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M/s. Nanda Mint & Pine Chemicals Ltd. Versus Asstt. Commissioner of Income Tax And Vica-Versa

Non-booking of excise duty refund as revenue in its profit and loss account - Held that:- Assessee collected Central Excise Duty in respect of the unit eligible for deduction under section 80IB of the Act, in the sale bills issued to the customers and subsequently paid to the Central Government, however, same payment was not claimed in the profit and loss account as expenses as the assessee was eligible for refund of the said duty from the Central Excise Department, after verification of the pay .....

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ome-tax(Appeals) on the issue in dispute - Decided against revenue

Deduction under section 80IB in respect of central excise duty refund - Held that:- Excise duty was part of the sale receipt and thus derived from the business of manufacturing activity. Deduction under section 80IB in respect of central excise duty refund allowed. See CIT versus Dharmpal Premchand Ltd [2008 (11) TMI 231 - DELHI HIGH COURT ] - Decided against revenue

Higher deduction claimed by the assessee .....

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on the issue in dispute is well reasoned and no interference on our part is required - Decided against revenue - ITA No. 6172/Del/2012, ITA No. 5063/Del/2011 - Dated:- 8-4-2016 - Smt. Diva Singh, Judicial Member And Sh. O. P. Kant, Accountant Member For the Appellant : Sh. K. Sampath & Raj Kumar, Advocates For the Respondent : Sh. P. DAM Kanunjna, Sr.DR ORDER Per O. P. Kant, A. M. These two appeals of the Revenue and the assessee are preferred against two separate orders dated 08.07.2011 .....

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addition of ₹ 10,18,41,937/-made by the AO on account of excise duty being refunded to the assessee but the same has not been booked as revenue. 2. The Ld. CIT(A) has erred in ignoring the fact that the excise is being refunded to the assessee but the same has not been booked as revenue. 3. The Ld. CIT(A) has erred in holding that the excise duty has been credited in profit and loss account and already accounted for in the receipts is factually wrong and since refund of excise duty was no .....

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deleting the disallowance made by the AO on the issue of deduction u/s 80-IB of the Act in view of the fact that excise duty refund does not have any direct nexus with the 'operational profit' derived by the assessee and will not qualify for deduction u/s 80IB, 6. The Ld. CIT(A) has not appreciated the facts of the case that the assessee company has made its whole of the sales to its own sister concern 'Mentha & Allied Products Ltd.', whereby the assessee company has shown hi .....

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uction under section 80IB of the Income-tax Act, 1961 (for short the Act ) of ₹ 6,03,03,648/-. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued and served within the stipulated period. It was observed by the Assessing Officer ( for short the AO") that the assessee had set up a unit in the State of Jammu and Kashmir and has been claiming deduction under section 80IB of the Act on the profit derived from the said unit. According to .....

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loss account. This contention of the assessee was not accepted and according to the AO excise refund of ₹ 9,91,86,041/- was not credited to the profit and loss account, he added the said sum to the income of the assessee. Further, the AO held that central excise duty refund was not derived from the industrial undertaking and it was in the nature of incentives granted by the government, and therefore not eligible for deduction under section 80IB of the Act, accordingly the deduction under .....

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ppeal before the Commissioner of Incometax( Appeals), who allowed the appeal. Aggrieved, the Revenue is in appeal before the Tribunal challenging the findings of the ld. Commissioner of Incometax( Appeals). 4. In ground No. 1 to 3 of the appeal, the Revenue has raised the issue of non-booking of excise duty refund as revenue in its profit and loss account. 5. The ld. Department Representative ( in short DR ) relied on the order of the AO, whereas on the contrary, the ld. Authorized Representativ .....

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d perused the material on record. The learned Commissioner of Income-tax(Appeals) has decided the issue as under: So far as the first issue regarding the non inclusion of excise duty refund in the P&L account is concerned, the Assessing Officer was clearly in error. The sales bills, the sales account and figure of sales as taken in the P&L account are inclusive of the element of excise duty which has been charged in invoices and posted along-with invoice value to the sales. It has also b .....

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fore the Assessing Officer. The excise duty as collected by the appellant having been shown as part of the sales, the Assessing Officer was clearly in error in once again including the same for assessment. 1 am also in agreement with the other point as raised on behalf of the appellant that the excise duty was required to be accounted for consistent with the method of accounting pursued by the appellant. Having pursued mercantile method of accounting, the excise duty collected by the appellant m .....

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hat the assessee collected Central Excise Duty in respect of the unit eligible for deduction under section 80IB of the Act, in the sale bills issued to the customers and subsequently paid to the Central Government, however, same payment was not claimed in the profit and loss account as expenses as the assessee was eligible for refund of the said duty from the Central Excise Department, after verification of the payments in accordance to the notification issued. Since the assessee was to be refun .....

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e ld. Commissioner of Income-tax(Appeals) and the grounds Nos. 1 to 3 of the Revenue are dismissed. 6. In ground Nos. 4 and 5, the Revenue has challenged allowing deduction under section 80IB of the Act in respect of central excise duty refund. 6.1 The ld. DR relying on the findings of the AO submitted that the central excise duty refund was an incentive granted by the government and not part of the profit derived from the Industrial Undertaking and, therefore, it was not eligible for deduction .....

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(2009) 317 ITR 353 and submitted that the Special Leave Petition filed by the Revenue against the said decision was dismissed by the Hon ble Apex Court. He further reiterated the submission made before the ld. CIT(A) that Hon ble High Court of Guwahati in the case of Meghalya Steels Ltd in the order dated 16/09/2010 held that excise duty refund is covered under the purview of exemption provided under section 80-IB of the Act. 6.3 We have heard the rival submissions and perused the material on re .....

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there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (2) ……………………………….. 6.4 So claiming deduction under section 80-IB of the Act, the first prerequisite is that the deduction is allo .....

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the excise duty on the goods from the customers and paid to the government and subsequently the assessee has been granted refund of the excise duty paid, in accordance with the notifications granting exemption to the assessee. The assessee claimed this excise duty refund as part of profit from the industrial undertaking and claimed deduction under section 80-IB of the Act. The assessee is treating this refund of excise duty as part of the profit of the undertaking, whereas according to the Reve .....

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there was a direct nexus of the excise duty refund with the manufacturing activity carried out by the assessee. The assessee relied on the judgment of the Hon ble jurisdictional High Court in the case of Commissioner of Income Tax versus Dharmpal Premchand Ltd. reported in 317 ITR 353. In the said judgment, the Hon ble High Court has held as under: 5. Having considered the decisions cited by the learned counsel for the Revenue, as well as, by the counsel for the assessee, we are of the view tha .....

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of fact, in the questions proposed by the Revenue, there is no specific question, that this finding of the authorities below is perverse. There is of course a very broad based and general question that the order passed by the Tribunal is perverse in law and on facts. According to us, such a question is vague. A perusal of the grounds of appeal would substantiate this aspect of the matter. There is no ground taken by the Revenue whereby the substantial findings of fact have been challenged by the .....

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gment of the jurisdictional High Court, the Hon ble Supreme Court in the case of Liberty India versus CIT (supra) decided the issue of deduction under section 80-IB of the Act in respect of profit from duty drawback and DEPB and held that these are not profit derived from the industrial undertaking and, therefore, same are not eligible for deduction. The relevant findings of the Hon ble Supreme Court on the issue are as under: Discussions and findings: 12. In this batch of Civil Appeals we are c .....

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profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under s. 80-IA/80-IB is the generation of profits (operational profits). For example, an assessee company located in Mumbai may have a business of building housing projects or a ship in Nava Sheva. Ownership of a ship per se will not attract s. 80-IB(6). It is the profits arising from the business of a ship which attracts sub-s. (6). In other words, deduct .....

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A) constitutes a stand-alone item in the matter of computation of profits. That is the reason why the concept of "Segment Reporting" stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India (ICAI). 14. Analyzing Chapter VI-A, we find that s. 80-IB/80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for "computation of pr .....

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hether the DEPB credit/duty drawback receipt comes within the first degree sources? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately. On the other hand, according to the Department, DEPB credit/duty drawback receipt do not come within first degree source as the said incentives flow from Incentive Schemes enacted by the Government of India .....

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Ltd. (1985) 44 CTR (Bom) 98 : (1986) 157 ITR 762 (Bom)] 15. Continuing our analysis of s. 80-IA/80-IB it may be mentioned that sub-s. (13) of s. 80-IB provides for applicability of the provisions of sub-s. (5) and sub-ss. (7) to (12) of s. 80-IA, so far as may be, applicable to the eligible business under s. 80-IB. Therefore, at the outset, we stated that one needs to read ss. 80-I, 80-IA and 80-IB as having a common Scheme. On perusal of sub-s. (5) of s. 80-IA, it is noticed that it provides f .....

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o read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of ss. 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-s. (2), would be entitled to deduction under sub-s. (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-s. (1) purports to restrict the quantum of .....

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stoms duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. Therefore, .....

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excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-s. (2) of s. 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstance .....

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we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in s. 80-IB. 19. Since reliance was placed on behalf of the assessee(s) on AS-2 we need to analyse the said standard. 20. AS-2 deals with valuation of inventories. Inventories are assets held for sale in the course of business; in the production for such sale or in form of materials or supplies to be consumed in the production. 21. "Inventory" .....

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. Hence trade discounts, rebate, duty drawback and such similar items are deducted in determining the costs of purchase. Therefore, duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly (see : p. 44 of Indian Accounting Standards and GAAP by Dolphy D souza). Therefore, for the purposes of AS-2, Cenvat credits should not be included in the co .....

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es being written back, liquidation of current assets etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the P&L a/c for purposes of s. 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. 23. We are of the view that Department has correctly applied AS-2 as could be seen from the f .....

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art of the net profits of eligible industrial undertaking for the purposes of ss. 80-I/80-IA/80-IB of the 1961 Act. 25.The appeals are, accordingly, dismissed with no order as to costs. 6.7 The Ld AR submitted that the Special Leave Petition filed by the Revenue against the judgment of the Hon ble Jurisdictional High Court in the case of Commissioner of Income Tax versus Dharmpal Premchand Ltd (supra) was rejected by the Hon ble Apex Court and, therefore, the ratio of the judgment in the case of .....

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(2009) 225 CTR (SC) 233. 6.9 In the case of Meghalya Steels Ltd ( supra), the assessee claimed deduction under section 80-IB of the Act on the subsidies received which consisted of transport subsidy, interest subsidy and power subsidy. The Hon ble Supreme Court held that all the subsidies are reimbursed to the assessee towards element of cost relating to manufacturing or sale of their products and thus there existed a direct nexus between the profit and gains of the industrial undertaking and r .....

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ustrial Company Limited v. Commissioner of Income Tax, Gujarat II, this Court held that since an expression of wider import had been used, namely "attributable to" instead of "derived from", the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression "a .....

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an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on the facts before it, that by reason of an export promotion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Obviously, the sale consideration therefrom could not be said to be directly from profits and gains by the industrial undertaking b .....

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cts, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections .....

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IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 19. Similarly, the judgment in Pandian Chemicals Limited v. Commissioner o .....

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ds reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20. Liberty India being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes .....

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y against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself. 21. The Calcutta High Court in Merino Ply & Chemicals Ltd. v. CIT, 209 ITR 508 [1994], held that transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:- "We do not find any perversity in the Tribunal's finding that the sc .....

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fit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error." 22. However, in CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport s .....

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ng for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in (2000) 242 ITR, 204 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhypadhyay submitted that it is not a p .....

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in the case of Liberty India(supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB). Both the incentives considered by the Apex Court in the case of Liberty India could be availed after the manufacturing activity was over and exports were made. But, we are concerned in this case with the transport and interest subsidy which has a direct nexus with the manufacturing activity inasmuch as these subsidies go to reduce the cost of producti .....

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ry, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable." 23. We are of the view that .....

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duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (nonremote) areas. The huge transportation cost for .....

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point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable." (Paras 14 and 15) 25. The decision in Sahney Steel and Press Works Ltd. v. Commissioner of Income Tax, A.P. - I, Hyderabad (1997) 7 SCC 764, dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finished goods; subsidy on power consume .....

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mchand Ltd., 317 ITR 353 from which an SLP preferred in the Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of the Act, in which it was held that refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under Section 80-IB of the Act. 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would .....

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s", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exp .....

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correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove. 6.10 We find from the para 29 of the aforesaid judgment that the judgment of the Hon ble Delhi High Court in the case of the Dharmpal Premchand Ltd. (supra) , where also the issue of deduction under section 80-IB of the Act on refund o .....

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higher deduction claimed by the assessee under section 80-IB of the Act in respect of the sales made to its sister concern. 7.1 The Ld DR relying on the order of the Assessing Officer submitted that entire sales were made to the sister concern namely M/s Mentha & Allied products Ltd (MAPL) and the gross profit rate of the assessee was higher than the other concerns in similar trade ,therefore the restricting of the deduction to normal profit at the rate of 3% on similar trade was, justified. .....

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as under: 3.1 I have considered the findings of the Assessing Officer and the arguments advanced on behalf of the appellant. I have also examined the bills of the unrelated parties who have supplied the same commodity to Mentha & Allied Products Ltd. during the same year. The rate variations as noticed by me in the invoices are only marginal and in fact in many cases the rates at which the appellant has sold to Mentha & Allied Products Ltd. are lower than those at which the outsiders ha .....

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profit realization is not a proper indication of the trading result and that a safer and more reliable estimate would be the gross profit realization. The appellant has shown the profits of the preceding years where from it is evident that the results of the subject year are not as attractive as those of the preceding years. From the assessment order of Mentha & Allied Products Ltd., it is clear that if facts as narrated by the Assessing Officer in the subject case are taken to be correct, .....

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e current rates of outsiders with Mentha & Allied Products Ltd. In the circumstances of the case there appears to be no justification for disturbing the book result by the Assessing Officer after taking recourse to Section 80- IA (10) of the Act. The interference as made by the Assessing Officer is 5n erroneous premises and unnecessary. The claim as made by the appellant is found to be correct. The ground of appeal stands allowed. 7.4 We find that the sale price per unit paid to the assessee .....

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TMI Note: Whether the provisions of ICDS apply to a non-resident who claims the benefit of a double taxation avoidance agreement (DTAA).

TMI Note: In case any of the ICDS provisions is contrary to a circular or press release issued by the CBDT, which would prevail over the other.

TMI Note: ICDS-I requires disclosure of significant accounting policies and other ICDS requires specific disclosures. Where is the taxpayer required to make such disclosures specified in ICDS.

Notification: Income Computation and Disclosure Standards (ICDS) - New ICDS to be effective from AY 2017-18

News: RBI Reference Rate for US $

Highlight: GST - Detention of goods under transport - discrepancy in documents - the statutory provisions provide a mechanism for adjudication following detention of goods including for the provisional release thereof pending adjudication - HC

Highlight: Reassessment - first few paragraphs of the assessment order dealt with objections and disposed of accordingly - Unfortunately, the manner in which the AO has decided the issue is wholly unsustainable in law - HC

Highlight: Business expenditure u/s 37 - liquidated damage - breach of contract terms - Expenditure was not incurred for any purpose which is an offence or which is prohibited by law - cannot be disallowed - HC

Highlight: Valuation - inclusion of reimbursement of expenses - managing participation of clients in certain mela, fairs, promotional activities etc. - They are liable to service tax on the gross amount received - They cannot restrict their tax liability to only agency commission

Highlight: TDS liability - ITAT confirmed the liability - We do not see how it is possible for us to uphold the order of the Tribunal and when it purports to decide two Appeals of the Revenue by single paragraph conclusion - HC

Highlight: Reopening of assessment - sufficiency of material available with the AO to form a belief that income chargeable to tax had escaped assessment - bogus purchases - seller refused to respond - notice would not be interfered with - HC

Highlight: Exemption u/s 11 - education activities - transport and hostel facilities surplus cannot be considered as business income of the assessee society

News: Draft Notification for insertion of new rule 39A in the Income-tax Rules, 1962 – comments and suggestions-reg.

Highlight: Genuineness of labour wages expenses, embroidery charges, fabrication expenses etc. - getting work done through small workmen who do not have any permanent place of residence - disallowance of ad hoc expenditure deleted.

Highlight: Project import - Since the goods were never used for the purpose for which it was imported, the actual user condition has been violated - Redemption fine and penalty imposed.

Highlight: Penalty u/s 112 (a) - CHA - Lack of due diligence and failure to take more precautions can not, by itself, bring in penal consequences

Highlight: Import of services - GST - The fact that those services were received outside India will not change the fact that the services have been paid for by the beneficiary appellant, who is located in India. - Demand confirmed.

Notification: SEZ for IT/ITES at Madhurwada Village, Visakhapatnam District in the State of Andhra Pradesh - denotified.

Highlight: Merely because payment is received in Indian rupee, it cannot be said that payment against export has not been received in convertible foreign exchange.



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