2017-TIOL-2008-HC-AHM-IT

PR CIT Vs SUN PHARMACEUTICAL INDUSTRIES LTD: GUJARAT HIGH COURT (Dated: September 20, 2017)

Income Tax Act - Sections 115JB, 253(1),(2), (3) & (4).

Keywords - Appeal before Tribunal - Re-opening of assessment

The assessee company is engaged in various businesses, and also in manufacturing pharmaceuticals. For the AYs 2001-02 and 2002-03, the assessee computed its income u/s 115JB. On scrutiny, the AO re-opened the assessments, and made several additions therein. Later, the Commr.(A) allowed the assessee's appeal against the additions made, but held against the assessee on the question of the validity of re-opening of assessment. Nonetheless, the additions made by the AO were deleted. Before the Tribunal, the assessee did not make any contentions or file any cross-appeal questioning the validity of reopening of the assessments. However, the assessee later invoked Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963, to raise the issue of the validity of the re-opening of the assessment. The Tribunal permitted such action of the assessee, and ultimately held that the notices for reopening of assessments in both AYs, were bad in law and declared them as invalid.

Upon hearing the appeal, the High Court held that,

Whether an assessee can validly exercise the right to defend an order of the Appellate Authority, being challenged by the Revenue before the Tribunal, without filing an appeal - YES: HC

++ under section 253(4), either AO or the assessee, on receipt of a notice that an appeal against the order of the Commissioner (Appeals) has been preferred before the Tribunal, may notwithstanding the fact that he may not have appealed against such order within thirty days of the receipt of the notice, file a memorandum of cross-objections against any part of the order of the Commissioner (Appeals). Such memorandum would be disposed of by the Tribunal as if it were an appeal presented within the time specified in sub-section (3). In plain terms, Section 253(4) gives the right to the AO as well as to the assessee to challenge the order of the Commissioner (Appeals) or part thereof upon receipt of the notice issued by the Tribunal in an appeal filed by the other side, even though previously he may not have preferred any such appeal and if such cross-objection is filed within the time mentioned u/s 253(4), the same would be treated as an appeal filed within the time prescribed u/s 253(3).

++ thus, Rule 27 provides that though the assessee may not have filed appeal, the assessee may support the order appealed against on any of the grounds decided against him. This rule embodies the fundamental principle that the person, who may not have been aggrieved by an order of the lower authority or the Court and has therefore not filed any appeal against such order, is free to defend the order before the Appellate Forum on all grounds including the ground, which may have been held against him by the lower authority or the Court, whose order is otherwise in his favour.

++ considering the decision of the Apex Court in Virdhachalam Pillai vs. Chaldean Syrian Bank Ltd. Trichur and anr and the decision in S.Nazeer Ahmed vs. State Bank of Mysore and ors and that of the High Court in Dahod Sahakari Kharid Vechan Sangh Ltd. vs. Commissioner of Income Tax 2005-TIOL-242-HC-AHM-IT, and a perusal of the Tribunal order, there is no full comparison of the set of reasonings in the earlier and present reopening of assessments. For the AY 2002-03, the conclusion of the Tribunal is merely by a reference. Therefore, the Tribunal is requested to reassess this issue for both the AYs, and record its fuller reasons for coming to a particular conclusion. Hence, the appeals are remanded back to the Tribunal for de novo adjudication of the issue of validity of reopening of the assessments.

Case remanded

2017-TIOL-2007-HC-DEL-IT + Story

PR CIT Vs TIMES INTERNET LTD: DELHI HIGH COURT (Dated: September 6, 2017)

Income Tax - Sections 260A

Keywords - disallowance of expenditure - sale of business.

The assessee is a media company dealing in a wide range of services, such as online news, e-commerce, music, radio, television, video, daily deals, sports, educational platforms and location-based services. In its returns for the AYs 2006-07 and 2008-09, the assessee declared that had sold its business. Concurrently, it declared that it incurred expenditures similar to those in previous years. The AO added back Rs. 16,12,31,000/- for the AY 2006-07, and disallowed expenditure of Rs. 28,41,30,727/-. The AO opined that as the business had been sold, the assessee could not have reported such high levels of expenditure. Thus, the AO projected the expenditure incurred for the times it actually carried on business, and applied them for the subsequent periods when the assessee had not carried on such business. Later, the CIT(A) and then the Tribunal set aside such findings of the AO.

On appeal, The High Court held that,

Whether if the CIT(A) and the Tribunal have given concurrent findings of fact, no substantial question of law can arise - YES: HC

Whether merely because one division of the assessee's business is sold out, the expenditure should necessarily come down - NO: HC

++ considering the Tribunal's findings in the appeal for the AY 2008-09, this court is of the opinion that since the findings of the lower appellate authorities, especially the CIT(A) and the ITAT are concurrent on the facts, it cannot be said that any substantial question of law arises. Even otherwise, the AO's order presumed that the levels of expenditure necessarily had to drop, since the internet based business had been sold by the assessee. Such a conclusion could not have been arrived at unless the AO had considered all other factors including the nature of commercial activities that subsisted without such activity;

++ another ground was urged by the Revenue was pertaining to the treatment to be given to the website expenditure. The AO had disallowed the assessee's claim that properly fell in the revenue stream holding that the expenditure resulted in the capital advantage of an enduring nature. Both the CIT and the ITAT upset the findings of the AO concurrently. Considering that the findings of the Tribunal in this regard were based on the judgment in the case of CIT v. India visit.com, no question of law arises in respect of the nature of such expenditure.

Revenue's appeal dismissed

2017-TIOL-2006-HC-MUM-IT + Story

NAI PAL SINGH Vs UoI: BOMBAY HIGH COURT (Dated: September 20, 2017)

Income Tax - Writ - Central Civil Services (Classification, Control and Appeal) Rules, 1965 - Rules 3 & 16.

Keywords: Corrupt motive - Corrupt practice - Memorandum of Charge & Quashing of charges.

The Assessee, an IRS officer, was posted as DCIT between the years 1994 and 1996. The CIT randomly selected 100 cases wherein orders were passed by the Assessee for regular inspection and found that they were different from the cases taken up for vigilance inspection. On the basis of inspection in six cases, the CIT recorded adverse entries in the ACR of the Assessee for the year 1995-96. The Assessee made representation seeking expunction of adverse entries in the ACR and for upgradation of the same, which was considered favourably and directions were issued by a Member of CBDT expunging adverse remarks in four columns out of six columns in the ACR for the year 1995-96.

Aggrieved Assessee tendered a representation to the President of India. It was then communicated to the Assessee that the adverse entries made in column 20 of Part III and Column 3 of Part V, recorded in the ACR for the year 1995-96, was expunged. The Assessee also submitted that when he became eligible for promotion to the post of Pr. CIT, a Memorandum of Charge under Rule 16 of Central Civil Services (Classification, Control and Appeal) Rules, 1965 was issued by the CBDT Chairman. The charges levelled against the Assessee were in respect of irregularities in assessment orders passed by him in six cases while he was posted as DCIT. The charge in the second charge sheet was in respect of violation of Rule 3(1)(i), (ii) and (iii) of Central Civil Services (Conduct) Rules 1964.

In Writ, the High Court held that,

Whether officers discharging quasi-judicial functions in the Income Tax Department are necessarily required to decide cases in favour of Revenue or face Departmental action - NO: HC

++ the fact remains that the decision given by the Assessee has been upheld by the judicial forum. Even the appeals presented against the orders passed by the Assessee were disposed of in view of quashing of the block assessment notices and ultimately, the Division Bench of the Madras High Court directed the matters to be remitted back. There may be two different views on interpretation of a particular provision of law or as regards interpretation of the precedence. However, some view taken by the deciding authority, which is not to the satisfaction of the department, cannot form basis for proceeding departmentally against the quasi-judicial authority. If such logic is applied and is accepted as a correct proposition, it would be difficult for the judicial forums to render decisions in the matter, which may lead to disastrous consequences. The delay in taking cognizance of the alleged acts of misconduct or lack of devotion to the duty, itself is a ground for quashing the charges;

++ delay in proceeding against the Assessee caused serious prejudice to him since the matter has been opened up at the stage when the Assessee has come within the zone of consideration for promotion to the higher post. Looking to the gravity of the charges, it must be noted that, in respect of the Memorandum of Charge served upon the Assessee, which is a subject matter of Writ Petition No. 10120/2015, Memorandum of Charge has been served after about 20 years. Out of the six cases mentioned in the memorandum of charge, three cases were the matter of consideration for recording adverse entries against the Assessee. Those adverse entries, recorded at the relevant time, were expunged on consideration of representation / appeal by the Assessee. It is, thus, prima facie clear that the charges were not substantiated and as such, adverse remarks were expunged. So far as other three cases are concerned, the allegation is in respect of lack of devotion to the duty. There is no allegation of corrupt motive or corrupt practice attributed to the Assessee in any of the Memorandums of Charge;

++ so far as second Memorandum of Charge, which has been served after delay of about seven years, is concerned, the department for the first time, raised a contention in respect of lack of jurisdiction invested with the Assessee for deciding the cases. Though the department presented appeals challenging the appellate orders passed by the Assessee, such contention was never raised before any forum. The contention raised by the department, in that regard, is also questionable;

++ the decisions rendered by the Assessee on merit in the matter of Mr. Rakesh Sarin are questioned referring to the interpretation put by the Assessee to certain precedences / case law and the interpretation of the relevant provisions of Income Tax Act. Merely because the interpretation put by the Assessee may not be acceptable to the department, itself cannot be a matter of departmental enquiry. If such view is accepted, it would be highly impossible for the quasi-judicial authorities to take decisions in the matter, which would severely prejudice the administration. The department has not attributed anywhere corrupt motive or dishonest conduct on the part of the Assessee while deciding the matters. The belated Memorandums of Charge served on the Assessee surely causes prejudice to the Assessee. Gravity of the allegations also do not calls for permitting the department to proceed with the belated charges levelled against the Assessee after 20 years and seven years, respectively;

++ for the reasons recorded above, according to us, both the writ petitions deserve to be allowed and same are accordingly allowed. The Memorandums of Charge, served on the Assessee, stand quashed and set aside.

Assessee's Writ allowed

2017-TIOL-1319-ITAT-DEL

GKN DRIVELINE (INDIA) LTD Vs DCIT : DELHI ITAT (Dated : September 20, 2017)

Income Tax - license and logo fee – royalty - capital expenditure – revenue expenditure - depreciation – provision for warranty – ascertained liability

A) The assessee is a company engaged in the business of manufacturing and sale of constant velocity joints. During the course of assessment proceedings, the assessee had made payments towards royalty and logo expenses to GKN holding Plc. and GKN Driveline International GMBH, Germany. AO observed that GKN holding Plc. was given license and logo fee of Rs. 9,19,44,918/- and GKN Driveline International GMBH, Germany was given royalty of Rs. 2,43,61,059/-. The AO treated the royalty payment made by the assessee as capital in nature and consequently allowed depreciation at the rate of 25% as applicable to intangible assets. DRP directed the Assessing Officer to allow the consequential relief as per the decision of the Delhi High Court vide order dated 12.03.2009 and 31.05.2010 for assessment years 2002-03 and 2004-05 respectively in assessee's own case. The AO accordingly allowed depreciation at the rate of 25% at Rs.2,34,44,658/- and disallowed an amount of Rs.1,75,83,494/-.

B) The Assessee had debited an amount towards provision for warranty claims. Consequently, the AO held that the provision for warranty is not an allowable expenditure. He, therefore, added the same to the total income of the assessee. On appeal, the DRP restored the issue to the file of AO with direction to verify and ascertain the method of working of provision and allow the same, if it is based on scientific principles. The AO in the final order gave partial relief for the actual claim by the assessee and disallowed only the net provision of warranty holding the same to be contingent in nature.

On appeal, the ITAT held that,

Whether overseas payment made for 'use of technical knowhow', is allowable as revenue expenditure – YES: ITAT

+ it is noted that the Tribunal in assessee's own case for A.Y 2007-08 vide ITA No. 5669/Del/2011 - 2016-TII-155-ITAT-DEL-INTL has decided the issue in favour of the assessee and has held that the payment of Rs.2.94 crores made by the assessee for use of technical knowhow and trademark is a revenue expenditure and cannot be treated as a capital expenditure. It is further noted that the Tribunal following the above decision has again decided the issue vide  ITA no. 5923/Del/ 2012 - 2016-TII-3 60 -ITAT-DEL-TP for A.Y. 2008-09 in favour of the assessee and held that the total payment of Rs.6.39 crores made by the assessee for use of technical knowhow and trademark is revenue expenditure and cannot be treated as capital expenditure. Therefore, following the consistent decision of the Tribunal in assesse's own case and in absence of any contrary material, the payment of royalty by the assessee to its AE – GKN Driveline International GMBH, Germany and logo fee paid to the AE – GKN holding Plc. held as revenue in nature;

Whether provision for warranty made on basis of technical estimation in respect of ascertained liability, deserves to be allowed - YES: ITAT

+ as far as provision for warranty is concerned, it is noted that the Tribunal in assessee's own case in  ITA No.3223/Del/2005 order dated 14.09.2007  for assessment year 2001-02 has held that provision for warranty made by the assessee is on the basis of technical estimation and, therefore, such provision was in respect of ascertained liability and the quantification thereof was to be made on a later date. Accordingly, the Tribunal allowed the appeal of the assessee. Similar view has been taken by the Tribunal in assessee's own case for various other years. Therefore, following the same, the provision for warranty claim is an allowable expenditure.

Assessee's appeal partly allowed

2017-TIOL-1998-HC-MAD-CUS

K P MANISH GLOBAL INGREDIENTS PVT LTD Vs Addl.CC : :MADRAS HIGH COURT (Dated: September 11, 2017)

Cus - the petitioner imported Sweet Whey Powder, and was aggrieved by the impugned order of the revenue, wherein it was held that the subject goods were not conforming to the provisions of the Food Safety and Standards Act, 2006 with Rules and Regulations made thereunder - The subject goods were confiscated u/s 111(d) and penalty was also imposed u/s 112(a), along with option to redeem the goods for re-export, upon payment of redemption fine.

Held - no mala fide was alleged against the officer who performed the test and submitted the report - Besides, such officer does not issue a certificate in his individual capacity but as an officer in a Govt. lab, which could be either Primary lab or Referral lab - Therefore, the petitioner's plea to cross-examine such officer officer is untenable - Moreover, neither such officer nor the lab or any authority under the Food Safety and Standards Act, 2006, have been impleaded as parties - Further, to contest a report filed by the Central Food Laboratory, being a technical report, the petitioner must prove such report as being contrary to the actual facts - However, this exercise cannot be done though a writ petition - Hence the present writ is not maintainable: High Court (Para ,5-9)

Writ petition dismissed

2017-TIOL-1997-HC-DEL-CUS

BRIGHT ENGINEERING WORKS Vs UoI : DELHI HIGH COURT (Dated: September 15, 2017)

Cus - Petitioner has filed the present petition, inter alia, impugning a clarification dated 22.3.2016, inter alia, clarifying the petitioner's export obligation to be equivalent to six / eight times the depreciated value of assets on the debonding unit shifting to the EPCG scheme; and, therefore, directing the petitioner to comply with the requirements of the Policy Circular no.84 dated 30.4.2009 -according to the petitioner, its export obligation, under the Foreign Trade Policy [FTP] 2009-14 was six times the duty saved on the capital goods and not their depreciated value - petitioner was also issued an Authorisation (licence) computing the export obligation on the basis as claimed by the petitioner -however, the Authorisation was sought to be amended subsequently, after the petitioner had sought a discharge certificate of its export obligation and closure of the Authorisation - the principal controversy involved in the present petition is whether under FTP 09-14 read with Handbook of Procedures [HOP], the export obligation under the applicable EPCG scheme is to be computed as multiple of the duty saved, as claimed by the petitioner, or as multiple of the depreciated value on the capital goods as insisted upon by the respondents - petitioner also claims that amendment of the Authorisation enhancing the export obligation is without jurisdiction.

HELD - It is obvious from section 6 of The Foreign Trade (Development & Regulations) Act, 1992 [FT (D&R) Act] that DGFT cannot amend or alter theFTP and is bound by the same -in terms of paragraph 2.3 of the FTP, the DGFT is empowered to interpret the FTP -however, the question of interpreting the FTP would arise only where there is any ambiguity or doubt as to any of its provisions -plainly, the DGFT cannot issue a clarification, which is ex facie contrary to the FTP and HOP notified by the DGFT –if Policy Circular no. 84 dated 30.4.2009 is read in the context of the FTP 04-09, it is at once clear that the reference to computation of export obligation on the basis of depreciated value of machinery, is inapposite and contrary to the provisions of the FTP 04-09 - however, it appears that this error had crept into the circular because a similar clarification was provided by the Policy Circular no.35 issued on 1.10.1999 and that circular (Circular no. 35) referred to additional export obligation to be six times or eight times the depreciated value of goods (which was in conformity with the then FTP) -the same measure seems to have been copied in Circular no.84 completely ignoring the material change in the manner of calculating the export obligations as effected by FTP 04-09; the measure of export obligations as provided in FTP 04-09 and FTP 09-14 had changed to multiple of duty saved and not the value of capital goods - there is thus much merit in the petitioner's contention that reference to the export obligation as being equivalent to six/eight times the depreciated value in Circular no.84 dated 30.4.2009 is erroneous -however, even if it is accepted that the same is not an inadvertent error - which in this Court's view it is - but a conscious decision taken by the DGFT, the same is nonetheless not sustainable as such provision runs contrary to the applicable FTP (FTP 09-14) - in view of the above conclusion, it is not necessary to examine the question, whether DGFT had the power to amend the authorisation -the said question is left open - accordingly, the petition is allowed and the impugned clarification dated 22.3.2016 is set aside -the licence amendment sheet dated 23.1.2014, issued by the DGFT is also set aside -the DGFT is directed to consider the petitioner's application for discharge / closure of EPCG authorisation on the basis of the EPCG authorisation dated 13.6.2011 as amended on 4.8.2011 : HIGH COURT [para 13, 25, 26, 27, 28]

2017-TIOL-1996-HC-J&K-CX

CC & CE Vs CHENAB TEXTILE MILLS : JAMMU AND KASHMIR HIGH COURT (Dated: September 12, 2017)

CX - the assessee was engaged in manufacture of Cotton Yarn/Non Cellulosic/Cellulosic/Acrylic/Acrylone yarn - The assessee allegedly contravened the provisions of erstwhile Rules 9(1), 49, 52, 173C, 173G, 173F of the CER, 1944, for not making the payment of adequate duty, during the period of the dispute - The assessee had cleared huge quantity of cotton yarn/non-cellulosic/cellulosic/acrylic/acrylone yarn and paid the central excise duty on the value determined on the basis of cost of single yarn at the spindle stage and did not pay the differential amount of duty on the assessable value as determined at the time of removal of goods from the factory premises after carrying out various processes - Hence nine SCNs were issued, imposing duty demand with interest & penalty - However the duty demands were dropped by the adjudicating authority and the same was confirmed by the Tribunal.

Held - from a perusal of the SCN, it evidently gives the sufficient particulars w.r.t. the basis on which the duty demand with penalty and interest was imposed - It may be mentioned that the assessee did not raise the issue w.r.t. vagueness of the SCNs either before the Adjudicating Authority or before the Tribunal - Such contention was raised for the first time in the objections in the present appeal - Therefore, the assessee cannot be allowed to raise a new plea for the first time in this appeal - Besides, no prejudice has been suffered by the asseesee as it has been apprised w.r.t. the grounds on which the duty demand with penalty & interest was made by the revenue - Question of law answered in favor of revenue, and orders of the Adjudicating authority & the Tribunal setting aside the duty demands with interest & penalty set aside: High Court (Para 2,3,5,7,8)

Appeal allowed

2017-TIOL-1995-HC-AHM-CX

SHIVAM CASTING Vs CCE : GUJARAT HIGH COURT (Dated: September 14, 2017)

CX –(1) Whether the CESTAT is correct in remanding the case to the Original adjudicating authority, for re-appreciation of Chartered Engineer's Certificate on the basis of the direction given in para 6 of the order?(2) Whether the CESTAT is correct in remanding the matter to the Original adjudicating authority, ignoring the fact that the department has not produced any evidence to prove that the order of the Commissioner is perverse? (3) Whether the CESTAT is correct in remanding the matter with the direction to examine the certificate in the manner as prescribed in para 6 of the order, after lapse of 11 years? (4) Whether the CESTAT is correct in remanding the matter only on the issue of certificate of Chartered Engineer and ignoring the fact that the adjudicating authority has decided the show cause notice also on the merits of the case? (5) Whether the CESTAT is correct in directing the department to verify Chartered Engineer's certificate, by independently assessing through experts, verification of purchase documents, brochures/pamphlets issued by the manufacturers after lapse of 11 years and that too without considering the fact that the department has not produced any evidence to prove that the findings of the adjudicating authority are perverse?

HELD – High Court does not find that the Tribunal understood the Commissioner's order as being passed solely on the Chartered Engineer's certificate - according to the Tribunal, this was one of the important grounds which weighed with the Commissioner in dropping the proceedings - the perusal of the order of the Commissioner would establish that the Tribunal's observations are correct - the Commissioner did refer to other evidence on record, nevertheless, his findings were based heavily on the Chartered Engineer's certificate indicating the production capacity of the unit and the fact that the department had alleged total clearance worth nearly three times the maximum capacity – the Tribunal has not cast the burden upon the appellant to substantiate the contents of the Chartered Engineer's certificate by producing additional evidence nor can the order of the Tribunal be understood in such a manner - in plain terms, the Tribunal granted opportunity to the department to verify and if found inaccurate, controvert the Chartered Engineer's certificate - the onus is thus on the department to produce such material if so desired - subject to above observations, tax appeal is dismissed : HIGH COURT [para 4, 5, 6]

2017-TIOL-1994-HC-MAD-CUS

KAMAL SARBUDEEN Vs Addl.CC:MADRAS HIGH COURT (Dated: September 5, 2017)

Cus - the petitioners were arrested at the Chennai airport for offences u/s 104 of the Act - Search of their baggage revealed them to be carrying electrical items and Iridium of highest purity, which they had not declared - The revenue alleged that the petitioners had attempted to smuggle in undeclared goods of a commercial quantity, in violation of Sections 77 & 79 of the Act r/w Para 2.0 of the FTP 2009-14 & Section 3(3) of the Foreign Trade (D and R) Act 1992 - Consequently, the goods were confiscated u/s 111(d) (l) and (m), along with penalty u/s 112(a) - Based on such facts, the Revisional authority upheld such penal action.

Held - admittedly, the goods were not declared by the petitioners when landing at the airport - In terms of Para 2.20 of the FTP 2009-14 a bona fide baggage may be imported along with a person arriving in India from abroad - Moreover, u/s 3(3) of the Foreign Trade (D and R), Act, 1992, all goods to which sub-section (2) applied would be deemed to be the goods imported or exported, of which has been prohibited u/s 11 - Therefore, when the baggage of the petitioners was treated as non bona fide baggage, the goods therein were rightly treated as prohibited goods u/s 11 - Therefore, the petitioners do not make a case warranting interference in the impugned orders: High Court (Para 2,3,6,7,8)

Writ petition dismissed

2017-TIOL-3479-CESTAT-MUM + Story

SIROZ CONSULTANTS PVT LTD Vs CCE : MUMBAI CESTAT (Dated: August 31, 2017)

ST - Definition of plant includes a building - Greenhouse is a building and, therefore, would fall under the definition of plant - use of greenhouse is industrial in nature - activity of installation of plant (greenhouse) is liable to service tax - demand of CE duty on fabricated structure and service tax on installation activity are activities which are independently liable to corresponding levies - demand not hit by limitation as appellant could not have entertained a bonafide belief of activity not being taxable since taxable entry was specifically incorporated in the FA, 1994 - however, matter remanded to examine the claims made by the appellant of composite contracts, abatement of material portion of supply and that balance sheet figures cannot be based for computing demand since on accrual basis - Appeal allowed by way of remand: CESTAT [para 5, 5.1, 5.2, 5.3]

Matter remanded