Author: Amit Sharma

The Customs, Excise & Service Tax Appellate Tribunal, Chennai held appellants not liable for penalties in renting of Immovable Property in Service Tax case.

Facts 

The appellants are engaged in “Renting of Immovable Property Service”. Show Cause Notice was issued to them treating them as ‘association of persons’ and service tax was demanded from them collectively. 

The original authority confirmed the service tax demand of Rs.13,67,139/- along with other adjudicatory liabilities. 

On appeal, Commissioner (Appeals) upheld the order of adjudication.

Submissions 

R. Balagopal, consultant for the appellants, submitted that the appellants are not disputing the service tax demand and the interest as they have already paid the entire service tax liability along with interest. 

O.M. Reena, Additional Commissioner (AR) submitted that but for the detection by the officers, the same would not have come to light and the authorities have rightly invoked the extended period and the penalties may be confirmed.  

Decision 

The single bench of M. Ajit Kumar Member (Technical) noted that the impugned order is restricted to imposition of penalties on the appellants and the demand for duty and interest is not an issue. Appellants prayer is also with regard to penalty only.

The bench observed that according to the Judgment of Delhi High Court, no service tax could be levied on the activity of renting per se. Subsequently changes made by the Finance Act, 2010 in respect of enlargement of scope of Renting of Immovable Property Services’ was challenged by the assessees’ PAN India and during the impugned period, the courts had taken a view that the amendment was unconstitutional and had even granted a stay in this regard.

The Tribunal stated that in a case where the constitutional validity of the levy is yet to be decided the dispute is interpretational in nature. Hence reasonable cause has been made out for delayed payment of duty.  

The bench agreed with the appellant that invocation of penalty in such a situation is not justified as per section80 of the Finance Act, 1994 due to the reasonable cause shown.

Case title: Smt. M. Rajeswari v/s Commissioner of GST & Central Excise

Citation: Service Tax Appeal Nos.40032 of 2023 

The Supreme Court ruled that KSCARDB is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949.

Facts 

The issue involved in these cases is, whether, the appellant/assessee, a co-operative society, is entitled to claim deduction of the whole of its profits and gains of business attributable to the business of banking or providing credit facilities to its members who are all co-operative societies under Section 80P of the Income Tax Act, 1961.

Submissions 

Senior advocate, Krishnan Venugopal, submitted that the appellant is aggrieved by the impugned orders declining to extend the benefit of deduction under Section 80P of the Act. 

He submitted that sub-section (4) of Section 80P is in the nature of an exception which was added subsequently to Section 80P and the said sub-section excludes a ‘co-operative bank’ from the benevolent provision.

ASG, N. Venkataraman, appearing for the respondents, contended that the appellant is “a co-operative bank” and not simply a land mortgage bank. That Section 80P(2)(a)(i) of the Act applies to a co-operative society engaged in carrying on business of banking or providing credit facilities to its members.

He submitted that the appellant herein is engaged in the business of banking and is a co-operative bank within the meaning of Part V of the BR Act, 1949 and the argument of the appellant that it is not a cooperative bank, is incorrect.

Decision 

The division bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan observed that when the definition of “co-operative bank” in Section 56 of BR Act, 1949 is viewed in terms of Sections 2(u) of the NABARD Act, 1981, it is clear that only a state co-operative bank would be within the scope and meaning of a banking company under Section 2(c) of the BR Act, 1949 on obtaining licence under Section 22 of the said Act. 

The court said that although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949. 

The bench held that the appellant is entitled to the benefit of deduction under Section 80P of the Act. 

The Customs, Excise & Service Tax Appellate Tribunal New Delhi ruled that appellant is not liable for Service Tax payment due to absence of suppression of facts.   

Facts 

The appellant is engaged inter alia in providing construction services in respect of commercial or industrial buildings, and construction of residential complexes which are taxable under section 65 (105) (zzq) and section 65 (105) (zzzh) of the Finance Act, 1994. The Finance Act, 2010, which was effective from 01.07.2010, added an Explanation to section 65 (105) (zzzh) and provided that construction of a complex intended for sale by a builder shall be deemed to be a service provided by the builder to the buyer. Thus, such services rendered by builders to prospective buyers were also subjected to levy of service tax. 

A show cause notice dated 19.03.2013 was, however, issued to the appellant proposing to deny the benefit of the exemption Notification and a demand was made to recover service tax amounting to Rs. 6,79,025/- with interest for the period from July 2010 to September 2010 and penalty under sections 76 and 78 of the Finance Act. The show cause notice also invoked the extended period of limitation provided under the proviso to section 73(1) of the Finance Act on the ground of suppression of facts by appellant, which was detected during the course of audit and which would have otherwise escaped payment of service tax.

Submissions 

Sukriti Dass and Masuma Rizvi, counsel appearing for the appellant, submitted that the date of receipt of cheque is the relevant date for availing benefit under the Notification. Hence, the appellant is entitled to the benefit of exemption as it received the cheques prior to the cut-off date 01.07.2010. 

Decision 

The division bench of Justice Dilip Gupta President And P.V. Subba Rao, Member (Technical) noted that the Commissioner (Appeals) did not even record a finding that the appellant had any intention to evade payment of service tax since all that has been recorded in the impugned order by the Commissioner (Appeals) is that the correct facts came to the notice of the department only when the audit was conducted.

The bench observed that in the absence of a finding that suppression of facts was with intent to evade payment of service tax, which is absolutely necessary, the extended period of limitation could not have been invoked. The entire demand confirmed by the Commissioner (Appeals) falls in the extended period of limitation.

The Tribunal concluded that the appellant may have been under a bonafide belief that it was not required to pay service tax on the amount collected through cheques of dates prior to 01.07.2010 though encashed after 01.07.2010, but in any case there was no wilful suppression of facts by the appellant with intent to evade payment of service tax.

“Such being the position, it is not necessary to examine whether the appellant was justified in claiming exemption from payment of service tax under the Notification”, the bench said.  

Case title: M/s Rangoli Division v/s Commissioner (Appeals)

Citation: Service Tax Appeal No. 51722 Of 2018

The Allahabad High Court overturned the Punishment Order in Disciplinary Inquiry against Returning Officer for development block in Uttar Pradesh Panchayat Elections. 

Facts 

On 26.3.2021, the State Election Commission notified the Three Tier Panchayat Elections – 2021 held in the State of Uttar Pradesh. Apparently, prior to the aforesaid notification i.e. on 25.3.2021, the District Election Officer (Panchayat)/District Magistrate, Bulandshahr appointed the petitioner as Returning Officer for Development BlockSikandrabad, District- Bulandshahr. However, subsequently, the District Election Officer (Panchayat) / District Magistrate Bulandshahr, vide order, amended its earlier order and appointed the petitioner as Returning Officer for Development Block – Khurja in place of Development Block – Sikandarabad. 

The polling of votes took place on 29.4.2021 at all the polling booths of Development Block – Khurja and during which reportedly no untoward incident took place and the polling was conducted in a peaceful and organized manner.

Apparently, the Deputy Election Officer (Panchayat) / Additional District Magistrate (Administration) on 04.5.2021 submitted a letter to the District Election Officer Panchayat/ District Magistrate narrating that the petitioner had not submitted the counting sheet to the Election Officer till 12:00 PM despite of the fact that the counting had concluded about 05:00 PM and allegedly due to which certain candidates of Ward Nos. 24, 25 and 26 created a ruckus at the Collectorate premises as well as at the place of counting in Khurja citing that the result is being allegedly manipulated and due to which there was unrest at the said places. This letter dated 04.05.2021 was forwarded to the State Election Commission by the District Election Officer Panchayat/District Magistrate vide his letter dated 04.5.2021.

Subsequently, on 13.05.2021, the Commissioner, Commercial Tax, Lucknow, on the basis of the letter of the State Election Commission, forwarded a recommendation to the State Government for suspension and initiation of disciplinary inquiry against the petitioner. Thereafter, the State Government issued the order of suspension to the petitioner and it was also directed to initiate disciplinary enquiry with respect to the role of the petitioner as Returning Officer, Development Block – Khurja. 

Submissions 

Counsel for the petitioner has submitted that since the petitioner had served a certified copy of the judgment and order to the State Government on 06.08.2021, the period of three months came to be expired on 05.12.2021. Thus, according to him, since the charge-sheet was prepared on 13.07.2021 and served on the petitioner vide letter of Enquiry Officer dated 20.07.2021 only, therefore, construing the date of initiation of departmental enquiry to be when the charge-sheet is prepared/ served on the petitioner, the departmental enquiry ought to have been concluded within a period of three month.

Standing Counsel representing the State/ respondents submitted that though in the earlier proceedings when suspension order was set-aside by the Single Judge of the Court vide order, time period was given within which the disciplinary proceedings so initiated against the petitioner was supposed to be completed, which could not be done, but that by itself would not be a ground for setting aside punishment order.

Decision 

The division bench of Justice Om Prakash Shukla and Justice Attau Rahman Masoodi found that there was no request nor any application by the disciplinary authority seeking any extension of time for concluding the enquiry.

The court said that in view of the mandatory procedure prescribed under the Rules, 1999 and several other procedural infirmities in the conduct of enquiry, the order of punishment cannot be held to be legally unsustainable, especially when there is a consistent series of authority on the point that a departmental inquiry against government servant is not to be treated as a casual exercise and the principles of natural justice are required to be observed so as to ensure not only that justice is done but is manifestly seen to be done; the object being to ensure that the delinquent is treated fairly in proceedings which may culminate in imposition of a penalty against him.  

The bench set aside the judgment and order passed by the Tribunal in Claim Petition and consequent order of punishment imposed by the disciplinary authority.

Case title: Ashok Kumar Singh v/s State Of U.P.

Citation: A No. – 8770 of 2022

Facts 

Search action u/s. 132 of the Income Tax Act was carried out by Investigation Wing of the Income Tax Department at the business/residential premises of Jodhpur based Shekhawati Art Export group consisting of Vinod Johari, his family members and their business concerns, wherein several incriminating documents along with other valuables were found/seized from the various premises group searched. 

During the course of search and seizure operation at the residential premises of the assessee, a note book was found and seized. On the basis of entries in the said notebook Lalit Johari and his father Vinod Johari admitted undisclosed investment of Rs. 70,00,000/- in the construction of factory building and also undisclosed advance of Rs. 3,15,00,000/- for purchase of land. 

Penalty proceedings under sub-section (1) of section 271AAB was also initiated separately in respect of the surrendered amount of Rs. 3,85,00,000/- by issuing notice u/s. 274 r.w.s. 271AAB(1) of the Act. After taking cognizance of the reply, the Assessing Officer levied penalty @ 10% of undisclosed income thereby imposing penalty of Rs. 3,85,00,000/-. 

Decision 

The single member bench of Suchitra Kamble, Judicial Member said that as regards, the merits of the case are concerned, the Authorized Representative submitted that the notice issued for initiation of penalty u/s. 271AAB(1)(a) is not appropriate notice and bad in law appears to be not justifiable as the Assessing Officer has invoked the penalty provisions u/s. 271AAB and therefore when there is undisclosed income which has been surrendered at that juncture, the notice is just and proper. 

The Tribunal observed that once the assessee has admitted the undisclosed income and offer the income for taxes accordingly the penalty u/s. 271AAB immediately gets attracted. The penalty u/s. 271AAB is on the basic threshold undisclosed income found and the explanation given by the assessee prior on discovery of the undisclosed income is insufficient then the penalty u/s. 271AAB is very much applicable. 

Case title: Lalit Johri v/s The ACIT, Jodhpur

Citation: ITA No. 493/Ahd/2023 

Facts 

The assessee filed return of income declaring total income of Rs.77,78,190/-. The return was duly processed under Section 143(1) of the Income Tax Act, 1961 and statutory notices were issued to the assessee and served. 

The assessee’s AR filed response alongwith the details during the course of assessment proceedings. The Assessing Officer observed that the assessee has credited an amount of Rs.58,63,992/- being salary income, however, in the statement of income the assessee has shown salary income of Rs.52,52,592/- only. 

The Assessing Officer added Rs.6,11,400/- as a short declaration of salary income. The Assessing Officer also disallowed interest under Section 57 amounting to Rs.31,99,303/- which was utilised for the purpose of immovable property. The Assessing Officer also made addition of Rs.44,573/- in respect of interest on LIC loans.

Submissions 

AR submitted that as regards ground no.1 related to addition of Rs.6,11,400/- the assessee received gross salary of Rs.58,63,992/- which included car reimbursement, children education, driver salary reimbursement, helper, telephone reimbursement and uniform Attire reimbursement.

AR submitted that the Assessing Officer has not considered tax free allowance and included the said allowance in taxable salary.

DR submitted that the CIT(A) as well as the Assessing Officer has given all the detailed finding in respect of gross salary and the reimbursement is taxable income and the same was rightly disallowed by the CIT(A). 

Decision 

The division bench of Annapurna Gupta, Accountant Member and Suchitra Kamble, Judicial Member noted that the incentive such as car reimbursement, driver salary reimbursement and telephone reimbursement comes under the purview of taxable income and thus the Assessing Officer has rightly disallowed the same as they are perquisites.  

The bench said that the certificate issued by the employer cannot override the applicability of the Income Tax Statute wherein such kind of reimbursements are taxable. Thus, partly allowed the ground no.1.

The Tribunal observed that the contention of the assessee that the funds were utilised and the loans were taken in earlier year and, therefore, the interest portion should have been allowed appears to be correct. 

It was further observed that the assessee has established that the borrowed funds were utilised for such interest bearing advance and hence claim of the assessee for deduction of interest expenditure under Section 57 of the Act was proper. The Assessing Officer as well as the CIT(A) was not right in making the addition.

Case title: Amit Dhirajlal Doshi v/s DCIT

Citation: ITA No.1760/Ahd/2018

The Income Tax Appellate Tribunal restored the issue of depreciation on alleged intangible assets to the file of CIT(A) for re-examination.

Facts 

The assessee is a private company incorporated in India and is engaged in the business of manufacturing and trading in diversified chemicals offering a broad range of products and services in various segments such as water, food, and pharmaceuticals to paints, packaging, and personal care products. During the assessment proceedings, on perusal of profit and loss account of the assessee, it was observed that the assessee has claimed depreciation of Rs. 20,82,45,018 (Rs. 12,66,12,592 @ 25% on goodwill value of Rs. 50,64,50,368, Rs. 74,27,651 @25% on distribution network of Rs. 2,97,10,603, Rs. 7,42,04,775 @25% on customer relations of Rs. 29,68,19,100). Accordingly, the assessee was asked to furnish a note on eligibility for claiming depreciation on the value of such intangible assets along with supporting documents.

Decision 

The division bench of Prashant Maharishi, Accountant Member and Sandeep Singh Karhail, Judicial Member noted that the distribution network was recognised by the assessee as a business and commercial right under section 32(1)(ii) of the Act, and depreciation of 25% was claimed.

It further noted that the assessee recognised the customer relationships as business/commercial right and claimed depreciation under section 32 of the Act on the goodwill represented by reputation built on account of clientele relationships.

The Tribunal observed that since no credible evidence or material was produced by the assessee to show that it had incurred any cost for acquiring the goodwill in the scheme of amalgamation, the depreciation as claimed by the assessee was disallowed. 

The bench said that it becomes relevant to examine whether any intangible asset arises in the hands of the assessee pursuant to the amalgamation and whether on that intangible asset depreciation is allowable under section 32 of the Act. 

“Since the appeal of the assessee against the disallowance of depreciation on aforesaid alleged intangible assets in the first year itself is currently pending before the learned CIT(A), we deem it appropriate to restore this issue to the file of learned CIT(A) for de novo adjudication after examination of the aspects” the Tribunal said. 

Case title: Dow Chemical International Pvt. Ltd. v/s Dy. Commissioner of Income Tax

Citation: ITA no.1201/Mum./2023

Facts 

The assessee herein Co-operative Society providing credit facilities by way of loans and advances to its members. For the Assessment Year, 2018-19, the assesse filed its Return of Income declaring Nil income, after claiming deduction u/s. 80P of the Act. The assessment was taken up for scrutiny and assessment order u/s. 143(3) of the Act was passed on 08-02-2021 accepting the returned ‘Nil’ income.  

On verification of records by PCIT, it was found that the assessee has shown Gross total income of Rs. 1,22,53,554/- on which deduction u/s. 80P of Rs. 1,22,53,554/- was claimed.

The assessee was issued a show cause notice, why the amount of Rs. 1.22 crores being interest from Co-operative Bank should not be disallowed by passing appropriate revisional order u/s. 263 of the Act following Hon’ble Supreme Court Judgment in the case of Totagars Cooperative Sale Society Ltd. Vs. ITO [2010] 322 ITR 283 (SC). Further this issue was not verified by the Assessing Officer without inquiring into the claim made by the assessee, therefore as per Explanation 2 to section 263 (1) of the Act, why the assessment should not be revised.  

Submissions 

M.K. Patel appearing for the assessee submitted that the issue regarding claim of deduction under section 80P was duly enquired by the Assessing Officer during the course of assessment proceedings. He further submitted that in response to the notices issued by the AO, the assessee filed submission wherein, the assessee submitted reasons as to why it is eligible for deduction under section 80P of the Act.

Decision 

The division bench of Waseem Ahmed, Accountant Member and T.R. Senthil Kumar, Judicial Member said that the assessing officer has made enquiries on the allowability of deduction under section 80(P)(2)(d) and passed the assessment order, thus, the Assessing Officer has taken a reasonable and possible view which cannot be held as erroneous.

The bench observed that the Karnataka High Court in Totagars Cooperative Sales Society (supra) held that for the purpose of section 80P(2)(d) a Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) of the Act.

It was further observed that the Co-ordinate Bench of Rajkot Tribunal in Surendarnagar District Co-operative Milk Producer Union Ltd. v. Dy. CIT also held the assessee co-operative society could not claim benefit under section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized/private banks, however, the said benefit was available in respect of interest earned and on deposits made with co-operative bank. 

The Tribunal viewed that the order passed by the Assessing Officer is not erroneous, though it may be prejudicial to the interest of the Revenue. Therefore, the twin conditions that the assessment order is erroneous and so far as prejudicial to the interest of revenue, as prescribed under section 263 is not fulfilled in the present case. 

Case title: The Peoples Co-Op Credit Society Ltd. v/s The Pr.CIT

Citation: ITA No. 322/Ahd/2023

The Customs Excise & Service Tax Appellate Tribunal Set Aside differential duty demand and penalties imposed on M/s.PPN power generating Co.

Facts 

Appellant M/s. PPN Power Generating Co. Pvt. Ltd. have registered themselves under the Project Import Regulations, 1986 to set up a power plant at Pillaiperumalnallur, Thirukadaiyur Post, Nagapattinam District on the recommendation of “Tamil Nadu Electricity Board”. The project was approved and the Essentiality Certificate was issued by the Sponsoring Authority viz., Energy Department, Government of Tamil Nadu vide letter. 

After the erection and commissioning of the power plant, M/s.PPN submitted a proposal to the Commissioner of Customs, Seaport Chennai requesting for finalization of provisional assessment vide their letter dated 26.12.2002. The matter was taken up for finalization of the project, based on their submissions. It was noted by the department that there was undervaluation of the goods supplied to appellant sourced by M/s.Stone & Webstar through M/s.Marubeni.

The original authority vide Order-in-Original thus confirmed differential duty demand on M/s.PPN and also imposed penalty under Section 112 (a) of the Customs Act, 1962.

Submissions 

Advocate Hari Radhakrishnan appeared and argued for the appellant M/s.PPN submitted that that there is no undervaluation of goods. The appellant has made the payment as per the contract to M/s.Marubeni. There is no evidence of any amount paid to M/s.Marubeni over and above the contract value. 

Decision 

The division bench of Sulekha Beevi C.S., Member (Judicial) and Vasa Seshagiri Rao, Member (Technical) noted that there is considerable delay of more than 13 years after the date of report of DRI (8/2006) till the order of finalization. The department has not been able to explain this delay. The higher forums have held that in such situations, in unreasonable delay in adjudication / finalization of assessment the show cause notice itself is liable to be quashed.

The bench observed that the finalization has happened after 15 years of provisional assessment which, in our view, is extremely inordinate delay, and also against the instructions issued by CBIC as to finalization of Project Import Assessments. The department has not been able to put forward cogent evidence to reject the transaction value.

For these reasons, the tribunal found that the demand of differential duty the order for confiscation of goods, imposition of Redemption Fine and penalties imposed on M/s.PPN cannot sustain and requires to be set aside.  

Case title: M/s.PPN Power Generating Co. Pvt. Ltd. v/s The Commissioner of Customs

Citation: CUSTOMS APPEAL No. 40240 OF 2021

The Income Tax Appellate Tribunal Mumbai directed De Novo benchmarking and limited the DRP’s Powers in Celio’s Tax dispute.

Facts 

The assessee is a company and is engaged in the business of trading in ready-made garments and accessories under the name and style of “Celio”. For the year under consideration, the assessee filed its return of income on 28/11/2017, declaring a total loss of Rs.26,58,77,636. The return filed by the assessee was selected for scrutiny under CASS and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee.

Decision  

The division bench of Prashant Maharishi, Accountant Member And Sandeep Singh Karhail, Judicial Member found that the coordinate bench of the Tribunal in assessee’s own case in M/s.Celio Future Fashion Private Limited v/s ACIT, for the assessment year 2011-12, while deciding a similar issue held that RPM is the most appropriate method for benchmarking the international transaction of “import of men’s wear for resale”.

The bench held that the order passed by the TPO/AO on the issue is set aside and the TPO/AO is directed to de novo benchmark the international transaction pertaining to “import of men’s wear for resale” by applying RPM as the most appropriate method. 

On another issue the Tribunal said that as per section 144C(8) of the Act, the DRP can confirm, reduce, or enhance the variation(s) proposed in the draft assessment order, while issuing the directions under section 144C(5) of the Act. However, the DRP is not empowered to set aside any proposed variation or issue any direction for further enquiry and passing the assessment order, as was done in the present case.

Case title: M/s. Celio Future Fashion Pvt. Ltd. v/s  Addl. Commissioner of Income Tax National Faceless Appeal Centre, Delhi

Citation: ITA no.741/Mum./2022 

The Income Tax Appellate Tribunal Ahmedabad observed that interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) of the Act.

Facts 

The two appeals are filed by two different Assessees as against separate Revision orders passed by the Principal Commissioner of Income Tax, Ahmedabad denying the claim of deduction under section 80P(2)(d) of the Income Tax Act, 1961 relating to the Assessment Year (A.Y) 2018-19. 

Submissions 

The assessee submitted, that during the assessment proceedings the Assessing Officer asked for explanation/details for deduction under Chapter-VIA and vide assessee replies, the assessee has elaborately explained with judicial decisions on the facts and figures thereby the Assessing Officer accepted the explanation and allowed the claim of deduction u/s. 80P(2)(d) of the Act.   

The CIT-DR Sanjeev Jain appearing for the Revenue supported the order passed by Ld. PCIT and submitted the Jurisdictional High Court in the case of State Bank of India vs CIT held that interest income on deposit placed with commercial bank is not exempt u/s. 80P(2)(a)(i) of the Act. 

Decision 

The division bench of Waseem Ahmed, Accountant Member And T.R. Senthil Kumar, Judicial Member said that the assessing officer has made enquiries on the allowability of deduction under section 80(P)(2)(d) and passed the assessment order, thus, the Assessing Officer has taken a reasonable and possible view which cannot be held as erroneous. 

The Tribunal observed that the Hon’ble Karnataka High Court in Totagars Cooperative Sales Society (supra) held that for the purpose of section 80P(2)(d) a Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) of the Act. Further, the Hon’ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd. (supra) held that assessee co-operative society is eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank.

The Tribunal held that the PCIT erred in holding that the order passed by A.O. as erroneous and prejudicial to the interest of the Revenue on account of allowability of interest earned by the assessee from cooperative banks, coupled with the fact when the Assessing Officer had made due enquiries on the issue, during the course of original assessment proceedings.

Case title: The Peoples Co-Op Credit Society Ltd. v/s The Pr.CIT, Ahmedabad

Citation: ITA No. 322/Ahd/2023     

In a significant development, a search and seizure operation was recently carried out at the business and residential premises of M/s KGK Infrastructure and Developers Pvt. Ltd. on 6th May 2010. This operation, conducted by the authorities, resulted in the discovery and seizure of various incriminating materials.

Following the search, a notice under Section 153C of the Act was issued to the assessee on 20th March 2014. It is worth noting that the assessee had previously filed the return of income for the impugned assessment orders on different dates, namely 24th October 2007, 27th September 2008, and 28th March 2011.

It is important to highlight that the assumption of jurisdiction under Section 153C of the Act, based on the satisfaction recorded, establishes the date of search in the case of the assessee (as a person other than the one being searched) to be 20th March 2014. Considering the dates of the return filed for the impugned assessment orders, it can be reasonably concluded that these assessments are unabated assessments. Therefore, it is expected that the assessment framed under Section 153C of the Act will have a direct connection with the incriminating material discovered during the search operation.

Upon reviewing the impugned assessment orders, it becomes evident that the additions made by the Assessing Officer (AO) lack any reference to the incriminating materials. In this regard, the ratio established by the Hon’ble Jurisdictional High Court of Delhi in the case of Kabul Chawla (380 ITR 573) is of utmost relevance. This ratio has also been affirmed by the Hon’ble Supreme Court in the cases of Abhisar Buildwell (P) Ltd. (454 IT 212) and M/s U.K. Paints (Overseas) Ltd. (454 ITR 441).

It is worth mentioning that the Commissioner of Income Tax (Appeals) [CIT(A)] has correctly followed the binding decisions mentioned above. Consequently, there is no reasonable basis to interfere with the findings of the CIT(A) in this matter. Therefore, the appeals filed by the Revenue have been dismissed.

Case Title: Asstt. Commissioner of Income Tax v/s M/s C.P. & Associates Pvt. Ltd.

Citation: ITA Nos:- 576, 577 & 578/Del/2018

Facts 

The appellant had filed several Bills of Entry for clearance of imported goods namely various types of VNS Professional Refill Ink purchased from Hong Kong. During the assessment of the Bills of Entry it was observed that the value declared by the importer was not found to be acceptable on the ground of contemporaneous import value of similar goods by the department. On query raised in terms of Rule 12(1) of the Customs Valuation Rules, 2007 for clarification of declared value by submitting documentary evidence, it is stated by the importer vide letter replied that they accept the price under protest and stated that they were ready to pay the provisional duty on enhanced value as similar issue awaiting finality at Jawaharlal Nehru Customs House (JNCH) and they will abide by the final outcome. Assessing authority rejected the declared value under Rule 12 read with Rule 3 of Customs Valuation Rules, 2007 and the Bills of Entry were provisionally assessed by enhancing the declared value. On appeal, vide order-in-appeal, the case was remanded to the original adjudicating authority for fresh adjudication. On such remand, the value was re-determined to $4.96 per liter under Rule 5 of Customs Valuation Rules, 2007. 

Decision  

The division bench of Somesh Arora, Member (Judicial) and C L Mahar, Member (Technical) found that the case is of repeated remands therefore it seems that the original authority has not purposely followed the directions of the appellate authority leading to unnecessary litigation to the party. 

It was further found that no order of the proper officer has been passed within 15 days of assessing the Bills of Entry as the same was not accepted by the party and the release of goods procured under protest. Also, there is no order on record indicating the Rule 12 of Customs Valuation Rules, 2007 has been applied after rejecting the transaction value on the basis of enquiry and a reasoned order indicating that the materials were rejectable and on what ground alone the appeal is liable to succeed. 

The bench  observed that in identical facts, various benches of the Tribunal have ordered the same proposition in the case Italik Metalware Pvt. Limited vs. CC, Mundra and in the case of M/s. Sarda Energy and Minerals Limited vs. CCE, Raipur of firstly there being requirement of rejecting transaction value after inquiry and order. Therefore, in the absence of following such statutory requirement the show cause notice becomes unsustainable. The appellant therefore becomes eligible for relief. 

Case title: Vinod Medical Systems Pvt Limited V/S Commissioner Of Customs, Ahmedabad

Citation: CUSTOMS Appeal No. 10703 of 2021-DB

Facts 

The appellants are engaged in the manufacture of Copper Anode, Sulphuric Acid and Phosphoric Acid. During the course of Audit, it was noticed that the appellants were availing the services of Custom House Agents for shipment of their export cargo. Invoices raised by the Custom House Agents for the expenditure towards the export of finished goods including lifting charges, PSA SICAL charges, local transportation charges, Security Guard charges, weighment charges, etc.,. It appeared to the Department that the appellant failed to pay the Service Tax on transportation charges of the export cargo for the period from August 2006 to December 2010. Show Cause Notice was issued on 15.09.2011 proposing to demand the Service Tax along with interest and for imposing penalties. After due process of law, the original authority confirmed the demand along with interest and imposed penalty. On appeal, the Commissioner (Appeals) upheld the same. 

Submissions 

Counsel Akshit Malhotra appearing for the appellant submitted that the main argument put forward by the appellant is that the Custom House Agents engaged by them were also truck owners/truck operators and that the latter had not raised any consignment note for the said service.

He submitted that the appellants are not liable pay Service Tax as without issuance of consignment note by a GTA, the activity of transportation by road will not fall within the ambit of GTA services. 

Authorised Representative N. Satyanarayanan appeared and argued for the Department said that the discussions made in the Order-in-Appeal was adverted to by the AR to submit that merely because the consignment note has not been issued, the appellant cannot escape the liability of paying Service Tax. 

Decision

The division bench of Sulekha Beevi C.S., Member (Judicial) Hon’ble Mr. Vasa Seshagiri Rao, Member (Technical) noted that the As per the definition under 60(50b) of the Finance Act, 1994, only if the service provider in relation to the transportation of goods by road issues a consignment note, the levy of Service Tax would be attracted to the carriage of goods by the goods transport agency. The Service Tax Rules under Section 2(1)(b), provides that the recipient of service is liable to pay the Service Tax.

The Tribunal said that the demand has been raised upon the appellant alleging that they are the recipient of services of goods transport agency services provided by the CHA. Admittedly, the appellant has not been issued a consignment note. 

The bench held that the demand of Service Tax cannot be sustained. The issue on merits is answered in favour of assessee.

It was observed by the tribunal that the situation is entirely revenue neutral as well as the fact that several audits have been conducted raising the objection of non-payment of Service Tax under GTA services. The Department had full knowledge about the issue and still the Show Cause Notice has been issued invoking the extended period which in our view cannot be sustained. 

Case title: M/s. Vedanta Limited v/s Commissioner of GST and Central Excise 

Citation: Service Tax Appeal No. 40354 of 2014 

In a significant decision, the Assessment Tribunal has granted an appeal to an assessee who had filed Form 67 during the appellate proceedings. The assessee had originally claimed a foreign tax credit based on a Tribunal decision cited in their written submissions during the first appellate proceedings. However, the CIT(A) upheld the intimation, arguing that the filing of Form 67, as required by Rule 128(9), had not been submitted along with the return of income u/s 139(1). The CIT(A) contended that this condition was mandatory and not directory, contrary to the arguments made by the assessee. Dissatisfied with this decision, the assessee moved forward with a further appeal.

In reaching their judgment, the Tribunal referred to a previous ruling in the case of Prakash Varadarajulu vs. DCIT , which had been adjudicated in favor of the assessee. This case had declared the filing of Form 67 as directory rather than mandatory, aligning with the views of various other Tribunal decisions. Notably, the Mumbai Tribunal’s recent decision in Sonakshi Sinha vs. CIT had emphasized the directory nature of filing Form 67.

The Tribunal considered the crucial question of whether an assessee could be entitled to a foreign tax credit even if Form 67 was not filed according to Rule 128(9) of the Income Tax Rules before the due date of filing the return of income. The Tribunal noted that although the law stipulated the filing of the form by the due date, the provision did not specify any disallowance of the foreign tax credit in the event of a delay in filing Form 67. Moreover, the amendments made to the rule allowed the assessee to submit Form 67 up until the end of the assessment year. The Tribunal concluded that the rule did not provide for any consequences if the prescribed form was not filed by the due date. Ultimately, the Tribunal held that the assessee was eligible for the foreign tax credit since they had filed Form 67 before the completion of the assessment, albeit not in strict accordance with Rule 128(9).

Based on the absence of any contradictory decisions on record and following the consistent view of the Tribunal on this matter, the lower authorities are directed to grant the foreign tax credit as claimed by the assessee. With this ruling, the Tribunal has provided clarity and relief to taxpayers seeking to claim foreign tax credits in similar situations.

Facts 

The issues involved in all the appeals is the challenge of relief given by Ld. CIT(A) to the assessee with regard to the deletion of addition made by Assessing Officer on account of delayed deposit of the EPF/ESI share of the employees.

Submissions 

Counsels for assessee have mentioned that the tax effect in the appeals is below 50 lakhs so the same makes the appeals not maintainable.

DR however, submitted that when report was sought from the Ld. AO for the reasons for preferring and contesting the appeals, inspite the fact that the appeals fall into the category of low tax effect and upon which the Board Circular dated 08.08.2019 is specifically applicable, the DR has submitted that the Ld. AO in their wisdom have pointed out that the dispute involved in the appeals fall in the exception mentioned in the Circular, as the appeal involves a case where the Constitutional validity of the provisions of any legislation has been challenged.

Decision 

The two member bench of G.S.PANNU, PRESIDENT AND ANUBHAV SHARMA, JUDICIAL MEMBER said that Sub-Section (2) of Section 253 of the Act, which gives jurisdiction to the Tribunal to hear the appeals restrict the scope of remedy of Appeal to the Revenue, as the Principal Commissioner or Commissioner only may direct the Assessing Officer to appeal before Tribunal against the order, if Pr. CIT objects to any order of First Appellate Authority. As CIT(A) cannot decide the question of Constitutional validity of provisions of any legislation, certainly then, with regard to the question of Constitutional validity of provisions of any legislation, the PrCIT cannot approach the Tribunal u/s 253(2) of the Act.

The tribunal observed that the grounds raised by the Ld. AO in the appeals before us, there is no mention of the fact as to which provision of the Act or any other legislation lacks Constitutional validity and for which Ld. PCIT, Delhi-1, New Delhi, has given the authorization for filing the Appeal. In the present cases, the appeals decided u/s 250 of the Act by Ld. CIT(A) merely dealt with the issue of delayed deposited ESI and PF contributions, as a valid deduction, in terms of Section 36(1)(va) of the Act. No question of validity of any provision of the Act was disputed by assessee so as to be decided against the Revenue so as to challenge the same here in Tribunal.

The bench opinion that on the basis of a challenge of Constitutional validity of the provisions of any legislation, no exception can be taken by the Revenue, before the Tribunal, so as to file or contest the appeals suffering with low tax effect. Accordingly, the appeals of Revenue are dismissed and barred by CBDT Circular.

Case title: ITO v/s M/s. Broad Ways Security and Detective Pvt. Ltd. 

Citation: ITA No.2707/Del/2022, A.Y. 2018-19 

Facts 

The assessee trust was formed in terms of the Deed of Trust dated 08.07.2004 and Amendment Deed dated 29.11.2004 and is engaged in the charitable activity of providing relief to the poor especially in rural areas. For the year under appeal, the assessee filed its return of income on 30.10.2017 reporting Nil income after claiming exemption u/s. 11 of the act. The assessee computed its income based on the receipts and payments account and arrived at Nil income. 

The case was selected for scrutiny and notice u/s. 143(2) of the act along with notice u/s. 142(1) was issued to the assessee calling for various details and particulars. In response, the AR of the assessee appeared and filed the details as called for. 

Submissions 

AR submitted that all the issues raised are in respect of disallowance of exemption claimed by the assessee u/s. 11 of the Act. 

The AR submitted that the assessee is engaged in the charitable activity of relief to the poor by forming Self Help Groups (SHG) of the rural poor and encouraging them to become financially self-sufficient. 

Decision 

The division bench of Chandra Poojari, Accountant Member And Beena Pillai, Judicial Member noted that there is a broad line of distinction between the micro financing activities being carried out on commercial basis and for charitable purpose. If the micro financing facility is extended by charging exorbitant rate of interest and for a particular group of society which may be affluent and is using micro financing mode to fund their working capital, undoubtedly, the micro financing activity would be commercial in nature.

The Tribunal observed that it is undisputed that the assessee was granted registration under s. 12A w.e.f. 8th July, 2004. The Department also accepted the returns for the last many years allowing exemption under s. 11. It is only for the asst. yr. 2017-18, the Department is taking a different view. 

The bench said that the activity being charitable in nature towards general public utility cannot be equated with a money lending activity carried out in a corporate world. 

The bench opined that the provisos to section 2(15) shall not be applicable to the present facts of the case. So, the lower authorities are not justified in holding that the assessee is not engaged in charitable activities and denying exemption under section 11 of the Act.

Case title: M/s. Navodaya Grama Vikas Charitable Trust v/s The Deputy Commissioner of Income Tax

Citation: ITA No. 172/Bang/2022  

The audit finding of irregular credit reversed by Nexteer Automotive India Pvt. Ltd results in overturned penalty decision.

Facts 

M/s. Nexteer Automotive India Pvt. Ltd, the appellants are manufacturers of excisable goods viz., Halt Shaft Assembly, Column Assembly, Steering Assembly, etc. Audit officers visited the premises of the appellant and audited their records for the period from January 2013 to December 2013. During the course of audit, the audit officers found that the appellant had availed irregular credit and the entire credit was reversed by the appellant on 30.01.2014. The audit report observed that “As the assessee had maintained sufficient balance in their cenvat account all along, the assessee was not charged with interest and penalty.” 

These show-cause notices were adjudicated vide Order-in-Original and Order-in-Original wherein the Original Authority had imposed 50% of duty involved as penalty. Aggrieved by this order, the appellant preferred an appeal before the Commissioner (A), the Commissioner (A) vide Order-in-Original remanded the cases to the Original Authority after observing that since the appellant had sufficient credit balance available in the CENVAT account and the fact that the credit so availed was never utilised, there appears to be no reason for imposing penalties as the credit was reversed much before the issue of demand notice. Based on this remand proceedings, the Original Authority vide Order-in-Original once again imposed penalty on the appellant which is equivalent to 50% of the duty was leviable. 

Submissions 

Chartered Accountant Vinayaka Hegde, on behalf of the appellant submitted that the audit parties in their audit report had categorically mentioned that the assessee was not charged with interest and penalty since they had immediately reversed the credit and sufficient balance of credit was available in their records.

Authorised Representative for the Revenue submitted that the appellant was liable to pay 50% of the penalty which has been rightly imposed by the adjudicating authority.

Decision 

The single bench of R. Bhagya Devi, Member (Technical) said that the audit officers visited the appellant’s unit in the month of January and February 2014 and during the course of audit, they noted that some irregular credit was being availed on certain input services. 

The bench noted that the irregular credit taken on input services during the period from January 2013 to December 2000 was ₹87,811, 4,45,680 and 2,86,271 and these amounts were reversed by the appellant on 30th January 2014. 

The Tribunal observed that in order to invoke the provisions, it is necessary to prove either fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions with intention to evade payment of duty. 

It was further observed that unfortunately, none of these ingredients have been invoked in the notices and the impugned order also does not provide any evidences except to state that that the irregular availment of cenvat credit came to light only at the time of audit. 

The bench stated that the case is based only on the audit para and there is no iota of evidence to prove either suppression or misdeclaration of facts or contravention of provisions with intention to evade payment of duty. On the other hand, the appellant immediately reversed the credit as and when it was pointed out by the audit officers and the officers clearly noted that interest and penalty are not to be levied. Inspite of these notices were issued after nearly 2 years after the audit observations and reversal of credit. 

The bench further observed that there is no allegation of suppression or misstatement of facts or any other sub-clauses of section 11 A(4).

Case title: M/s. Nexteer Automotive India Pvt. Ltd. v/s The Commissioner of Central Excise and Service Tax 

Citation: Central Excise Appeal No. 20816 of 2022

The Customs, Excise & Service Tax Appellate Tribunal, Mumbai ruled that the SEZ Developer is not liable to pay Service Tax on services provided to units.

Facts 

The appellant is registered with Service Tax. Therefore, the records of the appellant were subjected to audit by Revenue. During the course of audit, it was noticed by Revenue that the appellant was receiving some amounts towards lease rent and maintenance. 

Therefore, the financial accounts of the appellant were further scrutinized by Revenue for the period from October 2007 to March 2012 and it was noticed that the appellant was receiving amounts for providing renting of immovable property and maintenance or repair services to various units which were categorized into three categories, viz. units which were not having SEZ status, units which did not have approved list of services and units availing services before the approval was accorded.

Submissions 

Chartered Accountant submitted that the appellant is an SEZ developer and the Government of India through a Notification has accorded approval for development and operation of the sector specific special economic zone for information technology and information technology enabled services at Powai village in Mumbai and as a result, the appellant is an SEZ developer since 13.04.2007.

The Authorised Representative has submitted that sub-section (2) of Section 26 of said SEZ Act, 2005 provides that the provisions of sub-section (1) of Section 26 of said Act are applicable only when the conditions prescribed under said subsection (2) are complied with. 

Decision 

The division bench of Anil G. Shakkarwar Member (Technical) and Dr. Suvendu Kumar Pati Member (Judicial) noted that Notification exempts taxable services provided to a developer of SEZ or a unit of SEZ by any service provider. 

It was further noted that the clause (e) of sub-section (1) of Section26 of SEZ Act, 2005 provides that every developer and the entrepreneur shall be entitled to the exemption from service tax under Chapter V of Finance Act, 1994 on taxable services provided to a developer or units to carry on authorized operations in a special economic zone. 

The bench said that when the present appellant has provided services only to the units under SEZ, the said services were covered by the provisions of sub-section (1) of Section 26 of SEZ Act, 2005. 

The tribunal held that the issue is covered by the provisions of sub-section (1) of Section 26. Therefore, Revenue does not have authority of law to collect service tax on services provided by SEZ developer to units in SEZ.

Case title: M/s. Hiranandani Builders v/s Commissioner of Service Tax-VII, Mumbai

Citation: Service Tax Appeal No. 86258 of 2016