CASE LAWS
2016-TIOL-2018-HC-ALL-CX
CCE Vs ANAND TISSUES LTD: ALLAHABAD HIGH COURT (Dated: August 30, 2016)
CX - Rule 8(3A) of CER, 2002 - Tribunal had observed that for default period assessee paid duty from its CENVAT credit account instead of paying it through current account/cash; that since both authorities below have admitted that duty has been paid by assessee on clearance of each consignment by utilising CENVAT credit, such payment is in conformity with sub-rule (3A) of Rule 8 and thus, order for recovery of duty already paid is not proper and justified, in view of Indsur Global Ltd. - 2014-TIOL-2115-HC-AHM-CX; that imposition of penalty u/r 25 of CER, 2002 is not justified as non-payment of duty within due date was due to constraint in arrangement of funds, which cannot be attributable to fraud, collusion and wilful mis-statement – Revenue in appeal before High Court. Held: With regard to validity of Rule 8(3A) of CER, 2002, Court has in case of ATV Projects = 2016-TIOL-2015-HC-ALL-CX held that since Rule 8(3A) of Central Excise Rules, 2002 has been declared violative of Article 14 of Constitution in the cases of Indsur Global Limited = 2014-TIOL-2115-HC-AHM-CX, Malladi Drugs and Pharmaceuticals Limited - 2015-TIOL-1262-HC-MAD-CX and Sandley Industries = 2015-TIOL-2490-HC-P&H-CX, notices issued under rule 8(3A) of CER, 2002 are set aside – since matter is concluded by the said decision, no substantial question of law arises and, therefore, appeal is dismissed: High Court [para 2, 3]
Appeal dismissed
2016-TIOL-2017-HC-P&H-IT
CIT Vs MICRO INSTRUMENTS COMPANY: PUNJAB AND HARYANA HIGH COURT (Dated: September 2, 2016)
Income tax - Sections 80IB & 145(3).
Keywords - deduction in initial years - fullfilment of conditions - new industrial unit - power connection & seperate books of account.
Whether where an assessee is found to have fulfilled all the conditions u/s 80-IB in the initial A.Y and has on account thereof been granted the deduction thereunder, the AO assessing the assessee's income in subsequent years also will be entitled to ascertain whether in that A.Y the conditions u/s 80-IB remained fulfilled or not - YES: HC
Whether the AO while ascertaining the fulfillment of conditions u/s 80IB for previous years, is also entitled to question the validity of the grant of a deduction u/s 80-IB in a previous A.Y on any ground - NO: HC
Whether AO can refuse a deduction for non-compliance of the provisions in respect of the A.Y being dealt with by him, but he cannot do so on the ground that the assessee was wrongly granted a deduction under the impugned provision in a previous A.Y - YES: HC
Whether maintenance of separate books of account for every new undertaking, is a condition precedent for claiming deduction u/s 80-IB - NO: HC
Whether the mere fact that there is no power connection in assessee's new industrial unit which is established seperately on the common plot wherein previous unit was already incorporated, can be a ground to disentitle the assessee deduction u/s 80IB on the new unit - NO: HC
The assessee had filed its return declaring an income of Rs.86,21,400/-, wherein it had claimed a deduction of Rs.16,22,661/- u/s 80-IB in respect of a new unit. The assessee's trading account as per their profit and loss account showed a gross profit of about Rs.2.80 crores on total sales of about Rs.9.83 crores yielding a gross profit rate of 28.50%. The AO rejected the books of account u/s 145(3) and computed the gross profit by applying a G.P. rate of 30% on the total sales of about Rs.9.83 crores. The gross profit so computed amounted to about Rs.2.94 crores resulting in an addition of about Rs.14.76 crores. The AO completed the assessment by making the said addition of Rs.16,22,661/- after refusing the deduction u/s 80-IB and Rs.14,75,940/- on account of the trading results. He held that the manufacturing activities carried out in Unit-II, which the assessees claim was a new unit, was nothing but an extension of the business of the assessee's industrial undertaking being Unit-I already in existence. On appeal, the CIT(A) upheld the AO's rejection of the assessee's claim for deduction u/s 80-IB on the ground that the business complex was one. There were neither separate power connection, nor separate sales-tax number/licence. The CIT(A) therefore held that this amounted to splitting up and restructuring of business already in existence. On further appeal, the ITAT held that the assessees were entitled to the deduction u/s 80-IB on the ground that the assessee's claim for this deduction was allowed for the previous A.Ys and the same has not been withdrawn. The ITAT therefore held that it was not open for the AO to re-examine the issue all over again and to come to a different conclusion in a subsequent year without justifying such departure.
Having heard the parties, the High Court held that,
++ it is noted that Section 80-IB(1) entitles an assessee to a deduction for a specified number of years. Subsection (2) provides that the section applies to an industrial undertaking that fulfills all the conditions enumerated therein. The deduction is, therefore, for each of the years. It follows, therefore, that the conditions stipulated in the section must be fulfilled or remain fulfilled for each of those years. A view to the contrary would render the section meaningless and confer a benefit upon an assessee which the legislature could never have intended. The assessee would be able to form the new undertaking in accordance with the section and from the very next financial year avoid the condition by splitting up its existing undertaking by taking it into the new undertaking such that the split up portion of the existing undertaking is far in excess in its productive capacity than the new undertaking even as it was initially formed. The profits from the "new undertaking" would then be attributable also to the assets of the existing undertaking which is precisely what the legislature intended avoiding. In our view, therefore, an assessee must fulfill each of the conditions stipulated in Section 80-IB in each of the years in which the deduction thereunder is sought. Even where an assessee is found to have fulfilled all the conditions of Section 80-IB in the initial A.Y and has on account thereof been granted the deduction thereunder, the AO assessing the assessee's income in subsequent years would be entitled to ascertain whether in that A.Y the conditions u/s 80-IB remained fulfilled or not. If not, he is bound to deny the deduction. However, while undertaking this exercise, the AO is not entitled to question the validity of the grant of a deduction u/s 80-IB in a previous A.Y on any ground. It is noted that the Division bench of the Gujarat High Court in CIT, Gujarat-I vs. Satellite Engineering Ltd., held that in relation to a new industrial undertaking, section 80IB is firstly attracted in the A.Y relevant to the previous year in which the undertaking began to manufacture or produce articles. It is in this respect that the Division Bench in Saurashtra Cement & Chemical Industries Ltd. vs. CIT, has observed that the ITO would not be justified in refusing to continue the allowance for the A.Y under reference without disturbing the relief for the initial year. The AO can refuse a deduction for noncompliance with the provisions of the section in respect of the A.Y being dealt with by him, but he cannot do so on the ground that the assessee was wrongly granted a deduction under the impugned provision in a previous A.Y;
++ before dealing with the grounds on which the deduction was denied by the AO and the CIT(A), it would be convenient to deal with assessee's counsel's contention that ITA Nos.958 of 2008, 700 of 2009 and 701 of 2009 ought not to be entertained on the ground that the tax effect is less than the amount prescribed by the CBDT Circular No.21/2015 dated 10th Dec, 2015. The said Circular contains a revision of the monetary limits for filing appeals by the department before the Tribunal, the High Court and the SLP before the Supreme Court. It provides that appeals shall not be filed before the High Court where the tax effect does not exceed Rs.20 lakhs. The circular firstly applies retrospectively even to the pending appeals. It, therefore, applies to these three appeals. Although the disputed issues arise in more than one A.Y, in view of the circular, the appeals could be filed only in respect of such A.Ys in which the tax effect in respect of the disputed issue exceeds Rs.20 lakhs. As for the pending appeals below the specified tax limit are to be withdrawn. Further, separate orders for each A.Y have been passed in the present case. Moreover, in view of the submissions advanced by assessee's counsel himself, each A.Y is a separate year and, in view of what we have held, the entitlement to the deduction would depend upon the facts and circumstances obtaining in a given year. Thus, whereas an assessee may be entitled to a deduction in respect of one or more years, he may not be entitled to the deduction for another year or other years. Although ITA No.958 of 2008 is dismissed in view of Circular No.21/2015, it is pertinent to refer to the facts in that case for it is based on the decisions in respect of the A.Y 2003-04 that the authorities passed the orders in the subsequent years. In the said cae, the deduction was disallowed on the ground that the assessee had not maintained separate books of account. However, as a matter of law, keeping separate books of account is not a condition precedent to a claim for a deduction u/s 80-IB. There was no statutory provision making it mandatory for an assessee to maintain separate books of account. As noted, earlier the appeals for the A.Ys 2003-04 to 2005-06 are liable to be dismissed in view of the circular No. 21 of 2015. In respect of the subsequent A.Ys separate books of account were kept. The contention that the assessees are not entitled to the deduction u/s 80-IB as they did not maintain separate books of account is, therefore, rejected;
++ it was next contended that the products are the same. Although a new undertaking may manufacture the same products, this contention was raised only to substantiate the contention that the Unit No.II was only an extension of the existing unit. The assessee is a partnership firm with two partners. Unit No.1 has been in existence since the year 1989 and Unit No.2 commenced production in March 2000. The AO in the assessment order stated that the assessee had been manufacturing electric motors and electric fans in unit Number-1 and electric motors inlet and outlet valves in Unit No.2. Different products are, therefore, indicated. The AO did not suggest that the products are the same. Although he raised queries in the course of the assessment proceedings but did not seek any clarification to this effect. It is not possible in this appeal to consider the appellant's suggestion that the products are the same and, in any event, very similar. The contention that the two units are in the same premises is also erroneous. The inspection report, called for by the AO, did mention that the premises of the two units are in the same industrial area. It is important to note that the report further stated: "However the unit-2 is working in two halls constructed separately on the same plot." The report, therefore, indicates that although the units are in the same industrial area and on the same plot, new Unit-II was constructed separately in two halls. Thus, the premises were different as per the Inspector's report. The finding of the AO that job-work charges have been claimed in respect of the two units separately and as per the profit and loss account in respect of each of them, in fact, supports the assessee's case that the two units are separate. The job-work ledger produced by the assessees also indicated the same. The assessment order also cannot be supported in so far as the AO denies the deduction on the ground that there was no separate power connection in Unit-II, that the bank account of the two units was the same and that the telephone connections are common. The mere fact that there is no power connection in Unit-II would make no difference. That by itself would not disentitle the assessees to the deduction. For the same reason, the assessee cannot be denied a deduction merely because the telephone numbers are common. There is no reason for the assessees to have separate telephone connections in respect of each unit, if they can otherwise function with common telephone numbers. The AO also disallowed the deduction on the ground that the employees were common in respect of Unit-I and Unit-II and that there was no demarcation of employees/workers as per the attendance register produced. As per Section 80-IB(2)(iv), where the industrial undertaking manufactures or produces articles or things, the section would apply if the undertaking inter alia employs ten or more workers in a manufacturing process carried on with the aid of power. The deduction, therefore, was wrongly denied on this ground for the A.Ys 2006-07 onwards.
Revenue's appeal dismissed
2016-TIOL-2016-HC-DEL-CUS
VIPUL OVERSEAS PVT LTD Vs DRI: DELHI HIGH COURT (Dated: August 30, 2016)
Cus - Refund - Though show cause notice was issued in respect of 137 bills of entry, after due examination of all the materials, mis-declaration was determined in respect of only 12 bills - petitioner had deposited Rs. 43,93,374/- as per Court orders - petitioner informs that differential duty cannot be in excess of Rs. 9 lakhs; that they concede that the amount of penalty imposed upon its Director may be adjusted and the balance be refunded. Held: The mere circumstance that the customs authorities had appealed to the CESTAT does not render the retention of the money by them legitimate - Once the adjudication was completed and the true value determined, it is the differential duty which has to be deposited - That differential duty and no other amount can be recovered from the petitioner or even the deposit made by it - respondents are hereby directed to process the petitioner' s refund and ensure that the excess amount, after adjusting the differential duty and further adjusting the penalty of Rs. 10 lakhs, repay/refund the balance within three weeks along with interest as admissible Bank guarantees furnished during the pendency of adjudication shall be discharged - Petition allowed: High Court [para 4, 5]
Petition allowed
2016-TIOL-2015-HC-ALL-CX
ATV PROJECTS INDIA LTD Vs UoI: ALLAHABAD HIGH COURT (Dated: August 4, 2016)
CX - Rule 8(3A) of Central Excise Rules, 2002 has been declared violative of Article 14 of Constitution in the cases of Indsur Global Limited = 2014-TIOL-2115-HC-AHM-CX , Malladi Drugs and Pharmaceuticals Limited = 2015-TIOL-1262-HC-MAD-CX and Sandley Industries = 2015-TIOL-2490-HC-P&H-CX and as a result thereof, impugned notices dated 26.10.2010, 24.11.2010 and 20.12.2010 which have been issued under the aforesaid provision, are also set aside - Petition allowed: High Court [para 3, 5]
Petition allowed
2016-TIOL-1613-ITAT-DEL
SILICON GRAPHICS SYSTEMS INDIA PVT LTD Vs DCIT: DELHI ITAT (Dated: August 24, 2016)
Income Tax - Sections 43(5), 143(3) & Accounting Standard 11.
Keywords - foreign exchange fluctuations - business income - speculative loss - currency swaps - current year - current liabilities.
Whether an assessee can claim foreign exchange fluctuation loss on the entire amount of current liabilities, even if these liabilities are not created from the transactions entered into in the current financial year - YES: ITAT
The assessee company had claimed foreign exchange fluctuation loss of Rs.12,41,11,179/- in the Profit & Loss account. It was required to provide the details along with documentary evidences in support of its claim and to show cause as to why foreign exchange fluctuation loss of Rs.12,41,11,179/- should not be disallowed in view of the instruction No. 3/2010 dated 23.03.2010 issued by the CBDT. In response, the assessee explained that the foreign exchange fluctuation loss of Rs.12,41,11,179/- was on account of restatement of the foreign currency payables as per the year end rates in accordance with the provisions of AS 11. The details of such loss were also furnished before the AO. It was explained that since the CBDT Instruction No. 3/2010 relates to the transactions of forex derivatives, and that the assessee had not undertaken any such transaction of derivatives in the subject year, the same was not applicable in assessee's case. Reliance was also placed on the decisions of SC in the case of CIT vs. Woodward Governor India P. Ltd. 2009-TIOL-50-SC-IT and Oil & Natural Gas Corp. Ltd. vs. CIT 2010-TIOL-20-SC-IT and also the decision of ITAT on the same issue in assessee’s own case for previous year which was not challenged by the department before the HC. The AO, however, disallowed the loss as claimed by assessee on the ground that the assessee did not furnish any evidence/details of restatement of foreign currency and at the time of passing the decision by ITAT in assessee’s own case, Instruction No. 3/2010 was not in existence. It had further observed that the losses claimed by assessee were based on forex derivatives in the form of currency swaps, forex forwards etc. It was also observed that in view of the change in law, the decisions of SC were not applicable to the case of assessee. It was accordingly concluded that the foreign exchange fluctuation loss of Rs.12,41,11,179/- was a speculative loss and disallowed the same to be set off against the business income of the assessee as per section 43(5) and CBDT Instruction No. 3/2010 dated 23.03.2010. On appeal, CIT(A) confirmed the disallowance, but on different reason that the assessee had claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions pertaining to the current year.
Having heard the matter, the Tribunal held that,
++ observation of the AO that the assessee did not furnish any evidence/details of exchange loss due to restatement of foreign currency is found factually wrong inasmuch as item wise working of foreign exchange loss of Rs. 12,41,11,179/- on outstanding inter company payables / receivables was duly submitted before the AO & CIT(A) duly acknowledged by the AO & CIT(A). The written reply of assessee given vide letter dated 25.11.2011 reproduced by AO in her order also shows that such details were annexed by assessee with the said reply. Even the CIT(A) has not recorded any finding that no such details were furnished by assessee. Besides, the outstanding intercompany payables/receivables arising as a result of transactions with the parent entity are as per audited accounts of the current year and past years and the assessments for all the past years had been done u/s. 143(3) wherein the intercompany payables are not found bogus or non-genuine. A perusal of assessment order further reveals that the AO has not given concrete findings on the explanation of assessee that Instruction No. 3 of 2010 issued by CBDT is applicable only where there is trading in forex derivatives, which situation does not exist in the instant case, as the AO herself has mentioned the nature of appellant’s business as that of Information Technology line, i.e., IT related purchase/sales or services. Therefore, the conclusion of the AO derived on the basis of CBDT Instruction No. 3 of 2010 in the above circumstances is not fit to be supported that the foreign exchange fluctuation loss is a speculative loss. CIT(A) has confirmed the disallowance on altogether different count that the assessee has claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions pertaining to the current year. In this context, it is notable that as required by AS-11 and as also held by SC in the case of CIT vs. Woodward Governor India Pvt. Ltd. and Oil and Natural Gas Corporation Ltd., the entire amount of current liabilities outstanding as at the balance sheet date was to be reinstated by the assessee, which has been done by assessee in the instant case. The accounting standard-11 provides that at each balance sheet date the outstanding foreign currency monetary items should be reported using the closing rates. It clarifies that that when the transaction is not settled in the same accounting period in which it had occurred then in all the intervening period till the transaction is settled, the exchange differences have to be duly accounted for;
++ the issue in dispute stands decided in the decisions of ITAT Delhi Benches in assessee’s own cases for A.Y. 1999-2000 and 2001- 02 in favour of the assessee, as reported in (2007) TTJ 1153 and (2006) 105 TTJ 591 respectively. The special Bench of ITAT, Delhi also in the case of Oil & Natuyral Gas Corpn. Ltd. vs. DY. CIT 2003-TIOL-137-ITAT-DEL-SB has held that the loss cannot be called notional since the fall in the exchange rate has already taken place in the accounting year. The Special Bench has also referred to the Accounting Standards-11 where it has been provided that the long-term liabilities should be restated and the loss should be charged to the Profit and Loss account of each year. In view of these principles of law, the finding of CIT(A) that the assessee has claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions of the current year, in our opinion, does not stand on sound footings and is liable to be set aside. In the AY 2013-14, the department itself has accepted foreign exchange fluctuation loss under identical circumstances vide assessment order u/s 143(3) dated 30.03.2016. Not only this, the assessee has been following a consistent policy on re-statement of foreign currency payables and whenever there is a gain the same is duly offered to tax as also noted by CIT(A) in a chart at page 31 of the impugned order wherein the gains arising consequent to conversion at closing exchange rate have been duly offered to tax by the assessee. Therefore, the Authorities below are not justified to take different view in the instant year. In view of these discussions, we do not find any justification to support the orders of the authorities below. Accordingly, the appeal of the assessee is found to have merit and deserves to be allowed. In the result, the appeal of the assessee is allowed.
Assessee's appeal allowed
