A Service provider can take Cenvat Credit on machinery imported prior to date of its registration

Global Digital Color Lab

v
Commissioner of Central Excise

In the instant case the assessee took Cenvat credit in respect of machine imported prior to its registration under service tax law. The department denied the credit on the ground that no credit can be taken on machine imported prior to registration: On appeal, the Tribunal held in favour of assessee as under: There is nothing in the rules prohibiting a person from maintaining proper account. There is no statutory record presently prescribed like "RG-23" as was earlier in force; Therefore, procedures, as was prevalent in old rules that credit entries in register for taking credit should not belong to a date prior to the date of granting of registration, are not in force now. Accordingly, the credit in respect of machine imported even prior to registration was allowed to assessee

"No concession no perquisite" is for employee and not for employer for TDS computation

Supreme Court interprets its Arun Kumar v. UOI ruling on perquisite of concession in rent under section 17(2)(ii)

"No 'concession', no perquisite under section 17(2)(ii)" stand available to employees in their individual assessments and not to the employer for deducting TDS under section 192

• The stand that the value of the accommodation provided to the assessee was not really a "concession" can be taken only by individual employees in their assessment proceedings and not by the employer for deducting TDS under section 192.
• This is because the scheme of the Act provides that after the employer deducts tax from the salary of the employee and pays the same to the Central Government, a Tax Deduction Certificate is furnished to the employee and it is for the employee to claim before the Assessing Officer in the assessment proceedings and get a determination done and in case he succeeds before the Assessing Officer, he will be entitled to refund out of the amount of tax deducted at source by the employer.
• Employer has to deduct TDS in respect of accommodation provided at concessional rent under section 17(2)(ii) on 10 per cent of salary as per rule 3.
• Individual employees are free to make their respective claims before the Assessing Officer for the refund of the deduction made by the employer on 10 per cent of the salary towards 'perquisite' in respect of any concession given to the assessee by claiming that there is no 'concession'.
• During the period the interim order of the High Court was in force, , the ONGC cannot be held to be in default under the provisions of the Act inasmuch as the ONGC was prevented by the Order of the High Court from deducting the tax on 10 per cent of the salary of its employees under Section 192(1) of the Act, and to pay the same to the Central Government under section 200 of the Act.
• Hence, during the period , the ONGC cannot be deemed to be an assessee in default under the provisions of the Act. Consequently, the provisions of sub-section (1A) of section 201 of the Act for payment of interest by an assessee in default under the provisions of the Act will not be applicable to the payments not made by the ONGC because of the interim order passed by the High Court.

Director not liable to pay due taxes of company if he is not grossly negligent for such default

Maganbhai Hansrajbhai Patel 

v. 

ACIT

The Tax Recovery Officer attached personal property of the petitioner-Director on account of dues of company. The petitioner contended that he couldn't be held liable for company's demands as requirement of Sec. 179 was not fulfilled. In this regard he submitted that department could take necessary steps against the company to recover the demand as department had already issued a prohibitory order against the sale of the company's assets. The ACIT, however, was not convinced with the petitioner's argument, thus, this present writ was filed by the petitioner.

The High Court held in favour of director as under:

• Over the attached property of the company another company, namely, GSFC had first charge. Such property was sold by GSFC to recover its dues. Moreover, the company didn't have any other property from which dues could be recovered;

• Thus, it couldn't be said that basic requirement of section 179(1) of the Act was not satisfied;

• However, corporate veil of company could be lifted under Sec. 179(1) if the taxes couldn't be recovered from company and the director was unable to prove that non-recovery couldn't be attributed to gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the company;

• The Legislature advisedly used the word 'gross neglect' and not a 'mere neglect' on his part, however, the focus of revenue was with respect to petitioner's neglect in functioning of the company;

• Further, the factors, dates and events referred to by ACIT which, according to him, established gross negligence on part of the petitioner were without putting the petitioner to notice about such factors and events.

Therefore, the petitioner's writ was allowed by High Court and it was held that the director couldn't be held liable under section 179 for recovery of due taxes of company.

[2012] (Gujarat)

ITAT should order deeper investigation if material is creating doubt about presence of artificial losses

Where there is sufficient material to show that the claim of the assessee is not genuine or could be a sham, the Tribunal should order a deeper investigation and if required, remit the matter to the income tax authorities

CIT 

v. 

J.B. ROY

During assessment the AO noted that assessee had declared a loss under head "income from other sources". The said loss represented the interest paid on loans borrowed from group companies for purchase of unquoted shares of the other group companies. It was further noticed that no income was shown under the aforesaid head. The AO opined that the above method adopted by assessee was a colorable device for transferring the funds of some group concerns to other group concerns. Consequently, AO disallowed the said loss on the ground that the transaction was entered into merely to reduce tax liability. On appeal, the CIT (A) held in favour of assessee. The order of CIT(A) was also upheld by Tribunal. On appeal, the High Court held in favour of revenue as under: The Tribunal, despite being told that there were several unusual features which raised considerable doubt on the assessee's claim for deduction of the interest, did not consider it proper to examine the matter further. It simply chose to take umbrage on the principle that the Tribunal couldn't be expected to act as an investigating agency; It was noted that the Tribunal had failed to assess following surrounding circumstances: a) Though the AO had stated that shares were of the value of "few paise or even zero", yet the assessee brought no material on record to dispute the statement or to show that it was factually wrong; b) That the assessee was neither an investor nor a trader in shares. It was, therefore, for him to show the reasons which impelled him to acquire the shares of the group concerns. Further, the Allahabad High Court in the case of CIT v. Smt. Swapna Roy (2011) 331 ITR 367, has observed that "a man of common prudence shall never like to make investment in a company whose financial status is fragile and not liable to make profit". Thus, the Tribunal ought to have paid due attention to the unusual or even suspicious features of the case. Therefore, the case was decided in favour of the Revenue and the matter was remanded to AO for de novo consideration. [2012] (Delhi)

Penalty waived of as the assessee was under bona-fide belief that transaction wasn't a service

HIGH COURT OF GUJARAT

Commissioner

v.

Welspun Gujarat Sthal Rohren Ltd.

In the instant case, the assessee had imported certain drawings, designs. It classified them as goods and claimed exemption from customs duty. The Bill of Entry for such import was also finalized by custom authorities. Subsequently, the Department alleged that it was import of 'Intellectual Property Services' and accordingly demanded service tax along with interest and penalty. On appeal, the High Court deleted penalty on basis of following findings of the Tribunal: The assessee had paid the entire amount of service tax liability along with interest prior to issuance of the show cause notice and had not disputed the liability to pay service tax and interest; The assessee had a bona fide belief that it was liable to pay customs duty on the drawings and designs imported by it as the same were goods; Under the circumstances, no mala fide intent could be attributed to it in not discharging the service tax liability under the category of "Intellectual Property Rights Services"; and The assessee had shown a reasonable cause for its failure to discharge service tax liability and was, therefore, entitled to relief under section 80.

In case of default by private co., director can be held liable for 'taxes due' and not for interest or penalty

SANJAY GHAI 

v. 

ACIT

In the instant case, the petitioner was the only surviving director of a company. The petitioner was entitled to get refund but the revenue proposed to set off the company's tax liability with the refund payable to the petitioner under section 179. The petitioner contended that the company's outstanding dues were in the form of interest and penalties whereas "tax due" under Section 179 does not include interest and penalty within its ambit. The revenue, however, urged that whatever was recoverable from the private company, inclusive of interest and penalties would become recoverable at the hands of the directors. On appeal, the High Court held in favour of assessee as under: The principal question requiring resolution was to understand the true ambit and scope of the provisions of Section 179; In H. Ebrahim v. DCIT, [2011] 332 ITR 122, the Karnataka High Court held that 'what is contemplated under Section 179 is the tax component and not the penalty and interest'; and In Dinesh T. Tailor v. Tax Recovery Officer (2010) 326 ITR 85, the Bombay High Court held that in Section 179(1), the expression "tax due" and, for that matter the expression "such tax" mean a tax as defined for the purposes of the Act by Section 2(43); "tax due" does not comprehend within its ambit a penalty. Thus, it was held that the petitioner could not be made liable for anything more than the tax as defined in Sec. 2 (43). The revenue was, consequently, directed to determine the liability of the petitioner in the light of the above finding. [2012] (Delhi)

Receipt of corpus donation in shares and its subsequent sale doesn't violate Sec. 11; benefit can't be denied

SERA FOUNDATION 
v. 
ITO

In the instant case, the assessee was a charitable institution. It had received equity shares as corpus donation, which were sold subsequently and the proceeding therefrom were used for giving donation to other charitable institutions. The revenue contended that by selling the aforesaid shares and by making further donations out of it, the assessee had misused the same and had violated section 11(1)(d) and adopted a colorable device to avoid tax. On appeal, the Tribunal held in favour of assessee as under: There is a restriction in section 13(1)(d) as per which the assessee-charitable trust is required to hold its investments in the modes prescribed under Sec. 11(5). However, there is no restriction on accepting corpus donation in the form of shares. The proviso (iia) to section 13(1)(d)(iii) entitles an assessee-trust to hold the shares for a maximum period of one year before which it has to be converted into the modes of investment as prescribed in section 11(5); The assessee only realized the market value of shares and, therefore, there was no violation of section 11(1)(d), particularly when the donor, while gifting the shares as corpus donation, never imposed any condition that the shares could not be sold. Only the form of asset was changed from shares to cash but the original corpus donation remained as it was in the hands of trust; and The conditions contemplated under sec. 11(1)(d) stand satisfied when a voluntary donation is received with a specific direction that they shall form part of the corpus of the trust. No further condition is prescribed in the Act on utilization of corpus fund. Therefore, the assessee was well within its right to utilize the corpus fund for giving donation towards corpus fund of other charitable institutions. Therefore, the assessee's appeal was allowed. [2012] (Delhi - Trib.)

Concealment penalty is inevitable if bogus claim is withdrawn in revised return filed after initiation of survey

Commissioner of Income-tax, Delhi-VI

v.

Usha International Ltd.

HIGH COURT OF DELHI

The assessee, a public limited company, claimed a deduction of Rs. 10,00,000 under section 35CCA purportedly paid to a trust for assessment year 1983-84. Subsequently, the claim was withdrawn by filing a revised return. During assessment, the AO observed that assessee had revised its return of income only as a result of survey action taken by revenue in the assessee's premises. It was further noticed by AO that the assessee was in knowledge of the fact that the trust was not genuine and had deliberately made a false claim under Sec. 35CCA to reduce its taxable income. Accordingly, the AO imposed the maximum penalty, being 200% of the tax sought to be evaded. On appeal, the CIT(A) as well as ITAT held in favour of assessee.

On revenue's appeal, the High Court held in favour of revenue as under:

• The assessee made the donation through cheque, which was encashed through a bogus bank account opened specifically for this purpose;

• It was evident from the records that bank account of the drawee had been opened in a fictitious name merely for the purpose of misappropriating the amount;

• The assessee's contention that he was a victim of a fraud played by several persons acting in concert couldn't be accepted because the special crossing ('account payee') in the cheque was converted or altered into an ordinary crossing by the assessee's account manager and senior advisor who had also affixed their signatures;

• The revised return was filed by assessee only when it was cornered and the income tax authorities had collected material on the basis of which it could be said that the claim for deduction was false or bogus.

From the above facts, it was held that filing of revised return was an act of despair and it couldn't benefit the assessee in any way. Accordingly, penalty order passed by AO was restored.

Where the return is filed electronically without digital signature, the date of transmitting the return electronically shall be the date of uploading of return if the ITR-V is physically furnished to the CPC in the prescribed manner and within the period specified, including extended period, if any

FACTS

In the instant case, the assessee uploaded the return electronically on 25-9-2009. Though there was a controversy on the date of dispatch of form ITR-V, the fact was that CPC admittedly received it on 29-11-2010.

• However, it was noted that in terms of Circular No. 3 of 2009, the time limit for filing of form ITR-V was extended up to 31-12-2010 or 120 days from the date of uploading of the return whichever was later.

• The Assessing Officer served notice on the assessee under section 143(2) on 26-8-2011 and also passed order, thereunder.

• According to the assessee since ITR-V was received by the CPC before 31-12-2010, the date of filing of return had to be taken as 25-9-2009 when it was electronically uploaded and not 29-11-2010 and therefore, the notice issued was beyond the period provided of six months as provided under proviso to section 143(2); and consequently, the order passed by the assessing officer was without jurisdiction.

Deliberating on the issue, the Tribunal held in favour of assessee as under:

• According to the CBDT Scheme framed in this respect, wherever the return is filed electronically without digital signature, the computer, on successful transmission, shall generate acknowledgement in form ITR-V which shall be physically verified by the taxpayer and forwarded to the CPC. Further, the date of transmitting the return electronically shall be the date of furnishing of return if the form ITR-V is furnished in the prescribed manner and within the period specified.

• In this case, the period specified was 31-12-2010 or 120 days from the date of uploading the return whichever is later. Since ITR-V, received by CPC on 29-11-2010, was within the prescribed time in the prescribed manner and in the prescribed form, hence, for all practical purpose, the date of filing of the return shall relate back to the date on which the return was electronically uploaded i.e. 25-9-2009.

• Thus, the contention of the revenue that the filing of ITR-V within the extended period only validates the return filed by the taxpayer and it would not relate back to the date of uploading of the return could not be upheld.

• In view of the above, the notice served on the taxpayer was beyond the period of six months from the end of the financial year in which the return was furnished and therefore, was invalid and could not be acted upon. Consequently, the assessment order passed was to be quashed. 

[2012] 27 taxmann.com 111 (Cochin - Trib.)

Inter-branch payments aren't deductible on grounds of mutuality unless allowed under DTAA

SUMITOMO MITSUI BANKING CORPORATION 

v. 

DCIT

IT/ILT : 

• Once the assessee discloses fully and truly all material facts necessary at the time of original assessment under section 143(3) and a period of four years has expired from the relevant Assessment Year, initiation of reassessment proceedings under section 147 is not valid

• By applying principle of mutuality, no deduction can be allowed in respect of payments made by Indian branch to its head office but the provisions of DTAA override said principle

FACTS

First Issue

• In the instant case, the assessee's assessment for the Assessment Year1997-98 completed under section 143(3) was reopened by issuing notice under section 148 in March 2004 i.e. after expiry of four years from the relevant Assessment Year. The Assessing Officer initiated reassessment proceedings on the strength of the order passed by the first appellate authority for Assessment Year 2000-2001 confirming the addition made by the Assessing Officer by disallowing the interest paid to its head office and other overseas branches.

• On remaining unsuccessful before the Commissioner (Appeals) on the question of initiation of the reassessment proceedings, the assessee filed this present appeal.

Second Issue

• For the Assessment Year 1999-2000, the Assessing Officer disallowed deduction towards interest paid to head office and other overseas branches under section 40(a)(i) because the assessee failed to deduct tax at source though the said amount of interest received by head office and other overseas branches was taxable in their hands.

• However, the CIT(A) upheld the disallowance of interest paid by the assessee on the ground of mutuality and also directed that the interest income was not taxable in the hands of the head office because of mutuality.

Third Issue

• For the Assessment Year 1999-2000, the assessee also appealed against the disallowance of inter-office commission paid / payable by the assessee to head office and other overseas branches.

HELD

First Issue: Initiation of reassessment proceedings after expiry of four years

• There is nothing in the reasons to indicate, even remotely, that the assessee did not disclose the necessary fact regarding claiming of deduction towards interest paid to head office and overseas branches in its return or accompanying documents.

• Once the assessee disclosed the fact of claim of deduction on account of interest paid to head office or other overseas branches by way of a debit to the Profit and loss account and the original assessment was completed under section 143(3) accepting such claim, there can be no question of initiation of reassessment proceedings after a gap of four years from the end of relevant assessment year.

• Thus, the initiation of reassessment proceedings cannot be declared as valid. In view of this, notice issued under section 148 is struck down and also the resultant assessment order passed by the Assessing Officer flowing out of such invalid notice.

Second Issue: Disallowance of interest paid to head office and other overseas branches

• On the basis of principle of mutuality (i.e. transaction with the self), there can be no deduction of interest paid by Indian branch to head office/other overseas branches. Consequently, the provisions of section 40(a)(i) have no applicability.

• However, the assessee is entitled to deduction of interest paid to head office/other overseas branches as per the terms of the DTAA.

• Since the amount cannot be charged to tax in the hands of the head office by reason of principle of mutuality, the assessee's appeal is allowed.

Third Issue: Disallowance of inter-office commission paid/payable to head office and other overseas branches

• Because of application of principle of mutuality under domestic law, no deduction can be allowed in respect of payments made by Indian branch to its head office and other overseas branches. Since, the provisions of DTAA are not applicable to inter-office commission paid/payable, the issue needs to be decided as per domestic law alone.

• By applying rule of mutuality, inter-office commission paid by the assessee to its head office and other overseas branches - being obviously a transaction with the self – cannot be allowed as deduction

Delay in Appeal cannot be condoned for Time lost in internal decision making

Delay in present case has occurred not account of any substantial and sufficient reasons but on account of negligence of the appellant. If such delays are condoned, the meaning of limitation of thee months provided by legislature in the Central Excise Act would become meaningless and redundant. The sufficient cause for condoning such delays should be the one which pursue the Court in exercise of its judicial discretion, to treat the delay as excusable one, while ensuring that the purpose of law of limitation does not get frustrated.

Cestat, New Delhi Bench

Bharat Sanchar Nigam Ltd.

v.

Commissioner of Customs & Central Excise 

 

SEPTEMBER 3, 2012

ORDER

• The prayer in the application is to condone the delay of 388 days in filing the present appeal.

• After hearing both the sides, I find that the impugned order was passed on 23.2.2011 and was received by the appellant on 25.2.11 where as the appeal stand filed by the appellant on 28.6.12.

• As per the appellant though the impugned order was received on 25.2.11, they took sometime to consider the impact of the same from administrative, financial and legal angle and after due deliberations at various official levels, decided to file the appeal before the Tribunal. After the receipt of the impugned order of Commissioner (Appeals), the same was forwarded to their Circle office situated at Jaipur on 10.8.2011, which in turn communicated the same to their corporate office. Subsequently the matter was sent to their advocate and as, even after repeated reminders, the opinion of the learned advocate was not given, they send numerous reminders to the advocate. Ultimately the advocate to whom the file was entrusted gave reply to their circle office on 30.9.11 for the appointment of the advocate. It was only on 4.10.11 the Corporate office wrote back to the appellant to engage the advocate nominated by them. The Accounts Officer of the appellant visited Delhi for discussion and preparation of appeal on 2.12.11 and handed over the papers to their advocate on 11.6.12 for preparation of appeal. The same was prepared and ultimately filed before the Tribunal on 28.6.12.

• As is seen from the above sequence of events put forth by the appellant, the impugned order admittedly was received by them in the month of February, 2011 but the action on the same was taken for the first time on 10.8.11 when the appellant communicated the order to their Circle Office. The normal period of limitation for filing the appeal is three months which expired on or around 23.5.11. As such, the action of the appellant to send a copy of the order to their Circle Office on 10.8.11 is itself beyond the expiry of normal period of limitation. In any case, even according to the appellant’s advocates’ advice to file the appeal was given to them on 1.8.11 but the appellant took the action on the said order only on 11.6.12. In between the AO of the appellant also visited the Delhi for discussion and preparation of the appeal on 2.12.11 but the papers for preparation of appeal were handed over to the Advocate after a period of 6 months i.e. on 11.6.12.

• The question required to be decided is as to whether the above facts placed before the Tribunal can be held to be sufficient cause for the purpose of condoning the delay or the same reflects upon the casual attitude of the appellant. Admittedly, “sufficient cause” for making the appeals/ applications within the period of limitation should be understood and applied in a reasonable, pragmatic, practical and liberal manner depending upon the facts and circumstances available in each case. We are aware that the expression ‘sufficient cause’ should be liberally construed so as to advance substantial justice. However, such liberal construction is required to be extended only when the delay is not on account of any deliberate acts, want of bonafide , deliberate inaction or negligence on the part of the appellant. By applying the above principle to facts of the present case, we find that the delay has occurred not account of any substantial and sufficient reasons but on account of negligence of the appellant. If such delays are condoned, the meaning of limitation of thee months provided by legislature in the Central Excise Act would become meaningless and redundant. The sufficient cause for condoning such delays should be the one which pursue the Court in exercise of its judicial discretion, to treat the delay as excusable one, while ensuring that the purpose of law of limitation does not get frustrated.

• While examining the reasons, it has to necessarily concluded that the same are not sufficient because as the delay has consciously occurred in the hands of the appellant. The huge gaps between two actions like sending the order to the Circle office, advise of the advocate, subsequent visit of the Accounts Officer and handing over of papers to the advocate, reflects upon very casual approach adopted by the appellant which cannot be considered to be reasonable. As such, I find no reason to condone the huge delay of 388 days. The COD application is rejected.

• As the delay has not been condoned, stay petition and appeal are also dismissed as barred by limitation.