TaxTMI Updates e-Newsletter
Jan 21,2020

Provisional attachment - delegation of power - subjective satisfaction / reason to believe - requirement of credible material for formation of opinion - protection of revenue - assessment under Section 74 requires show cause notice - prohibition order under rule 139(4)

Provisional attachment - delegation of power - requirement of credible material for formation of opinion - subjective satisfaction / reason to believe - protection of revenue - Validity of provisional attachment order under Section 83 when passed by an Assistant Commissioner and without disclosure of credible material to support the requisite opinion - HELD THAT: - Section 83 vests the power to order provisional attachment in the Commissioner; the subjective opinion that attachment is necessary to protect revenue must be founded on credible material. Delegation by the Commissioner to subordinate officers under the impugned notification cannot sustain an order of provisional attachment under Section 83 in the circumstances of this case. Even assuming arguendo delegation was permissible, the delegated authority must form its opinion on some credible material and not on vague, remote or imaginary grounds. The court applied established authorities to hold that the existence of relevant material is a precondition to formation of the requisite opinion; absence of such material renders the subjective satisfaction arbitrary and amounts to abuse of power. On the facts, the order of provisional attachment was passed by the Assistant Commissioner and the record did not disclose credible material or reasons on which the opinion was formed; accordingly the attachment was held unsustainable. [Paras 10, 35, 36, 44, 52]

Order of provisional attachment passed by the Assistant Commissioner is quashed and set aside for want of lawful delegation and for absence of credible material justifying formation of opinion under Section 83.

Assessment under Section 74 requires show cause notice - Validity of assessment/order purportedly passed under Section 74 without issuance of the mandatory show cause notice - HELD THAT: - Section 74 mandates that where it appears to the proper officer that tax is not paid or input tax credit wrongly availed by reason of fraud or wilful misstatement, the proper officer shall serve a notice requiring the person to show cause. The court found that an assessment purportedly under Section 74 was made without issuing the statutorily required notice and without affording opportunity of hearing. Such a procedure is contrary to the statutory scheme and the order is therefore untenable. The court also observed that computer-blocking of input tax credit without lawful process could not be sustained; at most provisional attachment could have been ordered subject to law. [Paras 10, 45, 46, 48]

Assessment/order in Form GST DRC-07 under Section 74 passed without issuance of the required show cause notice is quashed and set aside.

Prohibition order under rule 139(4) - Legality of the prohibition order issued under rule 139(4) consequent to the search and seizure - HELD THAT: - The court examined the prohibition order dated 30.7.2019 passed under rule 139(4) and observed that the properties in respect of which prohibition was ordered were not found at the searched premises and thus the prohibition fell beyond the scope of powers exercisable under subsection (2) of Section 67. Having held that the provisional attachment and the underlying basis were unsustainable, the court also quashed the prohibition order as lacking support in law and fact. [Paras 5, 6, 10]

Order of prohibition dated 30.7.2019 under rule 139(4) is quashed and set aside.

Final Conclusion: Writ petition allowed: the provisional attachments of the immovable property and bank accounts and the prohibition order dated 30.7.2019 are quashed and set aside; the assessment/order under Section 74 passed without issuance of the mandatory show cause notice is set aside; proceedings under Section 73 continue and the assessee is directed not to destroy or secrete records; the Authority remains free to pass a fresh attachment in accordance with law if it thereafter forms an opinion based on credible material.

Input tax credit on capital goods - Blocked credit in respect of motor vehicles - Use or intended to be used in the course or furtherance of business - Further supply of such vehicles - Availability and utilisation of input tax credit - Reversal / adjustment on supply of capital goods

Input tax credit on capital goods - Use or intended to be used in the course or furtherance of business - Blocked credit in respect of motor vehicles - Further supply of such vehicles - Entitlement to avail input tax credit on motor vehicles purchased and capitalised as demo vehicles used in the course or furtherance of business. - HELD THAT: - The Authority found on the facts that the demo vehicles were purchased against tax invoices, capitalised in the applicant's books as fixed assets (excluding GST), and used by the applicant (a vehicle dealer) to provide trial runs to customers - an activity integral to marketing and sale of motor vehicles. Section 16(1) does not distinguish between capital goods and other goods for ITC purposes, and the definition of capital goods includes goods capitalised in the books and used or intended to be used in the course or furtherance of business. Although Section 17(5) generally blocks credit on motor vehicles, it permits credit where such vehicles are used for making the further supply of such vehicles. The applicant sells the demo vehicles after use and pays tax on such sale; there is no time limit in the Act for making the further supply. Applying these provisions, the Authority concluded that the demo vehicles qualify as capital goods used in the course or furtherance of business and that the applicant is eligible to claim ITC on their inward supply. [Paras 5]

The applicant is entitled to avail input tax credit on the demo motor vehicles as capital goods.

Availability and utilisation of input tax credit - Reversal / adjustment on supply of capital goods - Whether the input tax credit so availed can be utilised for payment of output tax and the consequences on subsequent supply of the demo vehicles. - HELD THAT: - The Authority noted that utilisation of ITC is governed by the manner specified in Section 49. It further observed that where capital goods on which ITC has been taken are subsequently supplied, Section 18(6) requires payment of an amount equal to the ITC taken on such capital goods reduced by prescribed percentage points or the tax on the transaction value, whichever is higher. Thus, while the applicant may utilise the ITC for payment of output tax in the normal course, statutory provisions apply for adjustment/reversal upon onward supply of the demo vehicles. [Paras 5]

ITC availed on the demo vehicles can be utilised for payment of output tax in accordance with the manner of utilisation under the Act, subject to the adjustment/reversal obligations on subsequent supply of those capital goods.

Final Conclusion: The Authority ruled that the applicant may avail input tax credit on motor vehicles purchased and capitalised as demo vehicles used in the course of its business, and such credit may be utilised for payment of output tax, subject to the statutory adjustment/reversal requirements applicable on the subsequent supply of those capital goods.

Low-cost houses - Affordable Housing Project - concessional rate of 12% (8% after deduction of value of land) - definition of Affordable Housing (using at least 50% of FSI/FAR for dwelling units with carpet area not more than 60 sq. metres) - composite supply of works contract - treatment of common amenities as part of principal supply - ongoing project under Notification No. 3/2019 - exercise of option by filing Annexure IV to continue at erstwhile rates

Low-cost houses - Affordable Housing Project - definition of Affordable Housing (using at least 50% of FSI/FAR for dwelling units with carpet area not more than 60 sq. metres) - concessional rate of 12% (8% after deduction of value of land) - Validity of claim that dwelling units measuring less than 60 sq. metres at Joyville, Virar qualify as low-cost houses and are eligible for the concessional rate under Entry (v)(da) of Notification No.11/2017 as amended. - HELD THAT: - Notification No. 1/2018 inserted sub-item (da) to item (v) of Notification No.11/2017 granting concessional tax to "low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project" which has infrastructure status under the DEA notification dated 30.03.2017. The DEA notification defines "Affordable Housing" as projects using at least 50% of FSI/FAR for dwelling units with carpet area not more than 60 sq. metres. The GST Council and subsequent TRU clarification state that the builder/developer determines whether a project qualifies as affordable housing as per that definition and no separate certificate is required. On the facts, the Authority found that the project consumed more than 50% of FSI for units below 60 sq. metres and units in the relevant phases were booked before 31.03.2019. Accordingly, for supplies effected after 25.01.2018, dwelling units measuring less than 60 sq. metres in the applicant's project fall within the definition of low-cost houses in an Affordable Housing Project and attract the concessional rate (12% central+state i.e. effectively 8% after deduction of land value) under Entry (v)(da). [Paras 5]

Dwelling units measuring less than 60 sq. metres qualify as low-cost houses and are eligible for the concessional rate under Entry (v)(da) for supplies after 25.01.2018.

Composite supply of works contract - treatment of common amenities as part of principal supply - concessional rate of 12% (8% after deduction of value of land) - Whether charges for common amenities (club house, swimming pool, water, electricity, drainage, sewerage, society formation, legal and documentation charges) are eligible for the concessional rate when provided with units qualifying as low-cost houses, and whether advance maintenance and certain corpus/share monies are eligible. - HELD THAT: - The Authority accepted that common amenities and several specified services form part of the overall construction service and, when naturally bundled with the sale of dwelling units, qualify as a composite supply where construction is the principal supply; the rate of the principal supply therefore governs the composite supply. However, advance maintenance charges (collected for maintenance after possession and before society formation) are not part of the composite supply of construction and are excluded from the concessional treatment. The TRU FAQs reproduced in the order clarify that maintenance charges/deposits for maintenance are not to be included for certain valuation thresholds and are distinct for GST treatment. Applying these principles, the Authority held that Society Formation Charges, club house development charges, Water, Electricity, Drainage, Sewerage Charges, Legal Service Charges and Documentation Charges collected from purchasers of houses with carpet area less than 60 sq. metres attract the concessional rate; the same charges collected from purchasers of units exceeding 60 sq. metres attract the normal rate. Corpus fund subscription and share application money (as per Annexure D) and advance maintenance are not eligible for concessional rate and will be taxed at the normal rate. [Paras 5]

Concessional rate applies to specified common-amenity related charges when collected from buyers of units under 60 sq. metres; advance maintenance and corpus/share application amounts are not eligible and attract normal GST.

Ongoing project under Notification No. 3/2019 - exercise of option by filing Annexure IV to continue at erstwhile rates - Whether the Joyville, Virar project qualifies as an "ongoing project" under Notification No.3/2019 and whether the applicant may continue to avail concessional rates under Notification No.11/2017 by filing the prescribed option. - HELD THAT: - Notification No.3/2019 defines "ongoing project" by conditions including issuance of commencement certificate on or before 31.03.2019, construction having started on or before that date (with certification by specified professionals), no completion/occupation certificate issued by that date, and apartments being wholly or partially booked on or before that date. The applicant produced commencement certificates, an architect's certificate evidencing excavation/earthwork before 31.03.2019, evidence of bookings and submitted Annexure IV to the jurisdictional authority. The Authority found that these facts satisfy the definition of an ongoing project under Notification No.3/2019 and noted the filing of Annexure IV to exercise the option to continue at the earlier rates where applicable. [Paras 5]

The project qualifies as an ongoing project under Notification No.3/2019 and the applicant is eligible to continue to avail the concessional benefit for qualifying units upon exercise of the prescribed option.

Concessional rate of 12% (8% after deduction of value of land) - Rate applicable to units in the project which do not meet the low-cost-house criterion (i.e., carpet area exceeding 60 sq. metres). - HELD THAT: - Entry (v)(da) applies only to dwelling units up to 60 sq. metres in an Affordable Housing Project. Units exceeding 60 sq. metres do not fall within this concessional sub-item and therefore do not qualify for the reduced rate. The Authority accordingly held that such units must be taxed at the normal applicable rate for construction services. [Paras 5]

Units exceeding 60 sq. metres are not eligible for the concessional rate and are taxable at the normal GST rate.

Final Conclusion: The Authority ruled that Joyville, Virar qualifies as an Affordable Housing Project for the phases considered; dwelling units up to 60 sq. metres attract the concessional rate under Entry (v)(da) for supplies after 25.01.2018; specified common-amenity related charges tied to such units also attract the concessional rate while advance maintenance and corpus/share application monies do not; the project qualifies as an ongoing project under Notification No.3/2019 and the applicant may continue to avail the earlier rates by exercising the prescribed option; units exceeding 60 sq. metres are taxable at the normal rate.

Release of detained goods and conveyance on furnishing security - Authority to require bank guarantee for penalty and tax under CGST - Proof of tax payment by way of returns as condition for release - Section 129(1)(c) CGST Act

Release of detained goods and conveyance on furnishing security - Authority to require bank guarantee for penalty and tax under CGST - Proof of tax payment by way of returns as condition for release - Direction to release detained vehicle and goods on specified security and proof of tax payment - HELD THAT: - The Court directed the respondents to release the detained conveyance and goods upon the petitioner furnishing a bank guarantee. The bank guarantee must cover the penalty amount assessed under the CGST Act, DGST Act and cess. The petitioner must also produce requisite proof in the form of monthly returns to demonstrate that tax on the goods has already been paid by the suppliers; if tax has not been paid, the petitioner is required to furnish a bank guarantee in respect of the amount of tax as well. The Court fixed a two week period from today for deposit of the bank guarantee, after which the vehicle and goods are to be released without further delay. These directions were founded on the statutory concept of release on security embodied in Section 129(1)(c) CGST Act and the factual assertion that the petitioner was only transporting goods and that tax may have been discharged by suppliers. [Paras 3, 4]

Vehicle and goods to be released on petitioner furnishing bank guarantee for the penalty amount; petitioner to produce monthly returns proving tax payment or, if unpaid, furnish bank guarantee for tax; bank guarantee to be provided within two weeks and release to follow immediately.

Final Conclusion: Writ petition admitted; respondents directed to release the detained conveyance and goods on the conditions specified (bank guarantee for penalty and, if necessary, for tax, and production of returns), with compliance to be completed within two weeks and matter listed on the stated date.

Transitional Arrangements for Input Tax Credit - Form GST TRAN-1 filing requirements - Electronic filing on common portal - Extension of time for filing TRAN-1 - Acceptance of manual TRAN-1

Form GST TRAN-1 filing requirements - Electronic filing on common portal - Acceptance of manual TRAN-1 - Extension of time for filing TRAN-1 - Direction to respondents to enable filing of TRAN-1 either electronically by reopening the portal or by accepting manual TRAN-1 and to process the claim in accordance with law - HELD THAT: - The petition sought relief to permit submission of Form GST TRAN-1 for carrying forward VAT credit after the appointed day under the transitional provisions. Rule 117 required electronic submission within the prescribed period, which had been extended by the authorities. The petitioner alleged inability to upload TRAN-1 due to technical difficulties and requested manual acceptance. Having regard to a prior Division Bench order of this Court in W.P. No.3298 of 2019 (dated 13.08.2019) - which directed respondents to reopen the portal or accept manual TRAN-1 and which was not challenged and has become final - the Court directed identical relief. In consequence, respondents are required to either open the common portal to enable the petitioner to file Form GST TRAN-1 electronically or, alternatively, accept the Form GST TRAN-1 presented manually, and thereafter process the petitioner's transitional credit claim strictly in accordance with the statutory scheme and rules.

Respondents directed to reopen the portal for electronic filing of TRAN-1 or accept manual TRAN-1 on or before 31.12.2019 and to process the claim in accordance with law; no order as to costs.

Final Conclusion: Writ petition disposed of by directing respondents to enable electronic filing of Form GST TRAN-1 or to accept manual TRAN-1 by 31.12.2019 and to process the transitional input tax credit claim in accordance with law; connected miscellaneous petitions closed.

Entitlement to deduction u/s 80HHC (1A) - Reopening of assessment - Non compliance with the mandatory conditions - Assessee cannot claim benefit under the said provisions as Supporting Manufacturer, in the absence of relevant Certificate from the Export House, and the Report of the Chartered Accountant, as stipulated therein - Reopen on the basis of CIT(A) order in subsequent year -

The appeals are dismissed [2019 (3) TMI 1039 - MADRAS HIGH COURT]. The supporting manufacturer is not entitled to deduction under Section 80HHC(1A) for the Assessment Years in question because the mandatory requirements of Section 80HHC(4A) were not complied with; accordingly, no deduction is allowable in respect of the FOB value or export premium, and the issue of reassessment under Sections 147/148 was treated as academic and left unanswered.

HELD THAT:- SLP dismissed.

Rejection of books of account - AO adopted G.P. Rate @15% instead of 14.52% as disclosed - enhanced the addition by estimating the G.P. @23.01%, after considering the past history - exercise of the powers under Section 260-A of the Act, the findings of fact of the Tribunal cannot be disturbed - HELD THAT:- SLP dismissed.

Assessment u/s 153A - validity of search conducted u/s 132 - search conducted in the premises in which the assessee may not be carrying on the business - HC allowed the revenue appeals, set aside the Tribunal's order, and held that the search and consequent proceedings under Section 153A were valid notwithstanding the assessee's change of address; the Tribunal's reliance on a factually distinguishable precedent was unsustainable. [2019 (8) TMI 301 - KARNATAKA HIGH COURT]

HELD THAT:- SLP disposed of as withdrawn.

Section 264 revision of returns - genuine mistake/inadvertent error - conversion of capital asset to stock-in-trade - requirement of contemporaneous material/evidence - remand for fresh consideration - no binding effect of interim observations

Section 264 revision of returns - remand for fresh consideration - Validity of the Principal Commissioner's order dated 30.03.2019 dismissing the petitioners' applications under Section 264 and whether that order should be set aside and the matter remanded for fresh decision. - HELD THAT: - The Court examined the impugned order and found that it proceeded on certain circumstances which may be irrelevant and that the returns for the assessment years were not read in their entirety. The court observed that material placed before this Court (balance sheets and ledger extracts) was not produced before the Principal Commissioner at the time of the original hearing. Given that the impugned order does not clearly demonstrate that the relevant circumstances were determinative, and that the petitioners have proffered additional material on the hearing before this Court, the interests of justice require that the Principal Commissioner reconsider the petitioners' Section 264 applications afresh. The Court set aside the impugned order and remanded the matter for fresh disposal on merits and in accordance with law. [Paras 15, 18, 19, 20, 23]

Impugned order set aside; matter remanded to respondent no.1 for fresh disposal of the Section 264 applications on merits and in accordance with law.

Genuine mistake/inadvertent error - conversion of capital asset to stock-in-trade - requirement of contemporaneous material/evidence - no binding effect of interim observations - Scope and manner of fresh consideration on remand, including admissibility of additional material and treatment of prior observations. - HELD THAT: - The Court granted the petitioners liberty to place additional material before respondent no.1 and directed respondent no.1 to consider such material and decide the applications within four months. It clarified that none of the observations in the Court's order are to be treated as conclusive or binding, and that the question whether the applicants made a genuine error or are advancing an afterthought is to be decided afresh by respondent no.1. The Court also recorded that issues raised by both parties are kept open and stated (as recorded in the order) that the burden of satisfying respondent no.1 that this was a case of genuine error will lie squarely upon the respondents, who must discharge that burden in accordance with law. [Paras 18, 20, 21, 22]

Petitioners may tender additional material; respondent no.1 to decide the Section 264 applications afresh within four months; prior observations are not binding; all contentions left open for determination on merits.

Final Conclusion: The High Court set aside the Principal Commissioner's order dated 30.03.2019 dismissing the Section 264 applications and remitted the matter to respondent no.1 for fresh, merit-based consideration; petitioners permitted to place further material and respondent directed to decide within four months, with all issues left open and interim observations not to be treated as binding.

Re-opening of assessment and 'reasons to believe' requirement under Income-tax law - Intimation under Section 143(1) and its relevance to reassessment proceedings - Application of mind in disposal of objections to reassessment notice

Re-opening of assessment and 'reasons to believe' requirement under Income-tax law - Intimation under Section 143(1) and its relevance to reassessment proceedings - Application of mind in disposal of objections to reassessment notice - Whether the notice issued to reopen assessment for 2012-13 and the order disposing of objections are vitiated for want of application of mind despite only an intimation under Section 143(1) having been earlier issued - HELD THAT: - The Court examined the Reasons recorded for reopening and the order disposing of the petitioner's objections. Although it was acknowledged that at the stage of issuing a notice under the reassessment provisions the Assessing Officer is required only to have 'reasons to believe' and not proof, the disposal of objections must nonetheless reflect an independent application of mind to the factual contentions raised. The order disposing of objections in this case merely recited that earlier there was only an intimation under Section 143(1), reproduced legal text on 'reasons to believe' and did not address or correct the specific factual errors and explanations advanced by the petitioner (including challenges to amounts and sources said to have been received). Because the objection order does not demonstrably apply mind to the petitioner's factual explanations and creditworthiness and proceeds on the basis of information received, an arguable case has been made out that the reassessment steps are vitiated by lack of application of mind. [Paras 6]

The disposal of objections is set aside insofar as it shows no application of mind; rule issued and earlier interim order continued.

Final Conclusion: The Court found that the Assessing Officer's order disposing of objections to the reopening notice displayed no application of mind to the petitioner's factual explanations; an arguable case was made out and the writ petition was ordered to proceed (rule issued) with the earlier ad-interim protection continued.

Deduction under Section 80HHC - nexus between profits and export activity - service charges and labour/commission receipts as part of export-derived profits - prospective operation of statutory amendment

Deduction under Section 80HHC - service charges and labour/commission receipts as part of export-derived profits - nexus between profits and export activity - Whether the labour charges and labour commission received by the assessee for AY 1991-92 could be excluded from total business income for computing deduction under Section 80HHC. - HELD THAT: - The Court examined whether the receipts described as "Factory labour charges" and "Labour charges commission" could be excluded from the profits "derived from the export of goods" for the purpose of Section 80HHC for AY 1991-92. Applying the requirement of a direct nexus between profits and the export activity, and having regard to the subsequent amendment to Section 80HHC (effective 1 April 1992) which clarified that certain receipts (brokerage, commission, interest, etc.) would not be included, the Court held that the Tribunal's reliance on post-amendment authorities could not sustain exclusion for the year in question. In light of the binding pronouncement of the Supreme Court on the retrospective/prospective effect (see below), the Tribunal's reversal of the CIT(A)'s allowance - which excluded those receipts - did not survive. The Court therefore answered the substantial question in favour of the assessee for AY 1991-92. [Paras 7, 10, 11]

The exclusion of the labour charges and labour commission from total business income for computing deduction under Section 80HHC for AY 1991-92 cannot be sustained; the assessee's claim must be allowed.

Prospective operation of statutory amendment - deduction under Section 80HHC - Whether the amendment to Section 80HHC effected from 1 April 1992 operates retrospectively so as to affect assessment year 1991-92. - HELD THAT: - The Court considered the Supreme Court's treatment of the 1991 amendment to Section 80HHC and the decision in P.R. Prabhakar, which held that the amendment is prospective in nature. The Supreme Court, referring to Circular No.621 dated December 19, 1991, accepted that the amendment operates prospectively. Consequently, the High Court's earlier decisions (on which the Tribunal relied) could not be applied to assessments for AY 1991-92. Because the amendment did not operate retrospectively, receipts like service charges/labour commissions could not be excluded from the assessee's entitlement under Section 80HHC for that year by reference to the post-amendment statutory scheme. [Paras 8, 9, 10]

The amendment to Section 80HHC effective 1 April 1992 is prospective and does not apply to AY 1991-92; Tribunal's reliance on post-amendment authority is therefore misplaced.

Final Conclusion: The appeal is allowed in favour of the assessee. The Tribunal's order reversing the CIT(A) and excluding the labour charges and labour commission for computation of deduction under Section 80HHC for AY 1991-92 is set aside; the question of law is answered against the Revenue and the appeal is disposed of accordingly.

Reassessment beyond four years - reassessment under Section 147/148 requiring tangible material and live link with formation of belief - failure to disclose fully and truly all material facts - change of opinion - tangible material - live link with formation of belief

Reassessment beyond four years - failure to disclose fully and truly all material facts - change of opinion - tangible material - Validity of reassessment proceedings initiated by notice dated 22 March 2013 for Assessment Year 2006-07 where the notice was issued beyond four years - HELD THAT: - The Tribunal found on the material before it that the assessee had disclosed all material facts during the original assessment proceedings under Section 143(3), that the Assessing Officer had sought specific details which were supplied and examined, and that the assessment was framed after application of mind. In those circumstances there was no failure on the part of the assessee to disclose fully and truly all material facts such as would permit reopening beyond four years. The Tribunal held that the reassessment was based on a mere change of opinion and apparently on the basis of an audit memo without any new tangible material coming to the AO's knowledge. Applying the principle that reassessment beyond four years must be founded on tangible material and a live link with the formation of belief (as explained in the judgment quoted from Kelvinator of India Ltd.), and the principle in CIT vs. Foramer France that reassessment is impermissible where there is no failure to disclose material facts, the Tribunal concluded that the reopening was bad in law and set aside the reassessment proceedings.

Reassessment proceedings set aside as invalid; no failure to disclose material facts and reopening amounted to impermissible change of opinion.

Final Conclusion: The High Court found no error in the Tribunal's conclusion that the reassessment for Assessment Year 2006-07 was invalid for lack of tangible material and for being founded on a mere change of opinion; the revenue's appeal is dismissed.

Adjustment of seized assets towards tax liability - rectification of mistake by Settlement Commission - prematurity of writ petitions where statutory forum is seised - liquidation and appropriation of seized fixed deposits - obligation to refund excess or recover deficit with interest in accordance with law

Prematurity of writ petitions where statutory forum is seised - rectification of mistake by Settlement Commission - Writ petitions are premature because the Settlement Commission is seised of applications for rectification of mistake filed by the petitioners. - HELD THAT: - The petitioners had filed applications before the Settlement Commission for rectification of mistake on 18.08.2006. As the first respondent Settlement Commission remains seised of those applications and no orders have been passed, the High Court held that interference by way of writ petitions would be premature and that the Settlement Commission should first decide the pending rectification applications. [Paras 7, 8]

Writ petitions dismissed as premature and the Settlement Commission directed to decide the rectification applications.

Adjustment of seized assets towards tax liability - liquidation and appropriation of seized fixed deposits - Direction to respondents to liquidate seized fixed deposits and appropriate amounts towards the petitioners' admitted tax liability and interest, and to report the same to the Settlement Commission. - HELD THAT: - The Court noted communications from the Settlement Commission directing that seized cash be adjusted against additional tax payable. Although the respondents contend adjustment was made, that position was not communicated to the Settlement Commission. To ensure proper quantification and accounting before the Commission decides rectification, the Court directed the second and third respondents to liquidate the seized fixed deposits and appropriate proceeds towards the balance of admitted tax liability and interest, and to report the amount adjusted to the Settlement Commission within four weeks. [Paras 5, 6, 9]

Respondents directed to liquidate the seized fixed deposits, appropriate amounts towards tax and interest, and file a report before the Settlement Commission within four weeks.

Rectification of mistake by Settlement Commission - obligation to refund excess or recover deficit with interest in accordance with law - Settlement Commission to dispose the rectification applications within six months and to direct refund of any excess or recovery of any deficit (with interest) as per law. - HELD THAT: - After respondents report the amounts adjusted, the Settlement Commission is directed to adjudicate the rectification applications within six months. The Court granted liberty to parties to make submissions before the Commission and specified that, upon adjustment, any excess shall be directed to be refunded to the petitioners, while any shortfall may be directed to be paid by the petitioners together with interest in accordance with law. [Paras 9, 10]

Settlement Commission to dispose rectification applications within six months; excess to be refunded and any deficit to be recovered with interest as per law.

Final Conclusion: Writ petitions disposed as premature; respondents ordered to liquidate and appropriate seized fixed deposits and report to the Settlement Commission within four weeks; the Settlement Commission directed to decide the rectification applications within six months and to provide for refund of any excess or recovery of any deficit with interest in accordance with law.

Reopening of assessment - "reason to believe" test - nexus between reasons recorded and escapement of income - reasons recorded - to be read on standalone basis; no addition or deletion - independence of Assessing Officer's satisfaction - not dictated by other authorities - evidentiary value of statements recorded during survey - requirement of speaking order on objections to reopening

Reopening of assessment - "reason to believe" test - nexus between reasons recorded and escapement of income - reasons recorded - to be read on standalone basis; no addition or deletion - Validity of reopening the assessment under section 147/148 in absence of reasons showing a rational nexus to escapement of income - HELD THAT: - Applying settled principles, the Tribunal examined the reasons recorded by the AO on a standalone basis. The AO's reasons relied on general information from DDIT(Inv.) and an FMC report about misuse of the NMCE platform and artificial volumes, and referenced a shell company (M/s. Avenue Dealers Pvt. Ltd.) and statements of entry operators. The recorded reasons did not identify any specific nexus between that material and the assessee's transactions, nor did they disclose particulars of alleged bogus transactions, dates, contracts or bank details. The material amounted to generalized suspicion and did not demonstrate a rational, intelligible link such that a reasonably informed AO could form a belief of escapement of income in respect of the assessee. On that basis the Tribunal held that the jurisdictional condition precedent for issuance of notice under section 148 was not satisfied and the reopening was invalid. [Paras 7, 8]

Reopening was invalid for lack of relevant reasons and insufficient nexus to escapement of income; consequent proceedings are null and void.

Independence of Assessing Officer's satisfaction - not dictated by other authorities - Whether the reasons for reopening were independent or impermissibly borrowed/dictated by other authorities - HELD THAT: - The Tribunal noted that reasons must represent the AO's independent satisfaction. While the AO relied upon reports and information received from DDIT(Inv.) and FMC, the recorded reasons did not demonstrate any independent inquiry or specific material connecting the assessee to the alleged scheme. The Tribunal observed that a reopening based solely on information supplied by others without independent application of mind amounts to failure to exercise statutory discretion. [Paras 3, 7, 8]

Reopening could not be sustained as the AO's recorded reasons reflected reliance on external information without an independent foundation.

Evidentiary value of statements recorded during survey - Admissibility/evidentiary weight of statements recorded during survey relied upon by the AO in reassessment - HELD THAT: - The Tribunal reiterated that statements recorded during survey have limited evidentiary value and cannot, by themselves, justify adverse findings in reassessment. The AO's case, as reflected in the reassessment order, shifted reliance to statements and materials gathered later (including statements of broker/sub broker representatives), but the record showed no corroborative material tying the assessee to fictitious transactions. The Exchange's compliance response produced transactional details which did not disclose adverse material against the appellants. In absence of reliable corroboration, reliance on survey statements was insufficient to sustain the reassessment. [Paras 9, 10]

Assessment could not be sustained on the basis of survey statements alone; such material lacked the requisite evidentiary weight here.

Requirement of speaking order on objections to reopening - Validity of reopening where the AO failed to dispose of the assessee's objection by a speaking order - HELD THAT: - The assessee filed objections to the reopening which, as recorded, were not disposed of by a reasoned/speaking order by the AO. Following authoritative precedent, the Tribunal held that a non speaking order on objections to reopening is legally impermissible and vitiates the proceedings. The absence of a reasoned disposal compounded the defect in the already inadequate reasons for reopening. [Paras 9]

Failure to pass a speaking order on the assessee's objections rendered the reopening unsustainable.

Final Conclusion: The Tribunal concluded that the notice under section 148/assessment under section 147 was invalid for want of reasons showing a rational nexus to escapement of income, the AO's reasons were general and not independently founded, reliance on survey statements was insufficient, and the objection to reopening was not disposed of by a speaking order; accordingly the reassessment was quashed and the appeals of the assessees were allowed.

Revisionary jurisdiction under section 263 - re-opening of assessment under section 147 - notice and enquiry under section 133(6) - application of mind by the Assessing Officer - genuineness of purchases and accommodation entries - assessment erroneous and prejudicial to the interests of Revenue - precedential reliance on N.K. Proteins

Revisionary jurisdiction under section 263 - application of mind by the Assessing Officer - assessment erroneous and prejudicial to the interests of Revenue - Validity of the PCIT's exercise of revisionary jurisdiction under section 263 in setting aside the reassessment made under section 147. - HELD THAT: - The Tribunal found that the Assessing Officer re-opened the assessment under section 147 on a reason to believe regarding non genuine purchases and, during assessment proceedings, made specific enquiries from the assessee (stock register, resale identification, quantitative tally, bank statements) and issued a notice under section 133(6) to the selling dealer who confirmed the transactions. Despite the investigation wing's information, the Assessing Officer applied his mind and, on the materials before him, formed an independent view to estimate gross profit at 7% and make an addition. The PCIT's conclusion that the Assessing Officer had not applied his mind or made enquiries was held to be factually unfounded, particularly since the AO had conducted independent verification and recorded reasons. The Tribunal held that setting aside the assessment without any specific direction or additional factual basis, merely because the PCIT would have taken a different view, was not a valid exercise of revisionary power under section 263. [Paras 5, 6]

Order under section 263 was quashed and the assessment order restored.

Genuineness of purchases and accommodation entries - precedential reliance on N.K. Proteins - Appropriateness of relying on the decision in N.K. Proteins to justify revision in the facts of the present case. - HELD THAT: - The Tribunal observed that the facts of N.K. Proteins (involving search and seizure with seized blank cheque books, bill books and letterheads) are materially distinguishable from the present case where the AO had obtained documentary evidence from the assessee and a confirming response from the selling dealer under section 133(6). The PCIT did not specify whether, on revision, the entire purchases should be disallowed or only the profit element assessed; nor did he demonstrate that the factual matrix matched N.K. Proteins. In these circumstances, reliance on that precedent did not furnish a valid factual or legal basis to set aside the assessment already made after enquiries by the AO. [Paras 5]

Reliance on N.K. Proteins held inapplicable; it did not justify exercise of revisionary power in the present facts.

Final Conclusion: The appeal is allowed; the order passed under section 263 is quashed and the assessment order for AY 2009-10 is restored.

Deeming provision of Section 50C - distinction between transfer of land or building and transfer of rights in land or building (leasehold rights) - full value of consideration for capital gains computation under Section 48 - limitation on scope of legal fictions / deeming provisions

Deeming provision of Section 50C - distinction between transfer of land or building and transfer of rights in land or building (leasehold rights) - full value of consideration for capital gains computation under Section 48 - Whether Section 50C is attracted to the transfer of leasehold rights in a shop and the stamp valuation must be treated as full consideration for computing capital gains. - HELD THAT: - Section 50C is a deeming provision which substitutes the value adopted or assessed by the stamp valuation authority as the full value of consideration only in respect of transfer of a capital asset 'being land or building or both'. The deeming fiction cannot be extended beyond the purpose for which it is enacted. The transfer in this case was of 99-year leasehold rights in a fully constructed shop and not of 'land or building' itself. The distinction between transfer of land or building and transfer of 'any right in land or building' is recognized in the statute and other enactments; therefore Section 50C cannot be invoked for mere transfer of leasehold rights. Consequently the actual consideration received by the assessee is to be treated as full value of consideration for computation under Section 48 and the AO is directed to recompute capital gain/loss accordingly. [Paras 18, 19, 20]

Section 50C does not apply to the transfer of the assessee's 99-year leasehold rights in the shop; full value of consideration is the actual sale consideration and capital gains are to be recomputed under Section 48.

Final Conclusion: The Tribunal set aside the CIT(A)'s confirmation; appeal allowed and the AO directed to recompute capital gain/loss treating the actual consideration as full value for AY 2016-17.

Validity of assessment completed under section 143(3) where seized documents relate to the assessee and satisfaction under section 153C is recorded later - construction of the proviso to section 153C with reference to the date of handing over/recording of satisfaction and calculation of six preceding assessment years under section 153A - mandatory issuance of notice under section 153C as condition precedent to proceedings against the 'other person' - effect of omission to frame assessment under section 153C when seized documents are received and satisfaction recorded

Validity of assessment completed under section 143(3) where seized documents relate to the assessee and satisfaction under section 153C is recorded later - construction of the proviso to section 153C with reference to the date of handing over/recording of satisfaction and calculation of six preceding assessment years under section 153A - mandatory issuance of notice under section 153C as condition precedent to proceedings against the 'other person' - Whether the assessment framed under section 143(3) is valid when seized documents belonging to the assessee were received and satisfaction under section 153C was recorded on 29.01.2014, thereby fixing the block of six assessment years as A.Ys. 2008-2009 to 2013-2014 and requiring proceedings under section 153C instead of section 143(3). - HELD THAT: - The Tribunal examined the statutory scheme of sections 153A and 153C and followed the decisions of the jurisdictional High Court and co-ordinate benches which hold that for an "other person" (one whose documents are seized from a searched person) the relevant reference date for construing the period of six assessment years is the date on which the Assessing Officer of that other person receives the seized books/documents or records the satisfaction-i.e., the deemed date of search for that person. Applying that principle to the facts, the impounded documents in the assessee's case were received and satisfaction recorded on 29.01.2014; hence the six assessment years for invoking the special assessment provisions run from A.Y. 2008-2009 to A.Y. 2013-2014. The Assessing Officer therefore was obliged to initiate proceedings under section 153C (and issue the mandatory notice under that provision) and could not validly complete an assessment under section 143(3) for A.Y. 2012-2013. The Tribunal found that no notice under section 153C had been issued before the assessment proceedings and that the Assessing Officer had proceeded under section 143(3) contrary to the legal requirement; relying on precedent, the Tribunal held that the assessment so framed was vitiated and void.

Assessment order passed under section 143(3) quashed as illegal and void for failure to proceed under section 153C with reference to the date of recording of satisfaction (29.01.2014); additions deleted.

Final Conclusion: The appeal is allowed: the assessment for A.Y. 2012-2013 completed under section 143(3) is quashed because the seized documents were received and satisfaction under section 153C recorded on 29.01.2014, making the block A.Ys. 2008-2009 to 2013-2014 and requiring proceedings under section 153C; consequential additions are deleted and merits of the disallowance were left undecided.

Exemption under section 54B - requirements for agricultural land used for two years immediately preceding the date of transfer - capital gains - revision under section 263 - erroneous and prejudicial to the interests of the Revenue - remand for verification of utilisation of capital gains deposit - scope of inquiry under section 263

Exemption under section 54B - requirements for agricultural land used for two years immediately preceding the date of transfer - capital gains - erroneous and prejudicial to the interests of the Revenue - Claim of exemption under section 54B in respect of capital gains on sale of the land in question - HELD THAT: - The Tribunal held that the Pr.CIT rightly invoked revisionary power under section 263 because the assessment order was both erroneous and prejudicial to Revenue insofar as the AO had allowed exemption under section 54B without requisite inquiry. The court examined the twofold requirement of section 54B - (i) the original asset must have been land used for agricultural purposes in the two years immediately preceding the transfer, and (ii) satisfaction of the manner of utilisation of capital gains - and found on record that at the date of transfer the land was not being used for agricultural purposes and was described as fallow. The assessee failed to produce satisfactory evidence of systematic agricultural operations in the two years before transfer; the materials proffered (sparse expense vouchers, Talati certificate and 7/12 entries) did not persuade the Tribunal that the statutory conditions were fulfilled. Since the AO had not made any proper inquiry on this vital aspect and had summarily accepted the claim, the Pr.CIT's conclusion that the assessment was erroneous and prejudicial was affirmed and the disallowance confirmed. [Paras 5, 6]

The claim of exemption under section 54B was disallowed; the revisional order of the Pr.CIT upholding that disallowance is sustained and the appeal on this point is dismissed.

Remand for verification of utilisation of capital gains deposit - capital gains - revision under section 263 - Whether the amount shown deposited in the capital gains account was utilised in accordance with section 54B(2) or required verification - HELD THAT: - Although the primary claim under section 54B was found deficient on merits, the Tribunal addressed the separate factual question whether funds shown in the capital gains saving account were duly applied or diverted. Noting that no evidence on this aspect was placed before the AO and that the AO had accepted the claim without verification, the Pr.CIT correctly remitted this specific issue to the file of the AO for necessary inquiry. The Tribunal found the remand appropriate, observing that such verification does not prejudice the assessee but safeguards Revenue's interest. [Paras 3, 5]

The issue of utilisation/verification of the amounts deposited in the capital gains account is remitted to the AO for enquiry as directed by the Pr.CIT.

Scope of inquiry under section 263 - revision under section 263 - erroneous and prejudicial to the interests of the Revenue - Validity of the addition of brokerage in second round proceedings pursuant to the revisional order - HELD THAT: - The Tribunal held that in the second round of proceedings under section 143(3) read with section 263 the AO was bound by the specific directions issued by the Pr.CIT and could not expand the scope of inquiry beyond those directions. The AO's disallowance of brokerage arose from an inquiry that was not within the remit of the Pr.CIT's revisional directions; therefore the AO exceeded the permissible scope when making that addition. The CIT(A)'s confirmation of the brokerage disallowance was consequently set aside. [Paras 8]

The disallowance of brokerage is deleted; that addition is set aside and the CIT(A)'s confirmation is reversed.

Final Conclusion: For AY 2008-09 the Tribunal upheld the Pr.CIT's revision under section 263 in disallowing the section 54B exemption for lack of requisite agricultural use and evidence, remitted the question of utilisation of capital gains deposits to the AO for verification, and deleted an unrelated brokerage disallowance made by the AO in second round proceedings.

Scope of assessment under section 153A - effect of incriminating material on concluded assessments - classification of income as income from house property versus profits and gains of business - incidence of business character in rental transactions

Scope of assessment under section 153A - effect of incriminating material on concluded assessments - Whether, in proceedings under section 153A consequent to search, Revenue can alter or make additions in assessments which had stood concluded prior to the search in the absence of any incriminating material discovered in the search - HELD THAT: - The Tribunal found as an undisputed fact that assessments for AYs 2010-11 and 2011-12 had stood concluded and were not pending at the time of search. Applying the schematic interpretation of section 153A as expounded by the jurisdictional High Court and other courts, the Tribunal held that the scope of reassessment under section 153A in respect of such unabated/concluded assessments is restricted and additions or realignment of income are permissible only if they relate to incriminating material unearthed in the search. The AO in the present case sought merely to recharacterize income already declared prior to search (from business income to income from house property) without any nexus to incriminating material discovered; such interference therefore fell outside the narrower ambit of section 153A as judicially construed and was held invalid. Consequent appellate orders altering taxability of the concluded years were set aside on this legal ground. [Paras 13, 14]

For AYs 2010-11 and 2011-12 the AO's post-search realignment/addition is impermissible in absence of incriminating material; appeals allowed and AO ousted from making such adjustments.

Classification of income as income from house property versus profits and gains of business - incidence of business character in rental transactions - Whether the rental income from letting three adjoining shops to a cooperative bank is taxable as business income or as income from house property for the pending assessment years - HELD THAT: - For AYs 2012-13 and 2013-14 (assessments pending at the time of search), the Tribunal examined the factual matrix and attendant circumstances. The assessee had let three adjoining shops to a single lessee, declared the receipts as 'other income', placed no lease agreement on record, and there was no evidence of systematic or organized activity or incidental services rendered to the occupier that would characterise the receipts as business income. The memorandum of association showed development and incidental letting as a possible object but did not establish that these particular transactions formed part of carrying on a business with requisite elements (organized effort, business risks, services). Reliance on precedents where letting formed part of trading operations was held misplaced on facts. Applying the statutory scheme and relevant authorities, the Tribunal found the receipts to be passive rent and properly chargeable under the head income from house property, and upheld the Revenue's treatment. [Paras 15, 16, 17]

For AYs 2012-13 and 2013-14 the rental receipts were held to be income from house property (not business income); appeals dismissed.

Final Conclusion: Appeals allowed for AYs 2010-11 and 2011-12 on the ground that section 153A does not permit post-search recharacterisation of concluded assessments in absence of incriminating material; appeals dismissed for AYs 2012-13 and 2013-14 on facts, the rental receipts being passive and taxable as income from house property.

Arm's length price - transfer pricing - remand to Transfer Pricing Officer - capital receipt v. revenue receipt - industrial promotion subsidy - allowance of set-off of losses

Arm's length price - transfer pricing - remand to Transfer Pricing Officer - Adjustment to the arm's length price of royalty paid to Associated Enterprises was not finally determined and the matter was restored for fresh adjudication by the TPO/Assessing Officer. - HELD THAT: - The Tribunal noted that an identical dispute in assessment year 2010-11 had been remitted to the TPO for reconsideration where the TPO had earlier determined the ALP of royalty at nil. The coordinate Bench had directed the TPO to consider the benchmarking report and other material afresh after observing that the DRP had erred in rejecting the report without adequate enquiry. Applying the same reasoning to the present assessments, and in view of identical facts and deficiencies in consideration by authority below, the Tribunal restored the issue to the file of the Assessing Officer/Transfer Pricing Officer for fresh adjudication in accordance with the directions given earlier and allowed the grounds for statistical purposes. [Paras 6, 7]

Issue restored to the Assessing Officer/Transfer Pricing Officer for fresh adjudication in accordance with the Tribunal's earlier directions; grounds allowed for statistical purposes.

Capital receipt v. revenue receipt - industrial promotion subsidy - remand to Assessing Officer - Characterisation of the Sales Tax refund/subsidy received under the industrial promotion subsidy scheme required fresh consideration and was remitted to the Assessing Officer for de novo adjudication. - HELD THAT: - The authorities below rejected the assessee's claim that the sales tax refund/subsidy was a capital receipt largely because the eligibility certificate was in the name of the SPV and the amount was received from a group company. The Tribunal examined the MoU and Annexures to the eligibility certificate and found that material documentary evidence either was not before, or not considered by, the lower authorities. In particular Annexure-B and the MoU indicated investment by multiple consortium members and raised a prima facie case that the assessee might be eligible. Conversely, Annexure-C raised issues regarding direct allocation which were not addressed below. Given these lacunae and the DRP's observation about lack of supporting evidence, the Tribunal directed a fresh adjudication by the Assessing Officer after permitting the assessee to file relevant evidence and explanations. [Paras 14]

Issue remitted to the Assessing Officer for de novo consideration after permitting the assessee to furnish further evidence; grounds allowed for statistical purposes.

Allowance of set-off of losses - Claim for set-off of long-term capital gain and income from other sources against the current year's business loss was to be allowed in accordance with law. - HELD THAT: - Although the Assessing Officer mentioned the set-off in the body of the assessment order, it was omitted from the computation sheet. The Tribunal directed the Assessing Officer to correct the computation and allow the assessee's claim as per law. [Paras 17]

Assessing Officer directed to allow the set-off in accordance with law; ground allowed for statistical purposes.

Final Conclusion: Both appeals were partly allowed: the question on ALP of royalty was restored to the TPO/Assessing Officer for fresh adjudication as per earlier directions; the issue on Sales Tax refund/subsidy under the IPS was remitted for de novo consideration with liberty to the assessee to furnish evidence; the set-off claim was directed to be given effect to by the Assessing Officer. Other consequential and unpressed grounds were not adjudicated or were dismissed.