Direct tax

SC admitted SLP to decide whether HC had rightly allowed exemption to trust promoting trade and commerce.

The SC has admitted the SLP against the order of the Delhi HC of assessee Indian Trade Promotion Organisation (ITPO) as reported in 84 Taxmann 283. The SLP has been admitted against the order of Delhi HC as reported in 371 ITR 333 (Delhi). The SLP admitted to decide whether HC had rightly upheld constitutional validity of proviso to section 2(15), but partially read it down holding that if dominant and prime objective of assessee institution, was not desire to earn profits but, object of promoting trade and commerce not for itself, but for nation, it was clearly a charitable purpose. The HC explaining section 2(15) read with section 10(23C) held that where assessee was earning income from activities relating to promotion of Indian trade at Pragati Maidan and approval for exemption under section 10(23C)(iv) had been granted to assessee for assessment year 2007-08 onwards and such exemption granted was withdrawn from assessment year 2009-10 on ground that main object of assessee being advancement of objects of general public utility, first proviso to section 2(15), introduced with effect from 1-4-2009 was applicable On writ, assessee sought quashing of first proviso to section 2(15), on ground that it was arbitrary and unreasonable and had no rational nexus with object

Prakash Sachin & Co Chartered Accountants Weekly Newsletter

Volume-1 September 2017 |

Issue 36 Date 04/09/2017

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sought to be achieved and was thus violative of article 14 of Constitution. High Court by impugned order upheld constitutional validity of proviso to section 2(15), but partially read it down and opined that expression 'charitable purpose', as defined in section 2(15) cannot be construed literally and in absolute terms and it has to take colour and be considered in context of section 10(23C)(iv), thus, if dominant and prime objective of assessee institution, was not desire to earn profits but, object of promoting trade and commerce not for itself, but for nation, it was clearly a charitable purpose.

SC ruling on Court fee payable in case of filing of appeal to High Court

The SC in the case of Raveendranathan Nair as reported in 85 Taxmann 45 on the issue of court fees payable for an appeal before the HC as per section 260A held that wherever assessee is in appeal in the High Court which is filed under section 260A of the IT Act, if the date of assessment is prior to 6-3-2003, section 52A of the Kerala Court Fee and Suits Valuation Act, 1959 shall not apply and the court fee payable shall be the one which was payable on the date of such assessment order. However, in those cases where the Department files appeal in the High Court under section 260A of the IT Act, the date on which the appellate authority set aside the judgment of the Assessing Officer would be the relevant date for payment of court fee. If that happens to be before 6-3-2003, then the court fee shall not be payable as per section 260A of the IT Act on such appeals.

Adoption of 8% GP rate was justified if assessee had made bogus purchases during year

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The HC of Gujarat in the case of Jagdish Patel as reported in 84 Taxmann 259 on the issue of Bogus purchase under section 69C upholding the order of ITAT, held that where AO having found that during year assessee had made bogus purchases of certain amount added said amount to his income and Tribunal having found that assessee GP was 7%, applied 8% on such bogus purchase. Assessee was engaged in business of refining and selling edible oils. AO having found that during year assessee had made bogus purchases of a certain amount from five different agencies added said amount to income of assessee. Tribunal having found that entire purchases could not be treated as bogus and assessee gross profit rate for year under consideration was 7%, hence adopted gross profit rate of 8% and reduced addition accordingly.

AO cannot make revision to treat loan as deemed dividend if full disclosure was made during scrutiny assessment.

The HC of Gujarat in the case of Gujarat Mall Management as reported in 84 Taxmann 242 on the issue of deemed dividend read with 147 held that where assessee had made disclosures about borrowings from another company and had also filed necessary details thereof along with audited return, notice issued beyond a period of four years to enable AO to examine applicability of section 2(22) (e) was to be set aside. Notice for reopening assessment in case of assessee was issued beyond a period of four years from end of relevant AY where original assessment was framed after scrutiny. According to AO, assessee company had received loan of Rs. 2.17 crores from another company, however, it had not disclosed information regarding shareholding pattern; hence AO desired to tax said loan

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received by assessee as a deemed dividend under section 2(22) (e). Since assessee having made disclosures about borrowings from another company and also having filed necessary details thereof along with audited return, did not thereafter have onus of further disclosing its share holding pattern to enable AO to examine applicability of section 2(22) (e) and if AO desired to scrutinize this aspect it was always open for him to call upon assessee to provide for such details as and when necessary hence impugned notice u/s 148 was to be set aside.

HC allowed deduction of interest paid on loan borrowed to repay existing loans.

The HC of Gujarat in the case of Aryan Arcade Limited as reported in 84 Taxmann 293 on the issue of section 24 read with section 263 , relying on the CBDT Circular No. 28 dated 20/08/1969 held that where AO after examining issue accepted assessee claim for deduction under section 24(b) even with respect to interest paid on debentures, utilized for repayment of past loans used for construction of building, view of AO being plausible, it was not open for Commissioner to take such order in revision. Assessee Company was engaged in renting of property. During relevant period assessee raised funds by issuing debentures. Funds raised through such debentures were utilized for repayment of past loans taken for purpose of construction of building. Assessee pointed out this aspect to AO during original assessment and assessee could establish precise correlation between debentures and repayment of past loans through books of accounts. AO after examining issue accepted assessee's claim for deduction under

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section 24(b) even with respect to interest paid on debentures which were utilized for repayment of past loans used for purpose of construction of building - Further, CBDT in its circular dated 20/08/1969 had clarified position that if second borrowing had really been used merely to repay original loan and this fact was proved to satisfaction of AO, interest paid on second loan would also be allowed as a deduction. Hence view of AO being plausible, it was not open for Commissioner to take such order in revision.

AO need not record satisfaction in a particular manner for correctness of assessee's claim under Sec. 14A

The HC of Gujarat in the case of Devarson Industries as reported in 84 Taxmann 244 , on the issue of Section 14A held that where AO gave detailed reasons for making disallowance under section 14A in respect of exempt dividend income and LTCG earned by assessee discarding assessee theory that to earn assessable income assessee incurred no expenditure whatsoever, mere fact that AO did not arrive at satisfaction in a particular manner while making said disallowance, would not per se destroy mandate of section 14A. Assessee filed return of income claiming dividend income and long-term capital gain as income exempt from tax. To earn such income, it made an investment. However, it showed Nil expenditure for earning such tax-exempt income. AO noted that assessee had incurred direct or indirect expenditure for earning such income and accordingly, he proceeded to compute expenditure to be disallowed in terms of Rule 8D. since AO gave detailed reasons for discarding assessee

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theory that to earn assessable income assessee incurred no expenditure whatsoever, mere fact that AO did not arrive at satisfaction in a particular manner while making said disallowance, would not per se destroy mandate of section 14A.

Sum received from taking care of plants transplanted on customer’s land wasn’t agricultural income.

The HC of Bombay in the case of Forest Development corporation as reported in 84 Taxmann 214 on the issue agricultural income u/s 10 held that where assessee-company provided plantation service to customer by taking care of saplings and then transplanting them at customer's premises, income received by assessee was not derived from land but from service rendered by it to owner; thus, same could not be classified as agricultural income. Assessee Company was engaged in providing services of plantations, rock gardening etc. Initially assessee developed plants on its own land till these plants grew up to a level and thereafter, these plants were transplanted to lands of customers and maintained for a period till plants reached desired health and height. Thereafter maintenance was handed over to customers. Since activities of sowing seeds and developing plants on assessee own land and thereafter, transplanting those plants on land of customer are different from operations carried out on land belonging to customers and activity carried out at initial stage was an agricultural activity, thus, income derived from it was agricultural income and income received by assessee from latter part of contract was not derived from its

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own land but was derived from service which assessee rendered to customer in taking care of its plants, same was not agricultural income.

ITAT couldn’t remand matter back to TPO for afresh determination if details of comparable were available.

The HC of Delhi in the case of Bechtel India as reported in 84 Taxman 151 on the issue of TP remanding the matter to ITAT held that held that where all details of comparable relevant for determination of ALP of international transactions in various segments were already available on record, Tribunal ought not have remanded said matter to TPO for de novo determination and this exercise should have been performed by ITAT itself.

Exp. on medical seminar couldn’t be disallowed when doctors attended it to upgrade their own knowledge

The HC of Delhi in the case of Boston Scientific India as reported in 85 Taxmann 5 on the issue of Section of section 36 held that where in case of assessee engaged in sales of medical products, Tribunal disallowed expenses incurred on organizing seminars and conferences relying upon Circular No. 5 dated 01/08/2012, in view of fact that Tribunal did not consider assessee's plea that doctors attended those events/conferences in their personal capacity to enhance their own knowledge and they were not obliged to recommend assessee's products to other doctors or represent assessee in those conferences,

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and, moreover, Tribunal also failed to consider whether aforesaid circular was prospective in nature and, thus, not applicable for relevant year, impugned disallowance was to be deleted and, matter was to be remanded back for disposal afresh.

Sec. 144C assessment order had to be quashed if AO didn’t furnish draft assessment order to assessee: HC

The HC of Gujarat in the case of C- Sam India limited as reported in 84 Taxman 261 on the issue of assessment under 144C relying on the CBDT Circular No. 5 dated 03/06/2010 and CBDT Circular No. 09 dated, 19/11/2013 held that where upward revision was made in income of assessee on basis of order of TPO and same was done without following mandatory procedure laid down under section 144C, same was unjustified. Against returned income of Nil, AO in assessment order under section 143 computed assessee's income at higher amount by making various additions and deletions as per order of TPO. It was noted that upward revision was made in income of assessee on basis of order of TPO and same was done without following procedure laid down under section 144C. Since procedure laid down under section 144C is mandatory impugned assessment order passed without complying requirement of section 144C (1) was unjustified.

Company engaged rendering software development services to AE is incomparable with co. developing own software products

The ITAT Bangalore Bench in the case of ACI world wide solution private limited as reported in 84 taxmann

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218 on the issue of Functional comparability under TP held that assessee rendering software development services to its AE, a company engaged in diversified activities of software development and consultancy, engineering services, web development and hosting, etc., was not acceptable as comparable.

Further assessee was also not comparable to a company having huge brand value and intangibles. Similarly, the assessee was also not comparable to a company developing its own software products, and again a company engaged in diversified activities and earning revenue from various activities including licensing of products, royalty on sale of products as well as income from maintenance contract, etc., could not be accepted as comparable. Further considering the issue of segmentation a company earning revenue from three segments namely software services, software products and other services, about which segmental operating margins were not available, could not be accepted as comparable. Similarly, a company engaged in diversified activities of product design services, innovation design, engineering services, visual computing labs, etc., was not acceptable as comparable.

Company providing technology infrastructure services was incomparable with company engaged in providing software solutions

The ITAT Delhi Bench in the case of Aircom International as reported in 84 Taxmann 218 on the issue of comparability under TP, remanding the case to the AO/TPO held that a company operating as a full-fledged risk-taking entity, engaged in providing technology infrastructure services, testing services, and having an army of employees and its own R & D centre,

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was incomparable to assessee engaged in business of software solutions and consultancy services. Assessee was engaged in business of software solutions and consultancy services in area of telecommunication industry. A company was providing consulting IT services, which was an essential ingredient of its revenues from software development services, was incomparable to assessee, not providing any consulting IT services. Further a company providing end-to-end solutions was incomparable. Further a company having revenue from software products in addition to software development was incomparable. A company using its own software and having copyrights worth Rs. 2.71 crores were incomparable. A company offering integrated hardware and packaged software solutions was incomparable. Where income of a company largely included revenues from exports from SEZ/STPI units apart from sale of licence, it was also incomparable.

RPM was appropriate method to benchmark purchase of finished goods which were sold without any value addition.

The ITAT Delhi Bench in the case of Akzo Nobel as reported in 84 Taxmann 199 on the issue of method of determination ALP held that where assessee was directly engaged in reselling finished goods purchased from its AE, without making any value additions, RPM as most appropriate method was to be applied for benchmarking international transaction of 'Purchase of finished goods. Companies engaged in manufacturing would not be functionally comparable to assessee engaged in purchase and sale of finished goods. Similarity of functions performed under any of methods for determining ALP is essential and cannot be dispensed even under TNMM. Where methods as specified in section 92C (1) could not be applied, then,

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TNMM was to be applied for determining ALP of international transaction. Since in instant case assessee was directly engaged in reselling finished goods purchased from its AE, without making any value additions, RPM as most appropriate method was to be applied for benchmarking international transaction of 'Purchase of finished goods.

On the issue of comparability, it was held that where assessee was engaged in purchase and sale of finished goods and comparable were engaged in manufacturing, it was to be held that none of comparable chosen either by assessee or TPO were functionally comparable. Assessee carried out 'Contract Research and Development' and received certain sum and TNMM was applied for showing such international transaction at ALP with PLI of OP/OC. TPO accepted TNMM as most appropriate method and also PLI. However, it was observed that comparable chosen by assessee were, in fact, not comparable. TPO selected his own comparable and proposed transfer pricing adjustment by adopting average OP/OC of five comparable - Commissioner(Appeals) restored comparable chosen by assessee and excluded companies selected by TPO Since comparable chosen by both assessee and TPO were not comparable to international transaction of contract R&D, matter was to be remanded back for selection of fresh comparable.

Services by AE couldn't be considered as stewardship services when it derived economic and commercial benefits.

The ITAT Kolkata Bench in the case of Akzo Nobel as reported in 81 Taxmann 366 on the issue of TP held that where assessee established that services were

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received from AE in order to meet specific need to assessee and to derive economic and commercial benefits and as same were received on a continuous basis, it was erroneous to classify services as stewardship services and charges paid by assessee were held to be at arm's length. Under an agreement between assessee and ANPAP, another company belonging to Akzo Nobel group providing to group companies support services in field of human resources and marketing support, ANPAP agreed to render services to assessee for which assessee made payment. TPO held that assessee did not obtain any benefit of such services and that these were incidental or stewardship services or duplicate services and, hence, unwarranted. Further in his opinion, assessee failed to provide any evidence about services rendered by AE necessitating payment of such charges, he thus, computed ALP of this international transaction at nil. It was noticed that with regard to said intra group services received from ANPAP, assessee submitted detailed evidences in form of emails, communications and reports which evidenced rendering of services and ensuing benefits .since assessee had established that services were provided in order to meet specific need of assessee for such services and from which it derived economic and commercial benefits and same were received on a continuous basis across its operational areas, it was erroneous to classify services to be in nature of stewardship services . Since nature of services rendered by ANPAP were not in nature of stewardship activity or shareholder activity, TPO wrongly concluded that no charges ought to have been paid by assessee and, therefore, charges paid by assessee to ANPAP were held to be at arm's length. Further where TPO determined payment made towards

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SAP by assessee to AE at nil without considering plethora of facts and details presented by assessee, construing services as stewardship services, TPO's approach was erroneous and said payment wasn't to be determined at nil. ANDC, a company belonging to Akzo Nobel group provided SAP (software implementation program) to all Akzo Nobel Group companies belonging to business area of decorative paints. Assessee made payment for its share of services received from ANDC. TPO determined value of international transaction to be nil .It was noted that TPO did not consider plethora of facts, justifications, details and arguments as presented by assessee and proceeded on basis that because Group decided to implement SAP, assessee had to bear cost allocated to it and, thus, implementation of SAP was part of quality control, supervision and monitoring function of Group which integrated all information and data on one system and, therefore, services should be construed as stewardship services . This approach of TPO was held to erroneous and matter remanded.

ITAT remanded matter as functionally comparable companies were rejected merely because they underwent merger.

The ITAT Cochin Bench in the case of Apollo Tyres as reported in 84 Taxmann 219 on the issue of comparability under TP, remanding the matter to the TPO held that functionally comparable companies should not be excluded by TPO merely because it had gone under merger or had different accounting year ending. Assessee had rendered software development services to its AEs .It had adopted TNMM to benchmark its transactions with AE. TPO substituted his own comparable and determined adjustment. It was found that some functionally comparable companies had been

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excluded by TPO merely because it had gone under merger or had different accounting year ending. Further, TPO had ticked up companies having functions of high end IT services, IT consulting, product companies, business intelligence companies, etc., which were functionally dissimilar to assessee. Thus on facts, matter should be set aside to file of AO to properly apply comparable. Further Where DRP did not deal with effect of increased interest rates and overall debt position of AE after corporate guarantee was given by assessee, issue of corporate guarantee fee was required to be examined afresh. Assessee had given a corporate guarantee to its AE in respect of a five-year term loan obtained by AE from Standard Chartered Bank. TPO made an addition of a corporate guarantee fee at rate of 0.75 per cent and made adjustment being of view that an economic benefit had been provided as a corporate guarantee by assessee. However, DRP while disposing of said appeal did not deal with effect of increased interest rates and overall debt position of AE after corporate guarantee was given. Hence on facts, said issue was required to be examined afresh and accordingly remanded.

Non-AE domestic transaction couldn’t be considered for computing income of international transaction.

The ITAT Bangalore Bench in the case of Cable & wireless as reported in 84 Taxmann 280 on the issue of benchmarking on the issue of comparability held that Non-AE transaction of assessee being domestic and carried out in a different geography than international transaction, said transaction cannot be clubbed together for computation of income of international transaction. Assessee was providing network services to its AE for connecting Indian end of network with global network of AE. Assessee stated to have taken network bandwidth from Tata on lease and paid total lease charges and earned revenue from AE and from non-AE domestic clients. Assessee benchmarked its international transactions by considering entity level

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operating margin under TNMM. Since non-AE transaction of assessee were domestic and carried out in a different geography than international transaction, said transactions cannot be clubbed together for computation of income of international transactions. Since segregation of results was not possible as various expenditure were common for domestic and international transactions, ALP had to be computed under CUP method.

Sum paid to NR towards server maintenance charges for usage of intranet and mails couldn’t be held as FTS

The ITAT Chennai Bench in the case of Cooper Standard Automotive as reported in 84 Taxmann 200 on the issue of FTS as per section 9(1) (vii) held that where server maintenance charges were paid for usage of intranet, internet, mail data backup, etc. located at Germany and assessee was merely using technology provided by parent company and no managerial, consultancy and technical services were provided by parent company, payment made was not for FTS. Further assessee-company manufactured parts according to drawing and specifications and designs of parent company and, subsequently, sent to Italy for testing on their efficiency and strength, activity of testing, operating of machine and noting of actual reading, whether it would suit to design specifications or not was a specialized activity which only a technical person can do not machines alone, services were technical services. However, since services were rendered outside India, no disallowance under section 40(a) (i) was called for. Further where tax has been deducted but paid in any subsequent year, same will be allowed as deduction in year in which tax has been paid or deducted. Whether where tax has been deducted but

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paid in any subsequent year, same will be allowed as deduction in year in which tax has been paid or deducted as for allowing deduction of expenditure, not only deduction of tax at source but also remittance to Government account is a mandatory requirement.

AO couldn’t file appeal against direction of DRP before passing final order of assessment

The ITAT Bangalore Bench in the case of Coriant communication as reported in 83 Taxman 347 on the issue of section 144C held that Directions of DRP are binding on TPO/Assessing Officer; therefore, cause of action to file an appeal before Tribunal arises only after passing final order framing assessment in pursuance to directions of DRP.

Sum paid to NR to train its Chinese engineers in English language for setting-up plant in India wasn’t FTS.

The ITAT Kolkata Bench in the case of Ershisanye Construction as reported in 84 Taxmann 108 on the issue of FTS held that where payment made to a Chinese company in respect of training of Chinese engineers of assessee in English language would not constitute FTS and, thus, payment routed through assessee Chinese holding company would not be liable to TDS. Assessee was wholly owned Indian subsidiary of Chinese holding company. Assessee entered into an agreement with Hunan, a Chinese company, to train Chinese engineers in English language for setting up of steel plant in India. Holding company made payment

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on behalf of assessee for rendering aforesaid services. Subsequently, assessee repaid said payment to holding company. Since training expenses could not be said to be FTS and, therefore, not chargeable to tax in hands of Hunan and consequently, on payment to Hunan which routed through Chinese holding company, No TDS u/s 195 required.

Further taxation of income derived from independent professional services in context of rendering of legal services by Chinese law firm would be governed by Article 14 of India-China DTAA and general provision of article 12(4) governing FTS would not apply. Assessee entered into an agreement with a Chinese company Hunan Law to render legal services in respect of construction of an integrated onshore steel plant project in India. Since services rendered by Hunan Law was in nature of consultancy services same would fall within purview of Article 12(4) of DTAA. However, in instant case general provision of Article 12(4) of India-China DTAA governing FTS would not apply, rather Article 14 of India - China DTAA would govern taxation of income derived from independent professional services in context of rendering of legal services by non-resident. since Hunan Law was a tax resident of China and it carried on profession of rendering legal services in China and it did not have a fixed base regularly available to it in India for purpose of performing its activities nor did they have physical presence in India for more than 183 days during previous year, impugned payment was not chargeable to tax in India in hands of Hunan Law and, therefore, there was no obligation on part of assessee to deduct TDS u/s195.

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Higher rate of interest to be considered as ALP if assesses was charging interest as rate more than LIBOR

The ITAT Mumbai Bench in the case of Fist Source Solutions as reported in 84 Taxmann 288 on the issue of benchmarking under TP held that where assessee was charging interest at rate more than LIBOR +200 bps or 300 bps, such interest rate had to be considered as arm's length rate of interest. Assessee advanced loan to its AE in US Dollar. It charged interest at rate of 6-7.5% PA. LIBOR rate as on last date of 2008 was 2.49%. Assessee benchmarked transaction accordingly. TPO held that interest charged from AE was not at arm's length. It was noticed that in subsequent assessment year, AO himself made no adjustment on account of interest rate transaction even though facts and circumstances were identical to facts in year under appeal. Further, in cases relied upon by assessee, Tribunal took a consistent view that LIBOR +200 bps or 300 bps interest rate had to be considered as arm's length rate of interest. Therefore, adding 300 bps, interest rate would come to 5.49%, whereas assessee charged 6-7.5% PA from its AE, there was no justification to uphold order of TPO who charged interest at rate of 14%PA.

RPM is best method to determine ALP for distribution activity even if selling/marketing exp. was born by assessee

The ITAT Pune bench in the case of Fresenius Kabi as reported in 84 Taxmann 279 on the issue of TP held that in case of distribution activity, even when there are selling and marketing expenses borne by assessee, there cannot be any value addition to product in question and in such cases, RPM is most appropriate method for ALP determination.

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Indian Company SIPL wasn’t agency PE for sale of Star TV advertisement rights as it was acting as independent agent and paid at ALP

The ITAT Mumbai Bench in the case of International Global Network as reported in 84 Taxmann 188 on the issue of Article 5 under India Netherland DTAA held that where assessee incorporated in Netherlands and a wholly owned subsidiary of (STAR Limited) based in Hong Kong, was granted exclusive rights for sale of advertising time in India on channels of STAR TV Network, owned by STAR Limited and, thereupon, assessee entered into agreement with SIPL an Indian entity to procure business from Indian advertisers on a commission of 15 per cent of receipts from such business, in view of fact that SIPL was an independent agent under article 5(6) of tax treaty between India and Holland and payments made to SIPL were at arm's length, it could be concluded that assessee did not have PE in India and, thus, no part of its income was liable to tax in India.

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Indirect Tax

Divisible works contract for laying of pipelines could be treated as Sale.

The SC in the case of Indian Hume Pipe Co limited as reported in 84 Taxmann 274 uphold the Rajasthan HC order on the issue of Rajasthan Sales Tax Act , where it was found on facts that works contract executed by assessee for providing and laying of pipes complete with suitable jointing material specials, valves and construction of valve chamber, anchor blocks table crossing, including testing and commissioning of pipelines was a divisible contract, it could not be treated as one single and composite contract, and, therefore, CTO was justified in holding that pipes manufactured and supplied by assessee fell within definition of sale of goods and assessee was not entitled to claim exemption under section 7AA for supply of pipelines.

Notice for imposing penalty couldn’t be in violation of section 11A, even though excise duty was paid voluntarily.

The HC of Allahabad in the case of K A forward shoe factory as reported in 84Taxmann 220 on the issue of Central Excise held that Section 11A has no application in respect of realization of penalty imposed under section 11AC, hence even though duty of excise had been paid voluntarily by assessee, notice issued for imposing penalty was justified. During inspection of factory premises of assessee manufacturer by Central Excise Officers some discrepancy in stocks was detected. Assessee accepted same and deposited additional duty. Subsequently, a show cause notice was issued to assessee demanding explanation with regard to short deposit of above duty and imposition of penalty under section 11AC. Assessee contended that

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in view of section 11A (2B), as it had deposited entire excise duty on basis of his own ascertainment before service of notice upon it under sub-section (1) and had given information of it to Central Excise Officer no notice in respect of duty so paid could have been issued to it meaning thereby that no penalty could have been levied upon it under section 11AC . HC held that section 11A has no application in respect of realization of penalty if any imposed under section 11AC, hence even though duty of excise had been paid voluntarily by assessee, notice issued for imposing penalty was neither without jurisdiction nor in violation of section 11A(2B). Further where assessee had deposited duty determined and interest even prior to determination of it by adjudicating authority but 25 per cent of penalty amount was not deposited by it within 30 days of order, it would not be entitled to benefit of reduced penalty.

Definition of unit container cited by assessee to be considered by AA before arriving at decision, matter remanded

The CESTAT Mumbai Bench in the case of Mc Dodonald (Hard castle Restaurants) as reported in 84 Taxmann 222 on the issue of classification of the held that where Adjudicating Authority classified food preparations served/sold by assessee from their restaurant in unit container bearing brand name, logo and trade name of McDonalds under sub-Heading 1601.10 and 2001.10 without considering definition of unit container interpreted in various judgments cited by assessee, matter to be reconsidered. Assessee was operating restaurants under name and style of

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"McDonald's" manufacturing and selling edible goods in retail namely preparation of meat and preparation of vegetable. Adjudicating authority classified said edible goods under chapter sub heading 1601.10 and 2001.10 respectively on grounds that goods were sold by assessee in 'unit containers', which were bearing brand name, logo and trade name of McDonald's; thus, were liable to excise duty. However, assessee submitted that assessee use paper for serving food to customer, which was in fact not a unit container because it did not bear any indication of quantity or weight of goods and it could not be treated as being designed to hold a pre-determined quantity as per definition of Unit Container. Since definition of 'unit container' had been interpreted in various judgments cited by assessee, which were not considered by adjudicating authority while arriving at his independent opinion, matter remanded for reconsidered by Adjudicating Authority.

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Corporate Law

SAT impose penalty on Rajasthan Royals for FEMA violation

The ATFFE (Appellate Tribunal of Foreign Exchange) Delhi Bench , in the case of Jaipur IPL cricket Private limited as reported in 81 Taxmann 175 , on the issue of FEMA (Permissible Capital Account Transactions) Regulations, 2000 held that E of UK was successful bidder for Jaipur IPL franchise, i.e., Rajasthan Royals, in tender invited by BCCI and performance deposit was transferred from UK by person other than investor without approval from RBI, remittances were in contravention of section 3 and penalty was to be imposed on Rajasthan Royals. BCCI floated tender inviting persons to submit a bid for owning and operating a team for participation in Twenty 20 Cricket Competition. Each bidder was required to deposit performance deposit. 'E' of UK was successful bidder for Jaipur IPL franchise, i.e., 'Rajasthan Royals'. For said franchisee remittances were made into India against which show-cause notices were issued as remittances were considered beyond scheme of FEMA. Remittances were made by 'M' of UK, on behalf of 'E', EMSH Mauritius and 'N' of UK. Adjudicating Officer held appellants, i.e., Rajasthan Royals, liable for contravention of provisions of section 3(b), section 6(2), 6(3) b & section 42(1) and imposed penalty of about 100 crores against all appellants. Since no special and general permission was obtained from RBI and Foreign Investment Promotion Board (FIPB) had disapproved such remittance, remittances were in contravention of section 3 and since remitter and investor were different and were not in accordance with Regulations made by RBI ,remittances made by person

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other than investor were in direct contravention of Regulation 5 of FEMA (Permissible Capital Account Transactions) Regulations, 2000 thus, penalties were to be imposed for contravention of sections 3 and 6, however, penalty imposed by Adjudicating Officer being excessive was to be reduced.

SC directed sale of properties of petitioner for recovery of dues to bank

The SC in the case of Girish Sangappa Jaggal Vs Union Bank as reported in 84 Taxmann 162 on the issue section 13 of SARFAESI held that where there were huge dues and petitioner was not in a position to make some deposit, allowed sale of properties of petitioner for recovery of dues to respondent bank therefore respondent was directed to proceed against properties of petitioner.

Application for insolvency resolution process was to be admitted even if company was declared sick by BIFR.

The NCLT in the recent case of Amit Spinning Industries as reported in 84 Taxmann 174 on the issue of Section 10 of the IBC read with rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 held that even where corporate applicant was declared sick by BIFR and notice was issued on it under section 13(2) of SARFAESI Act and applications of banks were pending before DRT, application for initiating insolvency petition was to be admitted. Corporate applicant filed instant application under section 10 for initiating insolvency resolution process. It was found that, corporate applicant was declared sick by BIFR. Corporate applicant was also facing notice

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under section 13(2) of SARFAESI Act. Financial creditors had filed recovery application before Debt Recovery Tribunal (DRT) against corporate applicant and said application was pending before DRT as on date of instant application. Required details of financial creditors and copy of financial statements were furnished. Notices were served on financial creditors and objections were received. All details required under section 10 were complied with. Hence instant insolvency petition was to be admitted.

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Prakash Sachin & Co Chartered Accountants

It is a well-known and reputed firm of Chartered Accountants having its Head office

at New Delhi. The firm has its branch offices in Mumbai, Asansol &Jharkhand. The

firm has also marked its presence in overseas through its associates in different

countries across Europe & USA. The firm practice areas are Direct tax including

transfer pricing, International tax matter & DTAA matters, Indirect tax, Corporate

&allied law, FEMA and RBI related matters, Audit & Assurances related matters. The

most valuable assets the firm possesses are its team of experienced, knowledgeable,

talented and dedicated pool of human resources. The efficient deliveries of the work

and client satisfaction are the two-important mantra of the firm. The mantra of the

firm is “Knowledge is power. “In a very dynamic and fast changing global situation,

where the internet and social sites are used as uninterrupted flow of information and

knowledge, the organization believes in the dissemination of knowledge is the best

way to acquire it and in this process, it issues weekly updates which contains recent

changes, notification and amendments and judicial pronouncement and it is released

on every Monday. This weekly updates are known as “Weekly Bulletin” and it is

issued after thorough discussion of the team members on every preceding Saturday.

This weekly bulletin truly represents the practice areas of the firm. The firm has a

pool of CA, CS and lawyer and support staff to carry out the assignment in a very

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efficient research, planning and execution in a time bound manner. The firms have

handled various assignments of auditing and taxation and guiding various clients on

taxation other management consultancy matters.

The firm has recently discussed in the previous weekly newsletter on the matter of

“CBEC issuing clarificatory circular on the classification of SAREE” and other case

laws.