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2026 (5) TMI 1530 - CESTAT KOLKATA Customs

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Issues: (i) Whether retained onboard cargo that remained continuously on the vessel, was never unloaded in India, and was ultimately discharged abroad could be treated as imported goods liable to confiscation; (ii) whether penalty under Section 112(a) of the Customs Act, 1962 was sustainable against the steamer agent in the absence of conscious involvement, connivance, or mens rea.

Issue (i): Whether retained onboard cargo that remained continuously on the vessel, was never unloaded in India, and was ultimately discharged abroad could be treated as imported goods liable to confiscation.

Analysis: The retained onboard cargo had originated from an earlier export voyage, remained on the vessel throughout, was not unloaded at the Indian port, and was later discharged at foreign ports. No bill of entry was filed for the cargo and no material showed that it entered domestic commerce in India. On these facts, the cargo did not acquire the legal character of imported goods so as to attract confiscation under Section 111 of the Customs Act, 1962.

Conclusion: The retained onboard cargo was not liable to be treated as imported goods for confiscation purposes.

Issue (ii): Whether penalty under Section 112(a) of the Customs Act, 1962 was sustainable against the steamer agent in the absence of conscious involvement, connivance, or mens rea.

Analysis: The manifest was filed on the basis of the Master's declarations, and the Master admitted that the non-declaration of the retained onboard cargo was his own mistake. The steamer agent immediately sought amendment of the import manifest upon learning of the omission. The record disclosed no evidence of knowledge, collusion, aiding, abetting, deliberate suppression, or other culpable conduct by the steamer agent. In such circumstances, the essential ingredients for invoking Section 112(a) were absent.

Conclusion: Penalty under Section 112(a) of the Customs Act, 1962 was not sustainable and was set aside.

Final Conclusion: The penalty order could not stand in law or on facts, and the appeal was allowed with consequential relief.

Ratio Decidendi: A steamer agent cannot be penalised under Section 112(a) of the Customs Act, 1962 for a manifest omission attributable to the vessel's Master unless conscious involvement, aiding or abetting, or other culpable intent is established, and cargo that never entered India's domestic stream does not become imported goods merely because it was not declared in the manifest.

Retained onboard cargo and customs penalty fail where goods never entered India and no mens rea by the steamer agent is shown.
Retained onboard cargo that remained on the vessel throughout, was never unloaded in India, and was later discharged abroad did not acquire the character of imported goods, so confiscation under the Customs Act was not attracted. The absence of a bill of entry and the lack of any showing that the cargo entered domestic commerce were material to that conclusion. Penalty on the steamer agent was also unsustainable because the manifest omission was attributable to the vessel's Master, the agent sought amendment promptly, and the record showed no conscious involvement, connivance, aiding, abetting, or other culpable intent.

Non-declaration of retained onboard (“ROB”) cargo of Butadiene carried onboard vessel - Penalty under Section 112(a) - Aiding and abetting - Mens rea - Retained onboard cargo - Imported goods liable to confiscation - Steamer agent's liability Penalty u/s 112(a) of the Customs Act, 1962 against the steamer agent - HELD THAT: - The Tribunal held that the steamer agent had filed the IGM on the basis of the declarations furnished by the Master, and the Master himself admitted that non-disclosure of the retained onboard cargo was his own mistake. The appellant could not be faulted for that omission, particularly when it approached Customs on the same date for amendment of the IGM immediately after receiving confirmation regarding the retained onboard cargo. In the absence of any evidence of conscious involvement, intentional omission, connivance, aiding or abetting, or deliberate suppression by the appellant, the essential ingredients for penalty under Section 112(a) were held to be absent. Mere procedural lapse, inadvertent omission, or communication failure was held insufficient to attract penal liability. We refer the decision of the Tribunal, Kolkata in the case of Century Star Shipping Ltd. [2023 (11) TMI 424 - CESTAT KOLKATA] wherein this Tribunal has categorically held that non-filing of IGM without fraudulent intent, at best being an inadvertent omission arising out of communication failure, would not attract penalty under Section 112 of the Act. The Tribunal further held that in view of Section 2(31) of the Act, the responsibility for filing full and correct manifest primarily rests upon the Master of the vessel and other agencies cannot step into the shoes of the Master for the purpose of penal consequences. [Paras 6] The penalty imposed on the appellant under Section 112(a) was set aside. Retained onboard cargo - Imported goods - Confiscability - Whether retained onboard cargo that remained continuously on the vessel, was never unloaded in India, and was ultimately discharged abroad could be treated as imported goods liable to confiscation? - HELD THAT: - The Tribunal found that the cargo had originally been exported from Haldia, remained continuously onboard the vessel, was never unloaded in India, and was ultimately discharged at foreign ports. No bill of entry had been filed by any person claiming to be the importer of that cargo. On these admitted facts, the Tribunal held that the retained onboard cargo never acquired the legal character of imported goods and therefore could not be treated as goods liable to confiscation under Section 111. [Paras 6] The basis for treating the retained onboard cargo as confiscable imported goods was rejected. Final Conclusion: The Tribunal held that the retained onboard cargo, having never been unloaded in India and having remained onboard for discharge abroad, did not become imported goods. As the steamer agent had acted on the Master's declaration and there was no evidence of mens rea, connivance, or abetment, penalty under Section 112(a) was unsustainable and was set aside.

2026 (5) TMI 1527 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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Pre-CIRP security deposit adjustment and moratorium limits: later accounting entries cannot undo a settled resolution plan basis.
A competent authority's pre-CIRP decision to appropriate a security deposit was treated as the operative act, so later bill entries and Form-B recording that adjustment were only consequential accounting treatment and did not amount to a prohibited post-moratorium appropriation under the Insolvency and Bankruptcy Code. The disconnection notice under the Electricity Act did not displace that separate adjustment decision. The record further showed that the resolution professional accepted the respondent's net claim, the information memorandum and resolution plan proceeded on that basis, and the approved plan had already been implemented, making reopening of the adjustment impermissible because it would disturb settled commercial terms. The challenge to the alleged post-CIRP appropriation therefore failed.

Unlawful appropriation of corporate debtor's security deposit and adjusted CIRP-period payments towards pre-CIRP dues - violation of the moratorium under the Insolvency and Bankruptcy Code, 2016 - Pre-CIRP adjustment of security deposit - Finality of approved resolution plan Moratorium under insolvency law - Security deposit adjustment - Pre-CIRP appropriation - electricity distributor's adjustment of the security deposit and the alleged adjustment of CIRP-period payments towards pre-CIRP dues - HELD THAT: - The Tribunal held that the bill dated 02.01.2023 and Form-B dated 06.01.2023 only reflected the adjustment in billing and claim records and did not by themselves establish that the decision to appropriate the security deposit was first taken after commencement of CIRP. On the material produced, particularly the office note dated 14.12.2022 and the approval recorded by the competent authority, the Tribunal accepted that the decision to adjust the security deposit had been taken before commencement of CIRP, and that later accounting entries were merely consequential. The disconnection notice under the Electricity Act was treated as part of a separate statutory mechanism for disconnection and not as preventing an independent commercial decision on adjustment of security deposit. The Tribunal further found that the allegation of wrongful appropriation of CIRP-period payments was unsupported by a clear and conclusive financial reconciliation, whereas the respondent's computation based on the November and December 2022 bills had been consistently disclosed and formed the basis of the admitted claim. [Paras 59, 60, 61, 67, 75] The adjustment of the security deposit was treated as a pre-CIRP adjustment effective from 14.12.2022, and the allegation of impermissible post-CIRP recovery under Section 14 was rejected. Finality of approved resolution plan - Commercial certainty in CIRP - Reopening settled claims - Relief seeking restoration of the adjusted amounts after the claim position had been accepted during CIRP and the resolution plan had been approved and implemented - HELD THAT: - The Tribunal noted that the respondent's adjusted claim had been filed during CIRP, accepted by the Resolution Professional, and carried into the information memorandum and the resolution plan. The application challenging the adjustment was filed only after approval of the plan by the Committee of Creditors, despite the Resolution Professional being aware of the adjustment during CIRP. The Tribunal also held that ratification by the Monitoring Committee could not substitute for concurrence or knowledge of the Committee of Creditors where the challenge related to admitted claims already dealt with in the plan. On this footing, and applying the principle of finality of an approved resolution plan, the Tribunal held that directing restoration of the amounts at that stage would necessarily disturb the settled financial assumptions and commercial rights under the approved plan and would amount to an impermissible modification of the plan. [Paras 66, 74, 76, 77, 78] The challenge was held incapable of unsettling the adjusted claim position after approval and implementation of the resolution plan, and the dismissal of the application was upheld. Final Conclusion: The Tribunal held that the security deposit adjustment had been decided before commencement of CIRP and that the alleged wrongful adjustment of CIRP-period payments was not conclusively proved. Since the adjusted claim position had been accepted during CIRP and the resolution plan had thereafter been approved and implemented, the attempt to secure restoration of the amounts could not be entertained, and the appeal was dismissed.

2026 (5) TMI 1526 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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Admitted operational debt requirement under insolvency law was not satisfied, so committee notice and recall of the resolution plan were refused.
An admitted operational debt is a prerequisite for notice of committee of creditors meetings under the Insolvency and Bankruptcy Code, 2016, and that threshold was not met here because the claim remained disputed, contingent, and subject to reciprocal counter-claims under the same contract. The communication relied on did not amount to an unconditional admission of liability, so Section 24(3)(c) was inapplicable. Disputed contractual issues on renewal and counter-claim did not by themselves establish fraud, suppression, procedural irregularity, or mandatory violation sufficient to disturb the approved resolution plan. As the plan had already been implemented, interference was declined and recall was not warranted.

Order rejecting recall of the approved resolution plan suffered from illegality, procedural irregularity, fraud, suppression of material facts, or violation of mandatory provisions of insolvency law - Contingent classification of operational debt claim - Notice of committee of creditors meetings to operational creditors - Recall of approved and implemented resolution plan - Limited appellate interference under the Insolvency and Bankruptcy Code HELD THAT: - The Appellate Tribunal held that interference with an approved resolution plan under Section 61 is confined to cases of patent illegality, material irregularity, violation of mandatory law, or perversity, and that mere dissatisfaction with the treatment of a claim cannot justify reopening a completed insolvency process. On the record, the appellant's claim was never finally admitted as an undisputed operational debt; from the stage of verification, it remained disputed in view of reciprocal contractual claims and the corporate debtor's asserted counter-claims. The communication relied on by the appellant could not be read in isolation, since the same notice also recorded that the claim was being treated as contingent. As the appellant was not recognized as an admitted operational creditor with admitted dues above the threshold, the foundation for invoking Section 24(3)(c) itself was absent. The Tribunal further held that, in any event, the appellant failed to show any material prejudice affecting the resolution outcome. Questions concerning termination, continuation or renewal of the contract, damages, and rights over leased machinery were treated as independent contractual disputes requiring adjudication in appropriate proceedings, and not as grounds to invalidate the CIRP. The allegations of fraud, suppression and manipulation were found unsupported by clear material. The appellant's failure to challenge the contingent classification during CIRP, and its attempt to do so only after approval and implementation of the plan, also weighed against granting recall. The precedents relied on by the appellant were distinguished on the ground that those cases concerned admitted claims or different legal contexts, unlike the present case where the claim remained disputed and contingent throughout. [Paras 71, 72, 73, 74, 75] The impugned order rejecting recall was upheld, the challenge to the contingent classification and alleged Section 24(3)(c) violation was rejected, and no ground for interference with the approved and implemented resolution plan was found. Final Conclusion: The Appeal was dismissed. The Appellate Tribunal held that the appellant's claim had been consistently treated as disputed and contingent, no violation of mandatory provisions or material irregularity in the CIRP was established, and an approved as well as implemented resolution plan could not be reopened on the appellant's contractual grievances.

2026 (5) TMI 1525 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI IBC

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Transferred winding-up petitions must meet the IBC threshold at the time of Tribunal consideration, not original filing.
Transferred winding-up petitions were to be treated as applications for commencement of corporate insolvency resolution under the Insolvency and Bankruptcy Code, 2016, and their maintainability depended on the threshold in force when the Tribunal considered them. The earlier filing date of the winding-up petitions did not preserve the pre-existing lower threshold. The proviso to Section 434 of the Companies Act, 2013 was read as making the transferred matters subject to the Code as then applicable, and Section 6 of the General Clauses Act was held inapplicable because the amending scheme showed a different intention. The coordinate decision in Falcon Industries was followed.

Transfer of winding-up proceedings - winding-up petitions transferred from the High Court to the Tribunal - Maintainability of Section 9 application - Threshold under the Insolvency and Bankruptcy Code HELD THAT: - The Tribunal held that the proviso to Section 434 of the Companies Act, 2013 makes it clear that once winding-up proceedings are transferred, they are to be dealt with as an application for initiation of CIRP under the Code. Consequently, the transferred matter does not continue on the earlier statutory footing of the winding-up petition, nor does prior institution before the High Court preserve the earlier threshold. Tribunal reasoned that if the appellant's construction were accepted, no fresh judicial scrutiny for admission under the Code would be required, which would be contrary to the scheme of the Code. It further held that reliance on Section 6 of the General Clauses Act could not assist the appellant because the statutory language disclosed a different legislative intention, namely that the transferred proceedings must be examined as an insolvency application under the Code. Following the earlier coordinate Bench view in Falcon Industries [2026 (3) TMI 108 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI], and finding no reason to take a different view, the Tribunal concluded that the appellant was required to meet the threshold of Rs. 1 Crore applicable at the time of transfer and consideration by the Tribunal. [Paras 21, 23, 27, 28] The petitions were not maintainable because the debt claimed in each transferred proceeding did not meet the threshold applicable under Section 4 of the Code at the time of transfer and consideration by the Tribunal. Final Conclusion: The appeals were dismissed. The Tribunal upheld the rejection of the transferred proceedings on the ground that, once treated as Section 9 applications under the Code, they did not satisfy the monetary threshold applicable at the time of transfer and consideration.

2026 (5) TMI 1519 - CESTAT NEW DELHI Service Tax

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Extended limitation for service tax demand fails without independent proof of taxable receipts and wilful suppression.
An extended-period service tax demand cannot be sustained merely on third-party TDS or ITR data; the Revenue must independently verify that the receipts represent taxable service consideration and establish fraud, collusion, wilful misstatement, suppression of facts, or intent to evade tax. Income-tax records alone do not prove service tax liability, and where receipts were disclosed in accounts and returns, the statutory preconditions for extended limitation were not met. On that basis, the demand was held unsustainable and the assessee obtained consequential relief.

Extended period of limitation - Service tax demand based on third party TDS/Form 26AS data - Willful suppression and bona fide belief Validity of Invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994, solely on the basis of TDS/ITR data without independent inquiry or material establishing taxable service and willful suppression - HELD THAT: - The Tribunal held that the extended period is a penal exception and can be invoked only on clear material showing fraud, collusion, willful misstatement or suppression with intent to evade tax. Mere reliance on TDS/Form 26AS data was insufficient, since such material could at best furnish a starting point for inquiry and not conclusive proof that the receipts represented taxable consideration. The Revenue had undertaken no independent verification from the parties reflected in the TDS data and had not brought any material in the show cause notice to establish non-payment of service tax by reason of any deliberate act of concealment. The Tribunal further held that income disclosed under the income-tax law does not by itself establish liability under the service tax law. On the facts, the assessee had disclosed the amounts in its books and income-tax returns and had asserted a bona fide belief that some services were exempt or not taxable; such disclosure and bona fide belief negatived willful suppression. The repeated reduction of the demand in successive proceedings also militated against any inference of fraud or deliberate concealment. Applying the principle noticed in Homeopathic Medical Publishers vs. Commr. CGST & Central Excise, Mumbai[2025 (12) TMI 1248 - CESTAT MUMBAI] the Tribunal concluded that the ingredients necessary for invoking the extended period were absent. [Paras 8, 9, 10, 11, 12] The show cause notice was held to be time-barred insofar as it invoked the extended period, and the demand confirmed on that basis was unsustainable. Final Conclusion: The Tribunal held that the service tax demand could not be sustained by invoking the extended period merely on the basis of third-party TDS/ITR data, in the absence of independent inquiry or evidence of willful suppression. The impugned order was set aside and the appeal was allowed with consequential relief.

2026 (5) TMI 1518 - CESTAT NEW DELHI Service Tax

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Issues: (i) whether service of the show cause notice through WhatsApp was valid under the prescribed statutory modes; (ii) whether the demand was barred by limitation, including the extended period under the service tax law.

Issue (i): whether service of the show cause notice through WhatsApp was valid under the prescribed statutory modes

Analysis: The statutory scheme governing service permits only the modes expressly set out in the provision, namely tender, registered post with acknowledgment due, speed post with proof of delivery, approved courier, and in default thereof affixation at the place of business or residence, or on the notice board of the issuing authority. Service through WhatsApp is not one of the prescribed modes and no material showed any prior attempt to serve the notice through the statutory channels at the appellant's current address.

Conclusion: Service through WhatsApp was not valid, and the notice suffered from a fundamental procedural infirmity.

Issue (ii): whether the demand was barred by limitation, including the extended period under the service tax law

Analysis: Even assuming valid communication through WhatsApp, the larger part of the demand related to an earlier financial year and fell beyond the five-year extended period. For the residual amount, the record did not establish fraud, collusion, wilful misstatement, suppression of facts, or any intent to evade tax. A bona fide belief that the activity was covered by the negative list was inconsistent with invocation of the extended limitation period in the absence of positive evidence of suppression or deceit.

Conclusion: The demand was not sustainable in limitation, and the extended period could not be invoked.

Final Conclusion: The impugned demand and appellate confirmation were set aside, and the assessee obtained complete relief from the service tax demand.

Ratio Decidendi: Statutory modes of service must be strictly complied with, and the extended period of limitation in service tax matters cannot be invoked without affirmative material showing fraud, wilful suppression, or intent to evade tax.

Statutory service by prescribed modes and strict limitation rules defeated a service tax demand based on WhatsApp notice service.
Statutory service of a show cause notice must comply strictly with the prescribed modes, and WhatsApp service is not a valid substitute where the law requires tender, registered post with acknowledgment due, speed post with proof of delivery, approved courier, or affixation after failed attempts. The notice was therefore procedurally defective. On limitation, the extended period under service tax law cannot be invoked without affirmative material showing fraud, collusion, wilful misstatement, suppression of facts, or intent to evade tax. A bona fide view that the activity fell within the negative list was inconsistent with such invocation. The demand and appellate confirmation were set aside.

Statutory service of show cause notice through WhatsApp - Extended period of limitation - Willful suppression - Bona fide belief as to taxability Statutory service of show cause notice through WhatsApp - Mode of service - valid mode of service under the statutory scheme applicable to service tax proceedings - HELD THAT: - The Tribunal held that the modes of service prescribed in Section 37C of the Central Excise Act, 1944, as applied to the Finance Act, 1994, are exhaustive. Since WhatsApp is not one of the statutorily recognised modes, and the department placed no material to show any prior attempt to serve the notice by registered post, speed post, approved courier, or by affixation as required by law, forwarding the notice through WhatsApp could not constitute valid service. The defect went to the root of the adjudication, though the Tribunal declined remand because the demand also failed on limitation. [Paras 7, 8, 12] The proceedings were held vitiated by invalid service of the show cause notice, and no remand was ordered in the facts of the case. Extended period of limitation - Time-barred demand - HELD THAT: - Proceeding on the alternative assumption most favourable to the department, the Tribunal computed limitation from the date on which the notice was communicated through WhatsApp. On that basis, the demand pertaining to the financial year 2013-14 still fell outside the five-year extended period. The demand for that year was therefore unsustainable on limitation itself. [Paras 9] The demand for the financial year 2013-14 was set aside as time-barred. Willful suppression - Extended period of limitation - Bona fide belief as to taxability - HELD THAT: - The Tribunal held that invocation of the extended period under the proviso to Section 73(1) required positive and cogent material showing fraud, collusion, wilful misstatement, suppression of facts, or intent to evade tax. The case rested only on third-party information from the Income Tax Department, without independent evidence of evasion or concealment. The appellant's stand that the services were covered by the negative list reflected a bona fide belief regarding non-taxability; such belief, even if mistaken, could not by itself amount to fraud or wilful suppression. On that basis, the residual demand for the financial year 2014-15 also failed, and remand was considered unnecessary. [Paras 10, 11, 12] The extended period was held inapplicable for the financial year 2014-15, and the remaining demand was also set aside. Final Conclusion: The Tribunal set aside the impugned order and allowed the appeal with consequential relief. The demand failed because the show cause notice was not validly served, the demand for the financial year 2013-14 was time-barred, and the remaining demand for the financial year 2014-15 could not be sustained for want of material to invoke the extended period.

2026 (5) TMI 1517 - CESTAT NEW DELHI Service Tax

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Issues: (i) Whether mandatory Net Present Value charges deposited into the Compensatory Afforestation Fund as a statutory precondition for forest clearance constitute consideration for a taxable service under Section 65B(44) of the Finance Act, 1994; (ii) Whether such statutory deposits and the grant of forest clearance amount to a declared service under Section 66E(e) of the Finance Act, 1994.

Issue (i): Whether mandatory Net Present Value charges deposited into the Compensatory Afforestation Fund as a statutory precondition for forest clearance constitute consideration for a taxable service under Section 65B(44) of the Finance Act, 1994.

Analysis: The deposits were made by operation of law as a condition for use of forest land and not pursuant to any consensual or commercial arrangement. The amount was earmarked for compensatory afforestation and ecological conservation, with no quid pro quo flowing to the depositor. A statutory levy collected in discharge of regulatory functions does not satisfy the foundational requirement of consideration for service tax.

Conclusion: The mandatory NPV charges are not consideration within the meaning of Section 65B(44) of the Finance Act, 1994 and cannot be taxed as a service.

Issue (ii): Whether such statutory deposits and the grant of forest clearance amount to a declared service under Section 66E(e) of the Finance Act, 1994.

Analysis: The expression "agreeing" in Section 66E(e) requires a consensual arrangement to refrain from an act, tolerate an act or situation, or do an act. Granting forest clearance is a sovereign regulatory function performed under statutory authority, not an agreement to tolerate. The payment is a mandatory public-law levy and not consideration for any declared service. The invocation of extended limitation and penalties also fails where no suppression, misstatement, or fraud is established.

Conclusion: The grant of forest clearance does not constitute a declared service under Section 66E(e) of the Finance Act, 1994, and the demand, interest, and penalties are unsustainable.

Final Conclusion: The appeal succeeds on merits and on limitation, the tax demand is set aside, and the ancillary levy of interest and penalties also cannot stand.

Ratio Decidendi: A mandatory statutory payment made as a condition for regulatory permission is not consideration for service tax, and a sovereign act of granting or withholding permission does not amount to an agreement to tolerate an act under Section 66E(e) of the Finance Act, 1994.

Statutory forest clearance charges are not service tax consideration, and granting regulatory permission is not a declared service.
Mandatory Net Present Value charges paid into the Compensatory Afforestation Fund as a statutory condition for forest clearance were held not to constitute consideration for a taxable service because they arose by operation of law, involved no consensual or commercial quid pro quo, and were earmarked for ecological conservation. The grant of forest clearance was also held not to be a declared service, since a sovereign regulatory permission is not an agreement to tolerate an act or situation. On that basis, the service tax demand failed, and the associated interest, penalties, and extended limitation invocation could not survive absent suppression, misstatement, or fraud.

Statutory levy as consideration - 'consideration' for a taxable service - NPV payments made to CAMPA[Compensatory Afforestation Fund Management and Planning Authority] - Declared service of agreeing to tolerate an act - Sovereign regulatory functions - Extended period of limitation Statutory levy as consideration - Declared service of agreeing to tolerate an act - Sovereign regulatory functions - Reverse charge mechanism - mandatory payments deposited by the appellant - a transmission line company into the Compensatory Afforestation Fund as a statutory condition for obtaining permission for the use of forest land for non-forest purposes - HELD THAT: - The Tribunal held that 'consideration' requires a bilateral and consensual arrangement in which something is given as the price for a promise or act. NPV charges were not paid under any agreement with the Government but were imposed by statute as a mandatory precondition for non-forest use of forest land. The amounts were earmarked for compensatory afforestation, forest regeneration and wildlife protection, and not retained by the Ministry for any service to the appellant. Section 66E(e) also postulates an agreement to refrain from, tolerate, or do an act for consideration; such an element was absent because the Ministry acted only in its sovereign regulatory capacity while deciding forest clearance under the governing law. On that basis, the grant of forest clearance could not be treated as a declared service, and the NPV deposits could not be treated as consideration exigible to service tax under reverse charge. The Tribunal followed its earlier coordinate Bench decisions taking the same view. [Paras 19, 20, 21, 22, 24] The service tax demand on CAMPA/NPV deposits was held unsustainable on merits. Extended period of limitation - Suppression of facts - Penalty - HELD THAT: - The Tribunal found that the NPV payments were statutory deposits made in accordance with law, were on record, and had been disclosed in the appellant's books of account. Revenue produced no material showing willful suppression, misrepresentation, fraud or intent to evade tax. Since the factual foundation for invoking the extended period under Section 73(1) was absent, the extended period could not be applied. For the same reason, the penalties, including penalty under Section 78 which depends upon suppression or similar culpable conduct, and the related consequences could not survive. [Paras 23, 24] The demand was also barred by limitation, and the interest and penalties were set aside. Final Conclusion: The Tribunal held that NPV deposits made to CAMPA pursuant to statutory forest-clearance conditions are compulsory public law levies and not consideration for any service. Forest clearance was treated as a sovereign regulatory function, not a declared service under Section 66E(e); accordingly, the service tax demand under reverse charge, along with interest and penalties, was set aside both on merits and on limitation.

2026 (5) TMI 1512 - Supreme Court Indian Laws

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Issues: (i) Whether concessional electricity charges under Clause 16(a) of the Himachal Pradesh Industrial Policy, 2019, read with Rule 16(i)(a) of the 2019 Rules, were intended for existing industrial enterprises undergoing substantial expansion, and what effect the amendment notification dated 29.04.2022 had on those provisions; (ii) Whether the doctrine of promissory estoppel applied in favour of the respondent company.

Issue (i): Whether concessional electricity charges under Clause 16(a) of the Himachal Pradesh Industrial Policy, 2019, read with Rule 16(i)(a) of the 2019 Rules, were intended for existing industrial enterprises undergoing substantial expansion, and what effect the amendment notification dated 29.04.2022 had on those provisions.

Analysis: The policy scheme classified eligible enterprises into new industrial enterprises and existing industrial enterprises undertaking substantial expansion. Clause 16(a) was read with the contemporaneous tariff orders and the overall structure of the policy, which showed that concessional energy charges at 15% lower rates for three years were meant for new industrial enterprises, while Clause 16(b) separately provided a rebate on additional consumption for existing units undergoing expansion. The amendment dated 29.04.2022, substituting "eligible" with "new" in Clause 16(a) and inserting "substantial expansion" in Clause 16(b), was treated as clarificatory insofar as it corrected the original drafting error and reflected the true intent of the policy. The further change limiting the duration under Clause 16(b) to three years was treated as substantive.

Conclusion: Clause 16(a) and Rule 16(i)(a) were intended only for new industrial enterprises, and the 29.04.2022 amendment was clarificatory and retrospective in that respect.

Issue (ii): Whether the doctrine of promissory estoppel applied in favour of the respondent company.

Analysis: The respondent had undergone substantial expansion and received certification recognising that status, but no sanction or approval of concessional tariff benefit under Clause 16(a) had been granted in accordance with the Rules. The respondent had already received the benefit attached to its class under Clause 16(b). Promissory estoppel could not be used to create an entitlement to a benefit never intended for that class, especially where granting it would result in a double benefit contrary to the policy structure and fiscal discipline. No enforceable equity survived in the respondent's favour.

Conclusion: The doctrine of promissory estoppel did not apply in favour of the respondent company.

Final Conclusion: The policy conferred the concessional tariff benefit only on new industrial enterprises, left existing expanding units to the separate rebate mechanism, and the respondent could not claim an additional concession or rely on promissory estoppel to enlarge that entitlement.

Ratio Decidendi: Where an industrial incentive scheme distinctly separates benefits for new enterprises and existing enterprises undertaking substantial expansion, a clarificatory amendment correcting an inadvertent drafting error will relate back to the original policy, and promissory estoppel cannot be invoked to secure a benefit never intended for the claimant's category.

Industrial tariff incentives confined to new units; clarificatory amendment relates back and promissory estoppel cannot expand entitlement.
Concessional electricity charges under Himachal Pradesh's 2019 industrial policy were interpreted as applying only to new industrial enterprises, while existing units undergoing substantial expansion remained within a separate rebate regime for additional consumption. The 29.04.2022 amendment substituting "new" for "eligible" in Clause 16(a) was treated as clarificatory and retrospective to the extent it corrected the original drafting error, whereas the change limiting Clause 16(b) to three years was substantive. Promissory estoppel was rejected because the expanding unit had not been sanctioned the Clause 16(a) concession and could not use equity to obtain a double benefit not intended by the policy.

Industrial policy interpretation - concessional electricity charges under Clause 16(a) of the Himachal Pradesh Industrial Policy - incentive in the form of concessional rate of electricity charges under Clause 16(a) of the Industrial Policy of 2019, read with Rule 16(i)(a) of the 2019 Rules - Clarificatory amendment - Retrospective operation - Promissory estoppel in fiscal incentives Industrial policy interpretation - Concessional rate of electricity charges - Clarificatory amendment - Retrospective operation - Whether the incentive in the form of concessional rate of electricity charges under Clause 16(a) of the Industrial Policy of 2019, read with Rule 16(i)(a) of the 2019 Rules, was ever intended to be provided to the existing industrial enterprises undergoing substantial expansion, and what effect the amendment notification dated 29.04.2022 has on the applicability of the said clauses? - HELD THAT: - The Court held that although the respondent was an eligible enterprise by reason of being an existing industrial enterprise which had undertaken substantial expansion, the scheme of Clause 16 drew a clear distinction between incentives meant for new units and those meant for existing units expanding their capacity. On a conjoint reading of Clause 16 with the contemporaneous tariff orders issued before and after the 2019 Policy, Clause 16(a) was intended to grant lower energy charges only to new industrial enterprises, while Clause 16(b) was intended to grant a rebate on incremental consumption to existing enterprises undergoing substantial expansion. Any other construction would confer overlapping benefits on the same class of enterprises and destroy the policy classification. The amendment dated 29.04.2022 substituting "eligible" with "new" in Clause 16(a) and Rule 16(i)(a), and inserting "substantial expansion" in Clause 16(b) and Rule 16(i)(b), merely clarified the original intent and therefore operated retrospectively. Only the prescription, for the first time, of a three-year duration for the benefit under Clause 16(b) and Rule 16(i)(b) was substantive and prospective. [Paras 46, 47, 48, 50, 51] The respondent, being an existing industrial enterprise which had undertaken substantial expansion, was entitled only to the rebate contemplated by Clause 16(b) read with Rule 16(i)(b), and not to the concessional tariff benefit under Clause 16(a) read with Rule 16(i)(a). Doctrine of promissory estoppel - Promissory estoppel in fiscal incentives - Vested right - Eligibility certificate - Whether doctrine of promissory estoppel did not entitle the respondent to claim the benefit under Clause 16(a)? - HELD THAT: - The Court reiterated that fiscal incentives are ordinarily defeasible and may be modified or withdrawn in public interest, though promissory estoppel may apply where a clear representation intended to induce action has led to an alteration of position. On the facts, the COP Certificate merely recognised that the respondent had undertaken substantial expansion; it did not sanction the concessional tariff benefit under Clause 16(a). Under Rule 27, sanction and disbursal of incentives required approval by the competent authority, and no such sanction for Clause 16(a) had been granted. Since Clause 16(a), properly construed, was never meant for existing industrial enterprises undergoing substantial expansion, promissory estoppel could not be invoked to create an entitlement contrary to the true scope of the Policy. The respondent had already received the benefit legitimately available to its category under Clause 16(b), and no enforceable equity survived in its favour. As observed in J.K. Udaipur Udyog Ltd. [2004 (9) TMI 381 - SUPREME COURT] and other cases as discussed above, what is granted under an incentive scheme may ordinarily be withdrawn or regulated in public interest unless the Government is precluded from doing so on the ground of promissory estoppel. In the facts of the present case, we find no satisfactory ground of enforcing equity under promissory estoppel in favour of the respondent.[Paras 59, 60, 61, 62, 63] No right to the concessional tariff under Clause 16(a) accrued to the respondent, and the plea of promissory estoppel was rejected. Final Conclusion: The appeal was allowed. The Court held that the concessional tariff benefit under Clause 16(a) was confined to new industrial enterprises, the amendment of 29.04.2022 to that extent was clarificatory and retrospective, and the respondent, having already received the rebate available under Clause 16(b), could not invoke promissory estoppel to claim any further electricity concession.

2026 (5) TMI 1442 - CESTAT KOLKATA Central Excise

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Clandestine removal demands need independent corroboration; third-party records and untested statements were held insufficient.
Third-party notebooks and loose papers, without independent corroboration, were held insufficient to sustain clandestine removal allegations; the Tribunal found no supporting evidence such as stock discrepancy, excess raw material procurement, buyer or transporter evidence, electricity consumption data, or proof of flow back of funds. It further held that statements recorded during investigation could not be relied on in adjudication unless the statutory procedure was followed and the assessee was given an opportunity for cross-examination. On that basis, the duty demand and consequential penalties were set aside.

Demand of duty and penalties - Third-party documents in clandestine removal - Relevancy of statements under Section 9D - Corroborative evidence for clandestine removal - denial of cross-examination. Third-party documents - Clandestine removal - Corroborative evidence - HELD THAT: - The Tribunal found that the entire case was built on records maintained by a person working under the loading and unloading contractor, and not on records belonging to the appellant. Though some entries were said to tally partly with the appellant's transactions, that circumstance by itself did not establish clandestine removal. The Tribunal held that third-party documents, without independent corroboration, are not sufficient to fasten duty liability. It also noted the complete absence of verification from buyers, transporters or suppliers, no ascertainment of production capacity, and no supporting evidence such as raw-material procurement or other material circumstances necessary to sustain a charge of clandestine removal. On that reasoning, the demand based on the documents recovered from the possession of Shri Joydev Karmakar was held to be unsustainable. [Paras 7, 8, 9, 10, 12] The allegation of clandestine manufacture and removal failed for want of admissible and corroborated evidence, and the duty demand could not be maintained. Section 9D compliance - Cross-examination - Admissibility of statements - HELD THAT: - The Tribunal held that the statement of Shri Joydev Karmakar could not be treated as reliable evidence in the absence of examination-in-chief and without affording cross-examination to the appellant. It further noted that the statement of the contractor, under whom Shri Joydev Karmakar worked, had not been recorded at all. Applying the requirement of Section 9D, the Tribunal concluded that statements relied upon in adjudication, without following the prescribed procedure, could not be accepted as evidence for establishing clandestine removal. [Paras 11] The statements relied upon in adjudication were liable to be excluded from consideration and could not support the demand. Final Conclusion: The Tribunal held that the case of clandestine manufacture and removal was not established, as the demand rested on uncorroborated third-party records and inadmissible statements. The impugned order was set aside and the duty demand, interest and penalties against both appellants were consequently deleted.

2026 (5) TMI 1884 - ITAT DELHI Income Tax

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Deemed search dates determine whether assessments of non-searched persons proceed under search assessment provisions or reassessment rules.
Section 153C of the Income-tax Act, 1961 does not apply to searches initiated on or after 1 April 2021; Section 148 applies instead. For a non-searched person, the relevant search date is linked to the jurisdictional assessing officer's receipt of seized material. Where the deemed search date falls on or after the cutoff, an assessment under Section 153C lacks jurisdiction.

2026 (5) TMI 1874 - PUNJAB AND HARYANA HIGH COURT GST

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Reasoned statutory adjudication requires consideration of written replies and hearing evidence; orders ignoring them are invalid and require fresh proceedings.
Adjudication under Section 74 requires genuine consideration of the taxpayer's written response and evidence produced at the personal hearing. An order that substantially reproduces the show-cause notice and rejects the response without addressing the explanation or supporting material demonstrates non-application of mind. Such an adjudication order is invalid and must be set aside, while permitting fresh proceedings in accordance with law.

2026 (5) TMI 1857 - ITAT MUMBAI Income Tax

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Bogus purchase additions are limited to the estimated profit element, not the entire recorded purchase value.
Alleged bogus purchases may warrant an addition limited to the profit element embedded in those purchases rather than disallowance of the full purchase amount as unexplained expenditure. Applying an estimated 15% profit element confines the addition to the presumed benefit arising from non-genuine purchases and deletes the balance disallowance. The approach distinguishes taxable profit attributable to such transactions from the entire recorded purchase value.

2026 (5) TMI 1830 - ITAT RAIPUR Income Tax

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Wrong charging section for demonetisation cash deposits rendered the addition unsustainable and the assessment bad in law.
Cash deposits made during demonetisation could not be sustained as an addition where the Revenue invoked Section 69 of the Income-tax Act, 1961 for what was a source-of-funds issue. The Tribunal noted that the controversy did not relate to an unexplained investment outside the books, but to cash deposits, for which Section 69A would have been the relevant provision if applicable. It further found that the assessment was framed mechanically and without due application of mind in using the wrong charging section. The assessment was therefore held arbitrary and bad in law, and the addition was deleted.

2026 (5) TMI 1655 - CESTAT NEW DELHI Service Tax

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Issues: (i) Whether Cenvat credit could be availed on the basis of running account bills and payment orders; (ii) Whether the extended period of limitation could be invoked.

Issue (i): Whether Cenvat credit could be availed on the basis of running account bills and payment orders?

Analysis: The credit scheme is intended to avoid cascading of taxes, and denial cannot rest on mere nomenclature where the underlying transaction is genuine and the recipient has actually received the input services and discharged tax liability. The running account bills, read with the payment orders, contained the essential particulars of the service provider, recipient, description of service, registration details, and tax amount. The prescribed framework under Rule 9 of the Cenvat Credit Rules, 2004 and Rule 4A of the Service Tax Rules, 1994 allows credit where substantial particulars are available and the service receipt and tax payment are not in dispute. Credit taken on GAR-7 challans for reverse charge payments was also treated as admissible.

Conclusion: Cenvat credit on the running account bills and on GAR-7 challans was held admissible in favour of the assessee.

Issue (ii): Whether the extended period of limitation could be invoked?

Analysis: The appellant was a registered state instrumentality, had disclosed the credit in ST-3 returns, and had cooperated during audit. The demand arose from figures already available in departmental records, and no positive material showed suppression, fraud, collusion, or wilful misstatement with intent to evade tax. Mere detection by audit and self-assessment were held insufficient to justify invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994.

Conclusion: Invocation of the extended period of limitation was rejected in favour of the assessee.

Final Conclusion: The demand, interest, and penalties were set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: Where the substantive receipt of taxable services and payment of tax are undisputed, credit cannot be denied merely for procedural defects in the supporting document, and the extended period cannot be invoked absent positive suppression or intent to evade tax.

Cenvat Credit and Limitation Principles protect genuine input service credit despite procedural document defects
Cenvat credit was treated as admissible where running account bills and payment orders contained the essential particulars of the service provider, recipient, service description, registration details, and tax amount, and the receipt of input services and tax payment were not in dispute. Credit on GAR-7 challans for reverse charge payments was also accepted. The extended period of limitation was held unavailable because the assessee had disclosed the credit in returns, cooperated in audit, and no positive material showed suppression, fraud, collusion, or wilful misstatement with intent to evade tax. The demand, interest, and penalties were therefore set aside.

Cenvat credit on running account bills - Suppression of facts - Intent to evade tax - Reverse charge mechanism - Substantial compliance with prescribed documents - Extended period of limitation - Suppression of facts. Whether Cenvat credit can be availed based on running account bills/measurement books? - HELD THAT: - The Tribunal held that service tax paid under reverse charge through GAR-7 challans was supported by a prescribed document under Rule 9(1) of the Cenvat Credit Rules, 2004, and the impugned order had given no specific finding to deny such credit. As regards running account bills, the Tribunal found that, read with the payment orders, they contained the material particulars relating to the service provider, service recipient, description of service, registration particulars and tax amount. Since receipt of input services and payment of service tax were not in dispute, credit could not be denied merely on documentary or nomenclature-based technicalities. The Tribunal applied the principle that where substantial particulars are available and the transactions are genuine, procedural infirmity in the form of the document does not defeat substantive entitlement to credit. [Paras 7, 8, 9] The denial of credit for the normal period was unsustainable, and the credit on GAR-7 challans as well as on running account bills read with payment orders was allowed. Extended period of limitation - Wilful suppression - Self-assessment - Audit objection - HELD THAT: - The Tribunal found that the appellant was registered, had filed ST-3 returns regularly disclosing the availment of Cenvat credit, and had furnished details during audit. It held that detection during audit and the fact that the assessee functioned under self-assessment were, by themselves, insufficient to attract the extended period. The Revenue had produced no evidence of fraud, wilful misstatement or suppression with intent to evade tax; and, the appellant being a state instrumentality, the allegation of suppression or fraud was held unsustainable in the facts noticed by the Tribunal and in its earlier orders in the appellant's own case. [Paras 6] The demand for the extended period was held unsustainable. Final Conclusion: The Tribunal held that the extended period of limitation was not available to the Revenue and that the credit availed on GAR-7 challans as well as on running account bills read with payment orders was admissible. The impugned order was therefore set aside and the appeal was allowed with consequential relief.

2026 (6) TMI 1317 - ITAT HYDERABAD Income Tax

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Issues: (i) Whether penalty under section 271DA of the Income-tax Act, 1961 could be sustained in the absence of a clear and discernible satisfaction in the assessment order regarding violation of section 269ST of the Income-tax Act, 1961; (ii) Whether the penalty could be upheld on merits on the basis of seized tally data, statements and estimated income, without transaction-wise and person-wise corroborative evidence of receipt in contravention of section 269ST.

Issue (i): Whether penalty under section 271DA of the Income-tax Act, 1961 could be sustained in the absence of a clear and discernible satisfaction in the assessment order regarding violation of section 269ST of the Income-tax Act, 1961.

Analysis: Penalty under section 271DA is dependent on a prior and clear foundation that the assessee received sums in contravention of section 269ST. The assessment order did not record a clear finding identifying the statutory ingredients of the default, such as the relevant payer, transaction, date, or the manner in which the threshold was crossed. A mere reference to possible penalty proceedings was held insufficient to confer jurisdiction. The requirement of recorded satisfaction was treated as a jurisdictional condition, and subsequent notices or appellate reports could not cure the defect.

Conclusion: The penalty proceedings were held to be without valid jurisdiction and unsustainable for want of recorded satisfaction.

Issue (ii): Whether the penalty could be upheld on merits on the basis of seized tally data, statements and estimated income, without transaction-wise and person-wise corroborative evidence of receipt in contravention of section 269ST.

Analysis: The seized material and parallel tally data showed unaccounted receipts and supported estimation of income, but they did not by themselves establish the precise statutory violation required by section 269ST. The Revenue did not prove, with independent corroboration, that any identified person paid two lakh rupees or more in the relevant manner, nor did it conduct enquiry with alleged payers. Rejection of books and estimation of profit for assessment purposes did not justify selective reliance on the same material for penalty. In penalty matters, the burden remained on the Revenue to prove the default with cogent evidence, and an admission of additional income on estimation was not treated as an admission of violation of section 269ST.

Conclusion: The penalty was held to be unsustainable on merits and liable to be deleted.

Final Conclusion: The assessee's appeals succeeded, the penalty under section 271DA was deleted, and the appellate orders were set aside.

Ratio Decidendi: Penalty under section 271DA can be imposed only when the assessment order itself records a clear jurisdictional satisfaction, and the Revenue independently proves the precise contravention of section 269ST with cogent transaction-wise evidence; estimated income or uncorroborated admissions are not enough.

Penalty under section 271DA needs recorded satisfaction and transaction-wise proof of a section 269ST violation; estimated income is not enough.
Penalty under section 271DA requires a prior, clear jurisdictional satisfaction in the assessment order that section 269ST was violated. The assessment order here did not identify the payer, transaction, date, or manner of crossing the statutory limit, so the penalty proceedings were without valid jurisdiction and unsustainable. On merits, seized tally data, statements, and estimated income showed unaccounted receipts but did not independently prove transaction-wise and person-wise receipt in contravention of section 269ST. In the absence of corroborative evidence from alleged payers, the Revenue failed to discharge its burden, and the penalty was deleted.

Penalty u/s 271DA - Jurisdictional satisfaction for penalty initiation - Penalty for cash receipts in contravention of section 269ST - Corroborative evidence in quasi-criminal penalty proceedings Recording of satisfaction in assessment order - Jurisdiction under section 271DA - clear satisfaction in the assessment order regarding contravention of section 269ST or not? - HELD THAT: - The Tribunal held that initiation of penalty under section 271DA requires a jurisdictional foundation in the assessment order itself. The Assessing Officer must record a clear and conscious satisfaction showing the receipt alleged to be in breach of section 269ST and the statutory ingredients of that breach. A mere observation that penalty proceedings are being referred, without identifying the receipt, the mode, the person, or the nature of the transaction attracting section 269ST, does not satisfy the legal requirement. Such satisfaction cannot be presumed or supplied later through the penalty order or appellate proceedings. Since the assessment order was silent on the foundational facts constituting contravention, the assumption of jurisdiction for penalty was invalid. [Paras 29, 30, 31] The penalty proceedings were held to be without valid jurisdiction and the penalty order was liable to be quashed. Proof of contravention of section 269ST - Rejected books and estimated income - Uncorroborated tally data - HELD THAT: - The Tribunal held that penalty under section 271DA can be imposed only on proof of an actual receipt in a prohibited mode satisfying the requirements of section 269ST, namely person-wise, transaction-wise or event-wise receipt beyond the statutory threshold. The Revenue had not established the identity of the payer, the date of receipt, the exact amount from each person, or that the threshold was crossed in the manner contemplated by law. The penalty rested on seized tally data, statements, and admission of additional income on estimation basis, but those materials did not by themselves prove the specific statutory violation. Penalty proceedings being quasi-criminal, the default had to be proved by cogent and corroborative material. The Tribunal further held that once the books were rejected and income was estimated, the same unreliable records could not be selectively treated as conclusive for levy of penalty in the absence of independent corroboration. The findings in assessment could at best be relevant material, but not conclusive proof for penalty. The burden to prove contravention remained on the Revenue and was not discharged. The Tribunal also observed that penalty under section 271DA is not automatic and, on the facts, levy of penalty equal to the alleged receipts, after taxing only estimated profit on those receipts, could not be sustained. [Paras 36, 37, 38, 39, 40] On merits also, the alleged contravention of section 269ST was held unproved and the penalty under section 271DA was directed to be deleted. Final Conclusion: The Tribunal allowed all the appeals and deleted the penalties levied under section 271DA for assessment years 2019-20 to 2023-24. It held, first, that the penalty proceedings lacked jurisdiction for want of recorded satisfaction in the assessment orders, and secondly, that the alleged contravention of section 269ST was not independently proved on the material relied upon by the Revenue.

2026 (8) TMI 612 - ITAT RAIPUR Income Tax

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Supply of reopening reasons is mandatory; non-supply after request voids reassessment jurisdiction and consequential assessment.
Recorded reasons for reopening must be furnished when specifically requested, enabling the assessee to object to reassessment and requiring disposal of those objections by a speaking order. Non-supply of the reasons denies that opportunity, breaches natural justice, and cannot be cured by assuming compliance merely because reasons were recorded. The resulting reassessment notice and consequential reassessment order lack valid jurisdiction, are void from inception, and must be quashed.

2026 (7) TMI 1688 - ITAT MUMBAI Income Tax

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Issues: (i) Whether additional disallowance of expenditure relating to exempt income could be made under Section 14A read with Rule 8D without recording satisfaction regarding the assessee's suo motu disallowance; (ii) Whether mark-to-market loss on shares held as stock-in-trade was allowable; (iii) Whether ESOP expenditure was deductible as revenue expenditure; (iv) Whether the impugned disallowances could be added while computing book profit under Section 115JB.

Issue (i): Whether additional disallowance of expenditure relating to exempt income could be made under Section 14A read with Rule 8D without recording satisfaction regarding the assessee's suo motu disallowance.

Analysis: The assessee had made year-specific suo motu disallowances. The Assessing Officer did not record objective satisfaction, having regard to the accounts, that those workings were incorrect before invoking Rule 8D. Binding and coordinate-bench decisions in the assessee's own cases required such satisfaction as a statutory precondition for a further disallowance.

Conclusion: The additional disallowances under Section 14A read with Rule 8D for both assessment years were deleted, in favour of the assessee.

Issue (ii): Whether mark-to-market loss on shares held as stock-in-trade was allowable.

Analysis: The shares acquired pursuant to underwriting had consistently been treated as stock-in-trade and valued at cost or market value, whichever was lower. The Revenue had accepted that treatment, including gains arising on revaluation, in earlier years; no change in facts or law was established.

Conclusion: The mark-to-market loss was allowable and deletion of the disallowance was sustained, in favour of the assessee.

Issue (iii): Whether ESOP expenditure was deductible as revenue expenditure.

Analysis: The expenditure represented the cost incurred to compensate, retain and motivate employees through shares issued at a concessional price. The character of the receipt or share issue in the hands of the holding company did not determine the nature of the expenditure for the assessee. The expenditure was incurred wholly and exclusively for business and was employee cost; deduction was available only for shares ultimately allotted.

Conclusion: ESOP expenditure was held allowable as revenue expenditure, in favour of the assessee.

Issue (iv): Whether the impugned disallowances could be added while computing book profit under Section 115JB.

Analysis: Since the additional Section 14A disallowances and ESOP disallowances did not survive under the normal provisions, the corresponding adjustments to book profit could not be sustained.

Conclusion: The deletions of the book-profit adjustments were upheld, in favour of the assessee.

Final Conclusion: The assessee obtained deletion of the additional exempt-income disallowances, while the Revenue's challenges to the deductions and book-profit treatment failed for both assessment years.

Ratio Decidendi: An Assessing Officer may invoke the prescribed computation mechanism for disallowance of exempt-income expenditure only after recording objective dissatisfaction with the correctness of the assessee's claim on examination of its accounts.

Exempt-income disallowance requires recorded dissatisfaction before Rule 8D applies, while eligible stock losses and ESOP costs remain deductible.
Section 14A read with Rule 8D permits additional exempt-income expenditure disallowance only after the Assessing Officer records objective dissatisfaction, based on the accounts, with the taxpayer's own disallowance. Shares consistently treated as stock-in-trade may be valued at cost or market value, whichever is lower, making mark-to-market loss allowable where the treatment has been accepted in earlier years and facts remain unchanged. ESOP discount is revenue employee expenditure incurred for business purposes, deductible only for shares ultimately allotted. Where the related disallowances fail under normal provisions, corresponding book-profit adjustments under Section 115JB cannot be sustained.

Disallowance of expenditure relating to exempt income - Employee stock option expenditure as revenue expenditure - Mark-to-market loss on stock-in-trade - Book-profit adjustment for expenditure relating to exempt income Disallowance of expenditure relating to exempt income u/s 14A - Recording of satisfaction before application of Rule 8D - Additional disallowance of expenditure relating to exempt dividend income under section 14A read with Rule 8D, despite the assessee's suo motu disallowance - HELD THAT: - Recording of the Assessing Officer's satisfaction, having regard to the accounts, that the assessee's computation is incorrect is a statutory precondition for determining disallowance under section 14A by applying Rule 8D. The Assessing Officer had not recorded such satisfaction, and the Revenue could not substantiate that any satisfaction was discernible from the assessment order. The issue was also covered by decisions in the assessee's own cases on similar facts. [Paras 10, 19] The additional disallowance under section 14A read with Rule 8D was deleted for both assessment years. Mark-to-market loss on stock-in-trade - Consistency in valuation of stock-in-trade - Allowability of mark-to-market loss on shares acquired pursuant to underwriting and consistently treated as stock-in-trade - HELD THAT: - The shares had consistently been treated as stock-in-trade and valued at cost or market value, whichever was lower; gains arising from corresponding revaluation in earlier years had also been offered to tax and accepted by the Revenue. The circumstances in which the shares were acquired under an underwriting obligation did not alter their character as stock-in-trade. In the absence of any change in facts or law, the earlier decision in the assessee's case governed the matter. [Paras 14] The deletion of the mark-to-market loss disallowance was confirmed. Employee stock option expenditure as revenue expenditure - Allowability of expenditure incurred for employee stock options as business expenditure - HELD THAT: - Where the expenditure represented the differential amount funded for shares issued to employees under the employee stock option scheme, it constituted employee cost incurred to retain and reward the workforce. The character of the receipt in the hands of the holding company could not determine the nature of the payment in the assessee's hands. The expenditure was therefore incurred wholly and exclusively for business and was allowable as revenue expenditure, subject to verification that deduction was confined to shares ultimately allotted. [Paras 16, 22] The deletion of the ESOP expenditure disallowance was upheld for both assessment years. Book-profit adjustment for expenditure relating to exempt income - Book-profit adjustment for ESOP expenditure - HELD THAT: - As the additional disallowance under section 14A was deleted under the normal provisions, no corresponding adjustment could be made to book profit. The adjustment relating to ESOP expenditure also could not survive after the expenditure was held allowable. [Paras 15, 23] The deletion of the adjustments to book profit was upheld. Final Conclusion: The assessee's appeals for both assessment years were allowed and the Revenue's cross-appeals were dismissed. The additional disallowance relating to exempt income was deleted, while the relief granted for mark-to-market loss, ESOP expenditure and corresponding book-profit adjustments was sustained.

2026 (7) TMI 1474 - ITAT MUMBAI Income Tax

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Issues: (i) Whether outstanding balances payable to consortium members constituted unexplained cash credits under Section 68; (ii) Whether technical and liaisoning charges paid to a consortium member were allowable business expenditure; (iii) Whether the appellate authority improperly admitted additional evidence in violation of Rule 46A and whether non-registration of the memorandum of understanding invalidated the arrangement.

Issue (i): Whether outstanding balances payable to consortium members constituted unexplained cash credits under Section 68.

Analysis: The balances represented unpaid material-supply and technical-service liabilities of consortium members, rather than fresh monies received by the assessee. The corresponding purchases and expenditure had been accepted, payments were through banking channels, and the transactions were reflected in the consortium members' records. A trade liability arising from accepted purchases cannot simultaneously be treated as an unexplained cash credit.

Conclusion: The deletion of the additions under Section 68 was sustained, in favour of the assessee.

Issue (ii): Whether technical and liaisoning charges paid to a consortium member were allowable business expenditure.

Analysis: The charges were paid under the consortium arrangement for technical consultation, project execution and liaisoning functions. The memorandum of understanding, invoices, ledger accounts, tax invoices and tax deduction supported the services and their business purpose. Acceptance of the GST component of the same invoices also undermined disallowance of the corresponding service charges.

Conclusion: The deletion of the disallowance of technical and liaisoning charges was sustained, in favour of the assessee.

Issue (iii): Whether the appellate authority improperly admitted additional evidence in violation of Rule 46A and whether non-registration of the memorandum of understanding invalidated the arrangement.

Analysis: The material relied upon comprised books, ledgers, invoices, consortium records and related documents already forming part of the accounting record; the notarised copy did not constitute new evidence of a distinct transaction. Registration of a business memorandum of understanding was not legally required for its validity.

Conclusion: No violation of Rule 46A or principles of natural justice was established, and non-registration did not invalidate the business arrangement; the issue was decided in favour of the assessee.

Final Conclusion: The appellate relief deleting the cash-credit additions and the expenditure disallowance remained effective; the assessee's cross-objection required no separate adjudication after resolution of the revenue appeal.

Ratio Decidendi: An accepted purchase or service transaction giving rise to an outstanding trade liability cannot, without receipt of unexplained funds, be treated as an unexplained cash credit; documentary records already comprised in the accounts do not attract the bar on additional evidence.

Trade liabilities from accepted transactions cannot be recast as unexplained credits, while documented consortium service charges remain business expenditure.
Outstanding liabilities arising from accepted purchases and services cannot be treated as unexplained cash credits without receipt of unexplained funds; banking-channel payments and corresponding consortium records support their character as trade liabilities. Technical and liaisoning charges paid under a consortium arrangement are supported where documentary records establish the services, business purpose and tax compliance, particularly when related GST invoices are accepted. Accounting records, ledgers and invoices already forming part of the books do not constitute impermissible additional evidence, and a business memorandum of understanding need not be registered to remain valid.

Unexplained cash credits - trade liabilities - Business expenditure - technical and liaisoning services - Additional evidence - Rule 46A Unexplained cash credits - trade liabilities - Addition under section 68 in respect of outstanding balances payable to consortium members for material supplies and technical services - HELD THAT: - A credit representing a trade liability is distinct from a cash credit representing money received. Where the corresponding purchases or expenditure have been accepted, the Revenue cannot add the credit side of the same transaction under section 68. In the case of Rajesh G Jain [2024 (2) TMI 272 - ITAT MUMBAI] the co-ordinate bench has, by following the decision rendered by the Special bench of ITAT in the case of Manoj Agarwal [2008 (7) TMI 446 - ITAT DELHI-A] has held that the trade credits cannot be added u/s. 68 of the Act. The outstanding balances in the accounts of the consortium members represented trade credits, and no fresh funds had been received by the assessee. [Paras 8, 11, 12, 17] Deletion of the additions under section 68 was upheld. Business expenditure - technical and liaisoning services - Disallowance of payments described as liaisoning expenses to a consortium member for technical and project-execution services - HELD THAT: - The payments, though described in the accounts as liaisoning expenses, were made under the business agreement to a consortium member for technical services connected with project execution. The relevant agreement, invoices and ledger accounts had been examined, and the expenditure was incurred wholly and exclusively for the assessee's business. [Paras 20, 23, 24] Deletion of the disallowance of liaisoning expenses was upheld. Additional evidence admission by CIT(A) - Rule 46A - Validity of business agreement - non-registration - Alleged admission of additional evidence by the appellate authority and the effect of non-registration of the memorandum governing technical and liaisoning services - HELD THAT: - The ledger accounts, invoices, consortium agreements and related records considered in appeal formed part of the books and material already considered in assessment and were not additional evidence. The notarized copy of the memorandum did not constitute fresh evidence. Further, no law required registration of such a business agreement, and its non-registration did not invalidate it. [Paras 26, 27] The challenge based on Rule 46A and non-registration of the memorandum was rejected. Final Conclusion: The Revenue's appeal was dismissed, affirming deletion of the additions for trade liabilities and technical and liaisoning expenditure. The assessee's cross-objection was treated as infructuous and required no separate adjudication.

2026 (7) TMI 1473 - ITAT DELHI Income Tax

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Section 153C jurisdiction excludes post-April 2021 deemed searches, requiring reassessment procedures for persons other than searched persons.
Section 153C cannot be invoked for a person other than the searched person where the deemed search date falls on or after 1 April 2021. For such a person, the relevant date is when seized material is received by the jurisdictional Assessing Officer; if unavailable, the satisfaction-note date governs. As the satisfaction note was recorded after that date, Section 153C(3) excluded Section 153C proceedings. The statutory reassessment mechanism, rather than assessment under Section 143(3) read with Section 153C, applied; the assessment was therefore described as without jurisdiction and void ab initio.

2026 (7) TMI 1472 - ITAT DELHI Income Tax

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Issues: (i) Whether the demonetisation-period cash deposit could be sustained as unexplained cash credit where the assessee attributed it to jewellery sales and clearance of old stock; (ii) Whether cash sales recorded in an impounded order book were taxable as unexplained money in the assessee-firm's hands.

Issue (i): Whether the demonetisation-period cash deposit could be sustained as unexplained cash credit where the assessee attributed it to jewellery sales and clearance of old stock.

Analysis: The claimed exhibition sale, discounting and clearance of old stock due to expiry of the premises lease were unsupported by documentary material. The continued occupation of the stated premises after the alleged lease-expiry date also required verification. The substantial increase in sales preceding the cash deposits required examination before the asserted sales source could be accepted.

Conclusion: The addition was set aside for fresh verification and adjudication by the Assessing Officer; the issue is in favour of the assessee to that extent.

Issue (ii): Whether cash sales recorded in an impounded order book were taxable as unexplained money in the assessee-firm's hands.

Analysis: The order book contained customer-wise entries, while the assessee produced material showing that the partner had disclosed discounted sales in her individual return before commencement of assessment proceedings and paid tax thereon. The explanation that the transactions related to the partner's individual tailoring business was not rebutted by enquiry from the recorded customers or otherwise. The revenue authorities did not controvert the material connecting the entries to the partner's disclosed business.

Conclusion: The cash sales did not belong to the assessee-firm and the addition as unexplained money was deleted; the issue is in favour of the assessee.

Final Conclusion: The cash-deposit issue requires a fresh fact-based determination, whereas the separate addition based on the impounded order book cannot be retained in the firm's assessment.

Ratio Decidendi: An addition for unexplained money cannot be sustained in an assessee's hands where a substantiated explanation attributes the recorded receipts to another person's independently disclosed and taxed business, and the revenue fails to disprove that explanation through enquiry or evidence.

Unexplained money additions fail when receipts are substantiated as another taxpayer's disclosed business income and remain unrebutted.
Demonetisation-period cash deposits attributed to jewellery sales and old-stock clearance required fresh verification because the claimed exhibition sale, discounts, lease expiry and increased sales were unsupported and needed examination; the addition was remanded to the Assessing Officer for readjudication. Cash sales recorded in an impounded order book could not be assessed as unexplained money of the firm where evidence linked them to a partner's individually disclosed and taxed tailoring business. As the revenue did not rebut that explanation through customer enquiries or other evidence, the addition in the firm's hands was deleted.

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2021 (11) TMI 376 - AT - Income Tax

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Tribunal upholds capitalization of NTPC project expenses, citing consistency with prior judgments.
The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to allow expenses related to the NTPC project to be capitalized. The ... Summary

Tribunal upholds capitalization of NTPC project expenses, citing consistency with prior judgments.

The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to allow expenses related to the NTPC project to be capitalized. The Tribunal's ruling was based on consistency with previous judgments in the assessee's own case for A.Y. 2012-13 and 2013-14, where similar issues were addressed and decided in favor of capitalization of project-related expenses.

Issues:
1. Dismissal of general ground in appeal
2. Allowing adjustment of carry forward business losses with current year income
3. Allowing expenses related to NTPC project incurred prior to business setup

Analysis:

Issue 1: Dismissal of General Ground in Appeal
The Revenue appealed against the order of the Ld. CIT(A)-18, Kolkata for A.Y. 2014-15. The Tribunal noted that while the Revenue raised three grounds of appeal, Ground No. 3 was a general ground and thus needed to be dismissed.

Issue 2: Allowing Adjustment of Carry Forward Business Losses
Regarding Ground No. 2, the Tribunal observed that the appeal against allowing adjustment of carry forward business losses with current year income did not stem from the Ld. CIT(A)'s order. The Tribunal dismissed this ground as the Revenue failed to provide sufficient evidence to support their claim.

Issue 3: Allowing Expenses Related to NTPC Project
The primary issue revolved around the action of the Ld. CIT(A) in allowing expenses related to the NTPC project, which the Assessing Officer (A.O.) deemed as pre-operative expenses. The A.O. contended that the business had not commenced, and thus, the expenses were not considered as revenue expenditures. The Ld. CIT(A) partially allowed the assessee's appeal, holding that expenses directly related to the NTPC project should be capitalized. The Tribunal upheld this decision based on previous rulings for A.Y. 2012-13 and 2013-14, where the Ld. CIT(A) directed the capitalization of expenses related to the NTPC project. As the assessee did not challenge this decision, the Tribunal confirmed the partial relief granted by the Ld. CIT(A) in this case as well.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to allow expenses related to the NTPC project to be capitalized. The Tribunal's ruling was based on consistency with previous judgments in the assessee's own case for A.Y. 2012-13 and 2013-14, where similar issues were addressed and decided in favor of capitalization of project-related expenses.

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Tribunal upholds capitalization of NTPC project expenses, citing consistency with prior judgments.

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