21 September 2017   

CIRCULAR

cuscir37_2017

CASE LAWS

2017-TIOL-356-SC-CX

CCE Vs KEI INDUSTRIES LTD: SUPREME COURT OF INDIA (Dated: September 15, 2017)

CX - Notification 6/2002-CE - Appellant supplied excisable goods to Thermal Power Project against International Competitive Bidding - Appellant was denied exemption on the ground that the goods cleared by them do not fall under Customs Tariff Heading 9801 - In appeal, CESTAT while setting aside the order held that said Tariff Heading 98.01 deals with Project import and admittedly, there is no such entry in Central Excise Tariff; that condition of Project Import cannot be literally imposed on Indian manufacturer for exemption under  Notification No.6/2002-CE - In Revenue appeal, High Court observed that subject issue is pending before the Apex Court in the  Civil Appeal No.D.9308 of 2014 filed by the Commissioner of Central Excise and Service Tax, Jaipur-I against the final order of CESTAT No.57347/2013-EX(PB) dt.13.08.2013 [Om Metals SPML JV Unit 2. Vs. Commissioner] and, therefore, the appeal was disposed with an observation that it will be open for the parties to move an application for revival of the proceedings, if so required, after decision of the Apex Court - Revenue in appeal before Supreme Court.

Held: Delay condoned and leave granted - to be listed along with Civil Appeal no. 4965/2014: Supreme Court [para 2, 3]

Leave granted

2017-TIOL-355-SC-ST

CCE & ST Vs WESTERN COAL FIELDS LTD: SUPREME COURT OF INDIA (Dated: September 15, 2017)

ST - Appellants are engaged in mining of coal in their coal fields and have entered into agreements with transporters for transport of coal by road to their stockyard, coal handling plant, railway siding etc. - Service tax demand was confirmed on reverse charge basis under the category of GTA service and penalties were imposed - In appeal, CESTAT followed its decision in South Eastern Coal Fields Ltd. vs. CCE, Raipur - 2016-TIOL-2773-CESTAT-DEL where it is held that to be called "goods transport agency" a person should fulfill two conditions, namely, he should provide service in relation to transport of goods by road and issue consignment note, by whatever name called; that admittedly, no consignment note was issued by the goods transporter; that attempt to construe the slip/challan/transport note issued by the appellant (receiver of service) as a ‘consignment note' is beyond the scope of law and no tax liability arises, and allowed the appeals - Revenue in appeal before Supreme Court.

Held: After condoning the delay, appeal was admitted and tagged with Civil Appeal no. 203 of 2017: Supreme Court [para 2, 3]

Appeal admitted

2017-TIOL-1981-HC-AHM-IT + Story

GUJARAT AMBUJA EXPORTS LTD Vs DCIT : GUJARAT HIGH COURT (Dated: September 11, 2017)

Income Tax - Writ Petition - Sections 143(3)

Keywords - Bogus purchases - Re-opening of assessment

The assessee company is engaged in trading activities of agro processing, maize processing, cotton spinning power plant and windmill. For the AY 2008-09, the assessee declared income of Rs.54.44 crores. After scrutiny, the AO passed an order under section 143(3) by making several additions. During the assessment, purchases made by the assessee from certain traders including one M/s. Vishal Traders came to be scrutinized. The Assessing Officer having held that such purchases were bogus made the additions. Upon further appeals by the assessee before the Appellate Commissioner and the Tribunal, the disallowances were limited to 5% of the purchases.

The AO issued notice for re-opening of assessment and made several additions and determined the total income at Rs.88.69 crores. Besides, the AO deemed certain purchases made by the assessee from certin traders, to be bogus.

On hearing the petition, the High Court held that,

Whether if assessee reports some bogus purchases in its return but the same goes unexamined, and later on re-assessment is initiated based on certain tangible materials received from Investigation wing, such action is to be construed as change of opinion - NO: HC

++ a close examination of the reasons recorded for re-opening the assessment, there was sufficient material available with the AO to reopen the assessment, based on a belief that taxable income had escaped assessment. Serious infirmities were pointed out in the transactions of the assessee with a certain trader. Substantial amounts were received from various sources in the bank accounts which were withdrawn in cash shortly after receipt. Summons issued by the department were not responded. Even the entity was not found existing at the given address. The proprietor of the concern could not be served since he was not found at the address supplied and the rest of the members present refused to accept the summons. Genuine and repeated efforts were made by the department to serve the summons to the said entity to produce documents and information. No response was received from the trader. Independently of the non-service or non-response to the summons by the trader, there were other transactions which were prima facie dubious. The assessee had paid a sum of Rs.4.48 crores to the trader by way of purchases;

++ these transactions were not examined by the AO in the original assessment proceedings, though sufficient evidence was found, suggesting that not all purchases made by the assessee were genuine. In fact though the appellate authority and the Tribunal reduced the addition made by the AO on this count, in theory, the non-genuineness of some of the purchases was approved by the Tribunal also. So far as the assessee's purchases from the trader are concerned, they were not subject matter of the assessment proceedings and in that view of the matter the question of change of opinion would not arise. In any event, when fresh material was unearthed by the department through the investigation wing who had inquired into the transactions of trader, neither the question of change of opinion nor the concept of full disclosure may have a bearing. If the purchases of the assessee from the trader were bogus, sales and the entries were in the nature of accommodation entries, merely because the assessee disclosed such entries in the return filed and also showed such purchases in the books of accounts would hardly be sufficient to advance the arguments of full and true disclosure;

++ the question of sufficiency of material available with the AO to form a belief that income chargeable to tax had escaped assessment must be seen in light of limited jurisdiction, review and the self restraint imposed by the courts at the threshold stage. In a writ petition, the court would be primarily concerned with the question whether the AO had information enabling the forming of a bona fide belief that income chargeable to tax had escaped assessment. The court would not evaluate the evidence at that stage, nor is the AO expected to demonstrate with certainty that the addition will certainly be sustained in the reassessment proceedings. What is required at this stage to enable the AO to issue the notice for reopening the assessment is the tangible material on record upon consideration of which he can form a reasonable belief that income chargeable to tax had escaped assessment. Such belief has to be one which is formed bona fide upon perusal of the materials at his command and unless it can be stated that the formation of the belief is perverse in the sense no reasonable person could on the available material on record form such a belief, the court would not interfere with the notice for reopening.

Assessee's writ petition dismissed

2017-TIOL-1310-ITAT-DEL

INDIA BULLS REAL ESTATE LTD Vs DCIT : DELHI ITAT (Dated : August 28, 2017)

Income Tax - Section 14A & Rule 8D.

Keywords : Capital gains - Dividend income & Strategic or controlling interest.

The Assessee-company engaged in the business of real estate project development had earned dividend income of Rs.1,95,118/- and Suo Motto disallowed an amount of Rs.50,231/- in the computation of income on account of expenses incurred with respect to the investment made in shares. The AO, however, was of the view that earning of exempt income is not in the nature of a passive activity and held that in the case of the Assessee, since the provision of Rule 8D were operational, the same were to be adhered to. Accordingly, the AO applied the provisions of Rule 8D and made disallowance of Rs.4,30,80,809/-. On appeal, the CIT(A) deleted the additions made by the AO.

The Assessee also acquired 50,000 shares of Rs. 10 each of one SLDL and entered into an agreement with VAFPL to sell such shares for a total consideration of Rs. 10 Crores. Out of the said value, an amount of Rs. 25 Lacs was received by the Assessee during the year under consideration. However in accordance with the provisions of section 45 of the Act, the Assessee accounted the capital gains considering the sale consideration as Rs. 10 Crores and paid the taxes accordingly. Further, subsequent to share purchase agreement and transfer of sale of shares, SLDL had mortgaged its land measuring 11.30 acres in favour of Indiabulls vide mortgage deed alongwith deposit of title documents as a security for fulfillment of the obligation of VAFPL under the share purchase agreement. Thereafter several disputes arose between the parties and the parties filed legal cases and criminal complaints against each other in various courts. Further a settlement deed executed between the parties of share purchase agreement for resolving all the disputes among themselves and a supplementary share purchase agreement was executed between parties of share purchase agreement . The Assessee could not raise this claim before AO as the sale consideration on which tax was paid was revised. Therefore, the aforesaid issue was raised before CIT(A) as additional ground. However, the CIT(A) after taking view of the AO rejected the plea of the Assessee.

On appeal, the Tribunal held that,

Whether disallowance u/s 14A r/w rule 8D is to be in relation to the income which does not form part of the total income and not by taking into account the entire investments giving rise to such income - YES: ITAT

++ the disallowance made by the assessee is appropriate, considering the process of the investment and the steps involved in an investment activity. It is emphasized that in order to justify that no other cost has been incurred by the assessee, the assessee submits that activity of investment in mutual funds is not complex or driven by any complicated analysis and, evaluation. The objective is to invest in a mutual fund which maximizes return over a short period of time. There are no external or statutory approvals or statutory requirement of maintenance of records. It is submitted that obtaining approval from top management is an internal process and does not entail much of their time. Further on account of technology based environment and facility of electronic transfer of funds, task of lower-level management has also become quite hassle-free and does not need much of their time. Thus making an investment activity is not a time consuming activity. It does not involve full day effort of the personnel’s’ involved and hence the same ought to be accepted as such, no further disallowance is warranted. The Assessing Officer has included all the investments for calculation of disallowance under Rule 8D of the Income Tax Rules, 1962. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to income which does not form part of the total income during the instant year;

Whether if investments are made for the purpose of strategic or controlling interest, same does not fall in ambit of Section 14A rw Rule 8D with regards to disallowance - YES: ITAT

++ if investment made on account of strategic or for controlling interest, section 14A is inapplicable. It is submitted that assessee is a real estate company. The main objective of which is to acquire land to develop real estate projects and sell it. In view of the applicable state land laws, which put ceiling on the extent of acquisition of land, it was in the business interest of the assessee that instead of one company acquiring large chunks of land, small company of the same group acquire small chunk of land in the adjoining area, which helps in negotiating better land price. Thus assessee had made investment into several subsidiaries companies, most of which were formed for the purpose of acquisition of land and for which purpose the appellant had made investment in their share capital. No dividend income has been earned by the appellant thereon nor likely to be earned, as the very purpose of such investment was to support the core business activity of the company. It is submitted that the High Court in the case of CIT vs. Oriental Structural Engineers Pvt. Ltd. noted that, the assessee invested in shares of subsidiary companies and claimed that the said subsidiaries were formed out of “commercial expediency” in order to obtain contracts from the NHAI. In the assessment order, the AO while rejecting the commercial expediency claim of the assessee, has disallowed Rs. 35,85,121/- as expenses incurred in relation to exempt income u/s 14A read with Rule 8D. Being aggrieved, the assessee appealed before CIT (A) where the disallowance u/s 14A made by AO was deleted. On further appeal by revenue against the CIT(A) Order, the Delhi ITAT and High Court while dismissing the appeal held that subsidiaries formed due to commercial expediency cannot be considered for the calculation of disallowance u/s 14A read with rule 8D of the Act. Similar view has also been expressed by the judgment of Jurisdictional High Court in the case of CIT v. Holcim India (P) Ltd. Further, in the case of EIH Associated Hotels Limited vs. DCIT, wherein Chennai ITAT has held that even if dividend is earned from the investment made in subsidiary, still for calculating average investments for Section 14A those investments need to be excluded. The motive of the assessee towards the investment in subsidiary was not for earning dividend or capital gain, but to promote business of subsidiary. Accordingly, disallowance made by Assessing Officer is also not in accordance with law on the facts that investments are made only for the purpose of strategic or controlling interest, as it is evident from the tabulated chart placed at para 3.4 above. In light of the aforesaid, it is respectfully prayed that that order of the CIT(A) be upheld.

Whether since additional issue on amount of sales consideration emerged only after the assessment proceedings, the matter is to be remanded back to AO to verify genuineness of the claim - YES : ITAT

++ it is apparent that the Assessing Officer has objected to the additional ground on the basis that since from the perusal of assessment record it is clear that due opportunities were provided to assessee during the assessment proceedings. The Assessing Officer has overlooked the facts of the case and mechanically given his comment, as regard the position of raising the ground during assessment proceedings. The additional issue has emerged only after the assessment proceedings which are completed vide order dated 26.12.2011; and sale consideration has been changed only on 01.02.2012 in supplementary share purchase agreement. The CIT (A) has erroneously rejected the claim of the assessee holding that, the request of the appellant to admit additional ground of appeal is against its own admitted position at the time of filing of return and later during the assessment proceedings, which cannot be allowed to be accepted. The aforesaid objection is fundamentally misconceived as the issue raised is a legal plea and therefore such a plea based on facts on record brought during the appellant proceedings and, confronted to the Assessing Officer, who not disputed on the facts in the remand report, can be raised at any stage of the proceedings include appellate proceedings. Accordingly, the matter is set aside to the file of AO who will verify the genuineness of the claim of the assessee that whether the sale consideration is Rs. 10 crores or Rs. 25 lakhs and decide the issue de novo but by affording adequate opportunity of being heard to the assessee.

Assessee's appeal allowed

 

2017-TIOL-1309-ITAT-DEL

ADIT Vs FORTUNE SOCIETY FOR DEVELOPMENT AND PROMOTION OF INTERNATIONAL BUSINESS : DELHI ITAT (Dated : September 18, 2017)

Income Tax - Sections 2(15), 11, 12, 12A & 143(3).

Keywords: Charitable society - Capital asset - Caution fee - Educational activities & Non-charitable purpose.

The Assessee-society, registered u/s 12A, was engaged in running an educational institute in Delhi. It filed its return showing NIL income and claiming exemption under Ss 11 and 12. The AO noted that during the relevant AYs, the Assessee had transferred a sum to both infrastructure development fund and general reserve. The AO further denied the claim for applicability of provisions of Ss 11 and 12 on the ground that since the Assessee was running educational institutions with a view to earn profit, it was nothing but a commercial venture. Moreover, on verification of registration u/s 12A(A), the AO observed that the same was signed by the ITO(HQ RS)(E) but not by the DCIT(E). It was further held that the ITO(HQ RS)(E) was not the right authority to issue a registration certificate. Since, the Assessee had already been granted a deduction on account of capital expenditure in earlier years, the claim of depreciation allowance was not allowable. Consequently, the AO assessed the total income at Rs. 1 95.63 lakhs to be charged at maximum marginal rate treating the Assessee as an Association of persons.

Aggrieved with the assessment order, the Assessee preferred an appeal before the CIT(A), who held that Assessee was carrying on educational activities covered u/s 2(15) and merely transferring of a sum to the infrastructure development fund and general reserve fund, was not used for the noncharitable objects, hence, the Assessee was entitled to the deduction of depreciation allowance.

On appeal, the Tribunal held that,

Whether when the assessee is a charitable body and it has some surplus income, if the same is transferred to general reserve fund and infrastructure fund created by the assessee, such application of income is to be treated as the one for business purpose - NO: ITAT

++ assessee has just transferred a sum of money to the infrastructure development fund as well as general reserve fund to be used for the purpose of the object of the trust of the Assessee society and not for any other object other than the object of the society. Therefore, the observation of the AO to this extent is incorrect. Furthermore, the Assessee has merely passed the accounting entries in books of accounts transferring from the excess of income over expenditure account to these two different accounts. Therefore, there is no infirmity in the order of the CIT (A) in holding that Assessee has not applied the profit for non-charitable purposes. In the result ground No. 1 of the appeal of the Revenue is dismissed.

Whether a charitable institution/ society is entitled to claim depreciation on the same capital asset on which deduction has already been granted - YES: ITAT

++ the Delhi High Court’s decision in Indraprastha Cancer Society's squarely coveres the issue in favour of the Assessee In this particular case, including the case of Supreme Court in Escorts Ltd's case, was also considered and thereafter it was held that "... under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed...". We reverse the finding of the lower authority and direct the AO to delete the disallowance of these Rs. 3701380/- being the amount of depreciation claimed by the Assessee on the assets on which deduction is application of income has already been granted. In the result ground No. 2 of the appeal of the Revenue is dismissed.

Whether the amount of caution fee is also part of the educational activities, when the charitable institution/ society is carrying on educational activities covered u/s 2(15) - YES: ITAT

++ assessee has received Rs. 3.27 lakhs. During the year on account of caution money which are held by the AO as business. As the CIT(A) has already held that Assessee is not into carrying on any business but carrying on activities of education covered u/s 2(15), which has remained unchallenged and the amount of caution fee is also part of the educational activities. Therefore, we do not find any infirmity in the order of the CIT (A) in holding that caution money is for the educational activities and part of that on which exemption cannot be denied. In the result ground No. 3 of the appeal of the revenue is dismissed.

Revenue's appeal dismissed

2017-TIOL-1978-HC-KAR-IT

CANBANK FINANCIAL SERVICES LTD Vs CCIT: KARNATAKA HIGH COURT (Dated: August 21, 2017)

Income Tax - Writ - Sections 115JB & 234C.

Keywords: Advance tax installments - Accrued income - Interest liability - Quarter ending & Waiver of interest.

The Assessee-company has filed its return which was processed under CPC. An interest u/s 234C was charged raising a demand of Rs.98,178/- as against the refund. The Assessee filed a petition for waiver of interest u/s 234C for relevant AYs. The AO stated that the Supreme Court vide its order dated 15-07-2013 had dismissed an appeal filed by M/s HSBC which owed money to the Assessee and directed the registry of the court to release the money to the Assessee. Thereafter, the Assessee became liable to pay tax u/s 115JB, where it paid 75% of its tax liability. Hence, the conditions stipulated in Board's order was satisfied. Therefore, an order was passed by the assessing authority giving partial relief of waiver of interest u/s 234C on account of non-payment of installment of advance tax for the quarter end. This view of the AO was endorsed by the Principal Commissioner.

Aggrieved Assessee filed a waiver application before the Chief Commissioner where it stated that such waiver can be granted only in respect of income which was neither anticipated nor was in the contemplation of the Assessee and the advance tax on the remaining income was duly paid by the Assessee.

In Writ, the High Court held that,

Whether when a company pays advance tax installments taking into account of accrued income u/s 115JB for the quarter ending attracts the interest liability u/s 234C - YES: HC

++ this Court is satisfied that there is no error in the order passed by the Revenue-Chief Commissioner. The CBDT circular dated 26-06-2006 quoted by the Chief Commissioner in the order r/w Section 234C clearly stipulates that such waiver can be granted only in respect of income which was neither anticipated nor was in the contemplation of the Assessee and the advance tax on the remaining income was duly paid by the Assessee.

++ in the present case, the moment an order favourable to the Assessee was passed by the Supreme Court on 15-07-2013 directing the HSBC to pay the amount of Rs.102,59,36,115/- which was deposited by the HSBC Bank with the Registry of the Supreme Court followed by order dated 05-08-2013 to release the amount and which fund was released to the Assessee on 03-10-2013, that amount of Rs.102,59,36,115/- became assessable to tax u/s 115JB;

++ after the said order was passed by the Supreme Court on 15-07-2013 followed by order dated 05-08-2013, the Assessee could not have contended that it could not anticipate the accrual of income u/s 115JB and therefore, it ought to have paid advance tax installments taking into account such accrued income for the quarter ending 15-09-2013. Having not paid that amount, the interest liability u/s 234C automatically stood attracted.

Whether a company can pray for waiver of interest u/s 234C for the quarter ending, merely because the Apex Court has dismissed a review petition filed by the borrower company - NO: HC

++ Chief Commissioner has already granted 100% waiver for non-payment of advance tax on this amount for the quarter end of 15-06-2013 amounting to Rs.5,05,359/- which the Assessee perhaps deserved in the facts and circumstances of the case. But thereafter, merely because the review petition came to be filed by the HSBC Bank which was ultimately dismissed by the Supreme Court vide Annexure-3 dated 03-12-2013, the Assessee-company could not have prayed for waiver of interest u/s 234C for the quarter ending 15-09-2013. Therefore, the order passed by the Revenue appears to be perfectly just and legal and does not require any interference by this Court. The petition is devoid of merits. Accordingly, the same is dismissed.

Assessee's Writ dismissed

2017-TIOL-1977-HC-AHM-CX

TRIVENI RAYONS PVT LTD Vs CCE & C: GUJARAT HIGH COURT (Dated: September 07, 2017)

CX - assessee is engaged in manufacturing of polyester texturised yarn - When it surrendered its Central excise registration it had a sum as unused Cenvat credit as well as a further sum in its capital goods a/c - Thus the assessee filed refund claim under Rule 5 of CCR, for both the amounts - The adjudicating authority rejected such claim on grounds that refund would be available in case of CENVAT input or input for manufacture of export - The Tribunal confirmed such rejection, holding that unused Cenvat credit was not refunded in case of export of goods.

Held - Considering Rule 5 of the CCR, the refund would be granted when any input or input service was used in manufacture of any final product or letter of undertaking or use in the intermediate product cleared for export, or used in providing output service which is exported - Admittedly, the Cenvat does not relate to any input or input service used in any final product or used in intermediate product cleared for export or used in providing output service which is exported - Hence, the Tribunal order rejecting the claim warrants no interference: High Court (Para 2,3,4)

Appeal dismissed