CA Terminal: 09/03/13

Tuesday, 3 September 2013

Assessee to be given opportunity to explain discrepancies before seeking approval by AO for special

IT : Where before seeking approval for special audit, any opportunity was not accorded to assessee to explain discrepancies in accounts, it amounted to violation of principles of natural justice

Settlement Commission - Form of application for settlement of a case under section 32E

Form No. SC (E)-1

[See rule 3 of the Central Excise (Settlement of Cases) Rules, 2007]

Before the Customs and Central Excise Settlement Commission

____________ Bench at __________

Form of application for settlement of a case under section 32E

1. Full name of the applicant:

2. (i) Postal address of the applicant

(ii) E- mail address of the applicant, if any

3. (i) Address for communication:

(ii) Telephone No.

4. (i) Permanent Account No:

(ii) Central Excise registration No:

(iii) Status: (See note 2)

5. (i) Commissioner of Central Excise having jurisdiction over the applicant:

(ii) Postal address of the Commissioner of Central Excise having jurisdiction over

the applicant:

6. Details of Show Cause Notice issued to the applicant

(a) Show Cause Notice No and date

(b) Period of dispute in the notice

(c) Duty demanded in the notice ( in Rs. )

(d) Dispute in connection with which the application for settlement is made.

(e) Adjudicating authority before whom the notice is pending adjudication.

7. (i) Whether monthly returns showing production, clearance and central

excise duty paid were filed for the period of dispute:

(ii) Whether the disputed goods were entered in the daily stock register. If

so, details thereof.

Note: Self-attested copies of relevant monthly returns and the daily stock

account/register to be enclosed.

8. Date of seizure, if any.

9. Brief facts of the case and particulars of the issues to be settled:

10. (a) Amount of duty accepted as payable for settlement (in Rs)

(b) Interest on the said admitted duty (in Rs.)

11. Payment details of the duty accepted, by the applicant along with interest as at

(10) above (TR-6 challan No and date) 12. Whether any application for settlement has been filed by the applicant before any

Bench of Settlement Commission on or before 31st May , 2007, if so, details

thereof :

(a) Application no and date

(b) Amount admitted for settlement

(c) Details of final order of the Commission

(d) Whether settlement amount has been paid in terms of the order

13. Whether any application for settlement (other than the present one) has been filed

by the applicant before any Bench of Settlement Commission on or after 1st June ,

2007. If yes, the following information may be provided :

(a) Application No. and date

(b) Show cause notice No. and date

(c) Amount of admitted duty

(d) Issue involved

(e) Status of the application, if decided, then

(i) Settlement order No. and date

(ii) Details of deposit of settlement amount

14. If any other application, filed by the applicant, on or after 1st June , 2007, is

pending before the Settlement Commission, then whether the present application

for settlement involves issue identical to the issue in respect of which the other

application is pending before the Settlement Commission as on date.

Signature of the applicant

Verification

I……………..son/daughter/wife of …………………. residing at……………. do solemnly declare

that I am making this application in my capacity as………….and I am competent to verify it.

That the contents of this application are true and that I have not filed any application for

settlement in contravention of the provisions of the Chapter V of the Central Excise Act 1944

before the Settlement Commission and also that no information relevant to the facts of the case

has been suppressed. Annexures of the documents accompanying the application are true

copies of the originals and the tables showing financial transaction are correct and are duly

attested by me.

That no proceeding in respect of the case for which settlement is being sought, is pending before

Commissioner (Appeal), Customs, Excise and Service Tax Appellate Tribunal or the courts, as

the case may be, or has been remanded back to the adjudicating authority by the said appellate

authorities.

Verified today the………..day of……….(mention the month and year) at ………(mention the

place)

Deponent

Note:

1. The application fee should be credited in a branch of the authorized bank or a branch of

the State Bank of India or a branch of Reserve Bank of India and the triplicate copy of the challan sent to the Settlement Commission with the application. The Settlement Commission will not

accept cheques, drafts, hundies or other negotiable instruments.

2. Please state whether individual, Hindu undivided family, company, firm, an association of

persons, etc.

3. Details of the additional amount of Central Excise duty accepted as payable and interest

thereon referred to in item 10 of the application shall be furnished in annexure to this application.

4. Original copy of the of the TR-6 challan indicating amount of duty accepted as payable for

settlement and interest thereon referred to in item 10 be retained by the applicant, duplicate be

endorsed to Central Excise Officer having jurisdiction over the applicant, triplicate be endorsed to

the jurisdictional Chief Accounts Officer of the Central Excise Commissionerate, quadruplicate be

retained by the bank and quintuplicate copy be enclosed with this application form.

Annexure

Statement containing particulars, referred to in item 9 of the application made under section

32E(1).

1. Details of information which has not been correctly declared in the monthly return;

2. Duty liability accepted out of the total duty demanded in the show cause notice issued and

the manner in which such duty liability has been derived;

3. Full and true disclosure of the facts regarding the issues to be settled including the terms of

settlement sought for by the applicant.

Signature of the applicant

Place

Date:

No disallowance of interest if diversion of borrowed funds to sister concern wasn't proved

IT: Where huge funds were available without any interest liability with assessee and there was no evidence to hold that borrowed money was utilized for purpose of advance to sister concerns, no disallowance of interest was warranted

Services availed after place of removal and in relation to trading activity aren't eligible input se

ST : Manpower supply services for loading and unloading of finished goods at transhipment point after removal of goods from place of removal being factory gate are not eligible for input service credit

Application for lower TDS certificate should be disposed off expeditiously; HC says

IT : Expeditious and fast track disposals of section 197 applications are mandatory and required for payment of refunds of TDS

Tellabs India Private Ltd vs. ACIT (ITAT Bangalore)

Transfer Pricing: Assignment of contract by AE is an international transaction and should be at arms length price

The assessee’s AE, Tellabs Denmark, was awarded a contract by Power Grid Corporation for the supply, installation and commissioning of telecommunication equipments. The work was to be performed both outside India (manufacture and supply of telecom equipments from Denmark- offshore) and in India (customs clearance in India and installation of the equipments – onshore). The Off-shore and Onshore contracts were independent contracts. Pursuant to a corporate restructuring, Tellabs Denmark assigned a portion of the On-shore contract relating to freight, insurance and installation to the assessee. Power Grid consented to the assignment on the condition that Tellabs Denmark will continue to be liable for due performance of all contracts. The AO & TPO held that as Tellabs Denmark continued to be liable to Power Grid for the onshore contract, the assignment of the said contract by Tellabs Denmark to the assessee constituted a sub-contract (and not an independent contract) and that for the work of customs clearance and installation of equipment performed thereby the assessee ought to have earned an arms length profit margin of PBIT/Sales of 9.49%. On appeal by the assessee to the Tribunal HELD:

The assessee’s claim that the effect of the assignment of the work of customs clearance and installation by Tellabs Denmark to the assessee is that an independent contract came into existence between the assessee and Power Grid and that as both parties were residents, the transfer pricing provisions cannot apply is not acceptable because it is clear from the various agreements that there has been only an assignment of the portion of an onshore contract by Tellabs Denmark to the assessee and not a novation of the portion of the onshore contract between Tellabs Denmark and PGCIL. The consequences in the event of an assignment and novation are different. Since there has only been an assignment and not novation of the contract in the present case, the transaction of assignment between the assessee and Tellabs Denmark cannot be said to be a transaction between two persons either or both of them were not non-residents. It is a very strange situation because if Tellabs Denmark had not assigned the portion of the onshore contract, the transfer pricing provisions would not have been applicable because Tellabs Denmark and PGCIL are not Associated Enterprises. Though the assignment of the portion of the onshore contract has taken place exactly at the same consideration for which Tellabs Denmark agreed to render services to PGCIL, nevertheless, the assignment agreement between Tellabs Denmark and the assessee has all the ingredients of an international transaction within the meaning of s.92 of the Act. However, the ALP will have to be determined afresh because the international transaction is the assignment between Tellabs Denmark and the assessee and not the agreement between the assessee and PGCIL. The TPO should also consider whether as the assignment of the contract had taken place due to business restructuring and on the same terms as agreed between Tellabs Denmark and PGCIL, it could be said that this transaction itself would constitute a comparable uncontrolled transaction (Swarnandhra IJMII Integrated Township (ITAT Hyd) distinguished).

ACIT vs. Infosys BPO (ITAT Bangalore)

Law on s. 192 TDS obligation on medical reimbursement & LTC explained

The assessee recruited employees under a contract of employment which provided the salary as a ‘cost to company’ or ‘CTC’. Having determined the CTC, the employee was permitted to choose what would be the various components of his salary and for this purpose a basket of allowances was made available for the employee to choose from. The maximum allowance for each such allowance was fixed by the assessee. The said allowances included a component towards medical expenditure & leave travel concession (LTC). If the employee submitted proof of having incurred the expenditure towards medical treatment, he was allowed exemption to the extent provided in proviso (iv) to s. 17(2) of the Act. Likewise, if the employee submitted proof regarding leave travel, he was allowed exemption u/s 10(5) read with Rule 2B. The AO held that as Proviso (iv) to s. 17(2) and s.10(5) used the expression “actually incurred”, the exemption towards medical reimbursement and LTC could be conferred only for amounts paid as reimbursement after they were incurred by the employee and not before. She held that as the assessee was paying medical reimbursement & LTC as a component of salary every month, without the employee having incurred expenditure, the same had to be considered as salary disbursement for purposes of TDS u/s 192. The assessee was accordingly treated as being in default. On appeal by the assessee, the CIT(A) reversed the AO. On appeal by the department to the Tribunal, HELD dismissing the appeal:

Though TDS has to be effected at the time of payment of salary, s. 192(3) permits the employer to increase or reduce the amount of TDS for any excess or deficiency. Even assuming that the case of the AO that at the time of payment the assessee ought to have deducted tax at source is sustainable, the assessee, on a review of the taxes deducted during the earlier months of the previous year, is entitled to give effect to the deductions permissible under proviso (iv) to s.17(2) or exemption u/s10(5) of the Act in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head ‘salaries’ as on the last date of the previous year. The case of the AO that LTC and Medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time and that if it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to s.192(3) and cannot be sustained. The reliance placed by the AO on the expression “actually incurred” in s.10(5) & Proviso (iv) to s.17(2) cannot be sustained. In any event, the interpretation of the word “actually paid” is not relevant while ascertaining the quantum of tax that has to be deducted at source u/s192. As far as the assessee is concerned, his obligation is only to make an ”estimate” of the income under the head “salaries” and such estimate has to be a bona fide estimate. The primary liability of the payee to pay tax remains. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. On facts, as the assessee had granted exemption towards medical expenditure and leave travel after verifying the details and evidence furnished by the employees, it could not be treated as an assessee-in-default.

Plywood Rates To Go Up By 10% In Punjab On Weak Rupee

3 Sep, 2013

CHANDIGARH: Punjab's plywood industry today announced to raise plywood prices by 10 per cent citing soaring input cost due to fall in rupee against US dollar.

"We have today decided to increase rates of plywood and plyboard by 10 per cent across all the product categories in view of increase in raw material cost," Punjab Plywood Manufacturers Association Chairman Ashok Juneja told PTI here.

This decision was taken at a meeting of all the plywood makers which was held in Ludhiana today.

"Weakening of rupee against US dollar has raised our cost of raw material including face veneer, formaline, phenol and other chemicals used in plywood business considerably, which forced us to revise rates upwards," he said.

Industry imports these chemicals from several countries, including China, Vietnam, etc.

Punjab has about 200 plywood manufacturers in the state with production of Rs 500 crore per annum. Rates of plywood items range between Rs 25 per square feet to Rs 75 per sq ft.

Indian curreny has weakened by over 15 per cent against US dollar in the past few months.

In the meeting, plywood makers have also sought from Punjab government to declare plywood industry as agro-based industry which will entitle them to incentive in the shape of lower rate of interest from financial institutions.

"We will get 5 per cent interest subsidy on bank loans if our industry is declared agro-based industry by the Punjab government," Juneja said.

Industry blamed the state bureaucracy for not issuing notification with regard to agro-based industry status despite Punjab Chief Minister Parkash Singh Badal announcing in this regard.

"Punjab CM had announced that plywood sector should be given the status of agro-based industry on January 11, 2013 but it had not been done so far," he alleged.

Plywood makers also demanded that the state government should not charge any market fee on poplar and eucalyptus trees sold by farmers directly to the industry.

On the issue of controversial E-Trip system, plywood makers have said a meeting with the Deputy Excise and Taxation Commissioner would take place with representatives of plywood makers tomorrow to resolve the issue.

"We demand that E-Trip system should be made optional for the industry," he said, adding: "If the lumpsum tax is imposed on plywood, then industry should be allowed to take input tax credit against tax paid."

Source:-economictimes.indiatimes.com

Reaping Benefits From Waste

According to the Food and Agriculture Organisation of the United Nations, the use of animal guts to produce biodiesel is not a new technology. However, of late there has been growing interest in “aquaticbiofuels” – producing bio diesel from fish gut. Fish oil comes from leftover waste and is mixed with methanol and other products.

Certainly, as island states, knowledge about such technology should be of interest to us. Commercialising our waste in this regard produces local energy, but also attracts a wider cross-section of intellectual muscle into the fishing industry, particularly in the areas of scientific research and technology. According to the FAO, the technology is adaptable to many parts of the world and can provide livelihoods and produce local energy, avoiding greenhouse gas emissions. The technology required here takes little investment; energy can be produced at little cost and ultimately can have a positive impact on food security and energy security.

Having just discussed using the waste for fuel, you can begin to imagine the increase in income to be made from fish, if we as a people were to recognise the commercial value of what we’ve been discarding.

There’s more. After the oil is extracted from the fish, then mixed with methanol and caustic soda in order to separate the glycerin from the biodiesel, that glycerin is sold to the cosmetic industry for the for the production of soap. The cosmetic industry also benefits from other by-products. The biodiesel, we are told, is purified by adding manganese, and this becomes fit for use in engines.

What remains after the extraction of the oil can be used to produce fishmeal, a nutrient-rich and high protein supplement feed ingredient that is used primarily in diets for domestic animals and sometimes as a high-quality organic fertiliser. Some of the major fishmeal producing countries are Japan, Thailand, Peru, Chile, Iceland, Norway and Denmark.

Barbados’ fish industry is insignificant when compared to any of the above mentioned countries – in size, man-power, technological sophistication and commercial and economic vision. Our size will not change. Our man-power is not likely to alter drastically. However, is the technological sophistication and vision we speak of beyond the reach of a Caribbean Fishing Industry, inclusive of Suriname, Guyana, Belize, Haiti and of course, the flying fish nations of Barbados and Trinidad and Tobago? Pursuing such an industry that supported not just the production of fish waste derivatives, but also commercialised fish meat products (fish mince, fish burgers, fish sausages and so on) as a regional interest is worth the consideration. It requires considerable investment in plant – infrastructural and technological – and there are significant economies of scale. Consideration for the environmental, health and legal ramifications which could come about should the appropriate national policies not be put in place to ensure that all activities are above board has not escaped us, and you will find that there is a noteworthy amount of accessible research on such.

Having said that, our thoughts on fish could have easily been on the research and commercialisation of the medicinal and cosmetic uses of aloe vera, sour sop, breadfruit leaves and so much more goods which surround us daily, but whose raw materials are for the most part extracted for limited use in the domestic market. We have ways to go yet to move beyond raw material extraction, which even if exported, in no way could build our economies in the way that exporting added-value products could. Instead of these latter products, we import at much higher costs and to the detriment of our own foreign exchange supplies.

Source:-www.barbadosadvocate.com

Reaping Benefits From Waste

Source:-www.barbadosadvocate.com

Weak Rupee Works To Rice, Tea Exporters' Disadvantage

KOLKATA: The falling rupee has not brought much cheer to rice and tea industries. Rice exporters who had taken packing credit from banks in dollar terms at a time when the rupee was at 53-54 are now being forced to repay at the current forex rate of around 67-68.

On the other hand, the tea industry is being forced to renegotiate new deals with foreign buyers who are not keen to purchase tea at a price agreed upon when the rupee was at 58-59 against the dollar. MP Jindal, president, All India Rice Exporters Association, said, "We had taken packing credit in dollars when the rupee was at 53-54 level. Now the scenario has changed as the rupee has lost value against the dollar.

For this, rice exporters are facing losses. We are talking to banks about settling this issue." Packing credit limit is a facility sanctioned to an exporter in the pre-shipment stage. This facilitates the exporter to purchase raw materials and manufacture or produce goods according to the buyer's requirement and get it packed for export.

Packing credit limit covers all the working capital needs of the exporter including raw materials, wages, packing costs and all pre-shipment costs. Packing credit limit is available generally for a period of 90 days and the exporter has to pay a lower rate of interest compared to overdraft or cash credit facility. However, the silver lining is that basmati rice exports are expected to grow 10%.

"India's basmati rice is gaining popularity in Iran. Exports are expected to rise 10% which may take our overall exports of basmati rice to 34 lakh tonne," said Jindal. For the tea trade, a falling rupee has not augured well. "Importers are offering less dollars for new contracts that are being entered now following a drop in rupee value.

Orthodox teas, which were fetching $5 per kg in the global markets, are now being offered a price of $4 per kg. Similarly, CTC teas, which were garnering $4 per kg, are now fetching $3.2 per kg," said AN Singh, chairman, Indian Tea Association. A decline in tea prices in dollar terms will increase India's competition with Kenya in the world tea market.

Kenya's production has been good this year and the African nation has been loading teas in the world markets at an average price of $2.8-$3 per kg. "Though Indian tea companies will have some profit in near term, low prices will create more competition for Indian teas in the long term," said Singh.

Source:-economictimes.indiatimes.com

India's Fruit, Veg Production Likely To Cross 377 Million Tonne By '21

September 03, 2013

The combined annual production of fruit and vegetables in India – currently estimated to be over 227 million tonne (MT) is likely to cross the 377-MT mark by 2021. However, the Associated Chambers of Commerce and Industry (ASSOCHAM) stated that in the absence of on-farm processing facilities, wastage would also rise simultaneously.

“Currently over 77 MT fruit and about 150 MT vegetables are produced in India, and their production is growing at a compound annual growth rate (CAGR) ranging between 5-6 per cent respectively,” a study which was conducted by the apex industry body and titled, 'Horticulture Sector in India: State-level Experience', said.

Given that the expenditure on fruit and vegetables rises with the growth of the economy, the study projected that the demand for them in India is likely to grow exponentially. As projected by the Twelfth Five-year Plan, the economy and the agricultural sector are likely to grow at over eight per cent and about four per cent respectively.

“However, the projected production of fruit and vegetables would only cater to the domestic demand, leaving no scope for growth on the export front,” D S Rawat, ASSOCHAM's secretary general, said while releasing the study.

He added, “Efforts should be made to minimise and remove supply constraints, thereby making the supply chain efficient to reduce wastage.”

“Besides, there is also a need to produce horticultural products for exports, as this can act as an engine for the growth of the agri sector more so, as India accounts for just about one per cent of the total fruit and vegetable exports in the world and majority of the produce gets consumed domestically,” Rawat said.

“Though the quantity of fruit and vegetable exports from India has declined by about six per cent in the past few years, the export value has interestingly increased by over 31 per cent during the same period,” he added.

The export of fresh mangoes, onions and grapes declined by 13-24 per cent. This has impacted the overall decrease in exports quantity-wise.

The United Arab Emirates (UAE), the United States of America (USA), the United Kingdom (UK), Germany, France, Russia, Kuwait, Saudi Arabia, Singapore, Nepal and Bangladesh are among the top export destinations for India’s fruit and vegetables.

ASSOCHAM's study has stressed upon the urgent need to develop a conducive environment for exporters, as they have been facing severe supply constraints like high transportation costs, inadequate infrastructure and technology, which yield huge gaps and logistical costs, thereby hampering India’s competitiveness in the world trade market.

In its study, ASSOCHAM has also highlighted that India incurs post-harvest fruit and vegetable losses worth over Rs 2 lakh crore each year, largely owing to the absence of food processing units, modern cold storage facilities and a callous attitude towards tackling the grave issue of post-harvest losses.

West Bengal leads the pack in this regard with annual post-harvest losses worth over Rs 13,657 crore, followed by Gujarat (Rs 11,400 crore), Bihar (Rs 10,700 crore) and Uttar Pradesh (Rs 10,300 crore).

Decline in the market arrival of fruit and vegetables was another significant issue highlighted in the study, as just about 22 per cent of the fruit and vegetables produced in India reach the wholesale market.

“Developing wholesale markets, together with enhancing the cold storage capacities in local and regional markets, are the key to reduce the post-harvest fruit and vegetable losses and enhancing their market arrival,” the study said.

Bananas, mangoes, citrus fruit, papayas and guavas account for the major share of India's total fruit production, while potatoes, tomatoes, onions, brinjal and tapioca account for the maximum share in the country's total vegetable production.

Source:-www.fnbnews.com

Rupee Fall Not Enough To Push Coffee Exports

03-Sep-2013

KOCHI: Indian coffee exporters' plans to take advantage of a fall in rupee value have come unstuck because of a good production and the devaluation of currencies in other coffee producing countries. A huge production excluding some Central America regions has pulled down the prices of arabica and robusta varieties in the international market. Brazil, the largest producer, is harvesting a good crop although this is a lean year.

"The country is aggressively marketing its coffee to cash in on the devaluation of the Brazilian real. As a result, Indian exporters are finding the going tough," said Ramesh Rajah, president of Coffee Exporters Association of India. According to him, Brazil harvested a bumper crop of around 55 million bags (each bag of 60 kg) last year and production in the current season is expected to touch 49-50 million bags.

The currency in Indonesia, another major producer, has also taken a beating. However, torrential rains in Indonesia could damage the crop, giving some hope for Indian exporters as the country has been active in the market. Exporters are expecting the Indian currency to remain weak till a new harvest starts in November. "The realisation from exports will go up. But production cost will also go up as the prices of chemicals and fertilisers linked to petroleum imports could go up," said Coffee Board chairman Jawaid Akthar.

According to latest estimates of International Coffee Organisation, total production in crop year 2012-13 is around 144.5 million bags, a 7.7% increase over the previous year. Vietnam, the largest robusta producer, is expected to harvest a good crop of 23-24 million bags. Consequently, arabica and robusta prices have slumped in the international markets. "A weak rupee has held Indian coffee prices from falling in tandem with global prices," said an official with NKG Jayanti, a coffee exporting firm.

In the international market, arabica prices have fallen 10% since May to $1.18 per pound in futures trade on ICE New York. The drop in robusta prices is about 7% to $1,765 per tonne on Liffe. But Indian prices have remained more or less steady. Arabica parchment prices have stood at Rs 130 per kg while robusta prices have hovered around Rs 120 per kg. Exporters are hoping demand from Europe picks up after holidays in August.

Source:-articles.economictimes.indiatimes.com

Workmen have no right to be heard at first stage in an application for compromise or arrangement

CL: At first motion stage in an application under section 391 workmen have no right to be heard

Rupee Breaches 68/$ Level Again

September 3, 2013

The domestic currency Rupee on Tuesday again took a back seat against the US dollar, after breaching the 68.00 levels in intraday, it closed the session at 67.63 levels.

The rupee was impacted by gains in the dollar on international markets and falling domestic shares as equities weakened and investors were uncertain on the government acting decisively to restore confidence in the economy.

As crude oil prices rising due to fears of a potential US military strike on Syria, economists have called for an hike in subsidised fuel prices to help address concerns over a record high current account deficit and a fiscal deficit that is among the highest of all the major emerging market economies.

Also, markets are keenly waiting to see how former International Monetary Fund economist Raghuram Rajan will handle the defence of the rupee once he takes over as governor of the Reserve Bank of India on Thursday, having previously been an advisor to the finance ministry.

Kotak Securities' currency analyst Anindya Banerjee said: “....A combination of sell-off in leading emerging market currencies and fresh jitters in the Middle East has driven Rupee lower. Indian equity market suffered a steep sell-off, with leading indices dropping close to 4 per cent....Over the near-term, fears of Fed tapering and tensions in Middle East could Rupee under pressure, with risk emerging for a sell-off beyond 69.00 levels on spot.”

During the day, the dollar-rupee pair made a high of 68.25 levels and a low of 66.25 levels. Since the start of the trading session the rupee was seen depreciating reversing the modest sentiment to negative again.

‘Adjustment in Re was called for’

New Delhi, Reuters: Adjustment in the rupee, which has fallen by nearly 20 per cent since May, was called as the country has seen high inflation compared with other countries, Prime Minister's economic adviser C Rangarajan said on Tuesday.

"In some sense, the adjustment in the rupee was very much called for because our inflation rate was running so much higher than in the other countries," said Rangarajan, chairman of Prime Minister's Economic Advisory Council.

On Tuesday, the partially convertible rupee, the worst performing currency among the major global economies, dropped as much as 3.1 per cent to 68.12 per dollar.

Source:-www.deccanherald.com

Income wasn't taxable in hands of assessee if same was assessed in hands of affiliated co. in earlie

IT/ILT : Where amount was assessed as royalty in hands of another group company, and not in hands of assessee in another assessment year, same was to be followed in current year also

Inordinate delay in fixing the fees for special audit to be made good with payment of interest, HC d

IT: For inordinate delay in fixation of fee, departmental auditor should be appropriately restituted by way of interest

Assessee's contract couldn't be deemed as composite contract if all its activities were identifiable

ST : Where activities undertaken by assessee are identifiable separately, whole activity cannot be termed as 'composite contract'

HC confirms sec. 68 additions as taxpayer presented messed up evidences to discharge burden of sourc

IT: Where assessee had purchased a property for Rs. 22 lakhs and she had not discharged burden as regards source from which investment had been made, investment in property was an unexplained investment and same was rightly added to income of assessee

SURINDER MADAN Vs. ASISTANT COMMISSIONER OF INCOME TAX,CIRCLE 22(1),

ITA 364/2013 Page 1 of 14

* IN THE HIGH COURT OF DELHI AT NEW DELHI

+ ITA No. 364/2013

Reserved on: 5

th August, 2013

% Date of Decision: 22nd August, 2013

SURINDER MADAN ....Appellant

Through Mr. Kedar Nath Tripathy, Advocate.

Versus

ASISTANT COMMISSIONER OF INCOME TAX,

CIRCLE 22(1), NEW DELHI …Respondent

Through Mr. N.P. Sahni, Advocate.

CORAM:

HON’BLE MR. JUSTICE SANJIV KHANNA

HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J.

This appeal under Section 260A of the Income Tax Act 1961 (Act,

for short) by the assessee, an individual, relates to assessment year 2007-

08.

2. The appellant is engaged in export of garments and had incurred

an expenditure of Rs.12,72,564/- in replacing the entire floor measuring

about 9000 square feet with marble flooring in his factory and office.

This amount represents purchase cost of marble and cost of laying/fixing

the marble floor. The Assessing Officer disallowed the said amount

holding that it was capital expenditure, since it was renewal or

replacement of a profit yielding apparatus of the assessee. ITA 364/2013 Page 2 of 14

Commissioner of Income Tax (Appeals) upheld the said addition and

observed that expenditure does not fall under Section 30(a)(ii) vide order

dated 11th October, 2010. The Tribunal has upheld the view taken by the

lower authorities by the impugned order dated 17th December, 2004.

3. In the appeal, by order dated 5th August, 2013, the following

substantial question of law was framed:

“Whether the Income Tax Appellate Tribunal

was right in holding that the expenditure of

Rs.12,72,564/- for laying/fixing marble

flooring is not covered under „Current Repairs‟

as defined in Section 30(a)(ii) of the Income

Tax Act, 1961 read with the Explanation?”

4. The contention of the appellant is that the entire floor of the office

and factory premises, located at Okhla Industrial area, was in bad shape

and, therefore, the appellant had no choice but to replace the flooring.

He has submitted that the factory was purchased five years back and, due

to wear and tear, repair was necessary.

5. Section 30 of the Act reads as under:

“30. In respect of rent, rates, taxes, repairs and insurance

for premises, used for the purposes of the business or

profession, the following deductions shall be allowed—

(a) where the premises are occupied by the assessee—

(i) as a tenant, the rent paid for such premises ; and further if

he has undertaken to bear the cost of repairs to the

premises, the amount paid on account of such repairs ;

(ii) otherwise than as a tenant, the amount paid by him on

account of current repairs to the premises ;ITA 364/2013 Page 3 of 14

(b) any sums paid on account of land revenue, local rates or

municipal taxes ;

(c) the amount of any premium paid in respect of insurance

against risk of damage or destruction of the premises.

[Explanation.—For the removal of doubts, it is hereby

declared that the amount paid on account of the cost of

repairs referred to in sub-clause (i), and the amount paid

on account of current repairs referred to in sub-clause (ii),

of clause (a), shall not include any expenditure in the

nature of capital expenditure.]”

6. Explanation to the Section was inserted by Finance Act, 2003

w.e.f. 1st April, 2004 and is applicable to the year under assessment. In

present factual position, Section 30(a)(i) is not applicable as it relates to

amount spent or paid by a tenant on account of repairs. The appellant is

not a tenant. Clause (ii) to Section 30(a) applies to an occupant who is

not a tenant i.e. the appellant herein and stipulates that amount spent on

current repairs would be allowed as deduction but the explanation states

that current repairs should not include expenditure of capital nature. It

is, therefore, clear that twin conditions have to be satisfied. Firstly,

amount spent should be in nature of current repairs and secondly it

should not be in nature of capital expenditure. When twin conditions are

satisfied, deduction under Section 30(a)(ii) can be allowed.

7. In CIT vs. Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201

(SC), Supreme Court examined the expression current repairs and

observed that it denotes repairs which involves renewal. However, the ITA 364/2013 Page 4 of 14

word „repairs‟ is not to be read in isolation, since the precise term used

in the section is “current repairs”. The word repairs means to preserve

and maintain an asset i.e. in the present case the premises owned by the

assessee. All repairs are not to be treated as current repairs. The

expression “current repairs” does not mean and include repairs which

result in acquisition a new asset or to obtain a new advantage.

8. Learned counsel for the appellant has submitted that by installing

or fixing marble flooring no new asset has come into existence. We feel

that learned counsel is not appreciating the context in which the said

words explained the principle or ratio. The Supreme Court in the said

case was examining Section 31(a)(i) which relates to repair of

machinery, plant and furniture. In respect of machinery, plant and

furniture, it is of utmost relevance whether or not a new asset comes into

existence. Here we are not concerned with machinery, plant or furniture

which require constant replacement of old parts with new ones on

account of wear and tears, stress and strains etc. Replacement of parts

of a machinery normally could qualify for the revenue deduction under

the head „current repairs‟ but, as observed in Sarvana Spinning Mills

Pvt. Ltd. (supra), replacement generally would not fall under the

definition “current repairs”, though replacement of old machinery, in use

for over 40-50 years or where old parts are not available in the market, ITA 364/2013 Page 5 of 14

may fall under the expression „current repairs‟. Whether expenditure

qualifies as “current repairs” depends upon several factors like nature of

expenditure, nature of business activity, the asset subject matter of

“repair” etc.

9. The Supreme Court in CIT vs. Sri Mangayakarasi Mills P. Ltd.

(2009) 315 ITR 114 (SC), on the question whether the expenditure is

„current repairs‟ had expounded that the following tests which should be

taken into consideration:

“(i) It is a case of maintaining and preserving the

machine.

(ii) It is not a case of replacement.

(iii) It does not create any new asset.

(iv) It only restores the functional efficiency by

removing the defect.

(v) It does not increase the capacity of production. It

only prevents the loss.

(vi) It is not an independent unit and cannot be

compared with ring frames of a textile mill. It only

performed the functions of machining of gears

produced in the preceding line of manufacture by

performing earlier functions.

(vii) Quantum of repairs is not the relevant criterion

determinative of the nature of expenditure as to

whether it is current repairs or not.

(viii) Enduring benefit is no longer a criterion. After

current repairs, machine becomes usable for or number

of yeaRs. That does not mean that the expenditure on

current repairs is in the capital field.

(ix) Replacement of worn out parts in the process of

current repairs is not the replacement of the plant and

machinery itself.”

It was further held that:-ITA 364/2013 Page 6 of 14

“Moving on to the issue of `current repairs under

section 31 of the Act, the decision of this Court in CIT

v. Saravana Spinning Mills (P) Ltd. (supra) is again

relevant. This court has laid down that in order to

determine whether a particular expenditure amounts to

`current repairs the test is "whether the expenditure is

incurred to `preserve and maintain an already existing

asset and not to bring a new asset into existence or to

obtain a new advantage. For `current repairs

determination, whether expenditure is revenue or

capital is not the proper test." It is our opinion that the

entire textile mill machinery cannot be regarded as a

single asset, replacement of parts of which can be

considered to be for mere purpose of `preserving or

maintaining this asset. All machines put together

constitute the production process and each separate

machine is an independent entity. Replacement of such

an old machine with a new one would constitute the

bringing into existence of a new asset in place of the

old one and not repair of the old and existing machine.

Also, a new asset in a textile mill is not only for

temporary use. Rather it gives the purchaser an

enduring benefit of better and more efficient

production over a period of time. Thus, replacement of

assets as in the instant case cannot amount to `current

repairs‟. The decision in Saravana Mills (supra) case

clearly mentions that replacement of a derelict ring

frame by a new one does not amount to `current

repairs. Further in Ballimal Naval Kishore (supra) this

Court has held that a new asset or new/different

advantage cannot amount to `current repairs, which has

been subsequently approved in the Saravana Mills

(supra) case. For these reasons, the expenditure made

by the assessee cannot be allowed as a deduction under

section 31 of the Act. The judgment of this Court in

the Saravana Mills (supra) case mentions two

exceptions in which replacement could amount to

current repairs, namely:

Where old parts are not available in the market

(as seen in the case of CIT v. Mahalakshmi Textile

Mills Ltd., AIR 1968 SC 101, or

Where old parts have worked for 50-60 years.”

10. On the question of current repairs, it would be appropriate to refer

to an earlier decision of the Supreme Court in Ballimal Naval Kishore & ITA 364/2013 Page 7 of 14

Anr. vs. CIT (1997) 224 ITR 414 (SC). In this case referring to the

decision of the Bombay High Court in New Shorrock Spinning &

Manufacturing Co. Ltd. vs. CIT (1956) 130 ITR 338 (Bom.), it was

observed as under:

“2. The expression used in Section 10(2)(v) is "current

repairs" and not mere "repairs". The same expression

occurs in Section 30(a)(ii) and in Section 31(i) of the

Income-tax Act, 1961. The question is what is the

meaning of the expression in the context of Section

10(2). In New Shorrock Spinning and Manufacturing

Company Ltd. (supra), speaking for the Division

Bench, observed that the expression "current repairs"

means expenditure on buildings, machinery, plant or

furniture which is not for the purpose of renewal or

restoration but which is only for the purpose of

preserving or maintaining an already existing asset and

which does not bring a new asset into existence or does

not give to the assessee a new or different advantage.

The learned Chief Justice observed that they are such

repairs as are attended to as and when need arises and

that the question when a building, machinery etc.

requires repairs and when the need arises must be

decided not by any academic or theoretical test but by

the test of commercial expediency. The learned Chief

Justice observed: The simple test that must be

constantly borne in mind is that as a result of the

expenditure which is claimed as an expenditure or

repairs what is really being done is to preserve and

maintain an already existing asset. The object of the

expenditure is not to bring a new asset into existence,

nor is its object the obtaining of a new or fresh

advantage. This can be the only definition of 'repairs'

because it is only by reason of this definition of repairs

that the expenditure is a revenue expenditure. If the

amount spent was for the purpose of bringing into

existence a new asset or obtaining a new advantage,

then obviously such an expenditure would not be an

expenditure of a revenue nature but it would be a

capital expenditure, and it is clear that the deduction

which, the Legislature has permitted under Section

10(2)(v) is a deduction where the expenditure is a

revenue expenditure and not a capital expenditure.ITA 364/2013 Page 8 of 14

In taking the above view, the Bombay High Court

dissented from the view taken by the Allahabad High

Court in Ramkrishan Sunderlal v. Comm. of Incometax, U.P. [1951]19 ITR 324(All) : TC 15R 319 : 17R,

1422, where it was held that the expression "current

repairs" in Section 10(2)(v) was restricted to petty

repairs only which are carried out periodically. The

Learned Judge agreed with the view taken by the Patna

High Court in Commr. of Income-tax v. Darbhanga

Sugar Co. Ltd [1956] 29 ITR 21(Pat) : TC 15R 323

and by the Madras High Court in Commr. of Incometax v. Sri Rama Sugar Mills Ltd. [1952] 21

ITR191(Mad) : TC 16R 1068.

In Liberty Cinema v. Commissioner of Income-tax,

Calcutta [1964] 52 ITR153 (Cal): TC 16R 157, P.B.

Mukharji, J., speaking for a Division Bench of the

Calcutta High Court, held that an expenditure incurred

with a view to bring into existence a new asset or an

advantage of enduring nature cannot qualify for

deduction under Section 10(2)(v).

In our opinion the test involved by Chagla, C.J. in New

Shorrock Spinning & Manufacturing Company

Limited (supra) is the most appropriate one having

regard to the context in which the said expression

occurs. It has also been followed by a majority of the

High Courts in India. We respectfully accept and adopt

the test.

Applying the aforesaid test, if we look at the facts of

this case, it will be evident that what the assessee did

was not mere repairs but a total renovation of the

theatre. New machinery, new furniture, new sanitary

fittings and new electrical wiring were installed

besides extensively repairing the structure of the

building. By no stretch of imagination, can it be said

that the said repairs qualify as "current repairs" within

the meaning of Section 10(2)(v). It was a case of total

renovation and has rightly been held by the High Court

to be capital in nature. Indeed, the finding of the High

Court is that as against the sum of Rs. 17,000/- for

which the assessee had purchased the factory in 1937,

the expenditure incurred in the relevant accounting

year was in the region of Rs. 1,20,000/-.”

11. The said observations are most appropriate when we deal with the

question of „current repairs‟ carried out in a building. We have to

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