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2026 (8) TMI 226 - DELHI HIGH COURTGST

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Provisional bank-account attachment challenge proceeds with authorised representatives directed to appear before the investigating authority.
Provisional attachment of the petitioners' bank accounts was challenged, alongside their request for de-freezing. The writ petitions were disposed of with directions for the petitioners' authorised representatives to appear before the investigating authority on the specified date. The text does not state any determination on the validity of the attachment or entitlement to de-freezing.

2026 (8) TMI 192 - ITAT CHENNAIIncome Tax

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Issues: (i) Whether the assessee's residential status, addition for alleged unexplained expenditure from business-bank-account cash withdrawals, and consequential taxation required fresh verification; (ii) Whether deductions claimed for housing-loan interest, specified investments and savings-bank interest required verification.

Issue (i): Whether the assessee's residential status, addition for alleged unexplained expenditure from business-bank-account cash withdrawals, and consequential taxation required fresh verification.

Analysis: Passport material supporting the claim of residence had not been considered with reference to the statutory test of period of stay in India. Although disclosed GST turnover was accepted and presumptive business income was computed, the cash withdrawals from the disclosed business account were added without a clear finding on the expenditure allegedly unexplained or proper consideration of the stated business use and supporting material. The applicability of the provisions governing unexplained expenditure and consequential special-rate taxation therefore required factual verification.

Conclusion: In favour of the assessee, the residential-status determination, cash-withdrawal addition and consequential taxation were set aside for fresh adjudication after verification.

Issue (ii): Whether deductions claimed for housing-loan interest, specified investments and savings-bank interest required verification.

Analysis: The claimed deductions had not been properly considered against the supporting evidence.

Conclusion: In favour of the assessee, the deduction claims were restored for verification and fresh adjudication.

Final Conclusion: The disputed assessment issues require de novo determination through a reasoned order after adequate opportunity to the assessee.

Ratio Decidendi: An assessment affecting residential status, unexplained-expenditure addition and statutory deductions cannot stand where material evidence and explanations bearing on those issues have not been properly verified and considered.

Residential status and unexplained expenditure require evidence-based verification; assessment issues remanded for reasoned fresh determination.
Residential status must be determined by applying the statutory test for the period of stay in India to passport material. Cash withdrawals from a disclosed business account cannot be treated as unexplained expenditure without clear findings on the alleged expenditure and proper consideration of the stated business use and supporting evidence; the related special-rate taxation also requires verification. The residential-status determination, cash-withdrawal addition and consequential taxation were set aside for fresh adjudication. Housing-loan interest, specified investment and savings-bank interest deductions also required consideration against supporting evidence and were restored for verification. All disputed assessment issues require de novo determination through a reasoned order after adequate opportunity to the assessee.

2026 (8) TMI 191 - ITAT MUMBAIIncome Tax

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Issues: (i) Whether interest paid by the Indian permanent establishment to its head office and overseas branches was deductible in computing its taxable profits; (ii) Whether transfer-pricing provisions applied to transactions between the foreign enterprise and its Indian permanent establishment; (iii) Whether the guarantee-commission adjustment could exceed the differential between the benchmark rate and commission already recovered from the associated enterprise; (iv) Whether gains on cancellation of foreign-exchange forward contracts entered to hedge investments were capital gains; (v) Whether interest on income-tax refund was taxable at the treaty rate under Article 11 of the India-Singapore DTAA; (vi) Whether surcharge and education cess could be added to a tax rate capped by the DTAA.

Issue (i): Whether interest paid by the Indian permanent establishment to its head office and overseas branches was deductible in computing its taxable profits.

Analysis: Applying the consistent rulings in the assessee's earlier years and the special-bench principle, interest paid by an Indian permanent establishment to its head office or overseas branches is payment to self under domestic law, but is deductible for determining profits attributable to the permanent establishment under the applicable treaty framework. The corresponding receipt cannot be taxed as income of the same bank in India.

Conclusion: The Revenue's challenge to deduction of the head-office and overseas-branch interest was rejected, in favour of the assessee.

Issue (ii): Whether transfer-pricing provisions applied to transactions between the foreign enterprise and its Indian permanent establishment.

Analysis: Transactions between a foreign enterprise and its Indian permanent establishment may constitute international transactions subject to arm's-length determination where the statutory requirements of Chapter X are met. Their status as parts of the same legal person does not, by itself, exclude transfer-pricing application.

Conclusion: Transfer-pricing provisions were held applicable in principle, against the assessee.

Issue (iii): Whether the guarantee-commission adjustment could exceed the differential between the benchmark rate and commission already recovered from the associated enterprise.

Analysis: Even assuming that the internal comparable rate of 0.56% was accepted, the 0.10% commission already received from the associated enterprise had to be credited. Arm's-length pricing requires adjustment only for the shortfall from the arm's-length price, not disregard of the actual consideration received. The adjustment was therefore restricted to 0.46% of the guarantee value, subject to verification.

Conclusion: The guarantee-commission adjustment was restricted to 0.46%, partly in favour of the assessee.

Issue (iv): Whether gains on cancellation of foreign-exchange forward contracts entered to hedge investments were capital gains.

Analysis: The forward contracts were entered solely to hedge foreign-exchange exposure on investments held as capital assets. Their dominant purpose and direct nexus with the capital investments determined the character of the resulting gains; cancellation did not convert them into income from other sources.

Conclusion: The gains on cancellation of the hedging contracts were taxable as capital gains, in favour of the assessee.

Issue (v): Whether interest on income-tax refund was taxable at the treaty rate under Article 11 of the India-Singapore DTAA.

Analysis: The tax-refund debt claim belonged to the foreign enterprise and was not effectively connected with the Indian permanent establishment. Consequently, the exclusion for interest effectively connected with a permanent establishment did not apply, and the refund interest fell under Article 11 rather than Article 7.

Conclusion: Interest under Section 244A was taxable as treaty interest at the Article 11(2)(b) rate of 15%, in favour of the assessee.

Issue (vi): Whether surcharge and education cess could be added to a tax rate capped by the DTAA.

Analysis: Where a treaty article provides that source-State tax shall not exceed a stipulated percentage, that percentage is the maximum tax burden and cannot be exceeded by adding surcharge or education cess. This principle does not apply where the treaty article merely allocates taxing rights without prescribing a rate or ceiling, in which event domestic rates including surcharge and cess apply.

Conclusion: Surcharge and education cess cannot be imposed over a treaty-capped rate, while domestic levies apply where the treaty contains no rate ceiling.

Final Conclusion: The assessments must be recomputed by allowing the treaty treatment for refund interest and hedging gains, limiting the guarantee adjustment to the verified differential, and applying treaty rate ceilings without additional surcharge or cess.

Ratio Decidendi: A transfer-pricing adjustment is confined to the difference between the arm's-length price and consideration actually received; income from a hedge integrally connected with capital investment retains capital character; and a DTAA rate expressed as a maximum cannot be exceeded through surcharge or cess.

Treaty rate ceilings prevent surcharge and cess additions, while transfer-pricing adjustments must credit consideration already received.
Interest paid by an Indian permanent establishment to its head office or overseas branches may be deductible in attributing profits under the applicable treaty, although domestic law treats it as a payment to self and does not tax the corresponding receipt separately. Transactions between a foreign enterprise and its Indian permanent establishment may require arm's-length analysis where transfer-pricing conditions are met. A guarantee-fee adjustment is confined to the shortfall from the arm's-length price after crediting commission received. Gains from forward contracts directly hedging capital investments retain capital character. Tax-refund interest not effectively connected with the permanent establishment may be taxed under the treaty interest article. A treaty-capped tax rate cannot be increased by surcharge or education cess.

Deductibility of interest paid by Indian permanent establishment to head office and overseas branches - Transfer pricing of transactions between foreign enterprise and Indian permanent establishment - Arm's length guarantee commission - Foreign exchange forward contracts hedging capital investments - Interest on income-tax refund under tax treaty - Surcharge and education cess on treaty-capped tax rate Deductibility of interest paid by Indian permanent establishment to head office and overseas branches - Allowability of Interest paid by the Indian permanent establishment to its head office and overseas branches in computing the permanent establishment's profits, while corresponding interest received from the head office was payment to self - HELD THAT: - Following the consistent decisions in the assessee's own case [2018 (6) TMI 757 - ITAT MUMBAI] and the Special Bench view in the case of Sumitomo Banking Corporation [2012 (4) TMI 80 - ITAT MUMBAI] the Tribunal held that interest paid by an Indian branch to its head office or overseas branches is deductible in determining profits attributable to the permanent establishment under the treaty. Such payment is not taxable in the hands of the same bank under domestic law as it is payment to self. [Paras 3] The Revenue's challenge to allowance of the interest expenditure was dismissed; the assessee's corresponding ground concerning interest received from the head office was academic. Transfer pricing of transactions between foreign enterprise and Indian permanent establishment - Arm's length guarantee commission - whether they constitute one and the same person and not separate legal entities? - HELD THAT: - We are unable to accept the aforesaid contention. Hon’ble Ahmedabad Special Bench of this Tribunal in TBEA Shenyang Transformer Group Company Ltd. v. DCIT [2025 (1) TMI 1274 - ITAT AHMEDABAD] has held that transactions between a foreign enterprise and its Indian PE can, subject to fulfillment of the statutory conditions, constitute international transactions exigible to arm’s length determination under Chapter X of the Act. Therefore, the broad legal proposition canvassed by the assessee that transfer pricing provisions are per se inapplicable to transactions between the Head Office / overseas branches and the Indian PE merely because they are the same person cannot be accepted. Short commission received from H.O. /Overseas Branch for bank guarantees issued to third parties in India - HELD THAT:- Once the internal CUP adopted by the Ld.TPO is accepted as the basis for benchmarking, the arm's length adjustment can only be confined to the difference between the arm's length rate so determined and the commission already recovered by the assessee from its AE. The Ld.TPO was, therefore, not justified in making an adjustment without granting credit for the commission already charged by the assessee. The object of the transfer pricing provisions is to determine the arm's length price of the international transaction and not to disregard the consideration actually received by the assessee. In the facts of the present case, therefore, even assuming that the average guarantee commission of 0.56% represents the arm's length rate, the adjustment, if any, could only be restricted to the differential rate of 0.46%, being the difference between 0.56% and 0.10% already recovered from the AE. We accordingly direct the Ld.AO/TPO to recompute the adjustment by restricting the guarantee commission adjustment to 0.46% of the value of the corporate guarantee, after verifying the computation furnished by the assessee. The alternate ground of the assessee is accordingly allowed. [Paras 5, 7, 13] The challenge to applicability of transfer pricing provisions was dismissed, but the guarantee commission adjustment for the relevant years was directed to be recomputed at the differential rate of 0.46%, subject to verification. Characterisation of hedging gains - notional income arising on cancellation of foreign exchange forward contracts - chargeable to tax under the head "Income from Other Sources" OR "Capital Gains" - HELD THAT: - The Coordinate Bench, while considering an identical issue in the case of Credit Suisse [2012 (8) TMI 284 - ITAT MUMBAI] held that the gains arising on cancellation of foreign exchange forward contract has to be treated as capital gain and accordingly the A.O. and the DRP were not justified in treating the said gain as 'income from other sources'. Also see Apollo Tyres Ltd. [2004 (3) TMI 345 - ITAT DELHI-E] as well as the decision of Sutlej Cotton Mills Ltd. [1978 (9) TMI 1 - SUPREME COURT]. The Tribunal followed the consistent coordinate Bench view that the character of gains or losses on cancellation of foreign exchange forward contracts depends upon the dominant purpose and nexus of the contracts with the underlying investment. Where the contracts hedge capital investments, the resultant gains retain capital character. [Paras 11] The assessee's claim for assessment of the hedging gains under the head capital gains was allowed. Interest on income-tax refund under tax treaty - Effective connection with permanent establishment - Interest on income-tax refund received by a Singapore resident was taxable as interest under Article 11 of the India-Singapore DTAA or business profits attributable to its Indian permanent establishment - HELD THAT: - We find that identical issue came up for consideration in Clough Engineering Ltd. [2011 (5) TMI 562 - ITAT, DELHI]. The Special Bench, after examining the scope of Article 11 of the India–Australia DTAA, held that although the refund of tax may arise on account of taxes deducted from the receipts of the PE, the liability to pay income-tax is that of the foreign enterprise and payment of tax is merely an appropriation of profits. Consequently, the debt-claim represented by the income-tax refund cannot be regarded as being effectively connected with the PE either under the asset test or the activity test. The aforesaid principle has been expressly approved in DIT (Intl Tax) vs. Credit Agricole Indosuez [2015 (6) TMI 974 - BOMBAY HIGH COURT]. Hon'ble Court held that interest received on income-tax refund by a non-resident is not effectively connected with its PE and, therefore, cannot be assessed as business profits but is liable to be taxed as "interest” under the relevant Article of the applicable tax treaty. The liability for income-tax is that of the foreign enterprise and payment of tax is an appropriation of its profits. Consequently, the debt claim represented by the tax refund is not effectively connected with the permanent establishment under either the asset or activity test. The exclusion for effectively connected debt claims did not apply, and the refund interest fell under the treaty article governing interest. [Paras 17] The refund interest was held taxable at the treaty rate prescribed by Article 11(2)(b), and recomputation was directed. Surcharge and education cess on treaty-capped tax rate - Whether levy of surcharge and education cess as the assessee has PE in India and hence should be taxed according to the provisions of Income Tax Act 1961? - HELD THAT: - A treaty provision stating that tax in the source State shall not exceed a specified percentage fixes the maximum tax burden on that income. Since surcharge and education cess are components of income-tax, their addition would impermissibly exceed that ceiling. This principle does not apply to treaty provisions, such as those governing business profits, which do not prescribe a tax rate or ceiling. [Paras 18] The Assessing Officer was directed to apply the treaty-rate principle while determining surcharge and cess. Final Conclusion: The cross-appeals for the relevant assessment years were partly allowed. The Tribunal upheld deduction of head-office interest, granted capital-gains treatment to hedging gains and treaty treatment to refund interest, while restricting the guarantee commission adjustment and directing application of the treaty-rate ceiling principle for surcharge and cess.

2026 (8) TMI 190 - ITAT MUMBAIIncome Tax

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Satellite transponder services remain non-royalty where customers receive communications without control or independent use of equipment or processes.
Satellite transponder payments are analysed as consideration for communication services rather than royalty where the service provider retains ownership, possession, operational control, management and commercial risk over the satellite infrastructure. A customer that merely uplinks and receives retransmitted signals, without rights to operate, configure, manage, exclude others from, or commercially exploit the transponder or its processes, does not use equipment or a process independently. Dedicated capacity and outage-credit terms may therefore remain consistent with a service arrangement. The discussion states that retrospective domestic-law amendments cannot expand the more beneficial treaty definition of royalty, and, absent an Indian permanent establishment, such remittances are not chargeable to tax or subject to withholding.

Satellite transponder service charges as royalty - Treaty overriding domestic-law - expansion of royalty - Withholding tax on sums chargeable to tax u/s 195 Payments for satellite transponder services constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 or Article 12 of the India-USA Double Taxation Avoidance Agreement - HELD THAT: - Hon’ble Delhi High Court in New Skies [2016 (2) TMI 415 - DELHI HIGH COURT] has authoritatively held that while Parliament undoubtedly possesses legislative competence to amend the provisions of the domestic statute, such amendment cannot, by unilateral legislative action, alter the scope, meaning or content of an international treaty. A Double Taxation Avoidance Agreement represents reciprocal obligations voluntarily assumed by two sovereign States and continues to operate according to internationally accepted principles governing treaty interpretation. Unless the Treaty itself is correspondingly amended by mutual agreement between the Contracting States, the expressions employed therein continue to retain the meaning which they ordinarily bear in international fiscal jurisprudence. This principle has acquired even greater significance after the judgment of the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. [2021 (3) TMI 138 - SUPREME COURT] - While examining the concept of royalty under various Double Taxation Avoidance Agreements, the Hon’ble Supreme Court emphatically reaffirmed that domestic amendments cannot automatically rewrite or expand the provisions of a tax treaty. The Court reiterated that treaty provisions must receive an autonomous interpretation consistent with international principles and cannot be controlled by subsequent unilateral amendments to municipal legislation. The agreements disclosed that the satellite and transponder remained under the recipient's exclusive ownership, possession, management and operational control. The assessee had no proprietary or possessory interest, no authority to operate, alter or manage the equipment, and no independent right to employ the technological processes used for reception, amplification, frequency conversion and retransmission. Dedicated transponder capacity and outage-credit provisions were incidents of an assured service arrangement, with the operational and commercial risks remaining with the service provider. A domestic-law retrospective expansion of royalty could not unilaterally enlarge the more beneficial Treaty definition; the customer's receipt of communication services could not be equated with acquisition of a right to use the underlying equipment or process. [Paras 45, 46, 47, 48, 49] The transponder charges were consideration for standard satellite communication services and not royalty under the Act or the India-USA DTAA. Withholding tax on sums chargeable to tax - obligation to deduct tax at source arose on remittances for the satellite transponder services - HELD THAT: - The obligation under section 195 arises only where the remittance is chargeable to tax in India in the recipient's hands. In the light of the ratio laid down in GE India Technology Centre (P.) Ltd. [2010 (9) TMI 7 - SUPREME COURT] no obligation to deduct tax at source could have arisen in respect of the remittances made by the assessee. The orders passed by the Assessing Officer under section 195(2), therefore, cannot be sustained. Since the payments were not royalty under the applicable Treaty and were consequently not chargeable to tax in India, the withholding obligation did not arise. [Paras 46, 50] The determinations under section 195(2) were unsustainable. Final Conclusion: The Revenue's appeals were dismissed. The orders holding that the transponder-service payments were not chargeable to tax in India and attracted no withholding obligation were upheld.

2026 (8) TMI 157 - CESTAT ALLAHABADService Tax

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Statutory limits on adjournments support dismissal for non-prosecution when repeated requests and absence prevent appeal hearing.
Mechanical adjournment requests cannot justify postponement beyond the statutory maximum of three adjournments. Where the appellant repeatedly sought adjournments and remained absent, the appeal was dismissed for non-prosecution under Rule 20 of the CESTAT Procedure Rules, 1982.

2026 (8) TMI 149 - CALCUTTA HIGH COURTIndian Laws

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Issues: (i) Whether vicarious liability under Section 141 of the Negotiable Instruments Act, 1881 extends to a family member of a sole proprietorship concern; (ii) Whether a non-signatory may be prosecuted under Section 138 of the Negotiable Instruments Act, 1881 for cheques drawn on an account of a deceased person; (iii) Whether inherent jurisdiction may be exercised to quash an ex-facie groundless prosecution notwithstanding the Magistrate's inability to recall process.

Issue (i): Whether vicarious liability under Section 141 of the Negotiable Instruments Act, 1881 extends to a family member of a sole proprietorship concern.

Analysis: Section 141 creates an exceptional statutory form of vicarious criminal liability applicable to a company, partnership firm, or association of individuals. A sole proprietorship has no legal identity distinct from its proprietor and falls outside that statutory framework. Domestic or familial proximity cannot substitute for a partnership deed or other legally recognised business structure.

Conclusion: Section 141 does not apply to a sole proprietorship concern, and its family members cannot be made vicariously liable merely because of their familial relationship. The issue is decided in favour of the petitioner.

Issue (ii): Whether a non-signatory may be prosecuted under Section 138 of the Negotiable Instruments Act, 1881 for cheques drawn on an account of a deceased person.

Analysis: Liability under Section 138 is confined to the drawer maintaining the account on which the cheque is drawn, unless valid vicarious liability under Section 141 is attracted. The petitioner neither signed the cheques nor maintained the account. The account holder had died before the dates of the cheques, and the banking mandate stood revoked upon death under Section 201 of the Indian Contract Act, 1872. Any alleged deception involving pre-signed cheques may attract remedies under general penal law but cannot satisfy the statutory ingredients of the cheque-dishonour offence against a non-signatory.

Conclusion: The petitioner, being a non-signatory who did not maintain the account, could not be prosecuted under Section 138; the death of the account holder rendered the banking mandate inoperative. The issue is decided in favour of the petitioner.

Issue (iii): Whether inherent jurisdiction may be exercised to quash an ex-facie groundless prosecution notwithstanding the Magistrate's inability to recall process.

Analysis: Restrictions on a Magistrate's power to recall process in a summary summons case do not limit the High Court's inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973. Where the complaint lacks essential statutory ingredients and public records disclose a complete legal vacuum, continuation of prosecution constitutes abuse of process.

Conclusion: Inherent jurisdiction could be exercised to quash the prosecution against the petitioner as ex-facie groundless. The issue is decided in favour of the petitioner.

Final Conclusion: The statutory foundations for fastening cheque-dishonour liability upon the petitioner were absent, and continuation of the prosecution against him would amount to abuse of process.

Ratio Decidendi: A non-signatory family member of a sole proprietorship cannot be prosecuted for cheque dishonour under Sections 138 and 141 where he neither maintains the account nor falls within a legally recognised basis for vicarious liability; inherent jurisdiction may be invoked to prevent such an ex-facie untenable prosecution.

Cheque dishonour liability excludes non-signatory family members of sole proprietorships without a legally recognised basis for vicarious liability.
Section 141 of the Negotiable Instruments Act does not extend vicarious criminal liability to family members of a sole proprietorship, which has no separate legal identity or recognised business structure comparable to a company, firm or association. Liability for cheque dishonour under Section 138 is confined to the account-holding drawer unless valid vicarious liability applies; a non-signatory family member who neither maintained nor signed on the account cannot be prosecuted, particularly where the account holder had died and the banking mandate was inoperative. The High Court's inherent jurisdiction may quash a prosecution that lacks essential statutory ingredients and is ex-facie an abuse of process.

Vicarious liability for dishonour of cheque issued by sole proprietorship concern - Liability of non-signatory under dishonoured cheque provisions - Inherent power to quash ex facie groundless prosecution - Revocation of Agency by Death - Abuse of Process Vicarious liability for sole proprietorship concern - Family relationship and partnership liability - HELD THAT: - This Court observed in N. Mamatha Nagesh [2026 (8) TMI 87 - CALCUTTA HIGH COURT], domestic proximity or a filial connection within a shared household cannot be accepted as a valid legal surrogate for a registered partnership deed or a corporate matrix. The complainant's bold assertion that the petitioner acted as a “partner” of a sole proprietorship concern belonging to his mother is a legal absurdity. Criminal liability under a summary penal statute cannot be widened by crude implications or speculative logic. The failure of the complainant to recognize that a proprietorship concern cannot be sued as an independent juristic entity separate from its master constitutes a fundamental defect that invalidates the invocation of Section 141 against anyone else under the banner of that entity. Section 141, being an exception to the rule of personal criminal liability, applies only to the entities included in its definition of "company". A sole proprietorship has no legal identity apart from its proprietor and does not fall within that statutory taxonomy. Domestic or filial relationship cannot substitute for a partnership deed or other legally recognised corporate structure so as to create vicarious criminal liability. [Paras 13, 14, 19, 20] The petitioner could not be prosecuted on the footing that he was a partner or person in charge of the sole proprietorship concern. Author-centric liability for dishonour of cheque - Revocation of banking mandate on death of account holder - A non-signatory who did not maintain the account could be prosecuted under Section 138 of the Negotiable Instruments Act for cheques allegedly issued from the account of a deceased person. - HELD THAT: - Section 138 creates a strict, author-centric offense. It mandates that the dishonoured instrument must be drawn by a person on an account “maintained by him.” The biological fact established by the death certificate shows that the alleged drawer, Ram Ratan Sharma, had suffered biological and legal demise on 23.11.2017. Under Section 201 of the Indian Contract Act, 1872, the banking mandate and agency stood automatically revoked the moment the account holder expired. A dead person cannot be deemed to maintain an active account, as the underlying relationship of customer and banker stands dissolved by operation of law. Therefore, the petitioner, being neither the drawer nor the account holder, did not satisfy the essential statutory ingredients. Any alleged deception in negotiating pre-signed cheques of a deceased account holder could attract remedies under general penal law, but could not sustain prosecution under the dishonoured-cheque provisions. [Paras 15, 16, 19, 21] The prosecution under Section 138 was unsustainable against the petitioner. Quashing of ex facie groundless cheque dishonour prosecution - HELD THAT: - The procedural bar against a Magistrate recalling process does not limit the High Court's inherent jurisdiction under Section 482 of the Code of Criminal Procedure. Where public records and the complaint itself disclose absence of the statutory foundation for prosecution, the matter is not a factual dispute requiring trial and continuance of proceedings constitutes abuse of process. [Paras 17, 18, 19, 22] The impugned order was set aside and the proceedings were quashed insofar as they concerned the petitioner. Final Conclusion: The revisional application was allowed. The proceedings for dishonour of cheque were quashed insofar as they concerned the petitioner, there being no statutory basis to prosecute him either vicariously or as the drawer of the cheques.

2026 (8) TMI 144 - GAUHATI HIGH COURTGST

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GST adjudication limitation and hearing requirements render delayed, unreasoned tax determinations legally unsustainable.
An adjudication order for financial year 2018-19 under Section 73 of the Assam GST Act was described as time-barred because the statutory period expired on 31 December 2023 and no corresponding State notification validly extended it; an order dated 30 April 2024 was therefore invalid. The text further states that the order did not provide the hearing required under Section 75(4) or meet the reasoned-determination requirement under Section 75(6). Consequently, the tax, interest and penalty determination lacked legal sustainability for breach of limitation, statutory procedure and natural justice.

2026 (8) TMI 143 - PUNJAB AND HARYANA HIGH COURTGST

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Regular bail for alleged bogus input tax credit fraud granted where documentary evidence reduced tampering risks.
Regular bail in alleged fraudulent input tax credit cases may be justified where the prosecution relies mainly on electronic and documentary material already filed with the complaint, proposed witnesses are government officers, and the risk of tampering or influence is negligible. The notes state that continued custody was not warranted because the alleged offences carried a maximum five-year sentence, the petitioners had spent over seven months in custody, had no criminal antecedents, and the allegations required trial examination. Both petitioners were granted regular bail subject to adequate bail and surety bonds and stipulated safeguards.

2026 (8) TMI 135 - ITAT MUMBAIIncome Tax

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Issues: (i) Whether the internal CUP based on the electricity tariff paid by consuming units to State distribution companies was the appropriate benchmark for captive inter-unit power transfers; (ii) Whether disallowance under section 14A and Rule 8D, including the MAT adjustment, was sustainable; (iii) Whether pre-operative expansion expenditure and intra-group technical-services payments were allowable; (iv) Whether deductions under section 80-IA were available for rail systems and the TG-3 power plant, and how common expenses and CENVAT credit were to be treated; (v) Whether sales-tax incentives, royalty refunds and excise-duty exemption were capital receipts, including for book-profit computation; (vi) Whether investment allowance under section 32AC was available for opening capital work-in-progress installed during the relevant year; (vii) Whether balance additional depreciation was allowable in the succeeding year; (viii) Whether bad debts written off were allowable; (ix) Whether the remaining cross-objection claims concerning head-office allocation, leave encashment, capital gains items and interest on income-tax in book profit were sustainable.

Issue (i): Whether the internal CUP based on the electricity tariff paid by consuming units to State distribution companies was the appropriate benchmark for captive inter-unit power transfers.

Analysis: The consuming units purchased identical electricity from State distribution companies in the same geographical market and period. That consumer tariff was a direct internal comparable, whereas the rate between generation and distribution entities operated at a different stage of the supply chain and was influenced by regulation. No distinguishing facts from the assessee's earlier years were shown.

Conclusion: The internal CUP and selection of the consuming units as tested parties were upheld; the transfer-pricing adjustments were rightly deleted. This issue is in favour of the assessee.

Issue (ii): Whether disallowance under section 14A and Rule 8D, including the MAT adjustment, was sustainable.

Analysis: Where interest-free own funds substantially exceeded investments and no nexus with borrowings was established, no interest disallowance arose. Administrative disallowance under Rule 8D(2)(iii) was confined to investments that actually yielded exempt income. The 2022 Explanation to section 14A did not affect years in which exempt income was admittedly earned. Rule 8D computation could not mechanically be imported into clause (f) of Explanation 1 to section 115JB without independent identification of expenditure debited to the profit and loss account. For A.Y. 2015-16, the voluntary disallowance exceeded the formula-based amount, making an additional disallowance duplicative.

Conclusion: The Revenue's challenge to the restricted normal-provision disallowance and deletion of MAT adjustments failed; the additional disallowance of Rs. 33 lakh for A.Y. 2015-16 was deleted. This issue is in favour of the assessee.

Issue (iii): Whether pre-operative expansion expenditure and intra-group technical-services payments were allowable.

Analysis: The character of expansion expenditure depended on its true nature rather than book capitalisation. Salaries, travelling, maintenance, stores, power, professional charges and similar operating expenses for expansion of an existing business remained revenue expenditure unless directly attributable to acquisition or installation of a capital asset. For technical services, the TPO assigned a positive value to the services but replaced TNMM with unsupported estimated man-hours and rates, without adopting a prescribed transfer-pricing method or comparable transaction.

Conclusion: Pre-operative expenditure was allowable as revenue expenditure, and the technical-services transfer-pricing adjustments were unsustainable. This issue is in favour of the assessee.

Issue (iv): Whether deductions under section 80-IA were available for rail systems and the TG-3 power plant, and how common expenses and CENVAT credit were to be treated.

Analysis: Integrated captive rail systems comprising tracks, sidings, signalling, loading and related facilities qualified as infrastructure facilities despite captive use; freight and handling savings formed the basis for eligible income. Acquisition of the entire TG-3 undertaking as a running concern did not constitute reconstruction or formation through transfer of used machinery, and the tax holiday attached to the eligible undertaking for its unexpired period. Common head-office expenditure having nexus with eligible undertakings could be allocated, but expenditure-based allocation rather than turnover was required; expenses exclusively relating to non-eligible cement business were excluded. Under the standalone fiction, any notional grossing-up of eligible-unit costs for CENVAT credit required corresponding credit for the benefit availed by other units, making net accounting neutral.

Conclusion: Section 80-IA deductions for rail systems and TG-3 were upheld; CENVAT adjustments were deleted; common-expense allocation was restricted to expenditure having nexus and was to follow the directed expenditure-based computation. This issue is in favour of the assessee.

Issue (v): Whether sales-tax incentives, royalty refunds and excise-duty exemption were capital receipts, including for book-profit computation.

Analysis: The governing test was the purpose of the industrial incentive scheme. The incentives were linked to fixed capital investment, establishment, substantial expansion and industrialisation in backward areas. Their post-production availability, quantification by tax or royalty, and absence of an express end-use condition did not alter their capital character. The amendment to section 2(24)(xviii) applied only from A.Y. 2016-17. Capital incentives that did not possess the character of income could not be included in book profit under section 115JB.

Conclusion: Sales-tax incentives, royalty refunds and the excise-duty exemption were capital receipts not chargeable under normal provisions and were excludible from book profit. This issue is in favour of the assessee.

Issue (vi): Whether investment allowance under section 32AC was available for opening capital work-in-progress installed during the relevant year.

Analysis: For an integrated manufacturing plant, procurement of components reflected as capital work-in-progress did not by itself establish acquisition of a completed plant or machinery. The relevant asset came into existence when assembled, installed and capitalised. A purposive construction of the investment incentive provision supported deduction where the integrated plant was installed during the qualifying period; among divergent coordinate-bench views, the view favourable to the assessee was adopted.

Conclusion: Deduction under section 32AC for components forming part of opening capital work-in-progress but installed and capitalised during the relevant year was allowable. This issue is in favour of the assessee.

Issue (vii): Whether balance additional depreciation was allowable in the succeeding year.

Analysis: The third proviso to section 32(1), effective from A.Y. 2016-17, required allowance in the immediately succeeding year of the balance 50% additional depreciation where assets were used for less than 180 days in the acquisition year. The amendment applied to the claim made in A.Y. 2016-17 and could not be deferred to A.Y. 2017-18.

Conclusion: The balance 10% additional depreciation claimed in A.Y. 2016-17 was allowable. This issue is in favour of the assessee.

Issue (viii): Whether bad debts written off were allowable.

Analysis: The assessee had actually written off identified trade debts, furnished party-wise details, ledgers and invoices, and established that the underlying sales had been recognised as income. A provision initially created had been added back, and deduction was claimed only upon actual write-off. After the 1989 amendment, continued existence of a debtor did not require the assessee to prove factual irrecoverability.

Conclusion: The requirements of sections 36(1)(vii) and 36(2) were met and the bad-debt disallowance was deleted. This issue is in favour of the assessee.

Issue (ix): Whether the remaining cross-objection claims concerning head-office allocation, leave encashment, capital gains items and interest on income-tax in book profit were sustainable.

Analysis: No specific nexus was shown between the impugned head-office expenses and eligible power plants or rail systems, warranting deletion of the allocation sustained for A.Y. 2015-16. Leave-encashment provision was deductible only on actual payment under section 43B(f). Profit on sale of investments and loss on sale of fixed assets were not non-income capital receipts and remained governed by the section 115JB computation, subject to indexed-cost benefit. Provision for interest under the Income-tax Act fell within the extended meaning of income-tax under Explanation 2 to section 115JB.

Conclusion: The head-office allocation ground was allowed; the leave-encashment, capital-items and interest-on-income-tax grounds were rejected. This issue is partly in favour of the assessee.

Final Conclusion: The assessee retained the substantive relief granted on transfer pricing, exempt-income expenditure, revenue expenditure, eligible-unit deductions, industrial incentives, investment allowance, additional depreciation and bad debts, with limited further relief on the cross-objection concerning unsupported head-office allocation.

Captive power benchmarking and industrial incentive treatment support tax relief across transfer pricing, deductions, depreciation and book-profit computation.
Internal CUP based on electricity tariffs paid by consuming units to State distribution companies is presented as the appropriate benchmark for captive power transfers. The notes also state that section 14A disallowance requires a borrowing nexus for interest expenditure and confines administrative expenditure to investments yielding exempt income, while MAT adjustments require independently identified expenditure. Expansion-related operating costs are treated as revenue expenditure, and unsupported technical-services pricing adjustments are rejected. Captive rail systems and an acquired running power undertaking qualify for section 80-IA relief, subject to nexus-based common-cost allocation. Industrial incentives linked to investment and expansion are characterised as capital receipts and excluded from book profit where not income. The notes further address investment allowance, additional depreciation, actual bad-debt write-offs, and limits on leave-encashment and income-tax-interest deductions.

TP Adjustment - Internal CUP for captive power transfers - Section 14A disallowance and MAT computation - Revenue expenditure on expansion of existing business - Arm's length pricing of intra-group technical services - Section 80-IA deduction for captive rail infrastructure - Allocation of common head-office expenditure - CENVAT credit in eligible-unit profits - Capital incentives and book profit - Investment allowance on capital work-in-progress - Additional depreciation for assets used for less than 180 days - Bad debts written off Internal CUP for captive power transfers - Tested party selection - Arm's length price of electricity transferred from captive power plants to cement-manufacturing units - HELD THAT: - The price paid by the same consuming units to State distribution companies constituted a direct internal comparable, since the commodity, consuming units, geographical market and period of supply were substantially the same. It was more reliable than the regulated rate between generating and distribution companies, which operated at a different level of the supply chain. In the absence of any distinguishing feature from the assessee's earlier years, consistency required acceptance of the internal CUP and the consuming units as tested parties. [Paras 40, 41, 42] The deletion of transfer-pricing adjustments for inter-unit power transfers was upheld. Disallowance of expenditure relating to exempt income u/s 14A - MAT adjustment for exempt-income expenditure - Disallowance relating to exempt dividend income under the normal provisions and its treatment in computing book profit - HELD THAT: - Where interest-free own funds substantially exceeded investments and no nexus of borrowings with investments was established, investments were presumed to be from own funds. Under Rule 8D(2)(iii), only investments that actually yielded exempt income during the relevant year could be considered. The Finance Act, 2022 Explanation to section 14A did not affect this quantification dispute where exempt income had in fact been earned. Further, the Rule 8D computation could not mechanically be imported into book profit; expenditure relatable to exempt income for MAT purposes had to be independently determined from the profit and loss account. For 2015-16, the additional disallowance was deleted because the assessee's voluntary disallowance already exceeded the administrative expenditure computed with reference to dividend-yielding investments, and a further disallowance would duplicate the same expenditure. [Paras 93, 94, 104, 105, 106] The Revenue's challenges to the restricted disallowance and deletion of MAT adjustments were dismissed; the assessee's cross-objection for 2015-16 was allowed to the extent that no further disallowance beyond its voluntary disallowance survived. Nature of expenditure - expansion of existing business - Accounting treatment and tax deductibility - Allowability of pre-operative expenditure incurred for expansion, modernisation and setting up of units in the existing cement business - HELD THAT: - Deductibility depends on the true nature and purpose of expenditure, not its accounting classification. Operating expenses such as employee costs, travelling, maintenance, stores, power and professional charges do not become capital merely because they were incurred during expansion or were capitalised in the books; unless directly attributable to acquisition or installation of a capital asset, they remain revenue expenditure. [Paras 112, 113, 114, 115, 116] The allowance of the claimed pre-operative expenditure as revenue expenditure was upheld. Arm's length pricing of intra-group technical services - Prescribed transfer-pricing methods - TP adjustment for technical and business-support services received from an associated enterprise - HELD THAT: - The determination of a positive arm's length price itself proceeded on the basis that services had been rendered. Having rejected TNMM, the TPO could not substitute it with an unsupported estimate of man-hours and hourly rates, without a comparable uncontrolled transaction or application of a prescribed method. In the absence of a material change from the earlier years, the earlier acceptance of the assessee's benchmarking governed the issue. [Paras 132, 133, 134, 135, 136] The deletion of the transfer-pricing adjustment was upheld. Section 80IA deduction for captive rail infrastructure - Captive use of infrastructure facility - Eligibility of integrated rail systems at cement units for deduction as infrastructure facilities and computation of their eligible profits - HELD THAT: - A rail system comprising sidings, tracks, signalling and related loading, unloading and operating facilities does not cease to be an infrastructure facility merely because it is used captively for transport of the assessee's goods. The agreements with the Railway Administration and the integrated facilities established that the assessee developed, operated and maintained the rail systems. Savings in road freight and handling costs were the accepted basis for computing the eligible income. Common expenses were to be dealt with under the separate allocation directions. [Paras 156, 157, 158, 159, 160] Deduction under section 80IA for the rail systems was upheld, subject to computation in accordance with the directions on common expenses and CENVAT credit. Allocation of common head-office expenditure - Eligible undertaking profits - Apportionment of indirect head-office expenditure in computing deductions for eligible power plants, rail systems and other eligible undertakings - HELD THAT: - The statutory fiction requires eligible undertakings to be treated as stand-alone businesses; therefore, centrally incurred expenditure having a direct or proximate connection with an eligible undertaking cannot be ignored. However, turnover is not a reasonable allocation basis because its relationship with indirect expenditure is not necessarily linear. Allocation must be based on unit expenditure vis-a -vis overall expenditure, and expenses specifically attributable to non-eligible cement operations cannot be allocated. In the assessee's cross-objection for 2015-16, no nexus was established for the allocation sustained against captive power plants and rail systems. [Paras 184, 185, 186, 407, 408] The Revenue's challenge to allocation on the expenditure basis was dismissed; for 2015-16, the allocation challenged in the assessee's cross-objection was directed to be deleted for want of nexus. CENVAT credit in eligible-unit profits - Standalone computation under section 80IA - Whether CENVAT credit availed by other manufacturing units had to be added to the cost of captive power plants for computing deduction under section 80-IA? - HELD THAT: - The standalone fiction cannot be applied only to increase the eligible unit's expenditure by the duty component while ignoring the corresponding credit or reimbursement attributable to that unit. Where expenditure is debited net of CENVAT credit and the credit is fully availed by the other units, the net accounting treatment produces the same economic result and does not inflate eligible profits. [Paras 201, 202, 203, 204, 205] The deletion of CENVAT-related adjustments was upheld. Capital subsidy purpose test - Royalty refund under industrial incentive scheme - Excise-duty exemption for substantial expansion - Character of sales-tax incentives, royalty refunds and excise-duty exemption received under industrial incentive schemes - HELD THAT: - The character of an incentive depends on the purpose of the scheme, not the timing, source, form or mechanism of disbursement. The incentives were linked to capital investment, establishment, expansion or modernisation of units in specified areas, with ceilings tied to fixed-capital investment; quantification by reference to sales tax, VAT, royalty or excise duty did not convert them into operational subsidies. The excise-duty exemption for substantially expanded units in specified backward areas was likewise a capital receipt: its post-production availability and absence of a particular end-use restriction were not determinative. The subsequent statutory inclusion of specified Government assistance from 2016-17 did not govern 2014-15 or 2015-16. [Paras 343, 344, 346, 347, 348] Sales-tax incentives, royalty refunds and the excise-duty exemption in question were held to be capital receipts not chargeable under the normal provisions. Capital receipts in book profit - MAT computation - Exclusion of sales-tax incentives, excise-duty exemption and royalty refunds from book profit - HELD THAT: - The receipts retained their capital character under the industrial incentive schemes and did not constitute income or profit merely because they were credited to the statement of profit and loss. The restriction on recasting accounts under the MAT provisions did not answer the anterior question whether such non-income capital receipts could form part of book profit. In the absence of changed facts or law, the earlier decision in the assessee's case was followed. [Paras 281, 282, 283, 284, 285] The direction to exclude the capital incentives and royalty refunds from book profit was upheld. Investment allowance on capital work-in-progress - Purposive interpretation of acquired and installed - Eligibility for investment allowance on components forming opening capital work-in-progress but comprised in plant and machinery installed and capitalised during the qualifying years - HELD THAT: - For an integrated manufacturing plant, purchase of individual components does not necessarily amount to acquisition of the completed plant or machinery. Such components assume the character of the intended plant only when assembled, integrated and installed. Since the Assessing Officer did not find that the integrated plant had been installed, capitalised or made operational before the qualifying period, the mere existence of opening capital work-in-progress could not defeat the investment incentive. Between divergent coordinate-bench views, the purposive construction advancing the object of encouraging investment was adopted. [Paras 262, 263, 264, 265, 266] Deduction u/s 32AC was allowed for the relevant plant and machinery capitalised and installed during 2014-15 and 2015-16. Section 80-IA deduction on transferred undertaking - Change in ownership of eligible undertaking - Deduction for the TG-3 power plant acquired as a running undertaking - HELD THAT: - Acquisition of an entire running undertaking differs from formation of a new undertaking through transfer of individual used assets. A mere change of ownership neither amounts to reconstruction nor destroys the identity of the eligible undertaking; the tax holiday attaches to the undertaking, and its successor may claim the deduction for the balance eligible period, subject to the statutory conditions. The plant was not repurchased by the assessee, and the previous owner's failure to claim the deduction did not establish ineligibility. [Paras 298, 299, 300, 301, 302] The allowance of deduction for the TG-3 power plant was upheld. Employee perquisite tax and book profit - Addition of tax borne by the employer on non-monetary employee perquisites in computing book profit - HELD THAT: - Tax borne on non-monetary perquisites is an employee-benefit cost and not income-tax paid or payable on the assessee's income for the MAT adjustment. Its disallowance under the normal provisions did not authorise its automatic addition to book profit. [Paras 308, 309, 310, 311, 312] The deletion of the MAT adjustment was upheld. Balance additional depreciation - Assets used for less than 180 days - Allowance in 2016-17 of the balance additional depreciation on assets put to use for less than 180 days in 2015-16 - HELD THAT: - The third proviso to section 32(1), effective from 2016-17, mandates allowance in the immediately succeeding year of the balance additional depreciation that was restricted to 50 per cent in the initial year because the asset was used for less than 180 days. Construing the amendment to apply only to assets acquired in the relevant year would postpone its operation contrary to its stated effective date. The claim was confined to the unallowed balance, so total additional depreciation remained restricted to the prescribed percentage. [Paras 368, 369, 370, 371, 372] The balance additional depreciation claimed for 2016-17 was allowed. Bad debts written off - Conditions for bad-debt deduction - Deduction for trade debts written off in 2018-19 - HELD THAT: - After the statutory amendment, actual irrecoverability need not be proved once the debt is written off, but the debt must also satisfy the condition that it was taken into account in computing income. The assessee's provision had been added back when created; deduction was claimed only on actual write-off of identified trade receivables. Party-wise details, ledgers and invoices established that the debts arose from sales already offered to tax, and the continued existence of debtors was immaterial. AO did not identify any defect in that evidence. [Paras 398, 399, 400, 401, 402] The deletion of the bad-debt disallowance was upheld. Leave encashment provision - Actual-payment condition - Deductibility of provision for leave encashment determined by actuarial valuation - HELD THAT: - Even an actuarially ascertained leave-encashment liability is subject to the overriding actual-payment condition. The accrual principle cannot override the express statutory requirement, and deduction for actual payments had already been allowed. [Paras 414, 415, 416, 417] The assessee's claim for deduction of the unpaid leave-encashment provision was rejected. Capital gains and book profit - Indexed cost of acquisition - Exclusion of profit on sale of investments and loss on sale of fixed assets from book profit - HELD THAT: - A profit arising on transfer of a capital asset is not outside the ambit of income merely because the underlying asset is capital. The MAT computation begins with audited net profit and permits only specified adjustments; no exclusion is available merely because an item is non-operational or connected with a capital asset. The assessee-specific earlier decision required recomputation after allowing indexed cost of acquisition. [Paras 430, 431, 432, 433, 434] The claimed exclusion was rejected, subject to giving full effect to indexed cost of acquisition. Interest on income-tax and book profit - Addition of provision for interest on income-tax in computing book profit - HELD THAT: - The MAT adjustment expressly covers income-tax paid or payable and provisions therefor, while the statutory definition includes interest charged under the Act. Whether the provision was prudently made or represented an ascertained liability was therefore immaterial. [Paras 438, 439, 440, 441, 442] The addition of the provision for interest on income-tax to book profit was upheld. Final Conclusion: The Revenue's appeals for 2014-15, 2015-16, 2016-17 and 2018-19 were dismissed subject to the stated computational directions. The assessee's cross-objection for 2015-16 was partly allowed, while its cross-objection for 2018-19 was dismissed as not pressed.

2026 (8) TMI 104 - SC OrderMoney Laundering

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Anticipatory bail in money-laundering investigation denied, with the special leave petition for pre-arrest protection dismissed.
Anticipatory bail in a money-laundering investigation was refused after the High Court found the petitioner ineligible for pre-arrest bail on both merits and medical grounds. The Supreme Court dismissed the special leave petition seeking anticipatory bail and disposed of pending applications. The text identifies the twin conditions for bail as part of the subject matter but provides no further reasoning on their application.

2026 (8) TMI 98 - CESTAT ALLAHABADService Tax

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Statutory limitation for service-tax appeals bars condonation beyond the prescribed additional period, irrespective of the dispute's merits.
Section 85(3A) of the Finance Act, 1994 requires a service-tax appeal to be filed within two months of receiving the adjudication order and permits condonation for sufficient cause only up to a further one month. The appellate authority lacks jurisdiction to condone delay beyond this statutory outer limit, and the merits of the underlying dispute do not affect the limitation determination. An appeal filed more than seven years after receipt of the original order is therefore barred by limitation and cannot be entertained.

2026 (8) TMI 93 - CESTAT ALLAHABADCentral Excise

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Mechanical adjournment requests can undermine justice delivery and result in dismissal of appeals for non-prosecution.
Mechanical requests for adjournment and their routine grant undermine the justice-delivery system. The notes state that repeated adjournments have been condemned, referring to Supreme Court observations in Ishwar Lal Mali Rathod. They further describe dismissal of an appeal for non-prosecution under Rule 20 of the CESTAT Procedure Rules, 1982, after the appellant repeatedly sought adjournments beyond the permitted limit. The practical effect is that persistent failure to proceed with an appeal, coupled with excessive adjournment requests, may lead to dismissal for non-prosecution.

2026 (8) TMI 92 - CESTAT ALLAHABADCentral Excise

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Repeated adjournments and non-prosecution can lead to dismissal when statutory limits on adjournment requests are exceeded.
Mechanical and repeated adjournment requests undermine the justice delivery system and have been condemned by the Supreme Court. Under Rule 20 of the CESTAT Procedure Rules, 1982, an appeal may be dismissed for non-prosecution where the appellant persistently seeks adjournments and fails to prosecute the matter. The note records dismissal of the appeal after adjournment requests exceeded the permitted statutory limit, reinforcing that adjournments cannot be routinely sought or granted without sufficient cause.

2026 (8) TMI 84 - CALCUTTA HIGH COURTGST

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GST registration restoration permits regularisation of return defaults when cancellation impedes business operations and tax recovery.
GST registration cancelled solely for continuous non-filing of returns may be restored where there is no allegation of a dubious tax-evasion process. The text states that continued cancellation prevents the taxpayer from conducting business and issuing invoices, which may also impair recovery of tax dues. It supports allowing the taxpayer to regularise the default by filing all pending returns and paying applicable tax, interest, fine and penalty within the stipulated period. On compliance with these conditions, the cancelled registration is to be restored.

2026 (8) TMI 83 - CHHATTISGARH HIGH COURTGST

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Regular bail for alleged fraudulent input tax credit transactions granted after investigation completion and reduced need for custody.
Regular bail in a prosecution alleging fraudulent availment and passing of input tax credit is addressed where investigation was complete and the final complaint had been filed. The notes state that the prosecution relied on documentary and electronic material already held by the Department, reducing the need for further custodial detention. They also identify the applicant's custody period and the likelihood of a lengthy trial as relevant considerations. Regular bail was granted.

2026 (8) TMI 82 - TELANGANA HIGH COURTGST

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GST adjudication order rectification provides the statutory route to verify a taxpayer's claim of full invoice-tax payment.
Rectification of a GST adjudication order was identified as the appropriate statutory remedy where the taxpayer asserted that tax had been discharged on the entire invoice amount. The note records that the taxpayer may file a rectification application supported by relevant documents, which the proper officer must entertain, hear, and decide within the specified period. The writ petition was disposed of with the taxpayer relegated to rectification proceedings.

2026 (8) TMI 62 - AUTHORITY FOR ADVANCE RULING, UTTARAKHANDGST

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Advance-ruling jurisdiction excludes GST refund claims, while factory-land lease GST remains blocked input tax credit.
Refund claims for GST paid on an upfront lease amount fall outside the specified scope of advance-ruling jurisdiction, while input tax credit admissibility may be examined. GST on an upfront amount for a long-term lease of industrial land intended for constructing a factory is described as blocked credit because the lease service pertains to land acquired for construction of an immovable property on the recipient's own account. Land, buildings and civil structures do not qualify as plant and machinery for this purpose. Accordingly, the refund query could not be entertained and the GST paid on the lease consideration remained ineligible for input tax credit.

Advance ruling jurisdiction over refund claims - Blocked input tax credit on upfront lease premium for land used to construct a factory building Maintainability of a request for advance ruling on refund of GST paid on the upfront amount for a long-term industrial-land lease - HELD THAT: - Refund is not among the matters enumerated for advance ruling under section 97(2). The Authority therefore lacked jurisdiction to pronounce upon the applicant's refund claim. [Paras 7] The request for a ruling on refund was rejected as outside the Authority's jurisdiction. Eligibility for input tax credit of GST charged on the upfront amount paid for a long-term lease of industrial land intended for construction of the applicant's factory building - HELD THAT: - The issue was also dealt by the Authority for Advance Ruling for the state of Gujarat in the case of M/s Agratas Energy Storage Solutions Put. Ltd.[2026 (4) TMI 1324 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT], after following the earlier case Re: M/s Bayer Vapi Put. Ltd [2023 (9) TMI 165 - AUTHORITY FOR ADVANCE RULING, GUJARAT] and Re: GACL-NALCO Alkalies and Chemicals Put. Ltd. [2021 (12) TMI 36 - AUTHORITY FOR ADVANCE RULING, GUJARAT], it was concluded that the ITC of GST paid on lease rental is not eligible as the same is blocked under Section 17(5)(d) of the CGST Act. Section 17(5)(d) blocks credit of goods or services received for construction of an immovable property on the taxable person's own account, save for plant and machinery. Land, building and civil structures are expressly excluded from plant and machinery. Since the leased land was intended to be used for constructing the factory building, the GST on the upfront lease amount was held to be blocked credit. [Paras 7, 8] Input tax credit of GST paid or payable on the upfront lease amount was held inadmissible. Final Conclusion: The refund query was rejected as not maintainable before the Authority for Advance Ruling. Input tax credit on GST charged on the upfront amount for the long-term lease of industrial land intended for construction of a factory building was held unavailable.

2026 (8) TMI 60 - SC OrderIncome Tax

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Software licence payment royalty characterisation remains undisturbed as the Special Leave Petition was dismissed solely for filing delay.
Software purchase payments to non-residents were described as not constituting royalty and therefore not requiring withholding under section 195, consistent with the Karnataka High Court decision referred to in the text. The Supreme Court did not examine that substantive characterisation: it found the reasons for a 307-day delay in filing the Special Leave Petition unsatisfactory and legally insufficient, dismissed the condonation application, and consequently dismissed the Special Leave Petition solely on delay.

2026 (8) TMI 31 - CESTAT KOLKATACustoms

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Issues: (i) Whether revocation proceedings could validly be initiated without an offence report as required by the applicable licensing regulations; (ii) Whether the Customs Broker violated its obligations by processing exports subsequently alleged to be overvalued.

Issue (i): Whether revocation proceedings could validly be initiated without an offence report as required by the applicable licensing regulations.

Analysis: Regulation 17 of the Customs Brokers Licensing Regulations, 2018 prescribes the mandatory procedure for revocation of a Customs Broker licence and imposition of penalty. The proceedings were founded on findings from separate adjudication against the exporter rather than on a valid offence report contemplated by that Regulation.

Conclusion: In the absence of a valid offence report, the revocation proceedings were unsustainable, in favour of the assessee.

Issue (ii): Whether the Customs Broker violated its obligations by processing exports subsequently alleged to be overvalued.

Analysis: No evidence established the Customs Broker's connivance, knowledge, or involvement in the alleged overvaluation. The Broker had undertaken KYC verification, acted on documents appearing genuine, and filed shipping bills that were assessed and cleared by Customs authorities. A Customs Broker is a processing agent and is not required to investigate the correctness of export valuation or independently verify matters already supported by authentic government-issued records.

Conclusion: The Customs Broker did not violate Regulations 10(d), 10(e), 10(m), or 10(n) of the Customs Brokers Licensing Regulations, 2018, in favour of the assessee.

Final Conclusion: The legal basis for revocation, security forfeiture, and penalty was absent because the statutory initiation requirement was not met and no breach of the Broker's regulatory duties was proved.

Ratio Decidendi: A Customs Broker acting on genuine client documents and complying with KYC obligations cannot be held liable for an exporter's later-detected overvaluation without proof of the Broker's knowledge, connivance, or breach of a specific regulatory duty; revocation proceedings also require a valid statutory offence report.

Valid offence reports and proven Broker misconduct are required before licence revocation for alleged export overvaluation.
Revocation of a Customs Broker licence under the Customs Brokers Licensing Regulations, 2018 requires initiation through a valid offence report; proceedings founded only on findings in separate exporter adjudication are unsustainable. A Broker processing exports later alleged to be overvalued does not breach its regulatory obligations where it has completed KYC verification, relied on apparently genuine documents and government-issued records, and lacks knowledge, connivance, or involvement in the overvaluation. The notes state that no basis existed for revocation, security forfeiture, or penalty without a valid offence report or proof of breach of a specific duty.

Offence report for revocation of Customs Broker licence - Customs Broker's due diligence in exporter overvaluation - Know Your Customer verification - Burden of proving connivance - Reliance on authentic government documents - Proportionality of licence revocation Sustainability of proceedings for revocation of a Customs Broker licence in the absence of a valid offence report under the Customs Brokers Licensing Regulations, 2018 - HELD THAT: - Regulation 17 prescribes the mandatory procedure for revocation of a Customs Broker licence or imposition of penalty. In the absence of a valid offence report contemplated by that Regulation, the revocation proceedings were held to be unsustainable. [Paras 6] The revocation proceedings were held invalid for want of a valid offence report. Customs Broker's due diligence in exporter overvaluation - KYC verification by Customs Broker - HELD THAT: - No evidence established the Customs Broker's connivance, knowledge or involvement in the alleged overvaluation. A Customs Broker acts as a processing agent on the basis of documents supplied by the exporter and is not required to investigate the correctness of declared valuation or undertake functions of an investigating agency. The Customs Broker cannot be penalized merely because, at a later stage, the exporter is alleged to have indulged in irregularities, particularly when the Appellant had completed KYC verification and acted upon documents appearing genuine on their face. This view has been taken by the Hon’ble Delhi High Court in the case of Kunal Travels (cargo) [2017 (3) TMI 1494 - DELHI HIGH COURT]. Accordingly, the Appellant has not violated any of the provisions of Regulations 10(d), 10(e), 10(m) and 10(n) of the CBLR, 2018. [Paras 6] The Customs Broker was held not to have violated the cited licensing obligations, and the revocation, forfeiture and penalty were unsustainable. Final Conclusion: The impugned order revoking the Customs Broker licence, forfeiting the security deposit and imposing penalty was set aside, and the appeal was allowed with consequential relief in accordance with law.

2026 (8) TMI 30 - CESTAT KOLKATACustoms

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Derivative customs penalty for abetment fails when correctly declared components create no underlying importer contravention.
Derivative penal liability for abetment under the Customs Act cannot survive where the principal allegation against the importer fails. The imported components, without an electric motor and battery, did not have the essential character of complete electrical tricycles under Rule 2(a) of the General Rules for Interpretation. They were correctly declared as parts/components, and the classification dispute involved no misdeclaration. As confiscation, differential duty and penalties against the importer were unsustainable, no underlying contravention remained to support a penalty against the alleged abettor. The penalty was therefore set aside.

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2026 (8) TMI 285 - AT - Income Tax

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Foreign-currency loan benchmarking, corporate guarantee pricing and independent undertaking tests shape transfer-pricing and tax-holiday claims.
Foreign-currency intra-group loans are benchmarked against the market rate for the repayment currency, while corporate guarantees are international ... Summary

Foreign-currency loan benchmarking, corporate guarantee pricing and independent undertaking tests shape transfer-pricing and tax-holiday claims.

Foreign-currency intra-group loans are benchmarked against the market rate for the repayment currency, while corporate guarantees are international transactions requiring a corporate-guarantee benchmark rather than bank-guarantee pricing. Overseas associated enterprises operating across different economic zones and currencies may not be suitable tested parties for BPO benchmarking; comparable selection and functional analysis require fresh evaluation. Separate STPI centres may qualify as distinct section 10A undertakings where they have independent identity, capital, workforce, infrastructure, output and profits, regardless of common licences. Export-turnover exclusions must correspondingly reduce total turnover. The notes also address exempt-income disallowance, deductibility of ESOP and hedging losses, treaty-based dividend tax relief, and verification of tax credits and eligible-unit investment income.

Issues: (i) Whether interest charged on foreign-currency loans advanced to associated enterprises was at arm's length; (ii) Whether transfer-pricing adjustment for corporate and performance guarantees was warranted and, if so, at what rate; (iii) Whether overseas associated enterprises could be selected as tested parties for benchmarking BPO services and whether the BPO adjustment required fresh determination; (iv) Whether separately functioning STPI software development centres under common licences qualified as separate undertakings for deduction under section 10A; (v) Whether foreign-currency expenses and link charges excluded from export turnover had also to be excluded from total turnover; (vi) Whether disallowance under section 14A read with Rule 8D was sustainable; (vii) Whether ESOP expenditure, software licence fees, foreign-exchange hedging losses and mark-to-market losses were allowable; (viii) Whether additions for outstanding creditors, TDS credit on deferred revenue, foreign tax credit and enhanced deductions required verification or relief; (ix) Whether dividend distribution tax on dividends to non-resident shareholders was restricted by the applicable DTAA rate; (x) Whether income from investment of surplus funds of eligible units qualified for deduction under sections 10A, 10AA and 10B.

Issue (i): Whether interest charged on foreign-currency loans advanced to associated enterprises was at arm's length.

Analysis: The loan was denominated in GBP. The appropriate benchmark for an outbound foreign-currency loan is the market rate applicable to the currency of repayment, rather than an Indian domestic prime lending rate. Applying GBP LIBOR plus 400 basis points, consistently with the approach adopted in the assessee's own case, produced a rate lower than the 9.50% interest actually charged.

Conclusion: The interest charged was at arm's length; the transfer-pricing adjustment was deleted in favour of the assessee.

Issue (ii): Whether transfer-pricing adjustment for corporate and performance guarantees was warranted and, if so, at what rate.

Analysis: Corporate guarantees issued for subsidiaries constituted indirect long-term financing and fell within the scope of an international transaction under section 92B. The bank-guarantee rates and additional risk mark-up adopted by the Transfer Pricing Officer were inappropriate for corporate guarantees. The accepted benchmark was 0.50% of the outstanding guarantee amount.

Conclusion: Guarantee-fee adjustment was sustained only at 0.50% of the total outstanding guarantees at the end of each relevant year; the issue was partly decided in favour of the assessee.

Issue (iii): Whether overseas associated enterprises could be selected as tested parties for benchmarking BPO services and whether the BPO adjustment required fresh determination.

Analysis: The overseas associated enterprises operated in different economic zones and currencies and reported segmental losses. They could not jointly be treated as tested parties on the facts. However, the Transfer Pricing Officer's adjustment based on the full revenue retained by them was excessive. Certain high-turnover, functionally dissimilar, or restructuring-affected comparables were excluded, while some comparables required segmental information and fresh evaluation. The benchmarking had to account for the actual functions, assets and risks, including that the associated enterprises retained only about 10% of the revenue.

Conclusion: Selection of the overseas associated enterprises as tested parties was rejected, but the BPO transfer-pricing issue was remanded for fresh benchmarking in accordance with the stated directions; the issue was partly in favour of the assessee.

Issue (iv): Whether separately functioning STPI software development centres under common licences qualified as separate undertakings for deduction under section 10A.

Analysis: A prior failure to claim deduction unit-wise does not create an estoppel where the statutory conditions are otherwise fulfilled. Eligibility depends on whether each unit is a separate and viable undertaking, with separate identity, fresh capital, workforce, infrastructure, identifiable output and ascertainable profits; the number or manner of STPI licences is not determinative.

Conclusion: The issue was remanded to verify whether the claimed units constituted separate undertakings eligible for deduction under section 10A; the issue was decided in favour of the assessee for fresh adjudication.

Issue (v): Whether foreign-currency expenses and link charges excluded from export turnover had also to be excluded from total turnover.

Analysis: The issue was governed by binding precedent in the assessee's own case and the principle that identical exclusions must be made from both export turnover and total turnover when computing the deduction.

Conclusion: Corresponding exclusion from total turnover was directed in favour of the assessee.

Issue (vi): Whether disallowance under section 14A read with Rule 8D was sustainable.

Analysis: The Assessing Officer had recorded sufficient dissatisfaction with the suo motu disallowance. Nevertheless, no interest disallowance could be made where sufficient interest-free funds were available for investments. Administrative expenditure under Rule 8D(2)(iii) had to be computed at 0.50% of investments that actually yielded exempt income.

Conclusion: The interest component of disallowance was deleted, while the administrative component was remanded for recomputation on investments yielding exempt income; the issue was partly in favour of the assessee.

Issue (vii): Whether ESOP expenditure, software licence fees, foreign-exchange hedging losses and mark-to-market losses were allowable.

Analysis: ESOP expenditure and enhanced ESOP claims were governed by earlier orders allowing the claim. Software licence fees required factual verification as to whether the software was off-the-shelf software used for business operations. Losses on cancellation or premature unwinding of forward contracts entered into for hedging export receivables were business losses and not speculative losses. Mark-to-market loss on outstanding hedging forward contracts was allowable under the mercantile system where the assessee consistently recognised corresponding gains and losses and the contracts were not speculative.

Conclusion: ESOP expenditure, hedging losses and mark-to-market losses were allowed in favour of the assessee; software licence fee was remanded for factual verification.

Issue (viii): Whether additions for outstanding creditors, TDS credit on deferred revenue, foreign tax credit and enhanced deductions required verification or relief.

Analysis: Whether static creditor balances had been paid or offered to tax on write-back required verification. TDS credit for deferred revenue must be granted proportionately in the years in which the related income is assessed. Foreign tax credit claims and enhanced claims required verification of additional evidence. Claims for deduction relating to investment income of eligible units required verification that the funds represented internal accruals of those units.

Conclusion: These issues were remanded for verification and allowance in accordance with law, in favour of the assessee for fresh consideration.

Issue (ix): Whether dividend distribution tax on dividends to non-resident shareholders was restricted by the applicable DTAA rate.

Analysis: The issue was covered by the Tribunal's earlier orders in the assessee's case applying the relevant treaty rate to dividend payments to non-resident shareholders.

Conclusion: The DTAA-based claim was allowed in favour of the assessee.

Issue (x): Whether income from investment of surplus funds of eligible units qualified for deduction under sections 10A, 10AA and 10B.

Analysis: The additional claim was covered by prior orders, subject to verification that interest and similar income from deposits, mutual funds and comparable investments arose from internal accruals of the eligible undertakings.

Conclusion: The claim was allowed subject to verification, in favour of the assessee.

Final Conclusion: The principal transfer-pricing and deduction claims were substantially granted or restored for fresh verification, with the corporate-guarantee adjustment restricted and the tested-party contention for BPO services rejected.

Ratio Decidendi: Foreign-currency intra-group loans must be benchmarked by reference to the lending currency; corporate guarantees are international transactions but require an appropriate corporate-guarantee benchmark; and eligibility for unit-based tax holidays depends on the independent factual identity of each undertaking rather than the form or number of regulatory licences.

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2026 (8) TMI 285 - AT - Income Tax

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Income-tax Rules, 1962

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Foreign-currency loan benchmarking, corporate guarantee pricing and independent undertaking tests shape transfer-pricing and tax-holiday claims.

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