LATEST INCOME TAX, CENTRAL EXCISE COURT CASES (By.JAV & Associates, Chartered Accountants)
INCOME TAX - COURT CASES
FERROUS INFRASTRUCTURE PVT. LTD. & ANOTHER
DEPUTY COMMISSIONER OF INCOME TAX
DEPUTY COMMISSIONER OF INCOME TAX
There are two points raised in the writ petition:
- The purported reasons for initiating reassessment proceedings had been recorded after the issuance of notice under Section 148 .
- The objections furnished by the petitioners to the Section 148 notice had not been disposed of by a separate speaking order prior to the reassessment order
COMMENTS: In the above case, the Hon’ble Delhi High Court held that the reasons have to be recorded prior to the issuance of notice under Section 148. If they are not so recorded, then the notice under Section 148 and proceedings pursuant thereto are without authority of law. In the present case the reasons were recorded only after the notice under Section 148 had been issued. Thus the notice under Section 148 would be invalid and consequently all proceedings pursuant thereto would also be vitiated. The Assessing Officer has to pass a speaking order disposing of the objections “before proceeding with the assessment”. Since a separate speaking order is not passed petitioner is liable to succeed. [Decided in favour of assessee]
COMMISSIONER OF INCOME TAX
M. M. AQUA TECHNOLOGIES LTD
The main issue that arises here is: “Whether the funding of the interest amount by way of a term loan amounts to actual payment as contemplated by Section 43B of the Income-tax Act, 1961?”
COMMENTS: In the above case, the Hon’ble Delhi High Court held that Explanation 3C to section 43B clearly states that deduction of any sum, being interest payable under clause (d) of Section 43B of the Act shall be allowed if such interest has been actually paid and any interest referred to in that clause, which has been converted into a loan or borrowing, shall not be deemed to have been actually paid. A similar matter was decided by the Hon’ble Madras High Court in the case of Eicher Motors Limited v. Commissioner of Income Tax to hold that in view of the Explanation 3C appended to Section 43B with retrospective effect from 01.04.1989, conversion of interest amount into loan would not be deemed to be regarded as actually paid amount within the meaning of Section 43B of the Act. Thus, the assessee cannot claim deduction under Section 43B of the Act. [Decided in favour of Revenue]
M/S. HOTEL ROOPA
COMMISSIONER OF INCOME TAX
The assessee is a partnership firm which is running boarding and lodging by name Hotel Roopa in Mangalore. Originally it consisted of four partners and on 06.10.2000, one more partner was inducted as a partner. On 20.10.2001, three partners retired from the partnership firm and the business was continued only with the remaining two partners. The assessee firm borrowed a sum of Rs. 75,00,000/- from the Bank for the purpose of settling the account to the retiring partners and the claim deducted of Rs. 5,04,803/- under Section 36(1)(iii) towards interest on the borrowal made to the Bank. The A.O. rejected the claim of the assessee on the ground that the borrowal has been made for the purpose of discharging the personal liability for the continuing partners of the firm and the payment made to the retiring partners has nothing to do with the business of the firm.
COMMENTS: In the above case, the Hon’ble Karnataka High Court held that the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property. The amount paid to the retiring partners is not a share of the profit. Therefore, following the decision of the Hon’ble Supreme Court in Madhav Prasad Jatia v. CIT U.P, the amount borrowed was not for the purpose of business. Hence the claim for deduction u/s 36(1)(iii) was not justified. [Decided against assessee]
THE COMMISSIONER OF INCOME TAX, FARIDABAD
M/S CARRIER AIR CONDITIONING AND REFRIGERATION (FORMERLY KNOWN AS AIRCON LIMITED)
(Punjab & Haryana HC)
The assessee filed a return of income of 11,72,00,980/-. The revised return declared the same income. The assessment was completed under section 143(3) at a total income of Rs. 11,64,04,200/-. The assessee had debited an amount of Rs. 2,66,33,000/- on account of warranty expenses in the Profit and Loss account. The assessee stated that the warranty costs were determined on the basis of the past experience and are provided for in the year of sale. This provision was increased from the previous year by an amount of Rs. 60,25,000/-. The A.O. enquired why the warranty expenses to the extent of Rs. 60,25,000/- should not be added back to the respondent’s income.
COMMENTS: In the above case, the Hon’ble Punjab & Haryana High Court held that the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. It was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case (As decided in Calcutta Co. Ltd. v. CIT by the Hon’ble Supreme Court). Similar matter was decided by the Hon’ble Supreme Court in Rotork Controls India P. Ltd. v. Commissioner of Income Tax. Since the provision is based essentially on the respondent’s past experience such a liability is to be treated in the present time and would not be contingent liability. [Decided in favour of assessee]
COMMISSIONER OF INCOME TAX
CO-OPERATIVE BANK OF RAJKOT LTD
The main question involved here is: “Whether on the facts and in the circumstances of the case, learned ITAT is justified in allowing Rs.68,25,000/- being amortization of premium paid on investments under "held to maturity category" holding that the same is revenue expenditure in nature?"
COMMENTS: In the above case, the Hon’ble Gujarat High Court held that an identical question was answered in the case of Rajkot Dist. Coop. Bank Ltd. and considering the paragraph (vii) of the CBDT Circular No.17 of 2008, assessee is entitled to the amortization of security premium. [Decided in favour of assessee]
PR COMMISSIONER OF INCOME TAX -3
FORTUNE TECHNOCOMPS (P) LTD
The assessee used to deal with electronic articles. In the normal course of its business it used to procure unbranded electronic items and sell them. In the scrutiny assessment, the Assessing Officer added Rs. 3,62,49,274/- after rejecting the assessee's explanation with regard to the purchase made from nine named parties. It was held that these were bogus transactions and that the assessee could not report any satisfactory explanation. The AO was guided by the fact that the sellers/vendors of the items purchased by the assessee had not responded to notices under Section 131 and also relied upon the report of the Income Tax Inspector in that regard.
COMMENTS: In the above case, the Hon’ble Delhi Court held that the remand report obtained by the CIT(A) comprised Various materials including the PAN Number, TIN Number and assessment orders secured from the sales tax authorities. The genuineness of the underlined transactions claimed by the assessee, therefore, on having purchased goods from its vendors, could not be doubted. Thus, the disallowance on the part of the A.O. was wrongly made. [Decided against Revenue]
NAVIN KUMAR AGARWAL
COMMISSIONER OF INCOME TAX
A search u/s 132 of the Act was conducted on 8th December, 1999. The restraint order imposed on 8th December, 1999 was vacated on 31st January, 2000. The search party drew the panchnama dated 31st January, 2000 stating that the search commenced at 15:20 hours and was closed at 15:30 hours. The assessee claimed that the search was concluded on 8th December, 1999 and that the search dated 31st January, 2000 was only for the purpose of revocation of the restraint order dated 8th December, 1999 passed under Section 132 (3) of the Income-tax Act. The assessee contended that the period of limitation has to be reckoned from the search dated 8th December, 1999 and the period of limitation expired on 31st December, 2001, whereas the assessment order was passed on 31st January, 2002 which is out of the prescribed period of limitation.
COMMENTS: In the above case, the Hon’ble Calcutta High Court held that the search ends and the period of limitation begins only on the drawing up of the formal panchnama to record the ending of the search. The argument by the assessee that the search is concluded on the date of the search itself if nothing is seized thereafter is not acceptable. [Decided against assessee]
CENTRAL EXCISE - COURT CASES
DELHI TRANSPORT CORPORATION
COMMISSIONER SERVICE TAX
The assessee had entered into contracts with seven agencies (contractors/advertisers) to provide taxable service by providing space to such parties for display of advertisements on its buses, bus queue shelters, time keeping booths and other properties. In the contract it was provided that the responsibility to pay advertisement tax or any other taxes imposed by any authority will be of the Advertisers.
Two advertisers however failed to abide by the legal obligations as per the contractual terms and did not deposit the service tax in spite of contractual obligation. As a result, the assessee also did not pay the service tax on the services rendered. SCNs were issued to the assessee wherein interest and tax along with several penalties u/s 76, 77 and 78 were imposed.
COMMENTS: In the above case, the Hon’ble Delhi High Court held it is clear that the liability was avoided but not with intent to defraud or on account of collusion or wilful misstatement or suppression of facts. It was also held that since the services provided were taxable, the appellant was liable to discharge the service tax liability. However there is no malafide intent to suppress value of taxable services. Hence as per provisions of section 80, penalty u/s 78 cannot be levied. [Decided partly in favour of assessee]
COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, AURANGABAD
ENDURANCE TECHNOLOGY PVT LTD
The main question that arises is whether the assessee is entitled to avail the Cenvat credit on "management, maintenance or repair services" provided on services provided to Windmills installed and situated away from factory and factory premises which is used for generation of electricity for manufacture of final product.
COMMENTS: In the above case, the Hon’ble Bombay High Court held that management, maintenance and repair of windmills installed by the respondents is input service as defined by Rule 2(l). Rule 3 and 4 provide that any input or capital goods received in the factory or any input service received by manufacture of final product would be susceptible to CENVAT credit. The rule does not say that input service received by a manufacturer must be received at the factory premises. Following the decision of Hon’ble Bombay High Court in the case of CCE V/s Ultratech Cement Ltd (2010). Thus, the services used by the assessee were in relation to manufacture of the final product and Cenvat credit could not be denied. [Decided against Revenue]
SUN-AREA REAL ESTATE PVT LTD
COMMISSIONER OF SERVICE TAX, MUMBAI-I
The appellant against export of service, received payment for the services in Indian rupees from Deutsche Bank and FIRCs issued by the bank has been produced before the lower authorities, whether in respect of such remittance refund is admissible under Export of Service Rules, 2005. The second issue is whether the security services and air travel services used by the appellant is an input service for providing output service which were exported. The learned Commissioner (Appeals) held that since the appellant has not received the service charges from overseas entity in convertible foreign exchange whereas the payment was received in Indian rupees, the condition of Rule 3(2) of Export of Service Rules, 2005 was not complied with and accordingly the services will not be treated as export of services. Therefore, the appellant is not entitled for the refund.
In the above case, the Hon’ble CESTAT Mumbai held that FIRCs were issued and there is a specific certification that the payment has not been received in non-convertible rupees. In other words it means that the payment is in convertible foreign exchange. - out of the total payment to be made by the insurance broker in India to the foreign insurer was reduced to the extent of his brokerage and remaining amount was remitted to foreign insurer in the foreign exchange - when a foreign bank is maintaining Indian rupees in their account obviously, such Indian rupees was obtained in lieu of foreign exchange. Issue of admissibility as input service credit in respect of security services was not raised in the show cause notice. Therefore, denial of refund of Rs.7,747/- and Rs.1,051/- respectively is not correct. - impugned order deserves to be modified inasmuch as the impugned order in respect of Rs.1,64,081/- is upheld and the order rejecting refund of an amount of Rs.10,98,077/- is set aside. [Decided in favour of assessee]
SHRI NEERAJ SHARMA, CENCEPT ENGINEERS
COMMISSIONER OF CENTRAL EXCISE, MEERUT-I
(CESTAT New Delhi)
The appellant has contended that "vaastu advice does not fall in the category of consulting engineer service as that is mythological in nature and that vaastu concept is only a belief in Hinduism and some people who have allegiance to the astrology like advice with regard to vaastu" and that preparation of blue print is no where relating to consultation as blue print of house is work of tracer and not of an engineer. Preparation of project report, typing and binding also does not fall in the consulting engineer. The Dept. argued that vaastu advice falls under Consulting Engineer Service as it is related to engineering.
COMMENTS: In the above case, the Hon’ble CESTAT Mumbai held that it is nowhere brought out in the order in appeal or in the order in original that Shri Neeraj Sharma is a professionally qualified engineer. Further it is also not brought out as to in which discipline(s) of engineering the service has been rendered. Thus the Revenue has not been able to discharge its obligation/onus to show that the
appellant was professionally qualified engineer and also rendered any advice in relation to any particular branch of engineering. [Decided in favour of assessee]
COMMISSIONER OF CENTRAL EXCISE & CUSTOMS, NAGPUR
NOBLE GRAINS INDIA PVT LTD
The respondents are manufacturers of soya extraction meal holding Central Excise registration and are also having service tax registration. The respondent filed refund claims of service tax as per the conditions of Notification No. 41/2007-ST dated 06/10/2007. The refund claims which had been preferred by the assessee is in respect of the service tax paid by the respondent assessee to service providers like CHA, Cargo Handling Services, Port services, etc. which are in respect of export of goods. The said refund claims were rejected by the adjudicating authority.
COMMENTS: In the above case, the Hon’ble CESTAT Mumbai held that the jurisdiction for claiming the refund of service tax paid on such services which are in connection with the export of goods cannot be shifted to their Indore Commissionerate as the registered office of the respondent-assessee being at Indore cannot be a reason for shifting the jurisdiction to Indore. Since, the respondent is a manufacturer-exporter; the refund claims have been correctly filed. [Decided against Revenue]
M/S. VETCARE ORGANICS PVT LTD
The issue relates to using of the brand name 'VETCARE' by the respondent which, otherwise stands registered in the name of M/s Tetragon Chemie (P) Ltd., Bangalore. The respondent claims itself to be a Small Scale Industrial Unit (SSI) and is manufacturing organic chemicals, disinfectants and other products. It claimed the benefit of Notification No. 175/86 dated 01.03.1986 and 1/93 dated 01.03.1993 as amended from time to time which provides for exemption from payment of excise duty to the SSI unit.
COMMENTS: In the above case the Hon’ble Supreme Court held that even if the goods are different, so long as brand name or trade name of some other Company is used, benefit of Notification 1/93 dated 01.03.1993 as amended would not be available. The assessee cannot plead innocence merely on the fact that the permission to use the brand name was granted by Tetragon. The permission does not make the respondent owner of the brand name. It is irrelevant whether the brand name is used in relation to the same goods. The act of the assessee is therefore covered by the mischief of Explanation VIII to the Notification No. 175/86 dated 1.3.1986. Thus, the assessee was denied SSI Exemption. Following the decision by Hon’ble Supreme Court in the case of Commissioner of Central Excise, Chandigarh-I Vs. Mahaan Dairies (2004). [Decided in favour of Revenue]
KALI AERATED WATER WORK, SALEM
COMMNR. OF CENTRAL EXCISE, MADURAI
The appellant herein is a SSI Unit and is manufacturing Aerated Water under various brand names using the trade mark with the “Kalimark” / M/s.Kali Aerated Water Works”. It sought exemption from payment of duty in terms of Notification 1/93-CE dated 28.2.1993 (as amended vide Notification No.59/94-CE dated 1.3.1994). This exemption has however been denied by the Dept. on the fact that the brand name belongs to a third party.
COMMENTS: It was found that the business was started by a HUF which fell apart at some time and this was later converted to a family business. It was very much contained in the mutual agreement at the time of falling apart from the family business that the trade name 'Kalimark Aerated Water Works' and trade mark mentioned in the said agreement would remain vested in all the parties including the appellant and that the appellant was also allowed to use the same. The agreement also provides that no payment of royalty or any other remuneration has to be made to any third party. The Hon’ble Supreme Court therefore held that the appellant had been correctly using its own brand name. Following the decision of Hon’ble Supreme Court in the case of CCE, Hyderabad IV vs. Stangen Immuno Diagnostics (2015) [Decided in favour of assessee]
COMMISSIONER OF CENTRAL EXCISE
M/S. AMRITLAL CHEMAUX LTD.
The assessee is involved in repacking and / or labeling of various dyes & dye bases, napthols & fast bases, and chrome pigments. The question is as to whether the process undertaken by the assessee in these products amounted to manufacture or not.
COMMENTS: In the above case the Hon’ble Supreme Court held that as far as the process of label or relabeling of containers is concerned, it would amount to manufacture only if the other condition, viz., repacking from bulk to retail pack is also satisfied. Here, it is clear that there was repacking and even relabeling but the repacking of bulk was not into retail packing as the goods after repacking were supplied to industrial consumers on wholesale basis. Thus, the condition for repacking from bulk to retail pack for the purpose of fulfilling the conditions for manufacture is not
satisfied. [Decided against Revenue]
satisfied. [Decided against Revenue]
M/S. JITENDRA SYNTHETICS
COMMISSIONER OF CENTRAL EXCISE & CUSTOMS
The appellant was engaged in the business of manufacturing goods like synthetic filament yarn which are excisable goods. The appellant brought and installed in its factory capital goods in the nature of texturing machine on which excise duties to the tune of Rs.4,52,500/- were paid, and therefore, the appellant took credit of the above amount of duty paid on the texturizing machine under Rule 57Q of the Central Excise Rules, 1944 which allowed the credit of duties paid on capital goods while paying duties on the final products in relation to manufacture of which the capital goods were used. The above machine was purchased and brought in the factory during financial year 1994-95 and this transaction was also reflected in the appellant’s statutory records. A SCN was issued denying the modvat credit of Rs.4,52,500/- with penalty of an equal amount.
COMMENTS: In the above case, the Hon’ble Gujarat High Court if the provision for imposing penalty was not in existence in December, 1994 when the contravention took place, then, there was no question of imposition of any penalty on the basis of the subsequent rule which was not in existence at the relevant time. The Hon’ble Supreme Court in Commissioner of Central Excise, Mumbai-I v. Lal Mining Engg.Works, reported in  has held in para-3 that the penalty cannot be invoked in a case which was before the Apex Court as the same would amount to giving retrospective operation thereto which is impermissible in law. [Decided in favour of assessee]
Click here to read more Recent Tax Court Decisions and Comments