Cus - Single judge of the Bombay High Court held the appellant to be entitled to detention certificate and refund of detention charges paid to the Customs Authorities and the appellants were directed to move the Port Trust authorities so far as the claim of payment/refund of demurrage/BPT charges are concerned - the said order was upheld in appeal - appellant before Supreme Court:

Held: No mala fide intent or any extraneous reasons/ grounds can be attributed to the Revenue in detaining and refusing to clear the goods of the importer(s) - the subsequent change of opinion and issuance of Circular would not make the Revenue liable as has been sought to be contended by the importer(s) unless the initial action is palpably wrong or wholly unacceptable which is not the position in the present case - a stand taken by the Revenue or an action undertaken which is subsequently corrected by the Revenue itself or corrected on the basis of a subsequent judicial pronouncement will not, ipso facto, make the Revenue liable for payment of demurrage charges as has been contended on behalf of the appellant(s) - importer(s) - no occasion to interfere with the order of the High Court insofar as demurrage charges are concerned and issue any direction, as prayed for by the appellant(s) - importer(s) - the appeal is found to be without any merit and is accordingly dismissed : SUPREME COURT [para 8, 9]

Civil Appeal dismissed

2018-TIOL-2347-HC-KERALA-IT

Income Tax - section 37.

Keywords - Advertisement expenses - Long term capital gains - Renovation expenses - Retrenchment compensation& Sales promotion.

The assessee had retail business in Home Appliances, which were sold to a partnership firm in which also the assessee was a partner. The assessee claimed expenses u/s 37 on five specific heads-retrenchment compensation, renovation expenses, repairs and maintenance expenses, advertisement expenses and sales promotion expenses in the return of income for the year 2001-02, the sale having been occasioned in the previous year on 14.07.2000. The AO, during the assessment proceedings, disallowed all the claims of the assessee. On appeal, the CIT(A) allowed the appeal. On further appeal by the Revenue, the Tribunal upheld the decision of the CIT(A).

On appeal the High Court held that,

Whether expenditure like renovation expenses and repairs & maintenance incurred for the purpose of sale of proprietary business, is to be allowed u/s 37, when the outcome of such sale is being declared as long term capital gains - YES: HC

Whether proportionate disallowance made by the AO for advertisement expenses and sales promotion expenses incurred after sale of business is justified - YES: HC

++ with respect to renovation expenses and repairs and maintenance, the Assessing Officer found that since the business itself was sold, there was no reason for incurring such expenses. The assessee had taken a specific contention that the renovation was done with a view to sell the business to the partnership firm. The Assessing Officer took the view that if the renovation was done after the decision to sell the business was taken, then necessarily it is not an expenditure incurred for the business of the assessee. We do not think such a view can be taken especially since the assessee had a case that he expended the amounts for the purpose of sale, in which sale he had also declared long term capital gains coming to Rs.75 lakhs. In such circumstances, the renovation expenses and expenses for repairs and maintenance have to be allowed as an expenditure under Section 37;

++ the dis-allowance for advertisement expenses and sales promotion expenses has been made by the A.O only to that portion expended after the sale, which also we find to be proper. The order of the A.O on that count is liable to be restored.

Revenue's appeal partly allowed

2018-TIOL-2346-HC-AHM-MISC

Central Sales Tax - SCN dated 31.12.2015/4.1.2016 issued to the petitioners for recovery of CST amounting to Rs.3.68 crore which was reimbursed to them during the period between 2007-08, the prime reason being that the petitioners were not entitled to reimbursement of CST on goods purchased from DTA which were used in manufacture of final products and were allowed to be cleared in DTA - demand confirmed, penalty imposed:

Held: oreign Trade Policy [FTP] 2004-09 entitled an EOU to reimbursement of CST on its purchases made from DTA units - this provision did not make any distinction between the consumption of the goods purchased from DTA for production of goods meant for export or for domestic clearances - in a similar case, the Division Bench of this Court in Asahi Songwon Colors Ltd. - 2017-TIOL-1456-HC-AHM-MISC upheld the contention of the petitioner therein that the handbook of procedure cannot override the substantive provisions made in the FTP - further, this Court also found that the action initiated by the department was rather belated in this context - under the circumstances, O-i-A dated 14.3.2018 is set aside - resultantly, the O-i-O would not survive - petition is allowed and disposed of accordingly : HIGH COURT [para 12, 15, 16, 17]

Special Civil Application allowed

2018-TIOL-3350-CESTAT-MAD

ST - During verification of accounts, it was noticed that the appellant (during the period October 2004 to March 2009) did not pay ST on the entire construction activities and also that they have paid ST under the works contract service on the taxable value realized from customers towards builders' share of constructed area - SCN was issued proposing to demand short-paid ST - demand confirmed along with interest, penalties imposed:

Held: Demand has been raised under construction of residential complex services - the contracts entered between the appellant and the service recipient is a composite contract which involves both supply of materials as well as rendering of service - the Tribunal in the case of Real Value Promoters Ltd. - 2018-TIOL-2867-CESTAT-MAD had occasion to analyse the issue regarding demand of ST under construction of residential complex services, commercial or industrial construction service and construction of complex service - the Tribunal held that prior to 1.6.2007, levy of ST can be under the above categories only for contracts which are purely for services - that after 1.6.2007, the above categories would be applicable only if the contracts are purely services and which are not composite contracts - further, it was held that after 1.6.2007, demand in respect of composite contracts would fall under works contract service only - following the above decision, the demand of ST under commercial or industrial construction service (residential complex) cannot sustain after the period 1.6.2007 - the levy of ST prior to 1.6.2007 cannot also sustain by application of the decision of the Supreme Court in the case of Larsen & Toubro Ltd. - 2015-TIOL-187-SC-ST - the impugned order cannot sustain and is set aside - the appeal is allowed with consequential relief: CESTAT [para 4, 5, 6]

Appeal allowed

2018-TIOL-3349-CESTAT-MAD

ST - During investigation, it was found that the appellant rendered construction of residential complex service (during the period August 2006 to September 2011) - they did not discharge appropriate ST on the construction activities for which SCNs were issued proposing to demand ST under commercial or industrial construction service (construction of residential complex) - demands confirmed along with interest, penalties imposed:

Held: The demand has been raised in the SCNs under construction of residential complex services - the contracts entered between the appellant and the service recipient is a composite contract which involves both supply of materials as well as rendering of service - the Tribunal in the case of Real Value Promoters Ltd. - 2018-TIOL-2867-CESTAT-MAD had occasion to analyse the issue regarding demand of ST under construction of residential complex services, commercial or industrial construction service and construction of complex service - the Tribunal held that prior to 1.6.2007, levy of ST can be under the above categories only for contracts which are purely for services - that after 1.6.2007, the above categories would be applicable only if the contracts are purely services and which are not composite contracts - further, it was held that after 1.6.2007, demand in respect of composite contracts would fall under works contract service only - following the above decision, the demand of ST under commercial or industrial construction service (residential complex) cannot sustain after the period 1.6.2007 - the levy of ST prior to 1.6.2007 cannot also sustain by application of the decision of the Supreme Court in the case of Larsen & Toubro Ltd. -2015-TIOL-187-SC-ST - the impugned order cannot sustain and is set aside - the appeal is allowed with consequential relief: CESTAT [para 6, 7, 8]

Appeal allowed

2018-TIOL-2337-HC-AHM-IT + Case Story

SRI BAPOOJI PATTIN SOUHARD SHANKARI NIYAMIT Vs PR CIT: GUJARAT HIGH COURT (Dated: October 10, 2018)

Income tax - Section 80P(4)

Keywords - cooperative bank - exemption u/s 80P - fresh enquiry - merits of case

The assessee had filed its return for the relevant A.Y declaring NIL income after claiming exemption u/s 80P at Rs.87,10,540/-. Against the said return, assessment was framed u/s 143(3) denying the exemption u/s 80P on the ground that the Assessee Society was a Bank and was hit by the provisions of Section 80P(4).

On appeal, the CIT(A) held that Assessee was not a Co-Operative Bank, therefore not hit by provisions of Section 80P(4). On further appeal, the ITAT remanded the matter to the AO for reconsideration afresh, in the light of the dictum of the Supreme Court in the case of the Citizen Co-Operative Society Ltd. V.s ACIT - 2017-TIOL-287-SC-IT.

On appeal, the HC held that,

Whether certain matters call for remand & fresh enquiry rather than rendering any finding on the merits of case, if dictum laid down by the Apex Court under identical circumstances is available on record - YES: HC

++ the Tribunal considering the entire material on record in proper perspective, recorded a finding that in view of the dictum of Supreme Court in an identical circumstances in the case of Citizen Co-Operative Society Ltd. Vs. ACIT - 2017-TIOL-287-SC-IT, wherein it was held that, business of the Society does not amount to that of Co-Operative Bank, so as to come within the mischief of Section 80P(4). Since the Assessee was catering to the needs of non-members also, the principle of mutuality is tainted and therefore the benefit of Section 80P was denied. Whether the assessee accepting the deposits even from non-members, has to be held enquiry afresh by the AO. Therefore, the Tribunal has remanded the matter to the AO for fresh enquiry and the same is in accordance with law.

Assessee's appeal dismissed

2018-TIOL-2336-HC-AHM-IT

ADITYA CHEMICALS Vs TRO: GUJARAT HIGH COURT: (Dated: October 23, 2018)

Income tax - Writ - attachment of bank account - false declaration in affidavit - recovery of tax dues

The assessee is an individual and is manufacturing textile auxiliaries and water based emulsions in the name of Aditya Chemicals, a proprietary concern. For the business purpose, the assessee had opened an account with HDFC bank, Memnagar branch, Ahmedabad. This account was utilised for drawing LCs to be issued in favour of foreign exporters for import of goods utilised by the assessee for manufacturing finished product. In the meanwhile, the Tax Recovery Officer issued a notice addressing to the assessee's bank HDFC stating that sum of Rs. 2 crores was due from Aditya Chemicals i.e. the assessee to Mahesh Gandhi, proprietor of DPS Commodities. Said creditor had income-tax dues for the A.Ys 1992-1993 to 1995-1996. Bank was therefore, called upon to pay to the Income-tax Department such amount due lying in the account of assessee. The bank was also directed that if they discharged any liability to the assessee after receipt of this notice, then they would be personally liable for fine & penalty. Therefore, challenging the same, the assessee stated inter-alia that he was not served with the said notice and came to know about the order only when one of the cheques issued by him to the transporters was returned and payee telephonically informed him about the same. The assesse therefore, rushed to the bank and was given a copy of the notice of the income tax attaching the assessee's bank account. The assessee therefore averred that he was not a debtor of said DPS Commodities. Under such circumstances, the attachment order was temporarily stayed on the ground that the Department could not use the assessee's account for causing the recovery of tax dues of DPS Commodities.

The department appeared in response to the said notice and pointed out that the assessee had borrowed a total of Rs. 2 crores from the said DPS Commodities and its proprietor Mahesh Gandhi and repaid the same over a period of time. This Court therefore, passed a detailed order expressing displeasure at the misstatement made by assessee particularly, with respect to the assessee having no dues of DPS Commodities on the date of swearing the affidavit in the petition. Accordingly, the assessee is called upon to restore the original balance in his account as it stood prior to the passing of interim stay order of this Court.

On Writ, the HC held that,

Whether approach of Income tax Authorities in attachment of bank account of the taxpayer, for recovery of outstanding dues of third party creditors, is permissible - YES: HC

++ the record reveals that the assessee had borrowed total Rs. 2 crores from DPS Commodities and Mahesh Gandhi proprietor and repaid the same which repayments happened spread over a period of time. Much of this happened prior to the attachment order. However, as on the date on which the assessee sworn the affidavit in the present case, sum of Rs. 75 lacs still remained outstanding. This of course happened from another account of assessee which was unattached. However, the assessee cannot get away from the basic facts that he has filed an affidavit making a false declaration, and he was fully aware about the order of attachment passed by the department asking his banker to pay to the department any sum due and payable to DPS Commodities towards income-tax liabilities of DPS Commodities. Under such circumstances, the position before passing of interim order, stands restored. The situation as it stood on that date was that the assessee had a balance in excess of Rs 1 crore in the said account; that the department had already issued a garnishee order on the bank asking the bank to pay to the department any sum to the ceiling of Rs. 2 crores which the assessee owed to DPS Commodities. If therefore, the bank had carried out such instructions, sum of Rs. 75 lacs had to be paid over from such account to the department which was a sum which the assessee still owed to DPS Commodities when the communication was issued by the department to the bank. The assessee cannot take a stand that he utilised another bank account which was unattached by the department. Accordingly, the bank shall release sum of Rs. 75 lacs in favour of Tax Recovery Officer towards the dues of DPS Commodities and its proprietor Mahesh Gandhi. For the rest obviously, the Department cannot chase the assessee. Subject to payment of said sum, attachment order would be lifted.

Case disposed of

2018-TIOL-2335-HC-AHM-IT

PR CIT Vs HITACHI HOMES AND SOLUTIONS INDIA LTD: GUJARAT HIGH COURT (Dated: October 09, 2018)

Income tax - estimation basis - provision for warranty

The assessee company is engaged in the business of manufacturing & selling of Air Conditioners and Air Conditioning System. On such supplies, the assessee provided five years warranty to the customer. For the relevant A.Y 2001-02, the assessee had claimed such expenditure to the tune of Rs.52.47 lakhs on estimation basis. When questioned, the assessee pointed out that it had provided five year warranty. The estimate was based on number of compressors on such machines which failed every year in last five years. The assessee also produced data before the Revenue authorities of the failure ratio of assessment made in the A.Y 2008-09. The AO did not accept such explanation and was of the opinion that letters produced were for A.Y 2008-09 which would not be useful for the year under consideration. The Assessee's contention that in the past, no such objection was raised was also not accepted. On appeal, the Tribunal deleted the addition on short ground of consistency.

On appeal, the HC held that,

Whether the principle of allowing expenditure on the basis of estimation which is derived through some scientific exercise, should not be disturbed - YES: HC

++ it is noticed that the assessee had been following the same pattern since years and no where in the past the Revenue had objected to such claim. Quite apart from the Tribunal's observations on the issue of consistency which seem to be commencing, independently also this Court does not think that the disallowance was justified on merits. The assessee who was engaged in the business of manufacturing & selling air conditioned units would provide five year warranty to the customer. The expenditure was estimated on the basis of data of past five years of failure of the compressors which obviously in all air conditioned units would be the main concern. The principle of allowing expenditure on the basis of estimation which is derived through some scientific exercise, which in statistical terms used as actuary is well established.

Revenue's appeal dismissed

2018-TIOL-2334-HC-AHM-IT

PR CIT Vs JANAM STEEL AND ALLOYS: GUJARAT HIGH COURT (Dated: October 09, 2018)

Income tax - discrepancy in stock - evidences as stock statements

The Revenue Department had preferred the present appeal challenging the action of ITAT in deleting the addition of Rs.1,59,22,356/- due to discrepancy found in stock statements, and by not considering the evidences in form of stock statements which were submitted by the assessee to his banker, Punjab National Bank.

On appeal, the HC held that,

Whether stock statements submitted by taxpayer to his banker is no basis to make additions, when there is no difference in physical stock and the stock shown in the account of the taxpayer on the date of survey - YES: HC

++ this Court had considered an identical question at the instance of Revenue Department in Income Tax Appeal No.1198 of 2018 - 2018-TIOL-2149-HC-AHM-IT by observing that: "....the Tribunal deleted the addition on account of stock discrepancy by inter alia observing that there was no difference in the physical stock and the stock shown in the account of the assessee on the date of survey. Sole ground for making the addition was difference between the accounts maintained by the assessee and the stock statement filed with the Bank. It was noted that the stock statements filed with the Bank pertain to the months of April to August, whereas, the survey took place in the month of September. It was also noticed that the tendency to show higher value in the bank statements to enjoy higher cash credit limit. No question of law therefore arises...." In the result, the issue is answered in favour of assessee.

Revenue's appeal dismissed

 

2018-TIOL-2333-HC-AHM-VAT

RAJAT ENTERPRISE Vs STATE OF GUJARAT: GUJARAT HIGH COURT (Dated: October 25, 2018)

Gujarat VAT - dismissal of appeal - failure of pre deposit

During the course of assessment, the AO passed an order of assessment raising principal tax demand of Rs.38,52,347/- and Rs.29,161,30/- respectively. Challenging the same, the assessee approached the Appellate Commissioner, who asked the assessee to deposit 20% of the tax by way of pre-deposit, only upon which the appeals would be heard on merits. Since the assessee could not do so, the appeals were dismissed, upon which the assessee approached the Tribunal by filing two separate appeals. The Tribunal therein also imposed the condition of pre-depositing the amounts of Rs.8 lakhs and Rs.6 lakhs respectively. Since the assessee failed to comply with said contention, both the appeals came to be dismissed only on this ground.

On appeal, the HC held that,

Whether pre-deposit requirement imposed by the quasi judicial body as a pre-condition for hearing of appeal on merits, on appreciation of factual circumstances, calls for no writ interference - YES: HC

++ the case of the Department is that the selling dealers from where the assessee had made purchases, were involved in billing activities due to which their registrations were cancelled from initial stage. This is a ground on which the AO desired to disallow the input tax credit on the assessee's purchase from such dealers. Prima faice, it appears that the assessee was also put to notice about such proposal. It was in this context that the assessee had represented to the AO during the course of assessment under the communication taking a stand that mere cancellation of registration of the dealers with backdate would not be sufficient to disallow the tax credit;

++ the question of disallowing the tax credit on cancellation of registration of the dealers with backdate has been examined at length in case of Madhav Steel Corporation. Certain observations have been made and parameters have been laid down, when and under what circumstances such disallowance can be made and under what circumstances the dealer can still avoid such consequences despite cancellation of selling dealers. At this stage, it is not proper to examine the merits of the disallowance in the present cases. Briefly put, there is no reason for reducing the pre-deposit requirement imposed by the Tribunal.

Assessee's appeals dismissed

 

2018-TIOL-2332-HC-AHM-VAT

VIJAY RASIKLAL VORA Vs STATE OF GUJARAT: GUJARAT HIGH COURT (Dated: October 17, 2018)

Gujarat VAT - Writ - liability of Directors - recovery of company's dues

The assessee is an individual and a director of one Ms. Arihant Designer Jewellers Private Limited. According to the Commercial tax Department, there were large dues of the said company towards the VAT liabilities which have remained unpaid. The assessee was residing along with his family at Saptkiran Society, Ahmedabad. However, according to the assessee, he was never the owner of the said property. The VAT authorities, however, first issued an order directing the society where the bungalow was situated; not to transfer the same in name of any other person on account of Department's unpaid dues of Rs. 10.50 crores. In such letter, the authorities also called upon the society to provide details of the ownership of the bungalow and in whose name the same was entered. Upon coming to know about such communication, the assessee, through his advocate, wrote to the Commercial Tax Officer pointing out that he had already resigned from the company and that the property was in the name of one Jyoti Virendra Vora and Virendra Rasiklal Vora. Property was never in the name of assessee. He was merely residing there with his mother, brother and brother's family. The assessee's counsel further clarified the position stating that the property was of the ownership of assessee's father who renounced the world and became a Sanyashi upon which, the property was transferred in the name of his mother. Currently, it was held by his brother and brother's wife. The Department therefore issued communication to the society to give details about the ownership of the property in order to protect the interest of the Government revenue.

On Writ, the HC held that,

Whether Commercial tax Department can seek recovery of Company's dues from its Directors, in the absence of any statutory provision and in absence of any facts suggesting that the company was created only to defraud the government revenue - NO: HC

++ it emerges from the record is that the Department is seeking to recover the dues of the private limited company from the assessee as the director of the company. No provision is brought to notice under the VAT Act enabling the Department to do so. Concept of the company and its directors being separate and distinct entities is all too well established. The Courts of course have in exceptional case, recognized the principle of lifting the corporate veil. However, the same can either be done if there is statutory provision permitting the authorities to do so subject to fulfillment of conditions contained in such a statute or upon establishment of facts which would suggest that the creation of the corporation was a mere cloud created in order to defraud the government interest and behind the company were in fact real personalities who were operating from behind the scene;

++ in the present case, in absence of any statutory provision and further in absence of any prima facie facts even suggesting that the company was created only to defraud the government revenue or some such other valid reason, the Department cannot seek recovery of the company's dues from its directors. Additional ground in the present case is that it is doubtful whether the assessee has any ownership rights over the property in question. If, as suggested by the counsel for assessee, while renouncing the world, his father had transferred property to his wife by relinquishing his rights, the assessee would have no ownership rights over the property.

Assessee's petition allowed

2018-TIOL-2331-HC-MAD-IT

CIT Vs HINDUSTAN ENGINEERING TRAINING CENTRE: MADRAS HIGH COURT (Dated: October 22, 2018)

Income tax - Proviso to Section 113

Keywords - power to levy surcharge - retrospective application

The Revenue Department had preferred the present appeal challenging the action of ITAT in holding that the AO had no power to levy surcharge while giving effect to the order of CIT(A).

On appeal, the HC held that,

Whether ITO is permitted to levy surcharge from retrospective effect - NO: HC

++ the issue under present appeal has been decided by the Supreme Court in favour of assessee and against the Revenue in case of CIT (Central)-I Vs. Vatika Township Private Limited - 2014-TIOL-78-SC-IT-CB. The question, which was considered by the Supreme Court, was as to whether levy of surcharge, which was introduced by insertion of Proviso to Section 113 of Income Tax Act, could be made retrospective. The Supreme Court held that if the Enactment is expressed in language, which is fairly capable of either interpretation, it ought to be construed as prospective only. Thus, following the said decision, the substantial questions of law, framed for consideration, are answered in favour of assessee.

Revenue's appeal dismissed

2018-TIOL-2041-ITAT-AHM

VEGETABLE AND FRUIT MERCHANT CREDIT COOP MANDLI LTD Vs ITO: AHMEDABAD ITAT (Dated: September 17, 2018)

Income tax - Sections 56 & 80P(2)(a)

Keywords - interest income - investment in fixed deposits - income from other sources - surplus funds

The assessee company had filed its return declaring income at Rs. Nil. Subsequently, the case was selected under scrutiny by issuing of notice u/s 143(2), wherein the AO noticed that the assessee had earned interest income totaling to Rs 23,25,349/- on surplus funds deposited with the nationalized bank. He further noticed that assessee has claimed deduction u/s 80P(2)(a)(i) in respect of said income derived from investment in fixed deposit with commercial banks. The AO therefore observed that exemption u/s 80P(2)(a)(i) was available on income which was attributable to business operation of the assessee co-operative society and the interest earned on the fund invested with the commercial bank was not operational income from providing credit facilities to its members. Consequently, he treated the interest income of Rs Rs 23,25,349 as income from other sources u/s 56 and disallowed the claim of deduction u/s 80P. On appeal, the CIT(A) sustained the disallowance.

On appeal, the ITAT held that,

Whether investment of surplus funds in a commercial bank, being not part of a cooperative society's business of providing credit facilities to their members, are deductible u/s 80P(2)(a)(i) only on pro rata basis - YES: ITAT

++ as per section 80P(2)(a)(i), the interest income earned on providing credit facility to its members is deductible u/s. 80P(2)(a)(i). However, such deduction u/s 80P(2)(a)(i) is not available on the interest earned on deposit maintained with the commercial bank. It is found that the jurisdictional high court has decided the identical issue in favour of the Revenue vide State Bank of India vs. CIT - 2016-TIOL-1335-HC-AHM-IT wherein it is held that interest income on deposit placed with the commercial banks is not exempt u/s. 80P(2)(a)(i). In view of the same, this Tribunal is inclined with the decision of CIT(A) that investing surplus funds in a commercial bank is no part of the business of providing credit facilities to its members which is not deductible u/s 80P(2)(a)(i). However as decided in the various decision of the Co-ordinate Benches of ITAT Ahmedabad, the AO is directed to allow pro rata expenses in respect of interest earned from deposit held with nationalized bank to the assessee for computing the deduction u/s 80P after examining/verification and affording adequate opportunity to the assessee.

Case remanded