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2026 (10) TMI 1162 - Supreme Court Indian Laws

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Issues: (i) Whether subsequent developments after the write-down rendered a merits determination unwarranted; (ii) Whether the Administrator could write down the AT-1 Bonds in the absence of a specific provision in the Reconstruction Scheme; (iii) Whether the act of writing down the AT-1 Bonds conformed to the Master Circular and the terms of the Information Memoranda.

Issue (i): Whether subsequent developments after the write-down rendered a merits determination unwarranted.

Analysis: The validity of an administrative action must be assessed on the facts and law prevailing when the action occurred. Subsequent changes in financial position or circumstances cannot determine the validity of the impugned administrative decision.

Conclusion: Subsequent developments did not render a merits determination unwarranted.

Issue (ii): Whether the Administrator could write down the AT-1 Bonds in the absence of a specific provision in the Reconstruction Scheme.

Analysis: The Draft Scheme contained an express clause for permanent write-down of the AT-1 Bonds, whereas the notified Reconstruction Scheme omitted that clause. Clause 6(1) preserved subsisting instruments generally but did not confer a specific power to write down the bonds after reconstruction. A general savings clause cannot implicitly vest a power for which the governing framework prescribes a distinct mechanism.

Conclusion: The Administrator lacked authority to write down the AT-1 Bonds after the Reconstruction Scheme came into force. The issue is determined against the appellants.

Issue (iii): Whether the act of writing down the AT-1 Bonds conformed to the Master Circular and the terms of the Information Memoranda.

Analysis: Annex 16 of the Master Circular distinguishes the pre-specified trigger from the Point of Non-Viability. On the Point of Non-Viability trigger, conversion or permanent write-down had to occur before the Reconstruction Scheme took effect, and the regulatory decision and determination of the amount were reserved to the RBI. The Administrator, appointed under Section 36ACA of the Banking Regulation Act, 1949, exercised the powers of the board of directors and could not assume the RBI's independent regulatory authority.

Conclusion: The write-down did not conform to the Master Circular or the Information Memoranda and was ultra vires. The issue is determined against the appellants.

Final Conclusion: The extinguishment of the AT-1 Bonds remains invalid, and annual coupon payments continue in accordance with the Information Memoranda.

Ratio Decidendi: An AT-1 write-down upon a Point of Non-Viability trigger must be effected before a reconstruction scheme takes force and by the RBI exercising its regulatory power; a general savings clause cannot vest that power in an administrator.

AT-1 bond write-down authority requires pre-reconstruction regulatory action; a general savings clause cannot validate administrator-led extinguishment.
AT-1 bond write-downs triggered by a Point of Non-Viability must occur before a reconstruction scheme takes effect and require RBI's independent regulatory determination. Subsequent financial developments cannot determine the validity of administrative action taken earlier. Where a notified reconstruction scheme omits the draft's express write-down provision, a general savings clause preserving existing instruments does not empower an Administrator to extinguish the bonds. An Administrator exercising board powers cannot assume the regulator's distinct authority under the Master Circular. The write-down is therefore ultra vires, the bond extinguishment remains invalid, and coupon payments continue under the Information Memoranda.

Judicial review of administrative action - relevance of subsequent events - Additional Tier 1 Bonds - write-down under Basel III framework - Statutory reconstruction scheme - limits on Administrator's authority Judicial review of administrative action - Subsequent events - relevance of subsequent financial developments to the challenge against the write-down of the AT-1 Bonds - HELD THAT: - The validity of an administrative action must be tested with reference to the facts and law prevailing when the action was taken. Subsequent changes in the bank's financial position could not displace adjudication of the legality of the Administrator's decision to write down the Bonds. [Paras 15, 16] The challenge required determination on its merits as at the date of the write-down. Statutory reconstruction scheme - Additional Tier 1 Bonds - write-down authority - Administrator's authority to write down the AT-1 Bonds after the Reconstruction Scheme omitted the provision authorising their write-down - HELD THAT: - The deliberate omission, from the final Reconstruction Scheme, of the provision in the Draft Scheme for write-down of the Bonds, after consideration of stakeholders' objections and the proposed conversion, showed that the Central Government intended not to alter the Bonds through the Scheme. The general savings provision preserving existing instruments did not specifically empower the Administrator to write down the Bonds after reconstruction; such authority could not be implied through an omnibus clause. [Paras 37, 38, 40, 41, 42] The Administrator's write-down of the AT-1 Bonds was impermissible and ultra vires the Master Circular read with the Reconstruction Scheme. Point of non-viability trigger - AT-1 Bonds - write-down before reconstruction - Regulatory power of the Reserve Bank of India - Validity of the Administrator's write-down of the AT-1 Bonds under the Master Circular and the Information Memoranda - HELD THAT: - Under the Master Circular, the direction that AT-1 instruments be converted or written down 'before reconstitution' required the write-down to occur before the Reconstruction Scheme took effect, not at any stage during implementation of the Scheme. At the point of non-viability, the power to determine and effect write-down vested in the RBI. An Administrator appointed to exercise the powers of the Board of Directors could not assume the RBI's distinct regulatory power, particularly when the RBI had not itself exercised it. [Paras 70, 72, 73, 75, 77] The write-down effected by the Administrator after the Reconstruction Scheme came into force was contrary to the Master Circular and the Information Memoranda. Final Conclusion: The appeals were dismissed, affirming the setting aside of the Administrator's write-down of the AT-1 Bonds. Annual coupon payments were directed to remain governed by the Information Memoranda.

2026 (10) TMI 1148 - GSTAT NEW DELHI GST

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Issues: (i) Whether the tax demand of Rs.4,58,289/- could be sustained after its payment before the order-in-original; (ii) Whether interest under Section 50(1) is payable until credit of tax to the Government's account or until subsequent debit from the Electronic Cash Ledger on return filing; (iii) Whether the interest liability for FY 2017-18 and the balance payable required alteration or a further credit; (iv) Whether the penalty of Rs.45,829/- was sustainable.

Issue (i): Whether the tax demand of Rs.4,58,289/- could be sustained after its payment before the order-in-original.

Analysis: Section 73(1) authorises determination and recovery of tax that remains unpaid. The tax shortfall and interest thereon had been deposited through DRC-03 before the order-in-original was made, but the payment was not considered. Section 73(1) does not permit double recovery of an amount already received by the Government.

Conclusion: The tax demand of Rs.4,58,289/- was rightly set aside. This issue is in favour of the assessee.

Issue (ii): Whether interest under Section 50(1) is payable until credit of tax to the Government's account or until subsequent debit from the Electronic Cash Ledger on return filing.

Analysis: Section 50(1) imposes interest only for the period during which tax remains unpaid. Under Section 49, a payment made through Form GST PMT-06 is credited to the Government's account and reflected in the Electronic Cash Ledger upon realisation of the challan. The later debit from that ledger while filing the return is an accounting appropriation and does not prolong the period for which tax remains unpaid.

Conclusion: Interest under Section 50(1) runs only up to the date of credit of the tax amount to the Government's account, not up to the later Electronic Cash Ledger debit date. This issue is in favour of the assessee.

Issue (iii): Whether the interest liability for FY 2017-18 and the balance payable required alteration or a further credit.

Analysis: For September 2017, interest was correctly computed only up to the respective challan-payment dates, resulting in interest of Rs.5,22,204/-. For the remaining months, the record did not establish any earlier credit of cash to the Government's account than the return-filing dates. The due date for December 2017 was correctly taken as 22.01.2018 under Notification No. 02/2018-Central Tax dated 20.01.2018. The interest of Rs.4,58,289/- paid with the tax shortfall discharged interest attributable to that separate shortfall and could not also be adjusted against interest on delayed monthly tax payments.

Conclusion: The total interest liability of Rs.40,47,151/- and the balance of Rs.25,47,151/- after credit of Rs.15,00,000/- were confirmed; no further credit was allowable. This issue is partly in favour of the assessee and partly against the assessee.

Issue (iv): Whether the penalty of Rs.45,829/- was sustainable.

Analysis: Section 73(8) grants penalty immunity only where tax and applicable interest are paid within thirty days of the show-cause notice. Since payment was made after that period, the immunity was unavailable. Sections 73(9) and 122(2)(a) prescribe the applicable statutory penalty upon confirmation of the demand, without requiring proof of fraud, deliberate default, or contumacious conduct.

Conclusion: The penalty of Rs.45,829/- was sustainable. This issue is against the assessee.

Final Conclusion: The discharged tax shortfall cannot be recovered afresh; the recomputed interest liability and residual balance remain payable without further set-off, and the statutory penalty remains enforceable.

Ratio Decidendi: For purposes of Section 50(1), tax deposited through a PMT-06 challan ceases to remain unpaid when it is credited to the Government's account, and interest cannot be levied for the subsequent period merely because the Electronic Cash Ledger is debited later upon filing of the return.

GST interest timing ends when PMT-06 payments reach the Government account, while late-payment penalties remain enforceable.
Interest under Section 50(1) on delayed GST payment accrues only until tax paid through Form GST PMT-06 is credited to the Government account; a later debit from the Electronic Cash Ledger is merely an accounting appropriation. Tax already deposited through DRC-03 before determination cannot be recovered again under Section 73(1). Interest paid for a separate tax shortfall cannot be adjusted against interest on delayed monthly tax payments without establishing earlier Government-account credit. Penalty immunity under Section 73(8) applies only where tax and applicable interest are paid within 30 days of the show-cause notice; otherwise, statutory penalty may apply without proof of fraud or deliberate default.

Tax demand - effect of payment before adjudication - Interest on delayed GST payment - credit to Government account through Form GST PMT-06 - Set-off of payment against distinct interest liabilities - Penalty for delayed payment after show-cause notice Tax demand-payment before adjudication - Sustainability of a tax demand where the short-paid tax and corresponding interest had been deposited before the order-in-original was passed - HELD THAT: - A demand is intended to determine and recover an amount due; it cannot be used to recover afresh an amount already received by the Government. Since the short-paid tax stood discharged before adjudication and the order-in-original did not consider that payment, no demand in respect of that shortfall survived. [Paras 15] The setting aside of the tax demand was affirmed. Interest on delayed GST payment-credit to Government account through Form GST PMT-06 - Period for which interest on delayed GST payment is payable where cash was deposited through Form GST PMT-06 before filing of the return - HELD THAT: - Under the statutory payment mechanism, realisation of a PMT-06 challan credits the amount to the Government's account and to the Electronic Cash Ledger. Interest is payable only while tax remains unpaid; the subsequent debit of the Electronic Cash Ledger on filing the return is an accounting act and does not prolong the period of default. The Hon’ble Karnataka High Court in Bangalore International Airport Ltd. [2020 (11) TMI 1138 - KARNATAKA HIGH COURT] and Symphony Ltd. [2025 (10) TMI 1321 - GUJARAT HIGH COURT] held that where the cash portion of tax liability is deposited on or before the due date, interest cannot be levied for delayed filing of returns, as the subsequent debit is merely an accounting entry and the liability stands discharged from the date of deposit. Accordingly, such interest recovery is unsustainable.[Paras 16] Interest runs from the due date only until the date on which the cash is credited to the Government's account, and not until the later debit from the Electronic Cash Ledger. Interest computation for delayed GST payment - Set-off against distinct interest liabilities - Correct computation of interest for FY 2017-18 and entitlement to adjust interest paid on the residual tax shortfall against interest payable for delayed monthly tax payments - HELD THAT: - For September 2017, tax having been deposited through challans before the return was filed, interest was correctly restricted to the respective challan-payment dates. For the remaining months, the record did not establish any earlier cash credit than the return-filing dates. The interest paid with the residual tax shortfall discharged the separate interest attributable to that shortfall and could not be applied again against the independent liability for delayed monthly tax payments. [Paras 17] The total interest liability of Rs.40,47,151/- and the balance of Rs.25,47,151/- after credit of the earlier payment were sustained; no further set-off was allowed. Penalty for delayed payment after show-cause notice - Sustainability of penalty where tax and interest were paid after expiry of the thirty-day period from the show-cause notice - HELD THAT: - The statutory immunity from penalty applies only where tax and interest are paid within thirty days of the show-cause notice. Once that period is missed and the demand is confirmed, the prescribed minimum penalty follows as a non-discretionary consequence; absence of fraud, deliberate default or contumacious conduct does not alter that consequence. [Paras 18] The penalty was upheld. Final Conclusion: The order-in-appeal was confirmed: the tax demand already discharged before adjudication remained set aside, while the recomputed interest liability and statutory penalty were sustained. The Department's appeal and the cross-objection were dismissed.

2026 (10) TMI 1090 - CESTAT CHENNAI Customs

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Customs penalty requires proof of knowledge or participation, not mere introduction of a freight forwarder or IEC contact.
Customs penalties for facilitating undervalued imports require material proving blameworthy conduct, knowledge of illegality, or participation in the unlawful arrangement. Merely introducing a freight forwarder or supplying a contact who may arrange another person's importer-exporter code does not contravene the Customs Act. Without evidence that the person procured the code, joined the illegal activity, or knew of import undervaluation, allegations do not establish criminal conspiracy or culpable involvement. Penalties under Sections 112(a) and 114AA are therefore unsustainable on those facts.

2026 (10) TMI 1085 - Supreme Court IBC

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Issues: (i) Whether the Supreme Court could interfere under Section 62 with concurrent findings of debt and default; (ii) Whether the assignee was entitled to maintain the Section 7 applications as a financial creditor; (iii) What evidentiary threshold governs proof of default for Section 7 admission and whether accounting disputes or profitability preclude admission; (iv) What legal weight an authenticated Information Utility record and other documentary material carry in establishing default.

Issue (i): Whether the Supreme Court could interfere under Section 62 with concurrent findings of debt and default.

Analysis: Section 62(1) of the Insolvency and Bankruptcy Code, 2016 confines an appeal to questions of law. Concurrent factual findings of the specialised insolvency fora cannot be reopened through a reassessment of accounts or documentary evidence unless they are perverse, unsupported by evidence, ignore material evidence, or apply an erroneous legal standard.

Conclusion: No basis existed to disturb the concurrent findings of financial debt and default.

Issue (ii): Whether the assignee was entitled to maintain the Section 7 applications as a financial creditor.

Analysis: Section 5(7) of the Insolvency and Bankruptcy Code, 2016 includes a person to whom a financial debt has been legally assigned or transferred. The validity of the assignment had been finally determined, and the identity of issue, finality of that determination, and identity of parties or privies attracted issue estoppel. The Adjudicating Authority's Section 7 jurisdiction does not extend to a collateral re-examination of a concluded assignment dispute.

Conclusion: The assignee was a financial creditor competent to initiate proceedings under Section 7, and the assignment challenge was barred by issue estoppel.

Issue (iii): What evidentiary threshold governs proof of default for Section 7 admission and whether accounting disputes or profitability preclude admission.

Analysis: Sections 3(12), 4 and 7 of the Insolvency and Bankruptcy Code, 2016 require proof that a financial debt, in whole or in part, became due and remained unpaid above the statutory threshold. Default is a historical event, whereas the outstanding quantum remains variable due to interest, charges, adjustments and repayments. The admission-stage enquiry is summary and is determined on a preponderance of probabilities from documentary material; it does not require a forensic reconciliation of accounts or a final calculation of every component of the claim. Detailed verification and quantification are addressed during the CIRP claims process under Section 18(b). Positive EBITDA or profitability does not establish debt-serviceability and is not a legal bar to admission once default is shown.

Conclusion: A documented default exceeding the statutory threshold was sufficient for admission; disputes on quantification, appropriation, and profitability did not negate or cure the default.

Issue (iv): What legal weight an authenticated Information Utility record and other documentary material carry in establishing default.

Analysis: Sections 7(3)(a) and 7(4) of the Insolvency and Bankruptcy Code, 2016 establish a hierarchy of proof. An authenticated Record of Default issued by an Information Utility is independently sufficient at the first tier and carries a strong evidentiary presumption, rebuttable only by clear, cogent, credible and compelling material rather than bare denial or bookkeeping disagreement. At the second tier, loan agreements, statements of account, acknowledgements, settlement communications and the materials identified in Part V of Form 1 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 may collectively establish default on the summary standard. A debtor's failure to dispute the Information Utility record during authentication may operate as an admission and estoppel.

Conclusion: The authenticated Information Utility records, read with the collective documentary record, sufficiently established default for Section 7 purposes.

Final Conclusion: The statutory requirements for commencing the corporate insolvency resolution process were satisfied, and the resolution process in respect of both corporate debtors may continue in accordance with the Insolvency and Bankruptcy Code, 2016.

Ratio Decidendi: In a Section 7 proceeding under the Insolvency and Bankruptcy Code, 2016, admission depends on prima facie documentary proof of an unpaid due financial debt above the statutory threshold, not on final quantification of the claim or the corporate debtor's commercial solvency; an authenticated Information Utility Record of Default is sufficient unless displaced by compelling contrary material.

Section 7 default proof: authenticated Information Utility records support insolvency admission despite accounting disputes or profitability claims.
Section 7 admission under the Insolvency and Bankruptcy Code requires prima facie documentary proof that a financial debt became due, remains unpaid and exceeds the statutory threshold; final claim quantification, accounting disagreements and profitability do not by themselves negate default. An authenticated Information Utility Record of Default is independently sufficient proof unless rebutted by clear, cogent and compelling material; loan and account documents may collectively establish default on a preponderance-of-probabilities standard. A legally assigned financial debt permits the assignee to proceed as financial creditor, while a finally determined assignment dispute may be barred by issue estoppel. Section 62 review is confined to legal questions and does not permit reassessment of concurrent factual findings absent perversity, lack of evidence, ignored material evidence or an erroneous legal standard.

Default-summary determination under Section 7 of Insolvency and Bankruptcy Code - Information Utility record of default-evidentiary presumption - Default as insolvency trigger-irrelevance of profitability - Issue estoppel-assignment of financial debt - Scope of appeal under Section 62 of Insolvency and Bankruptcy CodeScope of appeal under Section 62 of Insolvency and Bankruptcy Code - Concurrent findings of fact - Interference under Section 62 with concurrent findings on the existence of financial debt and default. - HELD THAT: - An appeal under Section 62 is confined to a question of law and does not permit a fresh appraisal of the evidence. Concurrent findings of the specialised fora may be disturbed only if perverse, unsupported by evidence, reached by ignoring material evidence, or founded on an erroneous legal standard; the appellate jurisdiction cannot be used to re-weigh the accounting and contractual material. [Paras 27, 28, 29]The concurrent findings did not warrant interference under Section 62.Issue estoppel-validity of assignment - Assignee as financial creditor - Status of the assignee as financial creditor and challenge to the assignment of the financial debt. - HELD THAT: - The legality and enforceability of the assignment had been finally determined in earlier proceedings between the parties. The requirements of identity of issue, finality of the earlier determination and identity of parties or privies being satisfied, issue estoppel barred its reopening. Further, the Adjudicating Authority exercising jurisdiction under Section 7 could not sit in appeal over the concluded determination of a constitutional court. [Paras 30, 31, 32]The assignee was entitled to invoke Section 7 as a financial creditor, and the validity of the assignment could not be reagitated.Default-summary determination under Section 7 of Insolvency and Bankruptcy Code - Quantum of debt-claims verification during CIRP - Evidentiary threshold for establishing default on a financial creditor's application under Section 7 of the Code. - HELD THAT: - Default is constituted when the whole or any part or instalment of a due and payable debt remains unpaid. Its occurrence is a static historical event, distinct from the dynamic quantum of the outstanding claim. At admission, the Adjudicating Authority makes a summary, prima facie determination on a preponderance of probabilities from documentary material; it is not required to undertake a forensic reconciliation of accounts or conclusively determine the exact liability. Detailed verification and quantification of claims belong to the CIRP claims process. The contemporaneous material and the continuing inability to service the facilities supported the finding of default. [Paras 45, 46, 47, 63, 64]A default exceeding the statutory threshold stood established; disputes over precise quantification could not prevent admission under Section 7.Information Utility record of default-evidentiary presumption - Documentary proof of default - Evidentiary value of an authenticated Information Utility record and other documentary proof of default. - HELD THAT: - A Record of Default issued by an Information Utility is, by statutory design, self-sufficient for ascertaining default and carries a presumption of high evidentiary value. A corporate debtor that allows the authentication process to remain unanswered is precluded from subsequently denying the default except on clear, cogent, credible and compelling material; bare denial or bookkeeping disagreement is insufficient. Other documentary material, though not individually equivalent to such a record, may collectively establish default on the summary standard. The deemed-authenticated Form-D records, read with the statements of account, review reports, recall notice and settlement communications, supported the finding of default notwithstanding differences between facility-wise entries and the date-specific computation. [Paras 58, 59, 60, 61, 62]The Information Utility records and the collective documentary material validly established the occurrence of default for Section 7 purposes.Profitability-irrelevance to default under the Insolvency and Bankruptcy Code - Default as insolvency trigger - Relevance of profitability and solvency to admission of a Section 7 application after financial default. - HELD THAT: - A positive EBITDA does not establish the capacity to service debt as and when it falls due. The Code adopts default, rather than commercial or balance-sheet insolvency, as the jurisdictional trigger and is directed at timely resolution of financial stress. The subsequently enacted clarifications to Section 7 were held to reinforce, rather than alter, the position that satisfaction of the statutory conditions leaves no residual ground to reject admission. [Paras 65, 66, 68, 69]Profitability did not furnish a basis to refuse admission once financial debt and default were established.Final Conclusion: The appeals were dismissed. The concurrent orders admitting the Section 7 applications and initiating CIRP against both corporate debtors were upheld, and the CIRP was directed to proceed in accordance with law.

2026 (10) TMI 1079 - CESTAT CHENNAI Service Tax

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Issues: (i) Whether the construction demands relating to the landowners' and developer's shares were taxable and correctly classified and valued; (ii) Whether reverse-charge liability for GTA, security, legal and manpower services was established; and (iii) Whether extended limitation and consequential penalties could be sustained.

Issue (i): Whether the construction demands relating to the landowners' and developer's shares were taxable and correctly classified and valued.

Analysis: The legal character of a joint development arrangement depends on its contractual terms, the parties' rights and obligations, and the consideration flowing between them; its nomenclature is not determinative. Transfer of land or development rights in return for constructed flats is capable of being non-monetary consideration under Section 67 of the Finance Act, 1994, but taxability must first be established for the relevant period. The pre-01.07.2010 position requires examination under the applicable Board circulars and the relevant statutory exclusion; subsequent periods require independent application of the governing provisions.

Analysis: Valuation of a taxable landowners' share under Section 67 of the Finance Act, 1994 and Rule 3(a) of the Service Tax (Determination of Value) Rules, 2006 arises only after taxability is established. Comparable flats must be genuinely similar in material particulars and at the relevant time, and the record must be verified to avoid duplication of value already subjected to service tax. Whether the developer's construction was a service simpliciter or a composite works contract depends upon the actual agreements, transfer of property in goods, and contemporaneous records. The works-contract provisions and the correct taxable classification remain material after 01.07.2012; an incorrect statutory citation in a notice alone does not invalidate an otherwise sustainable demand.

Conclusion: The construction demands were not sustainable on the existing record and can be determined only after examination of the agreements, period-wise taxability, correct classification, valuation, and possible duplication of taxable value.

Issue (ii): Whether reverse-charge liability for GTA, security, legal and manpower services was established.

Analysis: GTA liability requires proof that the transporter satisfied the statutory definition, including issuance of a consignment note or a document meeting that requirement. Ledger entries and freight expenditure alone cannot replace that jurisdictional fact. For security services, the identity and status of the provider, applicability of Notification No. 30/2012-ST dated 20.06.2012, and any prior discharge of tax on the same service require verification.

Analysis: Direct engagement, payment, supervision and control of workers by the recipient do not, without proof of supply by an independent provider, constitute manpower-supply service. Similarly, an entry described as legal fees does not by itself establish that the provider was an advocate or that the service was a legal service covered by reverse charge. Revenue retains the initial burden to establish these foundational facts, subject to the assessee disclosing material within its special knowledge.

Conclusion: Reverse-charge liability can arise only upon proof of the statutory prerequisites for each alleged service and after reconciliation of the relevant records and payments.

Issue (iii): Whether extended limitation and consequential penalties could be sustained.

Analysis: Invocation of the extended period under Section 73 of the Finance Act, 1994 requires a positive act of fraud, wilful misstatement, or deliberate suppression with intent to evade tax; mere non-payment, non-registration, or an omission does not suffice. For the first notice, collection of service tax from purchasers, coupled with non-deposit and non-disclosure in statutory returns, was treated as material to the allegation of suppression. Availability of information in private books or subsequent departmental access during investigation does not by itself negate suppression. An incomplete voluntary disclosure and unsupported financial hardship do not establish reasonable cause for retaining tax collected from purchasers.

Analysis: A subsequent notice is not barred merely because an earlier notice concerned the same assessee or service category. The decisive inquiry is whether the notices rest on the same material facts and transactions. For a subsequent invocation of the extended period, Revenue must independently establish the statutory ingredients from evidence relating to the distinct project and transactions. Penalties under Sections 77, 78 and 78A of the Finance Act, 1994 depend upon the liability and limitation findings ultimately reached.

Conclusion: Limitation for both notices and the consequential penalties require fresh determination by applying the stated statutory tests to the relevant evidence.

Final Conclusion: Service-tax liability remains dependent on a fresh, evidence-based determination of the contractual arrangements, taxable character of the construction and alleged reverse-charge services, valuation, limitation, and consequential interest and penalties.

Joint development service-tax liability requires proven taxability, correct valuation, and statutory evidence for reverse charge and extended limitation.
Service-tax liability in joint development arrangements depends on contractual rights, consideration, period-wise taxability, correct classification as construction service or works contract, and valuation without duplicating values already taxed. Land or development rights may constitute non-monetary consideration only after taxable character is established. Reverse-charge liability requires proof of each statutory prerequisite, including qualifying GTA documentation, provider status for security and legal services, and supply by an independent manpower provider; ledger entries alone are insufficient. Extended limitation requires fraud, wilful misstatement, or deliberate suppression intended to evade tax, assessed separately for distinct transactions. Penalties depend on the ultimate findings on liability and limitation.

Joint development agreements - landowners' share as non-monetary consideration - Service tax on builder-developer construction before 1 July 2010 - Composite works contracts and construction service classification - Show cause notice for construction service - incorrect statutory citation - Reverse-charge liability for GTA, security, manpower and legal services - Extended limitation for non-disclosed service-tax transactions Joint development agreements - landowners' share as non-monetary consideration - Valuation of construction service for landowners' share - Taxability and valuation of construction of flats allotted to landowners under joint development agreements - HELD THAT: - Transfer of land or development rights against construction and allotment of flats may constitute non-monetary consideration; absence of cash payment does not, by itself, exclude taxability. The true character of the arrangement must be determined from the contractual rights and obligations. Valuation arises only after a taxable service is established, and any comparable-flat method requires proof of genuine comparability and verification whether the relevant value has already suffered service tax. [Paras 19, 20, 27, 28, 40] The issue was remanded without adjudication on merits for examination of the agreements, period-wise taxability, valuation and possible duplication of taxable value. Service tax on builder-developer construction before 1 July 2010 - Service-taxability of construction by a builder-developer before 1 July 2010 - HELD THAT: - Construction undertaken by a builder-developer retaining ownership and transferring the completed property to purchasers may fall within the self-service situation contemplated by the applicable circulars, whereas services rendered by an independent contractor remain taxable. The benefit depends upon satisfaction of the factual conditions governing the transaction and does not govern the statutory position applicable from 1 July 2010 onwards. [Paras 18, 21, 24] The adjudicating authority was directed to determine whether the transactions satisfy the applicable conditions for the period before 1 July 2010 and to independently apply the law thereafter. Composite works contracts and construction service classification - Classification of the disputed residential construction activities, including the developer's share, as composite works contracts or construction service simpliciter - HELD THAT: - A composite construction contract involving transfer of property in goods is distinct from a pure service contract, and classification must follow the actual contractual arrangement and the law applicable to the relevant period. Registration under a construction-service category and grant of material abatement do not conclusively establish the character of the contract. Even after 1 July 2012, the distinction remains relevant to identify the taxable service and the proper method of valuation; the assessee must establish the requisite transfer of property in goods and other conditions from the contracts and contemporaneous records. [Paras 21, 29, 30, 31, 40] The classification and resultant liability were remanded for determination from the agreements and supporting records. Show cause notice for construction service - incorrect statutory citation - Effect of reference to an incorrect declared-service provision in the notices alleging tax on construction activity - HELD THAT: - A notice is not rendered invalid merely because it cites an incorrect statutory provision, provided the issuing authority was competent and the demand is otherwise legally sustainable. [Paras 30] The objection to the notices on this ground was rejected, while the actual classification and liability were remanded for fresh determination. Reverse-charge liability on goods transport agency service - Consignment note as jurisdictional fact for GTA service - Reverse-charge liability on alleged goods transport agency services - HELD THAT: - The statutory definition of a goods transport agency requires issuance of a consignment note, by whatever name called. Freight expenditure alone cannot substitute this requirement; the Revenue must establish that the transporter was a goods transport agency and that the document issued fulfilled the statutory requirement. [Paras 33, 40] The GTA demand was remanded for examination of the transport documents, the statutory status of the transporter and applicability of reverse charge. Reverse-charge liability on security services - Reverse-charge liability on alleged security services - HELD THAT: - The Revenue must establish that security services were provided by an outside provider falling within the class specified under the applicable reverse-charge notification. Expenditure on the assessee's own employees cannot be treated as receipt of security service from an independent provider, and the same taxable service cannot be subjected to a second demand where tax has already been discharged. [Paras 34, 40] The security-service demand was remanded for verification of provider status, invoices, taxable value, period and any tax already paid. Reverse-charge liability on manpower-supply service - Direct employment and manpower supply - HELD THAT: - A ledger entry described as labour or manpower expenditure does not by itself establish manpower-supply service. Where workers are directly engaged, paid and supervised by the assessee, the expenditure cannot be recast as manpower supply; the Revenue must establish the existence of an independent service provider supplying manpower. [Paras 35, 40] The manpower-supply demand was remanded and can be sustained only upon proof of receipt of service from an independent provider covered by reverse charge. Reverse-charge liability on legal services - Reverse-charge liability on payments recorded as legal fees - HELD THAT: - A book entry described as legal fee or legal and professional charges is insufficient by itself to establish reverse-charge liability. The Revenue must establish the identity and qualifying status of the provider, the nature of the legal service and the assessee's liability under the applicable notification, after the assessee discloses facts within its knowledge. [Paras 36, 40] The legal-service demand was remanded and may be sustained only upon proof of the foundational facts required for reverse charge. Extended limitation for non-disclosed service-tax transactions - Suppression of facts and intent to evade tax - Invocation of the extended period of limitation for the construction-service and reverse-charge demands - HELD THAT: - Suppression for extended limitation requires deliberate withholding of material facts with intent to evade tax; a mere omission, bona fide interpretation or departmental knowledge of disclosed facts is insufficient. For the first notice, collection of service tax without deposit or disclosure in statutory returns could constitute concealment, and the mere availability of records or subsequent departmental access did not by itself negate suppression. For the later notice, an earlier notice does not automatically preclude extended limitation where the project and underlying material facts are distinct; nevertheless, the Revenue must independently establish the statutory ingredients and cannot rely on a later investigation merely to cure deficiencies concerning facts already known. [Paras 14, 15, 16, 38, 40] Limitation was remanded for determination on the evidence relating to each demand; penalties were directed to be reconsidered consequentially after redetermination of liability and limitation. Final Conclusion: The impugned orders were set aside and the appeals remanded for fresh adjudication. Liability, interest and penalties must be determined only after the directed factual and legal findings.

2026 (11) TMI 260 - ITAT MUMBAI Income Tax

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Advertising adjustments require proof of associated-enterprise arrangements, while management support cost treatment must account for corresponding service revenue.
Section 92B requires an international transaction to be established before advertising, marketing and promotion expenditure can be subjected to a transfer pricing adjustment. The Revenue must establish an agreement, arrangement or understanding with the associated enterprise; expenditure comparisons or incidental benefits alone do not suffice. The bright line test is not a prescribed method for determining the arm's length price. Reallocated management support costs included in a cost-plus charge must be considered alongside the corresponding service revenue. Section 92(3) restricts the application of transfer pricing provisions where the resulting computation would reduce income chargeable to tax.

Advertisement, marketing and promotion expenditure as an international transaction - Management support fee cross-charges under a cost-plus arrangement - Prematurity of challenge to initiation of penalty proceedings Advertisement, marketing and promotion expenditure as an international transaction - Characterisation of domestic advertisement, marketing and promotion expenditure as an international transaction in the absence of an established arrangement with the associated enterprise - HELD THAT: - The Revenue must establish an agreement, arrangement or understanding for incurring AMP expenditure towards promotion of the associated enterprise's brand before treating such expenditure as an international transaction under section 92B. Incidental enhancement of the foreign brand's value and comparison with the expenditure of comparable companies cannot establish that transaction. The Bright Line Test is not a prescribed method for determining the arm's length price. The expenditure concerned marketing of products manufactured by the assessee in India, and no relevant arrangement with the associated enterprise was established. The decision in the assessee's own case was followed, the material facts remaining substantially identical. [Paras 15, 16, 17, 18] The transfer pricing adjustment on account of AMP expenditure was deleted. Management support fee cross-charges under a cost-plus arrangement - Adjustment to management support fee cross-charges without corresponding consideration of service revenue arising under the same cost-plus arrangement. - HELD THAT: - An adjustment to expenditure forming part of the cost base for services rendered to an associated enterprise must be examined together with its corresponding effect on service revenue, having regard to section 92(3), which precludes application of the transfer pricing provisions so as to reduce taxable income. Applying Mercer Consulting India (P.) Ltd. .[2016 (8) TMI 62 - ITAT DELHI] affirmed by the Delhi High Court [2024 (8) TMI 1435 - DELHI HIGH COURT], the Tribunal considered that the reallocated costs attributable to Indian operations had initially been recovered from the associated enterprise with the agreed mark-up. Disallowing the cross-charge without considering the related service revenue failed to address the economic substance of the arrangement. [Paras 20, 23, 24, 25] The adjustment towards reallocated management support fees was unsustainable on the reasoning adopted and was deleted. Prematurity of challenge to initiation of penalty proceedings - Maintainability of challenges to the initiation of penalty proceedings under sections 270A and 271AA. - HELD THAT: - The grounds were directed against the initiation of penalty proceedings, and the Tribunal held them to be premature at that stage without adjudicating any penalty on merits. [Paras 26] Both grounds were dismissed as premature. Final Conclusion: The appeal was allowed with both transfer pricing adjustments deleted. The limitation ground was kept open; the penalty-initiation grounds were dismissed as premature.

2026 (11) TMI 209 - GAUHATI HIGH COURT GST

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GST registration cancellation set aside after portal blocks overdue returns, with filing and tax liabilities remaining
GST registration cancelled for non-filing of returns was reinstated after the portal prevented overdue filing beyond the prescribed three-year period. The overdue returns must be filed within 30 days, and tax, penalty, interest and late fees remain payable. Limitation periods under sections 73 and 74 are computed from the order date, except for financial year 2026-27, for which section 44 applies.

2026 (11) TMI 186 - KARNATAKA HIGH COURT Income Tax

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Issues: (i) Whether foreign exchange gains were properly treated as operating income for transfer pricing purposes. (ii) Whether the exclusion of four companies as transfer pricing comparables was justified.

Issue (i): Whether foreign exchange gains were properly treated as operating income for transfer pricing purposes.

Analysis: Foreign exchange gains or losses are operating in nature only where they have a direct nexus with the international transaction. The assessee's operating revenue was derived entirely from services to its associated enterprise, and the gains arose from operational transactions including realisation of trade debtors and payments to creditors. Exchange loss on fixed-asset purchases had been excluded, and the assessee's margin remained subject to verification.

Conclusion: The treatment of the foreign exchange gains as operating income raised no substantial question of law, in favour of the assessee.

Issue (ii): Whether the exclusion of four companies as transfer pricing comparables was justified.

Analysis: Comparability under Section 92C and Rule 10B requires assessment of functional profiles and relevant business characteristics. Reliance on an earlier tribunal decision was permissible where the relevant facts were the same; the earlier decision concerned an affiliate in a similar business for the same assessment year. Infosys had substantial intangibles and software product revenues; Tata Elxsi undertook diversified activities without a sub-service break-up; Bodhtree was engaged in software products and other services; and KALS had software product and training activities. The findings were based on relevant material, and no perversity was demonstrated.

Conclusion: Exclusion of the four companies raised no substantial question of law, in favour of the assessee.

Final Conclusion: The transfer pricing computation is to reflect the qualifying operating exchange gains and exclusion of the four comparables, with the assessee's margin subject to verification.

Ratio Decidendi: For transfer pricing purposes, a foreign exchange gain or loss is operating in nature only if it has a direct nexus with the international transaction.

Foreign exchange gains are operating income only with a direct international transaction link; transfer pricing comparables require functional assessment.
Foreign exchange gains or losses are operating in nature for transfer pricing only if they have a direct nexus with the international transaction. Gains from trade debtor realisations and creditor payments qualify where that nexus exists; exchange loss on fixed-asset purchases was excluded. Comparability requires assessment of functional profiles and business characteristics. Substantial intangibles, software product revenues, diversified activities without a sub-service breakdown, and training activities were relevant to the exclusion of four companies. An earlier tribunal decision may be relied on where the relevant facts are the same. The assessee's margin remains subject to verification.

Transfer pricing - Functional comparability of software development service providers - Foreign exchange gains - Nexus with international transactions - Co-ordinate Bench precedents - Identity of material facts Co-ordinate Bench precedents - Identity of material facts - Reliance on an earlier co-ordinate Bench decision concerning an affiliate engaged in similar activities for the same assessment year - HELD THAT: - There is no infirmity in the Tribunal deciding a question on the basis of its earlier decision where that decision was rendered in a relevant factual context. The earlier decision concerned the assessee's affiliate, engaged in a similar business for the same assessment year. The Revenue had not demonstrated any material factual distinction. In the present case, ITAT had followed its decision in Cisco Systems (India) Private Limited [2014 (11) TMI 849 - ITAT BANGALORE] which was rendered in the case of the Assessee’s affiliate, engaged in a similar line of business, for the same AY.[Paras 14, 15, 26] The challenge to the Tribunal's reliance on its earlier decision did not give rise to a substantial question of law. Foreign exchange gains - Operating income from international transactions - Treatment of foreign exchange gains arising from operational transactions as operating income for determining the arm's length margin - HELD THAT: - Foreign exchange gain or loss can be treated as operating only where it has a direct nexus with the international transaction. The assessee's operating revenue was entirely derived from services rendered to its associated enterprise, and the Tribunal had found that the gains arose from realisation of trade debtors, payments to creditors and other operational transactions. No material on record cast doubt on that nexus. The Revenue's contention that the Tribunal had treated the gains as operating income without examining their connection with the business therefore proceeded on an erroneous premise. [Paras 17, 20, 21, 22] The treatment of the gains as operating income, with the assessee's margin to be verified and accepted if correct, disclosed no substantial question of law. Transfer pricing - Functional comparability of software development service providers - Comparable selection - Findings of fact and perversity - Exclusion of Infosys Limited, Tata Elxsi Limited, Bodhtree Consulting Limited and KALS Information Systems Limited as functionally dissimilar comparables for software development services - HELD THAT: - Comparability findings conforming to Section 92C and Rule 10B, supported by relevant material and untainted by demonstrated perversity, do not give rise to a substantial question of law. Infosys Limited differed in functional profile, significant intangible assets and software-product revenues; its size and intangibles affected its revenues. Tata Elxsi Limited undertook diversified and complex design, engineering and visual-computing activities. Bodhtree Consulting Limited's software-product and web-solution activities supported its exclusion, while KALS Information Systems Limited also developed software products and operated a training centre. These differences justified exclusion from comparison with the assessee's software development services. The Tribunal had neither disturbed the different financial-year-ending filter nor directed inclusion of comparables selected by the assessee and rejected by the Transfer Pricing Officer. [Paras 34, 35, 38, 39, 40] The exclusion of all four companies was sustained and raised no substantial question of law. Final Conclusion: The Revenue's appeal was dismissed, none of the challenges to the Tribunal's order giving rise to a substantial question of law.

2026 (11) TMI 177 - ITAT MUMBAI Income Tax

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Post-settlement tax refunds require verification of excess recovery, while uncrystallised tax deduction claims cannot support rectification refunds.
Tax deducted at source does not support a refund claim through rectification after settlement under the Vivad-se-Vishwas Scheme where the claimed excess payment has not crystallised and no departmental order establishes it. Refunds for other assessment years adjusted against the demand after settlement must be verified against the settled liability. Any amount recovered after settlement in excess of that liability is refundable upon verification.

2026 (11) TMI 90 - ITAT DELHI Income Tax

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Issues: (i) Whether penalty proceedings for misreporting were valid where the notice and orders did not identify the applicable clause of section 270A(9); (ii) Whether omission to disclose bank-interest income constituted deliberate misreporting warranting penalty.

Issue (i): Whether penalty proceedings for misreporting were valid where the notice and orders did not identify the applicable clause of section 270A(9).

Analysis: Section 270A differentiates ordinary under-reporting, attracting penalty at 50 per cent of the tax, from under-reporting consequent to misreporting, attracting penalty at 200 per cent. The latter requires identification of a specific statutory circumstance under section 270A(9). A notice merely alleging under-reporting in consequence of misreporting, without specifying the applicable clause or showing how its ingredients were met, failed to communicate the precise charge. The defect was not cured by the assessment or penalty order, as neither contained a clause-specific finding.

Conclusion: The penalty proceedings were invalid for failure to specify and establish the applicable limb of section 270A(9), in favour of the assessee.

Issue (ii): Whether omission to disclose bank-interest income constituted deliberate misreporting warranting penalty.

Analysis: The interest income was omitted from the original return during the pandemic period, was not reflected in Form 26AS, and was subsequently disclosed in the return filed in reassessment proceedings. That revised disclosure was accepted without further addition. These circumstances supported the plausibility and bona fide nature of the explanation. Section 270A(6)(a) excludes income from under-reported income where a bona fide explanation is satisfactorily substantiated by material facts.

Conclusion: The omission was not deliberate misrepresentation or suppression and did not warrant penalty for misreporting, in favour of the assessee.

Final Conclusion: The penalty imposed for alleged misreporting lacked a valid statutory foundation and was deleted.

Ratio Decidendi: A penalty for under-reporting in consequence of misreporting requires a clear communication and application of the specific statutory limb constituting misreporting; a generic allegation of misreporting is insufficient.

Misreporting penalties require a specific statutory charge, while substantiated bona fide explanations can exclude omitted bank interest from under-reporting.
Section 270A distinguishes ordinary under-reporting from under-reporting resulting from misreporting, with the latter attracting a higher penalty. Misreporting requires identification of the specific circumstance under section 270A(9) and a showing that its requirements are met. A generic notice fails to communicate the precise charge where the assessment and penalty orders also lack clause-specific findings. Under section 270A(6)(a), income is excluded from under-reported income where a bona fide explanation is satisfactorily substantiated by material facts, including in relation to omitted bank-interest income.

Penalty u/s 270A for under-reporting in consequence of misreporting - specific statutory charge - Bona fide omission of bank interest - under-reported income Penalty notice for misreporting - specification of applicable statutory limb - Validity of penalty for alleged misreporting of omitted bank interest where the notice, assessment order and penalty order did not identify the applicable statutory limb of misreporting - HELD THAT: - The statutory scheme distinguishes ordinary under-reporting from under-reporting resulting from misreporting and prescribes materially different consequences. A notice merely alleging under-reporting in consequence of misreporting, without identifying the applicable circumstance of misreporting or recording how its ingredients were fulfilled, does not communicate the precise charge or afford a meaningful opportunity of response. The defect could not be cured by reading the notice with the assessment or penalty orders, which were equally non-specific. [Paras 11, 12, 13, 14] The penalty proceedings were quashed as materially infirm for failure to specify and establish the applicable statutory charge of misreporting. Bona fide explanation for omitted bank interest - Misreporting of income - deliberate misrepresentation or suppression - Sustainability of enhanced penalty for omission of bank interest subsequently disclosed in the return filed in response to reassessment notice - HELD THAT: - The omission was explained as inadvertent: the interest was not reflected in Form 26AS, and the original return was filed amid pandemic-related disruption. The subsequent disclosure of the interest in the reassessment return, its acceptance without further addition, and the nature of the income supported the bona fides of the explanation. The material did not establish deliberate misrepresentation or suppression, and the amount was therefore covered by the statutory exclusion for a bona fide explanation. [Paras 16, 17, 18] Independently, the enhanced penalty for misreporting was held unsustainable and was deleted. Final Conclusion: The appeal was allowed and the penalty was deleted, both for the defective notice alleging misreporting and for the bona fide nature of the omitted bank interest.

2026 (11) TMI 55 - TELANGANA HIGH COURT GST

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GST proceedings for financial years beyond Section 73's temporal scope cannot be initiated under that provision.
Section 73 of the Goods and Services Tax Act, as applicable to the proceedings, covers financial years up to 2023-24 and cannot be invoked for financial year 2024-25. An order under Section 73(5) for a financial year outside that temporal scope is not sustainable; proceedings may instead be initiated in accordance with law.

2026 (11) TMI 46 - MADRAS HIGH COURT GST

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Late fees for delayed annual GST returns preclude a separate general penalty for the same filing default.
Delayed filing of the annual return in Form GSTR-9 attracts a late fee under Section 47. A separate general penalty under Section 125 is not warranted for the same delay because that provision applies only where no other penalty is provided for the contravention. The specific late-fee mechanism covers the filing default, so the late fee remains payable but the separate general penalty is invalid.

2026 (11) TMI 28 - ITAT DELHI Income Tax

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Search assessments of other persons require prior satisfaction, transfer of seized material and an independent finding on total income.
Section 153C of the Income-tax Act, 1961 requires the searched person's Assessing Officer to record satisfaction and then transfer the relevant material to the other person's Assessing Officer before proceedings are initiated. The latter must independently record satisfaction that the material pertains to the other person and bears on determination of that person's total income. Proceedings initiated before satisfaction and transfer, without the required finding on total income, are void, as are consequential assessments. A subsequent note on income escapement cannot validate the earlier initiation.

Section 153C jurisdiction - prior satisfaction and handing over of seized material - Section 153C jurisdiction - material bearing on determination of total income Section 153C jurisdictional satisfaction - Handing over of seized material - Validity of section 153C proceedings against a person other than the searched person where the notice preceded satisfaction by the AO of the searched person and handing over of the seized material - HELD THAT: - Proceedings under section 153C can commence only after the Assessing Officer of the searched person records the requisite satisfaction and hands over the material to the Assessing Officer of the other person. The record did not establish that such satisfaction had been recorded before the material was forwarded or the notices were issued; the satisfaction note of the AO of the searched persons was handed over subsequently. The jurisdictional condition was therefore absent when the proceedings were initiated. [Paras 22] The notices and consequential assessments under section 153C were held void ab initio and quashed. Material bearing on determination of total income - Validity of section 153C proceedings where the jurisdictional Assessing Officer did not establish that the seized material pertained to and had a bearing on determination of the assessee's total income - HELD THAT: - Mere discovery of books, documents or assets does not justify action under section 153C; the Assessing Officer of the other person must form a satisfaction that the material received pertains to that person and is likely to bear upon determination of total income. The satisfaction note forming the basis of initiation did not establish that requirement. The subsequent note, apart from not being the basis for initiation, merely sought to improve the case of escapement and still did not establish the requisite nexus with the assessee's total income. [Paras 22] The absence of the statutory satisfaction vitiated the proceedings, which were held void ab initio and quashed. Final Conclusion: The appeals were allowed and the assessments made under section 153C were quashed. The remaining grounds were left open.

2026 (10) TMI 2063 - ITAT CHENNAI Income Tax

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Issues: (i) Whether deduction under Section 80G of the Income-tax Act, 1961 is available for contributions to eligible charitable institutions made in the course of Corporate Social Responsibility activities; (ii) Whether discount incurred under an employee stock option plan is allowable as revenue expenditure under Section 37(1) of the Income-tax Act, 1961.

Issue (i): Whether deduction under Section 80G of the Income-tax Act, 1961 is available for contributions to eligible charitable institutions made in the course of Corporate Social Responsibility activities.

Analysis: Explanation 2 to Section 37(1) excludes Corporate Social Responsibility expenditure from deduction as business expenditure. That restriction does not, however, bar a deduction under the separate statutory framework of Section 80G where its conditions are fulfilled. The specific statutory exclusion for specified Corporate Social Responsibility contributions cannot be extended to all contributions made to otherwise eligible charitable institutions.

Conclusion: Deduction under Section 80G cannot be denied merely because eligible contributions were made in the course of Corporate Social Responsibility activities. This issue is decided in favour of the assessee.

Issue (ii): Whether discount incurred under an employee stock option plan is allowable as revenue expenditure under Section 37(1) of the Income-tax Act, 1961.

Analysis: Employee stock option discount constitutes employee compensation incurred to obtain and retain employee services. Its quantification by reference to the market value of shares, and the absence of immediate cash outflow, do not make it capital or notional where an ascertainable liability is recognised under the mercantile system of accounting.

Conclusion: The employee stock option plan expenditure is allowable as revenue expenditure under Section 37(1). This issue is decided in favour of the assessee.

Final Conclusion: The disallowances of the claimed charitable-contribution deduction and employee stock option expenditure are unsustainable under the applicable statutory provisions.

CSR donations to eligible charities can qualify for tax deduction independently of the business-expense restriction.
Corporate Social Responsibility contributions to eligible charitable institutions may qualify for deduction under Section 80G even though Explanation 2 to Section 37(1) excludes CSR expenditure from deduction as business expenditure. The exclusion for specified CSR expenditure does not extend to otherwise eligible charitable contributions under the separate Section 80G framework. Employee stock option plan discount is employee compensation incurred to obtain and retain services and may be allowed as revenue expenditure under Section 37(1). Market-value-based measurement and the absence of immediate cash outflow do not make the recognised liability capital or notional under the mercantile system of accounting.

2026 (10) TMI 1962 - CESTAT KOLKATA Customs

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Finality of Bills of Entry assessments bars unchallenged customs reclassification demands after goods receive out-of-charge clearance.
Finality of assessments in Bills of Entry bars a subsequent differential customs-duty demand based on reclassification when Revenue did not challenge the original assessments. Goods were assessed under the importer's declared classification and cleared after out-of-charge; those assessments consequently became final. The confirmed demand was set aside, and Revenue's challenge to the dropped demand was not maintainable.

2026 (10) TMI 1961 - DELHI HIGH COURT Service Tax

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Monetary appeal thresholds bar departmental tax appeals below the limit despite recurring or cascading effects.
Monetary limits for departmental appeals under the Central Excise and service-tax framework apply to pending legacy matters, including disputes involving recurring issues. Appeals before the High Court below the prescribed threshold cannot be pursued merely on alleged cascading consequences or a common question of law. The only retained exceptions concern challenges to the constitutional validity of an Act or Rule and findings that a notification, instruction, order, or circular is illegal or ultra vires. The former classification-and-refund exception was withdrawn, and income-tax circulars do not expand the available exceptions. Below-threshold appeals outside those exceptions are precluded, while proposed substantial questions of law remain open.

2026 (10) TMI 1952 - CESTAT KOLKATA Service Tax

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Consignment notes determine goods transport agency status, excluding non-issuing road carriers from service tax liability.
Road carriers qualify as goods transport agencies only when they both provide transport of goods by road and issue consignment notes. Road transport is otherwise within the negative list, except for services rendered by a goods transport agency or courier agency. Carriers that do not issue consignment notes therefore fall outside the definition of goods transport agency and are not liable to service tax on those road-transport services.

2026 (10) TMI 1949 - GUJARAT HIGH COURT Central Excise

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CENVAT credit reversal option remains available until a manufacturer actually elects an alternative payment method under the Rules.
Rule 6(3) permits a manufacturer that does not maintain separate accounts to choose the prescribed payment method or proportionate CENVAT-credit reversal. Rule 6(3A) requires written intimation of the date from which the proportionate-reversal option is exercised. Neither the Rules deem an election on the first day of a financial year nor treat continued payments under an earlier regime as an election of the payment option. Withdrawal restrictions apply only after actual exercise of an option; therefore, the proportionate-reversal option may be exercised during the financial year where no prior act of election occurred.

2026 (10) TMI 1946 - GUJARAT HIGH COURT VAT / Sales Tax

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Composition-scheme cancellation requires evidence that the dealer itself made prohibited inter-State purchases, not unsupported inferences from ledger entries.
Composition permission under the Gujarat Value Added Tax framework is conditional on compliance with prescribed scheme requirements. Rule 28C(6) bars a composition dealer from purchasing eatables or raw materials through inter-State trade or commerce, and Rule 28C(7) permits cancellation for breach. Cancellation was unsustainable where ledger entries showed funds received from an adjoining hotel business and paid to its supplier, no sugar purchase was debited to the dealer, and no evidence established that the dealer made the inter-State purchases.

2026 (10) TMI 1916 - ITAT HYDERABAD Income Tax

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Issues: (i) Whether the assessment was barred by limitation under section 153(1) after extensions under TOLA; (ii) Whether the assessment was invalid on account of the notice under section 143(2), faceless-assessment intimation and procedure, post-draft notice under section 142(1), revised draft and show-cause procedure, SOP timing, or digital authentication; (iii) Whether mutuality excluded income arising under the development agreement; (iv) Whether section 50D determined the full value of consideration and whether section 45(5A) postponed capital-gains taxability for an AOP; (v) Whether the registered development agreement effected a transfer under section 2(47); (vi) Whether the capital gain was assessable in the society's hands instead of in members' hands; (vii) Whether the full value of consideration could be based on the developer's 2021 GST invoice rather than determined as of the transfer date; (viii) Whether separately adding 13,000 square feet was justified; (ix) Whether GST and amenity charges required reduction or deduction from the full value of consideration and protection against double taxation; (x) Whether taxes paid by members on the same transfer were creditable to the society; and (xi) Whether liquid-fund dividend qualified for exemption under section 10(35).

Issue (i): Whether the assessment was barred by limitation under section 153(1) after extensions under TOLA.

Analysis: Section 3(1) of TOLA validly empowered extension of statutory time limits through notifications issued during the pandemic. The limitation for assessment for AY 2018-19, though ordinarily ending on 30.09.2020, stood extended to 30.09.2021. The assessment dated 24.09.2021 was consequently within the extended period.

Conclusion: The assessment was not time-barred; this issue was decided against the assessee.

Issue (ii): Whether the assessment was invalid on account of the notice under section 143(2), faceless-assessment intimation and procedure, post-draft notice under section 142(1), revised draft and show-cause procedure, SOP timing, or digital authentication.

Analysis: The objection to the competence of the authority issuing the section 143(2) notice was a jurisdictional objection barred by section 124(3), since it was not raised within the prescribed time despite participation in assessment proceedings. The notice and accompanying e-assessment material sufficiently informed the assessee that submissions were to be made electronically under the faceless regime. The transition after 01.04.2021 was governed by section 144B, and pending proceedings could validly be completed under that provision.

Analysis: The notice under section 142(1), issued after the initial draft, sought supporting material and clarifications. The subsequent addendum show-cause notice specifically disclosed the prejudicial variations concerning the GST-invoice value and the additional built-up area, and the assessee responded to it. The SOP did not create an independent statutory limitation. Digital authentication by an officer of the Assessment Unit was not invalid absent material establishing lack of authority.

Conclusion: No jurisdictional or procedural defect invalidated the assessment; this issue was decided against the assessee.

Issue (iii): Whether mutuality excluded income arising under the development agreement.

Analysis: Mutuality requires complete identity between contributors to the common fund and participators in its surplus. The income arose from a development arrangement with an independent developer, rather than from dealings exclusively among members.

Conclusion: The doctrine of mutuality was inapplicable, and this issue was decided against the assessee.

Issue (iv): Whether section 50D determined the full value of consideration and whether section 45(5A) postponed capital-gains taxability for an AOP.

Analysis: Section 50D applies only where consideration is unascertainable or incapable of determination. The existence of a determinable consideration precluded its application. Section 45(5A) creates a special deferral mechanism only for an individual or HUF and does not extend to an AOP.

Conclusion: Section 50D was not attracted and section 45(5A) did not defer taxability for the assessee; this issue was decided against the assessee.

Issue (v): Whether the registered development agreement effected a transfer under section 2(47).

Analysis: The registered agreement conferred substantial and enforceable rights on the developer to obtain approvals and finance, commercially deal with and sell its project share, while materially restricting the assessee's control over the property. Registration of the project, exercise of development rights, and commercial exploitation confirmed that the arrangement exceeded a mere licence to enter the land for construction.

Conclusion: The registered development agreement effected a transfer of rights in the property within section 2(47); this issue was decided against the assessee.

Issue (vi): Whether the capital gain was assessable in the society's hands instead of in members' hands.

Analysis: The society held registered title to the land and itself executed the development agreement. An AOP is a separate taxable person, and capital gains must be assessed in the hands of the legally chargeable person. Members' beneficial interest or their individual tax disclosures could not shift the taxability of a transfer made by the society.

Conclusion: Capital gains from the transfer were assessable in the society's hands and not in members' hands; this issue was decided against the assessee.

Issue (vii): Whether the full value of consideration could be based on the developer's 2021 GST invoice rather than determined as of the transfer date.

Analysis: Chargeability and computation of capital gains must operate together. Once transfer was treated as having occurred on 24.01.2018, the full value of consideration had to be determined with reference to consideration received or accruing from that transfer. A GST invoice raised more than three years later could be relevant material, but could not automatically constitute the full value of consideration without establishing its nexus to the transfer-date consideration.

Conclusion: The quantification of consideration was restored for fresh determination with reference to the transfer date; this issue was decided in favour of the assessee to the extent of remand.

Issue (viii): Whether separately adding 13,000 square feet was justified.

Analysis: Verification was required of the development agreement, supplementary agreement, allotment documents, and the assessee's actual entitlement. The inquiry must determine whether the 13,000 square feet was carved out of the society's revised entitlement and whether its value had already been included in the full value of consideration.

Conclusion: The issue was restored for verification, with no separate addition to survive if the area was part of the assessee's entitlement and already factored into consideration; this issue was decided in favour of the assessee to the extent of remand.

Issue (ix): Whether GST and amenity charges required reduction or deduction from the full value of consideration and protection against double taxation.

Analysis: The GST component required examination against the development agreement, invoice, basis of valuation, and the manner of actual discharge to determine whether it formed part of consideration and resulted in double taxation. Amenity charges required verification as to contractual obligation, actual incurrence, their connection with transfer, their inclusion in consideration, and possible deduction under section 48(i).

Conclusion: The GST and amenity-charge claims were restored for fresh examination, with a direction to prevent double taxation and allow any legally admissible deduction; this issue was decided in favour of the assessee to the extent of remand.

Issue (x): Whether taxes paid by members on the same transfer were creditable to the society.

Analysis: Although the gain was chargeable in the society's hands, tax cannot be imposed twice on the same income. The assessment particulars of members and taxes actually paid require verification to determine whether they relate to the same transfer and whether credit is legally available.

Conclusion: The claim for tax credit was restored for verification and determination in accordance with law; this issue was decided in favour of the assessee to the extent of remand.

Issue (xi): Whether liquid-fund dividend qualified for exemption under section 10(35).

Analysis: For the relevant year, section 10(35) exempted income from units of a specified mutual fund, subject to statutory conditions. The nature of the liquid-fund investment and supporting evidence required substantive examination rather than rejection solely because the claim had been dealt with under section 154.

Conclusion: The exemption claim was restored for examination of eligibility and correct tax treatment; this issue was decided in favour of the assessee to the extent of remand.

Final Conclusion: The assessment's legal validity, the occurrence of transfer, and taxability of the gain in the society's hands remain undisturbed. The quantification of consideration and the connected claims concerning area, GST, amenity charges, member-tax credit, and dividend exemption require fresh adjudication in accordance with law.

Ratio Decidendi: A registered development agreement that parts with substantial and commercially exploitable rights in immovable property constitutes a transfer under section 2(47), and the resulting capital gain is chargeable to the person legally transferring those rights.

Development agreement transfers can trigger capital gains for societies, while consideration and connected tax claims require fresh determination.
Registered development agreements conferring substantial, enforceable and commercially exploitable property rights constitute transfers, with capital gains taxable to the society holding title and executing the agreement rather than its members. Mutuality does not shelter income involving an independent developer. Section 50D does not apply where consideration is determinable, while section 45(5A)'s deferral is confined to individuals and HUFs. Consideration must be determined as of the transfer date; later GST invoices, built-up area, GST and amenity charges, member-paid tax, and liquid-fund dividend eligibility require fact-based examination to prevent duplication and allow lawful deductions or credit. TOLA may extend assessment limitation, and delayed jurisdictional objections can be barred.

Transfer of development rights under a joint development agreement - Capital gains assessable in hands of an association of persons - Full value of consideration in joint development arrangements - Mutuality and third-party development arrangements - Assessment limitation under TOLA - Validity of faceless assessment procedure Extension of assessment limitation under TOLA - Validity of the assessment completed within the period extended under TOLA and the notifications issued thereunder - HELD THAT: - The ordinary limitation under section 153 stood extended through notifications issued under the statutory authority conferred by TOLA. The original and extended periods had to be read together; the notifications operated within the statutory relaxation mechanism and did not purport to amend the limitation provision by executive action. [Paras 18] The assessment was completed within the extended period of limitation. Belated jurisdictional objection to notice under section 143(2) - Challenge to the competence of the faceless assessment authority to issue the notice under section 143(2) - HELD THAT: - An objection to the authority issuing the notice was an objection to jurisdiction. Having participated in the assessment without raising that objection within the period prescribed by section 124(3), the society was statutorily precluded from raising it for the first time in appellate proceedings. [Paras 19] The challenge to the notice and consequential assessment on jurisdictional grounds was rejected. Intimation of faceless assessment - Compliance with the requirement to intimate that the assessment would be completed under the faceless assessment procedure - HELD THAT: - The notice under section 143(2) required online responses through e-proceedings and was accompanied by a note explaining the e-Assessment Scheme. These communications sufficiently informed the society that its assessment would proceed under the faceless regime. [Paras 20] The alleged failure to issue the statutory intimation was not established. Opportunity against prejudicial variation in faceless assessment - Validity of variations in sale consideration made after the original draft assessment order in the faceless assessment - HELD THAT: - A new prejudicial variation requires a meaningful opportunity to respond. On the facts, the addendum show-cause notice specifically disclosed the proposed adoption of the value reflected in the developer's invoice and the proposed treatment of the allocated super built-up area; the society responded before the final assessment was made. [Paras 21] The variations were not made without notice or opportunity, and the procedural challenge failed. Transition to the faceless assessment regime - Validity of an assessment completed u/s 144B after the earlier faceless assessment framework ceased to apply - HELD THAT: - The cessation of the earlier statutory framework did not invalidate pending assessments. The relevant question was whether the assessment, when completed, followed the procedure then applicable under section 144B; commencement under the earlier mechanism did not by itself render the final assessment invalid. [Paras 23] The assessment completed under section 143(3) read with section 144B was valid. Post-draft enquiry in faceless assessment - Validity of a notice under section 142(1) issued after preparation of a draft assessment order - HELD THAT: - Preparation of a draft assessment order does not extinguish the statutory power to call for information under section 142(1). The subsequent notice sought clarification and supporting material concerning matters already under assessment, and the adverse variations ultimately made were separately put to the society through the addendum show-cause notice. [Paras 24] The subsequent notice under section 142(1) did not vitiate the assessment. Internal assessment SOP and statutory limitation - Whether the time stipulation in the internal assessment-unit SOP rendered the revised draft assessment order time-barred? - HELD THAT: - The SOP governed internal functioning of the Assessment Unit and did not prescribe an independent statutory limitation for completing an assessment. Its indicative time requirement could not override the limitation governed by the Income-tax Act. [Paras 25] The revised draft assessment order was not invalid on the basis of the internal SOP. Digital authentication of faceless assessment order - Validity of the assessment order digitally authenticated by an officer of the Assessment Unit - HELD THAT: - Under the faceless regime, officers of the prescribed ranks may constitute an Assessment Unit, and authentication by the concerned unit is effected through digital signature. The designation or official email identifier of the officer signing the electronic record did not establish lack of authority, particularly when no material showed that the officer was not part of, or lacked powers assigned to, the Assessment Unit. [Paras 26] The assessment was not shown to have been passed or authenticated by an incompetent authority. Mutuality and third-party development arrangement - Applicability of the doctrine of mutuality to income arising from the joint development arrangement - HELD THAT: - Mutuality requires complete identity between contributors to the common fund and participators in the surplus. The impugned income arose from a development arrangement with an independent developer and not from dealings among the society's members; the requisite identity was absent. [Paras 27] The claim of exemption from tax on the ground of mutuality was rejected. Applicability of section 50D to ascertainable consideration - Invocation of section 50D for determining full value of consideration under the development arrangement - HELD THAT: - Section 50D applies only where consideration received or accruing on transfer is not ascertainable or determinable. As the value adopted by the assessment authorities was treated as a definite and ascertained value disclosed in the GST invoice, the foundational condition for invoking section 50D was absent. [Paras 28] The claim for determination of consideration under section 50D was rejected. Deferred capital-gains chargeability under specified development agreement - Availability to an association of persons of the special capital-gains mechanism applicable to specified development agreements - HELD THAT: - The statutory deferment of chargeability under section 45(5A) is confined to an individual or a Hindu undivided family. As the society was an association of persons, it could not claim that statutory benefit; moreover, the assessment authorities had not invoked that provision for computing its capital gains. [Paras 29] The plea that capital gains could be deferred or that section 45(5A) had been indirectly applied was rejected. Full value of consideration at date of transfer - Use of a later GST invoice to quantify the full value of consideration for transfer under the joint development arrangement - HELD THAT: - Once the transfer was held to have occurred under the joint development arrangement, capital-gains computation had to relate to the consideration received or accruing from that transfer. A later invoice issued by the developer could be relevant material, but could not solely be adopted as full value of consideration without determining its nexus with the consideration at the date of transfer. [Paras 30] The quantification of sale consideration was remanded to the Assessing Officer for fresh determination with reference to the date of transfer. Separate addition for forgone super built-up area - Addition of the value of super built-up area claimed to have been forgone from the society's allocated share - HELD THAT: - The claim required verification of the society's entitlement under the joint development agreement, subsequent allocation arrangements and allotment documents. It was necessary to determine whether the area formed part of the society's own allocated share and whether its value had already been included in the consideration determined for the transfer. [Paras 31] The issue was remanded for verification; no separate addition shall survive if the area was forgone from the society's entitlement and was already factored into the full value of consideration. GST component in full value of consideration - Treatment of GST liability included in the value adopted as consideration under the joint development arrangement - HELD THAT: - The terms of the joint development agreement, the GST invoice, the basis of construction consideration and the actual discharge of liability required examination. The Assessing Officer had to determine whether GST formed part of the full value of consideration and whether its treatment resulted in taxation of the same component twice. [Paras 32] The matter was remanded to determine the permissible reduction or deduction and to ensure that the GST component is not taxed twice. Amenity charges connected with transfer - Treatment of amenity charges payable by the owner in computing capital gains from the joint development arrangement - HELD THAT: - The allowability of the claimed charges depended on whether they were an obligation under the joint development agreement, were actually incurred wholly and exclusively in connection with the transfer, and had already been included in the value adopted as full consideration. Their nomenclature alone was not determinative. [Paras 33] The matter was remanded to examine admissibility of deduction and to eliminate any double addition. Transfer of development rights under a joint development agreement - Whether the registered joint development agreement resulted in transfer of the society's rights in the property - HELD THAT: - The question depended on the substantive rights created and exercised, not merely on the agreement's nomenclature or on a narrow application of section 53A. The registered arrangement granted the developer enforceable and extensive rights to develop, obtain approvals and finance, market and sell its project share, while materially restricting the society's independent control. Subsequent implementation of the project confirmed that the arrangement went beyond a mere development licence and enabled commercial enjoyment of the property. [Paras 39] The registered joint development agreement resulted in a transfer within section 2(47), and capital gains arose in the relevant year. Capital gains assessable in hands of an association of persons - Person chargeable to tax on capital gains arising from the transfer under the joint development agreement - HELD THAT: - The society acquired and held the property in its own name and itself executed the registered joint development agreement. The members' beneficial interest did not convert property legally held and transferred by the association of persons into property individually held by them. Income must be assessed in the hands of the person legally chargeable, and prior assessment of any member could not alter that statutory liability. [Paras 40] The capital gains were assessable in the hands of the society, subject to the verification directed regarding the area ultimately allocated to it. Credit for tax paid on same transfer transaction - Credit for tax claimed to have been paid by members in respect of the same transfer transaction - HELD THAT: - Although the capital gains were chargeable in the society's hands, the claim that members had paid tax on the same income required verification of their assessments, payments and the identity of the transfer transaction. The legal allowability of any credit could only be determined after that verification. [Paras 34] The issue was remanded to determine the extent, if any, to which credit is legally allowable after verification. Exemption of liquid-fund dividend income - Eligibility of dividend income from liquid-fund investment for exemption - HELD THAT: - The substantive exemption claim required examination on merits notwithstanding that it had earlier been rejected in rectification proceedings. The nature of the investment and supporting evidence had to be examined to determine whether the receipt satisfied the conditions for exemption. [Paras 37] The matter was remanded to determine the correct tax treatment of the dividend income. Recomputation of mandatory interest on appellate effect - Levy of interest consequential upon the appellate order - HELD THAT: - Levy of interest under the relevant advance-tax provisions is mandatory, but the liability must be recomputed while giving effect to the appellate directions. [Paras 37] The Assessing Officer was directed to recompute the interest liability. Final Conclusion: The appeal was partly allowed for statistical purposes. The validity of the assessment and chargeability of capital gains in the society's hands were sustained, while valuation and specified consequential claims were remanded for fresh determination.

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2026 (11) TMI 285 - AT - GST

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GST registration cancellation requires specific notice grounds and particulars; new appellate grounds or evidence cannot cure defects.
GST registration cancellation requires a notice specifying the statutory grounds and material particulars, such as supplier details, registration numbers ... Summary

GST registration cancellation requires specific notice grounds and particulars; new appellate grounds or evidence cannot cure defects.

GST registration cancellation requires a notice specifying the statutory grounds and material particulars, such as supplier details, registration numbers and relevant periods where wrongful input tax credit is alleged. Cancellation proceedings are distinct from tax determination proceedings, and wrongful input tax credit was subsequently omitted as a cancellation ground. Rule 112 restricts the admission of additional evidence on appeal. An appellate authority cannot cure a defective notice by introducing undisclosed grounds or evidence; natural justice requires an effective opportunity to rebut material relied upon.

Issues: (i) Whether the notice for cancellation of GST registration contained sufficient particulars and statutory grounds; (ii) whether the appellate authority could sustain the cancellation by relying on additional evidence and statutory grounds not disclosed in the notice.

Issue (i): Whether the notice for cancellation of GST registration contained sufficient particulars and statutory grounds.

Analysis: Section 29 and Rule 22 provide the framework for cancellation of registration. The notice alleged wrongful input tax credit but omitted supplier details, registration numbers and the relevant periods, and did not invoke the cancellation provisions. Cancellation proceedings are distinct from tax determination proceedings. The subsequent omission of wrongful input tax credit as a cancellation ground was also treated as a relevant consideration.

Conclusion: The cancellation notice was legally deficient, in favour of the appellant.

Issue (ii): Whether the appellate authority could sustain the cancellation by relying on additional evidence and statutory grounds not disclosed in the notice.

Analysis: Rule 112 restricts the admission of additional evidence on appeal. Natural justice requires an effective opportunity to rebut material relied upon. The appellate authority relied on an inquiry report and invoked a statutory provision absent from the cancellation notice, without recording an effective opportunity for rebuttal.

Conclusion: The appellate order could not sustain the cancellation, in favour of the appellant.

Final Conclusion: The registration stands restored without any determination in the separate tax proceedings.

Ratio Decidendi: GST registration cancellation requires a notice specifying the statutory grounds and material particulars; an appellate authority cannot cure a defective notice by introducing new grounds or evidence, particularly without an effective opportunity to rebut that evidence.

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Central Goods And Services Tax Act, 2017

Constitution of India

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GST registration cancellation requires specific notice grounds and particulars; new appellate grounds or evidence cannot cure defects.

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