TaxTMI Updates e-Newsletter
Jan 04,2021

Principles of natural justice - power to grant adjournment where sufficient cause is shown under Section 75(5) - right to personal hearing - quashing and remand for fresh consideration subject to terms

Principles of natural justice - power to grant adjournment where sufficient cause is shown under Section 75(5) - right to personal hearing - Whether the respondent violated principles of natural justice by rejecting the petitioner's requests for further time and not affording a fair hearing before passing the impugned assessment orders. - HELD THAT: - The Court found that the petitioner had sought extension of time by representations dated 26.10.2019 and 11.11.2019 to consult their auditor and to reply to numerous defects (33 for 2017-18 and 38 for 2018-19) arising from a 22-day spot inspection. Section 75(5) (in pari materia) confers power on the officer to grant time where sufficient cause is shown and permits up to three adjournments. The reasons given by the petitioner-need to consult the auditor in view of many defects-were held to be genuine and constituted sufficient cause. The respondent did not record any consideration of the genuineness of those reasons in correspondence or in the impugned orders, and no reasons were given in the assessment orders for rejecting the requests. Given the short interval between the show cause notice (11.10.2019) and the assessment orders (19.11.2019), and the failure to grant or to record reasons for refusing adjournment or to afford a fair hearing, the Court held that principles of natural justice had been violated. [Paras 11, 12, 13, 14]

Petition allowed on this ground: the respondent violated principles of natural justice by not granting or properly considering the petitioner's requests for adjournment and by not affording a fair hearing.

Quashing and remand for fresh consideration subject to terms - right to personal hearing - Relief to be granted in consequence of the violation: whether the impugned assessment orders should be quashed and the matter remitted for fresh adjudication, and on what terms. - HELD THAT: - Having concluded that principles of natural justice were breached, the Court exercised its supervisory jurisdiction to quash the impugned assessment orders dated 19.11.2019 for AY 2017-2018 and 2018-2019 and remanded the matter to the respondent for fresh consideration. In view of the magnitude of the tax demand, the Court imposed a condition to balance interests: the petitioner was directed to pay a specified sum to the respondent by a stated date. On receipt of that payment the assessment orders were to be quashed and the respondent directed to pass final orders on merits after affording sufficient opportunity and granting the petitioner the right of personal hearing within twelve weeks. [Paras 16, 17]

Impugned assessment orders quashed and the matter remanded for fresh consideration; quash to operate on receipt of the directed deposit and fresh final orders to be passed after affording personal hearing within twelve weeks.

Final Conclusion: The writ petitions are allowed. The Court held that the respondent violated principles of natural justice by refusing to consider the petitioner's genuine requests for adjournment and by not affording a fair hearing; the assessment orders dated 19.11.2019 for AY 2017-2018 and 2018-2019 are quashed on condition of the directed deposit and the matter is remanded for fresh adjudication after granting personal hearing within twelve weeks.

Violation of principles of natural justice - Insufficiency of opportunity to reply to show cause notice - Right to personal hearing - Quashing and remand for fresh consideration - Conditional quashing subject to payment/deposit

Violation of principles of natural justice - Insufficiency of opportunity to reply to show cause notice - Assessment orders passed without affording sufficient opportunity and thereby violating principles of natural justice - HELD THAT: - The Court examined the chronology: show cause notices issued on 03.08.2020, petitioner sought copies and time by representation dated 06.10.2020, documents relied on were furnished to the petitioner on 20.10.2020 and the impugned assessment orders were passed on 31.10.2020. A detailed reply was prepared by the petitioner and dispatched (postal receipt showing despatch on 02.11.2020) but was not considered before passing the orders. In these circumstances the Court concluded that adequate time was not given to the petitioner to consider the documents furnished on 20.10.2020 and to raise objections, and that the orders were passed without affording meaningful opportunity of reply or to have objections considered, contrary to the requirements of natural justice. [Paras 11, 12]

Impugned assessment orders suffer from breach of natural justice and cannot stand.

Quashing and remand for fresh consideration - Conditional quashing subject to payment/deposit - Right to personal hearing - Appropriate remedial order - quashment of assessment orders subject to payment and remand for fresh adjudication with opportunity and personal hearing - HELD THAT: - Instead of outright setting aside the assessments, the Court directed conditional relief: each impugned assessment order is quashed on compliance by the petitioner of a specified payment within a stipulated period. On such payment the matters are remanded for fresh consideration on merits and in accordance with law. The respondent is directed to grant the petitioner adequate opportunity to raise all objections and to afford the right of personal hearing within twelve weeks from the date of payment. The Court also provided that failure to comply with the payment condition would result in dismissal of the writ petitions. [Paras 13, 14, 15]

Each impugned assessment order is quashed conditionally upon the petitioner making the directed payment; matters remanded for fresh consideration with opportunity to be heard and personal hearing to be afforded; non-payment results in dismissal.

Final Conclusion: The Court found that the impugned assessment orders for AYs 2017-18, 2018-19 and 2019-20 were passed in breach of natural justice for lack of adequate opportunity; it quashed those orders conditionally upon specified payment by the petitioner and remanded the matters for fresh adjudication, directing the authority to grant full opportunity, including personal hearing, within the prescribed period; failure to comply with the payment condition will lead to automatic dismissal of the petitions.

Allowability of prior-period employee reimbursements and professional charges - deduction under the special provision for SEZ development and allocation of overheads to group companies - revenue recognition under percentage of completion method (POCM) including inclusion of budgeted internal development charges (IDC) - treatment of brokerage and commission as selling cost (revenue expense) v. capitalisation to project cost - capitalisation of interest as borrowing cost vis-a -vis deduction under section 36(1)(iii) - taxation timing of late construction charges (accrual v. recognition on ascertainment of right) - treatment of customer deposits (contingency/registration/security) as liabilities v. revenue - application of section 14A and Rule 8D for disallowance in respect of exempt income - allowability of pre operative/legal/professional expenditure on projects not commenced - classification of receipts from properties: income from house property v. business income - notional rent/additional annual letting value where properties are vacant - deductibility of interest on late deposit of TDS - whether short payment of dividend distribution tax can be assessed as income

Allowability of prior-period employee reimbursements and professional charges - Deletion of addition disallowing prior period expenses claimed in the year when bills were settled. - HELD THAT: - Tribunal followed coordinate bench precedents in the assessee's own case and accepted that amounts crystallized and settled in the year under assessment (telephone, travel reimbursements, legal and professional charges and similar items) were properly allowable in that year. The AO's disallowance was set aside as factual findings established that these amounts were paid/verified and legitimately claimed in the relevant year and that earlier decisions (including Modipon and earlier ITAT findings in the assessee's case) supported deletion.

Addition of Rs. 3,09,16,658/- deleted; ground dismissed.

Deduction under the special provision for SEZ development and allocation of overheads to group companies - Deletion of addition disallowing deduction under section 80IAB / disallowance for non allocation of overheads to group companies. - HELD THAT: - Tribunal followed coordinate bench findings in the assessee's own case. The CIT(A) and Tribunal accepted factual matrix that (i) allocation practice had changed and group entities were self sufficient post 2006, (ii) special auditors did not produce voucher level evidence to show items were not incurred for the assessee's business, and (iii) revenue neutrality and prior consistent treatment militated against disallowance. On that basis the disallowance was deleted.

Revenue grounds (including Rs. 7,72,65,10,922/- issue and short allocation of overheads) dismissed; deletion upheld.

Revenue recognition under percentage of completion method (POCM) including inclusion of budgeted internal development charges (IDC) - Deletion of addition made by AO for replacing budgeted IDC with actual IDC and for preponement of construction costs under POCM. - HELD THAT: - Tribunal followed earlier coordinate bench decisions accepting that budgeted IDC formed part of total project cost for POCM recognition, that budgeted IDC was prepared on a scientific basis and had longstanding acceptance, and that shifting of certain labour/material costs by special auditors was inadmissible where liabilities crystallized in later year. Consequently additions based on substituting budgeted IDC with actual lesser payments and on preponement were deleted.

Addition of Rs. 42,92,17,872/- (composite) deleted; ground dismissed.

Treatment of brokerage and commission as selling cost (revenue expense) v. capitalisation to project cost - Partial deletion: brokerage/commission paid for sale of flats treated as revenue selling expenses and allowed; brokerage for giving property on lease disallowed as not allowable against house property income. - HELD THAT: - Applying accounting standards and prior precedents in the assessee's own case, Tribunal/CIT(A) accepted that brokerage for sale is a selling expense allowable in year incurred (cannot be capitalised to inventory under AS 2/AS 7), and followed coordinate bench rulings in earlier years. However, brokerage paid for obtaining tenants (lease) related to income under 'house property' and was not an allowable deduction except statutory allowances; that part was correctly disallowed.

Disallowance restricted and largely deleted; ground dismissed.

Capitalisation of interest as borrowing cost vis-a -vis deduction under section 36(1)(iii) - Deletion of AO's additional notional capitalisation of interest; interest treated as allowable under section 36(1)(iii) where applicable. - HELD THAT: - Tribunal relied on coordinate bench and High Court precedents that interest on funds used for inventory/stock in trade in construction business is deductible under section 36(1)(iii) and accounting standards cannot override the Act. The AO's presumption based further capitalisation lacked nexus and scientific basis; moreover overall interest position (interest received v. interest paid and prior capitalization) indicated no justification for further notional capitalization.

Addition of Rs. 54,683,000/- deleted; ground dismissed.

Taxation timing of late construction charges (accrual v. recognition on ascertainment of right) - Deletion of addition of late construction charges claimed by AO; income recognised only when right to receive crystalised (post Supreme Court decision). - HELD THAT: - Following coordinate bench and Supreme Court jurisprudence, Tribunal/CIT(A) held that late construction charges did not accrue until the assessee had an enforceable right (which arose only after Supreme Court decision). Therefore amounts retained during litigation were appropriately shown as liabilities until the right crystallised and were not assessable in earlier years.

Addition (late construction charges) deleted; ground dismissed.

Treatment of customer deposits (contingency/registration/security) as liabilities v. revenue - Deletions confirmed for contingency deposits, interest free security deposits and registration charges - treated as liabilities/custodial receipts, not assessable revenue. - HELD THAT: - Tribunal followed coordinate bench precedents holding that (i) contingency and interest free security deposits received per sale agreements were maintained in distinct accounts and refundable/transferable to resident associations and thus not income of the assessee, and (ii) registration charges collected to meet registration/franking obligations are pass through liabilities with regular movements and therefore not assessable receipts.

Additions deleted; grounds dismissed.

Application of section 14A and Rule 8D for disallowance in respect of exempt income - Deletion of interest component of section 14A disallowance; computation of administrative expenditure disallowance under Rule 8D remitted to AO for recomputation restricted to investments yielding exempt income. - HELD THAT: - Tribunal accepted coordinate bench analysis that (i) interest disallowance under section 14A was not attracted where sufficient interest free funds were available (and on facts interest disallowance was nominal or nil), and (ii) in computing the Rule 8D average investments the AO must include only investments that actually yielded exempt income; accordingly the administrative expense component was set aside and directed back to AO to recompute with that limitation.

Interest disallowance deleted; administrative expense disallowance under Rule 8D(2)(iii) set aside to AO for recomputation.

Allowability of pre operative/legal/professional expenditure on projects not commenced - Deletion of AO's capitalisation of legal/professional expenses incurred for proposed projects; treated as revenue expenditure. - HELD THAT: - Tribunal and CIT(A) accepted that expenses incurred for feasibility, valuations, joint venture documentation and legal/professional work in relation to expansion in same line of business, where projects did not commence or were abandoned at consultancy stage, are revenue in nature and not pre operative capitalisable costs.

Addition/deletion reversed; ground dismissed.

Classification of receipts from properties: income from house property v. business income - CIT(A) and Tribunal confirmed that rental receipts from properties shown as stock in trade/held for business in the balance sheet were correctly characterised as income from house property (for certain properties) and the AO's reclassification was not sustained. - HELD THAT: - Relying on prior ITAT findings in the assessee's case and relevant precedents, Tribunal accepted the company's consistent accounting and tax treatment and held that for properties owned and reflected in balance sheet as stock in trade, rental income was assessable under head 'house property' as per factual matrix and earlier decisions.

AO's reclassification deleted; ground dismissed.

Notional rent/additional annual letting value where properties are vacant - Deletion of addition computed as notional rent for vacant properties where there was bona fide intention and steps to let but suitable tenant was not available. - HELD THAT: - Tribunal followed coordinate bench and CIT(A) reasoning that under section 23(1)(c) where actual rent receivable/received is nil for vacant property and the assessee had bona fide intention/steps to let, annual letting value should be treated as nil; applying earlier precedents in the assessee's group, the notional addition was deleted.

Notional rent additions deleted; ground dismissed.

Deductibility of interest on late deposit of TDS - Confirmation of AO/CIT(A) that interest on late deposit of TDS is not an allowable business expenditure under section 37 (held non deductible on the facts and in view of Madras High Court precedent). - HELD THAT: - Although Tribunal considered contrary views from other benches, it followed the Madras High Court decision reasoning that interest under section 201(1A) takes colour from the principal (income tax/TDS) and partakes character of tax/penalty and thus is not deductible as business expenditure. On that basis the CIT(A) order confirming disallowance was upheld.

Disallowance of set off/claim for interest on late TDS deposit upheld; ground dismissed.

Whether short payment of dividend distribution tax can be assessed as income - Addition made by AO treating short deposit/short payment of Dividend Distribution Tax as the assessee's income disallowed. - HELD THAT: - Tribunal held there was no provision in the Income tax Act by which a short payment of DDT could be converted into the assessee's taxable income. Provisions concerning DDT (sections 115O/115P/115Q) and recovery mechanisms (Chapter XVII D) provide for demand, interest, recovery and penal consequences but do not render a shortfall as assessable income. As AO and CIT(A) did not point to statutory basis for treating short DDT as income, the addition could not be sustained.

Addition of Rs. 4,61,57,388/- deleted; assessee's ground allowed.

Reasonableness of payments to related parties under section 40A(2)(a) - Deletion of AO's disallowance for alleged excess rent paid to a related person where AO failed to demonstrate market rate unreasonableness. - HELD THAT: - Tribunal applied statutory test under section 40A(2): AO must establish that payment was excessive/unreasonable having regard to fair market value, business needs or benefit accrued. Here AO relied on year to year comparison without adducing market comparables or other material; CIT(A)'s deletion was sustained as AO did not discharge statutory burden.

Addition of Rs. 3,48,396/- deleted; ground dismissed.

Disallowance for expenses where bills not in assessee's name - Deletion of AO's additions where expenditure related to assessee's business despite bills being in earlier tenants'/merged entities' names. - HELD THAT: - On facts and prior Tribunal decisions, CIT(A) found explanatory material showing the expenses pertained to premises used by the assessee (electricity/water) or were reimbursements to employees/group entities; mere absence of assessee's name on invoices did not justify disallowance where connection/billing arrangements and usage were explained and supported.

Addition deleted; ground dismissed.

Final Conclusion: ITAT (Mumbai) followed coordinate bench precedents in the assessee's own case and other binding authorities: revenue's appeal (ITA No. 4436/Del/2013) is dismissed in entirety; assessee's cross appeal (ITA No. 4061/Del/2013) is partly allowed - key deletions include prior period expenses, POCM/IDC adjustments, brokerage (save lease related brokerage), interest capitalisation, late construction charges, various deposits and registration charges and short payment of DDT; section 14A administrative expense component remitted to AO for recomputation restricted to investments that yielded exempt income; several factual additions confirmed where supported by law (notably interest on late TDS under cited High Court precedent).

Mandamus - statutory appeal - stay application - payment of pre-deposit for stay - expeditious disposal - affording opportunity on merits and in accordance with law

Mandamus - statutory appeal - expeditious disposal - affording opportunity on merits and in accordance with law - stay application - payment of pre-deposit for stay - Direction to the appellate authority to dispose of the statutory appeal filed on 08.01.2020 challenging the assessment order dated 21.12.2019 within a specified timeframe. - HELD THAT: - The petition sought a writ of mandamus for a direction to the second respondent to dispose of the statutory appeal filed on 08.01.2020. The petitioner also complained that its stay application had been returned on the ground that 20% of the disputed demand must be paid as per CBDT O.M. circulars. The Court observed that the relief sought was innocuous and that expeditious disposal of the appeal would cause no prejudice to the respondents. Having regard to the return of the stay application on the pre-deposit ground and the petitioner's grievance, the Court found merit in directing prompt adjudication. The Court required the second respondent to decide the appeal on merits after affording the petitioner a sufficient opportunity and in accordance with law, within a period of six weeks from receipt of the order. [Paras 6, 7]

The second respondent is directed to dispose of the statutory appeal filed on 08.01.2020, after affording opportunity on merits and in accordance with law, within six weeks from receipt of this order.

Final Conclusion: Writ petition allowed; second respondent directed to decide the appeal within six weeks; no costs.

Service of notice under section 148 is a jurisdictional requirement - mode of service under section 282(1) read with Order V Rules 12-17 CPC and Order III Rule 6 CPC - reassessment under section 147/148 invalid for defective service - addition as unexplained credit under section 68 - penalty under section 271(1)(c) deleted as consequential

Service of notice under section 148 is a jurisdictional requirement - mode of service under section 282(1) read with Order V Rules 12-17 CPC and Order III Rule 6 CPC - reassessment under section 147/148 invalid for defective service - Validity of reassessment proceedings where the notice under section 148 was returned as unserved and no further mode of service was shown to have been effected - HELD THAT: - The Tribunal found on the record that the notice issued under section 148 was returned unserved with postal remark 'no such person' and that the Assessing Officer did not effect service by any alternative mode prescribed under section 282(1) of the Act read with Order V Rules 12-17 CPC and Order III Rule 6 CPC. Service of the section 148 notice is a jurisdictional requirement; the burden is on the revenue to demonstrate proper service or service on an authorized agent. In the absence of any evidence of such service or of steps such as affixture or legally sanctioned substituted service, the reassessment was held to be without jurisdiction and unsustainable, and the addition based on the reassessment was therefore liable to be deleted. [Paras 8, 9]

Assessment framed under section 147/148 set aside for defective service of notice; impugned assessment and appellate orders cancelled and the addition deleted.

Penalty under section 271(1)(c) deleted as consequential - addition as unexplained credit under section 68 - Validity of penalty under section 271(1)(c) imposed on the deleted addition - HELD THAT: - The Tribunal adjudicated the penalty appeal consequentially. Having set aside the reassessment and deleted the addition which formed the basis of the penalty, the Tribunal held there was no foundation to sustain the penalty order. Therefore, the penalty confirmed by the CIT(A) was deleted. [Paras 11, 12]

Penalty under section 271(1)(c) deleted as consequential to the deletion of the addition.

Final Conclusion: The appeals are allowed: the reassessment completed under section 147/148 was quashed for defective service of notice and the addition as unexplained credit under section 68 deleted; consequentially the penalty under section 271(1)(c) is also deleted.

Unexplained investment assessed by comparing assets acquired with available funds - addition on account of cash deposit in bank account - income from undisclosed sources assessed by balancing investments and shown income - disallowance under provisions of Section 40A(3) and Section 40(a)(ia) of the Income Tax Act - rejection of books of accounts and assessment on available funds basis - enhancement of income by appellate authority under Section 251(2) requiring show cause notice - credit of opening cash in hand accepted in prior wealth tax assessment - assessment under Section 143(3) resulting in additions

Unexplained investment assessed by comparing assets acquired with available funds - addition on account of cash deposit in bank account - credit of opening cash in hand accepted in prior wealth tax assessment - Extent of additions made on account of unexplained deposits and undisclosed investments - HELD THAT: - The Tribunal found that the Assessing Officer made additions by treating the assessee's investments as unexplained after comparing total investments with the funds shown by the assessee. The assessee, however, had an earlier wealth tax assessment for the valuation date preceding the year under consideration in which cash in hand of a specified sum was accepted by the revenue. That admitted opening cash should be set off against the unexplained investment used to justify the additions. On that basis the Tribunal directed that the addition be restricted to the difference between the unexplained investment as determined by the AO and the cash in hand admitted in the prior wealth tax assessment, thereby substantially reducing the addition sustained by the revenue. [Paras 8]

Addition on account of unexplained deposits/investments is to be restricted by allowing credit of the opening cash in hand accepted in the prior wealth tax assessment; consequential reduction of the total addition was directed.

Enhancement of income by appellate authority under Section 251(2) requiring show cause notice - disallowance under provisions of Section 40A(3) and Section 40(a)(ia) of the Income Tax Act - rejection of books of accounts and assessment on available funds basis - Validity of enhancement made by the CIT(A) and of disallowances under Section 40A(3)/Section 40(a)(ia) where books are rejected and no show cause notice was issued by the appellate authority - HELD THAT: - The Tribunal held that an appellate authority proposing enhancement under the relevant statutory provision must issue a notice showing proposed reasons and quantum and afford a reasonable opportunity to the appellant, as mandated by the statutory scheme. In the present case the CIT(A) enhanced the income without issuing the statutory show cause notice and therefore the enhancement could not be sustained. Separately, because the Assessing Officer had rejected the books of account and completed assessment by comparing investments with available funds, the Tribunal held that making disallowances under Section 40A(3) or Section 40(a)(ia) (which presuppose a claim of expenditure) was not appropriate when the assessment is on the basis of unexplained investments and available funds; accordingly those disallowances/enhancement were held unsustainable. [Paras 9]

Enhancement by the CIT(A) without issuing the statutory show cause notice under the appellate provision is invalid; disallowances under Section 40A(3)/Section 40(a)(ia) are not sustainable where books are rejected and assessment is made by comparison of investments and available funds.

Final Conclusion: The appeal was partly allowed: the additions made by the Assessing Officer were substantially restricted by granting credit for opening cash in hand admitted in the prior wealth tax assessment, and the enhancement and disallowances effected by the CIT(A) without the statutory show cause notice (and inconsistent with assessment on available funds where books were rejected) were set aside.

Reassessment under section 147 - notice under section 148 - approval under section 151 - disposal of objections by speaking order - escape assessment - addition under section 69C

Reassessment under section 147 - notice under section 148 - disposal of objections by speaking order - approval under section 151 - Validity of reopening the assessment by issuance of notice under section 148 and related approval where objections to reopening were not disposed of by a speaking order and approval was recorded after issuance of notice. - HELD THAT: - The Tribunal examined the reasons recorded for reopening, the ordersheet entries relating to the assessee's objections and the approval by the higher authority. The Tribunal held that the Assessing Officer did not dispose of the objections filed against the reopening by passing a speaking order as required by judicial precedents, and therefore the reassessment proceedings were vitiated. The Tribunal also observed that the approval under the relevant provision was recorded on 28.03.2015 while the notice was dated 27.03.2015, rendering the approval ineffective to validate the earlier notice. Applying the principle that objections must be disposed of by a speaking order before proceeding with reassessment, the Tribunal declared the notice under section 148 null and void and cancelled the subsequent assessment framed thereunder. [Paras 12, 13, 14]

Notice under section 148 and the reassessment framed thereunder are null and void for failure to dispose of objections by a speaking order and for approval being recorded after issuance of the notice; reassessment cancelled.

Addition under section 69C - Sustainability of the addition made under section 69C treating claimed purchases as bogus in view of documentary evidence produced by the assessee. - HELD THAT: - On the merits, the Tribunal considered the documentary evidence produced by the assessee including ledger entries, bills and bank statements showing payments by cheque and noted that the Assessing Officer had not produced negative evidence to discredit those documents. Having regard to the material on record and the absence of contrary material from the AO, the Tribunal concluded that the addition treating the transactions as bogus was incorrect and liable to be cancelled. This finding was reached after considering the evidence notwithstanding the legal infirmity in reopening. [Paras 14]

Addition under section 69C treated as bogus is cancelled on merits for lack of adverse evidence and in view of documentary proof produced by the assessee.

Final Conclusion: The appeal is allowed: the notice under section 148 and the reassessment proceedings are quashed for failure to dispose of objections by a speaking order and for invalid approval; on merits the addition under section 69C is also deleted and the appeal is allowed.

Taxability of cost recharge as Fees for Technical Services (FTS) - Definition of Fees for Technical Services - "make available" requirement - Business income versus Fees for Technical Services - Permanent Establishment (PE) and Article 7 - Admission of additional ground and remand for de novo adjudication - Levy of surcharge and education cess on tax computed under DTAA - Consequential interest under section 234B

Taxability of cost recharge as Fees for Technical Services (FTS) - Definition of Fees for Technical Services - "make available" requirement - Business income versus Fees for Technical Services - Admission of additional ground and remand for de novo adjudication - Consulting and engineering service fees and the related common cost recharges raised to Buro India are restored to the Assessing Officer for fresh adjudication de novo. - HELD THAT: - The Tribunal admitted the assessee's additional ground challenging the taxability of consulting and engineering service fees. Following the Tribunal's earlier decision in the assessee's own case for AY 2014-15, the Bench observed that the question whether the receipts constitute FTS (including whether they "make available" technical knowledge, skill, know how or processes) or business income in the absence of a PE goes to the root of the assessment. Because the consulting engineering fee and the cost recharges were interlinked (the cost recharges treated as ancillary and incidental to consulting services), both issues are remitted to the file of the Assessing Officer for re adjudication afresh after affording the assessee an opportunity to substantiate its claim; the remand is directed to be undertaken in light of the earlier Tribunal decision relied upon by the assessee. [Paras 3]

Ground No.1 (including the additional ground on taxability of consulting and engineering services) is allowed for statistical purposes and both consulting fees and cost recharges are restored to the Assessing Officer for de novo adjudication.

Levy of surcharge and education cess on tax computed under DTAA - Surcharge and education cess cannot be levied on tax calculated at the special rates provided under the India UK DTAA. - HELD THAT: - Relying on co ordinate Tribunal precedents, the Bench held that when tax is computed under the DTAA at the special (treaty) rate, surcharge and education cess are not to be added to the meaning of 'tax' for the purpose of applying the treaty rate. No contrary decision was brought to the Tribunal's attention and the Tribunal, respectfully following the cited authorities, allowed the ground challenging levy of surcharge and education cess on DTAA taxed income. [Paras 4]

Ground No.2 is allowed - surcharge and education cess shall not be added when computing tax at DTAA rates.

Consequential interest under section 234B - Interest under section 234B is consequential in nature and will follow the outcome of tax adjudication. - HELD THAT: - The Tribunal noted that liability to interest under section 234B arises consequentially from determination of tax. Since taxability has been remitted for fresh adjudication (in respect of consulting fees and cost recharges) and DTAA treatment has been accepted for surcharge/cess issue, the question of interest under section 234B is consequential upon the final tax computation and will be dealt with consequent to the Assessing Officer's fresh adjudication or recomputation. [Paras 5]

Ground No.3 (chargeability of interest under section 234B) is consequential and will be determined in accordance with the final tax adjudication.

Final Conclusion: The appeal is partly allowed: the challenge to surcharge and education cess on tax computed under the DTAA is accepted; the issues concerning consulting and engineering fees and the related cost recharges are restored to the Assessing Officer for de novo adjudication after opportunity of hearing; interest under section 234B is consequential upon the final tax determination.

Arm's length price - Transfer pricing adjustment - Comparable selection and comparability adjustments - Transaction Net Margin Method (TNMM) - Operating Profit/Operating Cost (OP/OC) as profit level indicator - Inclusion of reimbursement in operating income - Direction to include a specified comparable and recompute ALP

Arm's length price - Transfer pricing adjustment - Comparable selection and comparability adjustments - Inclusion of reimbursement in operating income - Direction to include a specified comparable and recompute ALP - Whether the transfer pricing adjustment made in respect of business facilitation services for A.Y.2012-13 was sustainable and what remedial direction, if any, should be given to the Transfer Pricing Officer. - HELD THAT: - The Tribunal examined the assessee's adoption of TNMM with OP/OC as the PLI for its captive business facilitation services and the TPO's exclusion of infrastructure cost reimbursement from operating income, which produced an OP/OC of 11.67%. The TPO's final comparable set produced an arithmetic mean PLI of 18.61%, leading to an upward adjustment sustained by the DRP and incorporated in the assessment. The Tribunal noted that the assessee had originally selected a larger comparable set and had reserved rights to seek comparability adjustments (risk, functional and working capital) if required. Relying on the Tribunal's earlier direction in the assessee's own case for A.Y.2011-12, which had required inclusion of ICRA Online Ltd. as a comparable, and on the assessee's submission that inclusion of ICRA Online Ltd. would place its margin within the statutory +/-5% tolerance, the Tribunal directed the TPO to include ICRA Online Ltd. in the final list of comparables and to rework the arm's length price accordingly. In view of this direction, the Tribunal held that adjudication of the other contested comparability grounds would be academic and left them open for determination if necessary after recomputation. [Paras 4, 5]

The appeal is allowed by directing the Transfer Pricing Officer to include ICRA Online Ltd. in the final list of comparables and to recompute the arm's length price; other grounds raised on comparables are left open as academic.

Final Conclusion: The Tribunal allowed the appeal by directing the TPO to include ICRA Online Ltd. in the comparable set and to rework the arm's length price for the business facilitation services for A.Y.2012-13; consequent adjustment, if any, to be determined after recomputation, with other contested comparability issues left open.

Confirmation of addition for unexplained cash deposits - opportunity of being heard - powers of Commissioner of Income Tax (Appeals) to remit issues - remand to Assessing Officer for verification - admission of additional evidence on remand - fresh consideration on merits

Confirmation of addition for unexplained cash deposits - opportunity of being heard - Sustenance of addition of Rs. 1,92,717/- towards unexplained cash deposits and the plea that a hearing opportunity was not afforded. - HELD THAT: - The Tribunal recorded that neither the assessee nor its authorised representative appeared before the CIT(A) despite several opportunities. The contention that the CIT(A) failed to afford a reasonable opportunity therefore lacked merit. The CIT(A) had sustained the addition for lack of cogent evidence to substantiate the deposits; the Tribunal did not uphold the claim of denial of hearing and did not decide the substantive correctness of the addition on the merits but treated the procedural complaint as without substance in light of non-appearance.

The plea of denial of opportunity is rejected; the procedural objection to the confirmation of the addition has no merit.

Powers of Commissioner of Income Tax (Appeals) to remit issues - remand to Assessing Officer for verification - Validity of the CIT(A)'s remand of the issue relating to unsecured loans to the Assessing Officer for verification. - HELD THAT: - The Tribunal found that the CIT(A)'s act of remitting the unsecured loans issue to the Assessing Officer for verification was erroneous because the CIT(A) does not possess such power under the Act to remit that issue in the manner done. On this basis the Tribunal set aside the CIT(A)'s order to the extent it purported to remit only part of the matter, observing that such remand by the appellate authority was beyond its jurisdictional competence as exercised in the impugned manner.

The remand by the CIT(A) of the unsecured loans issue to the Assessing Officer is held to be erroneous.

Admission of additional evidence on remand - fresh consideration on merits - Appropriate course of action following procedural defects and the assessee's request to file additional evidence. - HELD THAT: - Considering the assessee's submission that additional evidence and confirmations are now available, the Tribunal set aside the CIT(A)'s order and remitted the entire appeal to the Assessing Officer for fresh consideration. The Tribunal directed that the assessee be given a fair opportunity of being heard and that additional evidence, if any, be admitted by the revenue authorities. The Tribunal further clarified that if the assessee or its counsel fail to cooperate before the CIT(A) in subsequent proceedings, the CIT(A) would be free to pass an appropriate order according to law and on the merits based on the materials then before him.

The matter is remitted to the Assessing Officer for fresh consideration permitting admission of additional evidence and ensuring a fair hearing; final adjudication to follow on the merits.

Final Conclusion: The Tribunal set aside the CIT(A)'s order and remitted the entire appeal to the Assessing Officer for fresh consideration permitting admission of additional evidence and directing that the assessee be afforded a fair opportunity to be heard; the plea of denial of hearing was rejected and the CIT(A)'s partial remand was held erroneous. The appeal is treated as allowed for statistical purposes.

Characterisation of transaction as investment or working capital advance - arm's length pricing - corporate guarantee - international transaction - principle of uniformity and consistency - disallowance under section 14A - no exempt income - computation of book profits under section 115JB - exclusion of section 14A disallowance from book profits

Characterisation of transaction as investment or working capital advance - arm's length pricing - Whether amounts transferred to related entities during the year are to be treated as working capital advances (subject to TP adjustment for interest) or as investments in equity - HELD THAT: - The Tribunal recorded that the assessee, in its TP documentation and replies, described the transfers as working capital advances, while also later asserting they were investments and alleging subsequent allotment of shares. The authorities below had not considered evidence (board resolutions and allotment documents) which were not placed on their records. Given the factual dispute over the true character of the transactions and absence of consideration of the alleged evidence by AO/TPO/DRP, the Tribunal held that the matter requires fresh consideration. The Tribunal directed the AO/TPO to examine the evidence submitted by the assessee to establish that the transfers were investments in equity; if so, no TP adjustment for interest would be made. Conversely, if the AO/TPO finds the transactions were in substance working capital advances (even if later treated as investments), the earlier TP adjustment shall be revived and assessment completed accordingly. [Paras 5]

Issue set aside to AO/TPO for fresh consideration of evidence; matter remanded for determination whether transfers were investments (no adjustment) or working capital advances (TP adjustment to stand).

Corporate guarantee - international transaction - principle of uniformity and consistency - Whether corporate guarantee fees constitute an international transaction for the assessment year 2011-12 (pre-amendment of s.92B w.e.f. 1.4.2012) - HELD THAT: - The Tribunal examined competing decisions. Some authorities had held that corporate guarantees were international transactions even prior to the amendment; other decisions, including the Tribunal's earlier decision in the assessee's own case for AY 2010-11, had held otherwise. Applying the principle of uniformity and consistency and noting that the relevant assessment year is prior to the statutory amendment, the Tribunal held that corporate guarantee could not be treated as an international transaction for AY 2011-12 and therefore no TP adjustment for guarantee fees was sustainable for that year. [Paras 6]

Grounds challenging levy of corporate guarantee fee allowed; corporate guarantee not an international transaction for AY 2011-12 (pre-amendment).

Disallowance under section 14A - no exempt income - Whether disallowance under section 14A is warranted where the assessee has not earned any exempt income in the relevant year - HELD THAT: - Relying on the Supreme Court's decision in CIT (Central) vs. Chettinad Logistics (approved in the order), the Tribunal held that where no exempt income is earned in the relevant year, no disallowance under section 14A can be made. The Tribunal found this principle applicable to the facts before it and therefore ruled in favour of the assessee on the point. [Paras 7]

Disallowance under section 14A set aside insofar as no exempt income was earned; ground allowed.

Computation of book profits under section 115JB - exclusion of section 14A disallowance from book profits - Whether a disallowance under section 14A, if made, should be added back while computing book profits under section 115JB - HELD THAT: - The Tribunal followed the Special Bench decision in Vireet Investments (and its own consistent precedents) holding that a disallowance under section 14A should not be added while computing book profits under section 115JB. Applying that ratio, the Tribunal held that even if a section 14A disallowance were sustained under the normal provisions, it would not be includible in computation of book profits under section 115JB for levy of tax under the minimum alternate tax provision. [Paras 7]

No addition of any section 14A disallowance to book profits under section 115JB; grounds allowed.

Final Conclusion: The appeal is partly allowed: the transfer pricing adjustment in relation to interest on amounts transferred is remanded to the AO/TPO for fresh consideration of evidence as to whether the transfers were investments or working capital advances; additions relating to corporate guarantee fees and the section 14A disallowance (and its inclusion in book profit computation under section 115JB) are set aside in favour of the assessee.

Deduction for bad debts under section 36(1)(vii) read with section 36(2) - Treatment of interest income as business income v. income from other sources - Related party / sister concern loans and requirement to demonstrate recovery efforts - Application of TRF Ltd. v. CIT precedent on proof of writing off and establishment of bad debt

Deduction for bad debts under section 36(1)(vii) read with section 36(2) - Related party / sister concern loans and requirement to demonstrate recovery efforts - Application of TRF Ltd. v. CIT precedent on proof of writing off and establishment of bad debt - Claim for deduction of bad debt of Rs. 1,08,50,000 advanced to a sister concern - HELD THAT: - The Tribunal recorded that the assessee advanced the disputed sum to its sister concern and had written it off in its books. However, following the ratio of the Hon'ble Supreme Court in TRF Ltd. v. CIT, the assessee was required to establish that the debt had in fact become bad and to demonstrate steps taken for recovery. The record before the AO and the Tribunal did not contain material showing efforts made for recovery or any verification by the AO to satisfy the statutory test; the A.O. had noted only that the borrower had continued to disclose the liability in its financial statements. In view of the absence of evidence on recovery efforts and verification, the Tribunal set aside the orders of the CIT(A) and A.O. and remitted the matter to the A.O. for limited enquiry and verification in accordance with the TRF Ltd. principle, directing that the assessee be given adequate opportunity to produce information and that the A.O. apply the correct legal test when re examining the claim. [Paras 7]

Disallowed claim remanded to AO for limited purpose to verify and adjudicate the bad debt claim in light of TRF Ltd., with opportunity to assessee to produce evidence of recovery efforts.

Treatment of interest income as business income v. income from other sources - Classification of the assessee's interest income as business income rather than income from other sources - HELD THAT: - The Tribunal noted that the assessee consistently treated interest receipts as income from business and that Revenue had accepted this treatment in earlier years. On the additional ground of appeal, the Tribunal found no infirmity in treating the income as business income and directed the A.O. to treat the interest receipts accordingly. [Paras 7]

Additional ground allowed; A.O. directed to treat the income as business income.

Final Conclusion: The appeal is partly allowed: the classification issue is allowed by directing the A.O. to treat the interest as business income; the bad debt claim is remitted to the A.O. for fresh verification and adjudication in accordance with the TRF Ltd. principle, with opportunity to the assessee to produce evidence.

Notice under section 148 - sanction under section 151(2) - quashing of reassessment - reassessment under section 147 - section 50C - adoption of stamp duty value as full value of consideration - reference to Valuation Officer under section 50C(2)

Notice under section 148 - sanction under section 151(2) - quashing of reassessment - Validity of reassessment notice issued under section 148 in the absence of recorded sanction as required by section 151(2). - HELD THAT: - The Tribunal found that the assessing officer's notice under section 148 did not itself record compliance with section 151(2) and the Commissioner (Appeals) asserted sanction had been obtained but did not place any supporting evidence or the date of such sanction on the assessment record. In the absence of clear findings or evidence showing that the mandatory requirement of section 151(2) had been satisfied prior to issuance of the notice, the Tribunal held the reasoning of the Commissioner (Appeals) to be unsustainable. The Tribunal noted authority emphasising that where the assessee specifically questions compliance with section 151(2), the record should show the requisite approval. On these grounds the notice under section 148 and consequent reassessment were held to be bad in law and liable to be quashed. [Paras 8]

Notice issued under section 148 and the assessment framed under section 143(3) read with section 147 are quashed.

Section 50C - adoption of stamp duty value as full value of consideration - reference to Valuation Officer under section 50C(2) - Whether the Assessing Officer could apply section 50C and adopt stamp duty value without referring the matter to the Valuation Officer under section 50C(2). - HELD THAT: - The Tribunal did not decide the substantive contention on applicability of section 50C and the obligation to refer to the Valuation Officer because the primary legal challenge to the reassessment notice succeeded. The Tribunal recorded that, having quashed the reassessment on procedural grounds, the merits raised by the assessee became infructuous and were not adjudicated. [Paras 9]

Substantive issues concerning computation under section 50C and referral to the Valuation Officer were not adjudicated as they became academic.

Final Conclusion: The appeal is allowed: the reassessment notice under section 148 and the assessment framed under section 143(3) r.w.s.147 are quashed; consequentially the merits relating to section 50C were left undecided as infructuous.

Disallowance under section 14A of the Income-tax Act read with Rule 8D - limitation that disallowance cannot exceed exempt income - treatment of section 14A disallowance in computation of book profit under section 115JB

Disallowance under section 14A of the Income-tax Act read with Rule 8D - limitation that disallowance cannot exceed exempt income - Extent of disallowance under section 14A read with Rule 8D in relation to exempt dividend income - HELD THAT: - The Tribunal noted that the assessee earned dividend income of Rs. 24,611 for the assessment year and that the Assessing Officer made a disallowance far in excess of the exempt income. The Tribunal applied the settled principle that a disallowance computed under section 14A read with Rule 8D cannot exceed the exempt income for the year, following the decision in Cheminvest Ltd. as also the view taken by the Chennai Bench in M/s. Voltech Engineers Pvt. Ltd. . On this basis the Tribunal directed that the section 14A disallowance computed under Rule 8D be restricted to the extent of exempt income actually earned in the year. [Paras 4]

Disallowance under section 14A read with Rule 8D restricted to the amount of exempt dividend income for the year.

Treatment of section 14A disallowance in computation of book profit under section 115JB - Whether the disallowance computed under section 14A read with Rule 8D is to be added to book profit under section 115JB - HELD THAT: - The Tribunal considered the applicability of clause (f) of Explanation 1 to section 115JB and relied on the decision of the Delhi Special Bench in ACIT vs. Vireet Investments (P) Ltd. , which held that computation under clause (f) of Explanation 1 to section 115JB(ii) is to be made without resort to the computation contemplated under section 14A read with Rule 8D. Applying that reasoning, the Tribunal held that the Assessing Officer could not make additions to book profit under section 115JB by adopting the section 14A/Rule 8D computation and therefore directed deletion of such addition to book profit. [Paras 5]

Addition made to book profit under section 115JB by applying section 14A/Rule 8D computation deleted.

Final Conclusion: Appeal allowed: the section 14A/Rule 8D disallowance is restricted to the exempt dividend income for AY 2014-15 and the corresponding addition to book profit under section 115JB is deleted.

Benefit to persons covered by section 13(3) - denial of exemption under section 11 for application or use of income benefiting specified persons - excessive interest paid to trustee and comparative assessment of interest on assets and liabilities - furnishing inaccurate particulars of income

Excessive interest paid to trustee and comparative assessment of interest on assets and liabilities - benefit to persons covered by section 13(3) - Whether interest paid by the trust to its trustee at the rate of 10% was excessive or constitutive of application/use of income benefiting a person covered by section 13(3), thereby attracting denial of exemption. - HELD THAT: - The Tribunal found that the Assessing Officer erred in comparing interest earned by the trust on certain bank deposits with the interest paid to the trustee. The deposits relied upon by Revenue largely represented amounts held as margin/mandatory securities in favour of affiliating or regulatory bodies (for example, margin money/security for the Dental Council of India and fund securities for the University), and were not freely deployable investments; maintaining those FDRs was justifiable for carrying out the trust's educational and medical activities. The Revenue itself accepted that the trust had paid higher interest to banks on secured borrowings and that the unsecured funds from the trustee effectively substituted for such bank borrowings, indicating that the trustee's rate (10%) was not excessive in the factual matrix. Reliance placed by the CIT(A) on the Delhi High Court decision was distinguished: that authority involved interest-free advances and lack of adequate interest/security, whereas in this case market rates were paid and security/need for funds existed. On these findings the Tribunal concluded that the payment of interest at 10% did not amount to an excessive benefit to the trustee attracting clause (1)(c) of section 13 read with the provisions cited by Revenue, and the disallowance/enhancement made by the Assessing Officer and upheld by the CIT(A) was unsustainable. [Paras 6, 7]

Addition for alleged excessive interest paid to the trustee reversed; disallowance under the provisions concerning benefit to persons covered by section 13(3) set aside.

Denial of exemption under section 11 for application or use of income benefiting specified persons - furnishing inaccurate particulars of income - Whether the CIT(A) was justified in enhancing the trust's entire income by denying benefit under section 11 and initiating penalty proceedings for furnishing inaccurate particulars. - HELD THAT: - The Tribunal held that because the foundational disallowance (that interest payments constituted application/use of income benefiting a specified person) was unsustainable, the consequential enhancement of the trust's entire income and the CIT(A)'s action to deny exemption under section 11 could not stand. The Assessing Officer's error in the comparative approach and the factual finding that FDRs were held for regulatory/affiliation purposes, together with the acceptance that bank borrowings bore higher interest, showed that there was justification for obtaining funds from the trustee at the rate paid. In light of the reversal of the substantive addition, the Tribunal allowed the appeal. The order of initiating penalty proceedings was recorded by the CIT(A) but the Tribunal's allowance of the appeal removes the basis for the enhancement; the order therefore did not sustain the enhancement or penalty-related finding. [Paras 7, 8]

CIT(A)'s enhancement of the entire income and denial of benefit under section 11 reversed and appeal allowed; consequential penalty initiation does not survive the reversal of the substantive addition.

Final Conclusion: The ITAT allowed the assessee's appeal for A. Y. 2015 - 16, reversing the Assessing Officer's disallowance and the CIT(A)'s enhancement which had denied exemption under section 11 in respect of interest payments to the trustee; the addition and its consequences (including penalty initiation) were held unsustainable on the facts.

Disallowance under section 14A read with Rule 8D(2)(iii) - Average value of investment for computing Rule 8D disallowance - Investments yielding exempt income to be considered for Rule 8D computation - Exclusion of disallowance under section 14A from book profit under section 115JB - Admissibility of additional claims before appellate authority by revised statement versus revised return

Disallowance under section 14A read with Rule 8D(2)(iii) - Average value of investment for computing Rule 8D disallowance - Investments yielding exempt income to be considered for Rule 8D computation - Computation of disallowance under section 14A read with Rule 8D(2)(iii) and whether average investment should include only investments which yielded exempt income during the year. - HELD THAT: - The Tribunal found that the Ld. CIT(A) had erred by not following the Special Bench decision in ACIT vs. Vireet Investments (Del) which held that, for the purposes of Rule 8D(2)(iii), only those investments which yielded exempt income during the year are to be taken into account in computing the average value of investment. The AO had applied Rule 8D(2)(iii) to compute a larger disallowance and the Ld. CIT(A) had directed recomputation excluding investments in growth schemes not capable of generating exempt income; however the Tribunal concluded that the correct approach is to compute the disallowance by taking the average of only those investments that actually yielded exempt income in the year, and accordingly set aside the CIT(A) order to that extent and directed the AO to recompute in conformity with the Special Bench ruling. [Paras 6, 8, 9, 10]

Set aside the CIT(A) order and direct recomputation of disallowance under section 14A r.w. Rule 8D(2)(iii) by taking average investment only of those investments which yielded exempt income during the year.

Exclusion of disallowance under section 14A from book profit under section 115JB - Whether the disallowance computed under section 14A is required to be added back to arrive at book profit for computation of tax under section 115JB. - HELD THAT: - The Tribunal noted that the Ld. CIT(A)'s view - that an amount disallowed under section 14A should not be added back to compute book profit under section 115JB - is supported by the decision of the Hon'ble Bombay High Court and the Special Bench of the Delhi Tribunal. Having regard to those precedents, the Tribunal found no infirmity in the CIT(A)'s direction to exclude the section 14A disallowance from the book profit computation under section 115JB and dismissed the revenue's challenge to that conclusion. [Paras 5]

Revenue's challenge dismissed; disallowance under section 14A need not be added to book profit for the purposes of section 115JB.

Admissibility of additional claims before appellate authority by revised statement versus revised return - Whether the appellate authority could entertain and allow a claim for capital loss on sale of shares/mutual funds presented by the assessee through a revised statement filed before the CIT(A) instead of by filing a revised return. - HELD THAT: - The Tribunal observed that the Ld. CIT(A) admitted and allowed the claim based on a revised statement, following the jurisdictional Bombay High Court decision in M/s Pruthvi Brokers and Shareholders Pvt. Ltd., which recognises the power of appellate authorities to admit and adjudicate additional claims raised during appellate proceedings. The Tribunal distinguished the Supreme Court decision in Goetze (India) (which concerns the powers of the assessing authority, not appellate authorities) and held that the CIT(A)'s action was in accordance with the jurisdictional High Court precedent. Consequently, the Tribunal found no reason to interfere with the CIT(A)'s admission and allowance of the loss claimed by the assessee on the basis of the revised statement. [Paras 6, 7, 8]

CIT(A)'s admission and allowance of the claim on the basis of revised statement upheld; revenue's challenge dismissed.

Final Conclusion: Assessee's appeal is partly allowed for statistical purposes by directing recomputation of the section 14A disallowance under Rule 8D(2)(iii) limited to investments that yielded exempt income; the CIT(A)'s directions excluding the section 14A disallowance from book profit under section 115JB and admitting the revised-statement claim for capital loss are upheld and the revenue's cross-appeal is dismissed.

Disallowance of provision for expenditure - capital or revenue expenditure - Explanation-1 to section 32(1) - revenue recognition policy - restoration to Assessing Officer for fresh consideration - verification and computation of dividend distribution tax - TDS credit verification - penalty under section 271(c) premature

Disallowance of provision for expenditure - Deletion of part disallowance of provision for expenditure granted by the Assessing Officer and sustained by the CIT(A). - HELD THAT: - The Tribunal accepted the assessee's submission that the issue is identical to a decision of a co-ordinate bench in the assessee's earlier year and, following that decision, held that the disallowance sustained by the CIT(A) should be deleted. The Revenue did not press contrary authority beyond the orders below and the Tribunal therefore allowed the ground in favour of the assessee. [Paras 4]

The disallowance of the provision for expenditure is deleted.

Capital or revenue expenditure - Explanation-1 to section 32(1) - Allowability of renovation/repair expenses for leased office premises as revenue expenditure rather than capital expenditure. - HELD THAT: - Relying on the co-ordinate bench decision in the assessee's earlier year, the Tribunal examined the nature of the expenditure and concluded that the works did not bring into existence any enduring capital asset nor amounted to construction, extension or improvement covered by Explanation 1 to section 32(1). Therefore, on facts identical to the earlier decision, the expenditure was held to be revenue in nature and allowable. [Paras 8]

The renovation/repair expenditure is to be treated as revenue expenditure and the disallowance is deleted.

Revenue recognition policy - restoration to Assessing Officer for fresh consideration - Addition on account of change in revenue recognition policy remitted to the Assessing Officer for fresh decision. - HELD THAT: - The Tribunal found the issue covered by the co-ordinate bench's earlier decision which had observed that the assessee had changed its revenue recognition practice in the impugned year. Following that reasoning, the Tribunal restored the matter to the AO to decide afresh in accordance with law and jurisdictional precedent, permitting the AO to examine whether the change was bona fide and supported by valid reasons and evidence. [Paras 12]

Issue restored to the Assessing Officer for fresh adjudication in terms of the co-ordinate bench's order.

Verification and computation of dividend distribution tax - Direction to the Assessing Officer to verify the assessee's claim and compute the dividend distribution tax applying the correct surcharge rate. - HELD THAT: - The CIT(A) had directed verification of the assessee's claim, but the AO had not complied. The Tribunal therefore directed the AO to verify the records, examine the claim and compute the dividend distribution tax payable applying the correct rate of surcharge. [Paras 14]

AO directed to verify the claim and compute dividend distribution tax with correct surcharge.

TDS credit verification - Short credit of TDS remitted to the Assessing Officer for verification and direction to allow the specific short credit if records substantiate deduction. - HELD THAT: - The Tribunal held that the question of short credit of TDS required examination by the AO. It remitted the matter to the AO with a direction to verify the assessee's records and, if the total TDS deducted equals the figure claimed by the assessee, to allow the short credit of the specified amount since the larger credit had already been allowed. [Paras 16]

Matter remitted to the AO for verification of TDS credit and appropriate allowance if substantiated.

Penalty under section 271(c) premature - Challenge to initiation of penalty proceedings under section 271(c) dismissed as premature. - HELD THAT: - The Tribunal found initiation of penalty proceedings premature and accordingly dismissed the challenge, without allowing initiation to proceed at that stage. [Paras 17]

Initiation of penalty proceedings under section 271(c) is premature and is dismissed.

Final Conclusion: The assessee's appeal is partly allowed: the disallowance of the provision and the renovation expenditure are deleted; the addition for change in revenue recognition policy, the TDS short credit issue and the dividend distribution tax computation are remitted to the Assessing Officer for verification/decision in terms directed; penalty proceedings under section 271(c) are dismissed. The Revenue's appeal is dismissed.

Quantification of liability - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - eligibility for tax relief under the Scheme - effect of departmental communications and reminders as quantification - administrative orders: reasons for rejection must appear in the order

Quantification of liability - effect of departmental communications and reminders as quantification - Form SVLDRS-1 disclosure - eligibility for tax relief under the Scheme - Whether the petitioner's tax liability was 'quantified' before 30.06.2019 so as to make him eligible to file a declaration under the Scheme - HELD THAT: - The Court examined the sequence of departmental communications: initial communication calling for payment (13.08.2018), Offence Report dated 12.09.2018 (approximating liability), Final Reminder dated 15.11.2018 calling for payment of a specified short paid amount, and a subsequent Show Cause Notice dated 9.12.2019 quantifying the demand as reflected in the petitioner's Form SVLDRS-1. The petitioner argued that the Final Reminder dated 15.11.2018 constituted quantification under the Scheme's definition and FAQs, thus satisfying the pre-30.06.2019 quantification requirement. The Court observed, however, that the petitioner's own declaration in Form SVLDRS-1 discloses the liability corresponding to the Show Cause Notice dated 9.12.2019, not the amount stated in the Final Reminder. That consistency in the figure declared in Form SVLDRS-1 indicates that, according to the petitioner, the liability had not been finally quantified as of 30.06.2019. The Court therefore concluded there was no error in the authority's finding that quantification had not occurred before the prescribed date and that the declaration could be rejected on the recorded ground.

The Court held that the petitioner's liability was not shown to have been quantified before 30.06.2019 and upheld the rejection of the declaration.

Administrative orders: reasons for rejection must appear in the order - eligibility for tax relief under the Scheme - Whether the rejection of the declaration could be sustained on a ground not mentioned in the impugned order - HELD THAT: - The respondent contended that the petitioner was ineligible under a different provision because he filed belated returns admitting liability without payment. The Court rejected that contention as a basis to sustain the impugned order because the stated reason for rejection must appear in the rejection order itself; an order cannot be upheld on reasons not recorded therein. Irrespective of that principle, the Court found the primary recorded reason-absence of quantification before the prescribed date-sufficient to uphold the rejection.

The Court held that the order of rejection cannot be justified by reasons not stated in the order and that, on the recorded ground, the rejection was maintainable.

Final Conclusion: Writ petition dismissed; the rejection of the petitioner's Form SVLDRS-1 declaration under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 is upheld on the ground that the liability was not shown to have been quantified before 30.06.2019 and the impugned order cannot be sustained on unrecorded reasons.

Power of Appellate Court under Section 148 of the Negotiable Instruments Act to order deposit pending appeal - Mandatory rule-like character of 20% deposit as interpreted in Surinder Singh Deswal - Time-limit for deposit under Section 148(2) requiring 60 days with possible further 30 days on sufficient cause - Right of appeal under Section 374 Cr.P.C. is a statutory right not to be made subject to pre-conditions - Suspension of sentence and bail conditions distinct from admissibility of appeal

Power of Appellate Court under Section 148 of the Negotiable Instruments Act to order deposit pending appeal - Mandatory rule-like character of 20% deposit as interpreted in Surinder Singh Deswal - Whether the Appellate Court's power to direct deposit of not less than 20% of the compensation is discretionary or is to be treated as a rule/mandate. - HELD THAT: - The amended Section 148 vests the Appellate Court with power to direct deposit of a minimum of 20% of the fine or compensation. Though the statutory language uses 'may', the Apex Court in Surinder Singh Deswal has construed the provision as normally operating as a rule such that non-direction is the exception requiring reasons. Applying that ratio, the High Court held that the lower Appellate Court's direction for deposit of 20% was in accordance with the rule-like expectation and that absence of exceptional circumstances justified application of the deposit direction in these cases. [Paras 6, 7, 8]

The deposit direction for 20% is to be treated as the usual rule; the lower Appellate Court's direction to deposit 20% is not impermissible.

Time-limit for deposit under Section 148(2) requiring 60 days with possible further 30 days on sufficient cause - Whether affording one month's time for deposit complied with the period prescribed by Section 148(2). - HELD THAT: - Section 148(2) unambiguously prescribes that the amount referred in sub section (1) shall be deposited within sixty days from the date of the order, with a possible further extension not exceeding thirty days on sufficient cause. The lower Appellate Court granted only one month for deposit, which is contrary to the statutory prescription. The High Court found this to be an error requiring rectification and directed compliance with the statutory timeline. [Paras 9, 10]

Granting only one month's time was contrary to Section 148(2); deposit must be made within 60 days (subject to further extension up to 30 days on sufficient cause).

Right of appeal under Section 374 Cr.P.C. is a statutory right not to be made subject to pre-conditions - Suspension of sentence and bail conditions distinct from admissibility of appeal - Whether admission of an appeal under Section 374 Cr.P.C. can be made conditional upon deposit or other pre-conditions so as to impede the statutory right to appeal. - HELD THAT: - Sections 372 and 374 Cr.P.C. confer a statutory right of appeal; no provision makes admission of the appeal subject to pre-conditions. While Section 148 empowers the Appellate Court to direct deposit, that power cannot be construed to create a pre requisite for exercising the statutory right of appeal. Conditions may be imposed in relation to suspension of sentence or bail (with consequences for non-compliance), but they cannot be employed to defeat or deny admission of the appeal itself. Reliance on constitutional and precedential authority (observations that right of appeal is substantial and not to be subjected to conditions) supports this conclusion. [Paras 11, 12, 13, 14]

Admission of appeal cannot be made subject to pre-conditions that nullify the statutory right of appeal; deposit condition cannot be a pre-requisite to admit the appeal.

Final Conclusion: Petitions allowed. The condition in the impugned orders making admission of the appeals subject to deposit of 20% is set aside and the appeals are admitted; petitioners are directed to deposit 20% of the compensation awarded by the trial Court within 60 days (with further extension as permissible under Section 148(2)); existing bail orders shall continue if the amount is deposited, and non-deposit may attract bail cancellation by the lower Appellate Court in accordance with law.

Presumption under Section 139 of the Negotiable Instruments Act - offence under Section 138 of the Negotiable Instruments Act - cheque issued as security versus cheque issued for discharge of debt - enforceable debt arising from payment in pursuance of an agreement/MOU - rebuttal of statutory presumption by the accused - civil remedy versus criminal liability under Section 138

Presumption under Section 139 of the Negotiable Instruments Act - rebuttal of statutory presumption by the accused - offence under Section 138 of the Negotiable Instruments Act - Whether the statutory presumption under Section 139 of the NI Act arose in favour of the complainant and, having regard to the evidence, whether the accused successfully rebutted that presumption so as to preclude conviction under Section 138 of the NI Act. - HELD THAT: - The Court found that issuance and dishonour of the cheques and service of statutory notice were not disputed and the accused did not give any reply nor adduce evidence. Applying the law in Rangappa and allied Supreme Court precedents, the court held that the presumption under Section 139 is attracted once the cheques and dishonour are established and that the onus then shifts to the accused to rebut that presumption either by effective cross-examination or by leading evidence. The trial court erred in treating the defence suggestion (that the cheques were given as security) as having rebutted the presumption despite absence of any plausible evidence from the accused; mere assertion without proof or effective cross-examination was insufficient. Consequently, the appellate court concluded that the accused had not rebutted the statutory presumption and conviction under Section 138 was warranted. [Paras 18, 21, 23, 24, 25]

Presumption under Section 139 applied, the accused failed to rebut it, and conviction under Section 138 was justified.

Cheque issued as security versus cheque issued for discharge of debt - enforceable debt arising from payment in pursuance of an agreement/MOU - civil remedy versus criminal liability under Section 138 - Whether the dispute was a pure civil matter and the cheques were only security for performance of the MOU (thereby excluding applicability of Section 138). - HELD THAT: - The trial court had held that the remedy was civil and that the cheques were given as security, but the appellate court examined the MOU and the parties' evidence and found those conclusions unsustainable. Clause (8) of the MOU provided for refund of advance on failure and for claims of damages, and the complainant pleaded that the cheques were given for repayment of amounts received. Given the cancellation of the MOU and absence of any evidence or reply from the accused disputing issuance or character of the cheques, the appellate court held that the matter was not outside the scope of Section 138. Reliance by the trial court on authorities to treat the transaction as purely civil was misplaced on the facts of this case where payment in pursuance of the agreement gave rise to an enforceable liability and the accused did not rebut the complainant's case. [Paras 19, 20, 24]

The transaction was not a mere civil dispute immune from Section 138; the cheques could not be treated as merely security on the facts and the trial court's conclusion to the contrary was erroneous.

Final Conclusion: Appeals allowed; impugned acquittals set aside, the accused convicted under Section 138 of the Negotiable Instruments Act and directed to pay the amount found due to the complainant within eight weeks, failing which the statutory sentence ordered by the High Court is to follow; records remitted to the Trial Court for compliance and execution.