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2023 (12) TMI 786 - BOMBAY HIGH COURT FEMA

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Special Director failed to justify maximum penalty under FEMA for IPL franchise bidding violations, penalty reduced
Bombay HC upheld Tribunal's decision reducing maximum penalty imposed by Special Director under FEMA for IPL franchise bidding violations. Respondents routed UK investments through Mauritius for IPL franchise acquisition. Tribunal found contraventions were technical, caused no exchequer loss, funds remained in India for intended purposes, and entities gained no benefit while suffering financial detriment. Special Director failed to justify maximum penalty imposition or apply proportionality doctrine. HC agreed Tribunal's factual findings were not perverse and Special Director's order was unsustainable without proper justification for maximum penalty.

Doctrine of proportionality - judicial review under Section 35 of FEMA - perversity standard for appellate interference - penalty discretion in quasi criminal proceedings - onus to prove that a person was in charge and responsibleJudicial review under Section 35 of FEMA - perversity standard for appellate interference - doctrine of proportionality - Validity of the Tribunal's interference with the Special Director's penalty order and whether the matter raised a question of law for this Court under Section 35 of FEMA. - HELD THAT: - The Court examined whether the Tribunal was justified in modifying the Special Director's adjudication and reducing the aggregate penalty from the amounts imposed to Rs. 15 Crores. The Court held that the primary question is whether interference is appropriate on the touchstone of proportionality and perversity. The Special Director recorded satisfaction as to contraventions but gave no explanation or discussion justifying imposition of maximum penalty; indeed the order appears to have simply multiplied the sum involved by the statutory multiplier. The Tribunal re appreciated the evidence, found absence of mens rea and mala fides, noted failure of the Department to prove specific roles of individual respondents or that they were in charge of day to day management, and concluded that the penalties were disproportionate. The High Court found the Tribunal's findings to be supported by evidence and not perverse, and that the question presented was essentially one of fact (appreciation of evidence and proportionality) rather than a question of law amenable to this Court's interference under Section 35. The Court therefore upheld the Tribunal's interference and reduction of penalties as lawful exercise of appellate scrutiny where the original order lacked reasoned application of proportionality. [Paras 12, 13, 17, 18, 22]Tribunal's interference in reducing the penalties is justified; the High Court finds no question of law warranting reversal and upholds the Tribunal's order.Penalty discretion in quasi criminal proceedings - onus to prove that a person was in charge and responsible - doctrine of proportionality - Whether the Special Director erred in imposing maximum penalties without recording reasons and without establishing specific culpability of individual respondents. - HELD THAT: - Applying authorities on imposition of penalty in quasi criminal proceedings and on proportionality, the Court observed that penalty is discretionary and must be exercised judicially with relevant factors considered. The Special Director's order did not set out any individualized findings of role, mens rea or control to justify maximum penalties against several individuals; the Department failed to discharge the burden of proving that those individuals were in charge and responsible. The Tribunal detailed the factual circumstances (absence of day to day control, nominee/directorships, bona fide belief, utilization of funds in India, no loss to exchequer) and concluded the contraventions were at best technical and venial. The High Court agreed that the Special Director failed to apply proportionality and therefore the imposition of maximum penalty was unsustainable. [Paras 13, 14, 15, 21, 22]Special Director's imposition of maximum penalties without individualized reasons or proof of culpability is unsustainable; the Tribunal rightly reduced the penalties.Final Conclusion: The High Court dismisses the appeals and upholds the Tribunal's order reducing the penalties to the amount directed (Rs. 15 Crores deposited), finding no question of law for interference and confirming that the Special Director's imposition of maximum penalties without reasoned application of proportionality was unsustainable.

2023 (12) TMI 779 - CESTAT MUMBAI Central Excise

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Issues Involved:
The issues involved in the judgment are the confirmation of demand under rule 14 of CENVAT Credit Rules, 2004, imposition of penalty under rule 15 of CENVAT Credit Rules, 2004, and the dispute regarding credit availed on 'input service' attributable to manufacturing and trading activities.

Summary of the Judgment:

1. The appeal by M/s Atlas Copco (India) Ltd was against the order of the Commissioner of Central Excise, Pune - I confirming a demand under rule 14 of CENVAT Credit Rules, 2004, and imposing a penalty under rule 15, while dropping another demand. The primary objection was regarding the pro-rata adjustment not conforming to rule 6 of the said rules. The appellant argued that the discretion for exercising options rested with the assessee, citing relevant tribunal and court decisions.

2. The central issue was the appellant's compliance with rule 6(3) of CENVAT Credit Rules, 2004 concerning the consequence of not maintaining separate records for common 'input services'. The appellant contended that they followed rule 6(2) by segregating the utilization of common input services between excisable goods and exempted services. The Tribunal's decision in Star Agriwarehousing & Collateral Management Ltd case supported the appellant's position.

3. The Tribunal emphasized that once the proportionate reversal of CENVAT credit is made under Rule 6(3A), any procedural violations are inconsequential and should not disentitle the assessee from availing the credit. The Tribunal referred to various decisions supporting the view that proportionate reversal satisfies the non-availment requirement.

4. The judgment also discussed the interpretation of exemption clauses and the need for liberal construction in case of ambiguity. It cited relevant court decisions to support the appellant's position regarding the utilization of CENVAT credit for common input services.

5. Ultimately, the Tribunal set aside the impugned order and remanded the matter back to the original authority for a fresh decision, considering the appellant's submissions. The appeal was disposed of accordingly.

( Order pronounced in the open court on 13/12/2023 )

Pro-rata CENVAT credit reversal substantially satisfies Rule 6 requirements, matter remanded for fresh consideration
CESTAT Mumbai-AT allowed appellant's appeal by remand in a CENVAT credit recovery case. The dispute concerned whether appellant's pro-rata adjustment for credit reversal complied with Rule 6 of CENVAT Credit Rules, 2004. The Tribunal found that proportionate reversal substantially satisfies Rule 6(3) requirements, citing precedent that Rule 6(3A) makes Rule 3 workable. The adjudicating authority failed to examine appellant's claim of proper apportionment between excisable goods and exempted services. The impugned order was set aside and matter remanded for fresh decision considering appellant's submissions.

Proportionate reversal of Cenvat credit - Rule 6(3) of CENVAT Credit Rules, 2004 - consequence of non-maintenance of separate records - availability of Cenvat credit on input services used for mixed supplies - procedural lapses not disentitling substantive creditRule 6(3) of CENVAT Credit Rules, 2004 - proportionate reversal of Cenvat credit - consequence of non-maintenance of separate records - Whether the appellant had complied with the prescription in Rule 6(3) by apportioning common input services between excisable goods and exempted services and effectuating proportionate reversal of credit, and whether the original order correctly denied credit on that basis - HELD THAT: - The Tribunal found that the adjudicating authority did not examine the appellant's case on the question whether apportionment of input services between taxable and exempted outputs and subsequent proportionate reversal satisfied the requirements of Rule 6(3). The Tribunal noted authorities holding that proportionate reversal, when correctly made, effectively meets the non availment requirement and that minor procedural lapses ought not to defeat substantive entitlement to credit. In view of these precedents and the lacuna in the original order's examination of the appellant's submissions, the Tribunal concluded that the matter requires fresh consideration by the original authority to determine whether the appellant's apportionment and reversal complied with Rule 6(3) (and the consequences of any non maintenance of separate records), and accordingly set aside the impugned order for that limited purpose. [Paras 8, 9]Impugned order set aside and matter remanded to the original authority for fresh decision after taking into account the appellant's submissions on apportionment and proportionate reversal under Rule 6(3).Final Conclusion: The Tribunal allowed the appeal in part by setting aside the adjudicating authority's order and remanding the matter to the original authority to decide, after fresh consideration of the appellant's submissions, whether apportionment of input services and proportionate reversal satisfied the requirements of Rule 6(3) of the CENVAT Credit Rules, 2004.

2023 (12) TMI 774 - ITAT AHMEDABAD Income Tax

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ITAT deletes section 271(1)(c) penalties for process loss disallowance and land sale profit treatment disputes
ITAT Ahmedabad deleted penalties under section 271(1)(c) imposed on assessee for process loss disallowance and treatment of land/flat sale profits as business income instead of capital gains. Tribunal held that mere unsustainable claims do not constitute furnishing inaccurate particulars of income, following Supreme Court precedent in Reliance Petroproducts case. Additionally, disallowance under section 40A(2)(b) regarding interest payments to directors was deleted due to revenue neutrality, as directors offered interest income in their returns while providing personal guarantees for company loans without charging guarantee commission.

Penalty under section 271(1)(c) of the Income Tax Act, 1961 - furnishing inaccurate particulars of income - mere change of head of income is not furnishing inaccurate particulars - estimate-based process loss and levy of penalty - disallowance under section 40A(2)(b) of the Act and revenue neutrality - requirement of positive finding of concealment/animus to sustain penaltyPenalty under section 271(1)(c) of the Income Tax Act, 1961 - furnishing inaccurate particulars of income - mere change of head of income is not furnishing inaccurate particulars - requirement of positive finding of concealment/animus to sustain penalty - Deletion of penalty levied for A.Y. 2012-13 in respect of process loss and profit on sale of land/flats - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) in deleting the penalty imposed under section 271(1)(c). The Tribunal applied the settled principle that mere non-acceptance of a claimed deduction or a change in the head of income does not, by itself, amount to furnishing inaccurate particulars of income; there must be material leading to a reasonable conclusion of concealment or that particulars supplied were false. The disallowance in respect of process loss was estimate-based and fell within the ambit of a bonafide, debatable claim; accordingly penalty was unsustainable. Similarly, the profit on sale of land/flats being treated as business income instead of capital gain involved a real issue of classification where two opinions were possible; in absence of a finding that details furnished in the return were incorrect, invocation of section 271(1)(c) was not justified. Reliance on Supreme Court precedent (as applied by the authorities below) and co-ordinate Tribunal decisions supported deletion of penalty on merits. [Paras 13, 14]Penalty imposed for A.Y. 2012-13 deleted; Revenue's appeal dismissed.Penalty under section 271(1)(c) of the Income Tax Act, 1961 - estimate-based process loss and levy of penalty - mere making of a claim which is debatable will not sustain penalty - Deletion of penalty levied for A.Y. 2015-16 in respect of process loss - HELD THAT: - The Tribunal followed the coordinate Bench decision (ITA No. 1189/Ahd/2019 dated 17.09.2021) which held that where a process loss claim is debatable and made in the return with supporting facts, mere disallowance does not constitute furnishing of inaccurate particulars to attract section 271(1)(c). Applying that precedent, the Tribunal found no material to demonstrate that the assessee's explanation was false or that there was animus to conceal, and therefore deleted the penalty. [Paras 16, 17]Penalty imposed for A.Y. 2015-16 deleted; assessee's appeal allowed.Disallowance under section 40A(2)(b) of the Act - revenue neutrality and acceptance by recipients - requirement of evidence to sustain disallowance - Deletion of addition made under section 40A(2)(b) for A.Y. 2016-17 in respect of excess interest paid to chairman and director - HELD THAT: - The Tribunal found that the assessee produced ledger evidence and returns of the recipients showing receipt and tax on the interest, and that the chairman and director had furnished personal guarantees for bank borrowings - a business exigency explaining the higher interest. The Tribunal noted absence of contrary material from Revenue and observed revenue neutrality (assessees having nil assessed income while recipients declared and paid tax). On these facts the Tribunal held the Assessing Officer's addition under section 40A(2)(b) unsustainable and deleted the addition. [Paras 22, 24, 25]Addition under section 40A(2)(b) for A.Y. 2016-17 deleted; assessee's appeal allowed.Final Conclusion: The Tribunal dismissed the Revenue appeal for A.Y. 2012-13 by deleting the penalty under section 271(1)(c), deleted penalties for A.Y. 2015-16 relating to process loss, and allowed the assessee's appeal for A.Y. 2016-17 by deleting the disallowance under section 40A(2)(b).

2023 (12) TMI 773 - ITAT DELHI Income Tax

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Software access for subscription and training services doesn't qualify as fee for technical services without technology transfer
ITAT Delhi ruled that subscription, professional and training services provided by the assessee through software access do not constitute fee for technical services (FTS) under either the Income Tax Act or Double Taxation Avoidance Agreement. The tribunal held that merely granting access to software without technology transfer does not qualify as FTS, citing SC precedent in Kotak Securities Ltd where common services required for trading were distinguished from specific technical services. The income was held not taxable in India, and the assessee's grounds were allowed.

Fees for Technical Services - "make available" clause - DTAA interpretation - subscription, professional and training services - TDS credit verification - consequential interest recalculation - penalty initiation prematureFees for Technical Services - "make available" clause - DTAA interpretation - subscription, professional and training services - Subscription, professional and training services charged by the assessee do not constitute Fees for Technical Services under the India-Netherlands DTAA and are not taxable in India. - HELD THAT: - The Tribunal, following its earlier decision in the assessee's own case for A.Y. 2019-20, held that the assessee merely granted access to software and did not transfer technology or otherwise 'make available' technical knowledge, experience, skill, know how or processes to the recipient. The Tribunal applied the 'make available' requirement in Article 12(5)(b) of the India-Netherlands Treaty and relied upon the principles in De Beers and Kotak Securities to conclude that common or access type services which do not enable the recipient to apply the technology do not attract FTS treatment. On this basis the additions made by the AO treating such receipts as FTS were deleted. [Paras 7, 8, 11]Grounds challenging the addition treating the receipts as FTS are allowed; the additions are deleted for the assessment years in issue.TDS credit verification - Credit for taxes (TDS) claimed by the assessee is to be verified and granted by the AO in accordance with law. - HELD THAT: - The DRP had directed verification of factual submissions relating to tax credit; the Tribunal observed that entitlement to credit requires factual examination and therefore remitted the matter to the assessing officer to verify documents (including Form 26AS) and grant credit as per law. [Paras 8, 16]AO directed to verify and grant TDS credit after due verification in accordance with law.Consequential interest recalculation - Interest charged under sections 234A/234B/234C/234D is consequential and to be recalculated in light of the appellate relief. - HELD THAT: - The Tribunal held that any interest charged is consequential upon the tax determination; therefore, upon deletion of the additions and grant of any TDS credit, the AO shall recompute interest, if any, while giving effect to the appellate order. [Paras 9, 17]AO to recalculate interest, if any, consequential to the relief granted.Penalty initiation premature - Initiation of penalty proceedings under section 274 read with section 270A is premature and requires no adjudication at this stage. - HELD THAT: - The Tribunal deemed the initiation of penalty proceedings premature in the context of the substantive adjustments and remittances ordered, and therefore declined to adjudicate penalty proceedings at this stage. [Paras 10, 18]Penalty proceedings held to be premature and not adjudicated.Final Conclusion: Assessee's appeals for A.Y. 2020-21 and A.Y. 2021-22 are partly allowed: additions treating subscription, professional and training receipts as FTS are deleted; TDS credit to be verified and granted by the AO; interest to be recomputed consequentially; penalty proceedings held premature.

2023 (12) TMI 745 - CESTAT KOLKATA Central Excise

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Goods Classified as Inputs, Not Capital Goods; Full Cenvat Credit Allowed, Interest Demand Overturned, Appellant Relieved.
The Tribunal ruled in favor of the appellant, determining that the goods in question were inputs, not capital goods, thus allowing full cenvat credit in the procurement year. Consequently, the demand for interest was deemed unsustainable, and the impugned order was set aside, relieving the appellant from any interest liability and granting consequential relief.

2023 (12) TMI 735 - ALLAHABAD HIGH COURT GST

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Procedural Defects Invalidate GST Search Warrant: Lack of Proper Authorization Leads to Quashing of Seizure Proceedings Under Section 67(1)
HC quashed search and seizure proceedings under U.P. GST Act due to procedural non-compliance with Section 67(1). The court found the authorization invalid as reasons were provided after the search warrant was issued, rendering the entire action illegal. The court ordered release of detained goods and documents within 15 days.

Power of inspection, search and seizure - mandatory pre-authorization reasons - invalid authorization vitiates search and seizure - quashing of search and seizure and release of detained goods and documentsPower of inspection, search and seizure - mandatory pre-authorization reasons - Requirement that the Joint Commissioner must have reasons before authorising search and seizure under Section 67(1) of the U.P. GST Act - HELD THAT: - The Court examined Section 67(1) of the U.P. GST Act and held that the provision contemplates that the proper officer not below the rank of Joint Commissioner must have reasons to believe the specified grounds before authorising, in writing, any other officer to inspect places of business. The statutory language establishes a mandatory sequence in which reasons must be furnished to and considered by the Joint Commissioner prior to signing an authorization. Where the authorization is signed without such antecedent reasons being placed before the Joint Commissioner, the statutory precondition is not satisfied.The Court held that reasons must be provided to and considered by the Joint Commissioner before he signs any authorization under Section 67(1).Invalid authorization vitiates search and seizure - quashing of search and seizure and release of detained goods and documents - Consequences of issuance of an authorization prior to furnishing reasons-validity of the authorization and the search and seizure carried out thereunder - HELD THAT: - Applying the mandatory-sequence principle to the facts, the Court found that the Form GST INS-01 was issued on 31.08.2022 while the reasons were supplied and signed by the Joint Commissioner only on 01.09.2022. This amounted to the authorization being granted without the requisite antecedent consideration of reasons, and thereby rendered the authorization vitiated. Consequently, the search and seizure conducted pursuant to that authorization was illegal. In exercise of writ jurisdiction, the Court quashed the impugned authorization and the consequent search and seizure and directed the authorities to release all goods and documents detained or confiscated within a specified period.The authorization issued without antecedent reasons was quashed; the search and seizure carried out pursuant thereto was set aside and the authorities were directed to release detained or confiscated goods and documents.Final Conclusion: Writ petition allowed: authorization for search and seizure issued prior to furnishing reasons to the Joint Commissioner was quashed; consequent search and seizure set aside and detained goods/documents to be released within 15 days.

2023 (12) TMI 721 - DELHI HIGH COURT Income Tax

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Issues Involved:
1. Whether the reimbursement of advertising, marketing, and promotion expenses (AMP) incurred by the respondent/assessee on behalf of its Associated Enterprise (AE) was at arm's length.
2. Whether the Transfer Pricing Officer (TPO) ought to have used the bright line test (BLT) in computing the arm's length price (ALP) concerning AMP activities.

Summary:

Issue 1: Reimbursement of AMP Expenses at Arm's Length
The appeal concerns the assessment year 2007-08, where the appellant/revenue contested the order of the Income Tax Appellate Tribunal regarding the reimbursement of AMP expenses incurred by the respondent/assessee on behalf of its AE. The primary issue was whether the reimbursement was at arm's length and if an upward adjustment was necessary. The TPO had added Rs. 65,34,38,272/- to the taxable income of the respondent/assessee, arguing that the AMP expenses exceeded the arm's length amount. However, the Tribunal found that the respondent/assessee was adequately compensated through higher profitability for the products sold, and the comparables chosen by the TPO had a lower net margin than the respondent/assessee, indicating no need for an upward adjustment.

Issue 2: Use of Bright Line Test (BLT)
The TPO used the BLT to determine the ALP for AMP expenses, which was contested by the respondent/assessee. The Tribunal, following the decision in Sony Ericsson Mobile Communications India Pvt. Ltd. v. CIT-III, held that the application of the BLT was legally erroneous. The Tribunal's decision was based on the fact that the respondent/assessee's net operating margin was higher than the comparables chosen by the TPO, and the AMP expenditure resulted in increased sales in India, benefiting the respondent/assessee.

Conclusion:
The High Court upheld the Tribunal's order, stating that no substantial question of law arose for consideration. The court concluded that the respondent/assessee was adequately compensated for the AMP expenses through higher profitability, and the application of the BLT by the TPO was legally incorrect. Consequently, the appeal was disposed of, and the application for condonation of delay in re-filing was rendered infructuous.

Revenue's appeal dismissed on transfer pricing adjustment for advertising and marketing expenses worth Rs. 119.54 crores
Delhi HC dismissed revenue's appeal regarding transfer pricing adjustment on advertising, marketing and promotion expenses. The assessee, engaged in import and distribution of products, incurred AMP expenses of Rs. 119.54 crores and received compensation through higher profitability. The court held no upward adjustment was warranted as chosen comparables had lower net margins than assessee. Additionally, TPO's application of bright line test in determining arm's length price was legally erroneous. The Tribunal's order was upheld as no substantial question of law arose.

Arm's length price - transfer pricing adjustment - advertising, marketing and promotion expenses (AMP) - bright line test - transactional net margin method - adequate compensation for marketing intangiblesArm's length price - advertising, marketing and promotion expenses (AMP) - adequate compensation for marketing intangibles - transactional net margin method - Whether the AMP expenditure incurred by the assessee was adequately compensated and required any upward transfer pricing adjustment - HELD THAT: - The Court examined undisputed facts that the assessee had ceased manufacturing and was engaged only in import and distribution in the year under consideration; that there was no operative advertising agreement in the relevant year; that the TPO himself accepted other international transactions on TNMM; and that the assessee's net operating margin (3.29%) exceeded the arithmetic mean net margin of the comparables selected by the TPO (2.09%). Given these facts the higher net margin demonstrated that the distribution business already reflected compensation for AMP activities. The Court held that the comparative profitability therefore militated against any upward adjustment in respect of AMP expenses and that the Tribunal was right in concluding no addition was warranted. [Paras 16, 17, 18]No upward transfer pricing adjustment was required; the assessee was adequately compensated for AMP expenses and the Tribunal's allowance is upheld.Bright line test - transfer pricing adjustment - arm's length price - Whether the TPO was correct in applying the bright line test to determine the ALP for AMP activities - HELD THAT: - The Court found that the TPO's application of the bright line test to compute the ALP for AMP expenditure was a legal error in light of the binding guidance of this Court in the Sony Ericsson Mobile Communications India decision. The use of BLT in the TPO's order (which was approved by the DRP) injected legal error into the assessment; having regard to the facts of the year - particularly acceptance of other transactions under TNMM and the comparables' margins - the Court concluded that BLT should not have been applied to arrive at an upward adjustment. [Paras 3, 8, 19]Application of the bright line test by the TPO/DRP was legally erroneous; the Tribunal correctly set aside the adjustment.Final Conclusion: The appeal is dismissed; the Tribunal's decision allowing the assessee on AMP grounds is upheld and no substantial question of law arises. The application for condonation of delay in re filing is rendered infructuous and is closed.

2023 (12) TMI 706 - ITAT DELHI Income Tax

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Assessment order quashed as section 153D approval lacked mandatory Document Identification Number under CBDT Circular
ITAT Delhi quashed an assessment order passed under section 153A after finding that the Addl. CIT's approval under section 153D lacked a Document Identification Number (DIN) as required by CBDT Circular 19/2019. The tribunal held that following Delhi HC precedent in CIT vs. Brandix Mauritius Holdings Ltd., any communication by income tax authorities without DIN has no legal standing. Since the approval under section 153D was invalid without DIN, the subsequent assessment order based on such approval was deemed without sanction of law. The demand notice under section 156 was also nullified. The assessee's appeal was allowed.

Document Identification Number (DIN) requirement under CBDT Circular No.19/2019 - Communication without DIN to be treated as invalid and deemed never to have been issued - Validity of approval under section 153D where approval communication does not bear DIN - Assessment under section 153A vitiated if founded on a non-est approval under section 153D - Notice of demand under section 156 invalid where issued without DIN and based on a non-est assessment - Admissibility of additional grounds under Rule 11 of the ITAT Rules where grounds raise legal questions from existing records Admissibility of additional grounds under Rule 11 of the ITAT Rules - Admission of the additional legal grounds raised by the assessee under Rule 11 for adjudication - HELD THAT: - The Tribunal admitted the additional grounds sought to be raised by the assessee because they were legal in nature and the relevant facts were stated to be available on the existing record. The admission was made in accordance with Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, and in light of precedent permitting admission where legal questions arise from the record. [Paras 5] Additional grounds admitted for adjudication Document Identification Number (DIN) requirement under CBDT Circular No.19/2019 - Communication without DIN to be treated as invalid and deemed never to have been issued - Validity of approval under section 153D where approval communication does not bear DIN - Assessment under section 153A vitiated if founded on a non-est approval under section 153D - Notice of demand under section 156 invalid where issued without DIN and based on a non-est assessment - Validity of the assessment order dated 19.02.2021 and the notice of demand dated thereafter in light of non-allocation of DIN on the approval under section 153D and related communications - HELD THAT: - CBDT Circular No.19/2019 requires a computer-generated DIN to be allotted and quoted in the body of every communication relating to assessments, orders, notices and similar communications on or after 1 October 2019, subject only to narrow exceptions. The Tribunal, following the binding view of the jurisdictional High Court and other authorities, held that absence of DIN on the approval under section 153D renders that approval non-est. Where the approval that authorises the final assessment under section 153A is non-est for want of DIN, the final assessment itself lacks sanction and is vitiated. Consequentially, a notice of demand under section 156 issued without DIN and grounded on such a non-est assessment is also a nullity. Given this determinative defect, the Tribunal did not consider it necessary to adjudicate the remaining substantive objections pleaded by the assessee. [Paras 17, 18, 20, 21, 22] Assessment dated 19.02.2021 under section 153A quashed for non-compliance with CBDT Circular No.19/2019; notice of demand under section 156 also held to be invalid Final Conclusion: The Tribunal allowed the appeal: additional grounds were admitted, and the assessment order dated 19.02.2021 (AY 2017-18) and the consequential notice of demand were quashed for non-compliance with CBDT Circular No.19/2019 (absence of DIN on the approval under section 153D and related communications).

2023 (12) TMI 705 - ITAT RAJKOT Income Tax

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Taxability of interest on enhanced compensation treated as revenue receipt and taxed under the Income-tax Act.
Interest received on enhanced compensation under section 28 of the Land Acquisition Act was treated as a revenue receipt taxable under the Income-tax Act, 1961, rather than as an inseparable part of compensation. The Tribunal applied the controlling larger-bench authority on the facts before it and rejected the contention that such interest was not separately taxable. The additions made under the relevant income-tax provisions were therefore upheld, and the issue was decided in favour of the Revenue.

Taxability of interest on enhanced compensation under Land Acquisition Act - characterisation of interest as revenue receipt versus part of compensation/capital receipt - precedential effect of a larger Bench over a smaller Bench (Bikram Singh vis-a -vis Ghanshyam) - effect of legislative amendments (Finance Act, 2009) on treatment of interest on compensationTaxability of interest on enhanced compensation under Land Acquisition Act - characterisation of interest as revenue receipt versus part of compensation/capital receipt - precedential effect of a larger Bench over a smaller Bench (Bikram Singh vis-a -vis Ghanshyam) - effect of legislative amendments (Finance Act, 2009) on treatment of interest on compensation - Interest awarded as part of enhanced compensation under the Land Acquisition Act is taxable as a revenue receipt (income from other sources) and not to be treated as part of compensation exempt as capital receipt. - HELD THAT: - The Tribunal held that the interest granted under section 28 of the Land Acquisition Act, where awarded as enhanced compensation by the court, does not fall within the protection relied upon from Ghanshyam (HUF) and must be treated as a revenue receipt. The bench applied the larger Bench decision in Bikram Singh, which treats interest on compensation as exigible to tax, and observed that the factual matrix here involves interest granted while awarding additional compensation rather than mere delayed payment. The Tribunal noted precedent and legislative amendments discussed by the Revenue, and concluded that the addition of the interest component as taxable under the relevant provisions was correctly made by the authorities below; accordingly the assessee's appeal was dismissed. [Paras 7, 8]Appeal dismissed; interest on enhanced compensation treated as taxable income (revenue receipt) and the addition confirmed.Final Conclusion: The Tribunal dismissed the appeal for assessment year 2016-17, upholding the taxability of interest awarded on enhanced compensation under the Land Acquisition Act as a revenue receipt and confirming the addition made by the authorities below.

2023 (12) TMI 696 - DELHI HIGH COURT Customs

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Wastage norm fixation under the EOU scheme cannot be refused on commercial viability grounds or excise objections.
The policy scheme for EOU units required fixation of wastage norms for products not covered by notified norms, and the Development Commissioner's power was limited to ad hoc norms for a restricted period. The Norms Committee could not decline to fix norms merely because it considered the petitioner's downstream marble products commercially unviable or likely to generate high wastage, since commercial viability was a matter for the entrepreneur and permission under the EOU scheme was a policy question for the competent Government. The report was also vitiated by reliance on the Excise Department's input despite earlier directions that the matter proceed without such objections. The refusal was unsustainable, and the report was liable to be set aside.

Duty of the Board of Approvals to fix wastage norms - lawful exercise of delegated power versus assessment of commercial viability - separation of functions between Norms Committee/BOA and Excise Department - development commissioner ad-hoc norms pending BOA fixation - judicial direction for reconsideration and fresh decisionDuty of the Board of Approvals to fix wastage norms - lawful exercise of delegated power versus assessment of commercial viability - Whether the Norms Committee/BOA could refuse to fix wastage norms on the ground that the proposed production process was not commercially viable or produced excessive wastage - HELD THAT: - The Court held that the function and duty to fix wastage norms lies with the BOA and is mandatory where an application is made under the EOU/FTP framework. The BOA (and its Norms Committee) cannot decline to exercise that jurisdiction merely because, in its view, the product may not be commercially viable or would generate large wastage. Commercial viability is a decision for the petitioner to determine and wider policy questions about permitting particular products under the EOU Scheme are for the Government. A refusal based on such policy or commercial considerations amounts to an ultra vires exercise of the delegated power and cannot be sustained. [Paras 19, 20, 21, 22]Norms Committee's refusal to fix norms on grounds of commercial non-viability/high wastage is unlawful; BOA must exercise its duty to fix wastage norms.Separation of functions between Norms Committee/BOA and Excise Department - judicial direction for reconsideration and fresh decision - Whether the Norms Committee's Report of 08.05.2015 was vitiated by relying on the Excise Department and by not complying with this Court's earlier direction, and what relief should follow - HELD THAT: - The Court found that the Norms Committee's report had been influenced by the input of the Excise Department despite the earlier direction dated 30.07.2012 that the Committee's work should not be impeded by the Excise Department's assertions and that investigation and fixation are distinct. Because the Committee relied on Excise inputs and effectively flouted the Court's direction, the impugned report was set aside. The Court directed the Committee to re-consider and fix the wastage norms for the products applied for in accordance with law and the earlier direction, completing the exercise within eight weeks from receipt of the judgment. [Paras 23, 24, 25]Impugned Report dated 08.05.2015 set aside; Norms Committee directed to re-consider and fix wastage norms within eight weeks in accordance with law and prior Court direction.Development commissioner ad-hoc norms pending BOA fixation - Whether the Court's setting aside of the Norms Committee's report prevents the Government from prohibiting manufacture of any items - HELD THAT: - The Court expressly clarified that its directions do not impinge upon the statutory power of the Government to prohibit the manufacture of any item in accordance with law. Any such policy decision by the Government would remain open to challenge by the petitioner through appropriate proceedings, but the present order to re-consider wastage norms does not fetter that governmental power. [Paras 26]The judgment does not affect the Government's lawful power to prohibit manufacture of items; such action, if taken, can be challenged in law by the petitioner.Final Conclusion: The Norms Committee's report dated 08.05.2015 is set aside; the Committee/BOA is directed to re-consider and fix the wastage norms applied for by the petitioner in accordance with law and this Court's earlier direction, within eight weeks; the Government's statutory power to prohibit manufacture remains unaffected.

2023 (12) TMI 691 - CESTAT CHENNAI Customs

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Tribunal Rejects Valuation of Imported Used Office Furniture, Citing Flawed Inspection Report on New Equipment Value.
The Appellate Tribunal overturned the decision of the Commissioner of Customs (Appeals), Chennai, regarding the valuation of imported used office furniture. The Tribunal found that the Inspection Report by the Chartered Engineer, which was used to enhance the declared value, lacked evidentiary value as it assessed the value of new equipment rather than used goods. Consequently, the Tribunal set aside the previous order, ruling in favor of the appellant and rejecting the enhanced valuation based on the flawed report.

2023 (12) TMI 687 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI Insolvency and Bankruptcy

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Issues Involved:
1. Whether the Operational Creditor's receipt of insurance payment extinguishes the Corporate Debtor's liability.
2. Whether there was a pre-existing dispute between the parties.
3. Whether the Section 9 Application is maintainable.

Summary:

Issue 1: Insurance Payment and Corporate Debtor's Liability
The Appellant argued that since the Operational Creditor received payment from the Insurer, there was no debt due on the Corporate Debtor, and this fact was suppressed, constituting fraud. The Tribunal held that the insurance payment does not absolve the Corporate Debtor from its liability. The Operational Creditor had communicated to the Corporate Debtor that it would lodge a claim with the Insurance Company if payments were not made. The Tribunal referenced the insurance policy clause stating that any amounts received should be remitted to the insurer. The Tribunal cited several judgments, including *Economic Transport Organisation v. Oriental Insurance Company Limited* and *Rojee-tasha Stampings Pvt. Ltd. v. POSCO-India Pune Processing Centre Pvt. Ltd.*, supporting the position that the debtor remains liable even if the creditor received an insurance claim. The Tribunal concluded that the Section 9 Application is maintainable, and the Corporate Debtor's liability persists.

Issue 2: Pre-existing Dispute
The Appellant claimed a pre-existing dispute regarding the quality of goods. The Tribunal found that for two years, the Corporate Debtor acknowledged the debt and assured payment without raising any issues about the goods' quality. The dispute was raised only after the Demand Notice was received, which the Tribunal deemed a dishonest and moonshine plea. The Tribunal upheld the finding of the Adjudicating Authority that there was no pre-existing dispute.

Issue 3: Maintainability of Section 9 Application
The Tribunal addressed the Appellant's claim that the Operational Creditor's non-disclosure of the insurance payment constituted fraud. The Tribunal distinguished the case from precedents like *S.P. Chengalvaraya Naidu v. Jagannath & Ors.*, noting that the insurance contract was a third-party contract and the Corporate Debtor was informed about the potential insurance claim. The Tribunal reiterated that the Corporate Debtor's liability remains, and the Operational Creditor's obligation to return the insurance money does not affect the maintainability of the Section 9 Application.

Conclusion:
The Tribunal dismissed the appeal, allowing the Corporate Debtor 30 days to pay the outstanding amount with interest to the Operational Creditor. If the payment is made, the Adjudicating Authority may close the Section 9 Application. If not, the Authority will proceed with the Corporate Insolvency Resolution Process.

Corporate debtor remains liable for operational debt despite insurance company's third-party liability payment under section 9
NCLAT dismissed corporate debtor's appeal against section 9 application admission. The tribunal held that insurance company's payment to operational creditor under third-party liability did not absolve corporate debtor from its operational debt obligations. Corporate debtor remained liable despite insurance settlement, as the insurance contract was separate and had been communicated to debtor. The court rejected corporate debtor's pre-existing dispute defense, finding it dishonest since debtor had acknowledged dues and provided payment assurances for two years before raising frivolous defenses only after demand notice. Section 9 application was maintainable.

Maintainability of Section 9 application under the Insolvency and Bankruptcy Code - effect of insurer's payment on debtor's liability and principle of subrogation - pre-existing dispute defence in Section 9 proceedings - concealment of material fact/fraud by non-disclosureMaintainability of Section 9 application under the Insolvency and Bankruptcy Code - effect of insurer's payment on debtor's liability and principle of subrogation - Section 9 Application filed by the Operational Creditor was maintainable despite payment by the insurer to the Operational Creditor. - HELD THAT: - The Tribunal held that payment by the insurer to the operational creditor does not absolve the corporate debtor of its liability to the operational creditor. The insurance contract was inter se between the creditor and the insurer and the debtor, being a third party to that contract, cannot disown its liability on the ground that the creditor has been compensated by its insurer. The creditor remains obliged to pursue recoveries against the debtor and, under the terms of the insurance, to remit recoveries to the insurer; questions of subrogation, assignment or refund to the insurer arise between the insurer and the creditor and do not nullify the debt owed by the corporate debtor. In these circumstances the adjudicating authority correctly held the Section 9 petition maintainable. [Paras 28, 31, 32]Section 9 Application was maintainable and the insurer's payment to the Operational Creditor did not extinguish the corporate debtor's liability.Pre-existing dispute defence in Section 9 proceedings - The plea of a pre-existing dispute was rejected and held to be not established. - HELD THAT: - The Tribunal found that the corporate debtor repeatedly acknowledged the debt and gave multiple assurances from September 2017 through 2018 to pay the outstanding amounts, with only a belated dispute raised after receipt of the demand notice in April 2019. There was no contemporaneous communication asserting any deficiency in goods or other substantive dispute during the two-year correspondence; therefore the adjudicating authority rightly concluded that no pre-existing dispute, of substance, existed prior to the demand notice. [Paras 33]The plea of a pre-existing dispute was rejected as a moonshine / belated defence and did not preclude admission of the Section 9 petition.Concealment of material fact/fraud by non-disclosure - Allegation that the Operational Creditor played fraud by concealing receipt of insurance payment was rejected. - HELD THAT: - The Tribunal distinguished the instant case from authorities addressing deliberate nondisclosure of documents amounting to fraud. It observed that the creditor had notified the debtor of the insurer claim and the insurance terms were placed on record; the insurance agreement was a third party contract and its existence had been communicated to the debtor. Consequently, the non-disclosure contention did not amount to the type of fraud envisaged in the cited precedents and did not justify dismissal of the Section 9 petition under Section 65. [Paras 21, 31]The allegation of concealment/fraud by the Operational Creditor is rejected and does not vitiate the Section 9 proceedings.Procedural relief by conditional time allowance to liquidate debt - Appellant was granted time to liquidate the admitted debt as an alternative to continuation of CIRP initiation. - HELD THAT: - While dismissing the appeal, the Tribunal exercised its discretion to permit the corporate debtor 30 days to deposit the outstanding principal and interest (specified in the order) with the adjudicating authority. If the amount is paid and the adjudicating authority is satisfied, the Section 9 proceeding may be closed; failure to deposit within the stipulated time will allow the adjudicating authority to proceed with the Section 9 application. [Paras 34]Appellant permitted 30 days to make payment; failure to do so will result in continuation of Section 9 proceedings.Final Conclusion: The appeal is dismissed; the Section 9 petition was held maintainable (insurer's payment does not extinguish the corporate debtor's liability), the plea of pre-existing dispute and allegation of concealment were rejected, and the corporate debtor was granted 30 days to liquidate the outstanding debt failing which the Adjudicating Authority may proceed with the Section 9 application.

2023 (12) TMI 679 - CESTAT KOLKATA Service Tax

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Issues:
The issues involved in the judgment are the non-payment of Service Tax on Reverse Charge Basis by the Appellant for the period 2005-2006 and 2006-2007, the contention regarding the abatement of 75% while quantifying the demand, and the question of Revenue Neutrality in relation to the demand amount.

Non-Payment of Service Tax on Reverse Charge Basis:
The Appellant utilized the services of GTA during the relevant period and was found to have not paid the Service Tax on Reverse Charge Basis. The Adjudicating Authority demanded a sum of Rs. 1,08,20,414/- as Service Tax. The Appellant contended that they should have been given the benefit of 75% abatement while quantifying the demand. They provided a Re-conciliation statement showing a lower amount due, along with evidence of Service Tax payments made and certificates from transporters regarding non-availment of Cenvat Credit. The Tribunal considered relevant case laws and held that the Appellant was eligible for the abatement, reducing the total Service Tax payable to Rs. 26,43,025/-. The Appellant had already paid a significant portion of this amount along with interest, which was not disputed.

Abatement of 75% and Revenue Neutrality:
The Tribunal referred to case laws emphasizing that the Appellant was entitled to the abatement of 75% and that the issue of Revenue Neutrality was crucial. It was noted that the Appellant had paid the Service Tax on the excess amount and was entitled to Cenvat Credit, making the entire exercise revenue neutral. Consequently, the Tribunal allowed the Appeal, setting aside the balance demand amount of Rs. 6,03,843/- due to Revenue Neutrality. The interest and penalty confirmed in the Original Order were also set aside.

Conclusion:
In conclusion, the Tribunal held that the Appellant was eligible for the abatement of 75% while quantifying the demand and that the Appellant's partial payment of Service Tax along with interest was accepted as part discharge of the net liability. The Appeal was allowed for the balance amount due to Revenue Neutrality, and the interest and penalty imposed were set aside.

Tribunal Grants 75% Abatement on Service Tax, Nullifies Remaining Demand and Penalties for Appellant.
The Tribunal held that the Appellant was entitled to a 75% abatement on the Service Tax demand and recognized the payment of a significant portion of the adjusted amount. The Tribunal deemed the issue revenue neutral, allowing the Appeal and setting aside the remaining demand of Rs. 6,03,843/-. Additionally, the interest and penalty from the Original Order were annulled, resulting in a favorable outcome for the Appellant.

Abatement of 75% for Goods Transport Agency services - reverse charge mechanism for service tax on GTA services - revenue neutrality arising from availment of Cenvat Credit - entitlement to abatement despite absence of per-consignment certificate from GTA - setting aside of interest and penalty where demand is rendered unsustainableAbatement of 75% for Goods Transport Agency services - entitlement to abatement despite absence of per-consignment certificate from GTA - Appellant's entitlement to claim 75% abatement while quantifying service tax liability on GTA services despite lack of per-consignment certificates from the transporter. - HELD THAT: - The Tribunal applied its precedent in Arani Agro Oil Industries and held that the notification conferring the abatement does not impose a condition that a declaration from the GTA must appear on each consignment note. A consolidated declaration or certificates from transporters evidencing non-availment of Cenvat Credit suffice to claim the abatement. On this basis the Tribunal accepted the appellant's calculation that, after allowing 75% abatement, the total service tax payable for the period under consideration is Rs. 26,43,025/-, of which amounts already paid were adjusted against the liability. [Paras 8, 9, 10, 13]75% abatement is allowable while quantifying the demand for GTA services.Revenue neutrality arising from availment of Cenvat Credit - reverse charge mechanism for service tax on GTA services - Whether the remaining confirmed demand should be sustained where the same amount effectively results in revenue neutrality because the assessee has availed/was entitled to Cenvat Credit. - HELD THAT: - Relying on the reasoning in Kalika Steel Alloys, the Tribunal observed that where the demanded service tax amount is available as Cenvat Credit to the appellant and the effect is revenue neutral, sustaining the confirmed demand is not warranted. The Tribunal accepted that sums paid and credited by the appellant lead to revenue neutrality in respect of the balance demand, and therefore set aside the balance demand of Rs. 6,03,843/-. The Tribunal also held that in such circumstances suppression is not a relevant basis for upholding the demand. [Paras 11, 12, 13]Balance demand of Rs. 6,03,843/- is set aside on the ground of revenue neutrality.Setting aside of interest and penalty where demand is rendered unsustainable - Whether interest and penalty confirmed in the adjudication order should be sustained. - HELD THAT: - Having found that the quantification of demand must reflect the allowed abatement and that the remaining confirmed demand is liable to be set aside on revenue neutrality, the Tribunal further held that the interest and penalty confirmed in the adjudication order are not sustainable and must be set aside concomitantly with the demand that is vacated. [Paras 13]Interest and penalty confirmed in the adjudication order are set aside.Payment and partial discharge of assessed liability - Treatment of amounts already paid by the appellant towards the disputed demand. - HELD THAT: - The Tribunal noted the appellant had paid a portion of the assessed liability (service tax and interest) which the appellant does not dispute. Those payments were taken as part discharge against the quantified liability after allowing the 75% abatement, leaving a disputed balance which the Tribunal set aside for reasons of revenue neutrality. [Paras 10, 13]Payments made by the appellant are treated as part discharge of the quantified liability; residual balance is set aside.Final Conclusion: The appeal is allowed in part: the appellant is entitled to 75% abatement while quantifying service tax on GTA services for 2005-2006 and 2006-2007; payments already made are treated as part discharge of the adjusted liability; the remaining balance demand is set aside on the ground of revenue neutrality; interest and penalty confirmed in the adjudication order are also set aside.

2023 (12) TMI 659 - SC Order Income Tax

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Petition Dismissed Due to Delay; Legal Questions Still Open for Future Cases.
The SC dismissed a special leave petition due to a 261-day delay in filing. The application for condonation of delay was deemed unsatisfactory. However, the SC noted that questions of law arising from the petition remain open for consideration in future cases.

2023 (12) TMI 658 - SC Order Income Tax

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Supreme Court dismisses petition for delay, allows arguments on merits; no interference in case outcome, applications disposed.
The SC dismissed the Special Leave Petition due to a 283-day delay but allowed the petitioner's counsel to present arguments on the merits. Despite condoning the delay, the court chose not to interfere with the case. All pending applications were disposed of.

2023 (12) TMI 648 - ITAT AHMEDABAD Income Tax

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Exempt interest claim needs factual verification before rectification can be refused under income-tax law.
The assessee's claim that income shown as dividend was actually exempt interest required factual verification, because the taxability question depended on whether the receipts were interest from investments in government companies and covered by Section 10 of the Income-tax Act, 1961. The earlier treatment under Section 143(1) and refusal to rectify under Section 154 was based on the view that the alleged correction was not an obvious or patent mistake. As the issue turned on examination of holding statements and supporting details, the matter was remitted for reconsideration and verification, with relief to follow if the exempt-income claim was established.

Rectification of intimation under Section 154 - mistake apparent from the record - exemption under Section 10 - classification of receipts as interest vis-a -vis dividend - power to amend intimation under section 143(1)Rectification of intimation under Section 154 - mistake apparent from the record - classification of receipts as interest vis-a -vis dividend - exemption under Section 10 - Whether the assessee's application under Section 154 seeking rectification of the intimation to treat the disputed receipts as exempt interest (instead of dividend) should be allowed or requires fresh verification. - HELD THAT: - The Tribunal observed that the power of rectification under Section 154 extends to amendment of an intimation or deemed intimation under Section 143(1) and may be exercised even at the appellate stage, having regard to precedents recognising the Assessing Officer's competence to rectify mistakes in intimation. The assessee had maintained that the receipts were interest from investments in government entities and therefore exempt under Section 10, though they were inadvertently described as dividend in the return. The CIT(A) rejected the rectification claim on the ground that the contention was not a patent mistake and required examination. In the interest of justice and having regard to authorities cited on the scope of rectification and the obligation of tax authorities to verify entitlement to relief, the Tribunal restored the matter to the file of the Ld. CIT(A) for necessary verification of the nature of receipts and, if the claim is found correct, to grant relief in accordance with law. [Paras 9, 10]Matter restored to the file of the Ld. CIT(A) for verification and appropriate relief if the assessee's claim of exempt interest under Section 10 is established; appeal allowed for statistical purposes.Final Conclusion: The Tribunal set aside the impugned conclusion and remanded the matter to the Ld. CIT(A) to verify the nature of the receipts and grant relief if the claim of exempt interest under Section 10 is found correct; appeal allowed for statistical purposes.

2023 (12) TMI 647 - ITAT AHMEDABAD Income Tax

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether re-assessment under section 147 can be validly initiated beyond four years from the end of the relevant assessment year where the Assessing Officer relies on the same facts as available at original assessment (i.e., whether the reopening amounts to mere change of opinion).

2. Whether the reasons recorded for reopening, relying on a re-appreciation of applicability of a substantive provision disallowing certain deductions (remuneration and interest to partners), constitute "new" or "tangible" material justifying initiation of proceedings under section 147 beyond four years.

3. Whether the Assessing Officer's re-assessment based on a different legal view of allowances already considered and granted in the original assessment is permissible absent a demonstration of failure to disclose material facts by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reopening beyond four years where facts were before the AO at original assessment (change of opinion)

Legal framework: Section 147 empowers reopening where the Assessing Officer has reason to believe income has escaped assessment; time limits restrict reopening after four years unless prescribed exceptions apply. Legislative and judicial principles require that reopening beyond statutory period be predicated on an undisclosed material or new tangible information indicating escapement, not mere re-appreciation of facts.

Precedent treatment: The Court applied settled judicial principles that reopening cannot be used as a device to revisit an assessment merely because the assessing authority forms a different view later; reopening must be supported by fresh/tangible material or failure of disclosure by the assessee. Earlier apex and high court authorities have been relied upon to endorse the "no change of opinion" rule and the need for tangible material.

Interpretation and reasoning: The Tribunal scrutinised the reasons recorded for reopening and found they rest solely on the Assessing Officer's revised view that certain amounts allowed earlier were not allowable under the substantive provision. There was no allegation or demonstration of concealment or failure to disclose material facts by the assessee, nor was any new material shown to have come to the AO's notice between original assessment and reopening. The Court reasoned that when all primary facts were fully and truly disclosed and considered at the time of original assessment, a later change in the AO's view does not confer jurisdiction to reopen beyond the four-year limit.

Ratio vs. Obiter: Ratio - Reopening beyond four years is impermissible where the AO has no new or tangible material and the reopening is based on a mere change of opinion about allowances already considered in the original assessment. Obiter - Observations on the policy rationale against abuse of reopening power as a general principle.

Conclusion: The reopening was invalid as it constituted a mere change of opinion in respect of facts already on record; the re-assessment proceedings initiated beyond four years were set aside.

Issue 2: Whether re-appreciation of law on allowability of deductions amounts to new material justifying section 147 proceedings

Legal framework: The threshold for reopening beyond four years requires tangible new information or evidence of non-disclosure. A change in legal interpretation alone, absent new facts or concealment, does not satisfy the statutory threshold for reopening.

Precedent treatment: The Tribunal relied on authorities establishing that a re-appraisal of legal entitlement to deductions, where the underlying factual matrix was available to the AO at the time of original assessment, cannot serve as fresh material to validate reopening; such reappraisal is treated as change of opinion.

Interpretation and reasoning: The reasons for reopening cited only that deductions (remuneration and interest to partners) were incorrectly allowed in view of the substantive rule. No fresh documentary or factual material was identified to show that the assessee omitted or concealed facts. The Tribunal concluded that re-interpretation of applicability of the substantive provision to the same set of facts is insufficient to constitute "tangible material" necessary to invoke section 147 after the statutory period.

Ratio vs. Obiter: Ratio - Re-appraisal of legal entitlement to deductions, without new facts or concealment, is not "tangible material" permitting re-opening under section 147 beyond the four-year period. Obiter - None relied upon affecting the outcome beyond reinforcing established tests for tangible material.

Conclusion: The Assessing Officer's reliance on re-appreciation of law regarding disallowance did not supply the required new material; reopening was therefore unsustainable.

Issue 3: Requirement of failure to disclose fully and truly all material facts to justify reopening

Legal framework: To justify initiation of re-assessment beyond prescribed time limits, the Department must ordinarily show that income escaped assessment because of failure by the assessee to disclose material facts at the time of original assessment.

Precedent treatment: The Tribunal applied established jurisprudence that absence of any allegation or evidence of non-disclosure negates jurisdictional basis for late reopening; prior decisions emphasize that the mere finding of incorrect allowance does not substitute for proof of concealment or omission.

Interpretation and reasoning: The reasons recorded and material before the Tribunal contained no allegation that the assessee failed to disclose material facts. The original assessment record demonstrated that the same factual matrix (registered firm status, claim and allowance of remuneration and interest) was before the AO. Consequently, the statutory requirement for reopening beyond four years - demonstrable failure to disclose - was not met.

Ratio vs. Obiter: Ratio - Where the Assessing Officer cannot demonstrate failure to disclose material facts, reopening beyond the statutory period is invalid. Obiter - Remarks underscoring the necessity of clear recordation of fresh material when invoking section 147, to prevent abuse of power.

Conclusion: In absence of any failure to disclose, the Department failed to meet the statutory requirement for valid reopening; reassessment was therefore quashed.

Cross-references and Consolidated Conclusion

The issues are interrelated: the absence of new or tangible material and absence of failure to disclose converge to establish that the reopening was a mere change of opinion based on re-appreciation of law applied to facts already considered. On that combined basis, the Tribunal concluded the section 147 proceedings initiated beyond four years were invalid and dismissed the Department's appeal.

Reassessment beyond four years quashed as impermissible change of opinion without new material facts under Section 147
ITAT Ahmedabad quashed reassessment proceedings initiated beyond four years, ruling the action constituted impermissible change of opinion. The department sought to disallow remuneration and interest under Section 184(5) based on same facts available during original assessment. Court held reassessment beyond four years requires demonstration of assessee's failure to fully disclose material facts, which was absent. The AO merely re-appreciated existing facts without new material evidence of income escapement. Following SC precedents in Bhanji Lavji and Kelvinator cases, tribunal found no jurisdiction for Section 147 proceedings based solely on legal reinterpretation of disclosed facts. Appeal decided in favor of assessee.

Reassessment under Section 147 - change of opinion - Requirement of tangible/new material to reopen assessment beyond four years - Failure to disclose material facts as jurisdictional prerequisite for reassessment - Disallowance under Section 184(5) - reappreciation of law versus new materialReassessment under Section 147 - change of opinion - Requirement of tangible/new material to reopen assessment beyond four years - Failure to disclose material facts as jurisdictional prerequisite for reassessment - Disallowance under Section 184(5) - reappreciation of law versus new material - Validity of reopening assessment under Section 147 beyond four years where reassessment is based on the same facts and amounts to a change of opinion rather than discovery of new material. - HELD THAT: - The Tribunal applied settled principles that reopening beyond four years is permissible only if the department demonstrates failure by the assessee to truly and fully disclose material facts or if fresh/tangible material emerges. The Assessing Officer reopened the assessment to disallow remuneration and interest paid to partners under Section 184(5), although those amounts had been allowed in the original assessment finalized under Section 144 and the same facts were available to the AO earlier. Reliance was placed on prior decisions referred to in the order - CIT vs. Bhanji Lavji , CIT vs. Kelvinator of India Ltd. , Jindal Photo Films Ltd. vs. DCIT , and CIT vs. Soh Kisan Cold Storage - for the proposition that mere change of opinion does not confer jurisdiction to initiate reassessment. The record showed no new material or allegation of non-disclosure by the assessee; the reopening was therefore a re-appreciation of law on the same set of facts and constituted an impermissible change of opinion. Applying these principles to the facts, the Tribunal held the Section 147 proceedings to be invalid and liable to be set aside. [Paras 10, 11]Reassessment proceedings under Section 147 set aside as constituting a mere change of opinion; departmental appeal dismissed.Final Conclusion: Reopening of assessment for Assessment Year 2005-06 was quashed as the reassessment beyond four years rested on a mere change of opinion without any fresh or tangible material or failure by the assessee to disclose material facts; departmental appeal dismissed.

2023 (12) TMI 646 - ITAT DELHI Income Tax

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Issues:
The judgment involves the denial of exemption of Long Term Capital Gain (LTCG) claimed under section 10(38) of the Income Tax Act, 1961, additions on account of LTCG under section 69A of the Act, and addition of unexplained transaction expense under section 69C of the Act.

Denial of Exemption of LTCG under Section 10(38):
The Assessing Officer (AO) observed that the LTCG claimed by the assessee was an accommodation entry to launder unaccounted income. The AO referred to an Investigation Report explaining the modus operandi for rigging prices of penny stocks abnormally high to claim exempt income. The AO treated the LTCG as unaccounted income under section 69A of the Act, as the onus to support the claim of exemption was not discharged by the assessee. Despite the genuine nature of the company, CCL International Ltd., and documentary evidence supporting the transactions, the AO deemed the transactions implausible based on the investigation report.

Additions under Section 69A and 69C:
The AO treated the LTCG arising from the sale of CCL shares as unaccounted income under section 69A of the Act. Additionally, the AO added an amount towards unexplained transaction expense under section 69C. The total income returned by the assessee was assessed at a higher amount by the AO based on these additions.

Appellate Proceedings:
The assessee appealed before the Commissioner of Income Tax (Appeals) (CIT(A)), who denied any relief to the assessee. Further aggrieved, the assessee preferred an appeal before the Tribunal, challenging the denial of exemption and the additions made by the AO.

Tribunal's Decision:
After considering the submissions and case laws cited by both parties, the Tribunal found that the transactions of purchase and sale of CCL Ltd. shares giving rise to LTCG claimed as exempt were supported by documentary evidence. The Tribunal noted that the bonafides of the transactions could not be doubted, and the abnormal increase in share prices alone was not sufficient to treat the LTCG as an accommodation entry. The Tribunal referred to previous judgments supporting the assessee's case and highlighted that the Revenue had accepted similar transactions in another case.

Conclusion:
In light of the factual matrix and case laws, the Tribunal held that the additions under section 69A and 69C were not justified. The Tribunal found that the assessee had discharged the primary onus, and the Revenue failed to dislodge the perception that the transactions were not genuine. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the additions in question, ultimately allowing the appeal of the assessee.

ITAT Delhi allows LTCG exemption under section 10(38) despite astronomical share price increases in CCL Ltd case (38)
The ITAT Delhi ruled in favor of the assessee regarding LTCG on sale of CCL Ltd. shares claimed exempt under section 10(38). The tribunal found that documentary evidence, including demat account records and banking channel transactions, established the transaction's bonafides. Following precedents from Delhi HC in Karuna Garg and Krishna Devi cases, the tribunal held that astronomical share price increases alone cannot justify treating LTCG as accommodation entries. The Revenue failed to prove the transactions were sham, and additions under sections 69A and 69C were deleted.

Long Term Capital Gains exemption under section 10(38) - Astronomical increase in share price not by itself sufficient to treat LTCG as accommodation entry/sham - Accommodation entries/sham transactions - Burden of proof on the revenue to dislodge apparent transactions once documentary and demat evidence is produced by the assessee - Section 69A treated as addition for unaccounted income - Section 69C unexplained transaction expenses - Dematerialisation and banking channel payments as corroborative evidence of genuineness of share transactionsLong Term Capital Gains exemption under section 10(38) - Accommodation entries/sham transactions - Astronomical increase in share price not by itself sufficient to treat LTCG as accommodation entry/sham - Dematerialisation and banking channel payments as corroborative evidence of genuineness of share transactions - Whether Long Term Capital Gains claimed on sale of CCL International Ltd. shares could be rejected as accommodation entries and disallowed notwithstanding documentary evidence and demat transfers - HELD THAT: - Tribunal found that the assessee furnished documentary proof of purchase and sale, shares were credited to and transferred from the demat account, and payments were routed through banking channels, establishing prima facie genuineness of the transactions. The Revenue primarily relied on an investigation report describing general modus operandi for rigging penny stocks and on the abnormal rise in share price to treat the gains as accommodation entries. The Tribunal held that an astronomical increase in share price, by itself, is not a sufficient ground to treat LTCG as sham, noting relevant High Court and coordinate-bench decisions to that effect and observing that revenue did not produce evidence to dislodge the apparent reality of the transactions. On the company's financials and other material on record, the Tribunal concluded that the assessee discharged the primary onus and that the AO's conclusion rested on conjecture and surmise rather than material contrary evidence. [Paras 8]Addition under section 69A treating claimed LTCG as unaccounted accommodation entry is not justified and is deleted.Section 69C unexplained transaction expenses - Burden of proof on the revenue to justify additions for unexplained transaction expenses - Whether addition made under section 69C towards unexplained transaction expense was sustainable - HELD THAT: - The Tribunal observed that the Assessing Officer did not place any material on record to justify the addition under section 69C. The AO's reliance on the general modus operandi in the investigation report was held to be inadequate to impeach the specific transactions in the assessee's case. Given absence of specific contrary material, the addition under section 69C could not be sustained. [Paras 3, 8]Addition under section 69C is not justified and is deleted.Final Conclusion: Appeal allowed; order of the CIT(A) set aside to the extent challenged and the Assessing Officer directed to delete the additions under sections 69A and 69C relating to the claimed LTCG for AY 2015-16.

2023 (12) TMI 645 - ITAT DELHI Income Tax

AI TextQuick Glance (AI)Headnote

Issues Involved:
1. Deletion of addition under Section 56(2)(viib) on account of excess share premium.
2. Deletion of addition under Section 68 on account of unexplained cash credit in terms of unsecured loans.

Summary:

Issue 1: Deletion of Addition under Section 56(2)(viib) on Account of Excess Share Premium

The Revenue contested the deletion of an addition of Rs. 2,63,00,000/- made by the AO under Section 56(2)(viib) due to excess share premium recorded by the assessee. The AO had recomputed the Fair Market Value (FMV) of the equity shares at a negative figure and invoked Section 56(2)(viib), leading to the addition. The CIT(A) deleted the addition, noting that the premium was minimal and collected from the holding company, KV Aromatics Pvt. Ltd., which held 51% of the assessee-company's shares. The CIT(A) emphasized that the valuation was done as per the Discounted Cash Flow (DCF) method, supported by an independent auditor's report. The Tribunal upheld the CIT(A)'s decision, affirming that the premium charged was supported by the valuation report and was in accordance with the law. The Tribunal referenced various case laws, including the Hon'ble ITAT Delhi's decision in the case of Cinestaan Entertainment Pvt. Ltd., which underscored that the AO cannot change the method of valuation or reject a valid valuation by a competent person.

Issue 2: Deletion of Addition under Section 68 on Account of Unexplained Cash Credit in Terms of Unsecured Loans

The Revenue also challenged the deletion of an addition of Rs. 77,20,700/- made by the AO under Section 68 due to unexplained cash credit in terms of unsecured loans. The Tribunal considered the submissions and documents presented by both sides and upheld the CIT(A)'s decision. The Tribunal found that the CIT(A) had correctly evaluated the evidence and legal provisions, leading to the deletion of the addition.

Conclusion:

The Tribunal dismissed the Revenue's appeal, endorsing the CIT(A)'s reasoning and decision. The Tribunal concluded that the additions made by the AO under Sections 56(2)(viib) and 68 were not sustainable either on facts or in law. The appeal of the Revenue was dismissed, and the order was pronounced in the open Court on 13/12/2023.

Company's share premium to existing 51% shareholder not taxable under Section 56(2)(viib) as deeming provisions don't apply
The ITAT Delhi dismissed the Revenue's appeal challenging deletion of addition under Section 56(2)(viib) for excess share premium. The assessee company issued shares at premium to its existing 51% shareholder. The CIT(A) deleted the addition, which was upheld by ITAT. The Tribunal held that deeming provisions of Section 56(2)(viib) ordinarily don't apply when shares are allotted to existing shareholders. The assessee provided a valuation report showing fair market value of Rs. 14.815 per share, matching the issue price, thus supporting the premium charged. The premium was negligible and charged to an existing shareholder with pre-existing rights.

Deeming provision under Section 56(2)(viib) - fair market value determined by DCF method under Rule 11UA(2) - inter-company allotment between holding and subsidiary - acceptance of valuation report by prescribed valuer and limits on Assessing Officer substituting valuation Deeming provision under Section 56(2)(viib) - fair market value determined by DCF method under Rule 11UA(2) - inter-company allotment between holding and subsidiary - acceptance of valuation report by prescribed valuer and limits on Assessing Officer substituting valuation - Deletion of addition made under Section 56(2)(viib) in respect of share premium on allotment of equity shares to an existing shareholder - HELD THAT: - The Tribunal considered whether the Assessing Officer could invoke the deeming provision and substitute the assessee's valuation where shares were allotted at a premium to an existing shareholder (holding company). The assessee produced a valuation based on the Discounted Cash Flow method prepared by a qualified valuer as permitted by Rule 11UA(2), and also demonstrated that the allottee was an existing shareholder holding controlling interest. The first appellate authority held that where the assessee has adopted one of the prescribed valuation methods and supported it with an expert report, the AO had neither produced cogent material to reject the DCF valuation nor jurisdiction to compel adoption of a different method; projections underlying DCF are estimations and cannot be discredited merely because NAV at the time was negative. The Tribunal noted coordinate-bench precedents recognising that allotments to existing shareholders (holding/subsidiary inter se transactions) ordinarily do not attract the charging object of Section 56(2)(viib) since no outsider derives benefit and there is no change in ultimate interest or control; having regard to the valuation report and the fact of inter-company allotment, the conclusion of the CIT(A) to delete the addition was affirmed. [Paras 6, 7] The addition under the deeming provision was not sustainable; the CIT(A)'s deletion of the addition is upheld. Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the deletion of the addition made under Section 56(2)(viib) in respect of the share premium on allotment to an existing shareholder for AY 2016-17.

2023 (12) TMI 644 - ITAT BANGALORE Income Tax

AI TextQuick Glance (AI)Headnote

ISSUES PRESENTED AND CONSIDERED

1. Whether the period of limitation under section 154(7) of the Income-tax Act runs from the date of the original intimation under section 143(1) or from the date of the last authoritative response/order in relation to objections raised (i.e., whether the rectification application filed on 26.09.2022 is time-barred).

2. Whether the assessee is entitled to set off brought forward unabsorbed depreciation against income from other sources for the assessment year in question, and whether the question of entitlement requires remand for verification by the Assessing Officer.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Limitation under section 154(7): Legal framework

Section 154(7) prescribes that no amendment under section 154 shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. The triggering event for the running of the four-year period is the "order sought to be amended."

Issue 1 - Precedent Treatment

The controlling judicial treatment, as applied by the Tribunal, holds that the four-year period for filing a rectification runs from the date of the last order/response relating to the matter (i.e., the final authoritative communication disposing of objections), rather than from the date of the original intimation alone. The Tribunal expressly relied on the Supreme Court authority adopting this view.

Issue 1 - Interpretation and reasoning

The Tribunal examined the sequence: intimation under section 143(1) issued by CPC on 11.12.2016 (disallowing set off against income from other sources), an objection raised by the assessee on 21.03.2017, and CPC's disposal of that objection on 04.12.2018. The rectification application under section 154 was filed on 26.09.2022. The Assessing Officer treated the limitation period as commencing from the original intimation date and rejected the rectification as time-barred. The CIT(A) and the Tribunal held that the relevant "order sought to be amended" includes the final authoritative response disposing of the assessee's objection (04.12.2018) and that the limitation period must be computed from that last order. On these facts, the rectification filed on 26.09.2022 fell within four years of the 04.12.2018 response and was therefore within time.

Issue 1 - Ratio vs. Obiter

Ratio: The Tribunal's holding that the four-year limitation under section 154(7) is to be computed from the date of the last authoritative order/response disposing of objections (and not necessarily from the original intimation) is treated as the operative ratio applied to the facts. This ratio is consistent with the cited higher court authority and is applied to allow the rectification as timely.

Obiter: The decision does not expand into broader hypotheticals about differing classes of post-intimation communications; it confines the principle to the factual context of objections raised and a disposing order by CPC.

Issue 1 - Conclusion

The rectification application filed on 26.09.2022 is within the four-year limitation of section 154(7) because the four-year period is to be computed from the date of the final response/disposal of the assessee's objection (04.12.2018). The Assessing Officer's rejection on limitation grounds was therefore in error, and the appellate authority's acceptance of timeliness is upheld.

Issue 2 - Entitlement to set off unabsorbed depreciation against income from other sources: Legal framework

Section 32(2) and related provisions govern treatment of unabsorbed depreciation, including its carry-forward and set-off in subsequent previous years. Entitlement depends on whether unabsorbed depreciation can be applied against specified heads of income in the relevant assessment year.

Issue 2 - Precedent Treatment

The Tribunal and the CIT(A) treated the question of entitlement on merits as favourable to the assessee's claim that unabsorbed depreciation becomes part of depreciation of the succeeding previous year and, consequently, is available for set off. The Tribunal did not conclusively decide the factual/verificatory aspects but accepted that, on merits, set off is available and remitted for verification.

Issue 2 - Interpretation and reasoning

Given that the rectification was held timely, the Tribunal accepted the CIT(A)'s conclusion that the assessee is eligible for set off of unabsorbed depreciation from income of the current year. However, recognizing evidentiary and verification requirements, the CIT(A) remitted the matter to the Assessing Officer to verify the claim of brought forward losses and allow the set off if supported. The Tribunal found no infirmity in this course: timely rectification permits adjudication on the substantive claim, but factual verification by the AO remains necessary.

Issue 2 - Ratio vs. Obiter

Ratio: The operative ratio is procedural - timely rectification enables adjudication of the substantive claim of set off, and where fact-finding is necessary, remand to the Assessing Officer for verification is appropriate. The Tribunal did not lay down a new substantive rule on the scope of set off beyond affirming applicability of section 32(2) principles.

Obiter: Expressions regarding the correctness of the set off on merits are not final adjudications of fact; they function as interim conclusions supporting remand rather than final determinations on entitlement.

Issue 2 - Conclusion

The question of entitlement to set off brought forward unabsorbed depreciation against income from other sources was not finally decided on the record; the rectification being timely permits consideration of the claim, but the matter is remitted to the Assessing Officer for verification and allowance of the set off if proved. The Tribunal upheld the remand and found no infirmity in the appellate authority's approach.

Overall Disposition

The Tribunal dismissed the revenue's appeal, upheld the appellate authority's finding that the rectification under section 154(7) was within time computed from the last disposal of objections, and endorsed remand to the Assessing Officer for verification and allowance of the brought forward unabsorbed depreciation if established.

Rectification time limit u/s154(7) for 143(1) intimation-clock runs from final CPC response; application held timely.
The dominant issue was limitation under s.154(7) for a rectification application concerning an intimation u/s 143(1). Applying SC law, the ITAT held the four-year period must be computed with reference to the relevant final communication giving rise to the actionable grievance, and not mechanically from the original 143(1) intimation date; the AO erred in ignoring the subsequent final CPC response issued on the assessee's objection. Consequently, the assessee's rectification application was held to be within time. On merits, since the first appellate authority had only remitted the matter to the AO to verify and allow eligible brought-forward losses, the ITAT found no infirmity in that direction and dismissed the revenue's appeal.

Limitation for rectification u/s.154(7) - counting of limitation from last order / final response - set off of brought forward unabsorbed depreciation against income from other sources - remand for verification of claim of brought forward losses - Hindware Industries Ltd. principle on limitation for rectificationLimitation for rectification u/s.154(7) - counting of limitation from last order / final response - Hindware Industries Ltd. principle on limitation for rectification - Rectification application under section 154(7) held to be within time where limitation is counted from the date of the final response to the assessee's objection and not from the original intimation/order. - HELD THAT: - The intimation under section 143(1) was generated on 11.12.2016; the assessee filed an objection with CPC which was disposed on 04.12.2018. The AO rejected the section 154 rectification filed on 26.09.2022 as time barred treating the intimation date as the starting point. Relying on the principle in Hindware Industries Ltd., the Tribunal agreed with the CIT(A) that the period of four years under section 154(7) must be reckoned from the date of the last order/response disposing the objection (the final response dated 04.12.2018) and therefore the rectification application was within time. The Tribunal found no error in the CIT(A)'s approach and upheld his conclusion that rectification was not barred by limitation. [Paras 6, 7]Rectification application under section 154(7) is within time as limitation runs from the date of final response disposing the objection (04.12.2018), and the CIT(A)'s order on this point is upheld.Set off of brought forward unabsorbed depreciation against income from other sources - remand for verification of claim of brought forward losses - Claim for set off of brought forward unabsorbed depreciation allowed on merits and remitted for verification by the Assessing Officer. - HELD THAT: - The CIT(A) allowed the assessee the benefit of set off of unabsorbed depreciation against income from other sources on merits but did not itself quantify or complete verification of the factual claim. The Tribunal found no infirmity in this approach and agreed with the CIT(A)'s direction to remit the matter to the AO to verify the assessee's claim of brought forward losses and to allow the set off if verified. The remand is therefore for verification and implementation of the admitted legal entitlement. [Paras 7]Issue remitted to the Assessing Officer for verification of the brought forward losses and for allowing the set off if the claim is established.Final Conclusion: Revenue's appeal is dismissed; the rectification under section 154(7) is within time when limitation is counted from the final response disposing the objection, and the matter is remitted to the Assessing Officer for verification and allowance of the brought forward unabsorbed depreciation if established.

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