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2023 (12) TMI 243 - CESTAT ALLAHABAD Central Excise

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Issues involved: Alleged write off of cenvatable goods in balance sheets for multiple financial years, demand of central excise duty, applicability of Rule 3(5B) of Cenvat Credit Rules, 2004, rejection of submission by Adjudicating Authority, appeal allowed by Commissioner (Appeals), appeal by Revenue before Tribunal.

The Respondent, a manufacturer of tyres, tubes, and flaps, faced allegations from Central Excise officers regarding provisions for write off of cenvatable goods in their balance sheets for financial years 2011-12 to 2014-15. A show cause notice was issued demanding central excise duty under Rule 14 read with proviso to section 11A(1) of the Central Excise Act, along with interest and penalty. The Respondent contended that provisions made were for slow-moving obsolete spares, not write-offs, and were still part of their inventory for future use.

The Adjudicating Authority rejected the Respondent's submission, invoking the extended period of limitation and holding the provisions made akin to write-offs under Rule 3(5B) of Cenvat Credit Rules. However, the Commissioner (Appeals) allowed the appeal, noting that no items on which cenvat credit was taken had been written off, and the balance sheet did not reflect any write-offs. The Appellate Authority set aside the original order, leading the Revenue to appeal before the Tribunal, arguing that the provisions in the balance sheets were violative of Rule 3(5B) of Cenvat Credit Rules, 2004.

After hearing both sides, the Tribunal observed that the provisions in the balance sheets were not cases of actual write-offs but akin to write-offs. Citing legal precedents, the Tribunal emphasized the need to interpret taxing statutes based on clear expressions without implying additional provisions. Analyzing Rule 3(5B) of Cenvat Credit Rules, 2004, the Tribunal concluded that since there was no actual writing off or removal of inputs as required by the rule, the appeal of the Revenue was dismissed. The Respondent was entitled to any consequential benefits in accordance with the law.

In conclusion, the Tribunal found that the Respondent was not required to reverse the credit availed on inputs alleged to have been written off in their books of account under Rule 3(5B) of Cenvat Credit Rules, 2004, as there was no actual writing off or removal of inputs as mandated by the rule.

Revenue's appeal dismissed as Rule 3(5B) requires actual writing off of input values to trigger CENVAT credit reversal (5B)
CESTAT Allahabad dismissed Revenue's appeal regarding reversal of CENVAT credit on inputs allegedly written off under Rule 3(5B) of Cenvat Credit Rules, 2004. The tribunal held that Rule 3(5B) requires actual writing off of input values in books of account or provision for complete write-off to trigger reversal of credit. Since no such writing off or removal of inputs occurred in this case, the rule was not applicable, and the assessee was not required to reverse the CENVAT credit taken on the inputs.

Requirement to reverse CENVAT credit on write-off - provision for write-off in books of account - interpretation of a taxing statute - Rule 3(5B) of Cenvat Credit Rules, 2004Requirement to reverse CENVAT credit on write-off - provision for write-off in books of account - Rule 3(5B) of Cenvat Credit Rules, 2004 - interpretation of a taxing statute - Whether provisions for slow moving stores and spares in the balance sheets amounted to a write-off or to a provision to write off within the meaning of Rule 3(5B), thereby attracting reversal of Cenvat credit. - HELD THAT: - The Tribunal examined the language of Rule 3(5B) and held that its condition precedent is an actual writing off (fully or partially) of inputs/capital goods, or a provision in the books of account specifically to write off fully or partially. Mere accounting provisions for slow moving or obsolete items that remain physically available in inventory and are not discarded do not constitute a write-off or a provision to write off within the meaning of Rule 3(5B). The proceedings in this case proceeded on a presumption that the provisions were equivalent to write-offs; the Tribunal reiterated the settled principle that taxing statutes must be interpreted in light of what is clearly expressed and cannot be extended by implication to supply assumed deficiencies. Applying this test to the facts, the Tribunal found no writing off or removal of inputs and therefore Rule 3(5B) was not attracted. [Paras 7, 8, 9]Revenue's appeal dismissed; Rule 3(5B) not attracted as there was no write-off or provision to write off the inputs and Cenvat credit reversal was not required.Final Conclusion: The Tribunal dismissed the Revenue's appeal, holding that accounting provisions for slow moving stores and spares which remain in inventory do not amount to write-off or a provision to write off under Rule 3(5B) of the Cenvat Credit Rules, 2004; consequently no reversal of Cenvat credit was payable and the assessee is entitled to consequential benefits.

2023 (12) TMI 121 - CESTAT ALLAHABAD Service Tax

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ISSUES PRESENTED AND CONSIDERED

1. Whether amounts received as reimbursement of expenses by a C&F agent constitute "consideration" and are includible in the taxable value of services for levy of service tax for the period 2009-10 to 2013-14.

2. Whether statutory amendment to the valuation provision (Section 67) effected by the Finance Act, 2015 (with effect from 14/05/2015) has retrospective effect so as to render reimbursements taxable for periods prior to that amendment.

3. Whether the Department's demand based on audit findings could be sustained as a case of suppression or non-disclosure justifying invocation of extended liability for past periods.

4. Whether specific categories of payments (freight, courier, loading/unloading, cartage, printing & stationery, legal expenses, interest on investment, miscellaneous) shown as reimbursed in agreements and supported by records are taxable or are pure reimbursements outside taxable value.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Taxability of reimbursements as "consideration" for services (legal framework)

Legal framework: Section 67 (valuation of taxable services) provides that where service is for consideration in money, taxable value is the gross amount charged by the service provider for such service. Prior to amendment in 2015, Section 67 did not expressly include reimbursable expenditures as part of consideration.

Precedent treatment: The Larger Bench decision in Sri Bhagavathy Traders (Tri-LB) was applied to hold that amounts not charged for service are not part of taxable value. The Tribunal treated subsequent Supreme Court authority (UOI v. Intercontinental Consultant & Technocrats) and a following judgment (UOI v. International Shippers & Traders) as controlling on whether reimbursements are taxable for the pre-amendment period.

Interpretation and reasoning: The Tribunal accepted that reimbursements-being amounts recovered as disbursements incurred on behalf of principals and evidenced by agreements and supporting documents-are not part of the gross amount charged "for" the service. The Court relied on the legislative scheme which, by the 2015 amendment to Section 67, expressly made reimbursable expenditure part of consideration only prospectively, indicating that prior thereto such amounts were not includible.

Ratio vs. Obiter: Ratio - Reimbursed expenses evidencing mere disbursement are not includible in taxable value under pre-2015 Section 67. Obiter - Observations on the nature of particular categories may be explanatory but align with the core ratio on valuation.

Conclusion: For the period 2009-10 to 2013-14, amounts received as reimbursements are not includible in taxable value and are not subject to service tax as "consideration" under Section 67.

Issue 2 - Effect of 2015 amendment to Section 67 (prospectivity vs retrospectivity)

Legal framework: Finance Act, 2015 amended definition/valuation to include reimbursable expenditure as part of consideration with effect from 14/05/2015.

Precedent treatment: The Supreme Court's reasoning in Intercontinental (operatively reproduced) was followed: the amendment constitutes a substantive change and cannot be given retrospective effect to tax reimbursable expenditures prior to the amendment date.

Interpretation and reasoning: The Court inferred legislative intent from the amendment: since Section 67 previously omitted reimbursable expenditure, the legislature inserted express language in 2015 to include such amounts prospectively; this substantive change cannot be treated as declaratory of prior law. Hence, service tax cannot be levied on reimbursements for periods before the effective date of the amendment.

Ratio vs. Obiter: Ratio - The 2015 amendment is substantive and prospective; reimbursements prior to 14/05/2015 are outside taxable value. Obiter - None material beyond the prospective effect conclusion.

Conclusion: The statutory amendment does not validate demands for reimbursement amounts for pre-2015 periods; such amounts were not taxable before 14/05/2015.

Issue 3 - Allegation of suppression/non-disclosure and sustainment of demand

Legal framework: Extended or belated demands based on suppression require material non-disclosure or concealment of facts from departmental records/audit.

Precedent treatment: The Tribunal applied audit records and prior audits to test the claim of suppression and referred to principles requiring establishment of concealment to sustain extended liability.

Interpretation and reasoning: The Tribunal examined audit reports and the history of audits (multiple audits, dates provided) and observed that records reflecting receipt of reimbursements existed and had been audited earlier without adverse observations. The Department did not show that material facts regarding reimbursements were absent from records or deliberately concealed. The mere non-payment of tax on amounts that were not taxable (per legal position) does not amount to suppression of facts. Therefore, the findings of suppression by the adjudicating authority were factually and legally unsustainable.

Ratio vs. Obiter: Ratio - Absent evidence of concealment or suppression in records, demands premised on suppression are unsustainable. Obiter - Detailed chronology of audits supports the conclusion but is ancillary to the ratio.

Conclusion: The Department's reliance on suppression to justify the demand for the disputed period is not tenable; extended period/demand cannot be sustained on the facts.

Issue 4 - Characterisation of specific expense categories as reimbursements

Legal framework: Valuation principles distinguish between amounts charged as consideration for service and amounts reimbursed to cover costs; documentary evidence and contractual terms determine characterisation.

Precedent treatment: The Tribunal applied the approach of earlier authorities (including the Larger Bench) to treat contractual terms and supporting documents as determinative of whether payments are reimbursements.

Interpretation and reasoning: The Tribunal reviewed the agreements and supporting documents and found that various items (freight, courier, loading/unloading, local cartage, printing & stationery, legal expenses, interest on investment, miscellaneous) were specifically incurred on behalf of principals and recovered as reimbursements. Such amounts were not agreed as service charges and therefore are in the nature of reimbursement. Given the legal position pre-2015, these amounts do not form part of taxable value.

Ratio vs. Obiter: Ratio - Expenses shown in agreements and supported by documentary evidence as reimbursements are not includible in taxable value pre-amendment. Obiter - Categorisation examples serve explanatory purpose.

Conclusion: The specified categories of payments, being documented reimbursements, are not taxable components of consideration for the period in question.

Overall Disposition

The Tribunal held that (a) reimbursements evidenced by agreements and records are not includible in taxable value under pre-2015 Section 67; (b) the 2015 amendment is substantive and prospective, so reimbursements prior to 14/05/2015 are not taxable; (c) there was no suppression warranting extended liability; and (d) the adjudicating authority's demand is unsustainable and set aside, with the appeal allowed and consequential relief granted as per law.

Tribunal Overturns Service Tax Order on Reimbursed Expenses, Cites No Suppression of Facts for 2009-2014 Period.
The Tribunal allowed the appeal, setting aside the impugned order demanding service tax on reimbursement of expenses for the period 2009-10 to 2013-14. It found that service tax was not applicable prior to April 14, 2015, based on a SC judgment. The Tribunal also determined that there was no suppression of facts by the appellant, as the audit report indicated departmental awareness of the non-payment. Consequently, the appellant was granted consequential relief.

Reimbursable expenses not includible in taxable value prior to amendment - prospective effect of amendment to valuation provision to include reimbursable expenditure - valuation of taxable services under Section 67 excluding amounts not charged for service - no suppression of facts where reimbursement reflected in records and earlier audits - service tax not leviable on reimbursements for period prior to 14.04.2015Reimbursable expenses not includible in taxable value prior to amendment - valuation of taxable services under Section 67 excluding amounts not charged for service - Reimbursed amounts received by the C & F agent do not form part of taxable value for the disputed period. - HELD THAT: - The Tribunal held that amounts received as reimbursement of expenses (freight, courier, loading/unloading, printing/stationery, legal expenses, interest on investment and misc. expenses) were reimbursements only and therefore not includible in the taxable value of services provided by the appellant. The view in the Larger Bench decision in Sri Bhagavathy Traders that value is confined to the gross amount charged for service was applied, and the adjudicating authority's inclusion of reimbursed amounts in taxable value was found to be not tenable factually or legally. [Paras 6, 7]Demand insofar as it relates to reimbursed amounts is not sustainable and those amounts are not includible in taxable value for the period under consideration.Prospective effect of amendment to valuation provision to include reimbursable expenditure - service tax not leviable on reimbursements for period prior to 14.04.2015 - Amendment to include reimbursable expenditure in valuation operates prospectively and does not render reimbursements taxable for the disputed period. - HELD THAT: - Relying on the Supreme Court's decision in UOI v. Intercontinental Consultant & Technocrats (operative extract reproduced), the Tribunal observed that the legislative amendment by the Finance Act, 2015 (effective 14/May/2015) to include reimbursable expenditure within valuation is a substantive change and must operate prospectively. Consequently, reimbursements could not be treated as part of taxable service value during 2009-10 to 2013-14. [Paras 5]The amendment to valuation provisions does not make reimbursements taxable retrospectively; service tax was not leviable on reimbursements in the disputed period.No suppression of facts where reimbursement reflected in records and earlier audits - The demand on the ground of suppression and extended period is not justified where records and earlier audits disclosed the reimbursements. - HELD THAT: - The adjudicating authority had held that the appellant suppressed receipt of reimbursements, justifying demand for a larger period. The Tribunal found that audit records from past audits (including audits in 2008, 2009 and an audit report of 2011) indicate that reimbursements were reflected in the books and that the department did not take adverse note earlier. Given disclosure in records and absence of any material showing concealment, the finding of suppression was not sustainable. [Paras 8]Extended demand premised on suppression cannot be sustained; the Department was not justified in treating the matter as suppression to invoke a larger period.Final Conclusion: The impugned order confirming service tax demand on reimbursed expenses for 2009-10 to 2013-14 and for a larger period on the ground of suppression is set aside; the appeal is allowed with consequential relief in accordance with law.

2023 (12) TMI 113 - CESTAT ALLAHABAD Central Excise

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Issues:
The judgment involves issues related to demand for reversal of Cenvat credit on Menthol Crystals exempted under a notification, applicability of Rule 6 of the CENVAT Credit Rules, 2004, and whether the benefit of Rule 6(6) can be extended on export goods.

Summary:
The Appellant, a manufacturer of Menthol/Menthol Crystals & DMO, faced a demand for reversal of Cenvat credit on Menthol Crystals exempted under a notification, while DMO remained chargeable to duty. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals) in the first round of litigation. However, the Tribunal in an earlier order held that Rule 11(3) was not applicable in this case. Regarding Rule 6, the Tribunal stated that if fully exempted excisable goods are exported under bond, Cenvat credit would not be liable to be reversed. The matter was remanded for ascertainment of exports.

In the subsequent round of adjudication, the Additional Commissioner contended that since the goods claimed as exported were not against LUT or bond, the benefit of Rule 6(6) could not be extended on export goods. The demand was confirmed again, but the penalty was set aside. The Appellant then filed a fresh defense stating that a portion of the disputed quantity was cleared for home consumption, while the rest was exported. The Additional Commissioner again confirmed the demand and imposed a penalty, which was set aside by the Commissioner (Appeals).

The Appellant argued that the exported goods were cleared under ARE-1, indicating they were exported under Bond/LUT. Cenvat credit was not required to be reversed for exempted finished goods exported under bond/LUTs, as per settled law. The Appellant cited several judgments in support of this argument.

After considering the arguments and perusing the records, the Tribunal found that the issue was covered by a judgment of the High Court of Himachal Pradesh, which held that an assessee manufacturing goods chargeable to nil duty could avail Cenvat credit on inputs used in the manufacture of such goods if they were exported. The Tribunal set aside the impugned order and allowed the appeal filed by the Appellant with consequential relief as per law.

Manufacturers of nil duty goods can claim CENVAT credit on inputs if exported under Rule 6(5) and 6(6)
CESTAT Allahabad allowed the appeal regarding reversal of CENVAT credit on menthol crystals exempted under notification 4/2008-CE dated 01.03.2008. The tribunal held that manufacturers of goods chargeable to nil duty are eligible for CENVAT credit on inputs under Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, if goods are exported. The decision followed HP HC precedent in Commissioner of Central Excise v. Drish Shoes Ltd., which was upheld by SC. The impugned order was set aside.

Reversal of CENVAT credit on exempted finished goods - Exception under Rule 6(6) of the CENVAT Credit Rules, 2004 for exports under bond/Letter of Undertaking (LUT) - Scope of the expression excisable goods vis-a -vis exempted goods - ARE 1 as evidence of export under bond/LUT - Precedential application of Drish Shoes (H.P. High Court) on Rule 6(6)Reversal of CENVAT credit on exempted finished goods - Exception under Rule 6(6) of the CENVAT Credit Rules, 2004 for exports under bond/Letter of Undertaking (LUT) - ARE 1 as evidence of export under bond/LUT - Scope of the expression excisable goods vis-a -vis exempted goods - CENVAT credit on inputs used in manufacture of Menthol Crystals (exempted goods) need not be reversed where the finished goods were exported under bond/LUT or where exports qualify for exception under Rule 6(6) of the CENVAT Credit Rules, 2004; ARE 1s and export documents support claim of export under bond/LUT. - HELD THAT: - The Tribunal applied the ratio of the Hon'ble High Court of Himachal Pradesh in Commissioner of Central Excise v. Drish Shoes Ltd., holding that the exception in sub rule (6) of Rule 6, CENVAT Credit Rules, 2004, permits retention/refund of CENVAT credit where excisable goods (a term broader than merely 'dutiable' goods and including exempted goods) are exported under bond. The Tribunal observed that the purpose of the exception is to avoid indirect double taxation and to promote exports, and that the expression 'excisable goods' in Rule 6(6) has been judicially construed to include goods chargeable to nil duty. The appellant produced ARE 1s and export documents which the Tribunal treated as indicative that exports were under bond/LUT; therefore the benefit of Rule 6(6) applies and CENVAT reversal is not exigible for the exported quantities. Following Drish Shoes and related precedents, the impugned findings denying Rule 6(6) relief because exports were not purportedly against LUT/bond were held to be unsustainable and set aside. [Paras 11, 12]Demand for reversal of CENVAT on the quantities exported under ARE 1s was disallowed and the impugned order set aside; appeal allowed with consequential relief.Final Conclusion: Following the ratio in Drish Shoes (H.P. High Court) and having accepted the appellant's export documents (ARE 1s) as establishing exports under bond/LUT, the Tribunal set aside the impugned order, held that Rule 6(6) of the CENVAT Credit Rules, 2004 applies to the exported exempted goods and allowed the appeal with consequential relief.

2023 (12) TMI 93 - ITAT MUMBAI Income Tax

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Issues involved:
The appeal challenges the deletion of addition under section 68 of the Income Tax Act related to cash deposits during the demonetisation period.

Summary:
1. Issue 1: Deletion of addition under section 68 - Lack of documentary evidence
The Revenue challenged the deletion of the addition of Rs. 1,63,92,000 made under section 68 of the Income Tax Act due to cash deposits during demonetisation. The Assessing Officer found the assessee's explanations vague and lacking in supporting evidence. The AO emphasized the failure to establish the link between income offered before the Income Tax Settlement Commission and the cash deposits. Consequently, the AO treated the cash deposit as unexplained credit under section 68 and added it to the total income.

2. Issue 2: CIT(A)'s decision on the deletion of addition
The Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition, stating that the assessee had earned unaccounted income from the sale of land and brokerage, which was offered before the Income Tax Settlement Commission. The CIT(A) noted that the Settlement Commission had accepted the additional income offered by the assessee. The CIT(A) emphasized that the cash deposited was from the income earned and accepted by the Settlement Commission, thus justifying the deletion of the addition under section 68.

3. Judgment and Decision
The ITAT Mumbai considered the submissions and material on record. Despite the assessee's claims, the ITAT found that the assessee failed to establish a clear link between the additional income offered before the Settlement Commission and the cash deposits during demonetisation. The ITAT noted that the cash was deposited before the application to the Settlement Commission, and the assessee could not provide concrete evidence of the link. As a result, the ITAT set aside the CIT(A)'s decision and affirmed the addition made by the AO under section 68. The appeal by the Revenue was allowed, and the addition of Rs. 1,63,92,000 was upheld.

This judgment highlights the importance of providing concrete evidence and establishing a clear link between income sources and cash transactions to avoid additions under the Income Tax Act.

Addition under Section 68 upheld for unexplained cash deposits during demonetization period despite offered income
ITAT Mumbai upheld addition under Section 68 for cash deposits made during demonetization period. Assessee offered additional income before ITSC but failed to establish nexus between offered income and cash deposits with documentary evidence. Despite opportunities, assessee could not prove source of deposits made on 25/11/2016. ITAT found assessee's arguments as afterthought, noting offered income pertained to assessment years 2009-10 to 2016-17. CIT(A)'s order was set aside, AO's addition affirmed, and Revenue's appeal allowed.

Unexplained cash credit under section 68 - nexus between declared income before Settlement Commission and bank cash deposits - burden of proof on assessee to establish source of cash deposits - acceptance of additional income by Settlement Commission - applicability of special tax provision 115BBEUnexplained cash credit under section 68 - nexus between declared income before Settlement Commission and bank cash deposits - burden of proof on assessee to establish source of cash deposits - acceptance of additional income by Settlement Commission - Whether the addition of Rs. 1,63,92,000 made as unexplained cash credit under section 68 should be sustained where the assessee relied on additional income accepted by the Settlement Commission as the source of the cash deposits. - HELD THAT: - The assessee claimed that cash deposits of Rs. 1,63,92,000 on 25/11/2016 were sourced from undisclosed income of Rs. 1,75,00,000 which was offered and later accepted by the Settlement Commission. The AO required the assessee to prove a live link between the Settlement Commission-accepted income and the specific cash deposits; the assessee failed to produce contemporaneous evidence showing that the accepted additional income remained in cash and was subsequently deposited on 25/11/2016. The application to the Settlement Commission was filed after the cash deposit; no material was placed on record to show that the cash deposit was shown in the cash book for FY 2016 17 or that the accepted income had not been utilised earlier. Where undisclosed income runs over several years and had not been previously disclosed, the onus lies on the assessee to demonstrate that such funds were available in cash and used for the bank deposits in question. The CIT(A) erred in treating the Settlement Commission's acceptance as conclusively establishing the source of the deposited cash in the absence of any corroborative evidence; consequently the Tribunal found the AO's conclusion that the cash deposits were unexplained to be sustainable. [Paras 10]Findings of the CIT(A) deleting the addition are set aside; the addition of Rs. 1,63,92,000 under section 68 is affirmed.Final Conclusion: The Revenue's appeal is allowed; the Assessing Officer's addition of Rs. 1,63,92,000 as unexplained cash credit under section 68 is affirmed for AY 2017-18.

2023 (12) TMI 7 - CESTAT ALLAHABAD Service Tax

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CESTAT grants service tax exemption for technical assistance services to UNICEF under Notification 16/2002-ST
CESTAT Allahabad allowed the appeal challenging service tax demand on technical assistance services provided to UNICEF. The appellant had entered into long-term agreements for financial, human resource, and logistics management services across various Indian states. The original authority denied exemption under Notification No.16/2002-ST, claiming UNICEF was not specifically mentioned. However, CESTAT held that UNICEF is covered under the exemption notification, citing consistent tribunal precedents. The tribunal also granted exemption under Notification No.25/2012-ST for the period from July 2012 onwards, being pari-materia with the earlier notification. The impugned order was set aside and service tax demand was quashed.

Exemption for services provided to the United Nations or an international organization - exemption under Notification No.16/2002-ST - exemption under Notification No.25/2012-ST - entities forming part of the United Nations covered by exemptionExemption for services provided to the United Nations or an international organization - exemption under Notification No.16/2002-ST - exemption under Notification No.25/2012-ST - entities forming part of the United Nations covered by exemption - Entitlement of the appellant to service tax exemption for services provided to UNICEF for the period 01.10.2015 to 30.06.2017 - HELD THAT: - The Tribunal held that services rendered to UNICEF fall within the exemption for services provided to the United Nations or an international organization. The Original Authority erred in relying on Central Excise and Customs notifications and on the fact that UNICEF was not named in the service-tax notification; the exemption in Notification No.16/2002-ST (and pari materia Notification No.25/2012-ST effective 01.07.2012) covers entities that form part of the United Nations. The Tribunal followed earlier appellate decisions (including AC Nielson and Ballset Entertainment) and the appellant's own earlier favourable Final Order for an earlier period, concluding that UNICEF is covered by the service-tax exemption and that the impugned demand therefore cannot be sustained. Consequently, the demand confirmed by the adjudicating authority was set aside and the appeal allowed with consequential relief. [Paras 12, 15, 16, 17, 18]Impugned order set aside; appeal allowed and exemption under Notification No.16/2002-ST and Notification No.25/2012-ST allowed for the disputed period.Final Conclusion: The Tribunal set aside the adjudicating authority's order and allowed the appeal, holding that services provided to UNICEF are exempt under Notification No.16/2002-ST and Notification No.25/2012-ST for the period 01.10.2015 to 30.06.2017, with consequential relief as per law.

2023 (12) TMI 2 - CESTAT ALLAHABAD Central Excise

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Commissioner Appeals violated judicial discipline by contradicting final tribunal order on interest entitlement from deposit date
CESTAT Allahabad held that the Commissioner (Appeals) violated judicial discipline principles by contradicting a final tribunal order dated 03.01.2019 regarding appellant's entitlement to interest from deposit date until realization. The tribunal established that once an unchallenged order attains finality, it cannot be reopened in collateral proceedings by the same authority. The Commissioner's finding that revenue accepted the earlier order purely on monetary grounds was incorrect, as the interest amount exceeded prevailing monetary limits. Section 35R(4) can only be invoked by the same or superior authority that issued the original order, not by inferior authorities. The Assistant Commissioner correctly followed the tribunal's order in sanctioning interest. Appeal allowed.

Principle of judicial discipline - res judicata - entitlement to interest on delayed refunds - finality of appellate orders - Section 35R - effect of non filing of appeal on monetary groundsPrinciple of judicial discipline - res judicata - finality of appellate orders - entitlement to interest on delayed refunds - Whether the Commissioner (Appeals) could reopen or remand for fresh consideration the question of the appellant's entitlement to interest after this Tribunal had decided the matter by its final order dated 03.01.2019 which was not challenged by the revenue. - HELD THAT: - Both parties agreed that this Tribunal by order dated 03.01.2019 adjudicated the appellant's entitlement to interest from the date of deposit till realization and that the said order was not challenged further. The Tribunal held that once an appellate order has attained finality between the parties, subordinate authorities are bound to follow it and cannot re open the same issue. Reliance on Union of India v. Kamlakshi Finance Corporation Ltd. was placed to emphasise that revenue officers must give effect to orders of higher appellate authorities and cannot decline to follow them merely because the order is "not acceptable" to the department or is subject to further appeal unless its operation is stayed. The impugned remand and direction to decide entitlement afresh were found to be contrary to the principles of judicial discipline and barred by res judicata, since the question had been conclusively decided by the Tribunal. Consequently, the Assistant Commissioner's order sanctioning interest pursuant to the Tribunal's order was held to be rightly made and was restored. [Paras 11, 12, 13, 20]The Commissioner (Appeals) erred in remanding and re deciding the entitlement to interest; the Tribunal's order dated 03.01.2019 having attained finality, the Assistant Commissioner's sanction of interest is restored.Section 35R - effect of non filing of appeal on monetary grounds - finality of appellate orders - Whether sub section (4) of Section 35R of the Central Excise Act enables a lower authority (Commissioner (Appeals)) to invoke the circumstance of non filing of appeal by revenue on monetary grounds so as to re open or disregard a higher appellate order. - HELD THAT: - Section 35R was examined. Sub section (3) prevents a party from contending acquiescence by the Central Excise Officer merely because no appeal was filed pursuant to monetary limits. Sub section (4) requires the Commissioner (Appeals), the Appellate Tribunal or the Court hearing the appeal to have regard to the circumstances under which the appeal was not filed. The Tribunal interpreted sub section (4) as being restricted to the same authority or its superiors whose order was not challenged because of monetary limits, and not as empowering an inferior authority to disregard or re open a well reasoned higher order. Allowing a subordinate authority to invoke sub section (4) in the present facts would subvert judicial discipline and permit lower authorities to ignore binding appellate decisions merely on the ground of alleged non filing for monetary reasons. Hence the Commissioner (Appeals) could not rely on an alleged acceptance of the Tribunal's order on monetary grounds to re decide the issue. [Paras 16, 17, 18, 19]Section 35R(4) does not empower the Commissioner (Appeals) to disregard or re open a binding Tribunal order on the ground that the revenue did not file an appeal because of monetary limits; that consideration lies with the same or a superior authority, not an inferior one.Final Conclusion: The appeal is allowed. The impugned order of the Commissioner (Appeals) is set aside for violating judicial discipline and res judicata; the Order in Original dated 22.11.2019 sanctioning interest is restored and the appellant is entitled to consequential reliefs as per law.

2023 (12) TMI 112 - CESTAT ALLAHABAD Central Excise

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Issues Involved:
The issues involved in the judgment are denial of CENVAT credit on steel items used in the manufacture of support structures for capital goods and PSC Sleepers for laying railway line, recovery of interest, and imposition of penalties.

Denial of CENVAT Credit:
The Appellants filed appeals against the Order-in-Original confirming the denial of credit availed on steel items used in the manufacture of support structures for capital goods and PSC Sleepers. The Adjudicating Authority ordered recovery of the amount representing the inadmissible credit, along with interest and penalties. The denial was based on the amendment to Explanation 2 of the CENVAT Credit Rules, which excluded certain items used for construction of structures for support of capital goods. However, the High Court held that the amendment would not have retrospective effect, and various decisions supported the admissibility of credit on inputs used in the fabrication of support structures for capital goods.

Legal Precedents and Decisions:
The Tribunal and High Courts have consistently ruled in favor of allowing CENVAT credit on steel items used for fabrication of support structures for capital goods. The decision in the case of Vandana Global, which formed the basis of the denial of credit, was overruled by various High Courts. The "User Test" was applied to determine the admissibility of credit, and several cases supported the availment of credit on steel items used for fabrication purposes. Additionally, the decision regarding the availment of credit on PSC poles was supported by a ruling of the Rajasthan High Court.

Imposition of Penalties:
The Adjudicating Authority imposed penalties on the main Appellant and other individuals involved. However, in light of the discussions and legal precedents regarding the admissibility of CENVAT credit on steel items, the imposition of penalties was deemed unsustainable. Therefore, the impugned order was set aside, and the appeals filed by the Appellants were allowed with consequential relief.

Conclusion:
The judgment by the Appellate Tribunal CESTAT ALLAHABAD addressed the denial of CENVAT credit on steel items used in the manufacture of support structures for capital goods and PSC Sleepers. The decision was based on legal precedents, the interpretation of relevant rules, and the application of the "User Test" to determine the admissibility of credit. Ultimately, the impugned order was set aside, and the appeals were allowed in favor of the Appellants.

CENVAT credit allowed as amendment to Rule 2(k) cannot apply retrospectively, penalty set aside
CESTAT Allahabad allowed the appeal, setting aside the order denying CENVAT credit. The tribunal held that Notification No.16/2009-C.E.(N.T.) dated 07.07.2009 amending Explanation 2 to Rule 2(k) of CENVAT Credit Rules cannot be applied retrospectively. The decision relied on Chhattisgarh HC's ruling in Vandana Global case which overruled CESTAT's earlier position. Multiple HC decisions including Gujarat HC and Madras HC supported prospective application of the amendment. SC precedent in Rajasthan Spinning case applying user test also supported credit admissibility on inputs used in capital goods fabrication. Penalty was also set aside as unsustainable.

CENVAT credit on inputs used in fabrication of support structures for capital goods - user test for admissibility of input credit - retrospective operation of amendment to Explanation 2 to Rule 2(k) of Cenvat Credit Rules - admissibility of credit on railway/PSC sleepers used for plant operation - penalty for wrongful availment of CENVAT creditCENVAT credit on inputs used in fabrication of support structures for capital goods - user test for admissibility of input credit - CENVAT credit availed on steel items used in fabrication and installation of support structures for capital goods and machinery was admissible. - HELD THAT: - The Tribunal applied the settled "user test" and held that steel inputs used to fabricate support structures which hold and enable functioning of capital goods form integral parts of those capital goods; hence credit claimed was allowable. The order observes that several decisions of High Courts and the Supreme Court have recognised admissibility of credit on steel items used for fabrication of capital goods (including chimneys and support structures) and that authorities following the contrary view (Vandana Global) have been disapproved. On this basis the denial of credit by the Adjudicating Authority was set aside. [Paras 8]Denial of CENVAT credit on steel items used for fabrication of support structures for capital goods is set aside and credit is held admissible.Retrospective operation of amendment to Explanation 2 to Rule 2(k) of Cenvat Credit Rules - The amendment to Explanation 2 to Rule 2(k) of the Cenvat Credit Rules effected w.e.f. 07.07.2009 is not to be given retrospective effect for denying credit already availed. - HELD THAT: - The Tribunal relied on the Chhattisgarh High Court and other High Court decisions holding that the amendment introduced by Notification No.16/2009-C.E. (N.T.) cannot be treated as clarificatory with retrospective operation. The show cause notice premised on Vandana Global's view of retrospective effect was found to be contrary to this line of authority and thus unsustainable. [Paras 5, 6, 7]The Adjudicating Authority's reliance on retrospective application of the amendment to deny credit is rejected.Admissibility of credit on railway/PSC sleepers used for plant operation - CENVAT credit on PSC sleepers/railway track material used for transportation within the plant is admissible. - HELD THAT: - The Tribunal noted precedent of High Courts holding that railway track material/PSC poles that enable transport of fuel and material essential for plant operation cannot be excluded from credit merely because they are not directly part of manufacture; such items are eligible for credit as they facilitate the manufacturing process. [Paras 10]Availment of credit on PSC sleepers/railway track material is allowable.Penalty for wrongful availment of CENVAT credit - Penalty imposed on the appellants for alleged wrongful availment of CENVAT credit is not sustainable. - HELD THAT: - Since the Tribunal found that the credit availed on the steel items and PSC sleepers was admissible following the user test and prevailing judicial decisions, the imposition of penalties consequential to the denial of credit was held to be unsustainable and therefore set aside. [Paras 11]Penalties imposed on the main and other appellants are quashed.Final Conclusion: Impugned Order-in-Original denying CENVAT credit on steel inputs used for fabrication of support structures and PSC sleepers and imposing recovery with penalties is set aside; the appeals are allowed with consequential relief as per law.

2023 (12) TMI 39 - CESTAT ALLAHABAD Central Excise

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ISSUES PRESENTED AND CONSIDERED

1. Whether Rule 6 of the Cenvat Credit Rules, 2004 (hereinafter "Credit Rules") required the respondent to maintain separate accounts/registers in a prescribed manner for inputs used in manufacture of dutiable and exempted goods, and whether failure to maintain such prescribed form would attract reversal under Rule 6(3).

2. Whether the show-cause notice validly alleged availment of Cenvat credit on inputs common to both dutiable and exempted goods such that reversal under Rule 6(3) or demand equal to 10%/5% of value of exempted goods could be sustained.

3. Whether export clearances (including clearance under bond/for export) remove the requirement of reversal/proportional payment in terms of sub-rule (6) of Rule 6, i.e., applicability of Rule 6(6)(v) to the facts.

4. Whether the demand was barred by limitation and/or vitiated by absence of allegation of fraud/suppression where records and returns were maintained and filed, raising bona fide belief in correct availment of credit.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Requirement and form of maintenance of separate records under Rule 6(2) of the Credit Rules

Legal framework: Rule 6(1)-(4) prescribe reversal/proportionate reversal where inputs/input services are used for both dutiable and exempted goods and require maintenance of accounts; Rule 6(2) contemplates maintenance of separate accounts for inputs used exclusively for dutiable or exempted goods.

Precedent treatment: The Tribunal considered authorities cited by the respondent but analyzed the statutory text rather than imposing any additional form requirements; no precedent was followed to require a specific format beyond sufficiency to ensure no credit is availed for exempted outputs.

Interpretation and reasoning: The Court held there is no prescribed manner in Rule 6(2) for maintaining separate records; the material requirement is substantive - that credit should not be taken on inputs used in exempted goods, whether by sole use or common use. How records are kept is not determinative if they demonstrably prevent wrongful credit. The absence of evidence showing credit taken on inputs used in exempted goods means mere criticism of the manner of record-keeping is unsupported.

Ratio vs. Obiter: Ratio - Rule 6(2) does not mandate a specific form of records; sufficiency is measured by whether credit on inputs for exempted goods was avoided. Obiter - comments on inventory maintenance sufficing to meet statutory purpose.

Conclusion: The requirement is substantive, not formalistic; separate records in a manner that ensures no credit on inputs used for exempted goods comply with Rule 6(2). The departmental contention that records were not maintained "as required" was unsupported and unsustainable.

Issue 2 - Need for specification in SCN of common inputs on which credit was taken and subsequent use in dutiable and exempted goods

Legal framework: Liability to reverse credit under Rule 6(3) arises where inputs on which credit is taken are used in relation to exempted goods; proof must identify such common inputs and nexus between credit taken and exempted use.

Precedent treatment: The Tribunal relied on the statutory requirement of demonstrating misuse of credit and found the impugned SCN lacked specificity; no reliance was placed on resumed records that would have identified such inputs because those records were not incorporated into the issued SCN.

Interpretation and reasoning: The Court emphasized that the SCN did not allege that credit had been taken on any input that was solely used for exempted goods or that there were specific common inputs on which credit was taken and later used for exempted outputs. Where an SCN fails to specify the common inputs and the allegation of credit misuse, the demand under Rule 6(3) cannot be sustained. The fact that the departmental inspection produced records showing exempted goods were manufactured from inputs on which no credit was taken undermined the SCN.

Ratio vs. Obiter: Ratio - A show-cause notice alleging reversal under Rule 6(3) must specify the common inputs and demonstrate that Cenvat credit was availed on those inputs later used for exempted goods; absence of such particulars vitiates the demand.

Conclusion: The SCN was deficient in not specifying the common inputs on which credit was taken and used to manufacture exempted goods; accordingly, no reversal under Rule 6(3) could be sustained on that basis.

Issue 3 - Applicability of Rule 6(6) (export clearances) to exclude reversal/penalty for export clearances

Legal framework: Rule 6(6) exempts certain clearances, including export clearances, from applicability of sub-rules (1) to (4), thereby excluding reversal/proportionate reversal obligations for such clearances as specified.

Precedent treatment: The Tribunal applied the plain language of sub-rule (6) to the facts, distinguishing attempts to impose a 10% reverse charge on exports where the rule expressly removes such applicability.

Interpretation and reasoning: The Court held that the demand for a percentage amount under sub-rule (3) in respect of export clearances is contrary to sub-rule (6). Since the respondent exported exempted goods (menthol crystal) and sub-rule (6) excludes exports from reversal obligations under sub-rules (1)-(4), demands premised on applying sub-rule (3) to export clearances are unsustainable.

Ratio vs. Obiter: Ratio - Export clearances covered by Rule 6(6) are not subject to reversal/proportional payment under sub-rules (1)-(4); demands applying sub-rule (3) to such exports are invalid.

Conclusion: The demand in respect of export clearances is not maintainable in light of Rule 6(6); the impugned demand that sought amounts on export clearances was therefore unsustainable.

Issue 4 - Limitation, bona fide belief, and absence of fraud/suppression

Legal framework: Extended period under proviso to Section 11A(1) (as pleaded in the matter) requires satisfaction of conditions such as fraud, suppression, or wilful misstatement; otherwise ordinary limitation applies. Bona fide compliance with statutory procedures and regular returns militates against invoking extended limitation.

Precedent treatment: The Tribunal referred to established principles that where a party maintains records and files returns and acts under bona fide belief of correct credit availment, allegations of fraud/suppression must be supported by evidence to invoke extended limitation.

Interpretation and reasoning: The respondent maintained separate registers, filed ER-1 returns, and demonstrated that inputs used for exempted goods were not claimed as credit. There was no allegation or evidence in the SCN of fraud or suppression. The show-cause notice was issued years after the resumed inspection and any reliance on extended period was not substantiated by proof of fraud. Given these facts, the extended period could not be validly invoked.

Ratio vs. Obiter: Ratio - Extended limitation cannot be invoked absent supporting material showing fraud/suppression; bona fide compliance and maintenance of records and returns rebut inference of concealment.

Conclusion: The demand covering the period indicated could not be supported by invocation of extended limitation because no evidence of fraud or suppression was shown and the respondent had a bona fide belief supported by records and returns.

Overall Conclusion by The Tribunal

The impugned demand was unsustainable: (a) Rule 6(2) does not prescribe a specific form of record-keeping and the requirement is that no credit is availed on inputs used for exempted goods; (b) the SCN failed to specify common inputs on which credit was allegedly availed and used for exempted goods; (c) export clearances are excluded from reversal under Rule 6(6); and (d) extended limitation could not be invoked absent evidence of fraud/suppression given bona fide compliance. The Tribunal upheld the order dropping the demand and dismissed the appeal.

Manufacturer wins appeal on CENVAT credit reversal for dutiable and exempted goods under Rule 6
CESTAT Allahabad dismissed the appeal regarding proportionate CENVAT credit reversal for a manufacturer producing both dutiable and exempted goods. The tribunal held that separate record maintenance requirements under Rule 6(2) of CCR 2004 were satisfied as long as no credit was taken on inputs used for exempted goods. The demand for 10% amount on export clearances was found unsustainable under sub-rule 6 of Rule 6, which exempts export clearances from reversal provisions. The original order was upheld as no infirmity was found in the respondent's credit utilization practices.

Rule 6 of the Cenvat Credit Rules, 2004 - separate records for inputs used in dutiable and exempted goods - reversal/proportional reversal under Rule 6(3) - exemption for export clearances under Rule 6(6)(v) - requirement that a show cause notice specify common inputs on which credit was availed - extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944Separate records for inputs used in dutiable and exempted goods - Rule 6 of the Cenvat Credit Rules, 2004 - Whether demand under Rule 6(3) could be sustained where the assessee maintained separate records and did not take credit on inputs used in exempted goods. - HELD THAT: - The Tribunal accepted the respondent's case that separate records were maintained showing duty-paid inputs used for dutiable goods and inputs on which credit was not taken used for exempted goods. The adjudicating authority did not point to any instance in the show cause notice where credit had in fact been availed on inputs used in exempted goods. Rule 6(2) prescribes maintenance of separate accounts but does not prescribe a specific form; the essential requirement is that credit is not taken on inputs used in exempted goods. In absence of any allegation or evidence that credit was availed on inputs used for exempted goods, the demand under Rule 6(3) could not be sustained. [Paras 9, 10]Demand under Rule 6(3) unsustainable as records showed no credit taken on inputs used in exempted goods.Exemption for export clearances under Rule 6(6)(v) - reversal/proportional reversal under Rule 6(3) - Whether reversal or levy of the proportionate amount under Rule 6(3) could be applied to export clearances of exempted goods. - HELD THAT: - The Tribunal held that sub rule (6) of Rule 6 expressly excludes certain clearances, including export clearances under bond, from the applicability of sub rules (1) to (4). Therefore, the demand to levy an amount (such as the 10% claimed) on export clearances was contrary to the express provision of Rule 6(6) and could not be sustained. The Tribunal treated export clearances as outside the scope of the proportional reversal mandated by sub rules (1)-(4). [Paras 10]Demand in respect of export clearances not sustainable in view of Rule 6(6).Requirement that a show cause notice specify common inputs on which credit was availed - Whether the show cause notice was fatally defective for not specifying common inputs on which Cenvat credit was allegedly taken and subsequently used in manufacture of both dutiable and exempted goods. - HELD THAT: - The Tribunal observed that the impugned notice did not identify any specific inputs on which credit had been availed and then used for exempted goods. Since the allegation in the notice was that separate records were not maintained but no concrete instance of credit misuse was pointed out, the show cause notice failed to establish the factual basis for invoking Rule 6(3). The absence of specification of common credited inputs undermined the demand formulation. [Paras 9]Show cause notice did not specify common credited inputs and thus could not sustain the demand.Final Conclusion: The Tribunal sustained the order of the Commissioner dropping the demand, finding no infirmity in the impugned order; the appeal filed by the Department is dismissed.

2023 (12) TMI 24 - ITAT BANGALORE Income Tax

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Tribunal Rules Only Net Income of Charitable Trust is Taxable; Orders Reassessment for Proper Deductions.
The Tribunal partly allowed the appeal filed by the assessee, a charitable trust, concerning the taxation of gross receipts. It held that only net income should be taxed, allowing for deductions of related expenditures. The Tribunal directed the AO to reassess the financials of the assessee, ensuring the proper application of income and deductions. The matter was remanded to the AO for further assessment, emphasizing the necessity of evaluating net income rather than gross receipts. The judgment was delivered in open court.

Only net income is taxable (gross receipts minus allowable expenditure) - deduction for expenditure under section 57 (income from other sources) - registration under section 12AA and section 10(23C) and application of income - remand to Assessing Officer for verification and allowance of deductible expensesOnly net income is taxable (gross receipts minus allowable expenditure) - deduction for expenditure under section 57 (income from other sources) - remand to Assessing Officer for verification and allowance of deductible expenses - registration under section 12AA and section 10(23C) and application of income - Whether the entire gross receipts could be taxed in the hands of the assessee-trust in the absence of registration, or the Assessing Officer must assess only net income after allowing expenditure attributable to earning such receipts. - HELD THAT: - The Tribunal held that even though the assessee-trust did not have registration under section 12AA or section 10(23C) (and therefore no application of income could be considered), it was not permissible to tax gross receipts without allowing expenditure incurred in earning those receipts. Relying on the principle that only net income is taxable, and following the Bangalore Bench decision in M/s. H M V Educational Cultural and Social Trust (restoring the issue to the AO for examination of deduction under section 57), the matter was restored to the Assessing Officer. The AO is directed to examine the assessee's financials and allow expenditure incurred for earning the income assessable under the head 'income from other sources' if supported by evidence; the assessee is to cooperate and furnish necessary proof for expeditious disposal. The Tribunal made clear that absence of registration negates application of income but does not justify taxing gross receipts without deduction of allowable expenses. [Paras 7, 8]Appeal partly allowed; matter restored to the Assessing Officer to examine and allow expenditure incurred for earning the receipts and to assess only the net income; absence of registration means application of income cannot be considered.Final Conclusion: The Tribunal partly allowed the appeal: the matter is remanded to the Assessing Officer to verify the assessee's financials, allow expenditures attributable to earning the receipts (under section 57 where applicable) and assess only net income; absence of registration under section 12AA/10(23C) precludes application of income but does not permit taxation of gross receipts without deductions.

2023 (12) TMI 890 - AUTHORITY FOR ADVANCE RULING, CHHATTISGARH GST

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Issues Involved:
1. Whether the supply of services made by the Applicant under the Fifth Contract is a composite supply with the principal supply of goods under the Third Contract.
2. Whether the supply of services of transportation, freight, and insurance under the Fifth Contract provided for the goods supplied by the Applicant is in the nature of Business Support Services and shall be chargeable to tax at specified rates.

Summary:

1. Composite Supply with Principal Supply of Goods:
The applicant, M/s Hitachi Energy India Limited, engaged in the manufacture and supply of electrical equipment, sought an advance ruling on whether the services provided under the Fifth Contract (local transportation, insurance, and other incidental services) are composite supplies with the principal supply of goods under the Third Contract. The Authority examined the contractual obligations and found that the services of transportation, insurance, and freight are not provided in isolation but are linked to the overall execution of the project, which includes the supply of goods. The Authority concluded that these services are naturally bundled with the supply of goods, making it a composite supply with the principal supply being the supply of goods.

2. Nature of Business Support Services:
The applicant also sought a ruling on whether the services under the Fifth Contract could be considered Business Support Services and thus chargeable to tax at specified rates. The Authority analyzed the scope of work under the Fifth Contract, which includes local transportation, insurance, and other incidental services. It was determined that the services provided are part of a composite works contract service, classifiable under construction services falling under SAC 9954, and attract GST at the rate of 18% (CGST @9% + CGGST @9%).

Legal Position and Analysis:
The Authority referred to Section 2(30) of the CGST Act, 2017, which defines composite supply, and concluded that the instant supply is a composite supply. The Authority also highlighted that the contracts are interconnected and indivisible, and any breach in one contract results in a breach of the Fifth Contract, indicating that the services of transportation, insurance, and freight are part of the composite supply of works contract service.

Conclusion:
The supply of services under the Fifth Contract is a composite supply of works contract, classifiable under construction services falling under SAC 9954, attracting GST at 18%. The alternate suggestion of the services being Business Support Services was not taken up for decision, as the composite supply classification was established. The ruling is applicable only to the activities undertaken within the State of Chhattisgarh.

Construction of 800 KV HVDC terminals with transportation services classified as composite works contract attracting 18% GST under Section 7(1A)
AAR Chhattisgarh ruled that construction, erection and commissioning of 800 KV, 6000 MW HVDC terminals including transportation, insurance and freight services constitutes a composite works contract service under SAC 9954, attracting 18% GST. The tribunal held that under Section 7(1A) CGST Act 2017 read with Schedule II para 6(a), composite works contracts are treated as supply of services, eliminating need to identify principal supply. The applicant's alternative classification as business support services was rejected, and no exemption under transportation services notification was applicable.

Composite supply - works contract treated as supply of services - construction services under SAC 9954 - composite works contract attracting 18% GST under residual entry - exemption under notification covering transportation of goodsComposite supply - works contract treated as supply of services - construction services under SAC 9954 - composite works contract attracting 18% GST under residual entry - Whether the services of transportation, freight and insurance supplied under the Fifth Contract form part of a composite supply of works contract and the applicable rate of GST on that composite supply. - HELD THAT: - The Authority examined the contractual matrix for the 800 kV, 6000 MW HVDC tower package and found the five interlinked contracts to be indivisible for the project's execution. The works involved - construction, erection and commissioning of transmission towers and associated lines - satisfy the tests of immovable property and fall within the definition of 'works contract' under Section 2(119). By application of Section 2(30) the supply, which includes transportation, freight and insurance incidental to delivery and commissioning, qualifies as a composite supply. Para 6(a) of Schedule II treats composite works contracts as supply of services. Having classified the activity under construction services (SAC 9954) the Authority applied the residual entry at Sr. No. 3(xii) of Notification No. 11/2017 (as amended) and CBIC clarification, concluding that such composite works contract services are leviable to GST at the consolidated rate of 18% (CGST 9% + SGST 9%). In view of this conclusion, the Authority did not consider the alternate characterisation as business support services. [Paras 10, 11, 12]The services of transportation, freight and insurance under the Fifth Contract form part of a composite works contract service classifiable under construction services (SAC 9954) and are taxable at 18% (CGST 9% + SGST 9%) under the residual entry of Notification No. 11/2017.Final Conclusion: The Advance Ruling: the services supplied under the Fifth Contract (including transportation, freight and insurance) are part of a composite works contract treated as construction services under SAC 9954 and attract GST at 18% (CGST 9% + SGST 9%). The Authority did not adjudicate the alternate contention treating those services as business support services.

2023 (12) TMI 396 - ITAT AHMEDABAD Income Tax

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Issues Involved:
1. Deletion of addition on account of bogus/non-genuine Capital Gain by sale of shares of a penny stock company.
2. Deletion of addition on account of unexplained expenses.

Summary:

Issue 1: Deletion of Addition on Account of Bogus/Non-Genuine Capital Gain

The Department challenged the deletion of additions made by the Assessing Officer (AO) concerning the sale of shares of M/s Global Infratech Finance Ltd., a penny stock company, which the AO deemed as bogus long-term capital gains. The AO argued that the company had no financial standing to justify the steep rise in share prices and relied on statements from brokers admitting to providing accommodation entries. However, the Ld. CIT(A) found that the assessee had invested in shares based on his late father's advice and had conducted transactions through banking channels, with no evidence of involvement in share rigging or unaccounted cash flow. The CIT(A) noted the lack of cross-examination of witnesses whose statements were used against the assessee, thus violating principles of natural justice. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Department failed to prove the assessee's involvement in price rigging or receipt of cash, and referenced various judicial precedents supporting the genuineness of such transactions when conducted through proper banking channels.

Issue 2: Deletion of Addition on Account of Unexplained Expenses

The AO added Rs. 13,26,641/- as unexplained expenses based on loose papers found during a survey, which the CIT(A) partially allowed by correcting the total expenses to Rs. 1,54,28,426/- and giving credit for unaccounted receipts. The Tribunal upheld the CIT(A)'s decision, noting no specific infirmity or factual inaccuracy pointed out by the Department, and found no reason to interfere with the CIT(A)'s order.

Conclusion:

The appeals for the Assessment Years 2014-15, 2015-16, and 2016-17 were dismissed, with the Tribunal finding no error in the CIT(A)'s decisions to delete the additions made by the AO on account of bogus capital gains and unexplained expenses. The Tribunal emphasized the necessity of cross-examination and the lack of concrete evidence against the assessee.

Assessee wins on bogus LTCG allegations from penny stock sales due to lack of evidence and cross-examination denial
ITAT Ahmedabad ruled in favor of the assessee regarding alleged bogus LTCG from penny stock sales. The tribunal found no evidence of price rigging or collusion between broker and assessee. AO failed to provide cross-examination opportunity despite assessee's request. The decision was supported by similar ITAT Mumbai and Kolkata rulings on identical stock and recent SC precedent in Renu Aggarwal case. For unexplained expenses, CIT(Appeals) directed pro-rata computation which was upheld. Appeal decided against revenue.

Genuineness of long-term capital gains arising from sale of shares of penny stock companies - onus of proof discharged by documentary evidence including share allotment, banking payments, demat credits and contract notes - treatment of alleged bogus capital gains as unexplained income under section 68 and allowance of exemption under section 10(38) - reliability of third party statements and requirement of opportunity for cross examination / principles of natural justice - inference from steep price rise of a penny stock is not conclusive without case specific corroborative evidenceGenuineness of long-term capital gains arising from sale of shares of penny stock companies - onus of proof discharged by documentary evidence including share allotment, banking payments, demat credits and contract notes - reliability of third party statements and requirement of opportunity for cross examination / principles of natural justice - treatment of alleged bogus capital gains as unexplained income under section 68 and allowance of exemption under section 10(38) - Long term capital gains claimed on sale of shares of M/s Global Infratech Finance Ltd. are genuine and not liable to be treated as bogus/unexplained income. - HELD THAT: - The Tribunal examined whether sale proceeds attributable to a penny stock could be treated as tainted merely because the company lacked financial fundamentals and its price rose steeply. It applied the established approach that each case depends on its own facts and that documentary proof of genuine acquisition and sale negates an inference of bogus gains. The assessee produced share application, board resolution, cleared bank cheque for application money, share certificates, dematerialisation records, contract notes, broker account statements and receipts of sale consideration through banking channels. The Assessing Officer relied on third party statements alleging accommodation entries and on abnormal price movement, but did not provide specific evidence linking the assessee to price rigging or any return of unaccounted cash. Crucially, the assessee was not afforded opportunity to cross examine the persons whose statements were relied upon, which the Tribunal treated as a breach of principles of natural justice and a material infirmity in the AO's case. The Tribunal also noted consistent decisions by coordinate Benches on the same scrip and recent higher court authority emphasising that where the assessee discharges onus by documentary evidence and there is no material connecting the assessee to manipulation, exemption under section 10(38) cannot be denied and additions under section 68 are unjustified. Applying these principles to the portfolio holding facts and the evidence produced, the Tribunal upheld the CIT(A)'s conclusion that the claimed long term capital gains were genuine and dismissed the Revenue's grounds challenging that conclusion. [Paras 5, 7, 8, 13, 14]Grounds 1-3 dismissed; the addition treating the long term capital gains as bogus was deleted and exemption under section 10(38) allowed.Assessment of unexplained expenses and receipts based on seized loose papers - computation under section 69B and apportionment on pro rata basis - appellate adjustment of seized totals where AO included unsupported figures - Additions made by the Assessing Officer on account of unexplained expenses/receipts were improperly computed; the CIT(A)'s partial allowance and direction for recomputation on correct totals was upheld. - HELD THAT: - The AO based additions on loose papers seized during survey, taking total payments at an inflated figure which included an unexplained addition of Rs. 2.5 crore, and computed a pro rata amount attributable to the assessment year. The CIT(A) examined the seized material, reduced the aggregate to the actual total demonstrable from the papers, allowed credit for certain unaccounted receipts, and directed computation of addition on a pro rata basis for the year under consideration. The Department did not point to any specific factual or legal error in the CIT(A)'s analysis. In the absence of any demonstrated infirmity, the Tribunal found no reason to interfere with the CIT(A)'s factual adjustments and directions for recomputation, and dismissed the Revenue's challenge to these additions for the assessment years under appeal. [Paras 17, 19, 20, 27, 28]Ground Nos. 4 (and corresponding grounds in related years) dismissed; CIT(A)'s partial allowance and direction for recomputation upheld.Final Conclusion: All appeals filed by the Department for A.Ys. 2014 15, 2015 16 and 2016 17 are dismissed: the Tribunal upheld the CIT(A)'s deletion of additions treating the claimed long term capital gains from sale of M/s Global Infratech Finance Ltd. as genuine (rejecting Revenue's reliance on penny stock status and third party statements absent cross examination and specific linking evidence), and upheld the appellate adjustments and recomputation relating to unexplained expenses/receipts.

2023 (12) TMI 97 - BOMBAY HIGH COURT Income Tax

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Court Orders Refund with Interest for Unlawful Tax Adjustment Without Mandatory Notification Process.
The HC granted the writ petition, directing the respondent to refund the specified amount with interest, as the adjustment against a tax demand was made without mandatory intimation under section 245 of the Income-tax Act, 1961. The court deemed the adjustment unlawful due to non-compliance with the required intimation process, referencing a precedent case. The petitioner's argument was further supported by the Income-tax Appellate Tribunal's stay on the demand for the relevant assessment year. The respondent was ordered to issue the refund within four weeks, emphasizing adherence to legal procedures.

Mandatory prior intimation under section 245 - adjustment of refund against demand - illegality of adjustment in absence of mandatory intimation - refund with interest under section 244AMandatory prior intimation under section 245 - adjustment of refund against demand - illegality of adjustment in absence of mandatory intimation - Adjustment of the assessee's refunds for the tax periods 2016-17, 2017-18 and 2019-20 against a demand for assessment year 2014-15 without prior intimation under section 245 is impermissible. - HELD THAT: - The respondent admitted, by annexing the Centralised Processing Centre communication, that no intimation as mandated by section 245 was given before adjusting the refunds. The court relied on the principle in Bharat Petroleum Corporation Ltd. v. Asst. DIT that prior intimation under section 245 is mandatory and failure to give such intimation renders any adjustment wholly illegal. The respondents' contention that non intimation was a procedural infirmity or due to technical reasons was not accepted as a lawful basis to sustain the adjustment. Consequently, the adjustment made without the mandatory prior intimation could not stand and the refunds must be released. [Paras 2, 3, 4]The adjustment is unlawful; the refunds for 2016-17, 2017-18 and 2019-20 shall be released.Refund with interest under section 244A - The assessee is entitled to the refunds directed to be paid with accumulated interest in accordance with law. - HELD THAT: - Having held the adjustment unlawful for want of the mandatory intimation, the court directed that the refund amounts specified in the petition be paid within four weeks together with accumulated interest, if any, in accordance with law, including interest available under section 244A. The court did not decide the separate contention regarding the stay of the demand for assessment year 2014-15, as the conclusion on section 245 rendered further consideration unnecessary. [Paras 6, 7]Refunds to be paid within four weeks with accumulated interest in accordance with law.Final Conclusion: Petition allowed; respondent directed to refund the claimed amounts for 2016-17, 2017-18 and 2019-20 with accumulated interest within four weeks, the adjustment made without prior intimation under section 245 being held unlawful.

2023 (12) TMI 175 - CESTAT BANGALORE Service Tax

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Issues Involved:
1. Classification of customized software as 'goods' or 'service'
2. Applicability of excise duty and/or service tax on customized software
3. Interpretation of legislative provisions and relevant case laws

Summary:

Issue 1: Classification of customized software as 'goods' or 'service'
The core issue is whether the customized software sold/cleared by the Appellant along with Distributed Control Systems (DCS) should be classified as 'excisable goods' under Chapter sub-heading 85238090 of CETA, 1985, or as a 'service' leviable to service tax under the category of 'Information Technology Software Services' (ITSS) introduced w.e.f. 16/05/2008. The Tribunal noted that the software was customized and sold in a recorded media (CD) along with DCS, and the intention of the parties was to treat it as 'goods' rather than 'service'. The Tribunal emphasized that the true nature of the transaction, as evidenced by purchase orders and invoices, indicated a sale of goods rather than a provision of service.

Issue 2: Applicability of excise duty and/or service tax on customized software
The Tribunal examined whether the same activity could attract both excise duty and service tax simultaneously. It was found that the customized software, when sold in a recorded media, should be treated as 'excisable goods' and not subject to service tax under ITSS. The Tribunal referred to various case laws, including Bharat Sanchar Nigam Ltd. and Infotech Software Dealers Association, which supported the view that the nature of the transaction should determine the applicable tax. The Tribunal concluded that the sale of customized software in recorded media is subject to excise duty and not service tax, provided the conditions of the relevant exemption notifications are met.

Issue 3: Interpretation of legislative provisions and relevant case laws
The Tribunal analyzed the relevant entries under the Central Excise Tariff Act, 1985, and the Finance Act, 1994, along with various judicial precedents. It was noted that the legislative intent was to continue the levy of excise duty on the manufacture and sale of Information Technology software and to levy service tax on ITSS. The Tribunal distinguished the present case from the Suzlon Energy Ltd. case, emphasizing that the intention of the parties and the nature of the transaction should determine the tax liability. The Tribunal concluded that the customized software sold along with DCS should be classified as 'excisable goods' and not as 'service'.

Conclusion:
The impugned orders were set aside, and the appeals were allowed with consequential relief, if any, as per law. The Tribunal held that the customized software sold in recorded media along with DCS should be treated as 'excisable goods' and not subject to service tax under ITSS.

Customized software sold on CD with DCS constitutes sale of excisable goods, not service provision under Chapter 85238090
CESTAT Bangalore ruled that customized software sold on CD along with DCS constitutes sale of excisable goods, not service provision. The tribunal found that despite introduction of service tax on Information Technology Software Services from 16/05/2008, the transaction remained a sale where software ownership transferred to customers without appellant retaining title. Purchase orders demonstrated parties' intention was sale of goods rather than service provision. The customized software classified under Chapter sub-heading 85238090 of CETA 1985, eligible for exemption notifications. Revenue's contention that transaction constituted taxable ITSS service was rejected. Appeal allowed, impugned orders set aside.

Excisable goods versus taxable service - Information Technology Software Service - customized software treated as goods when sold in recorded media - intention of the parties / contractual character of the transaction - classification under Chapter heading 8523 (recorded media for software) - prohibition on simultaneous levy (double taxation / approbation and reprobation) - aspect theory and factual determination in BSNLExcisable goods versus taxable service - Information Technology Software Service - customized software treated as goods when sold in recorded media - intention of the parties / contractual character of the transaction - prohibition on simultaneous levy (double taxation / approbation and reprobation) - Customized software imported, developed/customized and sold on recorded media (CD) along with DCS is excisable goods and not liable to service tax under Information Technology Software Services for the periods in issue. - HELD THAT: - The Tribunal identified the determinative inquiry as the true nature of the transaction between the parties-whether the supply constituted a sale of goods or a rendition of service (paras 16, 23, 24, 26). The terms of the purchase orders and the contractual appendices showed that the DCS (hardware and software) was supplied as a package, the software was delivered on recorded media, the price of the software was separately identified, and title to the customized software was transferred to the purchaser (paras 19, 26-28). Applying the principle in BSNL that the intention of the parties and the contractual character of the transaction are decisive, the Tribunal found that the software was intended to be and was sold as goods to be used with the hardware and not retained as a service by the appellant (paras 24, 26, 29). The Tribunal held that, although the statutory definitions and levies for excise and service tax may overlap in concept, both levies cannot be imposed simultaneously on the same transaction; the fiscal incidence must be determined by the transaction's nature (paras 23, 29). The decision distinguished Suzlon on its facts, where the imported designs were treated differently and the Supreme Court directed remand for factual inquiry; here, the contractual documents decisively evidenced a sale of customized software on recorded media (paras 30). On these findings the Tribunal concluded that the transactions were of sale of excisable goods classifiable under the relevant tariff entry and covered by the exemption notifications relied upon by the appellant (paras 27-31). [Paras 27, 28, 29, 30, 31]Impugned demands for service tax under the Information Technology Software Services in respect of the specified periods are unsustainable; the customized software sold on recorded media as part of DCS is excisable goods and the impugned orders are set aside.Final Conclusion: Appeals allowed. The orders demanding service tax on the customized software supplied on recorded media along with DCS for the stated periods are set aside and consequential relief granted as per law.

2023 (12) TMI 111 - CESTAT ALLAHABAD Central Excise

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Issues Involved:
1. Entitlement to interest on pre-deposit amount.
2. Applicability of amended Section 35FF of the Central Excise Act, 1944.

Summary:

Entitlement to Interest on Pre-deposit Amount:
The appellant contended that the pre-deposit amount of Rs. 1 crore, made on 30.08.2013 as per the Hon'ble High Court's direction, should accrue interest from the date of payment until the refund date, as per Circular No. 984/08/2014-CX dated 16.09.2014. The adjudicating authority denied interest, stating that the amended Section 35FF, effective from 06.08.2014, was not applicable since the refund was made within three months. The Commissioner (Appeals) upheld this decision, concluding that the appellant was not entitled to interest as the pre-deposit was governed by the pre-amendment provisions of Section 35FF.

Applicability of Amended Section 35FF:
The appellant filed a refund claim following the Tribunal's Final Order dated 04.04.2018, which was allowed by the Original Authority except for the interest on Rs. 1 crore. The Commissioner (Appeals) maintained that the amount deposited before 06.08.2014 was not subject to the amended Section 35FF. However, the Tribunal noted that the appeal was filed on 27.08.2014, after the amended Section 35F came into force. The Tribunal had treated the amount deposited as a pre-deposit under the amended Section 35F, making the amended Section 35FF applicable for interest determination. The Tribunal emphasized that the date of filing the appeal, not the deposit date, determines the applicability of the amended section.

Conclusion:
The Tribunal held that the appellant was entitled to interest on the pre-deposit amount as per the amended Section 35FF. The impugned order denying interest was set aside, and the appeal was allowed with consequential relief. The Tribunal's decision aligns with the Board's Circular No. 984/08/2014, stating that payments made during investigations or audits take the color of deposit under the amended Section 35F upon filing the appeal.

Tribunal rules appeal filing date determines amended Section 35F applicability, not deposit or order dates
CESTAT Allahabad allowed the appeal regarding refund claims for interest. The appellant had deposited Rs.1,00,00,000/- as directed by HC on 08.07.2014, prior to Finance (No 2) Act, 2014 commencement. The appeal was filed on 27.08.2014 after the amended Section 35F took effect. The Tribunal held that the date of filing appeal determines applicability of amended provisions, not the deposit date or original order date. The amount deposited per HC direction was treated as mandatory pre-deposit under amended Section 35F. The proviso to Section 35FF was deemed inapplicable. The adjudicating authority's denial of interest refund was set aside.

Interest on delayed refund of amount deposited under Section 35F - Applicability of amended Section 35F and Section 35FF to appeals filed after commencement - Date of filing of appeal determines applicability of amended pre-deposit provisions - Proviso to Section 35FF governing deposits made prior to commencement - Deposits made pursuant to court directions treated as pre-deposit when appeal is filedInterest on delayed refund of amount deposited under Section 35F - Date of filing of appeal determines applicability of amended pre-deposit provisions - Proviso to Section 35FF governing deposits made prior to commencement - Deposits made pursuant to court directions treated as pre-deposit when appeal is filed - entitlement to interest on refund of amount deposited in August 2013 where appeal was filed on 27.08.2014 after the amended provisions came into force - HELD THAT: - The Tribunal had, by its order dated 12.12.2014, treated the amount deposited pursuant to the High Court's direction as compliance with the pre-deposit requirement under Section 35F as amended w.e.f. 06.08.2014. The proviso to Section 35FF preserves the earlier law only for amounts which were deposits under Section 35F prior to commencement; the determinative date for applicability of the amended provisions is the date of filing of the appeal and not the date of deposit or the date of the original order. The Board's Circular No. 984/08/2014 clarifies that amounts paid during investigation/audit acquire the character of deposits under Section 35F only when an appeal is filed and that the date of filing shall be deemed to be the date of deposit for this purpose. Applying these principles, the deposit made pursuant to the High Court order could not be treated as a pre-commencement deposit under Section 35F for the purpose of the proviso to Section 35FF because the appeal was filed after 06.08.2014 and the Tribunal had recognised the deposit as pre-deposit under the amended Section 35F; consequently the amended Section 35FF (providing for interest on refund) applies. The impugned appellate order which denied interest by relying on the proviso to Section 35FF was therefore unsustainable and was set aside. [Paras 4, 5]The appellant is entitled to interest under the amended Section 35FF on the refunded pre-deposit; the impugned order is set aside and the appeal is allowed with consequential relief.Final Conclusion: The appeal is allowed: where a deposit made pursuant to court directions was treated by the Tribunal as pre-deposit and the appeal was filed after 06.08.2014, the substituted provisions of Section 35FF apply and interest on the refunded amount must be granted; the impugned order denying interest is set aside.

2023 (12) TMI 1241 - CESTAT NEW DELHI Service Tax

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Penalty Payments Not Taxable as Service Consideration, Tribunal Rules in Favor of Appellant, Overturns Tax Demand.
The Tribunal ruled in favor of the appellant, determining that the amount received as penalty or liquidated damages does not qualify as consideration towards a declared service under Section 66E (e) of the Finance Act, 1994. Consequently, the tax demand by the Department was deemed unsustainable, and the order under challenge was set aside, allowing both appeals.

Declared service - liquidated damages or penalty as consideration for service - tolerating an act or situation - definition of service and consideration - service tax liability on compensation for breach of contractDeclared service - liquidated damages or penalty as consideration for service - tolerating an act or situation - definition of service and consideration - Whether amounts recovered as liquidated damages/penalties for breach of contract constitute consideration for a declared service under Section 66E(e) of the Finance Act, 1994 and are liable to service tax. - HELD THAT: - The Tribunal examined the statutory meaning of "service" and the concept of a "declared service" under Section 66E(e), and applied principles from contract law regarding liquidated damages and compensation for breach. Following its earlier final order in the assessee's own case, the Tribunal observed that liquidated damages/compensation are awarded to make good loss likely to result from breach and are not synonymous with "tolerating" an act or situation. The conclusion in the earlier decision, which the department conceded, was that sums received as liquidated damages do not constitute consideration for "agreeing to tolerate an act or a situation" under Section 66E(e). Consequently, the amounts in question cannot be characterized as consideration for a declared service and are not leviable to service tax under that provision. The Tribunal found the facts in the present appeals to be substantially identical to those considered in the prior final order and therefore applied the same reasoning to set aside the demand. [Paras 7]Amounts recovered as liquidated damages/penalties for breach of contract are not consideration for a declared service under Section 66E(e) and the tax demand is unsustainable.Final Conclusion: Following the Tribunal's prior final decision and applying contract-law principles, the appeals are allowed and the demand of service tax on the liquidated damages/penalties is set aside.

2023 (12) TMI 58 - ITAT PANAJI Income Tax

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Tribunal Remands Section 14A Disallowance for Fresh Review; Assessee Can Submit New Evidence on Exempt Income.
The assessee's appeal against the National Faceless Appeal Centre's order for the 2018-19 assessment year was allowed for statistical purposes. The Tribunal remanded the issue of disallowance under Section 14A r.w.s. 8D(ii) back to the AO for fresh consideration, focusing on investments that yielded exempt income. The assessee was permitted to submit evidence supporting its claim.

Disallowance of expenditure attributable to exempt dividend income under Rule 8D - methodology under Rule 8D(2) and Rule 8D(2)(iii) - consideration of only investments yielding exempt income for computing disallowance - remand to Assessing Officer for fresh computation and verificationDisallowance of expenditure attributable to exempt dividend income under Rule 8D - consideration of only investments yielding exempt income for computing disallowance - remand to Assessing Officer for fresh computation and verification - Addition made under section 14A read with Rule 8D(ii) confirmed by the CIT(A) was not sustained and the matter was remanded to the Assessing Officer for fresh computation taking into account only those investments which yielded exempt dividend income. - HELD THAT: - The Assessing Officer applied the formula in Rule 8D(2)(iii) and made disallowance at 1% on the entire average investment, treating total average investment as the base. The assessee contended that only those investments which actually yielded the exempt dividend income should be considered for computing the disallowance and presented a lower average investment figure. The Tribunal noted the principle, as recorded by the Special Bench of the Tribunal, that investments which yielded the exempt income must be considered for attributing expenditure to exempt income. The Revenue did not dispute that precedent. In view of these circumstances and the assessee's submissions, the Tribunal found it appropriate to remit the issue to the file of the Assessing Officer for fresh consideration and computation, permitting the assessee to furnish supporting evidence for the investments relied upon. [Paras 3]Issue remanded to the Assessing Officer to recompute disallowance under Rule 8D after considering only investments which yielded the exempt dividend income; assessee permitted to file evidence.Final Conclusion: The appeal is allowed for statistical purposes by remanding the matter to the Assessing Officer for fresh computation of disallowance under Rule 8D, taking into account only those investments that yielded the exempt dividend income; liberty granted to the assessee to file evidence.

2023 (12) TMI 57 - ITAT BANGALORE Income Tax

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Cooperative society wins appeal as tax deduction denial overturned due to prospective amendment application
ITAT Bangalore set aside ex-parte appellate order by National Faceless Assessment Centre, finding violation of natural justice principles as assessee did not receive notices and submitted documents were not considered. Regarding deduction under section 40(a)(ia) for interest paid by cooperative society to members, ITAT held Finance Act 2015 amendment was prospective from 01/06/2015 and not applicable to the case. Matter remitted to AO for fresh adjudication with proper hearing opportunity. Appeal allowed for statistical purposes.

Violation of principle of natural justice - tax deduction at source exemption for interest paid by a co-operative society to its members under section 194A(3)(v) - binding effect of CBDT Circular No.9 of 2002 on the interpretation of exemption under section 194A(3)(v) - prospective application of Finance Act, 2015 amendmentViolation of principle of natural justice - Ex-parte disposal by the First Appellate Authority/NFAC in the absence of consideration of documents physically filed before the CIT(A) and consequent validity of the impugned order. - HELD THAT: - The Tribunal found that the First Appellate Authority proceeded ex-parte despite the assessee having physically filed and obtained acknowledgement for relevant documents on 15/05/2018. The impugned faceless ex-parte order did not consider those documents, which the Tribunal held to be a clear violation of the principle of natural justice. In view of this procedural defect, the Tribunal concluded that the proceedings were vitiated and required fresh adjudication; accordingly it directed the assessing officer to reconsider the issue afresh after giving the assessee an opportunity to be heard and to consider the evidence already placed on record or any additional evidence the assessee wishes to file. [Paras 5, 9]Impugned ex-parte order set aside for violation of natural justice and matter remitted for fresh adjudication with opportunity of hearing.Tax deduction at source exemption for interest paid by a co-operative society to its members under section 194A(3)(v) - binding effect of CBDT Circular No.9 of 2002 on the interpretation of exemption under section 194A(3)(v) - prospective application of Finance Act, 2015 amendment - Whether interest paid to members by the co-operative society was liable for TDS or exempt under the member-exemption, and the applicability of the 2015 amendment. - HELD THAT: - The Tribunal noted and followed coordinate-bench decisions in the assessee's own case and other benches holding that a co-operative society carrying on banking business need not deduct tax at source on interest paid to its members by virtue of the exemption in section 194A(3)(v), and that para-2 of CBDT Circular No.9/2002 supporting that view remains binding on tax authorities. The Tribunal observed decisions which interpret section 194A(3)(v) harmoniously with other sub-clauses and rejected the narrower reading that would exclude co-operative banks. Regarding the Finance Act, 2015 amendment, the Tribunal accepted the view in the Chennai decision that the amendment is prospective (operative from 01/06/2015) and therefore not applicable to the year under appeal. While the Tribunal relied on these precedents and observations in favour of the assessee, it remitted the matter to the assessing officer to decide afresh on merits, directing the AO to pass a speaking order after considering the evidences and the ratio of the cited decisions. [Paras 5, 6, 9]Issue remitted for fresh consideration to the assessing officer with direction to consider the exemption under section 194A(3)(v) (as interpreted in CBDT Circular No.9/2002 and coordinate-bench decisions) and to treat the Finance Act, 2015 amendment as prospective; AO to pass a speaking order after hearing the assessee.Final Conclusion: The Tribunal allowed the appeal for statistical purposes by setting aside the ex-parte appellate order for breach of natural justice and remitting the matter to the assessing officer for fresh adjudication on merits, with directions to consider the evidences filed by the assessee and the exemption under section 194A(3)(v) (as supported by CBDT Circular No.9/2002 and coordinate-bench precedents), and to treat the Finance Act, 2015 amendment as prospective.

2023 (12) TMI 23 - ITAT JAIPUR Income Tax

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Penalty under Section 271A confirmed for non-maintenance of books but Section 271B penalty vacated for non-audit
The ITAT Jaipur held that penalty u/s 271A for non-maintenance of books of accounts was confirmed as the assessee failed to appear or file submissions despite seven opportunities. However, penalty u/s 271B for non-audit of books was vacated. The tribunal ruled that once penalty is levied for non-maintenance of books, a separate penalty for not getting non-existent books audited cannot be imposed, as penalty u/s 271B applies only when books are maintained but not audited.

Non-maintenance of books of account under Section 44AA - penalty under Section 271A for failure to maintain books of account - requirement to get books of account audited under Section 44AB - penalty under Section 271B for failure to get accounts audited - principle that penalty under Section 271B is not leviable where books are not maintainedRequirement to get books of account audited under Section 44AB - penalty under Section 271B for failure to get accounts audited - principle that penalty under Section 271B is not leviable where books are not maintained - Deletion of penalty imposed under Section 271B for failure to get books of account audited - HELD THAT: - The Tribunal held that penalty under Section 271B cannot be sustained where the assessee has not maintained regular books of account as required by Section 44AA. Once the default of non-maintenance of books is established and penalty under Section 271A is levied, the obligation to get books audited under Section 44AB does not arise; consequently there can be no separate penal liability under Section 271B. The bench noted consistent precedent of coordinate Benches and High Courts applying this principle and, on the facts (assessment finding that books were not maintained and no effective contest by the assessee), set aside the penalty under Section 271B. [Paras 7, 8]Penalty under Section 271B vacated (deleted).Non-maintenance of books of account under Section 44AA - penalty under Section 271A for failure to maintain books of account - Confirmation of penalty imposed under Section 271A for non-maintenance of books of account - HELD THAT: - The Tribunal affirmed the finding of the Assessing Officer and the Commissioner (Appeals) that the assessee carried on business (proprietorship) with substantial credits in bank account constituting turnover and that she failed to maintain books of account as mandated by Section 44AA. The assessee neither appeared nor filed submissions to controvert the findings despite multiple opportunities. Given the uncontroverted factual finding of non-maintenance and that penalty under Section 271A is leviable irrespective of whether assessment was based on estimation, the penalty was sustained. [Paras 9]Penalty under Section 271A confirmed.Final Conclusion: The Tribunal allowed the appeal against penalty under Section 271B and deleted that penalty, and dismissed the appeal against penalty under Section 271A thereby confirming the penalty for non-maintenance of books of account for AY 2010-11.

2023 (12) TMI 22 - ITAT BANGALORE Income Tax

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Issues Involved:
1. Addition of Rs. 1,00,00,000/- as unexplained cash credits under Section 68 of the Income-tax Act.
2. Estimation of income under Section 44AD of the Income-tax Act at 8% of the sales.
3. Double taxation issue concerning the cash deposits during the demonetization period.

Summary:

Issue 1: Addition of Rs. 1,00,00,000/- as Unexplained Cash Credits under Section 68
The assessee, engaged in the business of distribution and sale of pharmaceuticals, filed its return for AY 2017-18 declaring an income of Rs. 8,27,300/-. During the assessment, the AO added Rs. 1,00,00,000/- as unexplained cash credits under Section 68, representing cash deposits in the bank accounts, which were claimed to be sales proceeds of pharmaceuticals. The AO's opinion was based on the assessee's failure to produce relevant documents to compare sales and cash in hand for previous financial years, and the absence of details about stock.

Issue 2: Estimation of Income under Section 44AD at 8% of Sales
The AO also estimated the income under Section 44AD at 8% of the sales, resulting in an addition of Rs. 10,85,157/-. The assessee argued that the sales were duly recorded in the books of accounts and reflected in the bank deposits, which were already offered to tax. The Tribunal noted that the AO had already taxed the income embedded in the cash deposits by estimating income at 8% of the turnover under Section 44AD.

Issue 3: Double Taxation Issue
The Tribunal considered the judgment of the Cochin Bench in the case of Shri Thomas Eapen, which held that once income is estimated under Section 44AD, no further addition under Section 68/69A is permissible. The Tribunal observed that the cash deposits were sale proceeds of pharmaceuticals and medicines declared in the VAT returns and already taxed. Hence, invoking Section 68 for the same deposits would result in double taxation, which is not permissible.

Conclusion:
The Tribunal allowed the appeal, deleting the addition of Rs. 1,00,00,000/- under Section 68 and the additional income estimated under Section 44AD. It upheld that the cash deposits during the demonetization period were already included in the total turnover and taxed, thus preventing double taxation. The appeal was allowed in favor of the assessee.

AO cannot make additions under sections 68/69 after rejecting books and estimating income under section 44AD
ITAT Bangalore held that AO cannot make additions under sections 68/69 after rejecting books of accounts and estimating income under section 44AD at 8% of turnover. The AO improperly added Rs. 1 crore for SBN deposits, but once income is estimated by rejecting books, no further additions from those same books are permissible. Additionally, adding cash deposits already included in disclosed turnover would constitute double taxation. Following precedents from Thomas Eapen and Anantpur Kalpana cases, all additions were deleted and assessee's appeal was allowed.

Presumptive taxation under section 44AD of the Act - Effect of presumptive assessment on making further additions - Additions for unexplained cash credits and unexplained expenditure under section 68/69/69A - Double taxation by taxing bank deposits already included in turnoverPresumptive taxation under section 44AD of the Act - Effect of presumptive assessment on making further additions - Additions for unexplained cash credits and unexplained expenditure under section 68/69/69A - Whether, where the assessee's income is accepted and assessed under the presumptive scheme of section 44AD, the Assessing Officer can make further additions under provisions dealing with unexplained credits/expenditure - HELD THAT: - The Tribunal applied the principle that section 44AD is a special provision under which income is deemed to be a specified percentage of gross receipts and the assessee is exempted from maintaining books. Once income is accepted under section 44AD (presumptive basis), the statutory scheme envisages that profit is deemed and the Assessing Officer cannot proceed to make additions by dissecting entries in the books (such as treating bank credits as unexplained income) unless the Assessing Officer has first carved out the case from applicability of section 44AD by appropriate exercise. The Tribunal relied on coordinate decisions which hold that presumptive taxation is intended to avoid detailed scrutiny of individual entries and that making additions under sections 68/69/69A after accepting turnover and estimating income at the presumptive rate defeats that scheme. Applying these propositions to the facts, where the Assessing Officer accepted turnover and assessed income at the presumptive rate, the subsequent additions under unexplained credits/expenditure could not be sustained and were deleted. [Paras 7, 9]Addition under sections relating to unexplained credits/expenditure cannot be sustained once income is accepted and assessed under section 44AD; such additions are deleted.Double taxation by taxing bank deposits already included in turnover - Additions for unexplained cash credits and unexplained expenditure under section 68/69/69A - Whether addition under section 68 in respect of demonetised currency bank deposits, which represent sale proceeds already included in accepted turnover, is permissible - HELD THAT: - The Tribunal held that the cash deposits of SBN notes represented sale proceeds already disclosed in turnover and accepted by the revenue. Treating those bank deposits as unexplained cash credits and making an addition under section 68 would amount to taxing the same receipt again, resulting in double taxation. The panel found this impermissible and followed coordinate decisions holding that once such receipts are included in turnover and assessed, invoking section 68 to tax the bank deposits is not sustainable. Accordingly, the addition made on account of demonetised currency deposits was deleted. [Paras 9]Addition under section 68 in respect of demonetised currency bank deposits representing sale proceeds already included in accepted turnover is untenable and is deleted.Final Conclusion: The appeal is allowed; the additions made by the Assessing Officer under provisions relating to unexplained credits/expenditure (including the addition in respect of demonetised currency deposits) are deleted, and the assessment is directed accordingly.

2023 (12) TMI 21 - ITAT MUMBAI Income Tax

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Addition under Section 68 for bogus LTCG deleted where AO relied only on Investigation Wing report without independent inquiry
ITAT Mumbai held that addition under section 68 for bogus LTCG cannot be sustained where AO relied solely on Investigation Wing report and price-volume analysis without conducting independent inquiry. The tribunal found AO's conclusions based on conjecture without direct or circumstantial evidence. Assessee had offered short-term capital gains to tax in subsequent year, held unsold shares, and provided proper documentation. AO failed to identify specific defects in assessee's explanation or evidence of unaccounted income. Addition deleted in assessee's favor.

Reopening of assessment and validity of notice under Section 148 - reassessment proceedings under Section 147 - addition under Section 68 treated as unexplained credit - burden of evidence to establish sham or bogus share transactions - role of investigation report and modus operandi versus case specific proof - acceptance of stock exchange trades and banking channel payments as relevant indicia of genuinenessAddition under Section 68 treated as unexplained credit - burden of evidence to establish sham or bogus share transactions - role of investigation report and modus operandi versus case specific proof - acceptance of stock exchange trades and banking channel payments as relevant indicia of genuineness - Whether the addition of Rs. 16,09,340/- as unexplained credit under Section 68 on account of alleged bogus long term capital gains from sale of shares of M/s Compact Disc Ltd. for Assessment Year 2010-11 is sustainable - HELD THAT: - The Tribunal examined the assessment and found that the Assessing Officer principally relied upon the Kolkata Investigation Wing's report and a generalised 'modus operandi' of manipulation without any case specific inquiry or independent evidence against the assessee. The AO's conclusions (including that the assessee's investment of Rs. 3,38,727/- was substantial and indicative of assured deal) were not supported by identification of brokers/exit providers, by any inquiry showing infirmity in the contract notes or banking entries, or by direct or circumstantial evidence specific to the assessee. Material on record showed multiple purchases and sales across years, STT paid trades on the stock exchange, banking channel receipts, earlier acceptance of short term gains by the Revenue and substantial unsold shareholding remaining in the assessee's account. These facts, the Tribunal held, did not fit the generalized modus operandi relied upon by the AO and thus the addition rested on conjecture and surmise. The Tribunal further noted that judicial precedents invoked by the Revenue cannot be applied in the absence of factual foundation and cited PCIT-12 Vs. Krishna Devi for the proposition that preponderance of probabilities and behavioural theories cannot supplant cogent evidence. Applying these principles, the Tribunal concluded that the legal burden to demonstrate that the transactions were sham was not discharged and the Section 68 addition could not be sustained. [Paras 11, 12]The addition of Rs. 16,09,340/- under Section 68 is deleted.Final Conclusion: Appeal partly allowed: the Tribunal deleted the Section 68 addition for Assessment Year 2010-11, holding that the reassessment addition was unsupported by case specific evidence and rested on conjecture despite reliance on an investigative report and general modus operandi.

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