including the reimbursements received for the purpose of calculating the adjustment under section 92CA. - Decided in favor of assessee. Software produce is an enduring benefit to the assessee in the sense that it would accelerate to enhance the income due to its usage in its usage in software programme which was ultimately developed and sold by the assessee - Software produce is a part of profit making apparatus of the assessee which had, subsequently, helped the assessee in conducting its business more proficiently - The assessee had not brought any evidence to controvert the findings of the Revenue that software produce expense is a capital in nature - AO was justified in treating the expenditure on purchase of computer software as capital in nature – Depreciation on it will be provided. - Decided against the assessee. Disallowance of rental deposits written off - Since the assessee had difficulty in recovering the deposit from the landlord, it had filed a suit before the Hon'ble High Court of Karnataka, which was dismissed on the ground that the lease deed was not duly registered. Hence, the assessee wrote off the rental deposit in its books and claimed as deduction while computing business profits of the assessee. The AO has disallowed the same with the contention that the same is not revenue in nature and, hence, not deductible under the Act – Held that:- Relying upon the Mumbai Bench of the Hon’ble Tribunal in the case of United Motors (India) Ltd. v. ITO [2010 (4) TMI 726 - ITAT, MUMBAI], it has been held that the write off of the interest free deposit made by the assessee to the licensor against rental properties was a loss incidental to the business and, hence, the assessee was entitled to claim the same as allowable deduction – Decided in favor of Assessee.
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2013 (9) TMI 190
Revision u/s 263 - an order erroneous and prejudicial to revenue – Held that:- The CIT has to be satisfied of twin conditions viz., (i) the order sought to be revised is erroneous; and (ii) it is prejudicial to the interest of revenue. If one of this is absent – if the order of the ITO is erroneous but is not prejudicial to the interest of revenue or if it is not erroneous but is prejudicial to the interest of revenue – recourse cannot be had to section 263(1) of the Income-tax Act. There can be no doubt that the provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. However, an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase "prejudicial to the interest of revenue" is not an expression of art and it is not defined in the Income-tax Act. It should be understood in ordinary meaning, it is of wide import and it is not confined to laws of tax. In the present case, Assessing Officer has also not discussed the allowability or disallowance of deductions under sections 32(1)(iia) and deduction u/s 80IB . The order of the Assessing Officer is a non-speaking one and is silent on these aspects. Thus, it can be said that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of revenue - CIT's action in exercising jurisdiction u/s. 263 of the Act is upheld – Decided against the Assessee. Maintenance of separate books of accounts for deduction u/s 80IB - Allowability of deduction u/s. 80IB(7B) of the Income Tax Act with reference to profits and gains of convention centre – Held that:- Assessee had maintained books of account in regular course of business which had been accepted by the Department and no defect has been pointed out in the books of account containing the details of income and expenditure which are supported by vouchers and other documents. The method of accounting followed by the assessee has also been accepted by the Department. The assessee submitted that it has produced books of account and vouchers for verification before the Assessing Officer and after verifying the same the Assessing Officer granted deduction u/s. 80IB(7B). Even if separate books of account are not maintained for convention centre, if the assessee is in a position to show the true and correct profit from the convention centre, the deduction u/s. 80IB is to be granted. Nonmaintenance of separate books of account for convention centre itself cannot be a reason for out rightly rejecting the claim u/s. 80IB of the Act. - Decided in favor of assessee. In the present case it is an admitted fact that the assessee has produced the information for availing deduction u/s. 80IB(7B) in Form No. 10CCB duly certified by the chartered accountant and also there is no allegation that the assessee is not entitled for deduction under this section. Further, the assessee has been granted with this deduction in earlier assessment years which is not disturbed by any process of law and it is continued to be granted in subsequent assessment years. Even if separate books of account are not maintained, in that event also the deduction u/s. 80IB(7B) could be granted to the assessee in proportion to the turnover to profit of convention hall and the Tribunal/courts consistently holding that when it is not possible to accurately determine the deduction u/s. 80IB, the profit has to be apportioned on the basis of turnover of each unit - Assessee's claim u/s. 80IB(7B) cannot be denied by the CIT – Decided in favor of Assessee. Valuation of stock - Valuation report submitted before bank for taking loan can not be basis for addition in the value of stock - Addition of Rs. 15.06 crores, the difference between the value reflected in the value of land in the valuation report and value mentioned in the books of account with reference to closing stock – Held that:- Assessee do maintain stock account and the stocks were recorded in the books of accounts maintained by the assessee is not disputed by the Department – In view absence of maintenance of day to day stock account of land and acceptance of the same by the Assessing Officer cannot be found fault by the CIT. It is further seen that the valuation report given to the bank is for availing the loan from bank. Another important aspect is that the Assessing Officer accepted the profit declared by the assessee on the basis of books of accounts. Before making addition on account of excess stock of land, the CIT has to bring material on record to establish the fact that the assessee was actually having physical stock as per the valuation given to the bank. Merely relying upon the valuation report, it cannot be presumed that the assessee has made unexplained investment when there is no denying of the fact that a common practice of inflating the stock is followed in the business circle for availing loan from bank – Decided in favor of Assessee.
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2013 (9) TMI 189
Transfer pricing adjustments - ALP - selection of comparables - ‘Turnover filter’ to be used as a guidelines for selection of companies as comparables in Transfer Pricing – Reliance has been placed upon the judgment in the case of Genisys Integrating Systems (India) (P.) Ltd.[ 2011 (8) TMI 952 - ITAT BANGALORE], wherein it has been held that, for the purpose of classification of companies on the basis of net sales or turnover and also taking into consideration the Indian scenario, the classification made by Dun & Bradstreet is more suitable and reasonable. - Held that:- As per the ratio laid down by the Tribunal, comparables of companies having turnover of less than Rs.2000 crores and above Rs.200 crores only need to be considered – In the instant case, decided accordingly. Depreciation adjustment in computation of Arm’s length price in the Transfer Pricing Transactions – Held that:- Relying upon the judgment in the case of 24/7 Customer.Com Pvt. Ltd., in [2013 (1) TMI 45 - ITAT BANGALORE], it has been held in the instant case that benefit of depreciation adjustment be given to the assessee as per the chart filed by the assessee which works out to around 3.39% - Thus, after the depreciation adjustment of 3.39%, from 16.56% (105% of 15.77% the ALP will come to 13.17%. Apart from this, the Assessing Officer shall give effect to the proviso to sub-section (2) of Section 92C, as per the latest amended Act, as regards 5% range – Decided in favor of Assessee. Computation of deduction u/s 10A of the Income Tax Act – Held that:- If what is excluded in computing the export turnover is included while arriving at the total turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means, then, when the total turnover includes export turnover, the meaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover – In the instant case, the issue has been decided in favor of assessee. Purchase of software, a capital or revenue expenditure - AO has capitalized software expenses debited to the P&L account amounting to Rs 3.8 crores incurred towards purchase of software (out of the total of Rs 7.7 crores), on the basis that since the depreciation table specifies 'computer software' as a separate category, expenses incurred on purchase of software would need to be capitalized and depreciation be claimed – Held that:- Restored the issue back to the file of the Assessing Officer to reappraise the expenditure in respect of Rs.10 lakhs and above and decide the issue in accordance with the decisions of the Delhi Special Bench in Amway India Enterprises [2008 (2) TMI 454 - ITAT DELHI-C].
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2013 (9) TMI 188
Depreciation applicable u/s 32(1)(ii) - intangible assets as goodwill – Business Purchase Agreement('BPA') - Out of the total consideration of ₹ 62 crores, sum of ₹ 49.26 crores was apportioned towards brands, building, plant and machinery, furniture and fixtures, vehicles and current assets. The balance amount of ₹ 12.74 crores mainly representing the value attributable to the intangible assets comprising of licenses, permissions, health registrations, approvals, concessions, manufacturing know-how, specifications, marketing capabilities such as the distribution network comprising of wholesale stockists, information and documents in relation to products etc was recorded as goodwill in the books of account of the assessee. In respect of the said goodwill, depreciation was claimed under section 32(1)(ii) of the Act. Held that:- Amended provisions of section 32 of the Act w.e.f. 1.4.1999, ambit of depreciation has been enlarged to cover both the tangible and intangible assets – Reliance has been placed on the Hon'ble Delhi High Court in Areva T and D India Ltd. Vs. DCIT [2012 (4) TMI 79 - DELHI HIGH COURT], wherein it has been held that the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises - The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall - Intangible assets, viz., business claims; business information; business records; contracts; employees; and knowhow, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible, assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business – Thus, intangible assets enables the assessee to access the market and has an economic and money value is a "license" or "akin to a license" which is one of the items falling in Section 32(1)(ii) of the Act. In the present case, schedules to Business Purchase Agreement (BPA) comprising of the list of Stockist Agreements, Distribution Agreements, Lease Agreements and also Distribution and Marketing Agreements, alongwith List of Licenses and Permissions and List of various Products, the name license and also the manufacturing know-how etc., alongwith List of employees are assets, which are invaluable and instrumental in carrying on the business of Animal Health Care and Diagnostics Business divisions acquired by the assessee from M/s Ranbaxy Laboratories Ltd. as per BPA – Relying upon the judgment in the case of Areva T and D India Ltd. Vs. DCIT, it is held in the present case that consideration of ₹ 12.74 crores paid by the assessee was for acquisition of the intangible assets is entitled for depreciation under section 32(1)(ii) of the Act – Decided in favor of Assessee. Nature of compensation received towards cancellation of share purchase agreement - Capital receipt (non taxable) or revenue receipt - failure to fulfill the terms of agreement - The contention of the assessee in this regard was that the agreement entered into by the assessee was for acquisition of the company and not for trading in shares of the said company - The acquisition of the business of Zydus was the intention of the assessee in order to start a new profit earning venture i.e. new source of income. - Held that:- In the facts of the present case, there was no loss of source of business income in the hands of the assessee as the assessee was only exploring the possibility of taking over the business of a concern in which it had no interest. The compensation received for failure of such decision being taken in the course of carrying on its normal line of business was rightly held to be taxable receipt in the hands of the assessee – Decided against the Assessee.
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2013 (9) TMI 187
TDS on Payment of transponder fee by assessee to its subsidiary M/s. Expand Fast Holding Ltd. - royalty nor fee for technical services - Disallowance of transponder fee u/s 40(a) - The assessee is engaged in the business of broadcasting T.V. programmes under brand name Zee i.e. zee T.V., Zee cinema etc. These channels are uplinked to satellite in a foreign territory and through the transponder on the satellite, the uplinked programmes are transmitted over the entire footprint of the satellite. The assessee claimed that it had taken space on transponder on Asiasat, through its subsidiary M/s. Expand Fast Holding Ltd. (EFHL), a non resident company – Held that:- It is M/s. EFHL which had made payment to the Asiasat for use of transponder bandwidth - M/s. EFHL has business connection in India and has permanent establishment (PE) through its holding company i.e. the assessee - Therefore, the income arising in case of M/s. EFHL on account of payment made by the assessee may be taxable as business income. It was a contractual payment by the assessee in connection with the business which is chargeable to tax in India and, therefore, the provisions of section 40(a) are apparently attracted - Provisions of Section 40(a) only on the limited ground of royalty/fees for technical services. Though, the assessee, as is clear from the assessment order, had filed copies of separate agreements between Zee Telefilms and M/s. EFHL as well as between M/s. EFHL and Asiasat but these have not been examined – Restored the matter back to Commissioner(A) for passing a fresh order after necessary examination in the light of the observations made – Decided against the Assessee. Expenditure on issuance of Foreign currency convertible bond (FCCB) - Within section 35D as preliminary expnediture or is allowable as revenue expenditure – Held that:- from assessment year 2004-06 even the interest on capital borrowed which otherwise was allowable as revenue expenditure is required to be capitalized if the same had been borrowed in connection with extension of existing business. Therefore, expenses incurred on borrowing the capital cannot, in our opinion, be considered as revenue expenditure. Further, the expenditure has been incurred in connection with extension of business in the field of television and setting up of new channels, which will result in addition to the existing profit earning apparatus giving advantage in the capital field. Any expenditure incurred existing into any advantage in the capital field has to be considered as capital in nature as held by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980 (5) TMI 1 - SUPREME Court]. Expenses incurred for issue of debenture for the purpose of extension of business has to be considered as capital expenditure and, accordingly has to be amortized under section 35D. - Decided against the assessee.
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Customs
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2013 (9) TMI 220
Jurisdiction of the tribunal – Assesse filed application for transfer of the appeals to the Chennai bench - Held that:- The Chennai bench of the Tribunal had jurisdiction to entertain the appeals inasmuch as the cause of action arose - the show-cause notice was issued by the ADG, DRI, Chennai and the order was passed by the Commissioner of Central Excise (Adjudication), Bangalore in his capacity as the Commissioner of Customs (Export), Chennai in terms of Notification No.106/2004 – matter was placed before the President for decision – Decided in favor of assesse.
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2013 (9) TMI 219
Benefit of Notification NO. 21/2002 - Excess Quantity Shown - Not fulfillment of the End Use Condition - Confiscation of Gods – Interest and Penalty - Assesse were importing “Naphtha” falling under CTH 27101990 of the first Schedule of the Customs Tariff Act, 1975 by availing benefit of Notification NO. 21/2002 - The appellant failed to declare the actual quantity of Naphtha in the end use certificate, the excess quantity was detained - Department was of the view that they have imported Naphtha in violation of the condition of the Notification NO. 21/2002-Cus as amended by way of showing excess quantity as consumed when compared to actual quantity consumed by submitting false End Use Certificate and thereby evaded Customs duty on suppressed quantity of Naphtha - Held that:- Confiscation and penalty was not justified in the case – thus confiscation of Naphtha and order for redemption fine and penalty imposed under Section 114 of Customs Act, 1962 were set aside - The appellants were not denying the duty was payable therefore, they have discharged the duty liability rightly - The appellants did not declared the correct quantity of the balance of unutilized Naphtha - Therefore, they were rightly liable to pay interest on the quantity which was not disclosed while furnishing End Use Certificate - Hence the order of appropriating interest amount in case of duty paid on 33950 MT of Naphtha was upheld. The appellant could not use certain quantity of the entire amount of Naphtha imported subsequently since they found generation of electricity not viable by use of Naphtha and found more viable by using the natural gas - This was not a case of levy or non levy of duty by reason of misstatement or suppression of facts etc. but a case of not fulfilling the end use condition of the exemption notification - Penalty cannot be imposed under Section 114A of the Customs Act since there was no mis-declaration etc - The department had proceeded on the sole ground that the appellants have mis-declared quantity of naphtha remaining in stock by providing an incorrect consumption statement.
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2013 (9) TMI 218
Smuggled goods - Huge quantity of smuggled silver bricks of foreign origin were confiscated along with vehicles, vessel and country crafts used for smuggling/transport of such smuggled goods – Whether the assesse was involved in the smuggling activities relating to above confiscated silver – Held that:- The assesse’s confessions stand corroborated not only by co-accused but also by other persons and other evidences as found from the hotel registers - the letter addressed to Collector Central Excise does not in any way reduce the evidentiary value of his confessional statement which stands corroborated by other evidence in the form of statements – Decided against assesse. Penalty – Held that:- The involvement of the assesse in the landing of silver and arranging for transport were proved and penalty on him was warranted – but as the penalty upon the co- noticees were penalty was reduced thus reduced for the present assesse also.
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2013 (9) TMI 217
Condonation of delay - Exported Goods of Inferior Quality - Confiscation of Goods - Penalty u/s 114 - Period of Limitation - The respondent exported a consignment declared to be of Basmati rice of declared value - The goods on examination were found to be inferior quality of rice other than basmati whose export was not permitted - Held that:- The provisions of Section 35E of the Central Excise Act are in pari materia with the provisions of Section 129D of Customs Act, 1962 and like Section 35E(3) of the Central Excise Act, Section 129D(3) of the Customs Act, 1962 during the period of dispute, prescribed the period of three months for issue of order by the Committee of Chief Commissioners under Section 129D(1). Respondent pleaded that the review action u/s 129D(1) of Customs Act, had been taken beyond the limitation period prescribed under Section 129D(1) as under sub-section (3) of Section 129D of Customs Act, the Committee of Chief Commissioners shall make the order under sub-section (1) within a period of three months from the date of communication of decision or order of the adjudicating authority, while in this case, the date of the order is 23-5-2011, and the review order directing the Commissioner to file the review appeal has been passed on 3-11-2011 after the expiry of the limitation period prescribed under Section 129D(3) It was clear that the order of Committee of Chief Commissioners was passed after expiry of period of three months from the date of communication - There was no question of condoning by the Tribunal of the delay in exercise of the power by the Committee under Section 129D(1), as any order issued by the Committee after expiry of limitation period prescribed in Section 129D(3), was invalid and ineffective - CCE, Raipur v. Monnet Ispat & Energy Ltd. [2010 (8) TMI 50 - CESTAT, NEW DELHI] - in clear terms that the limitation period prescribed under Section 35E(3) should be given its literal meaning and order passed beyond the limitation period prescribed is invalid and ineffective - The appeal filed by the Revenue was not maintainable.
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Corporate Laws
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2013 (9) TMI 216
Rule 9 of the Security Interest (Enforcement) Rules - Held that:- The facts were eloquent and indicated that the observations made by the Single Judge that borrower was victimized and a fraud was practiced upon, have no basis - The finding by the Single Judge that the sale of secured interest had been in violation of borrower's right to livelihood and the observation of the Division Bench that non-compliance of Rule 9 hads violated, the borrower's right to property were misconceived - there was no justification whatsoever for the learned Single Judge to allow the borrower to by-pass the efficacious remedy provided to him under Section 17 and invoke the extraordinary jurisdiction in his favour when he had disentitled himself for such relief by his conduct - The Single Judge was clearly in error in invoking his extraordinary jurisdiction under Article 226 in light of the peculiar facts indicated above - The Division Bench also erred in affirming the erroneous order of the Single Judge SARFAESI Act lays down the detailed and comprehensive procedure for enforcement of security interest created in favour of a secured creditor without intervention of the court or tribunal - Section 13(2) required the secured creditor to issue notice to the borrower in writing to discharge his liabilities within 60 days from the date of the notice - Such notice must indicate that if the borrower failed to discharge his liabilities, the secured creditor shall be entitled to exercise its rights in terms of Section 13(4) - A reading of sub-rule (1) of Rule 9 makes it manifest that the provision was mandatory - As regarded balance amount of purchase price, sub-rule (4) provided that the said amount shall be paid by the purchaser on or before the fifteenth day of confirmation of sale of immovable property or such extended period as may be agreed upon in writing between the parties - The period of fifteen days in Rule 9(4) was not that sacrosanct and it was extendable if there was a written agreement between the parties for such extension. There was no doubt that Rule 9(1) is mandatory but this provision was definitely for the benefit of the borrower - Similarly, Rule 9(3) and Rule 9(4) were for the benefit of the secured creditor (or in any case for the benefit of the borrower) - It was settled position in law that even if a provision was mandatory, it can always be waived by a party (or parties) for whose benefit such provision had been made - The provision in Rule 9(1) being for the benefit of the borrower and the provisions contained in Rule 9(3) and Rule 9(4) being for the benefit of the secured creditor (or for that matter for the benefit of the borrower), the secured creditor and the borrower can lawfully waive their right - These provisions neither expressly nor contextually indicate otherwise – Order set aside.
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Service Tax
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2013 (9) TMI 222
Nature of Service – Collecting funds from investors - Demand of service tax was made by the department on the ground that amounts spent by various trusts which were known as ‘Funds’ and which were engaged in the activity of collecting funds from investors and investing them were liable to tax – Held that:- Assesse had not been able to make out a prima facie case - provision for investment losses cannot be considered as part of expenses for providing service - the claim of the assesse that he was eligible for CENVAT credit in respect of various services received by the venture capital fund and once these were taken into account and also the expenses relating to provision for investment losses cannot be taken into account as credit. Stay granted subject to deposit of Rs. 2 crores.
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2013 (9) TMI 221
Penalty u/s 78 of the Finance Act, 1994 - Demand of ₹ 3,51,382/-, is on account of difference in the amount of gross taxable value of services shown in the respective balance sheet and the ER-I Returns filed – Value between the ST-3 Returns and Balance Sheet did not tally due to inclusion of exempted value of GTA service - Held that:- Relying upon the decision in the case of M/s Manpasand Manpower Pvt. Ltd. Vs. Commr. of Service Tax, Kolkata, reported in [2013 (5) TMI 147 - CESTAT KOLKATA] - Once all the facts are reflected in the ST-3 Returns as well as in the Balance Sheet, the allegation of suppression of facts is untenable and accordingly, imposition of penalty under Section 78 of the Finance Act, 1994, is unwarranted - Penalty imposed under Section 78 is bad in law – Decided in favor of Assessee.
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2013 (9) TMI 211
Cenvat Credit - Duty paying documents - Service Tax credit availed on the documents/invoices which were in the name of the head office - Tribunal in the case of Manipal Advertising Services – [2009 (10) TMI 434 - CESTAT, BANGALORE] is in favour of the assessee - Credit availed by the appellant on the services rendered on the invoices which were raised by the service provider in the name of head office were actually received in the factory premises - service provider raised the invoices and charged appropriate Service Tax – Held that:- Most the invoices which are in the name of head office could be endorsed in the appellant's name - Services are undisputedly used for the purpose of the manufacturing activity of the appellant - Appellant is eligible to avail CENVAT Credit on these items as has been held by the Tribunal in the case of Ultratech Cement Ltd. [2010 (10) TMI 13 - BOMBAY HIGH COURT] – Decided in favor of Assessee.
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2013 (9) TMI 208
Incidence to levy Service tax on waste disposal facility - Business support service - waste management - stay - disposal of hazardous waste - use of therms "developer", "operator" and "generator" - Held that:- organizational set up of a concern does not decide taxability - Incidence of levy was decisive - Service tax was either performances based or property based - Such a basic principle had been enunciated in All India Fedn. of Tax Practitioners v. UOI [2007 (8) TMI 1 - Supreme Court] - Reading of Section 65(105)(zzzq) of the Act brings incidence of levy of Service tax in view of support to business or commerce provided by these appellants to “generators” - The word “service” was a noun of the verb “to serve”. What is service - Held that:- The word “service” is a noun of the verb “to serve”. Apex Court in Coal Mines Provident Fund Commissioner v. Ramesh Chandra Jha [1990 (1) TMI 264 - SUPREME COURT] held that it is an act of helpful activity - help, aid or to do something and while doing so, it may also involve supplying of utilities or commodities. The first part of definition in Section 65(104c) of the Act provides scope to tax the activity which renders support to business or commerce or in relation thereto while inclusive part of definition which is second limb of law declares certain category of services to be taxable. There is no iota of doubt that both the appellants carried out commercial activity for certain commercial considerations. There was no charity. Service provided by both the appellants was in relation to business to enable the business concerns (generators) to dispose their waste which was their obligation under law - Such obligation of business houses made the activity carried out by the appellants to be related to business and provision of taxable service - It was noticeable from the features of the contracts between the parties that there was regularity and continuity of commercial activity carried out by them to provide taxable service - The service provided to support business or commercial activity or in relation thereto satisfy the principle of performance based taxation. Prima facie case is against the assessee - Keeping in view the taxable service provided, interest of Revenue, scope and ambit of taxing entry, incidence thereof and principles of service tax flowing from Apex Court decision in the case of All India Federation of Tax Practitioners & Ors Versus Union of India & Ors [2007 (8) TMI 1 - Supreme Court] and HOME SOLUTIONS RETAILS (INDIA) LTD. Versus UNION OF INDIA & ORS [2011 (9) TMI 46 - DELHI HIGH COURT] - stay granted partly.
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Central Excise
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2013 (9) TMI 215
CENVAT Credit – Storage of Inputs outside the factory premises - Applicability of Rule 57 (A) (B) (1) – Whether the duty having been paid on the inputs stored outside the factory premises which was received in the factory, the tribunal was not justified in not considering Rule 57 (A) (B) (1) for the purposes of CENVAT credit - Whether the principle of law i.e.,the applicability of Rule 57 (A) (B) (1) being absolutely the same - Whether the tribunal was not justified in holding that prior permission of the Commissioner was required for storing the inputs outside the factory premises when the circular not put such condition - Denial of CENVAT credit only on the procedural ground of lack of permission from the Commissioner without merits - Held that:- Held that:- Non-observance of procedural condition could not be a ground to deny the credit when there was no dispute regarding duty payment and the use of goods in manufacture of final products - MANGALORE CHEMICALS & FERTILIZERS LTD. Versus DEPUTY COMMISSIONER [1991 (8) TMI 83 - SUPREME COURT OF INDIA ] - unnecessary technicalities, which were matter of form and not one of the substance would not justify the level of permission - The CBEC circular was issued on the representations for availing MODVAT credit on material, which was not received directly inside the manufacturer’s premise and which was required to be stored outside the factory premise and subsequently to the manufacturer's factory. The requirement under CBEC Circular was by way of relaxation to the mandatory provisions of storing the modvatable inputs inside the factory premises, which was the requirement of Rule 57AB (1) (d) - Any relaxation from the mandatory compliance of the Rules must be construed strictly - The CBEC relaxed the mandatory condition of storing the modvatable inputs outside the factory on specific grounds namely on account of shortage of storage space, hazardous nature of inputs or the like - The reasons for storage of modvatable inputs outside the factory could be many and thus the discretion of storing such goods outside factory premise was left to the Jurisdictional Commissioner, Central Excise, with a further condition that credit in such case will be taken in the books of accounts only when the entire inputs covered by invoice were received inside the factory for being put to use in production. The required permission was not taken from the Jurisdictional Commissioner of Central Excise - The CESTAT observed that admittedly the credit was taken while the inputs were still lying outside the factory unauthorisedly despite undertaking given by the assessee in their letter submitted to the Deputy Commissioner of Central Excise that they will take credit only when the total consignment covered under single invoice was received in the factory - Having failed to take the permission of the Jurisdictional Commissioner of Central Excise for relaxation to store the inputs from the Jurisdictional Commissioner of Central Excise and further availing the credit against its own undertaking given by the party in its letter - the appellant was not entitled to the input credit - There was no such statement of fact in the show cause notice, in the order of the order-in-original or the appellate authority that the inputs under single invoice were brought in the factory premises and were used in the manufacturing process before the credit was taken in the books of account. There was no error committed by the CESTAT in recording finding that the Commissioner (Appeals) had erred in law in allowing the credit to the assessee after holding that the appellant had not observed the procedure prescribed for relaxation to store inputs outside the factory premises - Decided in favour of revenue and against the party-appellant.
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2013 (9) TMI 214
Waiver of pre-deposit - Exemption in respect of yarn - conditional exemption - stay - Condition for availment of Exemption Notification No. 29/2004-CE – Held that:- Exemption Notification No. 29/2004-CE is an unconditional exemption which prescribes a rate of duty of 4% advelorum. There is no condition in this notification that for availing of this exemption prescribing concessional rate of duty of 4% adv., input duty Cenvat Credit must be availed. The condition of non-availment of input duty Cenvat Credit is for nil duty under Notification No. 30/2004-CE. But this does not mean that an assessee not availing input duty credit cannot avail the exemption under Notification No. 29/2004-CE, as this is an unconditional Notification. When an assessee does not avail of input duty credit, he has option to pay 4% duty under Notification No. 29/2004-CE and also the option to clear his goods at nil rate of duty under Notification No. 30/2004-CE and when two exemption Notifications are available to an assessee, he can always opt for the Notification which is most beneficial for him and in this regard the Department cannot force the assessee to avail a particular exemption Notification. Rule 6(4) of Cenvat Credit Rule, 2004 - Since capital goods have been used exclusively for manufacture of exempted goods, in view of Rule 6(4) of Cenvat Credit Rule, 2004, no Cenvat Credit would be admissibly in respect of these capital goods – Held that:- during the period of dispute the appellant was clearing the goods by availing full duty exemption as well as on payment of duty, the capital goods cannot be treated as having been used exclusively in the manufacture of exempted goods and Cenvat Credit in respect of the same cannot be demised – Requirement of pre-deposit waived.
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2013 (9) TMI 213
SSI Exemption - Clubbing of two units for the Central Excise taxation purpose - two units owned by Husband and wife respectively - M/s R.R. Iron Foundry and M/s Sharad Industries had common office – During the search of M/s R.R. Foundry, Agra certain doors interconnected with an adjacent unit working in the name and style of M/s Sharad Industries, Agra – Held that:- It is not the Revenue’s case that two unit owned by Smt Kamlesh Gupta and her husband Shri Avdesh Kumar Gupta not complete units having all the necessary machines and infrastructure for manufacture of their final product. Both the units have separate Sale Tax Registration, Industries Registration, Income Tax Registration, Electricity Connection, Telephone Connection & ESI Registration etc. Merely because there is a door between the two units and power of attorney stand given to her husband to look after the job of her unit, by itself cannot be held to be a ground for holding both the units as one - Husband and wife are entitled do their own business and if the husband is looking after the business of the wife that will not make the unit owned by the wife as a dummy unit. The prime requirement, for clubbing the clearance of two units is not having complete independent machinery and infrastructure to manufacture the goods. If both the units are complete by itself, capable of manufacturing the goods without any help from the other unit, it has to be held that both the units are independent units - Financial flow back an financial intertwining between the two units is the main reason for reflecting upon the fact of their being independent or not – There are various decisions which upholds the abovementioned legal position s.a. the case of M/s. Renu Tandon Vs. Union of India, [1992 (1) TMI 126 - HIGH COURT OF JUDICATURE FOR RAJASTHAN]; M/s. Electro Mechanical Engg. Corporation Vs. CCE, Jaipur 2003M/s. Electro Mechanical Engg. Corporation Vs. CCE, Jaipur [2002(5)TMI 186 – CEGAT, NEW DELHI] etc. – Appeal rejected – Decided against the Revenue.
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2013 (9) TMI 212
Cenvat Credit - Removal of Capital Goods removed – Rule 3(5) of the CENVAT CREDIT Rules, 2004 – Held that:- The object of Cenvat Credit on capital goods is to avoid the cascading effect of duty - The machines which are cleared after utilization cannot be treated as machines cleared as such. With effect from 13-11-2007, a proviso has been added to Rule 3(5) of the Cenvat Credit Rules providing that if the capital goods on which Cenvat credit has been taken are removed after being used, the manufacturer shall pay the amount equal to Cenvat Credit taken on the said capital goods reduced by 2.5% for each quarter of year or part thereof from the date of taking the Cenvat Credit – Board’s Circular dated 1-7-2002 clarified that in the case of clearance of goods after being put into use, the value shall be determined after allowing the benefit to depreciation as per rates fixed - The machine cleared after putting into use for nine years cannot be treated as Cleared as such – Decided in favor of Assessee.
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2013 (9) TMI 210
Shortage of Inputs - CENVAT credit - The appellants were engaged in the manufacture of parts and components of various engineering goods falling under Chapter 85 of the First Schedule to the Central Excise Tariff Act, 1985 - Held that:- The Revenue's case was without any substance and made by its own mistakes of numerous types and without an effort to understand the issues involved - this was a case made without the minimum diligence required, sending such matter for de-novo consideration will be another round of harassment for the appellants and most likely another round for wasting the time of the Tribunal also in a further litigation in second round - the similar notice issued to Unit-II of the Appellant in the same jurisdiction had been dropped The situation could be on account of clandestine removal of inputs on which Cenvat credit was taken - The situation could also arise due to bogus credits on the basis of documents without receiving goods covered by such invoices. It could also be due to clandestine manufacture of final products using the impugned inputs and clearing such final products without payment duty - But revenue had not found any evidence of instances of any such activity - The Show Cause Notice mentioned only the first type of possibility and not the second and third type of possibilities. On the whole the entire calculation gives the impression of a very raw method was adopted by interpreting figures in the balance sheet and account books of appellants without taking the help of the appellants or an accounting professional, muddling through making even totaling mistakes on the way. This type of case made by Revenue deserves to be dropped without further examination. The whole case was made in a very casual manner - During stock taking or immediately thereafter the Revenue did not discuss with the appellants what their doubts were and seek clarification from the appellants - Thereafter they issued Show Cause Notice making a case of shortage of inputs based on the stock statements given by the appellants to the banks - Order set aside – Decided in favour of Assessee.
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2013 (9) TMI 209
Payment of duty by 100% EOU - Interpretation and Calculation of the Formula - Availment of CENVAT credit - Appellant was engaged in the manufacture of P.P. woven bags - Revenue was of the view that on the ground that appellant had availed Cenvat credit wrongly during the Period - The dispute was the interpretation of the formula and the manner in which calculations have to be made - Held that:- The claim was correct - The claim of the appellant that excepting the above two items under the head of Education Cess the remaining amounts were held admissible as per the calculations made in respect of the sample invoice - What was required to be done for the purpose of calculating duty payable by a 100% EOU was to calculate the customs duty payable (by calculating 25% of the normal rate as per the exemption notification), add CVD and thereafter treat the amount as excise duty and pay Cess on the same which would be the Cess payable on central excise duty worked out as per the formula. While the conclusion drawn by the Commissioner was correct, the error had been committed in identifying the Cess paid on customs duty - in the case the amount being Education Cess and SHE Cess are the Cess paid on customs duty worked out for the purpose of calculating the total customs duty payable to arrive at the excise duty payable by the assessee as per the formula - appellant had not taken the credit being the Education Cess on customs duty – Decided in favour of Assessee.
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2013 (9) TMI 207
Non-discharge of Duty Liability – Period of Limitation - The products manufactured by the appellant were covered under Chapter 68 of the First Schedule to the Central Excise Tariff Act, 1985 and they were availing benefit of cenvat credit under Cenvat Credit Rules, 2004 - Non-discharge of duty liability on the collection of sales promotion expenses from dealers/distributors, cost of the packing materials separately collected from the buyers and cost of the packing supplied by customers free of cost - Held that:- The adjudicating authority as well as the first appellate authority had not considered the point of limitation - the first appellate authority had only observed that because the details were worked out from the balance sheet, department could not be deprived of invoking extended period of limitation as the balance sheet would be available only by October or November, 2006 - there was no ground for the details or otherwise available in the balance sheets of the previous years - all the details of the transactions which were disputed by the audit party was available in the statutory records like RG-23 Part-I and II, RG-I invoices and monthly returns. Collector of Central Excise v. H.M.M. Ltd.[ 1995 (1) TMI 70 - SUPREME COURT OF INDIA ] - The lower authorities in the show cause notice should put the assessee on charge as to various commissions and omissions and then only invoke the extended period - the entire show cause notice issued to the appellant, there was not a murmur as to what were the various commissions and omissions, on the part of appellant in order to invoke in the first proviso to Section 11A(1) of Central Excise Act, 1944 - surprisingly it was also curious to note that the show cause notice specifically stated that the statement of the employee of the appellant was recorded only for invokement of five years i.e. extended period - This itself indicates that there was no commission or omission which warranted invocation of extended period in this case - The order to the extent it holds against the assessee and challenged by the assessee was liable to be set aside on limitation – Decided in favour of Assessee.
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2013 (9) TMI 206
Benefit of Notification No. 14/2002-C.E - The issue was regarding exemption to product falling under Sr. No. 12 of the notification - Interpretation of Explanation II which is read as, Explanation II : For the purposes of the conditions specified below, textile yarns or fabrics shall be deemed to have been paid even without production of documents evidencing payment of duty thereon - Held that:- there is definitely inherent contradiction in the findings recorded by Tribunal in the case of Prem Industries [2009 (5) TMI 193 - CESTAT, NEW DELHI] and Auro Textile [2009 (11) TMI 447 - CESTAT, NEW DELHI] The issue regarding benefit of Notification No. 14/2002 as regards condition “on which duty hads been paid” needs to be settled by Larger Bench - Simplex Mills Co. Ltd. and Morarjee Gokuldas Spg. & Wvg. Co. Ltd [2005 (5) TMI 170 - CESTAT, MUMBAI] - the benefit of Notification No. 14/2002 was extended to the assessee - Following Jayaswals Neco Ltd. v. CCE, Nagpur [2006 (1) TMI 133 - SUPREME COURT OF INDIA] - Tribunal directed the Registry to place the order before Hon’ble President to consider constituting a Larger Bench and to answer reference as to whether the judgment and order delivered by Bench in the case of Prem Industries is correct or judgment delivered by the Bench in the case of Auro Textile is correct as regards the benefit of Notification No. 14/2002.
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CST, VAT & Sales Tax
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2013 (9) TMI 224
Reassessment under UP VAT - Refund of Tax – Issue was with regard to Refund of the tax deposited by the assesse for the A.Y. 1999-2000 for reassessment u/s 21 (2) of the UP Trade Tax Act – Held that:- The order of re-assessment based on the exercise of powers under Section 21 (2), was vitiated by non-application of mind and non-recording of reasons - The amount of discounts was actually offered and was passed on to the consumers - A specific finding was recorded that by credit notes the amount was refunded to the consumers. Sahkari Khand Udyog Mandal Ltd vs. Commissioner of Central Excise and Custom [2005 (3) TMI 116 - SUPREME COURT OF INDIA] - the refund of the excess tax so realized had to be made in favour of the person (consumer) from whom the same had been realized - There was no fresh material nor any tangible evidence was brought in any survey or in subsequent years which may have indicated that the discounts were actually not received by the consumers and that it was only a paper transaction by credit notes - The entire exercise of the powers of reassessment was vitiated by non-application of mind and non-recording of the reasons in the order passed by the Additional Commissioner, Grade-I u/s 21 (2) of the Act – order set aside – Decided in favor of assesse.
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Indian Laws
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2013 (9) TMI 223
Categorization of the LPG Gas Bottling Plant – Period of Limitation - According to the Petitioner, the activity of LPG Gas Bottling Plant is a manufacturing activity and, therefore, the Petitioner should be charged under category HTI Industrial. According to the Respondent, however, the aforesaid activity of the Petitioner is not a manufacturing activity and, hence, they are entitled to levy and charge electricity at HTII i..e commercial category. Since, the bill for HTII Commercial Category was received by the Petitioner - Whether the activity of running a gas bottling plant was a Commercial activity or a manufacture activity - Department was of the view that the activity of the assesse was not a manufacturing activity and they were entitled to levy and charge electricity - Held that - The grievances made by the assesse was within limitation - The activity will contribute a “Manufacturing Activity - Neither the CGRF nor the Ombudsman had considered the relevant provisions of the Explosives Act, 1884 and the Gas Cylinder Rules 2004 - The assesse had elaborately explained before the Authority below that the process of the industry was not simple refilling LPG Cylinder - It was explained that the activity comprises of LPG suction, vapour distribution, degassification, compression of LPG vapour, external and internal cleaning, hydro pressure test, refilling, sealing, quality control etc. Whether the assesse carried on a manufacturing activity when it was running its Gas Bottling Plant, the matter deserves to be remanded to the Electricity Ombudsman - Held that:- The Ombudsman had not considered all the Judgments and had dismissed the representation of the assesse - Rule was made partly absolute by setting aside the Judgment and Order passed by the Electricity Ombudsman in Representation No.82 of 2011 and the matter was remanded back to the Electricity Ombudsman for a de novo hearing - the Ombudsman shall apply his mind to the Provisions of the definition of the word “manufacture” under the Explosives Act, 1884 and the term “manufacture of Gas” under the Gas Cylinder Rules, 2004 .
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