TaxTMI Updates e-Newsletter
Jan 04,2013

Valuation of inventories: cost or net realizable value, whichever is lower - accounting standards (AS-2) binding under Section 145 - write-off for raw materials, components and consumables based on estimated net realizable value - verifiability of estimation and remand for limited factual verification

Valuation of inventories: cost or net realizable value, whichever is lower - accounting standards (AS-2) binding under Section 145 - write-off for raw materials, components and consumables based on estimated net realizable value - verifiability of estimation and remand for limited factual verification - Whether the Tribunal was justified in disapproving the assessee's method of reporting the discounted value of raw materials, components and consumable stores as on 31.03.2007. - HELD THAT: - The Court recognised that valuation of inventory on the basis of 'cost or net realizable value, whichever is lower' is an accepted method and that AS-2 issued by the Institute of Chartered Accountants of India is binding on the assessee and tax authorities under Section 145. The Tribunal's sole objection - that the write-off factor of 8.5% was an unproved estimate - did not warrant rejecting the method in principle where the assessee produced working (Annexure G) showing how the factor was derived. Those figures, however, require verification. Accordingly, while the Tribunal was not right to accept the revenue's contention in principle, the matter is remitted to the Assessing Officer for verification of the figures furnished by the assessee in support of the 8.5% write-off, and for completion of the assessment afresh limited to this issue. [Paras 8]

Substantial question answered in favour of the assessee; the Tribunal was incorrect in principle and the matter is remitted to the Assessing Officer to verify the assessee's supporting figures for the 8.5% write-off and to complete the assessment afresh on that limited issue.

Final Conclusion: The appeal is allowed; the substantial question of law is answered for the assessee subject to remittal - the Assessing Officer is directed to verify the figures supporting the 8.5% write-off for inventories and to complete the assessment afresh on that limited issue; no order as to costs.

Addition of undisclosed income - appreciation of evidence - onus of proof on assessee to produce third party to establish genuineness - opportunity to cross examine third party - concurrent findings of fact - inapplicability of Section 51 where transaction not accepted as genuine - reliance on third party bank investigation not determinative of assessee's claim

Addition of undisclosed income - appreciation of evidence - concurrent findings of fact - Validity of the addition of Rs. 2,50,000 as undisclosed income routed into capital account and whether authorities erred in rejecting the claimed genuine transaction. - HELD THAT: - The Court upheld the factual conclusion reached by the authorities that the payment entry was not established as genuine. The agreement produced named a purchaser but particulars of the payment (demand draft) traced to a different account holder and the purported purchaser could not be located at addresses furnished. The Tribunal had earlier remitted for production of the alleged purchaser, which the assessee failed to effect. Given the material discrepancies and the concurrent appreciation of evidence by the authorities, the addition was sustained. The Court treated the matter as one of fact and appreciation of evidence, and declined to disturb the concurrent findings. [Paras 11, 12, 14, 19, 20]

Addition of Rs. 2,50,000 as undisclosed income sustained; no interference with authorities' factual findings.

Onus of proof on assessee to produce third party to establish genuineness - appreciation of evidence - Whether the assessee discharged the burden to produce the alleged purchaser (Leela Dhar Gupta) so as to establish the genuineness of the transaction. - HELD THAT: - The Court found that the assessee failed to produce the alleged purchaser despite directions and opportunities given after remand. The assessee's contention that the purchaser was a stranger and could not be located was rejected in light of inconsistent addresses in documents, inability of the Department to verify the person at furnished addresses, and discrepancies in records. Consequently the onus to prove identity and genuineness was not discharged and the authorities were justified in treating the entry as fabricated. [Paras 5, 6, 10, 12, 15]

Assessee failed to discharge burden to produce the third party; authorities rightly held transaction not genuine.

Opportunity to cross examine third party - appreciation of evidence - Whether denial of an opportunity to cross examine the person whose statement the Department relied upon violated principles of natural justice. - HELD THAT: - The Court rejected the contention that the assessee was denied cross examination rights because the person whose statement the Department obtained was not the same individual as the alleged purchaser relied upon by the assessee. The assessee had claimed a different identity for the purchaser; therefore the absence of cross examination of the bank contacted individual did not amount to a breach of natural justice in the circumstances. [Paras 13]

No violation of natural justice in respect of cross examination; contention rejected.

Inapplicability of Section 51 where transaction not accepted as genuine - Whether Section 51 could be invoked to defer taxation until sale when the transaction itself was not accepted as genuine by the authorities. - HELD THAT: - The Court held that Section 51 could not be relied upon because the foundational transaction was not accepted as genuine by the authorities. The plea under Section 51 was not raised before lower authorities and, in any event, the provision is inapplicable where the transaction seeking benefit is not established to be genuine. [Paras 17]

Section 51 not applicable; plea rejected.

Reliance on third party bank investigation not determinative of assessee's claim - Whether the departmental investigation into the bank account (Deepak Gupta/Jai Laxmi Cooperative Bank) entitled the assessee to a favourable inference regarding genuineness of the claimed payment. - HELD THAT: - The Court observed that the investigation into a separate account and the bank's closure for irregularities did not establish any agreement or nexus between the assessee and the investigated account holder. There was no direct link shown between the assessee and the said account; therefore the results of that investigation could not be treated as determinative in favour of the assessee's claim. [Paras 10, 18]

Investigation into third party bank account is not a basis to accept the assessee's transaction; contention rejected.

Addition of undisclosed income - appreciation of evidence - concurrent findings of fact - Whether any substantial question of law arises warranting interference with the impugned orders (Annexures A 4 to A 6). - HELD THAT: - Applying the established principles that factual appreciation and concurrent findings are not to be disturbed in absence of perversity, the Court found no substantial question of law that would justify remand or interference. The disputed contentions were essentially factual, related to proof of identity and genuineness, and had been dealt with by the authorities after remand and opportunities to the assessee. [Paras 19, 20]

No substantial question of law arises; appeal dismissed.

Final Conclusion: The High Court dismissed the appeal, holding that the authorities correctly held the Rs. 2,50,000 entry as routed undisclosed income after due appreciation of evidence and failed production of the alleged purchaser; concurrent factual findings were upheld, Section 51 was inapplicable, and no substantial question of law merited interference.

Jurisdiction under Section 263 of the Income Tax Act - erroneous and prejudicial to the interest of the revenue - exclusion from export turnover for computing deduction under Section 10A - reimbursement of foreign exchange expenses - no further inquiry required where particulars do not provoke doubt - application of coordinate-bench precedent on identical facts

Jurisdiction under Section 263 of the Income Tax Act - erroneous and prejudicial to the interest of the revenue - no further inquiry required where particulars do not provoke doubt - Validity of the Commissioner's exercise of jurisdiction under Section 263 in setting aside the assessment order. - HELD THAT: - The Court held that jurisdiction under Section 263 could be exercised only if the Assessing Officer's order was shown to be both erroneous and prejudicial to the revenue. The Commissioner's conclusion that the assessment was erroneous because the Assessing Officer did not make further inquiries was unsustainable: there was no occasion for further inquiry since the particulars furnished did not give rise to doubt. The Tribunal correctly found that the Commissioner had wrongly assumed jurisdiction and that no fault lay in the Assessing Officer's order. The Court therefore affirmed the Tribunal's quashing of the Section 263 order. [Paras 6, 7]

Commissioner's exercise of jurisdiction under Section 263 was not justified; Tribunal's quashing of the Section 263 order is upheld.

Exclusion from export turnover for computing deduction under Section 10A - reimbursement of foreign exchange expenses - application of coordinate-bench precedent on identical facts - Correctness of the Assessing Officer's treatment of foreign-exchange expenses (travel, professional fees and others) for computing export turnover and total turnover under Section 10A. - HELD THAT: - The Court agreed with the Tribunal that the services were rendered in India and transmitted abroad, and that the foreign-exchange expenses were reimbursed on actual basis without any element of profit. Consequently those reimbursed foreign-exchange expenditures were not properly includible in export turnover for computing the Section 10A deduction and the Assessing Officer's limited allowance was not shown to be erroneous or prejudicial to revenue. The Tribunal's reliance on a coordinate-bench decision on identical facts was acceptable and the Tribunal's allowance of the assessee's appeal was sustained. [Paras 6]

Assessing Officer's computation excluding the reimbursed foreign-exchange expenses from export turnover/total turnover was not erroneous; Tribunal's decision in favour of the assessee is affirmed.

Final Conclusion: The appeal is dismissed. The Tribunal's order quashing the Commissioner's Section 263 order and upholding the Assessing Officer's treatment of reimbursed foreign-exchange expenses for computation of deduction under Section 10A is affirmed; the questions raised are not substantial questions of law.

Allowability of revenue expenditure under Section 37(1) - amortization and capital versus revenue nature of license fees - application of Section 35ABB to license fees - pre operative expenses and commencement of business - capital expenditure versus revenue expenditure (enduring benefit test) - treatment in books of account not determinative for taxability - precedential effect of earlier Tribunal order

Allowability of revenue expenditure under Section 37(1) - amortization and capital versus revenue nature of license fees - application of Section 35ABB to license fees - treatment in books of account not determinative for taxability - precedential effect of earlier Tribunal order - Whether the operating license fee of Rs.115 crores paid to the holding company is allowable as a revenue expenditure under Section 37(1) for AY 1998-99 despite being amortized in the assessee's books and whether Section 35ABB applies. - HELD THAT: - The Court accepted the Tribunal's finding that the entire amount paid in the year in question was an operating fee which did not confer an enduring benefit requiring spread over ten years. Section 35ABB was held inapplicable to the respondent in respect of the payment; its application related to the licensor. The fact that the assessee's books amortized the payment and charged only a portion in that year does not determine tax deductibility. The Tribunal had followed its earlier decision for AY 1997-98, which was not challenged by the revenue. On these bases, no substantial question of law arises to disturb the allowance of the payment as revenue expenditure for AY 1998-99. [Paras 4]

The operating license fee of Rs.115 crores is allowable as revenue expenditure under Section 37(1) for AY 1998-99; Section 35ABB is not applicable to the respondent's payment and the books' amortization does not control tax treatment.

Pre operative expenses and commencement of business - allowability of revenue expenditure under Section 37(1) - precedential effect of earlier Tribunal order - Whether PSTN charges and dealers' commission incurred before commercial launch are allowable as revenue expenditure in AY 1998-99. - HELD THAT: - The Tribunal and the Commissioner (Appeals) found that the assessee had set up its business activities (marketing, appointing dealers, accepting deposits) prior to the commercial launch, so the expenses were incurred after the business was set up and for its purposes. The earlier Tribunal decision for AY 1997-98 allowing such pre commencement expenses was accepted by the revenue. As the question of whether expenditure was incurred for the purposes of business is one of fact, and two authorities under the Act concluded in favour of allowability, the High Court found no substantial question of law to reopen the matter. [Paras 5]

PSTN charges and dealers' commission incurred prior to commercial launch are allowable as revenue expenditure under Section 37(1) for AY 1998-99.

Capital expenditure versus revenue expenditure (enduring benefit test) - allowability of revenue expenditure under Section 37(1) - Whether foreign travel expenses incurred for training amounted to capital expenditure (enduring benefit) or were revenue in nature for AY 1998-99. - HELD THAT: - Both the Commissioner (Appeals) and the Tribunal examined the facts and concluded that the foreign travel did not confer an enduring benefit but enabled efficient running of the business; hence the expenditure was revenue in nature. The High Court held this to be a factual conclusion that was neither perverse nor arbitrary and therefore did not raise a substantial question of law warranting interference. [Paras 6]

Foreign travel expenses are revenue expenditure allowable under Section 37(1) for AY 1998-99; they do not result in an enduring benefit making them capital in nature.

Final Conclusion: The revenue's appeal is dismissed. Questions A, B and C do not raise any substantial question of law; the Tribunal's order for AY 1998-99 allowing the claimed expenditures is upheld. Appeal dismissed with no order as to costs.

Advancement of any other object of general public utility - charitable purpose - activity of rendering any service in relation to any trade, commerce or business - Section 10(23C)(iv) approval - first proviso to Section 2(15) of the Income Tax Act

Section 10(23C)(iv) approval - charitable purpose - advancement of any other object of general public utility - activity of rendering any service in relation to any trade, commerce or business - first proviso to Section 2(15) of the Income Tax Act - Whether the petitioner is entitled to approval under Section 10(23C)(iv) of the Income Tax Act as an institution established for charitable purposes. - HELD THAT: - The Court examined the petitioner's objects and functions as a Seed Certification Agency and held that while its activity advances an object of general public utility by facilitating supply of certified seed to farmers, the certification service is rendered to client societies/agents who trade in the certified seeds. The first proviso to Section 2(15) excludes from 'charitable purpose' the advancement of any other object of general public utility if it involves carrying on an activity in the nature of trade, commerce or business or rendering any service in relation thereto for a fee. Applying that proviso, the Court found the petitioner's certification activity to be a service in relation to the trade, commerce or business of its clients and therefore excluded from the definition of 'charitable purpose'. The Court declined to treat lack of direct sale to farmers as converting the activity into charitable activity, noting that the statutory wording cannot be ignored and that the proviso was introduced to exclude entities rendering services in relation to trade or business from claiming charitable status. On that basis the Chief Commissioner was justified in rejecting the approval under Section 10(23C)(iv). [Paras 17, 20, 25]

The petitioner's application for approval under Section 10(23C)(iv) was rightly rejected because its seed certification activity is a service in relation to trade or business and thus not a 'charitable purpose' within Section 2(15).

Final Conclusion: Writ petition dismissed; the Chief Commissioner's rejection of the petitioner's application for approval under Section 10(23C)(iv) for assessment year 2010-11 was upheld as the petitioner's certification services fall within the exclusion in the first proviso to Section 2(15) and are not 'charitable purpose.'

Deduction under Section 80-I - amalgamation not a transfer within the meaning of Section 2(47) - transfer of machinery or plant previously used - reconstruction or splitting up of an existing business

Amalgamation not a transfer within the meaning of Section 2(47) - transfer of machinery or plant previously used - deduction under Section 80-I - Whether amalgamation of M/s A.A. Alloys Ltd. with the assessee-company amounted to a transfer (thereby attracting clause (ii) of sub-section (2) of Section 80-I) and whether the assessee was entitled to claim deduction under Section 80-I for the assessment year 1995-96. - HELD THAT: - The court examined whether the amalgamation fell within the scope of 'transfer' as defined in Section 2(47) so as to invoke the prohibition in clause (ii) of sub-section (2) of Section 80-I relating to transfer to a new business of machinery or plant previously used. Reliance was placed on the view in Master Raghuveer Trust that allotment of shares on amalgamation does not constitute a 'transfer' within Section 2(47) for capital gains purposes; the court found that the ratio supports the assessee's position. The court noted that the Supreme Court decision in Saraswati Industrial Syndicate Ltd., when read, supports the assessee's contention rather than the revenue's. The Madras High Court (Silical Metallurgic Ltd.) has similarly held that amalgamation is not a 'transfer' for purposes of claiming deductions under the relevant incentive provisions. Crucially, on the facts the erstwhile company ceased to exist on 1-4-1994 and any profits and gains from the industrial undertaking post-amalgamation accrued to the assessee; therefore the income to be considered for Section 80-I benefits was the assessee's income. Since amalgamation was not held to be a transfer within Section 2(47), the prohibition in clause (ii) of sub-section (2) did not disentitle the assessee from claiming the deduction, subject to fulfilment of other statutory requirements of Section 80-I. [Paras 12, 13, 14]

Amalgamation does not amount to a 'transfer' within Section 2(47) and therefore the assessee was not disentitled by clause (ii) of sub-section (2) of Section 80-I from claiming the deduction for assessment year 1995-96, if otherwise eligible.

Final Conclusion: The substantial question is answered in the affirmative for the assessee: amalgamation of M/s A.A. Alloys Ltd. with the assessee-company does not constitute a 'transfer' under Section 2(47) that would attract clause (ii) of sub-section (2) of Section 80-I, and the revenue's appeal is dismissed.

Exemption under Section 54F - Requirement of purchase or construction within prescribed period - Proviso to sub section (4) of Section 54F - deposit in specified account and postponed chargeability - Chargeability of capital gains - year of assessment vs postponement under proviso - Adjustment of tax paid in a later year to prevent double taxation

Exemption under Section 54F - Requirement of purchase or construction within prescribed period - Deduction under Section 54F is not available where only a plot is purchased but construction has not commenced and the new residential house is not purchased or constructed within the statutory periods, and no deposit under sub section (4) has been made. - HELD THAT: - The statutory language of Section 54F permits exemption only where the assessee has purchased within one year before or two years after the transfer, or has constructed within three years after the transfer, a residential house. The proviso to sub section (4) operates as an exception where the capital gain amount has been deposited in the specified account and later remains unutilised; it does not enlarge the main rule to cases where neither purchase nor construction within the prescribed periods has occurred and no deposit was made. Allowing postponement of tax merely on purchase of a plot, without evidence of commencement of construction or deposit as envisaged by sub section (4), would undermine the statutory scheme. Applying these principles to the facts, where no plans were prepared, no sanction obtained and no evidence of commencement of construction was produced, the claim of deduction under Section 54F was rightly denied. [Paras 8]

Claim of deduction under Section 54F denied.

Proviso to sub section (4) of Section 54F - deposit in specified account and postponed chargeability - Chargeability of capital gains - year of assessment vs postponement under proviso - The proviso to sub section (4) postpones chargeability only where the assessee has deposited the amount in the specified account as required; in such cases the chargeability may be postponed to the year in which the three year period expires, but that proviso is inapplicable where no deposit was made. - HELD THAT: - The proviso carved out under sub section (4) is an exception controlling interpretation of that sub section and applies where an assessee has utilised or deposited the net consideration in the prescribed account before furnishing the return. Where such deposit exists but remains unutilised for construction within the period, the statute prescribes the year in which the chargeability arises. Absent such deposit, the proviso cannot be invoked to postpone taxation. The Tribunal examined the case law relied upon by the assessee and found those authorities distinguishable on the fact of deposit, sanctioned plans, or commencement of construction; hence the proviso did not assist the assessee in the present facts. [Paras 8]

Proviso to sub section (4) not applicable; chargeability not postponed in absence of deposit.

Adjustment of tax paid in a later year to prevent double taxation - Taxes paid voluntarily by the assessee in AY 2011-2012 in respect of the same capital gain must be adjusted against the capital gain liability for AY 2008-2009 after verification, to avoid double taxation. - HELD THAT: - While the Tribunal recognised the principle in Murlidhar Bhagwandas that it lacks power to give directions in respect of a year not before it, it also applied the constitutional and taxation principle that the State cannot collect tax twice for the same income. The assessee had voluntarily filed a return and paid tax in AY 2011-2012 on the same capital gain; taxing the same gain again in AY 2008-2009 would amount to double taxation. In view of Article 265 and equitable administration of tax law, the Tribunal directed the Assessing Officer to verify and adjust the taxes already paid in AY 2011-2012 against the liability for AY 2008-2009. [Paras 9]

AO directed to adjust taxes paid in AY 2011-2012 against AY 2008-2009 liability after verification.

Final Conclusion: Appeal partly allowed: deduction under Section 54F denied for failure to purchase or construct within the statutory period and absence of deposit under sub section (4); however, the AO is directed to verify and adjust taxes already paid by the assessee in AY 2011-2012 against the capital gain liability for AY 2008-2009 to avoid double taxation.

Comparability analysis in transfer pricing - arm's length price (ALP) under TNMM - functional comparability of comparables - risk adjustment in transfer pricing - notional interest on delayed receivables - revenue expenditure v. capital expenditure for software/network access charges - remand to Transfer Pricing Officer for fresh examination

Comparability analysis in transfer pricing - functional comparability of comparables - arm's length price (ALP) under TNMM - Inclusion and exclusion of specified comparable companies for determining ALP in respect of R&D support services - HELD THAT: - The Tribunal examined the functional profiles and service characteristics of the disputed comparables. Celestial Labs Ltd., being primarily a software and bio informatics services provider with over 96% revenue from such services, was held not functionally comparable with the assessee's R&D testing and analytical services and excluded. The contract research segment data of Biocon Ltd. was rejected because the underlying contract research activities pertained to subsidiaries (Clinigene and Syngene), involved substantial related party transactions (around 38%) and lacked standalone segmental clarity; Syngene's consolidated profile also differed functionally from the assessee. Diagnostic companies (Dolphin Medical Services Ltd., Transgene Biotek Ltd., N.G. Industries Ltd.) were held to render services (CT scans, clinical/pre clinical research, patented vaccine development, etc.) materially different from the assessee's R&D testing and analytical services and were rightly excluded. Having applied functional analysis, the Tribunal directed that only the four comparables accepted by both parties - Choksi Laboratories Ltd., Vimta Labs Ltd., GVK Biosciences Pvt. Ltd. and TCG Lifescience Ltd. - be used to compute the arithmetic mean of the PLI (operating profit/total cost) for ALP determination. [Paras 18, 19, 20, 21]

Celestial Labs Ltd. and Biocon Ltd. (segment) excluded; the three diagnostic companies excluded; only Choksi Laboratories Ltd., Vimta Labs Ltd., GVK Biosciences P. Ltd. and TCG Lifescience Ltd. to be used for comparability analysis and ALP computation.

Risk adjustment in transfer pricing - remand to Transfer Pricing Officer for fresh examination - Claim for risk adjustment on account of differences between risk profiles of the assessee and comparables - HELD THAT: - The Tribunal observed that the TPO and the DRP had not dealt with the assessee's submissions on risk adjustment. Given that the matter was not adjudicated below, the Tribunal considered it necessary in the interest of justice to remit the issue to the file of the TPO. The TPO is directed to examine the assessee's contentions on risk differences and decide the issue afresh in accordance with law after providing the assessee due and effective opportunity to represent its case. [Paras 22]

Remitted to the TPO for fresh consideration and decision on risk adjustment after affording the assessee an opportunity of representation.

Notional interest on delayed receivables - Validity of notional addition towards interest on delayed payments by the associate enterprise - HELD THAT: - The TPO computed notional interest where payments from the AE were delayed beyond contractual credit terms. The Tribunal found on facts that the assessee had no external borrowings or interest liability and there was no agreement to charge interest on delayed payments; billing was done quarterly and delays could not be attributed solely to AE defaults. A hypothetical notional adjustment without material showing under charging of real income was held impermissible on these facts. [Paras 28]

The notional interest addition is deleted.

Revenue expenditure v. capital expenditure for software/network access charges - allowability under section 37(1) - Characterisation of network access and e mail infrastructure charges as revenue or capital expenditure - HELD THAT: - The assessee paid for use of e mail infrastructure, VPN and secured network services owned by the parent and did not acquire or create an enduring asset. The facilities merely facilitated day to day business operations and did not result in a capital asset for the assessee. Therefore, despite classification as 'software expenditure' in accounts, the payments were revenue in nature. [Paras 33]

Network access and related e mail infrastructure charges are revenue expenditure and allowable under section 37(1) of the Act.

Depreciation claim on software expenditure - Alternative claim for depreciation on network access charges - HELD THAT: - Having held the network access charges to be revenue expenditure, the alternative plea for allowing depreciation at the claimed rate on the said expenditure became academic. [Paras 34]

Alternative ground for depreciation dismissed as infructuous.

Final Conclusion: The appeal is partly allowed: the ALP adjustment is modified by excluding Celestial Labs Ltd. and Biocon Ltd. (segment) and by restricting comparables to four specified companies (remanding the discrete issue of risk adjustment to the TPO for fresh consideration); the notional interest addition is deleted; network access charges are held to be revenue expenditure allowable under section 37(1); the alternative depreciation claim is dismissed as infructuous.

Depreciation on revalued assets - book profits under Section 115J - revaluation reserve - reduction for amount withdrawn from reserves under the Explanation to Section 115J - limits on Assessing Officer's power to go behind profit and loss account

Depreciation on revalued assets - book profits under Section 115J - accounting treatment under AS-6 and Guidance Note GN(A)3 - Depreciation calculated on revalued fixed assets is not barred from consideration in computing book profits under Section 115J where the books of account show such depreciation in the profit and loss account in accordance with prescribed accounting treatment. - HELD THAT: - The Court examined the accounting treatment for revaluation of fixed assets (AS-6 and Guidance Note GN(A)3) which recognise provision of depreciation on revalued figures and permit transfer from the revaluation reserve to the profit and loss account to adjust additional depreciation. The jurisdiction of the Assessing Officer in computing book profits under Section 115J is confined to examining whether the books of account are properly maintained and making only the specified increases and reductions in the Explanation; the AO cannot go behind the net profit shown in the profit and loss account except as provided in the Explanation to Section 115J (following the principle in Apollo Tyres Ltd.). In the present case the books reflected depreciation including the portion attributable to revaluation and an equal amount was transferred from the revaluation reserve to the profit and loss account; having regard to the prescribed accounting treatment and the limited scope of the AO, the Tribunal and this Court held that allowing depreciation on revalued assets in computing book profits did not improperly reduce book profits or give added benefit to the assessee contrary to Section 115J. [Paras 16]

Depreciation on revalued assets as shown in the books is allowable in the computation of book profits under Section 115J in the facts of this case.

Revaluation reserve - reduction for amount withdrawn from reserves under the Explanation to Section 115J - Assessing Officer's limited adjustment powers - The amount withdrawn from the revaluation reserve and credited to the profit and loss account (the transfer of the revaluation reserve) is deductible from book profits under clause (1) read with the proviso to the Explanation to Section 115J, where the profit and loss account records that transfer and corresponding accounting entries reflect the set-off against additional depreciation. - HELD THAT: - The Tribunal found, and this Court agreed, that the effect of the higher depreciation charge on revalued assets was offset by an equal amount transferred from the revaluation reserve to the profit and loss account. Given that the books of account recorded both the additional depreciation and the transfer from the revaluation reserve, the Explanation to Section 115J permits the prescribed reductions and the proviso is to be applied as relevant. The Court observed that the Assessing Officer's addition in effect would amount to double counting; having regard to the books and the accepted accounting guidance permitting such transfer, the deduction of the amount withdrawn from the reserve was correctly allowed. [Paras 16, 17]

The reduction of the amount withdrawn from the revaluation reserve credited to the profit and loss account is to be allowed in computing book profits under the Explanation to Section 115J.

Final Conclusion: Both questions of law admitted in the appeal are answered in favour of the assessee; the income-tax appeal is dismissed and the Tribunal's order upholding allowance of depreciation on revalued assets and permitting the reduction for the amount withdrawn from the revaluation reserve is affirmed.

Non-prosecution dismissal - restoration of appeals - payment of costs as condition for restoration - repeated non-appearance despite earlier listings - last-chance listing

Restoration of appeals - non-prosecution dismissal - payment of costs as condition for restoration - Applications for restoration of appeals dismissed for non-prosecution were entertained and restoration granted on payment of costs. - HELD THAT: - The Tribunal recorded that the appeals had been listed on several occasions and were dismissed for non-prosecution because none appeared and no adjournment request was received. The appellants' explanation-that an employee failed to inform them and that they had been out of business-was held not to satisfactorily explain repeated non-representation on earlier dates including the last-chance listing. In view of the repeated non-appearance and the unsatisfactory explanation, the Tribunal exercised its discretion to restore the appeals only on payment of costs rather than as of right. The appellants were directed to remit the prescribed costs to the credit of the Commissioner of Customs (Import), Nhava Sheva within the time specified and to report compliance, upon which the appeals and stay applications would be restored to their original numbers. [Paras 4, 5]

Applications for restoration are allowed on payment of costs of Rs.5,000 for each appeal payable to the Commissioner of Customs (Import), Nhava Sheva within four weeks and reporting compliance, whereupon the appeals and stay applications shall be restored.

Final Conclusion: Restoration of the appeals granted subject to the appellants paying Rs.5,000 as costs for each appeal to the Commissioner of Customs (Import), Nhava Sheva within four weeks and reporting compliance, failing which restoration will not follow.

Extension of time for adjudication - direction to adjudicating authority to adjudicate within specified period - failure to adjudicate - consequential action

Extension of time for adjudication - direction to adjudicating authority to adjudicate within specified period - failure to adjudicate - consequential action - Application by the revenue for extension of time for adjudication and the Tribunal's direction to the adjudicating authority to dispose of the matter within a specified period. - HELD THAT: - The Tribunal recorded that by its earlier order dated 14/02/2012 the adjudicating authority had been directed to complete adjudication within 90 days. The revenue filed an application for extension of time. On hearing, the authorized representative informed the Tribunal that adjudication had not yet been completed. Having regard to the substantial delay and the fact that the matter relates to the year 1989, the Tribunal directed the adjudicating authority to dispose of the matter within 30 days from the date of the order and indicated that appropriate action would follow in the event of non-compliance. The application was therefore disposed of by issuing a fresh timeline for adjudication rather than granting an extension of the earlier 90-day period. [Paras 3]

The miscellaneous application is disposed of with a direction to the adjudicating authority to complete adjudication within 30 days from the date of the order, failing which appropriate action shall be taken against the adjudicating authority.

Final Conclusion: The Tribunal disposed of the revenue's application by directing the adjudicating authority to conclude adjudication within 30 days (matter relates to 1989) and warned of appropriate action for non-compliance.

Interference with acquittal on grounds of perversity - Prima facie satisfaction for grant of leave under Section 378(4) Cr.P.C. - Credibility and capacity of complainant in prosecution under Section 138 of the Negotiable Instruments Act - Presumption of innocence following acquittal

Interference with acquittal on grounds of perversity - Prima facie satisfaction for grant of leave under Section 378(4) Cr.P.C. - Credibility and capacity of complainant in prosecution under Section 138 of the Negotiable Instruments Act - Presumption of innocence following acquittal - Leave under Section 378(4) Cr.P.C. to file an appeal against the trial court's acquittal under Section 255(1) Cr.P.C. in a complaint under Section 138 of the N.I. Act was not to be granted. - HELD THAT: - The trial court's acquittal was founded on the complainant's own admissions and the evidence that materially undermined his capacity and credibility to have advanced the alleged loan: admitted financial distress, pending recovery/attachment proceedings, minimal bank balance in November 2005, delayed issuance of the cheque (dated February 2007 for a transaction said to have occurred in November 2005), and inconsistent or uncorroborated proof of drawal. The Magistrate also accepted the defence version that the cheque may have been procured clandestinely. Applying the established principle that appellate interference with an acquittal is permissible only in exceptional circumstances where the judgment is perverse, the petitioner failed to demonstrate any compelling or substantial reason to treat the trial court's finding as perverse. On the material before the High Court there was no prima facie case to grant special leave to appeal: the double presumption of innocence post-acquittal and the trial court's assessment of witness credibility and probabilities weighed against interference. [Paras 4, 5, 6]

Special leave to file an appeal against the order of acquittal is refused and the criminal leave petition is dismissed.

Final Conclusion: The petition for special leave to appeal against the acquittal recorded by the trial court in the Section 138 N.I. Act prosecution is dismissed for want of a prima facie case to show perversity or other exceptional circumstances warranting interference.

Bona fide dispute - security for the claim - winding up petition by an unsecured creditor - relegation to suit - exercise of judicial discretion on admission to winding up - finality of order acted upon

Winding up petition by an unsecured creditor - security for the claim - bona fide dispute - Effect of securing the creditor's claim on the maintainability of a winding up petition by an unsecured creditor - HELD THAT: - The Court held that once an unsecured claim is secured the statutory bar operates to debar the creditor's winding up petition irrespective of whether the underlying dispute is bona fide. The learned Single Judge, although not satisfied with the company's defence, afforded the company an opportunity to secure the claim; the company furnished a bank guarantee and thereby availed the protection contemplated by the statute. That step precluded continuation of the winding up proceeding and removed the basis for admission of the petition.

Securing the claim by furnishing the bank guarantee debarred the winding up petition and precluded its admission.

Relegation to suit - bona fide dispute - exercise of judicial discretion on admission to winding up - Whether the learned Single Judge erred in relegating the parties to suit after finding the defendant could not demonstrate a bona fide defence and ordering security - HELD THAT: - The Court applied the analogy of the eventualities discussed in Kiranmayee Devi concerning summary disposal and bona fide defences, and observed that the learned Judge's direction to allow the company to secure the claim was an indulgence consonant with statutory protection. The power to admit or refuse a winding up petition is discretionary; the appellate court's role is confined to testing whether that discretion was exercised judiciously or perversely. The Court found no perversity or illegality in the Single Judge's exercise of discretion and therefore declined to interfere.

No interference with the Single Judge's order relegating the parties to suit on the condition of security; the exercise of discretion was proper.

Finality of order acted upon - security for the claim - Consequences of the company having acted upon the Single Judge's order by furnishing the bank guarantee before the filing of the appeal - HELD THAT: - The Court noted that the company furnished the bank guarantee before the present appeal was filed and that the order had been acted upon. The consequence of such action was to render the Single Judge's direction final in effect, because the statutory consequence of securing the claim precludes the creditor's remedy of winding up. The Court therefore treated the admission-stage discretion as having reached final effect once compliance occurred, and saw no basis to set it aside.

The order reached finality by being acted upon; furnishing the bank guarantee defeated the winding up remedy and foreclosed interference.

Final Conclusion: The appeal is dismissed. The Single Judge rightly allowed the company to secure the claim and relegated the parties to suit; the statutory consequence of securing the claim debarred the winding up petition and the appellate court will not disturb the exercise of discretion which was not shown to be perverse. There will be no order as to costs; an unconditional stay of operation of the judgment and order for one month was directed.

Power of High Court to transfer criminal cases and appeals under its supervisory and administrative jurisdiction - Exercise of superintendence under Article 227 and administrative control under Article 235 - Transfer of cases under Section 407 Cr.P.C. for ends of justice and general convenience - Administrative designation of a particular court to try interlinked offences - Validity and effect of executive notification issued pursuant to a Full Court resolution empowering a Special Judge to try related matters

Power of High Court to transfer criminal cases and appeals under its supervisory and administrative jurisdiction - Transfer of cases under Section 407 Cr.P.C. for ends of justice and general convenience - Exercise of superintendence under Article 227 and administrative control under Article 235 - Whether the High Court has jurisdiction to transfer criminal cases and direct that a Special Judge try cases under FERA/FEMA. - HELD THAT: - The Court considered Section 407 Cr.P.C. read with Articles 227 and 235 and held that the High Court, both administratively and judicially, possesses authority to transfer criminal cases pending before one competent court to another competent court within its territorial jurisdiction. The power includes ordering that particular categories of cases be heard by a designated court where it appears necessary in the interests of justice, for general convenience, or where questions of law of unusual difficulty may arise. The petitioner's counsel did not dispute the legal proposition that the High Court may exercise such powers. The Full Court's resolution empowering the Special Judge to try FERA/FEMA matters falls within the Court's administrative competence to allocate matters of a particular nature to a particular court.

High Court's power to transfer and direct trial by a Special Judge is validly exercisable; no interference with that jurisdiction is warranted.

Administrative designation of a particular court to try interlinked offences - Validity and effect of executive notification issued pursuant to a Full Court resolution empowering a Special Judge to try related matters - Whether the notification dated 17.05.2002 authorising the Special Judge to try cases under FERA/FEMA is without jurisdiction and whether transfer of the complaint to the Special Judge caused illegality or prejudice to the petitioners. - HELD THAT: - The Court noted that the impugned notification was issued pursuant to the Full Court resolution of 25.04.2002 and the Registrar General's communication. Given the High Court's admitted authority to allocate and transfer cases, the fact that the notification implemented the Full Court's administrative decision did not render the Special Judge's jurisdiction invalid. The earlier orders upholding cognizance taken by the Special Judge attained finality and were not challenged before the Supreme Court. The High Court therefore found no illegality in transferring an interlinked FERA/FEMA complaint to the Special Judge handling related fodder-scam matters, and the petitioners were not shown to be aggrieved by that transfer.

Impugned notification does not vitiate the Special Judge's jurisdiction; no interference is called for. The proceedings before the Special Judge shall continue and the interim order previously in place is vacated.

Final Conclusion: Writ petition dismissed. The Full Court's allocation of interlinked FERA/FEMA matters to the Special Judge was within the High Court's administrative and judicial powers; the notification issued pursuant thereto does not invalidate the Special Judge's jurisdiction. The Special Judge is directed to proceed with the trial without undue delay and the interim order is vacated.

Liability for interest under Section 75 of the Finance Act, 1994 - interest for late payment - payment after confirmation by lower authorities - withdrawal of appeal - dismissal as withdrawn

Liability for interest under Section 75 of the Finance Act, 1994 - payment after confirmation by lower authorities - withdrawal of appeal - Whether the appeal against the demand of interest for late payment for April 2009 to September 2009 could be pursued after the confirmed demand had been paid and the appellant sought withdrawal. - HELD THAT: - The Tribunal recorded that the demand for interest assessed under Section 75 had been confirmed by the adjudicating authority and the first appellate authority, and that the appellant had produced a receipt showing payment of the amount. The appellant expressly asked to withdraw the appeal in view of the payment. The Bench noted the payment and acceded to the appellant's request to withdraw the challenge to the confirmed demand, without undertaking fresh adjudication on the merits of the liability.

Appeal dismissed as withdrawn on the appellant's request, the confirmed interest having been paid.

Final Conclusion: The appeal challenging the interest demand for April 2009 to September 2009 was dismissed as withdrawn because the appellant produced proof of payment of the amount confirmed by the lower authorities and elected to withdraw the appeal.

Service tax liability on renting of premises collected by landlord - refund of service tax paid to landlord - retrospective amendment of Section 65(105)(zzzz) by Finance Act, 2010 with effect from 01.06.07 - denial of refund in view of retrospective statutory amendment

Service tax liability on renting of premises collected by landlord - refund of service tax paid to landlord - retrospective amendment of Section 65(105)(zzzz) by Finance Act, 2010 with effect from 01.06.07 - Refund claim for service tax paid by the appellant to the landlord was not allowable in view of the retrospective amendment. - HELD THAT: - The appellant claimed refund of service tax allegedly illegally collected by the landlord. The Tribunal noted that the controversy regarding liability was addressed by a retrospective amendment effected by the Finance Act, 2010 which makes Section 65(105)(zzzz) operate with effect from 01.06.07. In consequence, the statutory amendment validates the service tax liability as charged and collected, and the Tribunal saw no reason to interfere with the concurrent findings of the authorities below even though the first appellant authority had relied upon a different ground. The retrospective operation of the legislative amendment is dispositive of the claim for refund. [Paras 4, 5]

Appeal dismissed; refund claim rejected as barred by the retrospective amendment.

Final Conclusion: The appeal is dismissed as devoid of merits because the Finance Act, 2010 retrospectively amended the relevant provision to validate the service tax liability, negating the appellant's refund claim.

Remand for fresh adjudication - principles of natural justice - waiver of pre-deposit - reconciliation of balance sheet and ST-3 returns - deduction for sundry debtors and sundry creditors - adjustment of value for supplies to SEZ - imposition of penalty under Section 76

Reconciliation of balance sheet and ST-3 returns - deduction for sundry debtors and sundry creditors - adjustment of value for supplies to SEZ - waiver of pre-deposit - principles of natural justice - remand for fresh adjudication - Whether the adjudication in respect of discharge of differential service tax liability for 2005-06 to 2006-07 should be reconsidered by the adjudicating authority after permitting production and consideration of reconciliation and supporting documents, and whether pre-deposit should be waived pending appeal. - HELD THAT: - The Tribunal found that the lower authorities recorded the appellant's submissions in summary fashion without detailing or considering the documents said to have been filed in support of reconciliations between balance sheet figures and ST-3 returns, claimed deductions for sundry debtors and creditors, and reduction in value for supplies to SEZ. Because the adjudicating authority's order and the first appellate order do not reflect examination of the documentary material, the Tribunal declined to decide the merits and concluded that the matter requires fresh consideration. The Tribunal allowed the application for waiver of pre-deposit and took up the appeal for disposal, and directed that the adjudicating authority reconsider the issue afresh after giving the appellant an opportunity to produce and rely upon the documents and after following the principles of natural justice. No opinion was expressed on the substantive entitlement to deductions or adjustments. [Paras 2, 4, 5]

Impugned orders set aside and matter remanded to the adjudicating authority for fresh adjudication after allowing production of documents and observing principles of natural justice; pre-deposit waived and all issues kept open.

Imposition of penalty under Section 76 - remand for fresh adjudication - Whether the Revenue's appeal against non-imposition of penalties under Section 76 should be allowed and the question of penalty remanded to the adjudicating authority in light of remand in the assessee's appeal. - HELD THAT: - The Tribunal noted that the Revenue's appeal challenged the non-imposition of penalties under Section 76 in respect of the same impugned order which the Tribunal set aside and remanded in the assessee's appeal. Having remanded the substantive matter to the adjudicating authority and kept all issues open, the Tribunal found it appropriate to allow the Revenue's appeal to the extent of setting aside the impugned order on the penalty point and remanding the issue of imposition of penalties back to the adjudicating authority for fresh consideration consistent with the remand in the assessee's case. [Paras 6]

Revenue's appeal allowed; impugned order set aside and issue of imposition of penalties remanded to the adjudicating authority for fresh consideration.

Final Conclusion: Both the assessee's and the Revenue's appeals are allowed to the extent that the impugned orders are set aside and the matters are remanded to the adjudicating authority for fresh adjudication after following principles of natural justice; pre-deposit in the assessee's appeal was waived and all issues have been kept open.

Ineligibility for abatement - waiver of pre-deposit - remand for fresh consideration - deposit on terms - principles of natural justice

Ineligibility for abatement - remand for fresh consideration - principles of natural justice - Whether the appellant may be permitted to agitate the question of eligibility for 67% abatement before the adjudicating authority despite not having raised it earlier - HELD THAT: - The Tribunal found that the core controversy concerns the appellant's entitlement to claim 67% abatement on materials supplied for rendering repair and maintenance and related services. The appellant conceded that this point was not raised before the adjudicating authority and that the first appellate authority declined to entertain it for that reason. In the interest of justice the Tribunal allowed the appellant an opportunity to have the matter considered on merits by remanding the appeal to the adjudicating authority. The Tribunal imposed terms to ensure appearance and prosecution of the point: the appellant is directed to deposit an amount as a condition precedent and to report compliance by a specified date. The adjudicating authority is required to consider afresh all points raised by the appellant and to apply the principles of natural justice before arriving at a conclusion.

Appeal remanded to the adjudicating authority for fresh consideration of the appellant's claim for abatement on merits, subject to the appellant depositing Rs. 1,00,000 within four weeks and reporting compliance by 16.01.2013; adjudicating authority to decide after observing principles of natural justice.

Final Conclusion: Stay petition for waiver of pre-deposit allowed to the extent that the appeal is remanded to the adjudicating authority to decide the abatement eligibility on merits; remand is subject to the appellant depositing Rs. 1,00,000 within four weeks and reporting compliance by 16.01.2013, and the adjudicating authority to decide after affording natural justice.

Pre-deposit - remand for fresh consideration - natural justice - security of Revenue's interest - clearances without BIS certification

Pre-deposit - security of Revenue's interest - Whether the appeals could be entertained despite dismissal by the first appellate authority for non-compliance with the pre-deposit direction and whether pre-deposit could be further insisted upon - HELD THAT: - The Tribunal observed that the first appellate authority dismissed the appeals for non compliance and did not consider the merits. The main appellant had deposited approximately fifty percent of the duty demand, which the Tribunal held to be sufficient to secure the Revenue's interest. In view of that security and because the first appellate authority had not proceeded to adjudicate the merits, the Tribunal set aside the impugned orders and remitted the matters for fresh consideration without insisting on any further pre deposit from the appellants. [Paras 2, 3, 4]

Impugned orders set aside and appeals remitted to the first appellate authority to reconsider without insisting on any pre deposit.

Remand for fresh consideration - natural justice - clearances without BIS certification - Scope and directions on remand to the first appellate authority in respect of clearances of Submersible Water Pumps without BIS certificates - HELD THAT: - The Tribunal remitted the matters to the first appellate authority to reconsider the issue of clearances of Submersible Water Pumps without BIS certificates on merits. The Tribunal directed that the first appellate authority shall follow the principles of natural justice in the re hearing and the appellants were directed to cooperate and attend personal hearings when called. The remand was for fresh consideration on merits and not merely for quantification. [Paras 3, 4]

Matter remitted for fresh consideration on merits; first appellate authority to afford hearings in accordance with principles of natural justice and the appellants to cooperate.

Final Conclusion: The Tribunal allowed the appeals by setting aside the orders of the first appellate authority and remitting the matters for fresh consideration on the merits without requiring further pre deposit, holding that the deposit already made sufficiently secured the Revenue's interest and directing the first appellate authority to observe principles of natural justice on re hearing.

Excisability of fresh mushrooms under the Central Excise Tariff - effect of transitional re classification (six digit to eight digit) - no substantive change - binding effect of appellate authority's order on subordinate adjudicating authorities - proviso to Section 3(1) of the Central Excise Act - application where excise duty is Nil - limits of power under Section 11A of the Central Excise Act to reopen assessments in face of accepted appellate orders

Excisability of fresh mushrooms under the Central Excise Tariff - effect of transitional re classification (six digit to eight digit) - no substantive change - Whether fresh mushrooms were excisable before the 2004 amendment and whether the 2004 amendment made them excisable for the first time - HELD THAT: - Chapter note 1 to Chapter 7 prior to the 2004 amendment expressly included edible mushrooms within Chapter 7; dried mushrooms fell under heading 07.01 and fresh mushrooms under heading 07.02, both carrying Nil excise duty. The 2004 Amendment merely converted six digit entries to eight digit entries to align with the Customs Tariff and was a technical re classification, not a substantive change bringing new goods within excise. The Revenue's contention that fresh mushrooms became excisable only after 28th February 2005 is therefore unsustainable. The earlier proceedings and the order of the Commissioner (Appeals) proceeded on the footing that fresh mushrooms were excisable but at Nil rate. [Paras 22, 24, 31]

Fresh mushrooms were excisable under the Central Excise Tariff prior to the 2004 amendment and the 2004 amendment did not make them excisable for the first time.

Binding effect of appellate authority's order on subordinate adjudicating authorities - proviso to Section 3(1) of the Central Excise Act - application where excise duty is Nil - limits of power under Section 11A of the Central Excise Act to reopen assessments in face of accepted appellate orders - Whether the Assessing Officer could, after the Commissioner (Appeals)'s order dated 27th May 2004 (accepted by the Revenue), issue notices and confirm demands under Section 11A for DTA clearances of fresh mushrooms effected after the 2004 amendment - HELD THAT: - It is a principle of judicial discipline that subordinate authorities must follow orders of higher appellate authorities. The Commissioner (Appeals) held on 27th May 2004 that even if fresh mushrooms were excisable, the Nil rate under the tariff meant no excise liability equivalent to customs duty under the proviso to Section 3(1) for DTA clearances by a 100% EOU. That decision was accepted by the Revenue and therefore binding on the assessing authorities until reversed by a competent authority. Amendment of Section 11A (allowing reopening for one year) does not empower the AO to disregard an accepted appellate order; the power under Section 11A cannot be exercised to demand duty contrary to a binding appellate decision unless that decision has been set aside. [Paras 26, 33, 34, 36]

The AO was bound by the Commissioner (Appeals)'s order dated 27th May 2004; therefore the demands and penalties confirmed by the AO for the specified DTA clearances (challenged here) that contradicted that accepted appellate order cannot be sustained.

Final Conclusion: The appeal is allowed; the demands and penalties confirmed by the adjudicating authorities in respect of the impugned DTA clearances (for the specified periods) that were contrary to the Commissioner (Appeals)'s order of 27th May 2004 (which was accepted by the Revenue and binding until set aside) are quashed.

Pre-deposit condition for stay - non-compliance with Tribunal's pre-deposit direction - dismissal of appeal for non-compliance - miscellaneous application for modification of pre-deposit order - extension of time for compliance

Pre-deposit condition for stay - non-compliance with Tribunal's pre-deposit direction - dismissal of appeal for non-compliance - Validity of the Commissioner (Appeals) order dismissing the appeal for non-compliance with the Tribunal's direction to pre-deposit the entire duty liability - HELD THAT: - The Tribunal's earlier order dated 15.7.2011 directed the appellant to deposit the entire duty liability within eight weeks and report compliance to the Commissioner (Appeals) to enable adjudication on merits. The appellant's miscellaneous application for modification of the pre-deposit direction was dismissed by this Bench on 10.10.2011. The first appellate authority granted personal hearing on 07.02.2012, at which the appellant's representative stated that the pre-deposit had not been made; the appeal was dismissed on 09.02.2012 for non-compliance. The appellant's subsequent deposit on 22.03.2012 occurred after the dismissal and there is no record of any application to the Tribunal for extension of time to comply with the pre-deposit direction. In these circumstances, and having regard to consistent treatment of identical issues by this Bench, the Commissioner (Appeals) was correct in refusing to decide the appeal on merits and dismissing it for non-compliance with the Tribunal's pre-deposit direction. [Paras 6, 7, 8]

Appeal rejected; impugned order upheld as correct and legal for non-compliance with the Tribunal's pre-deposit direction.

Final Conclusion: The appeal is dismissed; the Commissioner (Appeals) correctly dismissed the appeal for failure to comply with the Tribunal's pre-deposit direction, there being no timely deposit or application for extension, and the impugned order is affirmed.