01 January 2019   

CIRCULAR

cuscir54-2018

Electronic Sealing -  Deposit in and removal of goods from Customs Bonded Warehouses - Implementation of RFID Sealing deferred again

NOTIFICATIONS

cnt103_2018

Post Offices in nine more States notified as Foreign Post Offices for purpose of clearance of imported goods or export goods

ctariff18_086

Exemption granted to temporary importation of private road vehicles from IGST and compensation cess

ctariff18_085

Tariff Concession deepened - BCD in respect of gear box and parts thereof, of specified motor vehicles when imported under the India-Japan Comprehensive Economic Partnership Agreement (IJCEPA) now stands at 6.25% in place of 6.88 % earlier

ctariff18_084

Deeper tariff concessions granted in respect of specified goods imported from Malaysia under the India-Malaysia Comprehensive Economic Cooperation Agreement (IMCECA)

ctariff18_083

Deeper tariff concessions granted in respect of specified goods imported from Korea RP under the India-Korea Comprehensive Economic Partnership Agreement (CEPA).

ctariff18_082

dgft18not047

Krishnapatnam Port added to the list of existing ports to allow export of "Sawn Timber" made exclusively out of imported wood logs

CASE LAWS

2019-TIOL-13-HC-DEL-CUS

VEDANTA LTD Vs DGFT: DELHI HIGH COURT (Dated: November 28, 2018)

Foreign Trade (Development and Regulation) Act, 1992 - Appeal impugns the findings and judgment of a Single Judge, rejecting a writ petition preferred by the appellants seeking a direction to the Director General, Foreign Trade [DGFT] to itself regarding the necessary permissions/approvals/authorisations for direct export - or in the alternative, permission/facilitation for canalised export through the third respondent [IOL] of its share of crude oil extracted from the Rajasthan Block to the extent not lifted by the second respondent Union Petroleum Ministry [UOI] or its nominee Public Sector Undertakings.

Held: The right to export, contemplated under Article 18.7 of the Production Sharing Contract [PSC] is only where the UOI "has elected not to purchase pursuant to Article 18” - it visualizes a situation where the consequence of declaration of sufficiency leads to the exercise of conscious option by the UOI (under Article 18.4) pursuant to its choice "whether or not it intends to exercise its said option to purchase, in writing, not later than 90 days prior to the commencement of the year in respect of which the sale is to be made” - thus, if the UOI, upon declaration of self-sufficiency of crude oil, elects not to purchase it, the contractor can be said to have an entitlement to export it - that eventuality did not arise in the facts of this case - on this count, the appellants' argument is insubstantial and has to fail: High Court [para 32]

Held: There is no right to export crude oil, per se - what the FTP enables is that if a case for export of crude oil is to be made, the canalizing agency, the IOL has to give the "no objection” certificate - the appellants' position, therefore, that 'crude oil' is mentioned as State Trading Enterprises [STE] Export through IOL, supports that no entitlement for anyone else to export crude oil is created - the relevant chapter in FTP provides that if STE itself wants to export/import, it can do so and if 'any other person' intends to import/export, it will have to apply to the STE, which can enable exports - the Central Government, in this case, states that permission to export cannot be given, because the Empowered Committee of Secretaries [ECS] in its letter dated 27.1.2016 rejected the appellants' request for export of crude oil - the reasons given by the Central Government cannot be characterized as arbitrary or unreasonable - since the appellant was permitted to sell quantities of crude oil to private refineries in India by the decision of the ECS, dated 17.8.2009, subject to certain conditions, it is evident that unutilised crude oil would be sold to domestic private refineries - a further condition that crude oil would be sold at international price, was also imposed - the petitioner's argument about unreasonableness is premised upon the fact that it would be unable to make the level of profit that it otherwise would (if permitted to export), if it sells the crude oil to private refineries - however, while the right to trade and carry on a profession is a fundamental right, that right does not contain the further right to earn profit - this appeal has no merit - it is, therefore, dismissed: High Court [para 39, 40, 41, 42]

Appeal dismissed

2019-TIOL-12-HC-MAD-CUS

CC Vs HINDUSTAN PETROLEUM CORPORATION LTD: MADRAS HIGH COURT (Dated: October 26, 2018)

Cus - (a) Whether the appellant could question the classification of the case in a refund application, without challenging the assessment order - in other words, can the refund application go behind an assessment, which has attained finality (b) Whether the revenue could pursue the R.C.P. after participating in the proceedings consequent to the remand order, dated 24.4.2003, passed by the CESTAT (c) Whether the Tribunal could apply the Doctrine of Merger for dismissing the appeal of the revenue:

Held: A perusal of the order in the case of Karnataka Power Corporation Ltd. - 2002-TIOL-567-SC-CUS-LB would show that the Supreme Court has not over ruled the judgment rendered in the case of Flock (India) Pvt. Ltd.- 2002-TIOL-208-SC-CX - this judgment also cannot be an authority for the proposition that, when the order which is appealable order is not challenged at all, even then, the same order can be questioned, in a refund application - once an assessee choses not to file an appeal, then, he cannot challenge the same in a collateral proceeding - in this view, order dated 4.7.2013 dismissing the RCP No.2 of 2012 needs to be reviewed - the question as to whether the issue of classification could have been raised by the assessee, in a refund application, without filing an appeal against the order of assessment, is squarely covered against the assessee in the case of Flock (India) Pvt. Ltd. and Priya Blue Industries Limited - 2004-TIOL-78-SC-CUS - the RCP No.2/2012, therefore, has to be allowed and the order dated 24.4.2003 passed by CESTAT, Chennai in FlO.No.291/2003, has to be set aside - the conclusion of CESTAT that the order of the Appellate Authority had merged with the order of the Tribunal passed earlier, is not correct - the order, dated 24.4.2003, has been set aside by this Court - it cannot be said that there was a fusion of the order dated 29.10.2003 passed by the Adjudicating Authority with the order dated 31.3.2004 passed by the Appellate Authority, and the Doctrine of Merger is applicable - in fact, it was only a remand order - no finality can be said to have been reached for applying the Doctrine of Merger - similarly, it cannot be said that the order dated 30.12.2000 and the order dated 27.9.2001, passed by the original authority, and the appellate authority have merged into the order dated 24.4.2003 passed by the Tribunal, which was again, only an order of remand - the contention of the respondent that the revenue after participating in a proceeding, pursuant to a remand order, dated 24.4.2003, cannot be permitted to turn around and challenge the matter, cannot be sustained - it is a well accepted principle that there is no estoppel against law - in the result, Civil Miscellaneous Appeal is allowed : HIGH COURT [para 16, 17, 26, 27, 30]

Civil Miscellaneous Appeal allowed

2019-TIOL-11-HC-MAD-ST

AASCAR FILM PVT LTD Vs CGST & CE: MADRAS HIGH COURT (Dated: December 12, 2018)

ST - The petitioner was issued with SCN calling upon them to show cause as to why the service rendered by them in relation to sale of space to products placement in the motion picture should not be classified as 'Services' under Section 65(B) read with 65B(51) and the services in relation to temporary transfer or permitting the use of enjoyment of copyrights should not be classified under 'copyright service' - The petitioner after receipt of said notice did not file any reply - On the other hand, the record of personal hearing made by Adjudicating Authority clearly discloses that the petitioner though repeatedly asked for extension of time to file reply, had not submitted any reply, even though such time was granted - Neither Section 33-A of CEA, 1944, contemplates the opportunity as expected by the petitioner herein - Therefore, the order of adjudication cannot be questioned before this Court under a writ jurisdiction by complaining as if the principles of natural justice is violated - If the petitioner is aggrieved against the impugned order touching upon the merits of the matter, it is open for them to file a statutory appeal before the Tribunal: HC

Writ petition disposed of

2019-TIOL-10-HC-MAD-CUS

KALYAN JEWELLERS Vs ACST: MADRAS HIGH COURT (Dated: December 19, 2018)

Cus - The grievance of petitioner against the orders of assessment is in respect of two issues only viz, ITC reversal as per annual scrutiny cross verification report and ITC reversal on exempted sales - Though the Assessing Officer extracted the whole reply in assessment orders, has however, not dealt with in detail with his independent reasoning and finding as to how those objections raised by petitioner are not sustainable - On the other hand, Assessing Officer, simply rejected the objections by stating that copies of purchase invoices were not filed by petitioner - Moreover, as it is claimed by petitioner that they cannot be faulted, if the other end dealers have not reported part of the sale effected to them and paid the tax thereon, especially, when the petitioners are having the purchase invoices, the Assessing Officer can consider the matter afresh, more particularly, under the circumstances that assessment orders came to be passed, without hearing the petitioner, by new Assessing Officer, since the earlier personal hearing given was by the previous Officer - The impugned orders of assessment in so far as those two issues are concerned, are set aside: HC

Writ petitions allowed

2019-TIOL-09-HC-MUM-IT

HIMMATBHAI M VIRADIYA Vs ITO: BOMBAY HIGH COURT (Dated: December 13, 2018)

Income Tax - Sections 2(40), 143(1), 147 & 151.

Keywords - Investment made through cash - Investment through undisclosed sources - Re-assessment

THE assessee an individual filed its return for the relevant AY. The AO completed assessment of income without scrutiny. Subsequently, the AO received information regarding group of persons from diamond market who had made cash payments for purchase of residential property to be constructed, under SRA scheme by developer M/s Soni & Associates, the assessee was one of the person. Further, the AO observed that, during the FY 2010-11, the assessee being estate agent had received brokerage in cash of Rs.21,65,980/ and also amount of Rs 61,34,800/ in cash, which was invested by him to purchase residential property under the said SRA Scheme. Also, the assessee admitted before the police authorities to the cash payment made by him to M/s Soni & Associates. On verification of the AIR information, the AO observed that, the assessee had declared business income of Rs 6,03,739/ only for A.Y. 2011-12, whereas as per the information, he had paid a sum of Rs 61,34,800/ in cash to M/s Soni & Associates in F.Y. 2010-11. Thus, the cash investment of Rs 61,34,800/ was through undisclosed sources and unexplained. Therefore, income of more than Rs 61,34,800/ escaped assessment. Further, more than four years had lapsed from the end of the AY under consideration. Hence, necessary sanction to issue notice was obtained separately from the Pr.CIT by the AO. The assessee, raised detailed objections to the notice of reopening, such objections however, were rejected by the AO. The assessee, yet again approached the AO and requested him to pass a speaking order. Such request was rejected by the AO. Hence, the assessee filed the present petition.

On hearing the parties, the High Court held that,

Whether re-opening of assessment is sustainable where assessee's returns were accepted without scrutiny & where re-assessment is sanctioned by the JCIT as well as the Pr CIT - YES: HC

++ the return filed by the assessee was accepted without scrutiny. Therefore, the AO had much wider latitude to reopen the assessment. The reasons recorded by AO show that, the assessee had invested the cash amount of Rs 61,34,800/- for purchase of an immovable property. Thus, the AO had tangible material at his command to form a reasonable belief that income chargeable tax had escaped assessment. Therefore, the AO had clearly communicated the reason to reopen the case twice to the assessee. However, the assessee submitted that, the AO had supplied two sets of reasons and, thus, it is not clear as to which set of reasons were existing on record, and when the sanction from the Pr.CIT was obtained and notice issued. Further, the assessee submitted that, the AO had not recorded any satisfaction in either of two sets of the reasons that income chargeable to tax had escaped assessment. The High Court, summoned the original files from the Revenue. Thus, the High Court, was satisfied that the reasons did exist on file, which were duly recorded by the AO before obtaining sanction from the Pr.CIT, that the Joint Commissioner perused such reasons and forwarded the same to the Pr.CIT with his own remarks, and lastly that the Pr.CIT also put his endorsement that it was a fit case for reopening of assessment. The RTI reply by the AO, also mentions the reasons for reopening. Hence, petition dismissed.

Assessee's petition dismissed

2019-TIOL-08-HC-KAR-IT + Case Story

A NAGARAJU Vs ITO: KARNATAKA HIGH COURT (Dated: December 18, 2018)

Income tax - agricultural income - estimated addition - furnishing of documents

THE assessee is an individual. He filed his return declaring total income of Rs.2,88,000/- and agricultural income of Rs.22,20,000/-. On selection of the case for scrutiny, notices came to be issued and the AO made various additions to assessee's income on account of agricultural income. On appeal, the CIT(A) partly accepted the contentions of assessee, while accepting 25% of the agricultural income declared by assessee. Questioning the same, the matter went before the Tribunal, whereby estimation made by AO in respect of agricultural income, was confirmed. Challenging the same, the assessee's counsel contended that substantial material with regard to assessee's ownership of 15 acres of land and other relevant material pertaining to the same was not at all considered by the AO.

On appeal, the HC held that,

Whether AO can be blamed for non-consideration of neccesary evidences, when assessee himself has deliberately not appeared before the AO or furnished those documents before completion of assessment - NO: HC

++ it is seen that the assessee has addressed a letter to the ITO with regard to production of various material before him. The same includes the RTC extracts for 15 acres of land, the lease agreement for the land in question and various other documents. On perusal of the same, it is found that the documents have been produced on Dec 31, 2007, whereas the order of AO was passed on Dec 28, 2007. There is even a noting in the order of AO that when the matter was listed on Dec 18, 2007, an adjournment was sought for upto Dec 24, 2007. However, on such date, neither the assessee appeared nor he complied with the requirements as per the communication. Secondly, the so-called material was not produced before the order was passed by the AO. Therefore, the AO cannot be blamed for non-consideration of the material, when the assessee has deliberately not appeared before the AO or furnished the documents;

++ even on perusal of the material, it would indicate that the RTC produced was for the year 2007-2008, which was not relatable to the assessment year in question. Therefore, even if such material would have to be reconsidered, the same would not aid the assessee, under any circumstances. For the said reasons, there is no reason as to why an additional opportunity should be granted to the assessee at this stage. Hence, the Tribunal was justified in confirming the estimation made by AO in accepting only 25% of the total 'agricultural income' declared by the assessee.

Assessee's appeal dismissed

2019-TIOL-07-HC-MUM-IT

RUBIX TRADING PVT LTD Vs ITO: BOMBAY HIGH COURT (Dated: December 20, 2018)

Income Tax - Allowance of assessee's claim - scrutiny assessment

THE assessee is engaged in the business of real estate development projects. On filing of the income return for the AY 2013-14, the assessment came under scrutiny. The AO thereafter allowed the assessee claims considering the explanations regarding total income and loss. This assessment was re-opened by issuance of notice. Upon the submission of the reason recorded by the AO, the assessee raised objections to such reasons. The AO rejected the objection. The assessee approached the HC on writ petition.

Hearing the matter, the HC held that,

Whether re-assessment is justified on the ground that AO has failed to provide elaborate reasons for allowing the assessee's claim after the scrutiny assessment - NO: HC

++in the present case the AO had not elaborated some of the aspect while allowing the claim of the assessee and had not made any disallowance or addition in the hands of the assessee,++ if the AO allows the claims of the assessee after calling the assessee to answer the show cause notice to explain materials in the income return, merely because the assessment was silent on a particular aspect would not mean that AO had not formed an opinion in that respect. If after detailed scrutiny during the assessment, the AO examines a claim but does not reject the claim of the assessee, this is not a ground on which the Revenue could argue that the AO had not formed any opinion on such issue and reopen the assessment. In such cases, the AO can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.

2019-TIOL-06-HC-KAR-IT

CIT Vs BASANT PODDAR: KARNATAKA HIGH COURT (Dated: December 10, 2018)

Income Tax - Sections 2(22)(e), 132 & 153A

Keywords - deemed dividend - inter-related transaction - minority shareholder

THE assessee, MD of a company, filed his return. On suspicion a search operation was conducted during which many incriminating documents were found, consequent to which a notice was served on the assessee. In response to this, he re-filed his return quoting the same amount of income as in his initial return. On search, it was found that the assessee's company MEL had paid an amount of Rs 11.5 crores to another company SREL on various occassions. On further inquiry, it was found that the assessee's company was receiving interest @ 5% for amount deposited with SREL & this amount was further given to assessee's wife, (who was a minority shareholder in assessee's company) @ 5.25% interest. Considering the same, the AO concluded that a sum of Rs 11.5 crore was transferred to the assessee's wife as personal commitment & thus ought to be considered as dividend u/s 2(22)(e). So aggrieved, the assessee appealed to CIT(A) who modified the order of AO by limiting the amount of dividend to be Rs 10.80 cr. Still aggrieved, the assessee appealed to ITAT, which reversed the order of the CIT(A) by holding the transaction to be a business transaction & directed the AO to delete the addition. Now aggrieved, the Revenue appealed before HC.

On hearing the appeal, the HC held that-

Whether a transaction among two companies & a minority shareholder is deemed to be covered u/s 2(22)(e) even if there is substantial proof of the transaction being a business transaction - NO: HC

++ therefore, on considering the facts involved and the material produced by the assessee, the Tribunal held that the same constitutes a business transaction and therefore, the provisions of Section-2(22)(e) of the Act would not be applicable. The HC dId not find any reason to take a different view of the matter. The material on record would indicate that all transactions are routed through bank channels. Hence, it cannot be construed as mere journal entries and therefore, it was a business transaction between the assessee and M/s.SREL.

++ Furthermore, the Tribunal was also of the view that the Assessing Officer was the same with reference to the assessee, Sri Basant Poddar, M/s.MEL and Smt. Vandana Poddar. When he accepted the case so far as this transaction is concerned, with regard to MEL as well Vandana Poddar, the question of raising such a doubt only so far as the assessee is concerned would be inappropriate. Therefore, when the transactions are interrelated and when the Assessing Officer has accepted the case, so far as M/s. MEL as well as Smt. Vandana Poddar is concerned, the question of doubting the transaction so far as assessee is concerned is inappropriate and stands opposed to the transaction made towards SREL and Smt. Vandana Poddar.

Revenue's appeal dismissed

2019-TIOL-05-HC-KAR-IT

CIT Vs KARNATAKA BANK LTD: KARNATAKA HIGH COURT (Dated: December 18, 2018)

Income tax - cash system of accounting - depreciation on investment portfolio - interest on government securities - stock in trade

A) The Revenue Department had preferred present appeal challenging the action of ITAT in holding that the depreciation on valuation of investment portfolio was allowable, by treating the investments held by the assessee-bank as stock in trade, even when the same was not permitted under the provisions of Income tax Act.

B) The Department had also challenged the action of ITAT in holding that interest on Government securities was assessable on receipt/cash basis, even though the assessee had accounted the interest on securities on accrual basis.

On appeal, the HC held that,

Whether when the bank holds its securities as investment in compliance with RBI Regulations, but shows the same as stock-in-trade, then deduction for loss arising from such stock at the end of FY cannot be denied merely because it was shown as investment in books - YES: HC

++ as far as depreciation on investment portfolio is concerned, this issue stands covered by the judgment of this Court in case of KARNATAKA BANK LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX - 2013-TIOL-477-HC-KAR-IT, wherein the very same questions of law was answered in favour of assessee and against the revenue. Hence, following the said judgment, the substantial questions of law are answered accordingly;

Whether interest on government securities are assessable on receipt basis, even if the bank had accounted for such interest on accrual basis - YES: HC

++ insofar as interest on government securities are concerned, this question is covered by the judgment of this Court in case of COMMISSIONER OF INCOME TAX vs. KARNATAKA BANK LIMITED - 2014-TIOL-2473-HC-KAR-IT, wherein the very same question of law was answered in favour of the assessee. Hence, following the said judgment, the substantial question of law is answered accordingly.

Case disposed of

2019-TIOL-04-HC-MAD-IT

PR CIT Vs S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD: MADRAS HIGH COURT (Dated: December 6, 2018)

Income Tax - Sections 80P, 271(1)(c) & 271B

Keywords - agricultural cooperative society - associate member

THE assessee, a primary agricultural cooperative credit society registered under the provisions of the Tamil Nadu Cooperative Societies Act, 1983 (TNCS), filed its returns wherein it declared Nil income & claimed deduction u/s 80P(2)(a)(i) & 80P(2)(d) for two relevant AYs. However, the AO concluded that associate members cannot be counted as member for the purpose of sec 80P(2)(a)(i) as they were not eligible to certain priviliges like shareholding members & were admitted for the sole purpose of availing loans & once loans were discharged, their membership ceased. Hence, the AO decided that deduction u/s 80P(2)(a)(i) cannot be claimed by the assessee. Further, the AO decided to file SLP before SC against the two HC judgments which were relied upon by the assessee, pending which demand would not be enforced but penalty proceedings were initiated against the assessee u/s 271(1)(c) & 271B. On appeal, the CIT(A) allowed in favour of the assessee and the Tribunal rejected the Revenue's case.

On appeal, the HC held that,

Whether Sec 80P benefits need not be denied as long as the assessee is engaged in providing credit facilities to its Members and no distinction is required to be made between full-fledged Member and an Association Member - YES: HC

++ the assessee - society is registered under the provisions of the TNCS Act. It defines the word 'members' under Section 2(16) to mean a person joining in the application for the registration of society and a person admitted to the membership after registration in accordance with the provisions of the Act, the Rules framed thereunder and the By-laws and includes an associate member. The expression 'associate member' is defined under Section 2(6) of the TNCS Act to mean a member, who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in this Act, the Rules and the By-law;

++ thus, the definition of the word 'members' includes an associate member and therefore, the Assessing Officer fell into an error in drawing a distinction between A Class members and B Class members. For the purpose of being entitled to a relief under Section 80P of the Act, all that is required is that the cooperative society should answer the description of a society engaged in carrying on the business of providing credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P of the Act would stand attracted subject to the provisions contained in Sub-Section (2) of Section 80P of the Act;

++ it is to be pointed out that in terms of Sub-Section (4) of Section 80P of the Act, which was inserted vide the Finance Act, 2006 with effect from 01.4.2007 i.e from the assessment year 2007-08, the 'primary cooperative agricultural and rural development bank' means 'a society having its area of operation confined to a taluk, the principal object of which is to provide for long term credit for agricultural and rural development activities'. What was excluded was the 'cooperative banks' and admittedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P of the Act.

Revenue's appeal dismissed