NOTIFICATION
ctariff16_046
Republic of Guinea-Bissau added to list of Least Developed Countries for concessional Customs duty under Notfn. 96/2008-Cus
CASE LAWS
2016-TIOL-1832-HC-AHM-IT
MARDIA STEEL LTD Vs DCIT: GUJARAT HIGH COURT (Dated: August 4, 2016)
Income Tax - Sections 143(2), 143(3) & 158BC.
Keywords - Block period - undisclosed income.
Whether if an assessment is completed u/s 143(3) r.w.s 158BC, the omission on the part of the revenue to issue notice u/s 143(2) within one year from the date of filing of the block return , can be said to be a procedural irregularity - NO: ITAT
The assessee, is a company filed its return for the relevant year. A search was conducted at the premises of assessee and notice u/s 158BC was issued requiring the assessee to furnish return of income for the block period. The return of income was filed showing total undisclosed income at Rs. NIL and consequently assessment was framed u/s 158BC r.w.s.143(3) determining undisclosed income. On appeal the CIT (A) annulled the assessment but did not adjudicate on the merits of the additions. Hence the revenue filed an appeal before the Tribunal, who allowed the revenue's appeal.
Having heard the parties, the Tribunal held that,
++ considering the decision of this Court in the case of Hotel Blue Moon, the questions, which are raised in the present appeal are required to be answered in favour of the assessee. We are not giving any elaborate reasons for the same as in the case of Hotel Blue Moon it is held by the Apex Court that if an assessment is to be completed u/s 143(3) r.w.s. Section 158BC, notice u/s 143(2) should be issued within one year from the date of filing of the block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and is not curable and therefore the requirement of notice under section 143(2) cannot be dispensed with;
++in view of the above, the questions raised for consideration in the present appeal is answered in favour of the assessee and against the revenue. The Tribunal has committed an error in holding that in case of block assessment framed u/s.158BC r.w.s. 143(3) of the Act, statutory notice u/s.143(2) of the Act was not required to be issued within the statutory time frame prescribed under the Act and Tribunal has also committed an error in holding that non-issuance of notice u/s 143(2) of the Act is a mere procedural lapse and therefore the same can be regularized and ratified and consequently, the impugned judgment and order passed by the ITAT is accordingly quashed and set aside. Hence, the present Tax Appeal is allowed.
Assessee's appeal allowed
2016-TIOL-1831-HC-AHM-IT
CIT Vs ANAGRAM WELLINGTON ASSETS MANAGEMENT COMPANY LTD: GUJARAT HIGH COURT (Dated: August 9 , 2016)
Income Tax - Sections - 194I, 201 & 201(1A).
Keywords - Limitation Period - Rent - TDS.
Whether addition u/s 201 and interest charged u/s 201(1A) should be deleted when the Revenue took action beyond the period of four years from the end of the relevant FY - YES : HC
Whether the period of four years is reasonable period to pass order u/s 201 & 201 (1A) of the Act - YES : HC
The assessee is a Company. It filed return for relevant AY. During assessment process, AO noticed that assessee had paid certain amount of rent to M/s Anagram Finance Co. Ltd. for MD's accommodation but had not deducted tax at source of this rent payment. Accordingly, the AO passed order u/s 201 & 201 (1A) and raised demand. Aggrieved assessee filed appeal before the CIT (A) who observed that the order passed by the AO was beyond the limitation period of four years from the end of the relevant FY in which rent was paid. Hence CIT(A), deleted the demand raised by the AO. The Revenue preferred an appeal before the Tribunal who also dismissed the appeal. Hence Revenue filed appeal before the High Court.
After hearing parties, HC Held that,
++ it is true that it is the duty of the assessee to deduct TDS and the question is whether it is likely to cause any loss to the revenue if it is not deducted in time. If TDS is not deducted, it is required to be paid in the first installment of advance tax, which is required to be paid within four months from the date of filing of return. Therefore, even if the contention of Mr.Bhatt is accepted, loss that may be caused to the revenue is only to the tune of interest of four months on delayed payment of tax. Not only that when the declaration about this is made in the return, it comes within the knowledge of the Assessing Officer even if the TDS is not deducted. Therefore, we are of the view that the period of four years is reasonable period and we concur with the view taken by the Delhi High Court. It is true that the Court cannot legislate the Act, however, the Assessing Officer also cannot be given unfettered powers, which he can exercise even beyond the reasonable period of four years. Therefore, in our view, period of four years is just and proper and the Tribunal has not committed any error while passing the impugned order. Therefore, all these appeals are dismissed. The questions posed for our consideration are answered in favour of the assessee and against the revenue.
Revenue's appeal dismissed
2016-TIOL-1830-HC-AHM-CUS + Story
SAFARI FINE CLOTHING PVT LTD Vs UoI: GUJARAT HIGH COURT (Dated: August 12, 2016)
DGFT - Penalty - Sufficient guidelines and safeguards to ensure, on one hand that the executive is vested with sufficient discretionary powers to deal with different kinds of cases of contraventions and at the same time, providing internal safeguards to control the discretion have been provided in the Act - Legislature while granting discretion to the executive has also provided for sufficient guidelines and safeguards so that such discretion does not convert into arbitrary or discretionary exercise of powers - Petitioner's challenge to constitutional validity s. 11(2), 11(3) of FTDR Act, 1992 fails - However, with respect to the merits of the orders in question, since the High Court finds a prima facie case, Notice issued, returnable on 26.08.2016: High Court [para 12 to 15]
Notice issued
Observations of High Court -
+ The vires of an Act enacted by the Parliament can be struck down only on the ground of legislative incompetence or the law being violative of any of the fundamental rights or the other provisions of the Constitution. In this context, it is well settled that there is a strong presumption of constitutionality of a legislation and the duty lies on the one who contend that a certain law is ultra vires being discriminatory to produce necessary material in this respect.
+ In view of the complex requirements of foreign trade and import export policy, the executive would have to have sufficient powers to control contraventions of essential conditions of import export restrictions. It is, in this respect, subsection (1) of section 11 provides that no import or export shall be made by any person except in accordance with the provisions of the Act, the Rules and the orders made thereunder and the foreign trade policy for the time being in force.
+ No restriction would be effective unless contravention thereof can be visited by penal consequences. It is in this respect, subsection (2) of section 11 provides that where any person makes or abates or attempts to make any export of import in contravention of any provision of the Act or the Rules or orders or the foreign trade policy, he would be liable to penalty. By very nature of things, such penalty has to be discretionary with a sufficiently wide range.
+ We have noticed that as per section 13 of the Act, such penalty can be imposed only by the Director General or subject to restrictions which may be provided, by any such officer as the Central Government by a notification in the official gazette authorize. However, the power of such authorized officer to impose penalty would be limited as may be specified.
+ Under section 14, such penalty can be imposed only after giving opportunity to the owner of the goods by informing him of all the grounds on which, it is proposed to impose the penalty, allowing him to make representation within reasonable time and granting hearing if he so desires.
+ The whole scheme of the Act viewed thus, in our opinion, lays down sufficient guidelines and safeguards to ensure on one hand that the executive is vested with sufficient discretionary powers to deal with different kinds of cases of contraventions and at the same time, providing internal safeguards to control the discretion. The penalty itself is to be imposed making export or import or abatement or attempt in contravention of any provision of the Act, Rules or orders or foreign trade policy.
+ By very nature of things, the contravention could be of various kinds and of range of provisions beginning with mere technical breaches of procedural provisions or could be wholly malafide, fraudulent and with intention to evade duty. All such cases cannot be put in the same bracket.
+ Thus, the legislature, while in view of such situation has granted discretion to the executive, at the same time, provided for sufficient guidelines and safeguards so that such discretion does not convert into arbitrary or discretionary exercise of powers.
2016-TIOL-1524-ITAT-JAIPUR
LORD CHLORO ALKALI LTD Vs ACIT: JAIPUR ITAT (Dated: August 19, 2016)
Income Tax - Sections 2(24)(x), 37(2A), 40A(3), 43B & rule 6DD(j).
Keywords - enduring advantage - guest house expenses - excise duty - valuation of closing stock - ex parte order - repair & maintenance - stores - spares - opportunity of being heard.
Whether in case there is no change in the rate of tax, an assessee can be held as a defaulter in case it has offered a certain income for taxation in the next assessment year instead of current fiscal - NO: ITAT
Whether an expenditure incurred in connection with conducting a study to make the plant technological better, can be considered as a capital expenditure by the Revenue on no basis - NO: ITAT
Whether routine business expenditure which has been incurred to provide basic hospitality to the technicians, guests who have visited the office and factory premises, can be disallowed to be claimed as revenue expenses - NO: ITAT
Whether when the foreign visits have been undertaken by assessee, corresponding expenditure have been incurred for the purpose of acquiring the capital assets, the same has to be treated as capital expenditure - YES: ITAT
Whether in case the assessee company was going through the financial and liquidity crunch, in order to meet the statutory liabilities and dues towards salary of employees, it had taken loan , the interest of which cannot be disallowed as the expenses incurred on account of interest has satisfied the test of commercial expediency - YES: ITAT
Whether where the person to whom payment is made is genuine and cash is paid in exceptional circumstances in business expediency, the same cannot be disallowed u/s 40A(3) - YES: ITAT
The assessee company is engaged in the manufacture of liquid chlorine & caustic soda flakes. It filed the return declaring loss of Rs.11,08,211/-. Assessment was completed on 30.03.1999 at an income of Rs.7,69,63,210/-. Against the assessment order, the assessee preferred an appeal before the CIT(A), who had passed an ex-parte order by confirming majority of the additions made by the AO. After the order of CIT(A), income was determined at Rs.7,06,32,968/-. Assessee claimed expenditure of Rs. 52,99,623/- being the cost of turbo charger which was a spare part of DG Set. It was explained that DG Set was covered under the break down policy of insurance. In A.Y. 98-99, insurance claim of Rs. 32,76,485/- was received & the scrap value of old turbo charger was booked as miscellaneous income & therefore the expenditure claimed on turbo charger was allowable as revenue expenditure. AO observed that expenditure incurred was on current repair but the same should be allowed to the extent of procurement of new spare part minus insurance receivable minus amount receivable on sale of old part. Accordingly, after estimating the sale of old spare parts at Rs. 8 lacs, AO allowed the claim of expenditure at Rs. 12,23,138/- (Rs.52,99,623 - Rs.32,76,485 - Rs.8,00,000) & disallowed the balance amount of Rs. 40,76,485/-. Being aggrieved by the order of AO, the assessee carried the matter before the CIT(A), who had deleted the disallowance of Rs.40,76,485/.
Disallowance on account of legal & professional charges
AO observed that the assessee claimed expenditure of Rs.4,40,000/- under the head legal & professional charges. The amount was paid to M/s Jaishree Techno Craft, Jaipur towards the environmental study undertaken for converting the existing mercury plant into a better technological membrane cell plant. AO observed that the expenditure incurred was to get a benefit of enduring nature, the copy of report obtained was not filed, invoice issued by the party is dated 26.07.1995 whereas the order is dated 25.12.1995. He accordingly, disallowed the expenditure of Rs.4,40,000/-. On appeal, CIT(A) had deleted the disallowance by holding that the expenditure was incurred on the environmental impact study for mercury MCP plant wholly and exclusively for the business purposes as it was a continuous process of the company to follow the environmental policy. Accordingly, the assessee company took the technical advice and incurred the expenditure as revenue and it was not for enduring benefit.
Disallowance on account of entertainment expenses
Next disallowance was on account of entertainment expenses to Rs.37,500/- out of total disallowance of Rs.1,47,341/- made by the AO and confirming disallowance of Rs.37,500/- u/s 37(2A) by upholding the action of the AO in assuming that an amount of Rs.75,000/- out of expenditure on employees welfare and canteen expenses were of entertainment in nature. AO observed that expenses under the head ‘employees welfare and canteen expenses’ includes expenses on tea, coffee, cold drinks etc. for visitors. Accordingly, he estimated Rs.75,000/- in the nature of entertainment expenditure. He further observed that expenditure of Rs.2,19,682/- under the head ‘repair & maintenance expenses’ on boarding & lodging of engineers is also in the nature of entertainment. Accordingly, he made disallowance of Rs. 1,47,341/- being 50% of Rs.75,000 and Rs. 2,19,682/- u/s 37(2A). On appeal, CIT(A) had deleted the disallowance of Rs.1,09,841/- by holding that the expenditure incurred on technical persons called for attending the repairs of faults in the appellants plant cannot be considered as entertainment expenditure. However, he confirmed the disallowance of Rs.37,500/- by upholding the action of the AO in assuming that an amount of Rs.75,000/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature.
Disallowance on account of Foreign Travel
AO made disallowance of Rs. 12,38,418/- out of the foreign travelling expenses of Rs. 23,23,444/- in respect of following visits. CIT(A) confirmed the disallowance by upholding the findings of the AO. There was no dispute that the foreign travel was made in course of the running business to have discussions regarding acquiring of capital asset, raising funds and attend conference for the expansion of the business. The Bombay HC in case of Bralco Metal Industries Pvt. Ltd. Vs. CIT 206 ITR 477 has held that expenditure on foreign tour of managing director to examine the suitability of machinery for a running business is not capital in nature where no machinery was purchased. In the present case also no new capital asset has been purchased. AO has also not pointed out that any particular visit was correlated with purchase of any specific asset. Thus, the disallowance made by lower authorities was uncalled for. Further discussion for raising of funds was otherwise not a capital expenditure. All these expenditures were for the purpose of existing business & not for setting up or establishment of new business. Hence, the entire foreign travel expenditure was allowable as revenue expenditure u/s 37.
Disallowance in respect of interest payment
AO observed that assessee has borrowed the funds on interest but the same had been advanced to group concern at lower rate or at Nil Rate whereas interest has been charged from others @18% to 26.5%. It was further observed that inter corporate deposits had been raised & the same was invested in FDs for obtaining Bank guarantee for group Concern. Accordingly, AO made disallowance of interest of Rs.21,96,755/-. On appeal, CIT(A) confirmed the disallowance by holding that AO has established nexus between borrowed funds and amount advanced to group concerns and in AY 95-96 similar disallowance was confirmed by ITAT. Infact AO himself has stated that assessee has raised inter corporate deposit @ 8.5% & made investment in FDR yielding a rate of 9%. If in some cases assessee has charged rate of interest 18% or more on the inter corporate deposit given by it, the same cannot be a basis for holding that assessee must charge interest from all other parties at such higher rate. No nexus has been established by th AO before making the disallowance. It also ignored the fact that assessee had interest free funds by way of Share Capital & Reserve & Surplus to the extent of 68.35 crores which was much higher than the so called advances given at lower rate. CIT(A) had wrongly observed that in AY 1995-96, ITAT has confirmed the similar disallowance in as much as no such issue was before ITAT in that AY.
Addition u/s 40A(3)
The assessee has made payment of freight & cartage exceeding Rs.10,000/- in each case amounting to Rs. 4,13,38,973/-. The AO disallowed 20% of the same on the ground that the payment was not covered by rule 6DD. On appeal, CIT(A) confirmed the disallowance by holding that assessee’s case was not covered under rule 6DD(g) or (j). In case of freight & cartage expenses payment was required to be made by drivers on spot and it was not practicable to make payment by crossed cheque. The said Rule 6DD(j) was substituted w.e.f 25/07/1995 and simultaneously the limit was increased to Rs. 20,000/- by Finance Act (No. 2) 1996 w.e.f 01/04/1997. Therefore, effectively Rule 6DD(j) as it was existing has to be construed to be inapplicable from AY 1997-98. CIT(A) had incorrectly held that assessee’s case was not covered under Rule 6DD(j) as while saying so he had considered the substituted Rule 6DD(j) whereas in the assessee’s case old Rule 6DD(j) is applicable and assessee’s case is squarely covered under old Rule 6DD(j). In view of above the payment of Rs. 4,12,38,973/- made by the assessee to the drivers towards transportation of goods was covered by Rule 6DD(j) and therefore disallowance of Rs. 82,67,790/- made by the AO be deleted.
Having heard the matter, the Tribunal held that,
Deleting of disallowance made out of stores & spares expenses
++ the assessee is following consistent accounting policy whereby insurance claim and recovery of cost towards accessories are accounted for on cash basis due to uncertainty of realization. The amount of insurance claimed received as per breakdown insurance policy taken for the D.G. set amounting to Rs. 32,76,485/- and realization from sale of scrap of damaged turbo charger amounting to Rs. 8 lacs has been received and offered to tax in the subsequent assessment year 1998-99. Hence we do not see that there is any loss which has been caused to the Revenue by not offering the said receipts in the year under consideration. It is not the case of the Revenue that any tax rates have changed in the subsequent year. In light of above, we do not see any justification in interfering with the order of CIT(A). Hence we confirm the findings of the lCIT(A) and dismissed the ground of the Revenue;
Disallowance on account of legal & professional charges
++ an amount of Rs.4,40,000/- has been incurred by the assessee towards the environmental study which was undertaken for converting its existing mercury plant into a technological better membrane cell plant. There is nothing on record to confirm that the assessee has actually converted the existing plant into the new plant and whereby the said cost should go and be added to the cost of the new plant. The expenditure therefore is clearly in connection with conducting a study to make the plant technological better plant. In our view, the said expenditure towards carrying out only the consultancy study cannot be characterized as a capital expenditure. Further the decision of Punjab & Haryana High court in case of Majestic Auto Ltd. and other Co- ordinate Bench decisions quoted by the AR support the said position. In light of above, we do not see any necessity to interfere to the findings of the CIT(A). Hence ground No.2 of the Revenue is dismissed;
Disallowance on account of entertainment expenses
++ the amount of Rs. 2,19,682/- has been incurred on boarding and lodging of Engineers who have been called upon to carry out repair of faults in the appellant’s plant. Further Rs. 75,000/- has been estimated by the AO towards entertainment expenditure which has been incurred on expenses of tea, coffee, cold drinks etc. for the visitors who have visited the office and factory premises of the assessee. In our view these are routine business expenditure which has been incurred to provide basic hospitality to the technicians and guests who have visited the office and factory premises. Further the decisions of the Rajasthan High Court in case of Premier Vegetable Products, Associated Stone Industries and Rajasthan Cotton Mills support the case of the assessee. In light of above, we delete the disallowance of entertainment expenditure of Rs. 1,47,341/- made by the AO. In the result this ground of the revenue is dismissed and the ground of the assessee is allowed;
Disallowance on account of Foreign Travel
++ it is noted that the disallowance has been made primarily on account of the fact that the foreign visits have been undertaken and the corresponding expenditure have been incurred for the purpose of acquiring the capital assets and hence the same has been treated by the AO as capital expenditure. The AR has submitted that there is no dispute that the foreign travel was undertaken in connection with acquisition of capital assets besides other reasons such as attending conference etc. At the same time AR submitted that no new capital assets has been purchased or acquired by the assessee. The decision of Bombay High Court in case of Bralco Metal Industries Pvt. Ltd. was brought to the notice of Bench in support of the contention that the expenditure on foreign travel of Managing Director to examine the suitability of machinery for a running business is not capital in nature where no machinery was purchased. In light of above, we set-aside the matter to the file of the AO to examine where any new capital assets were purchased by the assesse pursuant to foreign visits made during the year under consideration. Whether it is found that no new capital assets have been purchased by the assessee, the AO is directed to allow the foreign travel expenditure as a revenue expenditure;
Disallowance in respect of interest payment
++ CIT(A) held that the necessary nexus has been established between the borrowed funds and the amount advances to the sister concern and the same findings could not been controverted by the assessee. Further, AO has submitted that the assessee had advanced funds as a measure of commercial expediency to the group companies. In this regard the assessee has submitted before the AO that it gave advances to the companies mentioned in letter No. 961 temporarily as a financial support in order to meet the statutory liabilities and dues towards salary of employees, workers and other expenses to these companies with the clear understanding that the same will be refunded back to the company. It was submitted that most of the companies are sick companies and financial support was given on account of business responsibilities and to protect the goodwill in the market as these companies are under the same management. Regarding bank guarantee for Modi Cement, AO noted that the assessee company arranged a bank guarantee for Rs. 5 crores in favour of IDBI by depositing Rs. 5 crores with the bank as FD and such arrangement was made as rehabilitation package of M/s Modi Cement. A further sum of Rs. 5 crores pledged with the bank in a non-lien FD a/c, out of the funds raised from the promoters. It was further noted that the inspection team of the companies department required assessee company as to why such funds to the extent of Rs. 10 crores are blocked to rehabilitate to M/s Modi Cement Ltd. It was submitted that Modi Cement Ltd. is group company and on account of moral responsibility, the company extended all possible support for rehabilitation. However, the explanation given by the assessee company was not found satisfactory by the AO. In the SC case of Hero Cycles Pvt. Ltd. 94 CCH 0097, the bank guarantee for Rs. 5 crores in favour of IDBI by depositing Rs. 5 crores with the bank as FD became imperative as a business expediency as part of the rehabilitation package of M/s Modi Cement which is one of the group companies. Similarly, the assessee has supported the other group companies which were also going through the financial and liquidity crunch in order to meet the statutory liabilities and dues towards salary of employees, workers and other expenses and has thus satisfied the test of commercial expediency in respect of other loan and advances as well. In light of that, we delete the disallowance of Rs 21,96,755/-. In the result, ground of the assessee is allowed;
Addition u/s 40A(3)
++ it is noted that Rule 6DD(j) was substituted w.e.f. 25.07.1995. Prior to the amendment, Rule 6DD(j) provided an exception to applicability of section 40A(3) wherein it was provided where it was not practical to make payment by crossed cheque or would have caused genuine difficulty to payee having regard to the nature of transaction and the necessity for expeditious settlement thereof. The ld. CIT(A) has however applied the amended rule 6DD(j) while confirming the disallowance which states that where payments was required to be made on a date on which the banks were closed either on account of holiday or strike. It is therefore clear that for the period ending 25.07.1995, pre-amended Rule 6DD(j) will be applicable.AR has submitted that these payments are in the nature of freight and cartage payments which are required to be made to the drivers on the spot and it is not practical to make payments by crossed cheques. Further, in the tax audit report the auditors have given their remarks stating that the factory is situated in the backward area and the payments to the transporters have to be made in cash because such persons are not having banking facility around the factory area. In our view, the same proves genuineness of the transactions, the identity of the payee as well as the business expediency to make payment in cash in the backward area where the payee are not having the banking facility. Further looking at the intent of introduction of section 40A(3) which was to curb and reduce the possibilities of black money circulation in economy and taking into consideration the decision of Gujarat High Court in case of Anupam Tele Services and Rajasthan High court in case of Smt. Harshila Chordia (supra) wherein it was held that exceptions contained in Rule 6DD are not exhaustive and the said rule must be interpreted liberally and taking into consideration the business expediency of making cash payment, we hereby delete the disallowance of Rs. 82,67,790/- in the hands of the assessee. In the result, the revenue’s appeal is dismissed and the assessee’s appeal is partly allowed.
Assessee's appeal partly allowed
