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2023 (11) TMI 9 - CESTAT CHENNAI Central Excise

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Tribunal Reduces Penalty from Rs.10 Lakhs to Rs.50,000 Each, Citing Justice and Settlement Scheme Considerations.
The Tribunal reduced the penalty imposed on the appellants from Rs.10 lakhs each to Rs.50,000 each. This decision considered the settlement by the main noticee, M/s. Micro Spares, under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, and the appellants' belief that they would be discharged as co-noticees. The Tribunal emphasized that reducing the penalty served the ends of justice, and the appeals were disposed of accordingly.

Abatement by co-noticees in suppression of clearances - clubbing of clearances for demand - penalty under Rule 25 of the Central Excise Rules, 2002 - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - treatment of co-noticees - discharge certificate under SVLDRS and its finalityAbatement by co-noticees in suppression of clearances - clubbing of clearances for demand - penalty under Rule 25 of the Central Excise Rules, 2002 - Liability of the appellants to penalty for abetting suppression of value and clubbing of clearances as found in the adjudicating order - HELD THAT: - The adjudicating authority had found, on departmental intelligence and documentary verification, that the appellants were interconnected with the main noticee and had abetted suppression of clearances, leading to confirmation of duty demand and imposition of penalty under Rule 25. The Tribunal noted the factual findings recorded in the impugned order and did not reopen the settled factual matrix regarding the main noticee. While the appellants challenged the findings on absence of proof of financial flowback and independent manufacturing, the Tribunal did not accept that these contentions required overturning of liability as recorded by the adjudicating authority. However, in view of the concurrent resolution of the main noticee under the SVLDRS and the surrounding circumstances, the Tribunal exercised its discretionary power in mitigation of penalty rather than setting aside the finding of abetment or the clubbing exercise itself. [Paras 2, 5, 7]Findings of abetment and clubbing were not reopened on merits; penalty liability stands but is mitigated in exercise of Tribunal's discretion.Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - treatment of co-noticees - discharge certificate under SVLDRS and its finality - Effect of the main noticee's settlement under SVLDRS on co-noticees and entitlement to relief under the Scheme - HELD THAT: - The Tribunal recorded that the main noticee had obtained Form SVLDRS-IV (discharge certificate) and that its appeal was dismissed as settled. The Tribunal relied on the CBIC FAQ clarifying that where a main noticee has settled tax dues, co-noticees may opt into the Scheme by filing a declaration to seek waiver of penalty. The co-noticees in these appeals had not filed such declarations before the Scheme closed; therefore, they could not claim automatic discharge. Recognising the finality of the main noticee's settlement and the CBIC clarification, the Tribunal nonetheless considered the factual context and, as a matter of equitable mitigation, reduced the penalties imposed on the co-noticees. [Paras 7, 8]Main noticee's discharge under SVLDRS is final; co-noticees were not automatically discharged and had to file declarations to avail Scheme benefits, but Tribunal reduced penalties to Rs.50,000 each in exercise of discretion.Final Conclusion: The appeals are disposed of by reducing the penalties imposed on the appellants to Rs.50,000 each; the main noticee's SVLDRS discharge remains final and co-noticees, having not filed declarations under the Scheme, are not automatically discharged though granted mitigated penalty by the Tribunal.

2023 (11) TMI 8 - CESTAT ALLAHABAD Central Excise

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Penalties under Section 11AC set aside for heat exchanger valuation dispute involving extended limitation period
CESTAT Allahabad set aside penalties imposed under Section 11AC of Central Excise Act on appellant regarding heat exchanger valuation. The tribunal held that for the period prior to 29.08.2012, extended limitation period could not be invoked per Board circular and SC precedent in Fiat India case. Since appellant voluntarily paid duty based on own assessment, following SC ruling in Steel Authority of India case, no show cause notice was required under Section 11A and consequently no penalty proceedings under Section 11AC could be initiated. Appeal allowed partially with penalties set aside but duty payment confirmed.

Transaction value under Section 4(1)(a) - valuation under Section 4(1)(b) and Central Excise Valuation Rules (Rule 8 and Rule 9) - sale not in the ordinary course of trade / sales below cost as extra commercial consideration - interest under Section 11AB - penalty under Section 11AC - Section 11A(2B) - payment of duty before service of notice - invocation of extended period of limitation in light of FIAT judgment and CBEC Circular No.979/3/2014 dated 15 01 2014Transaction value under Section 4(1)(a) - valuation under Section 4(1)(b) and Central Excise Valuation Rules (Rule 8 and Rule 9) - sale not in the ordinary course of trade / sales below cost as extra commercial consideration - Whether the assessable value of 'Heat Exchangers' must be determined under Section 4(1)(b) and the Valuation Rules (Rule 9 read with Rule 8) rather than transaction value under Section 4(1)(a). - HELD THAT: - The Tribunal accepted the conclusion that the supplies to the OEMs could not be treated as sales in the ordinary course of trade. The Commissioner (Appeals) found that the OEMs were so associated with the appellant's business and that the final product manufactured by those OEMs was purchased back by the appellant, indicating mutuality of interest. The record showed continuous selling of Heat Exchangers at prices lower than cost of manufacture and the appellant itself ultimately deposited differential duty after costing was produced. On these facts the sale price did not represent an arm's length wholesale cash price and thus Section 4(1)(a) did not apply. In cases of sale to related persons Rule 9 applies and, by its proviso, where the related person uses the goods in manufacture, Rule 8 governs valuation. The Tribunal therefore upheld the demand of differential duty computed under Rule 8/9. [Paras 4]Assessable value to be determined under Section 4(1)(b) and Valuation Rules (Rule 9 and Rule 8); the confirmation of differential duty on Heat Exchangers is justified on merits.Interest under Section 11AB - Whether interest under Section 11AB is payable on the confirmed differential duty. - HELD THAT: - The Tribunal noted that once the demand of duty is held sustainable, interest under Section 11AB automatically arises and is chargeable on the confirmed portion of the demand. The appellant had deposited amounts after costing was produced, and the adjudicating authority confirmed interest; the Tribunal upheld that interest is chargeable on the part of the demand which is confirmed. [Paras 4]Interest under Section 11AB is chargeable on the confirmed demand.Section 11A(2B) - payment of duty before service of notice - penalty under Section 11AC - invocation of extended period of limitation in light of FIAT judgment and CBEC Circular No.979/3/2014 dated 15 01 2014 - Whether penalties under Section 11AC could be imposed where the assessee had paid the differential duty and interest before issuance of notice and where the FIAT judgment post dates the period in question. - HELD THAT: - The Tribunal observed that the appellant had deposited differential duty and interest for the relevant earlier periods well before issuance of the show cause notice. Section 11A(2B) provides that where duty is paid before service of notice and the Central Excise Officer is informed, no notice should be served in respect of that duty. The Tribunal relied on the CBEC circular which states that the FIAT judgment, to the extent it creates a new premise for invoking extended limitation, does not justify invoking extended limitation for periods prior to the FIAT decision (29 08 2012). Since the transactions in question predated the FIAT judgment, extended limitation could not be invoked and penalties under Section 11AC could not be sustained. The Tribunal also cited authority treating voluntary payment before notice as falling under Section 11A(2)(b) logic, displacing the need for penalty proceedings. [Paras 4]Penalties under Section 11AC are set aside because duty and interest were paid prior to issuance of notice and extended limitation based on FIAT could not be invoked for the earlier period.Section 11A(2B) - payment of duty before service of notice - Whether the show cause notice ought to have been issued after the appellant had paid the differential duty and interest. - HELD THAT: - The Tribunal recorded the chronology showing that the appellant paid differential duty and interest in 2007, whereas the show cause notice was issued on 26 06 2008. In view of Section 11A(2B), which prevents service of a notice in respect of duty already paid before service of notice once the officer is informed, the Tribunal held that issuance of the show cause notice was not proper. While the Tribunal did not re open the merits of the duty already paid and confirmed, it concluded that there was no need for initiation of penalty proceedings when duty had been voluntarily deposited before notice. [Paras 4]Show cause notice should not have been issued in respect of duty already paid before service of notice; penalty proceedings therefore were unsustainable.Final Conclusion: The appeal is partially allowed: the adjudication confirming differential duty and interest on valuation grounds under Section 4(1)(b) and the Valuation Rules is sustained, but penalties imposed under Section 11AC are set aside because the duty and interest were paid before issuance of the notice and extended limitation based on the FIAT judgment could not be invoked for the earlier period; the show cause notice in respect of amounts paid prior to its service was improper.

2023 (10) TMI 1303 - CESTAT NEW DELHI Service Tax

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ISSUES PRESENTED AND CONSIDERED

1. Whether a refund claim of service tax paid under reverse charge is barred by the one-year limitation in section 11B of the Central Excise Act as applied to service tax by section 83 of the Finance Act.

2. Whether Explanation B(e) to section 11B - which fixes the "relevant date" as the date of purchase for a person other than the manufacturer - applies, mutatis mutandis, toservice tax such that the "date of purchase of the service" is the relevant date for non-service-provider claimants.

3. Whether a waiver of service charges by an overseas service provider (i.e., no services rendered) prevents the commencement of the one-year limitation period under Explanation B(e) when the purchaser (not the service provider) claims refund.

4. Whether the ratio of the precedent interpreting section 11B in the excise context (relating to Explanation B(e)) is applicable to service tax matters when section 11B is applied to service tax "so far as may be".

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Application of section 11B limitation to service tax claims

Legal framework: Section 83 of the Finance Act incorporates certain provisions of the Central Excise Act (including section 11B) into service tax law "so far as may be". Section 11B prescribes that refund applications must be filed before the expiry of one year from the "relevant date" (Explanation B).

Precedent treatment: The court treated prior excise authorities' interpretations as relevant where section 11B is applied to analogous facts in service tax matters, subject to necessary textual substitutions (e.g., "manufacturer" ? "service provider", "goods" ? "services").

Interpretation and reasoning: The Tribunal held that section 11B applies to service tax matters but must be read with necessary adaptations so that terms meaningful in excise context are mapped to corresponding service-tax concepts. Consequently, limitation under section 11B is applicable to service-tax refund claims but the computation of the one-year period depends on the "relevant date" after such adaptation.

Ratio vs. Obiter: Ratio - section 11B applies to service tax "so far as may be" and must be adapted to service-tax terminology when determining limitation.

Conclusions: Section 11B governs limitation for service-tax refund claims, subject to contextual substitutions; the real question becomes which clause of Explanation B supplies the "relevant date" after such adaptation.

Issue 2 - Applicability of Explanation B(e) (date of purchase by person other than manufacturer) to services

Legal framework: Explanation B(e) fixes the relevant date as "in the case of a person, other than the manufacturer, the date of purchase of the goods by such person." When applied to service tax, the corresponding phrase becomes "date of purchase of the service by such person."

Precedent treatment: The Tribunal relied on an extant ratio from excise jurisprudence (Oswal Chemicals) interpreting clause (e) in the excise context and concluded the same principle is applicable following textual adaptation.

Interpretation and reasoning: The Tribunal reasoned that the concepts of "sale and purchase" in goods correspond to "rendering and purchase" of services. For goods, completion of sale occurs upon transfer of property (delivery); for services, completion occurs when services are rendered. Hence, for a person other than the service provider, the relevant date is the date services are rendered (i.e., when purchase completes). If services are not rendered (waiver), the sale/purchase is not complete and the relevant date does not arise.

Ratio vs. Obiter: Ratio - Explanation B(e), when applied to service tax, makes the relevant date the date of performance (rendering) of services for non-service-provider claimants.

Conclusions: Clause (e) of Explanation B applies to service-tax refund claims by persons other than the service provider; the one-year limitation runs from the date the service was rendered (the purchase date), not from payment of tax, when clause (e) is engaged.

Issue 3 - Effect of waiver (no service rendered) on commencement of limitation period

Legal framework: Under the adapted Explanation B(e), the "date of purchase of the service" presupposes completion of the service; a waiver of charges by the service provider indicates no service was rendered and no effective purchase occurred.

Precedent treatment: The Tribunal applied the principle that where the taxable event (manufacture/dutyable event) does not occur, the relevant date for refund does not arise; it treated the excise precedent as applicable to service tax after adaptation.

Interpretation and reasoning: The Tribunal found the overseas service provider waived the invoices; therefore, no service was rendered. Since purchase of services completes on rendering, and rendering did not occur, the "date of purchase" had not arisen. Consequently, the one-year limitation period had not commenced at the time the refund application was filed. The Tribunal rejected the Revenue's argument that payment of service tax at later points triggered limitation, noting that clause (f) ("in any other case, the date of payment of duty") applies only where none of the specific clauses (including (e)) are applicable.

Ratio vs. Obiter: Ratio - a waiver by the service provider resulting in non-rendering of services prevents the relevant date under Explanation B(e) from arising; limitation does not commence in such circumstances.

Conclusions: Where services are not rendered and the provider waives charges, a purchaser's refund claim is not time-barred under section 11B because the relevant date (date of purchase/rendering) has not occurred.

Issue 4 - Applicability of excise precedent (Oswal Chemicals) to service tax interpretation

Legal framework: Section 83's "so far as may be" language requires selective application of excise provisions to service tax, with necessary adaptations; principles of statutory interpretation permit precedent on analogous provisions to be followed unless inapplicable.

Precedent treatment: The Tribunal accepted and applied the ratio of the cited excise precedent interpreting Explanation B(e), rejecting Revenue's contention that the precedent is inapplicable because it concerned excise and not service tax.

Interpretation and reasoning: The Tribunal reasoned that because section 11B is applied to service tax, and the corresponding concepts can be suitably translated (manufacturer ? service provider; goods ? services), the legal reasoning and ratio from excise decisions remain persuasive and binding for analogous questions. There was no conflict occasioning a departure from the excise precedent.

Ratio vs. Obiter: Ratio - precedent interpreting the scope and operation of Explanation B(e) in the excise context is applicable to service tax matters where section 11B is made applicable and the terms can be appropriately adapted.

Conclusions: The excise precedent is applicable; it supports the conclusion that clause (e) governs the relevant date for non-service-provider refund claims in service tax, and that the limitation period did not commence where services were not rendered and charges were waived.

Overall Disposition

Because section 11B applies to service tax with necessary textual substitutions, Explanation B(e) governs the relevant date for refund claims by persons other than the service provider; where the service was not rendered and charges were waived, the date of purchase (rendering) did not occur and the one-year limitation did not begin to run. Consequently, the refund claim was not time-barred and the lower authority's allowance of refund (upholding the Commissioner (Appeals) reasoning) was affirmed.

Revenue loses appeal as service tax refund granted despite section 11B limitation when no actual service rendered
CESTAT NEW DELHI dismissed Revenue's appeal regarding service tax refund limitation. Assessee paid service tax under reverse charge mechanism but later claimed refund when services were not rendered. Revenue rejected refund citing one-year limitation under section 11B of Central Excise Act, 1944 as applicable to service tax. CESTAT held that since services were unsatisfactory and invoices waived, no actual service transaction occurred, making the relevant limitation period inapplicable. The tribunal applied Supreme Court precedent from Oswal Chemicals case, ruling that section 11B provisions apply to service tax matters correspondingly. Commissioner (Appeals) decision upholding refund claim was affirmed.

Claim for refund of duty - relevant date under Explanation B to Section 11B - application of Section 11B to service tax - person other than the manufacturer / service provider - relevant date as date of purchase of goods/services - limitation under Section 11B - waiver of invoice / non rendering of serviceApplication of Section 11B to service tax - relevant date under Explanation B to Section 11B - person other than the manufacturer / service provider - relevant date as date of purchase of goods/services - waiver of invoice / non rendering of service - limitation under Section 11B - Whether the respondent's refund claim of service tax was time barred under Section 11B as applied to service tax, and whether the relevant date for reckoning limitation is the date of payment of service tax or the date of purchase of the service in a case where the claimant is not the service provider and the service was not rendered. - HELD THAT: - Section 83 makes Section 11B of the Central Excise Act applicable to service tax 'so far as may be', requiring corresponding reading of excise terms as service tax terms (e.g., 'manufacturer' 'service provider'; 'goods' 'services'; 'payment of duty' 'payment of service tax'). Explanation B to Section 11B provides that, for a person other than the manufacturer, the 'relevant date' is the date of purchase of the goods (clause (e)), and clause (f) applies in 'any other case' as the date of payment of duty. When these terms are read in the service tax context, clause (e) equates to the date of purchase (i.e., completion of provision) of the service by a person other than the service provider. Services, being intangible, are 'purchased' when rendered; if no service is rendered and the supplier waives the charges, the sale/purchase does not occur and the relevant date for limitation has not commenced. Applying this principle to the facts, OPHJ did not render the services and waived its invoices; therefore the respondent's refund claim filed on 8 September 2014 was not barred by the one year limitation of Section 11B read with Explanation B clause (e). The Tribunal further held that the ratio in Oswal Chemicals & Fertilisers Ltd. (construing Section 11B in excise) applies equally when Section 11B is applied to service tax, and the Revenue's attempt to distinguish that precedent on the ground that it concerned excise is unsustainable. [Paras 9, 10, 12, 13, 14]The refund claim is not time barred; the Commissioner (Appeals) was correct in holding that the relevant date is the date of purchase of the service (clause (e)) and that the limitation period had not commenced because the service was not rendered and the invoices were waived.Final Conclusion: The impugned order allowing the refund is upheld; Revenue's appeal is dismissed and the respondent is entitled to consequential relief, if any.

2023 (10) TMI 1301 - CESTAT NEW DELHI Central Excise

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CENVAT credit recovery appeal dismissed due to inadmissible statements lacking proper cross-examination under section 9D
CESTAT New Delhi dismissed Revenue's appeal regarding CENVAT credit recovery with interest and penalty. The case involved second-stage dealers allegedly issuing invoices without actual goods supply. The tribunal held that statements from five individuals became irrelevant and inadmissible as proper cross-examination procedures under section 9D were not followed, violating natural justice principles. Despite intelligence reports indicating non-existent entities in the supply chain, the tribunal ruled that thorough investigation following prescribed procedures was required. Without admissible evidence after excluding the statements, the original order favoring the assessee was upheld.

Relevancy of statements under Section 9D - Admissibility of statements recorded during investigation - CENVAT credit admissibility on dealer invoices - Requirement of adherence to Section 9D procedure in adjudication proceedings - Scope of revenue's investigation to prove non-supply in the supplier chainRelevancy of statements under Section 9D - Requirement of adherence to Section 9D procedure in adjudication proceedings - Admissibility of statements recorded during investigation - Statements recorded before Central Excise officers during investigation are irrelevant and inadmissible in adjudication proceedings where the procedure mandated by Section 9D(1) was not followed. - HELD THAT: - The Tribunal applied the settled principle that Section 9D prescribes the circumstances in which statements recorded before gazetted Central Excise officers become relevant for proving the truth of their contents in adjudication proceedings. Where the conditions of Section 9D(1) are absent and the procedure under that provision is not scrupulously followed, such statements lose their evidentiary value and cannot be relied upon. The show cause notice in the present case relied on five such statements recorded during investigation but the procedural safeguards of Section 9D were not complied with; accordingly those statements are rendered irrelevant and inadmissible for proving the truth of their contents in the adjudication. [Paras 12, 13, 14, 18]All statements recorded during investigation which were not admitted in terms of Section 9D are irrelevant and inadmissible and cannot sustain the show cause notice.CENVAT credit admissibility on dealer invoices - Scope of revenue's investigation to prove non-supply in the supplier chain - The remaining documentary letters relied upon by Revenue are insufficient to establish that the respondent did not receive goods and thus insufficient to disallow CENVAT credit availed on dealer invoices. - HELD THAT: - With the investigative statements excluded, only three letters (intelligence/alert letters from DGCEI, Dhanbad and Burdwan) remained on record. The Tribunal held that those letters by themselves do not conclusively establish non-supply to the respondent. A finding of fraudulent or non-existent manufacture and non-supply requires a thorough investigation of the supplier chain (manufacturer first stage dealer second stage dealer user) and examination of records and witnesses; the buyer/user is not required to undertake such upstream investigations as a precondition to availment of CENVAT credit. Given the insufficiency of the remaining material to prove non-supply and the absence of admissible statements under Section 9D, the adjudicating authority could not sustain the disallowance of credit. [Paras 15, 16, 17, 19]The letters relied upon by Revenue are insufficient to prove non-supply; the disallowance of CENVAT credit cannot be sustained and the appellate order setting aside the adjudicating authority's order is upheld.Final Conclusion: The Tribunal upheld the Commissioner (Appeals) order. Statements recorded during investigation that were not admitted in terms of Section 9D are inadmissible and, with those statements excluded, the remaining documents do not suffice to prove non-supply; Revenue's appeal is dismissed.

2023 (10) TMI 1397 - ITAT RAIPUR Income Tax

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Mining company wins partial relief on rehabilitation costs, welfare expenses, and depreciation claims under income tax appeal
ITAT Raipur decided multiple issues in a mining company's appeal. Key outcomes: Land rehabilitation amortization and coal transportation expenses remitted to AO for fresh consideration. Land compensation expenses treated as capital expenditure following SC precedent in Arvind Mills. Guest house expenses partially allowed at reduced amount. Repair expenses on non-company assets allowed following precedent. Leave encashment provision remitted to verify actual payment timing per Section 43B(f). Community development and welfare expenses allowed as business expenditure for employee welfare. Social overhead expenses disallowance reduced from 50% to 25%. School grants and LPG welfare expenses allowed. Tree plantation expenses allowed. Apollo Hospital building depreciation disallowed, income treated as house property. Several issues including CSR expenses, mine closure provision, and TDS credit remitted to AO for verification. Additional depreciation on machinery disallowed. Computer software treated as asset eligible for depreciation. Railway siding depreciation disallowed as asset leased out. Sustainable development expenses and sports fund payments allowed as business expenditure.

Revenue expenditure vs. capital expenditure - allowability of employee-related provisions only on actual payment under section 43B(f) - application of Section 32(1)(iia) - additional depreciation and exclusion of road transport vehicles - disallowance under section 14A and Rule 8D (expenditure relatable to exempt income) - representative assessee - taxing income held on behalf of third parties - remand for verification of genuineness/documentationRevenue expenditure vs. capital expenditure - Disallowance of land compensation and rehabilitation expenses - HELD THAT: - Tribunal examined coordinate-bench precedents and Supreme Court authority and accepted that where expenditure on rehabilitation/relocation is incurred to acquire surface rights/right of possession in leasehold land conferring an enduring advantage it is capital in nature. In absence of material to distinguish earlier adverse coordinate-bench decisions in the assessee's own case, the CIT(A)'s finding treating the expenditure as capital was upheld.Disallowance sustained; ground dismissed in favour of Revenue.Revenue expenditure vs. capital expenditure - Disallowance of expenditure on assets not belonging to the company (roads, link roads etc.) - HELD THAT: - Following coordinate-bench decisions (including reliance on L.H. Sugar Factory Ltd.), the Tribunal held that expenditure incurred on public assets which materially facilitates the assessee's business (improving transport, access, efficiency) is revenue expenditure. The AO's disallowance was reversed as the assessee derived business benefit without acquisition of enduring capital asset for itself.Expenditure allowed as revenue deduction; ground allowed in favour of assessee.Revenue expenditure vs. capital expenditure - Disallowance of guest house expenses - HELD THAT: - AO restricted claim for lack of occupant registers; CIT(A) limited addition to a nominal sum for failure to establish certain claims. Tribunal, following its coordinate bench precedent in assessee's own case, found no reason to interfere with the limited disallowance as the assessee failed to substantiate full claim.Assessee's ground dismissed; limited addition upheld.Remand for verification of genuineness/documentation - Allowability of coal transportation expenses paid to Ex-Servicemen (ESM) companies - HELD THAT: - The Tribunal noted absence of documentary proof before AO/CIT(A) to verify identity, genuineness and TDS compliance of ESM parties. In established coordinate bench practice this factual issue requires verification; hence the matter was set aside to AO to examine TDS, returns of payees and other documents and to adjudicate afresh after giving opportunity to assessee.Issue remitted to Assessing Officer for fresh adjudication after verification of documents; allowed for statistical purposes.Allowability of employee-related provisions only on actual payment under section 43B(f) - Provision for leave encashment (actuarial provisions / timing) - HELD THAT: - In view of the Supreme Court decision in Union of India v. Exide Industries, the Tribunal applied section 43B(f) principle that deductions in respect of sums payable by an employer in lieu of leave are allowable only in the previous year in which such sums are actually paid. The Tribunal therefore remitted the matter to the AO to verify actual payment dates and to allow amounts actually paid by due date of return filing.Remitted to AO to verify and allow only amounts actually paid (partly allowed for statistical purposes).Remand for verification of genuineness/documentation - Amortization of land rehabilitation / treatment as depreciation or amortisation over lease period - HELD THAT: - Bench followed a coordinate Cuttack bench decision holding that writing off leasehold/lease rights may attract depreciation/amortisation and, because the issue is pending in assessee's other years and higher courts, remitted the matter to AO to consider in light of the cited Cuttack directions after affording reasonable opportunity.Issue remitted to Assessing Officer for fresh adjudication (allowed for statistical purposes).Disallowance under section 14A and Rule 8D (expenditure relatable to exempt income) - Disallowance under section 14A read with Rule 8D (investments and exempt income) - HELD THAT: - AO applied Rule 8D and quantified disallowance; assessee challenged sufficiency of AO's satisfaction and nexus with exempt income and relied on later judicial developments (including Supreme Court authority on availability of interest free funds). Tribunal observed that facts and relevant judicial developments required re-examination and therefore remitted the issue to AO for fresh determination applying binding law and after allowing assessee to produce details.Remitted to AO for fresh adjudication; ground partly allowed for statistical purposes.Allowability of provisions based on actuarial valuation - allowability of employee-related provisions only on actual payment under section 43B(f) - Disallowance of provision created on actuarial valuation for employee compensation (fatal accident etc.) - HELD THAT: - Tribunal reviewed pre 2002 authorities permitting actuarial provisions as deductible where liability is presently incurred and reliably estimable but noted the post 2002 insertion of clause (f) in section 43B and Exide (SC) holding that certain employee related payments are allowable only on actual payment. In that factual setting, actuarial provision could not be accepted without verification of actuarial workings and actual payments; the matter was remitted to AO to verify and allow only to extent actually paid or otherwise as per law.Remitted to AO for verification of actuarial valuation and actual payments; allowed for statistical purposes.Application of Section 32(1)(iia) - additional depreciation and exclusion of road transport vehicles - Claim of additional depreciation under section 32(1)(iia) on caterpillars and 240 tonne dumpers - HELD THAT: - Tribunal examined whether heavy dumpers/caterpillars are 'road transport vehicles' within the exclusion for additional depreciation. Having regard to binding coordinate and High Court/Apex Court precedent (including Western Coalfields and earlier authorities) and the vehicles' suitability for roads (rubber tyred dumpers), Tribunal accepted AO/CIT(A) that these items are to be treated as motor/road transport vehicles for tax purpose and excluded from additional depreciation. Tribunal observed that, if additional depreciation is disallowed, consequential adjustment to WDV and normal depreciation should be given subsequently.Additional depreciation disallowed; ground dismissed. AO to give consequential WDV/depreciation relief in subsequent years.Representative assessee - taxing income held on behalf of third parties - Tax treatment of interest on disputed third party deposits (coal customers, MPGATSVA/terminal tax) and corresponding TDS credit issues - HELD THAT: - Where the assessee held deposits or taxes collected on behalf of third parties/government and interest accrued thereon, Tribunal identified the peculiar position and directed that such income and related tax issues be examined under representative assessee provisions (Sections 160-162): assessee may be assessed as representative assessee for income held for others; AO to re adjudicate after examining records, TDS credits and ability to recover tax from principal, and to allow recovery/retention rights permitted by law. Issues of TDS matching/credit and reversal were remitted for fresh adjudication.Matter remitted to AO to assess interest on disputed deposits treating assessee as representative assessee and to re examine TDS credit consequences; grounds partly allowed for set aside.Remand for verification of genuineness/documentation - Provision for mine closure (creation/deposit to Escrow and timing of deduction) - HELD THAT: - Tribunal noted the statutory and governmental Mine Closure guidelines and that the claim depended on whether amounts were actually deposited into prescribed escrow or the expenditure actually incurred. In absence of clarity in record (and where escrow creation was delayed for administrative reasons), Tribunal remitted matter to AO to verify whether amounts were deposited or expenditures actually incurred and to allow deduction in the year of deposit/payment.Remitted to AO to grant deduction in year amounts credited to escrow or actually expended; allowed for statistical purposes.Revenue expenditure vs. capital expenditure - Disallowance of grants to schools and educational institutions (CSR/welfare payments) - HELD THAT: - Following coordinate bench precedent in assessee's own case and the existence of National Coal Wage Agreement/obligations, Tribunal held such grants were employee welfare or statutory/contractual obligations connected to the business and not gratuitous charity; accordingly the CIT(A)'s deletion of AO disallowance was upheld.Addition deleted; ground dismissed for Revenue.Revenue expenditure vs. capital expenditure - Social overheads - power & fuel disallowance (township electricity etc.) - HELD THAT: - Tribunal accepted that part of power/fuel relates to common township facilities and staff quarters; noting practical difficulties of precise quantification and following coordinate bench precedent it reduced AO's 50% disallowance to a 25% disallowance rather than delete entire claim, directing verification where appropriate.Disallowance restricted to 25% of claimed social overheads; CIT(A) order set aside in part.Revenue expenditure vs. capital expenditure - Overburden removal expenses (OBR) - claim for deduction - HELD THAT: - Following coordinate bench (Jabalpur Bench) precedent and factual matrix, Tribunal found no merit in treating entire OBR as capital; AO's disallowance was deleted in earlier decisions and Tribunal upheld deletion here.Disallowance deleted; ground dismissed for Revenue.Revenue expenditure vs. capital expenditure - Depreciation on assets (Apollo Hospital building; railway siding leased out) - HELD THAT: - On Apollo Hospital, Tribunal found that license/lease terms and independent management by lessee indicated licensor's income as 'income from house property' (not business) and sustained disallowance of depreciation (directed AO to compute house property income and allow standard deductions). On railway siding leased for long term (20 years) with lessee control, Tribunal held asset not in assessee's use for business; Section 27(iiib)/269UA principles applied and depreciation disallowed.Depreciation on Apollo building disallowed for business claim (income to be taxed under house property; consequential relief to be given). Depreciation on long term leased railway siding disallowed; ground dismissed.Final Conclusion: The Tribunal disposed the cross appeals for assessment years 2009 10 through 2016 17 by (a) upholding certain disallowances (notably land compensation/rehabilitation and denial of additional depreciation on certain heavy dumpers), (b) allowing other claims (expenditure on public roads, grants to schools, certain environment/sustainable development expenses and deletion of several AO additions), and (c) remitting multiple fact intensive issues (ESM transport payments, amortisation of land rehabilitation, actuarial provisions/leave encashment timing under section 43B(f), mine closure provisions, TDS/interest on disputed third party deposits and section 14A/Rule 8D matters) to the Assessing Officer for fresh adjudication after verification of records and giving the assessee an opportunity of hearing; consequential and consequential WDV/house property computations were directed as applicable.

2023 (10) TMI 1358 - ITAT MUMBAI Income Tax

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TPO reference for specified domestic transactions under Section 92BA(i) invalid after Finance Act 2017 omission without saving clause
The ITAT Mumbai held that reference to TPO for specified domestic transactions under Section 92BA(i) became invalid after the clause was omitted by Finance Act 2017 w.e.f. 01/04/2017. Following Karnataka HC in Texport Overseas and SC precedent in Kolhapur Canesugar Works, the tribunal ruled that omission without saving clause means the provision never existed. The department's argument that reference was valid at the time was rejected. Transfer pricing adjustments on specified domestic transactions under the omitted clause were deemed impermissible. Assessee's cross objection was allowed and revenue's appeal dismissed.

Omission of statutory provision and its effect on pending or subsequent proceedings - Effect of omission construed as repeal under the General Clauses Act (Sections 6 and 6A) - Validity of Transfer Pricing reference to TPO in respect of Specified Domestic Transactions under clause (i) of Section 92BA - Absence of a saving clause to preserve pending proceedings - Continuity (or lapse) of proceedings where an enactment is omitted without re-enactmentValidity of Transfer Pricing reference to TPO in respect of Specified Domestic Transactions under clause (i) of Section 92BA - Omission of statutory provision and its effect on pending or subsequent proceedings - Effect of omission construed as repeal under the General Clauses Act (Sections 6 and 6A) - Absence of a saving clause to preserve pending proceedings - Reference to the Transfer Pricing Officer under clause (i) of Section 92BA for specified domestic transactions made after omission of that clause is invalid and no transfer pricing adjustment can be sustained where omission occurred without any saving clause. - HELD THAT: - The Tribunal examined the amendment by the Finance Act, 2017 which omitted clause (i) of Section 92BA with effect from 01.04.2017 and considered whether proceedings/references made under that clause could be continued or enforced thereafter. Applying principles under Sections 6 and 6A of the General Clauses Act and following the reasoning in Fibre Boards and subsequent Supreme Court decisions, the Tribunal held that where a provision is unconditionally omitted without any saving clause or re-enactment covering pending proceedings, the omission has the effect that pending or subsequently instituted proceedings in respect of that provision cannot be continued. The Tribunal noted the line of authorities (including Kolhapur Cane Sugar, Fibre Boards, Shree Bhagwati) and concluded that omission may be treated as repeal for the purpose of saving or continuity only where the statute provides a saving; absent such a saving or re-enactment the effect is that actions taken after omission in reliance on the omitted provision are invalid. Applying that principle to the facts, the Tribunal held that references to the TPO under clause (i) of Section 92BA made after the omission could not sustain transfer pricing adjustments in respect of the specified domestic transactions. [Paras 9, 10]Cross objection of the assessee allowed; Revenue's appeal dismissed - TP reference under Section 92BA(i) omitted by Finance Act, 2017 cannot support adjustments where omission occurred without any saving clause.Final Conclusion: The Tribunal allowed the assessee's cross objection and dismissed the Revenue's appeal, holding that after omission of clause (i) of Section 92BA by the Finance Act, 2017 (w.e.f. 01.04.2017) and in the absence of any saving clause or re-enactment, references to the TPO under that clause are invalid and no transfer pricing adjustment can be made on such specified domestic transactions.

2023 (10) TMI 1355 - ALLAHABAD HIGH COURT GST

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GST Payment Dispute Resolved: Petitioner to Submit Fresh Representation, Respondents Must Decide Within Four Weeks
The HC addressed a dispute over GST payment for work completed before 01.07.2017. The court directed the petitioner to submit a fresh representation with supporting documents to respondents within one week. Respondents were mandated to decide on the claim within four weeks of receiving the representation. The writ petition was disposed of with these procedural directions.

2023 (10) TMI 1353 - MADHYA PRADESH HIGH COURT Income Tax

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Petition Dismissed: Search-Related Income Tax Notices Can Be Issued Without Time Limits u/s 149.
The HC dismissed the petition challenging the reassessment proceedings and notices issued under Section 148 of the Income Tax Act. The court held that the second proviso to Section 149 exempts cases involving searches from the time limitations for issuing such notices. The court concluded that the Revenue retains the authority to issue notices without time restrictions in search-related cases, rendering the petitioner's arguments based on the proviso as untenable. Consequently, the petition was dismissed without costs.

Time-bar for issuance of notice under section 148 - application of second proviso to Section 149(1) in relation to search cases - effect of search under section 132 and requisition under section 132A on limitation for reassessment - continuing power of Revenue to issue notice under section 148 despite amended limitationApplication of second proviso to Section 149(1) in relation to search cases - time-bar for issuance of notice under section 148 - continuing power of Revenue to issue notice under section 148 despite amended limitation - Whether the second proviso to Section 149(1) of the Income Tax Act, 1961 renders the time-limits in Section 149(1) applicable so as to bar issuance of a notice under Section 148 in a case founded on a search conducted under Section 132. - HELD THAT: - The Court examined the second proviso to Section 149(1) as inserted by the Finance Act, 2021 w.e.f. 01.04.2021 and observed that the proviso expressly excludes from the time-limit regime those cases where a notice under Section 153A or Section 153C read with Section 153A is required to be issued in relation to a search initiated under Section 132 or where books of account or other documents or any assets are requisitioned under Section 132A on or before 31.03.2021. The proviso therefore keeps search-related cases outside the temporal restrictions enacted by Section 149(1). The Court held that this exclusion does not extinguish or eclipse the Assessing Officer's power to issue a notice under Section 148; rather it removes the bar of the specified limitation period in such search or requisition cases. Applying that legal construction to the facts pleaded (search conducted in October, 2014), the Court concluded that the petitioner's reliance on the second proviso to contend that issuance of notice under Section 148 was time barred is unsustainable. [Paras 5, 6, 7, 8]The challenge based on the second proviso to Section 149(1) fails; the proviso excludes search/requisition cases from the time limit in Section 149(1) and does not prohibit issuance of a notice under Section 148.Final Conclusion: Petition dismissed; no interference with the notice under Section 148 or the consequential assessment order. No order as to costs.

2023 (10) TMI 1342 - Supreme Court Indian Laws

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Successive Section 482 petitions are barred for old grounds, and repeated challenges to the same criminal proceedings amount to abuse of process.
Successive petitions under Section 482 CrPC are not barred in every case, but a second petition cannot be used to revive grounds that were already available when the first petition was filed. The inherent jurisdiction is not meant for piecemeal challenges to the same criminal proceedings or to delay the process. Where the charge sheet and cognizance order existed before the first petition and no material change occurred thereafter, a later petition challenging those steps is not maintainable and amounts to abuse of process. The Court held that the second petition was rightly dismissed.

Inherent jurisdiction under Section 482 CrPC - maintainability of subsequent petition under inherent jurisdiction - changed circumstances - abuse of process by successive or instalment pleas - sanction to prosecuteMaintainability of subsequent petition under inherent jurisdiction - sanction to prosecute - Whether a second petition under Section 482 CrPC is maintainable when the grounds relied upon were available at the time of filing the first petition. - HELD THAT: - The Court held that a second petition under the inherent jurisdiction of the High Court (Section 482 CrPC) is not maintainable where the petitioner seeks to raise pleas or challenge proceedings that were available to him at the time of filing an earlier petition. The reasoning emphasises that permitting successive petitions raising instalment pleas would enable an accused to stall proceedings and constitute an abuse of process. The judgment recognises established exceptions in which a subsequent petition may be entertained - namely where circumstances at the time of the later petition are different from those at the time of the earlier petition - but stressed that absent such a change in circumstances the High Court should refuse to entertain a fresh petition on grounds that could and should have been raised earlier. Applying this principle to the facts, since the charge sheet and cognizance had been on record when the first petition (which challenged only the sanction) was filed, the petitioner could not later file a second petition to challenge the charge sheet and cognizance which were then available for challenge. [Paras 11, 12]Second petition dismissed as not maintainable because the matters challenged in it were available at the time of the first petition; exception remains where changed circumstances arise subsequent to the first petition.Inherent jurisdiction under Section 482 CrPC - changed circumstances - abuse of process by successive or instalment pleas - Whether the existence of changed circumstances can justify filing a subsequent petition under Section 482 CrPC. - HELD THAT: - The Court reaffirmed that there is no absolute bar on entertaining a subsequent petition under Section 482 CrPC where facts or circumstances have materially changed since the earlier petition; prior decisions permitting a later petition were distinguishable on that basis. However, the availability of this exception does not licence piecemeal invocation of inherent jurisdiction on grounds that were already available earlier. The Court cited precedent recognising maintainability of subsequent petitions in genuinely changed circumstances but cautioned against allowing successive petitions to be used as a stratagem to delay proceedings. [Paras 8, 11]A subsequent petition may be entertained if it is founded on changed circumstances not present at the time of the earlier petition; otherwise it will be rejected as an abuse of process.Final Conclusion: The Special Leave Petition was dismissed: where grounds were available at the time of the first petition under Section 482 CrPC, a later petition raising those same grounds is not maintainable; only genuinely changed circumstances justify a subsequent petition.

2023 (10) TMI 1568 - KERALA HIGH COURT Indian Laws

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Issues: (i) Whether the special investigation and cognizance provisions under the Companies Act, 2013 could be applied to acts alleged to have occurred before the Act came into force; (ii) Whether the statutory scheme under the Companies Act barred police investigation and prosecution for offences under the Indian Penal Code arising from the same factual matrix; (iii) Whether interference with the ongoing investigation and quashing of the FIR was warranted.

Issue (i): Whether the special investigation and cognizance provisions under the Companies Act, 2013 could be applied to acts alleged to have occurred before the Act came into force.

Analysis: The alleged acts of forging documents, manipulation of records and transfer of shares were found to have occurred before the Companies Act, 2013 came into force. A penal provision creating liability for fraud cannot be given retrospective effect unless the statute expressly so provides. The special procedure under Section 212 and the offence under Section 447 are substantive provisions and their operation depends on the date of the alleged act.

Conclusion: The Companies Act, 2013 could not be invoked to regulate or prohibit investigation in respect of acts allegedly committed before its commencement.

Issue (ii): Whether the statutory scheme under the Companies Act barred police investigation and prosecution for offences under the Indian Penal Code arising from the same factual matrix.

Analysis: The alleged conduct, on its face, disclosed ingredients of forgery and criminal breach of trust under the Indian Penal Code. The special procedure in Section 212(6) is directed to offences referred to in that provision and does not create an absolute bar against police investigation of IPC offences merely because the facts also touch company affairs. The principle that the same facts may give rise to offences under different enactments was applied, and the police investigation was held to be competent.

Conclusion: Police investigation and prosecution for the IPC offences were not barred by the Companies Act, 2013.

Issue (iii): Whether interference with the ongoing investigation and quashing of the FIR was warranted.

Analysis: The complaint and FIR contained specific allegations sufficient to disclose offences at least prima facie. The Court emphasised the limited scope of interference at the stage of investigation and declined to examine disputed factual defences. At the same time, the prolonged pendency of the investigation justified a direction to expedite it.

Conclusion: Quashing was declined, but the investigation was directed to be completed expeditiously.

Final Conclusion: The challenge to the criminal proceedings failed, while the complainant's prayer for timely completion of investigation was accepted by issuing a direction for expeditious completion and submission of the final report.

Ratio Decidendi: A later-enacted penal and procedural regime cannot retrospectively displace prosecution for earlier acts, and the existence of a special statutory mechanism for company fraud does not bar police investigation of independently cognizable IPC offences arising from the same facts.

Retrospective company fraud provisions and police investigation of IPC offences: the FIR was not quashed, but inquiry was expedited.
The Kerala High Court text states that the Companies Act, 2013 could not be applied retrospectively to alleged forgery, record manipulation and share-transfer acts said to have occurred before its commencement, because the special investigation and fraud provisions are substantive in nature. It further notes that the Companies Act does not bar police investigation or prosecution for independently cognizable IPC offences such as forgery and criminal breach of trust arising from the same facts. On the challenge to the FIR, the Court declined quashing at the investigation stage, found a prima facie case on the allegations, and directed expeditious completion of the investigation and filing of the final report.

Investigation into affairs of Company - Powers of Police to investigate the offences alleged against them as the investigation is relating to the matters touching upon the affairs of the Company - whether the interpretation of the term 'fraud' as defined under Section 447 of the Companies Act, 2013, which is an offence under the said provision, can be extended to include the acts admittedly committed prior to the enactment of the Companies Act? - HELD THAT:- There cannot be any doubt on the proposition that the offences that can be charged against a person for the commission of a particular act, is based on the date on which such particular act was committed by the said person and laws applicable at the time of commission of the said act. An offence which was introduced in a statute brought into force after the date of commission of such act, cannot be made applicable. This is because a particular act of a person, if it is an offence, can attract the penal provisions, which are prevailing at the time of commission of such offences and CRL.MC No. 5052 & WP(C) No. 2676 OF 2020 13 under no circumstances the same can be brought within the purview of any enactment which was subsequently brought into force, unless otherwise specifically provided. In this case, the offences which are now being investigated into by the police in Annexure-A4 crime are in relation to the offences under the provisions of the IPC and, therefore would not come under the offences referred to in sub- section(6) of section 212 of the Act. Moreover, the offences which are now being investigated are to be taken cognizance of by regular criminal courts and not by a special court constituted under the provisions of the Companies Act. Therefore, even though, the offences alleged against the accused have some relation to the affairs of the said company, that would not take away the right of a private individual to resort to criminal prosecution for the offences contemplated under the IPC in the absence of a specific prohibition in this regard. Moreover, the offences were allegedly committed prior to the enactment of the Companies Act, 2013 and therefore, no prosecution can be launched under the provisions of the Companies Act, 2013. Even though the said offences were allegedly committed in relation to the properties of the company and its shares, since the basic allegations are the creation of false records, the police can effectively investigate the same matter. Further, the offences referred to in section 212 (6) and 447 of the Companies Act, pertains to the offences under the Companies Act, and the said procedure cannot prevent the police from conducting an investigation for the offences that would attract the offences under the Indian Penal Code. This Court has to proceed with the assumption while considering the challenge against the FIR that the allegations raised therein are true, and even then, the said allegations would not make out the ingredients for attracting the offences. However, on going through the contents of the private complaint and the FIR registered based on the same, it can be seen that specific allegations are raised against the accused persons so as to constitute the offences alleged against them at least prima facie. The matter is under investigation. It is also to be noted in this regard that, crime has been registered in the year 2015, and the accused persons have approached this Court only in the year, 2022. Therefore, there are no justification in interfering in the investigation, allowing the prayers sought in this Crl. M.C. It is directed that investigation in the said crime, which is now being conducted by the Deputy Superintendent of Police, District Crime Branch, Kottayam be expedited and concluded without any delay and submit a final report within a period of six months from the date of production of a copy of this judgment.

2023 (10) TMI 1596 - ITAT DELHI Income Tax

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DCF share valuation cannot be replaced without specific defects in the report; addition under share premium rules was deleted.
Where an assessee adopts a valuation method permitted under law for share premium, the Assessing Officer cannot discard the report and substitute a different method without pointing out any specific defect, inaccuracy, or methodological infirmity. The assessee's DCF valuation was acted upon by a bank for loan sanction, and mere mismatch with later actual results did not justify rejection. The addition under section 56(2)(viib) was therefore unsustainable and was deleted.

2023 (10) TMI 1513 - ITAT MUMBAI Income Tax

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment include:

Whether the addition of Rs. 88,78,044/- on account of dividend and interest income was justified.
Whether the addition of Rs. 6,83,95,324/- on account of share market trading profit was justified.
Whether the addition of Rs. 26,65,106/- on account of the share market oversold position was justified.
Whether the addition of Rs. 2,89,250/- on account of profit on sale of shares in shortage was justified.
Whether the addition of Rs. 2,08,453/- on account of income from Badla transactions was justified.
Whether the partial allowance of interest expenditure was justified.
Whether the enhancement of income by Rs. 7,97,23,030/- due to discrepancies in ledger accounts was justified.
Whether the levy of interest under sections 234A and 234B was computed in accordance with the law.
Whether the CIT(A) was justified in granting relief of Rs. 49,86,64,659/- on account of profit earned on unexplained sale of shares.
Whether the CIT(A) was justified in treating the speculative loss as a normal business loss.
Whether the directions to verify and grant relief on account of oversold position in the capital market were justified.

2. ISSUE-WISE DETAILED ANALYSIS

Dividend and Interest Income Addition

The legal framework involves the assessment of income under the Income Tax Act, 1961. The Tribunal found that the assessee had shown dividend and interest income in her books, which was corroborated by bank statements. The discrepancy in the assessment order was acknowledged, and the addition was reduced to the amount shown in the books.

Share Market Trading Profit Addition

The Tribunal noted the lack of material evidence provided by the Revenue to substantiate the addition. The Tribunal followed precedents from the assessee's earlier assessment years, applying a 50% reduction to the addition due to the lack of complete evidence and the passage of time.

Share Market Oversold Position Addition

The Tribunal found that the addition was based on incomplete evidence and followed earlier rulings that such additions were unsustainable. The addition was deleted.

Profit on Sale of Shares in Shortage Addition

The Tribunal followed earlier decisions in the assessee's case, finding no distinguishing facts for the current year, and deleted the addition.

Income from Badla Transactions Addition

The Tribunal found the addition to be based on similar reasoning as in earlier years and deleted it, following the precedent set in the assessee's case.

Interest Expenditure Allowance

The Tribunal referred to Supreme Court and jurisdictional High Court decisions, allowing the interest expenditure under section 57 of the Act, as the interest had a nexus with income from other sources.

Ledger Account Discrepancies

The Tribunal noted the potential for double taxation and directed verification with the corresponding entries in Harshad S. Mehta's accounts, allowing conditional relief.

Levy of Interest under Sections 234A and 234B

The Tribunal directed the AO to levy interest as per the law, dismissing the assessee's ground.

Revenue's Appeal on Unexplained Sale of Shares

The Tribunal upheld the CIT(A)'s relief, emphasizing the lack of evidence from the Revenue to disprove the assessee's records.

Speculative Loss Treatment

The Tribunal followed earlier decisions treating the loss as a normal business loss, dismissing the Revenue's appeal.

Relief on Oversold Position

The Tribunal found the issue moot due to the decision in the assessee's favor on similar grounds.

3. SIGNIFICANT HOLDINGS

The Tribunal established key principles, including:

Reliance on bank statements and books of accounts for determining dividend and interest income.
Application of a 50% reduction in additions where evidence is incomplete and outdated.
Recognition of the nexus between interest expenditure and income from other sources under section 57.
Conditional relief based on verification of corresponding entries in related accounts.
Adherence to precedents in treating speculative losses as normal business losses.

The final determinations included partial allowance of the assessee's appeal and dismissal of the Revenue's appeal, with specific directions for verification and application of legal principles.

ITAT Mumbai reduces share trading profit addition by 50% for assessment year 1993-94
ITAT Mumbai partly allowed assessee's appeal for A.Y. 1993-94 regarding share market transactions. The tribunal sustained 50% of share market trading profit addition (Rs. 2,88,36,552/-) while deleting the balance, following precedent from earlier assessment year. Additions for dividend/interest income were restricted considering banking channel evidence. Additions for oversold position, profit on sale of shares in shortage, and Badla transactions were deleted due to lack of supporting material by AO. Interest expenditure under Section 57 was allowed following Supreme Court precedent. Enhancement by CIT(A) was allowed subject to verification in related proceedings. Revenue's appeal was dismissed as reliefs granted by CIT(A) were found judicious and factually supported.

Addition on account of the valan transactions unexplained - HELD THAT:- There is substance in the argument of the assessee that dividend/interest income having earned through banking channels and reflected in the bank accounts, the primary entries reflected in the bank statement should be considered as material sufficient to determine income. It is not the case of the Revenue that the assessee had earned any dividend /interest in cash from neither her holdings nor any evidence is made available on record in support of such proposition. Therefore in our opinion it would be reasonable to consider the dividend/interest income as shown in the books of account as taxable income of the assessee. Even otherwise, the difference between the figure arrived at by the AO is not much higher and as per the principle enshrined in Article 265 of the Constitution of India that State should not enrich itself unjustly, we are inclined to accept the plea of the assessee that addition in respect of dividend/interest income should be restricted. Addition on account of share market trading profit - HELD THAT:- AO has consistently framed the assessment for A.Y. 1993-94 in case of the assessee and other related entities in the like manner as that of A.Y. 1992-93. Similarly, even the AO has not produced before us the material relied upon by him in order to substantiate the correctness of his working and disprove the figures of the assessee after lapse of 30 years. In our opinion, different approach cannot be adopted when there is no change in facts and circumstances of the case. The facts being similar, there being no material adduced before us to distinguish the circumstances and to follow the judicial discipline, we are respectfully following the order in [2019 (2) TMI 1198 - ITAT MUMBAI] and in all fairness, equity direct the A.O. to allow 50% relief in respect of addition. The addition to the extent of Rs. 2, 88, 36,552/- is sustained and the balance addition of Rs. 2, 88, 36,552/- is deleted. In result, the ground no. 2 is partly allowed. Addition on account of alleged share market oversold position - HELD THAT:- Tribunal has accepted the contention of the assessee that the addition on account of share market oversold position is not sustainable in law since the relevant material relied upon by the AO for computing the additions has never been brought on record till date and therefore, the addition made by the AO cannot be sustained. Addition made by the AO does not deserve to be sustained in the facts and circumstances of the case and hence, delete the same. In the result, ground filed by the assessee is allowed. Addition on account of profit on sale of shares in shortage - AO has assessed the income of the assessee for A.Y. 1993-94 in the like manner and the DR has not pointed out any distinguishable facts in the appeal under consideration. Therefore, respectfully following the order [2019 (2) TMI 1198 - ITAT MUMBAI] passed by the co-ordinate bench and materiality of the addition, we also delete the addition of Rs. 2, 89,250/- confirmed by the Ld. CIT (A). In the result, ground no. 4 of the assessee is allowed. Income from Badla transactions - AO has followed similar process of determining Badla Income as was done in earlier year and the annexure number remains same for both years - DR has not dwell upon any distinguishing feature. Considering the materiality of the addition by respectfully following the order passed by the Tribunal in earlier year in assessee’s own case we delete the impugned addition. In the result, ground raised by the assessee is allowed. Disallowing the interest expenditure claimed by the assessee u/s. 57 - HELD THAT:- It is apparent that the reasons given for not allowing the interest expenditure claimed by the assessee u/s. 57 of the Act are not tenable in view of the decision of Seth R. Dalmia [1977 (9) TMI 1 - SUPREME COURT] which is duly followed in the case of Smt. Pratima Mehta [2023 (10) TMI 1474 - ITAT MUMBAI] We allow this ground of appeal in favour of the assessee and direct the A.O. to allow interest expenditure claimed by the assessee while computing the taxable income. Enhancement made by the CIT (A) on account of difference noticed in the ledger accounts - It is undisputed that the assessee carried on transactions on behalf of her client. But the contention of the assessee that it had not claimed deduction for interest payable to Harshad S. Mehta in her P & L account placed at page 800 of the paper book seems to be prima facie correct. The appellate proceedings in the case of Harshad S. Mehta are pending before the Ld. CIT (A) and if it is established that Harshad S. Mehta has offered this income for A.Y.1993-94 the same needs to be deleted from the total income of the assessee. This relief to the assessee is subject to addition in the hands of Harshad S. Mehta. In the result, ground no. 8 raised by the assessee is allowed for statistical purposes. Levy of interest u/s. 234A and 234B - In our opinion, the A.O. is duty bound to levy interest u/s. 234A and 234B of the Act as per the provisions of the Act. We accordingly direct the A.O. to levy interest as per the law. This ground of the assessee has no merit and stands dismissed. Assessee has not furnished source of acquisition of shares -main objection of the Revenue is that the assessee should not be granted relief as she had not furnished source of the investment - HELD THAT:- As such, it is obvious that the assessee has carried out transactions on the floors of the exchange. We find that the facts and figures brought on record by the assessee before the appellate authority have to be disproved by Revenue by bringing any cogent material or evidence to the contrary. ITAT being final fact finding authority is more concerned about the facts to be established on record based on which a fair adjudication can be carried out. It is undisputed that the CIT (A) has granted relief to the assessee on factual basis. In our opinion, the impugned order passed by the Ld. CIT(A) on this issue granting relief to the assessee is judicious and needs no interference. Hence, the first ground of appeal filed by the Revenue is dismissed. Stock in trade and allow interest expenditure on proportional basis which was claimed by the assessee - HELD THAT:- It is the case of the Revenue that the directions are issued without considering fact that the assessee failed to show that the respective entities had charged interest on amounts paid by the respective parties. Ground no. 3 pertains to objection raised by the Revenue that the assessee had claimed deduction u/s. 57 of the Act hence; it is for the assessee to prove that the interest expenditure was incurred wholly and exclusively for the purpose of earning interest income. Thus, it is apparent that the allowability of interest has been covered by cross appeal filed by the assessee in the ground discussed at length hereinabove. This issue has been decided in favour of the assessee. Having held that the assessee is entitled to claim deduction for interest expenditure, these grounds filed by the Revenue become infructuous and hence, ground nos. 2 & 3 are dismissed. Non granting of set off of loss against other income - As it is apparent that the A.O. has not adduced any material to show that the transactions captured are speculative in nature. It is apparent that the entire working or the basis of working is arbitrary. Similarly, the Tribunal in assessee’s own case for A.Y. 1992-93 has upheld the view taken by the predecessor first appellate authority. No decision to the contrary has been brought to our attention by the Revenue. Direction given by the Ld. CIT (A) to the A.O. to verify and grant relief on account of oversold position in capital market - It is apparent that the issue related to over-sold position in the capital market has also been raised in ground no. 3 of appeal filed by the assessee and the said issue has been decided in favour of the assessee for the reasons discussed hereinabove. As such, this ground filed by the Revenue has become infructuous and hence, dismissed.

2023 (10) TMI 1497 - ITAT SURAT Income Tax

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1. ISSUES PRESENTED and CONSIDERED

The judgment addresses the following core legal questions:

Whether the assumption of jurisdiction by the Assessing Officer for initiating reassessment proceedings under Section 147 of the Income Tax Act, 1961, was valid.
Whether the purchases made by the assessee from M/s Rose Gems Pvt. Ltd. were genuine or constituted accommodation entries, justifying the disallowance of such purchases.
Whether the addition of 6% of the turnover, as determined by the CIT(A), was appropriate, or if the entire amount of alleged bogus purchases should be disallowed.
Whether the terminology used in the appellate order regarding the addition based on "turnover" was a typographical error and should be interpreted as "bogus purchases."

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings

Relevant legal framework and precedents: The reassessment was initiated under Section 147 of the Income Tax Act, 1961, which allows reopening of assessment if income has escaped assessment. The court referenced precedents such as Pushpak Bullion (P) Ltd Vs DCIT and Peass Industrial Engineers (P) Ltd Vs DCIT.
Court's interpretation and reasoning: The court found that the Assessing Officer had credible information from the Investigation Wing regarding accommodation entries provided by Bhanwarlal Jain Group, justifying the reopening of the assessment.
Key evidence and findings: The court noted the report from the Investigation Wing indicating that the assessee was a beneficiary of accommodation entries.
Application of law to facts: The court held that the information provided a reasonable basis for the Assessing Officer to believe that income had escaped assessment, thus validating the reassessment proceedings.
Treatment of competing arguments: The assessee argued that the reopening was based on vague information without specific evidence against them. The court dismissed this argument, citing the sufficiency of the Investigation Wing's report.
Conclusions: The court upheld the validity of the reassessment proceedings.

Issue 2: Genuineness of Purchases from M/s Rose Gems Pvt. Ltd.

Relevant legal framework and precedents: The case involved the determination of whether purchases were genuine or accommodation entries, with reference to precedents like Mayank Diamond Private Limited.
Court's interpretation and reasoning: The court considered the evidence of the Investigation Wing and the lack of genuine business activity by M/s Rose Gems Pvt. Ltd.
Key evidence and findings: The court noted the absence of physical stock and the admission by Bhanwarlal Jain of providing accommodation entries.
Application of law to facts: The court found that the purchases were not genuine and were accommodation entries.
Treatment of competing arguments: The assessee claimed to have provided all necessary documentation to prove the genuineness of purchases. The court found this insufficient against the Investigation Wing's findings.
Conclusions: The court concluded that the purchases were accommodation entries.

Issue 3: Appropriateness of 6% Addition

Relevant legal framework and precedents: The CIT(A) restricted the addition to 6% of the turnover, referencing CBDT instructions and similar cases.
Court's interpretation and reasoning: The court noted that similar cases involving Bhanwarlal Jain had sustained additions at 6% of bogus purchases.
Key evidence and findings: The court relied on the pattern of decisions in similar cases and the absence of genuine business activity.
Application of law to facts: The court applied the precedent of sustaining 6% of bogus purchases, rather than the entire amount.
Treatment of competing arguments: The Revenue argued for 100% disallowance, while the assessee argued for no addition. The court found a middle ground based on precedent.
Conclusions: The court upheld the addition of 6% on bogus purchases.

Issue 4: Interpretation of "Turnover" vs. "Bogus Purchases"

Relevant legal framework and precedents: The court examined whether the terminology used in the appellate order was a typographical error.
Court's interpretation and reasoning: The court determined that the reference to "turnover" was indeed a typographical error and should be interpreted as "bogus purchases."
Key evidence and findings: The court relied on consistent terminology used in similar cases and the context of the order.
Application of law to facts: The court corrected the interpretation to align with established precedent.
Treatment of competing arguments: Both parties acknowledged the confusion, and the court clarified the intended meaning.
Conclusions: The court concluded that the addition should be based on bogus purchases, not turnover.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The Hon'ble jurisdictional High Court upheld the addition @ 6% on bogus purchases."
Core principles established: The court reaffirmed the principle that additions for bogus purchases should be limited to a reasonable percentage, in this case, 6%, to account for revenue leakage while recognizing some level of genuine business activity.
Final determinations on each issue: The court upheld the reassessment proceedings, confirmed the purchases as accommodation entries, sustained the addition at 6% of bogus purchases, and clarified the typographical error regarding "turnover."

Bogus purchases addition restricted to 6% upheld following Pankaj K. Chaudhary precedent despite Revenue's appeal
ITAT Surat dismissed assessee appeals and partly allowed Revenue appeals regarding bogus purchases. CIT(A) had restricted addition from 100% to 6% of bogus purchases. ITAT upheld the 6% addition following precedent in Pankaj K. Chaudhary case, noting no change in facts or law and Revenue's inability to produce controverting material. The tribunal confirmed the restricted addition rate rather than the original 100% addition sought by Revenue.

2023 (10) TMI 1458 - BOMBAY HIGH COURT Companies Law

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Company director's oppression claim fails under Section 10F due to unclean hands doctrine and asset diversion misconduct
The Bombay HC dismissed an appeal under Section 10F of the Companies Act, 1956, challenging a CLB order rejecting oppression and mismanagement claims. The court held that appellate jurisdiction is limited to questions of law, not fact re-appreciation. The HC found the respondent company was not a quasi-partnership between two family groups, as shareholding patterns showed significant disparity. The petitioner's resignation following a Section 284 notice was not deemed oppressive. Crucially, the court applied the "clean hands" doctrine, ruling that the petitioner's conduct involving asset diversion and related party transactions without board approval breached statutory duties, disqualifying him from seeking equitable relief under Sections 397-398.

Appeal on question of law under Section 10F - Perversity standard in appellate review - Quasi partnership doctrine / lifting the corporate veil - Oppression and mismanagement under Sections 397 and 398 - Equitable jurisdiction - clean hands doctrine - Adverse inference for non furnishing of documents - Section 402 powers - buy out and relief to do substantial justiceAppeal on question of law under Section 10F - Perversity standard in appellate review - Scope of interference by the High Court in an appeal under Section 10F. - HELD THAT: - The Court held that an appeal under Section 10F lies only on a question of law arising out of the CLB's order, but such question of law may arise from facts where findings are perverse, based on no evidence, ignore relevant material, consider irrelevant material or involve patent error of law. The High Court is therefore confined to testing the CLB's order on the touchstone of perversity and legal error, rather than re appreciating facts as a first appellate forum. The Court applied these principles to the impugned order and examined whether the CLB's conclusions suffered from perversity or legal infirmity. [Paras 21, 26, 27, 28, 29]The Court found no question of law of sufficient substance to warrant interference; the CLB's order was neither perverse nor based on no evidence.Quasi partnership doctrine / lifting the corporate veil - Whether Respondent No.1 Company was, in substance, a quasi partnership permitting application of partnership principles and treating directorial dispute as oppression. - HELD THAT: - The Court evaluated the formation history, articles, shareholding pattern, number and character of other shareholders, absence of an antecedent partnership converted into the company, and the rights provided by the articles. Although family businesses and attempts at settlement existed, the aggregate factors (unequal shareholding, presence of multiple other shareholders and corporate/group entities, and absence of contractual right to participate in management) did not justify treating the company as a quasi partnership. The Court emphasised that piercing the corporate veil requires clear material showing the company's real character differs from its corporate form. [Paras 30, 37, 41, 45, 46]The Company is not a quasi partnership; the exception allowing treatment of a directorial dispute as oppression does not apply.Oppression and mismanagement under Sections 397 and 398 - Whether the alleged removal/ousting of Petitioner No.1 from the board constituted oppression within Sections 397/398. - HELD THAT: - The Court accepted the CLB's finding that the contention of unlawful removal was inconsistent in the petitioner's pleadings and that the petitioner tendered resignation after a special notice under Section 284; there was no contemporaneous material to show coercion or that the steps were part of a continuous course of oppressive conduct. The Court reiterated that mere directorial disputes do not ordinarily amount to oppression unless the company is a quasi partnership; having found no quasi partnership and given the ambivalent evidence regarding resignation/reappointment, the alleged ouster could not be characterised as oppressive. [Paras 51, 55, 59, 61]The removal/cessation of Petitioner No.1 does not amount to oppression under Sections 397/398; it is a directorial dispute not warranting relief.Equitable jurisdiction - clean hands doctrine - Whether Petitioner No.1's conduct disentitled him from seeking equitable relief under Sections 397 and 398. - HELD THAT: - The Court relied on the CLB's consideration of the auditors' report and findings of related party transactions, write offs and alleged diversion of assets to entities controlled by the petitioners. Applying the clean hands principle, the Court held that diversion of company assets, related party dealings without requisite approvals and breaches of directors' duties materially affected the equities. Even if some infractions were minor, the aggregate conduct disentitled the petitioner from equitable relief. The Court therefore declined to grant relief on equitable grounds. [Paras 62, 66, 69, 70]Petitioner No.1's conduct disentitles him to equitable relief; the CLB did not err in so holding.Adverse inference for non furnishing of documents - Whether the CLB should have drawn an adverse inference against the respondents for withholding inspection of documents in light of the earlier consent order keeping the issue open. - HELD THAT: - The Court examined the prior orders, the CLB's directions and the subsequent consent order of this Court which left parties' rights open. It found the CLB's treatment of the inspection issue inarticulate but concluded that, given the petitioners' failure to substantiate the core allegations (quasi partnership and unlawful ouster) and the overall evidence, refusal to draw an adverse inference did not render the impugned order vulnerable to interference. The Court noted that the petitioners also failed to specify precisely which documents, if withheld, would have decisively altered the outcome. [Paras 11, 12, 16, 72, 73]No adverse inference was required; the CLB did not commit a legal error in declining to draw one.Section 402 powers - buy out and relief to do substantial justice - Whether the CLB erred in invoking Section 402 to offer the petitioners an option to exit the company on fair valuation rather than granting other reliefs. - HELD THAT: - The Court observed that the CLB found no case for winding up on just and equitable grounds and that there was no deadlock given the uneven shareholding. The CLB nonetheless exercised its wide remedial power under Section 402 to propose a buy out option after permitting access to records for valuation. The Court held valuation is an expert matter while determination of share quantum is adjudicatory; the CLB's approach to provide a mechanism to do substantial justice was within its discretionary powers and not inequitable given the factual matrix. [Paras 14, 75, 76, 78, 79]The CLB did not err in invoking Section 402 to offer a buy out option; no broader relief was warranted.Final Conclusion: The appeal is dismissed. The High Court finds no reversible question of law or perversity in the CLB's order: the company is not a quasi partnership, the alleged ouster does not constitute oppression, the petitioner's conduct disentitles him to equitable relief, no adverse inference was required, and the CLB permissibly exercised Section 402 by offering a buy out option. The earlier workable interim arrangement is continued for eight weeks and there shall be no order as to costs.

2023 (10) TMI 1432 - ITAT AHMEDABAD Income Tax

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Cooperative society entitled to Section 80P(2)(d) deduction on gross interest from cooperative bank deposits
The ITAT Ahmedabad ruled in favor of the assessee cooperative society regarding deduction under Section 80P(2)(d) for interest received from fixed deposits with a cooperative bank. The tribunal held that the assessee was eligible for the deduction on gross interest received from cooperative banks without adjusting interest paid to the same bank. Following precedent from Gujarat HC in Sabarkantha District Cooperative Milk Producers Union Ltd., the tribunal found that income from investment in cooperative societies and banks qualifies for the deduction, allowing the assessee's grounds and deleting the addition made by the Assessing Officer.

Eligibility for deduction of interest income from cooperative bank deposits - deduction under Section 80P(2)(d) of the Income Tax Act - binding precedent of the jurisdictional High Court - scope of revision under Section 263 of the Income Tax ActEligibility for deduction of interest income from cooperative bank deposits - deduction under Section 80P(2)(d) of the Income Tax Act - binding precedent of the jurisdictional High Court - scope of revision under Section 263 of the Income Tax Act - Interest earned on fixed deposit with Sabarkantha District Co-operative Bank is eligible for deduction under Section 80P(2)(d) and the addition made by the Assessing Officer is deleted. - HELD THAT: - The Tribunal examined whether interest of Rs. 2.55 lakhs received on fixed deposit with a co-operative bank qualified for deduction under Section 80P(2)(d). Applying binding decisions of the jurisdictional High Court and coordinate-bench precedents of the Tribunal, which upheld entitlement to Section 80P relief in respect of interest from deposits with co-operative banks, the Tribunal found no infirmity in the assessment order that required exercise of revisionary power under Section 263. The earlier appellate direction to examine allowable expenditure under Section 57 did not justify sustaining the addition where the claim of deduction had been considered in assessment and where higher authoritative precedent favoured the assessee. Relying on those authorities, the Tribunal restored the assessment order and deleted the impugned addition.Grounds of the assessee allowed; addition deleted and assessment restored.Final Conclusion: The appeal is allowed: the Tribunal, following jurisdictional High Court and coordinate-bench decisions, held that interest on fixed deposit with a co-operative bank is eligible for deduction under Section 80P(2)(d), deleted the addition made by the Assessing Officer for A.Y. 2017-18 and restored the assessment order; a corrigendum corrects references to the provision as Section 80P(2)(d).

2023 (12) TMI 549 - KERALA HIGH COURT Income Tax

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Issues Involved:
1. Whether the failure to notify the 'long term specified asset' by the Central Government under clause-b of explanation (2) to Section 54EE of the Income Tax Act is arbitrary and in violation of Article 14 of the Constitution of India.
2. Whether the Central Government can be held to be bound by the doctrine of promissory estoppel and direction be issued for notifying the long term specified asset under Section 54EE.
3. Whether the petitioner has legitimate expectation of notification to be issued by the Central Government notifying the 'long term specified asset' for investment from the proceeds of sale/transfer of long term capital asset by the petitionerRs. If so, what relief can be granted to the petitioner at this point of timeRs.

Summary:

Issue 1: Arbitrariness and Violation of Article 14
The petitioner argued that the Central Government's failure to notify the 'long term specified asset' under Section 54EE of the Income Tax Act was arbitrary and violated Article 14 of the Constitution of India. The court held that the decision not to notify the 'long term specified asset' falls within the domain of fiscal policy and prudence, which is an executive and policy decision. The court emphasized that it should not interfere with fiscal policy decisions unless they are made with an oblique end, extraneous purposes, or without applying relevant considerations. The court concluded that the Central Government's decision not to notify the 'long term specified asset' was not arbitrary and did not violate Article 14.

Issue 2: Doctrine of Promissory Estoppel
The petitioner contended that the Central Government was bound by the doctrine of promissory estoppel due to the promise made during the introduction of the Finance Act, 2016, and subsequent press releases and statements by the Hon'ble Minister. The court held that the doctrine of promissory estoppel does not apply against the state in its governmental, public, or sovereign functions except to prevent fraud or manifest injustice. The court emphasized that the petitioner would not be entitled to claim exemption from capital gains tax without the necessary notification issued by the Central Government. The court concluded that the doctrine of promissory estoppel was not applicable in this case and rejected the petitioner's argument.

Issue 3: Legitimate Expectation
The petitioner argued that they had a legitimate expectation that the Central Government would notify the 'long term specified asset' before April 1, 2019, and had arranged their tax liability accordingly. The court held that the principle of legitimate expectation is rooted in reasonableness, fairness, and non-arbitrariness. The court concluded that non-issuance of the notification was not arbitrary, unfair, or unreasonable. The court emphasized that issuing a notification under Section 54EE lies within the exclusive domain of the executive and is a legislative function. The court found no substance in the petitioner's claim of legitimate expectation and rejected the writ petition.

Conclusion:
The court concluded that the Central Government's decision not to notify the 'long term specified asset' under Section 54EE was not arbitrary and did not violate Article 14. The doctrine of promissory estoppel was not applicable in this case, and the petitioner did not have a legitimate expectation for the issuance of the notification. The court rejected the writ petition but allowed the petitioner to make a representation to the Central Government regarding their demands, which should be dealt with expeditiously.

Government cannot be compelled to notify long-term assets under Section 54EE for capital gains exemption
Kerala HC rejected a writ petition seeking mandamus to compel the Central Government to notify long-term specified assets under Section 54EE of the Income Tax Act for capital gains exemption. The petitioner, who had capital gains from a slump sale, argued the government's failure to issue the notification was arbitrary and violated Article 14. The HC held that issuing notifications under Section 54EE is subordinate legislation within the executive's discretionary power, not subject to judicial mandamus. The court found no discrimination or constitutional violation, rejecting claims of promissory estoppel and legitimate expectation, noting the petitioner could not claim exemption without proper notification of specified assets.

Section 54EE capital gains exemption by investment in notified long-term specified fund - promissory estoppel - legitimate expectation - judicial review of executive discretion - mandamus cannot be issued to direct executive to make policy or exercise delegated legislative power - arbitrariness under Article 14 in exercise of delegated legislative power - distinction between subordinate legislation and administrative actionSection 54EE capital gains exemption by investment in notified long-term specified fund - arbitrariness under Article 14 in exercise of delegated legislative power - mandamus cannot be issued to direct executive to make policy or exercise delegated legislative power - Validity of non-issuance of notification under Explanation 2(b) to Section 54EE and whether such non-issuance is arbitrary in violation of Article 14. - HELD THAT: - Section 54EE grants exemption only upon investment in units of funds to be notified by the Central Government and requires units to be issued before 1 April 2019. The decision whether to notify such a fund lies within the executive's domain of fiscal policy and amounts to exercise of delegated legislative power (subordinate legislation). Judicial interference by issuing mandamus to compel notification would amount to directing the executive to adopt a particular policy, which courts must avoid. Absent evidence that the executive acted with mala fide, extraneous considerations, or without applying relevant mind, mere non-issuance of the notification cannot be characterised as arbitrary so as to invoke Article 14. Reliance on Mangalam Organics and related precedents establishes that courts will not direct the exercise of such discretionary subordinate-legislative power except in exceptional circumstances of mala fides or abuse. [Paras 12, 13, 14, 15]Non-issuance of the notification under Section 54EE is not shown to be arbitrary and does not warrant issuance of mandamus directing the Central Government to notify the long-term specified asset/fund.Promissory estoppel - judicial review of executive discretion - distinction between governmental/sovereign functions and situations where estoppel may apply - Whether the Central Government is estopped from not issuing the notification by virtue of public statements, memorandum and press releases and whether promissory estoppel can be invoked to compel notification. - HELD THAT: - The doctrine of promissory estoppel is an equitable remedy requiring a valid promise and detrimental change of position; it is not generally applied against the State in its governmental, public or legislative functions except to prevent fraud or manifest injustice. The material placed by the petitioner (memorandum, press release, parliamentary answer) does not demonstrate the type of irrevocable promise or reliance leading to fraud or manifest injustice analogous to cases where estoppel has been imposed. Authorities establish that in tax and fiscal matters the Revenue and Government may change positions and that promissory estoppel will not ordinarily be used to amend or override statutory provisions or eligibility conditions. Accordingly, the Court cannot hold the Central Government bound by promissory estoppel to issue the notification. [Paras 20, 21, 22, 23, 24]Doctrine of promissory estoppel does not apply to compel the Central Government to notify long-term specified assets under Section 54EE in the facts of this case; the contention is rejected.Legitimate expectation - judicial review of executive discretion - mandamus cannot be issued to direct executive to make policy or exercise delegated legislative power - Whether the petitioner possessed a legitimate expectation that the notification would be issued before 1 April 2019 and what relief, if any, follows from such expectation. - HELD THAT: - Legitimate expectation concerns fairness, reasonableness and non-arbitrariness, but it cannot be used to compel the executive to perform a legislative or policy function. The petitioner was aware that the statutory benefit under Section 54EE required a notification and that without such notification investment in a notified fund could not be made. The executive's choice not to notify falls within policy domain and does not constitute unfairness or arbitrariness in the sense required to sustain relief. There is no foundation for recognising a enforceable legitimate expectation that would oblige the Government to issue the notification in the manner sought. The petitioner therefore has no entitlement to the Section 54EE exemption in absence of a notification. [Paras 25, 26, 27, 28]No enforceable legitimate expectation is made out; petitioner is not entitled to relief compelling notification and the writ petition is rejected, subject to petitioner being permitted to make a representation to the Central Government.Final Conclusion: Writ petition dismissed. The Court holds that non-issuance of the notification under Explanation 2(b) to Section 54EE is not arbitrary, promissory estoppel does not oblige the Government to notify the fund, and no legitimate expectation entitles the petitioner to the statutory exemption; petitioner may, however, make a representation to the Central Government which shall be considered expeditiously.

2023 (12) TMI 445 - CESTAT ALLAHABAD Service Tax

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Service tax demand upheld on property rental to vendors under Section 66E from July 2012
CESTAT Allahabad upheld service tax demand on appellant renting premises at Krishi Pradarshini, Aligarh to vendors for business activities. Tribunal held renting of immovable property became taxable service from 01.07.2012 under Section 66E of Finance Act, 1994. Appellant's registration under Section 12AA of Income Tax Act did not qualify for exemption under Notification No.25/2012, which applies only to charitable services. Extended period of limitation properly invoked as appellant deliberately avoided registration and tax payment despite knowing liability. Penalties under Sections 77 and 78, interest under Section 75, and late fees under Section 70 were upheld. Appeal dismissed.

Levy of service tax on Renting of Immovable Property as a declared service - Invocation of extended period of limitation for concealment or suppression - Principles of natural justice and personal hearing - Exemption under Notification No.25/2012 ST for services by entities registered under section 12AA - Liability for registration, return filing and late fee - Interest on delayed payment of service tax - Penalty under Section 78 of the Finance Act - Penalty under Section 76 of the Finance Act - Penalty under Section 77 of the Finance ActPrinciples of natural justice and personal hearing - Whether the impugned adjudication order suffers from violation of principles of natural justice for want of personal hearing - HELD THAT: - The Tribunal found that the adjudicating authority afforded multiple personal hearing opportunities to the appellant which were not availed. The adjudicator recorded that five personal hearing opportunities were given and relied upon settled precedents to hold that non appearance after being offered hearing does not amount to breach of natural justice. Consequently the complaint of denial of hearing was rejected. [Paras 4]No violation of principles of natural justice; the challenge on grounds of non hearing is dismissed.Levy of service tax on Renting of Immovable Property as a declared service - Whether the appellant's activities of letting out constructed shops and vacant land for commercial use are taxable as 'Renting of Immovable Property' and liable to service tax - HELD THAT: - The Tribunal applied the statutory definitions of 'declared service' and 'renting' and observed that the supply of constructed shops and vacant land for use by business entities falls within the definition of renting of immovable property. The decision noted that after amendment the renting of immovable property is a declared taxable service and that support services including renting provided by government entities are leviable. Prior tribunal orders on the assessee's activities were noted to have held these services taxable; accordingly the gross amounts received for renting to business entities were held liable to service tax. [Paras 4]The demand of service tax on renting of immovable property (shops and vacant land) is upheld.Exemption under Notification No.25/2012 ST for services by entities registered under section 12AA - Whether the appellant, being registered under section 12AA of the Income Tax Act, is entitled to exemption under Notification No.25/2012 ST for the renting services - HELD THAT: - The Tribunal construed the notification entry and held that the exemption applies to services of a charitable nature provided by entities registered under section 12AA, not to commercial renting of immovable property. The activities of the appellant were found to be commercial in nature (renting for business/commerce), and there was no specific exemption for renting of immovable property by a charitable trust. Consequently the claimed exemption was rejected. [Paras 4]Claimed exemption under Notification No.25/2012 ST is not available for the appellant's renting services.Invocation of extended period of limitation for concealment or suppression - Whether the Revenue was justified in invoking the extended period of limitation for the periods in question - HELD THAT: - The Tribunal examined the appellant's conduct and return filing history and found that the appellant had not registered, had not filed ST 3 returns and had delayed supplying details despite reminders. The adjudicator's finding was that such conduct amounted to suppression and wilful non compliance, justifying invocation of the extended period. The Tribunal rejected the appellant's reliance on decisions where bonafide belief was found, distinguishing the facts on record and upholding the exercise of extended limitation. [Paras 4]Invocation of the extended period of limitation was justified and sustained.Liability for registration, return filing and late fee - Interest on delayed payment of service tax - Penalty under Section 78 of the Finance Act - Penalty under Section 76 of the Finance Act - Penalty under Section 77 of the Finance Act - Whether registration/return filing defaults, interest, late fee and penalties were rightly imposed - HELD THAT: - The Tribunal upheld findings that the appellant failed to obtain registration, failed to file ST 3 returns and did not pay service tax, warranting liability for late fee and interest under the statute. On penalties, the Tribunal accepted the adjudicator's conclusion that wilful suppression and non filing justified imposition of penalties: Section 78 was applied for July 2012-March 2014 (with proviso reducing penalty where applicable), Section 76 for April 2014-March 2015 and Section 77 for non filing of returns. The Tribunal observed there was no overlap in periods for penalties and found the imposition consonant with transitory provisions and precedent analogies regarding mandatory penalty once conditions for extended period are established. [Paras 4]Registration/return defaults, late fee and interest are upheld; penalties under Sections 78, 76 and 77 are sustained.Final Conclusion: The appeal is dismissed. The Tribunal upheld the service tax demand for letting out shops and vacant land as 'Renting of Immovable Property' for the periods July'12 to March'15, sustained interest and late fees for delayed payment and non filing, accepted invocation of the extended limitation period, rejected the exemption claim under Notification No.25/2012 ST, and affirmed the penalties imposed under Sections 78, 76 and 77.

2023 (12) TMI 420 - ALLAHABAD HIGH COURT GST

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Bail under GST offences granted where punishment was limited and tax determination remained pending, with liberty safeguards sufficient.
In a prosecution under the CGST Act, the HC applied settled bail factors, including the nature of accusation, severity of punishment, attributed role, surrounding circumstances, and the risk of interference with witnesses or misuse of liberty, and granted bail. The court noted that the alleged offences were punishable up to five years, no GST recovery notice had been issued, and tax or penalty had not yet been ascertained. Treating the offences as compoundable and triable by a Magistrate, it held that the balance of individual liberty and public interest favoured release, without expressing any view on the merits.

Bail under Section 439 of the Code of Criminal Procedure - illegal arrest - absence of reason to believe - non-ascertainment of penalty or tax - no notice for recovery of G.S.T. - compoundable offences triable by Magistrate - nature of accusation and severity of punishment in bail jurisprudence - conditions of bail and cancellation on breach - limited observations for bail without expressing opinion on meritsBail under Section 439 of the Code of Criminal Procedure - illegal arrest - absence of reason to believe - no notice for recovery of G.S.T. - non-ascertainment of penalty or tax - compoundable offences triable by Magistrate - nature of accusation and severity of punishment in bail jurisprudence - conditions of bail and cancellation on breach - limited observations for bail without expressing opinion on merits - Applicant granted bail in Case Crime No. 887 of 2023 subject to conditions. - HELD THAT: - The court noted that the applicant was arrested without any recorded reason to believe or satisfaction justifying arrest; that no notice for recovery of G.S.T. had been issued and penalty/taxes had not been ascertained; that the alleged offences attract imprisonment up to five years and are compoundable and triable by a Magistrate. Applying settled bail principles-having regard to the nature of accusation, nature of evidence, severity of punishment, character and role of the accused, and other relevant circumstances-and after considering earlier decisions on the scope of bail, the court concluded that on the totality of facts it was appropriate to grant bail. The grant was made without expressing any opinion on the merits of the case and subject to specified conditions (personal bond, two sureties and prohibitions against tampering with witnesses or evidence, requirements of attendance at key trial stages, undertaking not to seek adjournments for evidence, and prohibition against further criminality). Breach of those conditions was made a ground for cancellation of bail and the trial court was directed to verify the computerized copy of the order as prescribed. The trial court remains free to independently adjudicate the merits on the basis of evidence led.Bail allowed subject to furnishing bond and two sureties and compliance with enumerated conditions; observations limited to bail and not operative on merits.Final Conclusion: Bail application allowed and applicant released on bail in the stated case subject to specified conditions; observations limited to the bail order and not to the merits of the prosecution.

2023 (12) TMI 137 - ITAT CHANDIGARH Income Tax

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PCIT's revision order under Section 263 partially upheld for falsified confirmations and incomplete gift documentation
ITAT Chandigarh partially allowed assessee's appeal against PCIT's revision order u/s 263. The tribunal upheld PCIT's jurisdiction regarding falsified confirmations from two parties (M/s A.K. Minerals and M/s G.K Laxmi) where subsequent confirmations contradicted original ones, and incomplete gift documentation from assessee's mother. However, ITAT set aside PCIT's findings on bank deposits belonging to third party, cash transactions with various individuals, retail cash sales, unsecured loans, non-compliance with post-assessment CBDT instructions, and audit report examination, holding these matters were adequately inquired by AO during assessment proceedings.

Section 263 - revisionary jurisdiction - scope of scrutiny assessment / complete scrutiny - reopening under Section 147 and distinction from Section 263 - verification of documentary evidence and subsequent falsification - onus on assessee to explain source of gift - materiality and threshold of inquiry by Assessing OfficerSection 263 - revisionary jurisdiction - scope of scrutiny assessment / complete scrutiny - materiality and threshold of inquiry by Assessing Officer - Validity of Pr. CIT's invocation of revisionary jurisdiction under Section 263 for alleged failure of the AO to make requisite enquiries in assessment dated 29.05.2019. - HELD THAT: - The Tribunal examined whether the AO had omitted basic enquiries and whether such omission rendered the assessment order prima facie erroneous and prejudicial to revenue. The notices and questionnaire show the case was selected for complete scrutiny; nevertheless, the AO has discretion to set the threshold and examine transactions selectively. Where the AO called for and considered documents, accepted explanations and recorded no adverse finding, mere disagreement by the Commissioner does not automatically render the order erroneous. However, where subsequent information on record raises doubt on the authenticity of documents relied upon by the AO, revisionary jurisdiction under Section 263 may properly be invoked. Applying these principles, the Tribunal modified the PCIT's order by upholding only those parts where tangible information warranted fresh enquiry and setting aside other parts where the AO had in fact made and recorded enquiries or where no specific deficiency was pointed out by the PCIT. [Paras 31, 32, 45, 46, 49]PCIT's exercise of power under Section 263 sustained only insofar as specific instances with supporting information justified it; other general or unsupported allegations of lack of enquiry are set aside.Verification of documentary evidence and subsequent falsification - Section 263 - revisionary jurisdiction - Whether assessment must be set aside because confirmations from M/s A.K. Minerals and M/s G.K. Laxmi filed during assessment were subsequently falsified. - HELD THAT: - Assessee had produced plain-paper confirmations and ledger entries which the AO considered during assessment. Subsequent direct confirmations received after completion of assessment denied the transactions. The Tribunal held that where documentation relied upon at assessment is subsequently falsified and such information was available to the PCIT on review, PCIT was within jurisdiction under Section 263 to set aside the assessment and direct de-novo enquiry. The Tribunal confirmed the PCIT's findings in respect of these two parties and directed fresh enquiries. [Paras 29, 30, 31, 33, 34]Findings in relation to M/s A.K. Minerals and M/s G.K. Laxmi are confirmed and assessment set aside for de-novo enquiry.Materiality and threshold of inquiry by Assessing Officer - scope of scrutiny assessment / complete scrutiny - Whether the PCIT rightly held the AO's acceptance of retail cash sales and several debtor transactions (other than those confirmed falsified) made the assessment erroneous. - HELD THAT: - For retail cash sales at a petrol pump, individual customer documentation is generally not maintained; relevant verification is availability of stock, quantity-wise records, VAT reporting and reconciliation of purchases and sales. The record shows AO called for and examined purchase/sales registers, stock details and VAT returns and was satisfied. Similarly, for several debtor transactions (Bhupinder Singh, Bindri, Ajmer Singh, Gurleen Traders) AO had obtained and examined ledger and confirmations and recorded satisfaction; no subsequent falsification was on record. Accordingly, the Tribunal set aside the PCIT's adverse findings in respect of these transactions. [Paras 36, 38, 39]PCIT's findings as to retail cash sales and certain debtor transactions are set aside for want of basis; AO's enquiries in these respects are held adequate.Onus on assessee to explain source of gift - Section 263 - revisionary jurisdiction - Validity of PCIT's direction for fresh enquiry regarding cash gift from assessee's mother. - HELD THAT: - A plain-paper, undated confirmation from the donor without explanation of source does not discharge the assessee's onus to explain source of a cash gift for tax purposes. The AO had accepted such incomplete confirmation without probing source. The Tribunal found the PCIT was justified in holding that the confirmation was 'half-baked' and in directing fresh verification after affording opportunity to the assessee. [Paras 41]PCIT's finding regarding the gift from mother is upheld and remitted for fresh enquiry.Materiality and threshold of inquiry by Assessing Officer - Section 263 - revisionary jurisdiction - Whether PCIT rightly concluded that confirmations and enquiries relating to unsecured loans (generally) were inadequate, and whether specific deficiencies required fresh enquiry. - HELD THAT: - The Tribunal recognised AO's discretion to set thresholds (AO sought confirmations where unsecured loans exceeded Rs.1 lakh). Absent any tangible information brought to PCIT's notice to cast doubt over all unsecured loans, general criticism of limited enquiries cannot sustain revision. However, confirmations from three specified persons (Baldish Singh Toor, Ramneek Toor, Raj Kumar) were plain-paper, incomplete and the assessee failed to establish creditworthiness or source; AO accepted these without further probing. The Tribunal upheld PCIT's direction for fresh enquiry limited to these specific confirmations but set aside broader PCIT findings on unsecured loans where no specific defect was pointed out. [Paras 42, 46, 47]Findings relating to unsecured loans generally are set aside; findings relating to the three specific incomplete confirmations are upheld and remanded for fresh verification.CBDT instructions - applicability to completed assessments - Whether AO's failure to follow CBDT verification checklist (issued 09.08.2019) rendered the assessment erroneous where assessment was completed on 29.05.2019. - HELD THAT: - The CBDT instruction relied upon by PCIT was issued after the assessment date. The Tribunal held the AO could not be expected to follow instructions issued after passing the assessment; therefore, PCIT could not validly fault the AO for non-compliance with that instruction. [Paras 40]PCIT's finding that AO erred in not following the CBDT instruction is set aside.Availability of audit report on e-filing portal - Whether AO's alleged failure to obtain and examine the audit report/Form 3CD on file rendered the assessment erroneous. - HELD THAT: - Form 3CD was e-filed and available on the department's portal; the AO's choice not to download and retain a physical copy on the file does not negate its availability for verification. Absent proof that the audit report was not available for AO's examination, PCIT's adverse finding on this point is unsupported. [Paras 48]PCIT's finding that the AO did not examine the audit report is set aside.Final Conclusion: The Tribunal modified the PCIT's order under Section 263: confirmations from M/s A.K. Minerals and M/s G.K. Laxmi, the gift from the mother, and three specified unsecured loan confirmations require fresh enquiry and have been remitted to the AO for de novo verification; other PCIT findings (bank account ownership, retail cash sales, general unsecured loans, non compliance with CBDT instruction, and audit report availability) are set aside. The AO is directed to make inquiries limited to the upheld points and pass a fresh order after giving the assessee opportunity of hearing.

2023 (12) TMI 94 - ITAT MUMBAI Income Tax

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Compensation paid for closure of agreement constitutes allowable business expenditure when properly documented and business-connected
The ITAT Mumbai held that compensation paid by the assessee for closure of an agreement constituted allowable business expenditure. The AO disallowed the claim alleging the agreement was an afterthought and sham transaction between related parties. The tribunal found the payment was connected to the assessee's business, properly documented through annual accounts, agreements, payment certificates, and disclosed in recipient company's accounts. Since the land for which compensation was paid generated taxable business income, and payment was proven genuine, the deduction was allowed. The AO's appeal was dismissed.

Allowability of compensation as business expenditure under section 37(1) - agreement for sale without possession and post-dated cheques as valid consideration - enforceable pre-existing right and surrender for compensation - afterthought or sham transaction - absence of related-party collusion - probative value of disclosure in annual accounts and bank certificateAllowability of compensation as business expenditure under section 37(1) - probative value of disclosure in annual accounts and bank certificate - Compensation paid by the assessee to M/s Emtelle India Pvt. Ltd. is allowable as a deduction in the business of real estate development. - HELD THAT: - The Tribunal accepted that the payment of compensation was made, the land sale generated business profit which was offered to tax, and the compensation was paid in connection with the assessee's real estate business. The CIT(A) was correctly followed in holding that such compensation, being commercially motivated and closely connected to the business, is deductible. The Tribunal noted the disclosure in the assessee's accounts, the recipient's accounting of the amount as income, and the commercial context of abandoning/altering earlier arrangements as supporting the genuineness and business nexus of the expenditure. On these findings the disallowance by the AO was reversed and the appellate order allowing the claim was upheld. [Paras 26, 27, 28]Deduction allowed; appellate order deleting disallowance upheld and grounds of the AO dismissed.Agreement for sale without possession and post-dated cheques as valid consideration - enforceable pre-existing right and surrender for compensation - The agreement between the assessee and M/s Emtelle India Pvt. Ltd. was genuine and created an enforceable pre-existing right which was surrendered for compensation. - HELD THAT: - The Tribunal found that an agreement executed on non-judicial stamp paper existed, post-dated cheques were issued and substantiated by a bank certificate, and the parties had disclosed the arrangement in their accounts. The Tribunal held that these facts established that the buyer had a pre-existing right enforceable against the assessee and that the assessee compensated the buyer for surrendering that right when better offers were available. The Tribunal observed that registration was not necessary for the agreement's validity in the circumstances and that the AO did not examine the recipient to challenge enforceability. [Paras 19, 20, 24, 25]Agreement held genuine; recipient had a pre-existing right surrendered for compensation.Afterthought or sham transaction - absence of related-party collusion - probative value of disclosure in annual accounts and bank certificate - The payments were not shown to be an afterthought or a sham, nor were the parties related; allegations of collusion and fabrication were rejected. - HELD THAT: - The Tribunal evaluated the AO's contentions that the agreement was an afterthought and that the parties were related. It found the agreement predates the stamp paper date and was disclosed in prior annual accounts; bank certificates supported issuance of post-dated cheques before the agreement date; and neither party disclosed the other as a related party in statutory disclosures. Cumulatively these facts rebutted the AO's contention of afterthought or related-party collusion. [Paras 20, 21]Allegations of afterthought and related-party collusion rejected.Final Conclusion: The appeal filed by the Assessing Officer is dismissed; the order of the CIT(A) allowing the deduction for compensation paid to M/s Emtelle India Pvt. Ltd. is affirmed.

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