TaxTMI Updates e-Newsletter
Jan 27,2024

Refund of unutilised Input Tax Credit - Two-year limitation period for refund under Section 54 - Relevant date for refund (date of export) - Clubbed refund claims across months or quarters - Restriction on spanning financial years struck down - Computation of refund with reference to the relevant period under Rule 89 - Remand for readjudication of refund entitlement

Two-year limitation period for refund under Section 54 - Relevant date for refund (date of export) - The refund application was filed within the statutory two-year period computed from the relevant date (date of export). - HELD THAT: - Section 54 provides that any person claiming refund must apply before the expiry of two years from the relevant date. The Explanation to Section 54 defines the relevant date in the case of exported goods as the date on which the ship/aircraft leaves India, the date the goods pass the frontier, or the date of dispatch by post, as applicable. The petitioner's refund claim related to exports made between July 2017 and November 2017 and the refund application filed on 09.01.2019 falls within two years from the relevant export dates. Circular No.37 recognises time-lags between availing ITC and the date of export and permits clubbing of refund claims for more than one calendar month or quarter; the Division Bench of the Delhi High Court in Pitambra Books struck down the Circular's stipulation restricting claims from spanning more than one financial year as curtailing the two-year statutory period. Accordingly, the Court concluded that the petitioner's claim was time barred only if measured contrary to the statutory relevant date; measured correctly, it is within the limitation prescribed by Section 54. [Paras 6, 7]

Refund application relating to the specified exports was filed within the two-year period computed from the relevant export dates.

Clubbed refund claims across months or quarters - Computation of refund with reference to the relevant period under Rule 89 - Restriction on spanning financial years struck down - Remand for readjudication of refund entitlement - The appellate authority's conclusion that refund claims must be confined to a single calendar month was unsustainable; the matter of entitlement is remanded for fresh adjudication taking into account clubbed claims and relevant records. - HELD THAT: - The appellate order treated the refund claim as requiring computation only with reference to a single calendar month, thereby taking values for June 2018 alone to compute entitlement. That approach is contrary to Circular No.37 which permits clubbing of refund claims across more than one calendar month or quarter, and to the Delhi High Court's decision invalidating the Circular's prohibition on spanning financial years. While the High Court found the petition filed within the statutory time-frame, entitlement to refund depends upon factual verification of unutilised ITC and exports and proper application of Rule 89; such factual and quasi technical determination cannot be undertaken in writ proceedings under Article 226. Consequently the appellate order is quashed and the matter is remitted to the 2nd respondent for readjudication after affording the petitioner a reasonable opportunity, with the exercise to be completed within two months from receipt of the order. [Paras 7, 8, 9]

Impugned appellate conclusion limited to a single month is quashed; refund entitlement remanded for fresh adjudication by the assessing authority.

Final Conclusion: Writ petition allowed: appellate order refusing the earlier period refund is quashed. The refund claim is held to be within the two year limitation computed from the date(s) of export. Entitlement must be determined by the assessing authority on merits after verification of records; matter remanded for readjudication within two months.

Remand for fresh consideration due to non-availability of documents - impact of custody of documents with another authority on fair opportunity to reply - quashing of composite assessment order - opportunity of hearing and production of documents before reassessment

Impact of custody of documents with another authority on fair opportunity to reply - remand for fresh consideration due to non-availability of documents - Whether the impugned composite assessment orders must be interfered with because the petitioner was unable to respond to certain defects as relevant books and documents were in the custody of the Central GST authority. - HELD THAT: - The Court found that the petitioner had informed the assessing authority by replies dated 07.01.2023 and 03.07.2023 that relevant books, e-way bills and invoices were not available because they were in the custody of the Superintendent, Office of the Assistant Commissioner of GST and Central Excise, Coimbatore Division-II, and that this non-availability affected the petitioner's ability to respond to defect no.2 and the allegation of circular trading. Although the assessment order was reasoned and one defect (cancellation of e-way bills) was dropped on consideration of the petitioner's reply, the composite assessment adversely affected the petitioner on three defects and the absence of documents materially impaired the petitioner's opportunity to meet two of those defects. In exercise of its discretionary jurisdiction the Court held that interference was warranted not on the merits of the defects but to afford the petitioner a fair opportunity to produce documents and be heard. Consequently the impugned orders were quashed and the matter remanded for reconsideration with directions for the petitioner to file documents within three weeks of receipt of the order and for the assessing officer to afford a reasonable opportunity and pass fresh assessment orders within four months thereafter. [Paras 4, 5]

Impugned assessment orders quashed and matter remanded for fresh consideration to enable the petitioner to produce documents and be heard; timelines for production of documents and passing of fresh orders prescribed.

Final Conclusion: The writ petitions are allowed by quashing the impugned assessment orders and remanding the matters for fresh consideration; the petitioner to produce relevant documents within three weeks and the assessing officer to issue fresh assessment orders within four months after affording a reasonable opportunity to the petitioner. No costs.

Input Tax Credit ineligibility and claimed suppression of purchases (Section 17(5) of the TNGST Act) - Director's remuneration: distinction between salary (contract of service) and fees for services (contract for service) - Application of Circular No.140/10/2020-GST on treatment of director's remuneration - Discrepancies in E-way bill records as a ground for assessment adjustment

Input Tax Credit ineligibility and claimed suppression of purchases (Section 17(5) of the TNGST Act) - Assessing officer's findings on alleged suppression of purchases / non-claim of ITC remitted for fresh consideration - HELD THAT: - The Court found that purchases were reflected in the returns and that ITC was not claimed to the extent the petitioner considered itself ineligible under the statutory exclusions. The impugned orders were not made after taking the relevant aspects into account and it is possible that not all documentary material was placed before the assessing officer. In view of incomplete consideration and material on record, the assessment on this defect is quashed and remitted to the assessing officer for reconsideration on merits after permitting the petitioner to place additional documents. [Paras 6, 9, 10]

Assessment on ITC discrepancies quashed and remitted for fresh consideration with liberty to produce documents; reassessment to be completed within the time directed by the Court.

Director's remuneration: distinction between salary (contract of service) and fees for services (contract for service) - Application of Circular No.140/10/2020-GST on treatment of director's remuneration - Whether performance-linked incentives paid to whole-time directors are taxable under GST or are part of salary exempted as employee consideration remitted for fresh consideration - HELD THAT: - The Court noted that the assessing officer examined balance sheets, Form-16 and Form-26AS, but did not properly apply the clarificatory position in Circular No.140/10/2020-GST which states that remuneration declared as 'Salaries' and subjected to TDS under Section 192 of the Income Tax Act is not taxable as consideration for services by an employee under Schedule II of the CGST Act. While TDS under Section 192 is a material fact, it is not conclusive; the determinative test is whether the payment was made in the course of employment or for services under a contract for service. The impugned orders failed to consider these aspects fully; therefore the matter is quashed and remanded for the assessing officer to examine all documents, including any additional evidence the petitioner may file, and to decide afresh in light of the circular and applicable tests. [Paras 4, 7, 8, 9, 10]

Finding that director incentives are taxable was set aside; matter remitted for fresh adjudication after proper application of Circular No.140/10/2020-GST and consideration of documents, with opportunity to the petitioner to produce evidence.

Discrepancies in E-way bill records as a ground for assessment adjustment - Validity of adjustments made on account of E-way bill discrepancies remitted for fresh consideration - HELD THAT: - The Court recorded that discrepancies relating to E-way bills formed part of the impugned assessments but that the assessing officer had not engaged in full consideration of all relevant materials. Given the Court's conclusion that the impugned orders overall were not sustainable without reassessment based on all documents, the E-way bill related findings are also quashed and remitted for reconsideration by the assessing officer, who must consider any additional material the petitioner files. [Paras 3, 9, 10]

E-way bill related adjustments set aside and remitted for fresh consideration with directions to consider additional documents and complete reassessment within the time fixed.

Final Conclusion: The impugned assessment orders for the financial years 2017-2018, 2018-2019 and 2019-2020 are quashed and the matters remitted to the assessing officer for fresh consideration of (a) alleged suppression of purchases / ITC issues, (b) taxability of performance linked incentives to whole time directors in light of Circular No.140/10/2020 GST and the salary/fees distinction, and (c) E way bill discrepancies; the petitioner may file additional documents within ten days and the reassessment is to be completed within four weeks of receipt.

Reversal of Input Tax Credit on account of supplier being non-existent - Obligation to establish genuineness of transaction for claiming Input Tax Credit - Production of invoices, e-way bills and proof of payment as evidentiary basis for Input Tax Credit - Remand for fresh consideration of documentary evidence

Reversal of Input Tax Credit on account of supplier being non-existent - Production of invoices, e-way bills and proof of payment as evidentiary basis for Input Tax Credit - The impugned assessment order reversing the petitioner's Input Tax Credit in respect of purchases from M/s. Prince Sales Agency was quashed insofar as it concluded that documents under the Act were not produced and that the supplier was non-existent. - HELD THAT: - The High Court found that the petitioner had produced invoices, e-way bills and bank statements showing payment against the relevant invoices and had relied on its written reply which attached those documents. The assessing officer's conclusion that the taxable person had not produced documents under the Act was therefore unsustainable. The order also recorded a finding that the products dealt with by the petitioner differed from those dealt with by the supplier, but that contention was not raised in the intimation or show cause notice antecedent to the assessment order; holding a substantive finding on that point without prior notice was impermissible. For these reasons the court held that the impugned order failed to duly consider the documentary evidence adduced by the petitioner and could not stand.

Impugned order quashed to the extent it reversed the claimed Input Tax Credit and recorded findings without due regard to the documentary evidence and without proper notice.

Remand for fresh consideration of documentary evidence - Obligation to establish genuineness of transaction for claiming Input Tax Credit - The matter was remanded to the assessing officer for reconsideration of the claim of Input Tax Credit after giving the petitioner an opportunity to produce or supplement documentary evidence. - HELD THAT: - Having quashed the impugned order, the Court directed that the petitioner be permitted to file any additional documents within ten days of receipt of the order. The assessing officer was required to afford a reasonable opportunity to the petitioner to be heard, to consider the documents on record including any additional material, and to pass a fresh assessment order within four weeks of receipt of those documents. The remand contemplates an adjudicative re-evaluation of the genuineness of the transactions in light of the evidence, leaving the merits to be finally determined by the assessing officer on reassessment.

Matter remanded for fresh consideration; petitioner may file additional documents within ten days and assessing officer to pass fresh assessment within four weeks thereafter.

Final Conclusion: The writ petition is disposed of by quashing the impugned assessment order insofar as it reversed the Input Tax Credit; the matter is remanded for fresh consideration after receipt of any additional documents within ten days and after affording the petitioner a reasonable opportunity, with a direction to the assessing officer to pass a fresh assessment order within four weeks; no order as to costs.

Personal hearing - natural justice - reasoned order - reasonable period for disposal of statutory appeals - refund of unutilised IGST credit - zero rated supply - right to carry on business under Article 19(1)(g)

Personal hearing - natural justice - reasoned order - Appellate authority must grant a personal hearing to the petitioner before passing orders in the pending refund appeals. - HELD THAT: - The Court held that principles of natural justice require that the Joint Commissioner of State Tax (Appeals), who is the appellate authority deciding the appeals, must give the petitioner an opportunity of personal hearing in each of the said appeals before passing any order. The petitioner had repeatedly sought personal hearings, attended hearings where no record was provided and where hearings were conducted by an assistant rather than the appellate authority; having not been afforded a proper personal hearing, it is necessary to direct that such hearings be granted prior to adjudication. The Court accordingly directed that personal hearings be provided in the said appeals. [Paras 15, 17]

Respondent No. 4 is directed to give the petitioner an opportunity of personal hearing in each of the said appeals before passing orders.

Reasonable period for disposal of statutory appeals - reasoned order - right to carry on business under Article 19(1)(g) - Pending appeals must be decided within a reasonable time, and here the appellate authority was directed to decide the appeals within six weeks. - HELD THAT: - The Court observed that even where a statute does not prescribe a time limit for disposal by an appellate authority, orders must be passed within a reasonable period. The appeals were filed in 2019, 2020 and 2021 and, notwithstanding disruption from the COVID-19 pandemic, the appellate authority ought to have decided them by the date of this order. Continued delay prejudices the petitioner and may impinge upon its right to carry on business guaranteed under Article 19(1)(g). For these reasons the Court directed the Joint Commissioner of State Tax (Appeals) to decide the said appeals within six weeks from the date the order is intimated to him, after providing the petitioner the personal hearings directed above. [Paras 16, 17]

Respondent No. 4 is directed to pass reasoned orders in the said appeals within six weeks after affording the petitioner personal hearings.

Final Conclusion: The writ petition was allowed; the Joint Commissioner of State Tax (Appeals) was directed to grant personal hearings to the petitioner in the listed refund appeals and to decide those appeals by passing reasoned orders within six weeks from intimation of this order. Rule made absolute; no order as to costs.

Cancellation of registration with retrospective effect under Section 29(2) of the Central Goods and Services Tax Act, 2017 - Requirement of objective satisfaction for retrospective cancellation - Failure to file returns as ground for cancellation - Effect of prior voluntary application for cancellation - Consequences of retrospective cancellation on third party input tax credit

Cancellation of registration with retrospective effect under Section 29(2) of the Central Goods and Services Tax Act, 2017 - Requirement of objective satisfaction for retrospective cancellation - Consequences of retrospective cancellation on third party input tax credit - Effect of prior voluntary application for cancellation - Validity of cancelling the petitioner's GST registration retrospectively from 01.07.2017. - HELD THAT: - The Court held that retrospective cancellation under the statutory power cannot be mechanical or purely subjective; the proper officer must have objective satisfaction and consider relevant consequences before fixing a retrospective date. The record contained no material explaining why cancellation should be backdated to 01.07.2017 and the Show Cause Notice did not put the petitioner on notice of retrospective cancellation, depriving the petitioner of an opportunity to object. The Court observed that retrospective cancellation can affect third parties (for example, denial of input tax credit) and such consequences ought to be taken into account when deciding the retrospective effective date. In the exercise of its supervisory jurisdiction the Court modified the operative date of cancellation to 06.05.2019, the date on which the petitioner had applied for voluntary cancellation, while leaving open the respondent's right to recover any tax, interest or penalty in accordance with law. [Paras 4, 5, 7, 8, 9]

Order of retrospective cancellation from 01.07.2017 is unsustainable; cancellation is modified to operate from 06.05.2019.

Failure to file returns as ground for cancellation - Effect of prior voluntary application for cancellation - Sustainability of cancelling registration on the ground of non filing of returns when the petitioner had already applied for cancellation. - HELD THAT: - The Court noted that the petitioner submitted an application for cancellation on 06.05.2019 and thereafter the registration was cancelled. Once registration stands cancelled there is no obligation to file returns for periods after cancellation. Therefore, cancelling the registration on the ground that the taxpayer had not filed returns is not sustainable where the non filing is consequent upon an earlier application for cancellation and the registration had been cancelled. The Court set aside the cancellation insofar as it sought retrospective effect to a date prior to the application for cancellation. [Paras 6, 9]

Cancellation premised on non filing of returns is unsustainable in the circumstances; registration is treated as cancelled from the date of the petitioner's cancellation application.

Final Conclusion: The writ petition is allowed in part: the retrospective cancellation to 01.07.2017 is set aside and the GST registration is held to be cancelled with effect from 06.05.2019; respondents remain free to pursue recovery of any tax, interest or penalty as per law.

Cancellation of GST registration with retrospective effect - objective satisfaction required for retrospective cancellation - failure to furnish returns under Section 39 of the Goods and Services Tax Act, 2017 - power of the proper officer under Section 29(2) of the Central Goods and Services Tax Act, 2017 - consequences of retrospective cancellation on recipient's input tax credit

Cancellation of GST registration with retrospective effect - objective satisfaction required for retrospective cancellation - power of the proper officer under Section 29(2) of the Central Goods and Services Tax Act, 2017 - Validity of retrospective cancellation of the petitioner's GST registration and the standard for exercising that power - HELD THAT: - The Court held that the power to cancel registration retrospectively under Section 29(2) is not to be exercised mechanically or subjectively. Retrospective cancellation is permissible only where the proper officer, on objective criteria, deems it fit to do so. Mere failure to file returns for a period does not automatically justify cancelling registration with retrospective effect covering periods when returns were filed and the taxpayer was compliant. The Show Cause Notice did not put the petitioner on notice of retrospective cancellation, depriving the petitioner of an opportunity to object to such retrospective effect. In the absence of material explaining why cancellation should operate from 11.01.2020, the Court found the retrospective commencement unjustified and modified the order to a date tied to the initiation of proceedings. [Paras 7, 8, 9, 11]

Order of cancellation modified so as to operate from 08.11.2020 (date of issuance of Show Cause Notice and suspension), since retrospective cancellation from 11.01.2020 was not supported by objective satisfaction or notice.

Failure to furnish returns under Section 39 of the Goods and Services Tax Act, 2017 - consequences of retrospective cancellation on recipient's input tax credit - Consideration of collateral consequences before ordering retrospective cancellation - HELD THAT: - The Court observed that one consequence of retrospective cancellation is denial of input tax credit to the taxpayer's recipients for supplies made during the retrospective period. While it did not undertake an exhaustive examination of this aspect, the Court noted that such consequences are relevant and ought to be considered by the proper officer before directing retrospective cancellation; retrospective effect should be ordered only where such consequences are intended and warranted. [Paras 10]

Proper officer must consider collateral consequences, including impact on recipients' input tax credit, before directing retrospective cancellation; absence of such consideration contributed to modification of the retrospective date.

Power of the proper officer under Section 29(2) of the Central Goods and Services Tax Act, 2017 - Whether respondents are precluded from recovery actions following modification of retrospective date - HELD THAT: - The Court clarified that modification of the retrospective commencement of cancellation does not bar the respondents from pursuing recovery of any tax, penalty or interest due from the petitioner in accordance with law. The decision to limit the retrospective effect was without prejudice to the respondents' statutory rights of recovery. [Paras 12]

Respondents are not precluded from taking steps for recovery of tax, penalty or interest in accordance with law despite modification of the cancellation date.

Final Conclusion: The petition is disposed of by modifying the impugned cancellation order so that GST registration is cancelled with effect from 08.11.2020 (date of Show Cause Notice and suspension); retrospective cancellation from 11.01.2020 lacked objective basis and notice, and respondents remain entitled to recover any tax, penalty or interest due in accordance with law.

Cancellation of GST registration with retrospective effect - requirement of specific reasons and particulars in show cause notice - objective satisfaction for retrospective cancellation under Section 29(2) of the Central Goods and Services Tax Act, 2017 - opportunity of hearing before imposing retrospective cancellation - consideration of consequences on recipients' input tax credit

Requirement of specific reasons and particulars in show cause notice - opportunity of hearing before imposing retrospective cancellation - Validity of the show cause notice and the cancellation order in the absence of specific provisions cited, particulars of non-compliance and prior notice of retrospective cancellation. - HELD THAT: - The Court held that the Show Cause Notice merely alleged "non-compliance of any specified provisions" without identifying the specific statutory provisions or particulars of non-compliance, and did not inform the petitioner that cancellation, if ordered, would be retrospective. Similarly, the impugned order recorded only "Response not received" and imposed retrospective cancellation without stating reasons or material justifying retrospective effect. As a result the petitioner was deprived of an effective opportunity to contest the allegation and the retrospective consequence. The absence of reasoning and particulars rendered both the Show Cause Notice and the cancellation order unsustainable. [Paras 3, 4, 5, 6]

Show Cause Notice and cancellation order set aside as bereft of reasoning and particulars; registration restored.

Objective satisfaction for retrospective cancellation under Section 29(2) of the Central Goods and Services Tax Act, 2017 - cancellation of GST registration with retrospective effect - consideration of consequences on recipients' input tax credit - Scope and limits of power under Section 29(2) to cancel registration retrospectively. - HELD THAT: - The Court explained that while Section 29(2) permits cancellation from such date as the proper officer may deem fit, retrospective cancellation cannot be mechanical or purely subjective. The proper officer must form an objective satisfaction based on material and not merely on non-filing of returns; retrospective cancellation cannot be extended to periods when the taxpayer was compliant. Further, the officer is required to have regard to consequences of retrospective cancellation-including potential denial of input tax credit to recipients-and such consequences must inform the exercise of the power to cancel retrospectively. [Paras 7, 8]

Retrospective cancellation permissible only upon objective satisfaction supported by material and after due consideration of consequences; cannot be imposed mechanically.

Cancellation of GST registration with retrospective effect - opportunity of hearing before imposing retrospective cancellation - Relief and prospective procedure following setting aside of the impugned order. - HELD THAT: - The Court set aside the Show Cause Notice and cancellation order and restored the petitioner's registration, directing the petitioner to file requisite returns up to date. The respondents were left free to take further action in accordance with law, including issuance of a proper Show Cause Notice and consideration of cancellation with retrospective effect, but only after providing a lawful opportunity of hearing and applying the legal principles identified by the Court. The respondents are also not precluded from pursuing recovery of any tax, penalty or interest in accordance with law. [Paras 9, 10, 11]

Registration restored; petitioner to file returns; respondents may proceed afresh in accordance with law after issuing proper notice and affording opportunity.

Final Conclusion: The Show Cause Notice and retrospective cancellation order were quashed for want of particulars, reasoning and prior notice of retrospective effect; registration restored and petitioner directed to file returns; respondents may, if justified by objective material and after affording a proper hearing and considering consequences (including effect on input tax credit), initiate fresh proceedings lawfully, including prospective or retrospective cancellation and recovery of dues.

Service of order as triggering limitation - computation of limitation from date of communication - condonation of delay under Section 107(4) of the Central Goods and Services Tax Act, 2017 - appeal maintainability on limitation ground

Service of order as triggering limitation - computation of limitation from date of communication - appeal maintainability on limitation ground - Whether the appeal was barred by limitation when the Order-in-Original had not been served on the petitioner until 07.03.2023 and the appeal was filed on 22.05.2023. - HELD THAT: - The Court recorded that the Department's records show the Order-in-Original, though posted on 30.12.2022, was returned undelivered on 04.01.2023 with the remark 'no such firm' and no further steps were taken by the Department to effect service. The petitioner was delivered a copy of the order on 07.03.2023. Given that limitation for filing an appeal runs from the date of service/communication of the order, the period for filing the appeal commenced on 07.03.2023. As the statutory limitation for the appeal is ninety days from service, the appeal filed on 22.05.2023 fell within the prescribed period when computed from 07.03.2023. The Commissioner (Appeals)'s rejection solely on the ground of delay was therefore unsustainable because it had not taken into account the actual date of service shown on the record. [Paras 4, 5]

Impugned Order-in-Appeal dated 14.07.2023 set aside; appeal restored to original number on the records of the Commissioner (Appeals) for further hearing, and parties to be intimated of the next date.

Final Conclusion: The petition succeeds: the Court held limitation for the appeal began on the date the Order-in-Original was actually served (07.03.2023), found the appeal filed on 22.05.2023 to be within time, set aside the order rejecting the appeal as time-barred and restored the appeal for adjudication on merits.

Caution notice - payment of interest - equitable relief by installment of statutory dues - payment in instalments - consequences of default

Caution notice - payment of interest - payment in instalments - consequences of default - Direction to pay amounts demanded in the caution notice by way of three equal monthly instalments and permission for the respondent to act on default. - HELD THAT: - The petitioner contested a caution notice calling for payment of interest in respect of four assessment years and sought time to pay on account of business disruption during the Covid-19 pandemic, noting earlier proceedings before the Court. The respondent accepted notice and sought that interest be paid expeditiously. Having taken note of the petitioner's position and the earlier order, the Court disposed of the writ petition by permitting payment of the amounts demanded in the caution notice in three equal monthly instalments, prescribing the schedule for payment and expressly clarifying that the respondent remains at liberty to take action in accordance with law in the event of default by the petitioner. The order is administrative-relief oriented and does not adjudicate the substantive correctness of the demand beyond directing payment on the stated terms.

Petitioner directed to pay the amounts demanded in the caution notice in three equal monthly instalments on the prescribed dates; respondent may take action as per law on default.

Final Conclusion: Writ petition disposed by permitting the petitioner to pay the demanded interest in three equal monthly instalments on specified dates; respondent authorised to proceed in accordance with law in case of default; connected W.M.P.Nos.35347 and 35348 of 2023 closed.

Reopening of assessment under Section 147 - notice under Section 148 - reason to believe - full and true disclosure of material facts - change of opinion as a bar to reassessment - defective versus invalid return under Section 139(9)(f) - best judgment assessment under Section 144 - limitation/proviso to Section 147 (extended period)

Reopening of assessment under Section 147 - notice under Section 148 - reason to believe - change of opinion as a bar to reassessment - limitation/proviso to Section 147 (extended period) - Validity of reassessment orders for AYs 1990-91, 1991-92 and 1992-93 which were initiated by notices under Section 148 and framed under Section 147/144. - HELD THAT: - The Court held that the assessing officer's asserted 'reason to believe' rested solely on a comparison between a balance sheet obtained from the South Indian Bank (earlier discarded as unreliable by CIT(A)) and the subsequently filed 1993-94 balance sheet. There was no fresh, reliable material beyond that balance-sheet comparison; the original assessments had been completed under Section 143(3) after enquiry. The formation of belief was thus a reappraisal of the same facts amounting to a mere change of opinion and not the exercise of jurisdiction under Section 147. Reliance on an earlier bank-filed balance sheet which had been rejected in prior appellate proceedings negated the existence of specific, reliable information sufficient to form a bona fide reason to believe that income had escaped assessment. Consequently the reassessments were barred as being founded on change of opinion and not on fresh material justifying reopening within the extended period. [Paras 38, 40, 41, 42, 45]

Reassessment orders quashed and notices under Section 148 held not to sustain valid reopening; Tribunal's allowance of appeals restored.

Full and true disclosure of material facts - defective versus invalid return under Section 139(9)(f) - best judgment assessment under Section 144 - Whether the assessees' returns (filed without regular books of account) were defective/invalid under Section 139(9)(f) so as to permit reassessment. - HELD THAT: - The Court found that although the returns lacked regular balance-sheets, there is no record that the assessing officer invoked Section 139(9) by intimating defects and treating the returns as invalid. The assessing officer accepted and proceeded with assessments under Section 143(3), having examined the available particulars and statements. A defective return becomes invalid only if the assessing officer exercises his discretion to intimate and treat it as such; absent such exercise, the return cannot be construed as invalid to justify reopening. The assessee had furnished tentative profit & loss statements, cash-flow and source-application particulars which were considered in the original assessments; there was no allegation of false disclosure. [Paras 43, 44]

Returns were not to be treated as invalid for the purpose of reopening; non-filing of regular books without exercise of Section 139(9) discretion did not sustain reassessment.

Final Conclusion: The common order of the High Court is set aside and the Tribunal's common order dated 29.10.2004 is restored; the reassessment orders for AYs 1990-91, 1991-92 and 1992-93 are quashed and the civil appeals are allowed.

Generalia specialibus non derogant - non-obstante clause - public interest test under Section 138(1)(b) of the Income Tax Act - third party notice under Section 11 of the RTI Act - overriding effect of a general statute

Generalia specialibus non derogant - non-obstante clause - public interest test under Section 138(1)(b) of the Income Tax Act - Whether the disclosure regime under Section 138 of the Income Tax Act prevails over the general disclosure regime under the RTI Act so as to preclude the CIC from directing furnishing of information held by the Income Tax Department. - HELD THAT: - The Court held that the Income Tax Act is a special enactment governing disclosure of information relating to assessees and that Section 138(1)(b) prescribes a specific procedure: information relating to an assessee may be furnished only if the designated income-tax authority is satisfied that disclosure is in the public interest, and Section 138(2) contains a non-obstante clause enabling restrictions by the Central Government. Applying the principle that special provisions prevail over general ones (generalia specialibus non derogant), the Court concluded that Section 138(1)(b) and (2) of the Income Tax Act override the general non-obstante provision in Section 22 of the RTI Act where the information sought falls within Section 138. Consequently, the CIC lacked jurisdiction to direct disclosure of information covered by Section 138 absent the satisfaction contemplated by that provision. [Paras 13, 15, 18, 21]

Section 138 of the Income Tax Act prevails over the RTI Act for information covered thereby; CIC could not direct disclosure without compliance with Section 138.

Third party notice under Section 11 of the RTI Act - overriding effect of a general statute - Whether the CIC's order was vitiated by failure to give notice to the third party (PM CARES Fund) under Section 11 of the RTI Act before directing disclosure. - HELD THAT: - The Court observed that the information was sought from the Income Tax Department and related to a third party, the PM CARES Fund. Section 11 of the RTI Act requires that where the CPIO intends to disclose information supplied by a third party and treated as confidential, notice must be given and the third party be afforded an opportunity to make representations; disclosure may be allowed only if public interest outweighs harm. The CIC did not follow the procedural safeguard of serving notice and obtaining or considering the third party's representations. Independently of the primacy of Section 138, the failure to comply with Section 11 procedure rendered the CIC's direction unsustainable. [Paras 20, 22]

CIC's order was vitiated for failure to give the PM CARES Fund notice as required by Section 11; disclosure could not be ordered without following that procedure.

Final Conclusion: Writ petition allowed; the CIC order dated 27.04.2022 directing disclosure is set aside because information covered by Section 138 of the Income Tax Act cannot be directed to be furnished by the CIC in absence of the satisfaction required under Section 138, and because the CIC failed to comply with the third party notice procedure under Section 11 of the RTI Act.

Reopening of assessment under Section 148 read with Section 147 - third proviso - Jurisdictional bar where income is the subject matter of an appeal - Commercial receipts falling within proviso to Section 2(15) - Entitlement of a charitable trust to claim depreciation

Reopening of assessment under Section 148 read with Section 147 - third proviso - Jurisdictional bar where income is the subject matter of an appeal - Commercial receipts falling within proviso to Section 2(15) - Validity of reopening assessment by issuance of notice under Section 148 on ground that main activity of giving hall on rent is commercial and exemption under Section 11 was to be withdrawn - HELD THAT: - The Assessing Officer recorded reasons to reopen on the ground that the petitioner's hall and premises receipts were commercial in nature and thus attracted the proviso to Section 2(15), leading to withdrawal of exemption under Section 11. However, the question of grant of exemption under Section 11 was earlier adjudicated in the assessment order, carried in appeal, and allowed by the Commissioner of Income-tax (Appeals). The third proviso to Section 147 bars assessment or reassessment of income which is the subject matter of any appeal. Because the benefit of Section 11 was the subject matter of an appeal and the appellate authority decided in favour of the assessee, the Assessing Officer lacked jurisdiction to reopen the same issue by issuing notice under Section 148. The reopening therefore was legally impermissible insofar as it sought to revisit an issue already decided on appeal. [Paras 17, 18, 19, 21]

Reopening on the ground of commercial nature of hall/premises receipts and withdrawal of Section 11 exemption is invalid as the matter was the subject matter of an appeal decided in favour of the assessee.

Entitlement of a charitable trust to claim depreciation - Reopening of assessment under Section 148 read with Section 147 - third proviso - Validity of reopening to disallow claim of depreciation claimed by the charitable institution - HELD THAT: - The Assessing Officer recorded an additional reason for reopening alleging disallowance of depreciation. The claim to depreciation by a charitable trust had been raised and was part of the matters dealt with in the earlier assessment and appeal proceedings. Further, the Supreme Court has held that a charitable trust is eligible to claim depreciation. Given that the depreciation claim was the subject matter of appeal and decided in favour of the assessee, the third proviso to Section 147 prevents reassessment of that issue. Accordingly, the reopening could not be sustained insofar as it sought to revisit the depreciation claim. [Paras 14, 17, 19, 20]

Reopening to disallow the depreciation claim is not maintainable because the issue was the subject matter of appeal and the law recognises that a charitable trust may claim depreciation.

Final Conclusion: The rule is made absolute and the petition is allowed: the notice of reopening under Section 148 is invalid insofar as it seeks to reassess issues (withdrawal of Section 11 exemption and disallowance of depreciation) that were the subject matter of earlier appeal decided in favour of the petitioner; petition disposed.

Condonation of delay and liberal construction of "sufficient cause" - advancement of substantial justice over hyper technical/ pedantic limitation objections - power under Section 264 of the Income tax Act to call for records and grant relief - scope of Section 264 not limited by intimation under Section 143(1) - revisional jurisdiction to correct errors and grant refunds

Condonation of delay and liberal construction of "sufficient cause" - advancement of substantial justice over hyper technical/ pedantic limitation objections - Whether the Commissioner was justified in rejecting the application under Section 264 on the ground of substantial delay without condoning the same - HELD THAT: - The Court held that authorities empowered to condone delay must adopt a liberal, justice oriented approach and give the phrase 'sufficient cause' a broad construction so as to advance substantial justice. Judicial authorities, including the Apex Court in Collector, Land Acquisition v. Katiji and subsequent High Court precedents relied upon in the judgment, require that delay not be rejected on hyper technical grounds when no deliberate, mala fide or culpable negligence is shown and when refusal to condone would defeat a meritorious claim. The revisional power under Section 264 is coupled with a duty to act according to rules of reason and justice and the authority may, in an appropriate case, consider merits while deciding condonation. Given that the CIT(A) took many years to decide the related appeal, the Commissioner ought to have considered condoning delay and proceeded to decide the Section 264 application on merits rather than rejecting it solely for delay. The Court therefore quashed the rejection and directed the Commissioner to consider the application afresh, hear the petitioner in a personal hearing and pass a reasoned order by a stipulated date. [Paras 5, 6, 9, 11, 12]

The order rejecting the Section 264 application for delay is quashed; respondent is directed to consider condoning the delay and to hear and decide the application on merits with a reasoned order.

Power under Section 264 of the Income tax Act to call for records and grant relief - scope of Section 264 not limited by intimation under Section 143(1) - revisional jurisdiction to correct errors and grant refunds - Whether an intimation under Section 143(1) precludes exercise of the Commissioner's powers under Section 264 to grant relief or rectify errors - HELD THAT: - The Court, relying on earlier Division Bench and other High Court authorities, held that the powers under Section 264 are wide and are not constrained by the nature of an intimation under Section 143(1). Section 264 empowers the Commissioner to call for records of any proceedings and pass orders not prejudicial to the assessee to grant relief in cases of overassessment or where a legitimate claim was not granted earlier. The existence of an intimation under Section 143(1) does not oust the Commissioner's jurisdiction to examine whether the assessee's income was taxable or to grant relief where appropriate. Consequently, the Commissioner should apply his mind to the merits of the Section 264 application rather than treat the Section 143(1) intimation as a bar to revision. [Paras 10, 11, 12]

The view that an intimation under Section 143(1) is a bar to exercise of power under Section 264 is rejected; respondent is directed to decide the Section 264 application on merits.

Final Conclusion: Writ petitions allowed; impugned order dated 06.03.2019 set aside. Respondent No.2 is directed to consider the petitioner's Section 264 application afresh on merits, to give at least 7 working days' notice of a personal hearing, permit filing written submissions within three working days after the hearing, and pass a reasoned order on or before 31 May 2024.

Provisional attachment of property - attachment void ab initio on expiry of statutory period - validity and extension of provisional attachment under Section 222(2)(b) of the Income Tax Act - absence of tax liability disentitles revenue to maintain attachment - remand after appellate set-aside and consequential refund/adjustment

Remand after appellate set-aside and consequential refund/adjustment - absence of tax liability disentitles revenue to maintain attachment - Whether attachment on the petitioner's immovable properties can be continued after the assessment orders for AY 2012-13 to 2018-19 were set aside, fresh assessments deleted the additions and a refund was worked out and found adjusted against existing demands. - HELD THAT: - The Income Tax Appellate Tribunal set aside the original assessment orders and remitted the matters to the assessing authority, which on fresh assessment deleted the earlier additions and worked out a refund in respect of the assessment years 2012-13 to 2018-19 that was adjusted against existing demands. The Court recorded that, where there is no tax liability on the petitioner for which property may be attached, there is no justification to continue an attachment. Having noted the respondents' statement that no attachment survives, the Court found no subsisting basis to maintain restraint on the petitioner's properties and accordingly disposed of the petition on that footing.

Attachment cannot be continued where fresh assessments have eliminated the tax liability and refund/adjustment has been found; no subsisting attachment exists on the petitioner's properties.

Provisional attachment of property - validity and extension of provisional attachment under Section 222(2)(b) of the Income Tax Act - attachment void ab initio on expiry of statutory period - Whether the provisional attachments effected against the petitioner remain operative where the last provisional attachment was dated 30.12.2019. - HELD THAT: - The respondents stated that a provisional attachment is valid for six months from the date of the order unless extended with competent authority approval, and that total extension cannot exceed two years or sixty days from the date of assessment order, so that on expiry of the prescribed period the attachment becomes void ab initio. The respondents specifically recorded that the petitioner's last provisional attachment dated 30.12.2019 was valid only for six months and thereafter became void ab initio. The Court accepted that stand and treated the attachments as having ceased to operate.

The provisional attachments alleged against the petitioner expired and are null and void as of date; no provisional attachment subsists.

Final Conclusion: The writ petition is disposed of on the respondents' recorded statement that the provisional attachments have expired and become void and that, following remand and fresh assessments for AY 2012-13 to 2018-19 which removed the liability and resulted in a refund/adjustment, there is no attachment on the petitioner's properties; the petitioner is free to deal with the properties.

Fair market value for capital gains computation - Indexed cost of acquisition - Cost of improvement and renovations as part of cost of new asset for deduction - Admissibility of renovation/furnishing expenses for deduction under section 54/54F - Burden of proof and corroborative evidence for valuation

Fair market value for capital gains computation - Indexed cost of acquisition - Burden of proof and corroborative evidence for valuation - Adoption of fair market value as on 01.04.1981 for computation of indexed cost of acquisition - HELD THAT: - The Tribunal examined the valuer's report produced by the assessee, the information obtained under section 133(6) from the allotting authority and the reasoning of the AO and CIT(A). It held that the AO was correct in rejecting inclusion of post-sale construction/site-development costs as part of the asset sold, since the registered sale deed showed only a small watchman room in existence at the time of sale. The Tribunal accepted the government approved valuer's corroborative valuation for land at Rs. 1,20,000 as the fair market value of land on 01.04.1981 and directed addition of the watchman room value of Rs. 45,000 (as declared in the sale deed) while displacing the CIT(A)'s arbitrary estimate of Rs. 50,000. The Tribunal noted that if the AO doubted the valuer's report, the proper course would have been to refer the matter to the DVO, but on the record the valuer's report constituted adequate corroboration to modify the earlier findings. [Paras 5]

Fair market value on 01.04.1981 to be adopted as Rs. 1,20,000 for land (indexation benefit) and Rs. 45,000 for the watchman room (without indexation); Ground No.1 partly allowed.

Cost of improvement and renovations as part of cost of new asset for deduction - Admissibility of renovation/furnishing expenses for deduction under section 54/54F - Allowability of indexed renovation/development expenses claimed in computing cost of the asset - HELD THAT: - The Tribunal reaffirmed that only those improvements or constructions which formed part of the property at the time of transfer can be included in cost for computation of capital gains. The registered sale deed showed only the watchman room as part of the property at the time of sale; therefore renovation or construction costs for non existent building works could not be allowed. The assessee's architect certificate and bank evidence did not alter the factual position in the sale deed. Consequently, the Tribunal sustained the disallowance of the claimed renovation expenditure except to the extent of the watchman room value already included. [Paras 6]

Claim for indexed renovation expenses disallowed except as already accounted for by inclusion of Rs. 45,000 for the watchman room; Ground No.2 disallowed.

Admissibility of renovation/furnishing expenses for deduction under section 54/54F - Cost of improvement and renovations as part of cost of new asset for deduction - Extent to which expenditure incurred to convert multiple purchased flats into one residential unit is allowable for deduction under section 54 - HELD THAT: - Following the principle that expenditure incurred to render a newly acquired house habitable may form part of the cost of the new asset, the Tribunal accepted in principle that alterations/furnishing for making flats habitable are eligible for deduction. However, on the facts the departmental inspection and evidence showed that only two flats (nos. 502 and 503) were interconnected and used by the assessee as residence while flats 501 and 504 were let out to third parties. Because the assessee did not furnish specifics of expenditure apportionable to each flat, the Tribunal allowed 50% of the total improvement expenditure as relating to the portion actually used as residence by the assessee and disallowed the remainder. [Paras 7]

Improvement/expenditure in new residential house allowed to the extent of Rs. 32.5 lakhs (50% of claimed amount) and balance disallowed; Ground No.3 partly allowed.

Admissibility of renovation/furnishing expenses for deduction under section 54/54F - Indexed cost of acquisition - Quantum of exemption under section 54 consequential to findings on fair market value, renovation and investment in new residential property - HELD THAT: - The Tribunal held that the deduction under section 54 is consequential upon the adjustments made to (a) the adopted fair market value as on 01.04.1981, (b) the allowed renovation/improvement costs, and (c) the portion of subsequent investment qualifying as purchase/improvement of the new residential house. It directed recomputation of the section 54 deduction in accordance with its determinations on Grounds 1, 2 and 3. [Paras 8]

Claimed exemption under section 54 to be recomputed in terms of the Tribunal's directions; Ground No.4 partly allowed.

Final Conclusion: The assessee's appeal is partly allowed: the fair market value as on 01.04.1981 is adopted at Rs. 1,20,000 (land, with indexation) plus Rs. 45,000 (watchman room, without indexation); claimed renovation expenses are disallowed except as reflected in the sale deed; expenditure to convert purchased flats into a single residence is allowed only to the extent of 50% of the claimed amount; and the exemption under section 54 is to be recomputed accordingly.

Transfer by extinguishment of rights - reduction of share capital as transfer within section 2(47) - application of section 48 - computability when consideration is nil - capital loss arising from reduction of capital - allowability and set off - revisionary jurisdiction under section 263 - scope where a possible view taken by AO - cost of acquisition of remaining shares under section 55(2)(v)(b)

Revisionary jurisdiction under section 263 - scope where a possible view taken by AO - Whether the Principal Commissioner was justified in invoking section 263 to cancel the assessment order where the Assessing Officer had accepted the assessee's claim on a possible view - HELD THAT: - The Tribunal held that section 263 could not be invoked where the Assessing Officer had taken a possible view after considering material and relevant judicial precedents and had allowed the long term capital loss. The existence of an arguable and legally tenable view taken by the AO defeats the jurisdiction under section 263 to declare the assessment order erroneous and prejudicial to revenue. Having found that the AO's conclusion was a possible view open on the facts and law, the revisionary order was not sustainable and was set aside. [Paras 27, 41, 42]

Order under section 263 cancelling the assessment order is set aside; appeal allowed on this ground.

Reduction of share capital as transfer within section 2(47) - transfer by extinguishment of rights - Whether the reduction/cancellation of shares pursuant to the court sanctioned scheme amounted to a 'transfer' within the meaning of section 2(47) - HELD THAT: - Relying on Supreme Court and High Court authorities, the Tribunal held that reduction of share capital effected under the sanctioned scheme resulted in extinguishment of shareholders' rights and therefore amounted to a transfer within section 2(47). The fact that shares were extinguished as part of a scheme under the Companies Act did not negate that legal character; extinguishment of rights on shares engages the transfer definition. [Paras 30, 33, 38]

The reduction of capital constituted a transfer within section 2(47).

Application of section 48 - computability when consideration is nil - capital loss arising from reduction of capital - allowability and set off - Whether the computation provisions of section 48 fail when no monetary consideration is received on reduction of capital, and whether a capital loss arising from such reduction is allowable and can be set off - HELD THAT: - The Tribunal applied the principle from D.P. Sandhu and other decisions distinguishing assets whose acquisition cost is inherently inconceivable from cases where consideration is ascertainable (even if nil). It accepted the Gujarat High Court reasoning that where extinguishment is treated as a deemed transfer, the computation machinery (section 48) applies and may yield a negative balance; a 'nil' or zero receipt does not render the computation inapplicable. On the facts the assessee had an ascertainable cost of acquisition and suffered an actual capital loss when its shareholding was reduced; therefore the loss was not merely notional and was allowable as a capital loss to be set off as per law. [Paras 34, 35, 36, 38]

Section 48 is applicable (a nil consideration does not preclude computation); the loss on reduction of shares is a capital loss and is allowable and may be set off.

Cost of acquisition of remaining shares under section 55(2)(v)(b) - Whether the cost of acquisition of the remaining shares after reduction should include the cost of the cancelled shares under section 55(2)(v)(b) - HELD THAT: - The Tribunal noted that section 55(2)(v)(b) contemplates determination of cost of acquisition of shares derived from an earlier asset and that where capital is reduced, cost computation for remaining shares can be related to original cost. The court accepted that the cancelled shares represented a diminution of the assessee's invested capital and that cost principles in section 55 would operate to prevent double benefit on future disposal; the loss on cancellation is nonetheless a capital loss in the year of reduction. [Paras 23, 28, 38]

Cost of acquisition of remaining shares is to be reckoned with reference to original cost as per section 55(2)(v)(b); cancelled shares' cost consequences do not preclude allowability of the capital loss on reduction.

Final Conclusion: The Tribunal held that reduction of capital effected under the sanctioned scheme amounted to a transfer within section 2(47); the loss on reduction was a capital loss (not merely notional), section 48 could be applied even where consideration was nil, and the Assessing Officer's allowance of the long term capital loss for A.Y. 2009 10 was a legally tenable view. Consequently the PCIT's revision under section 263 was set aside and the assessee's appeal allowed.

Unexplained cash credit under section 68 - initial onus under section 68 to prove identity, creditworthiness and genuineness - AO's duty to make enquiries before invoking section 68 - proviso to section 68 (source of source) not applicable to the assessment year - principles of natural justice - right to cross-examination - retracted statements and their loss of evidentiary value - substitution of legal heir and maintainability of appeal

Unexplained cash credit under section 68 - initial onus under section 68 to prove identity, creditworthiness and genuineness - AO's duty to make enquiries before invoking section 68 - proviso to section 68 (source of source) not applicable to the assessment year - Deletion of addition under section 68 confirmed as assessee discharged initial onus and AO failed to make requisite enquiries - HELD THAT: - The Tribunal held that the assessee produced bank statements, income-tax returns, PAN details, ledger confirmations, financial statements and evidence of repayment, thereby discharging the initial onus cast under section 68 to establish identity, creditworthiness and genuineness of the loans. The Assessing Officer, instead of examining or challenging those materials by independent enquiry, relied on statements recorded by the investigation wing (which were subsequently retracted) and did not throw the onus back on the assessee by conducting further inquiry. The proviso to section 68 requiring source-of-source proof was not applicable to the assessment year under consideration. In these circumstances the addition could not be sustained and the CIT(A)'s deletion was rightly upheld. [Paras 17, 21, 22]

Confirmed deletion of the addition under section 68 as the assessee discharged initial onus and AO did not undertake necessary enquiries

Principles of natural justice - right to cross-examination - retracted statements and their loss of evidentiary value - Addition is vitiated by denial of opportunity since AO did not furnish relied-upon material nor permit cross-examination of persons whose statements were used - HELD THAT: - The Tribunal found that the Assessing Officer relied on statements recorded by the investigation wing but neither supplied those statements to the assessee nor granted an opportunity to cross-examine the persons whose statements formed the basis of the addition. Some of those statements had been retracted by affidavit, diminishing their evidentiary value. Reliance on such material without allowing confrontation or testing amounted to violation of the principles of natural justice, rendering the addition unsustainable. The Tribunal applied the ratio of the cited Supreme Court and High Court authorities to hold the AO's action fatal to the assessment. [Paras 18, 19, 21]

Addition set aside for denial of opportunity and reliance on retracted statements without permitting cross-examination

Substitution of legal heir and maintainability of appeal - Revenue's appeal held admissible after filing amended form and bringing legal heir on record - HELD THAT: - The Tribunal considered that the original appeal paperwork named the deceased assessee, and the Revenue thereafter filed a revised Form 36 substituting Hetal N. Shah as legal heir and raised an additional ground under section 159. On that basis the Tribunal accepted the revised filing and held the Revenue's appeal to be valid and maintainable. [Paras 12, 13]

Revised Form 36 accepted; appeal by Revenue admitted following substitution of legal heir

Final Conclusion: The Revenue's appeal was admitted after substitution of the legal heir, but on merits the Tribunal confirmed the CIT(A)'s deletion of the addition made under section 68 for A.Y. 2012-13, holding that the assessee discharged the initial onus and that the Assessing Officer's reliance on retracted statements without permitting cross-examination and without independent enquiries vitiated the addition.

Deduction under Section 80P(2)(a) - Deduction under Section 80P(2)(d) - Validity of reassessment and reopening of assessment where reopening is founded on change of opinion without tangible material - Co-operative society vis-a -vis co-operative bank (distinction for Section 80P applicability) - Exclusion of co-operative banks from deduction under Section 80P(4) - Interest income from co-operative banks held by a co-operative society eligible for deduction - Precedential effect of Supreme Court decisions on claim under Section 80P(2)(d)

Validity of reassessment and reopening of assessment where reopening is founded on change of opinion without tangible material - Validity of reassessment under Section 148 - Reopening of assessment was invalid as it was based on reappraisal/change of opinion without fresh tangible material. - HELD THAT: - The Tribunal found that the notice under Section 148 was issued after conclusion of assessment where no new tangible material existed to justify reopening beyond four years. The reasons recorded by the Assessing Officer merely reappraised facts already on record and rested on an audit objection; there was no fresh enquiry or material to form a new reason to believe that income had escaped assessment. Consequently, the reopening was held to be without jurisdiction and unsustainable. [Paras 8]

Reopening of assessment quashed and the assessee succeeds on validity ground.

Deduction under Section 80P(2)(d) - Co-operative society vis-a -vis co-operative bank (distinction for Section 80P applicability) - Exclusion of co-operative banks from deduction under Section 80P(4) - Interest income from co-operative banks held by a co-operative society eligible for deduction - Precedential effect of Supreme Court decisions on claim under Section 80P(2)(d) - Interest income earned by the assessee (a co-operative credit society) from deposits with co-operative banks is deductible under Section 80P(2)(d). - HELD THAT: - On merits the Tribunal held that the assessee is a co-operative society engaged in providing credit to its members and does not possess a banking licence. The Tribunal applied the legal distinction that Section 80P(4) expressly excludes co-operative banks from deduction, but the assessee is not a co-operative bank. Income by way of interest derived by a co-operative society from investments with another co-operative society falls within Section 80P(2)(d). The Tribunal also relied on Supreme Court precedent favouring allowance of deduction under Section 80P(2)(d) for such receipts and rejected the Assessing Officer's treatment of the assessee as a co-operative bank or the restriction that only interest from co-operative banks without RBI licence be deductible. [Paras 9, 10, 11]

Interest income from co-operative banks is allowable as deduction under Section 80P(2)(d); the Assessing Officer's contrary treatment is reversed and deduction directed to be granted.

Final Conclusion: For A.Ys. 2013-14, 2014-15, 2017-18, 2018-19 and 2020-21 the Tribunal set aside the impugned orders: the reassessments were invalidly reopened and, on the merits, interest income earned by the co-operative credit society from co-operative banks is deductible under Section 80P(2)(d); all five appeals are allowed and the Assessing Officer is directed to grant the deduction.

Penalty notice under section 271(1)(c) and section 274 - requirement of specifying limb of penalty notice: concealment of particulars or furnishing inaccurate particulars - invalidity of penalty notice for want of clarity as to the limb invoked - unsustainability of penalty where antecedent additions are deleted or remanded

Penalty notice under section 271(1)(c) and section 274 - requirement of specifying limb of penalty notice: concealment of particulars or furnishing inaccurate particulars - invalidity of penalty notice for want of clarity as to the limb invoked - Validity of the penalty notice when it does not indicate which limb of section 271(1)(c)/274 was invoked (concealment of particulars of income or furnishing inaccurate particulars). - HELD THAT: - The Tribunal noted that the penalty notice dated 26.02.2016 did not strike out or indicate which branch of section 271(1)(c)/274 it invoked, and therefore did not make clear whether the assessee was called to explain concealment of particulars of income or furnishing inaccurate particulars. The assessment order records that the AO's satisfaction was based on furnishing inaccurate particulars of income. In the absence of a clear indication in the notice as to the specific limb relied upon, the notice was held to be invalid. The Tribunal relied on the principle in the cited Delhi High Court decision to the effect that a penalty notice which does not specify the limb invoked is defective and cannot support a penalty order. The defect in the notice rendered the consequential penalty order unsustainable in law. [Paras 2, 3, 4, 5]

Penalty notice held invalid for failing to specify which limb of section 271(1)(c)/274 was invoked; consequential penalty order not sustainable.

Unsustainability of penalty where antecedent additions are deleted or remanded - penalty not sustainable on merits where impugned additions deleted or restored to file - Whether the penalty is sustainable on merits in view of deletion of additions and restoration of certain issues to the file of the CIT(A). - HELD THAT: - The Tribunal observed that, by a separate order dated 12.01.2024 in the related appeal, the additions arising from disallowance of depreciation were deleted and other disallowance issues relating to deferred expenditure were restored to the file of the CIT(A). Given deletion of the impugned additions and restoration of remaining issues for fresh consideration, the Tribunal concluded that on merits the penalty could not be sustained. Consequently, even apart from the defect in the notice, the penalty was unsustainable. [Paras 6]

On merits the penalty is not sustainable because the underlying additions were deleted or remanded for fresh consideration.

Final Conclusion: The appeal is allowed; the impugned penalty order is set aside on the ground that the penalty notice failed to specify which limb of section 271(1)(c)/274 was invoked and, additionally, the penalty is unsustainable on merits in view of deletion of additions and remand of other issues.

Arm's Length Price - Transfer Pricing Adjustment - Intra-group Services - Need and Benefit Test - Allocation Keys for Cost Allocation - Transaction Net Margin Method (TNMM) - Benchmarking of International Transactions - Requirement of Primary Evidence for Service Rendition - TPO's Obligation to Search for Comparables

Transfer Pricing Adjustment - Arm's Length Price - Requirement of Primary Evidence for Service Rendition - TPO's Obligation to Search for Comparables - Transaction Net Margin Method (TNMM) - Benchmarking of International Transactions - Deletion of transfer pricing adjustment made in respect of payments for shared services to Associated Enterprises. - HELD THAT: - The Tribunal examined whether the TPO was justified in determining the ALP of payments for shared services at nil. The assessee produced inter company agreements, invoices, detailed cost break ups, employee-wise timesheets, allocation methodology and contemporaneous email correspondence evidencing rendition and receipt of services and the benefits derived (pages 169-180; 347-757 PB). The TPO, without undertaking any benchmarking exercise or searching for uncontrolled comparables, treated the international transaction value as nil. The Tribunal held that such ad hoc treatment de hors the statutory methods under Rule 10B and Chapter X is not sustainable where the assessee has placed substantiating material and has applied TNMM as the most appropriate method. The Tribunal further accepted that allocation keys for apportioning group costs are permissible under OECD guidance and consistent with earlier coordinate bench decisions, and noted that revenue did not challenge the benchmarking analysis on permissible parameters. In these circumstances, the Tribunal found that the lower authorities were not justified in holding that no services were rendered and consequently directed deletion of the TP adjustment. [Paras 7, 8, 9, 11, 12]

Transfer pricing adjustment in respect of shared services payments deleted and appeal allowed.

Procedural Admission of Grounds - Admission of an additional ground challenging validity of final assessment under section 143(3) r.w.s.144C was not allowed. - HELD THAT: - The assessee sought to raise an additional ground relying on a High Court decision, but during hearing the assessee's authorised representative did not press for admission of that ground. The Tribunal recorded that the additional ground was not admitted for adjudication. [Paras 2]

Additional ground not admitted.

Final Conclusion: The Tribunal allowed the appeal, deleted the transfer pricing adjustment relating to shared service charges paid to Associated Enterprises for AY 2013 14, and did not admit the additional ground sought to be raised by the assessee.

Treatment of alleged bogus/accommodation purchases - restriction of disallowance to a percentage of alleged bogus purchases - use of manufacturing loss and gross profit rate as indices of receipt of raw material - admissibility and weight of DGCEI findings in tax assessment - deductibility of CSR expenditure under the chapter VI A benefit for donations to institutions registered u/s 80G - tax treatment of mark to market losses on forward contracts - application of section 14A and Rule 8D to disallow expenditure in relation to exempt income

Treatment of alleged bogus/accommodation purchases - restriction of disallowance to a percentage of alleged bogus purchases - use of manufacturing loss and gross profit rate as indices of receipt of raw material - quantum and basis of addition in respect of purchases held to be accommodation/bogus - HELD THAT: - The Tribunal, following Coordinate Bench decisions in the assessee's own case for earlier years, held that where material receipt and consumption are established by records and corroborated by factors such as manufacturing loss within SION norms, industry comparable gross profit rates and DGCEI findings, complete disallowance of purchases is not warranted even if some suppliers' statements suggest otherwise. In the facts of this year, having accepted that material was received and consumed and having regard to the earlier Tribunal practice in the assessee's own cases, the Tribunal directed that any addition on account of non genuine purchases be restricted to 2% of the value of the alleged bogus purchases to take care of potential revenue leakage, rather than making addition on entire purchases or on gross profit basis higher than 2%. The Tribunal therefore dismissed revenue's challenge to the CIT(A)'s approach and partly allowed the assessee's appeal by reducing the addition to 2%. [Paras 7, 8]

Addition on account of alleged bogus purchases restricted to 2% of the alleged bogus purchases; revenue grounds on this issue dismissed and assessee grounds partly allowed.

Deductibility of CSR expenditure under the chapter VI A benefit for donations to institutions registered u/s 80G - allowability of deduction under section 80G in respect of CSR expenditure made to institutions registered under section 80G - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the disallowance of deduction claimed under section 80G. The CIT(A) had relied on precedents (including Coordinate Bench decisions) holding that CSR donations made to institutions eligible under section 80G are eligible for deduction under section 80G. Having considered those decisions and the submissions, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue ground challenging the deletion of the 80G deduction. [Paras 11, 12]

Disallowance of deduction under section 80G deleted; revenue ground dismissed.

Tax treatment of mark to market losses on forward contracts - allowability of mark to market (MTM) losses on forward contracts as business expenditure - HELD THAT: - The Tribunal followed its Coordinate Bench decision in the assessee's own case for an earlier year, which held that where an assessee has a regular export business and enters into forward contracts to hedge forex exposure, MTM losses accounted for on pending forward contracts are incurred for the purpose of business and allowable. The Tribunal observed consistency in accounting treatment, acceptance of MTM profits in other years by the revenue, and the nature of the hedging activity, and therefore dismissed the revenue's ground seeking restoration of the AO's disallowance. [Paras 16, 17]

Disallowance of MTM loss deleted; revenue ground dismissed.

Application of section 14A and Rule 8D to disallow expenditure in relation to exempt income - scope and manner of making disallowance under section 14A read with Rule 8D - HELD THAT: - The Tribunal rejected the assessee's contention that the AO had not recorded requisite satisfaction to invoke section 14A, noting that the AO had queried the assessee and proceeded on the basis that the provisions were applicable. However, the Tribunal was not satisfied that the AO had limited the Rule 8D computation to only those investments which actually yielded exempt income. Consequently, while rejecting the argument that no satisfaction was recorded, the Tribunal directed the AO to recompute the disallowance under section 14A/Rule 8D considering only the investments which actually generated the exempt income, thereby sending the matter back for limited verification and computation. [Paras 22, 26]

Assessee's attack on recording of satisfaction rejected; matter remitted to AO to compute disallowance under section 14A/Rule 8D considering only investments that actually earned the exempt income.

Final Conclusion: For A.Y.2020-21 the Tribunal (i) restricted the addition in respect of alleged bogus purchases to 2% of the value of such purchases, (ii) upheld deletion of the disallowance of deduction under section 80G, (iii) sustained deletion of the disallowance of mark to market losses on forward contracts, and (iv) directed the Assessing Officer to recompute any section 14A disallowance under Rule 8D limited to investments which actually yielded the exempt income.

Transactional Net Margin Method (TNMM) - Selection and exclusion of comparables in transfer pricing - Functional comparability between KPO and BPO / ITES - Effect of extraordinary events (acquisition / merger) on comparability and margins - Acceptance of comparables having different financial year where audited quarterly results permit reasonable extrapolation - Mandatory levy of interest for defaults in advance tax - Prematurity of initiation of penalty proceedings

Selection and exclusion of comparables in transfer pricing - Functional comparability between KPO and BPO / ITES - Domex E-Data Pvt. Ltd. excluded from the final list of comparables - HELD THAT: - The Tribunal examined the activities and reporting of Domex and noted that it is engaged in diversified activities including KPO, software development and other streams of services without segmental reporting. The Tribunal relied on the coordinate bench decision in Katerra Technology Services LLP v. ACIT and other authorities which held Domex to be functionally dissimilar to an ITES/BPO service provider. Given the functional disparity and absence of segmental data to attribute ITES income, Domex could not be treated as a reliable comparable and was directed to be excluded. [Paras 7]

Domex E-Data Pvt. Ltd. excluded from the list of comparables.

Selection and exclusion of comparables in transfer pricing - Effect of extraordinary events (acquisition / merger) on comparability and margins - MPS Ltd. excluded from the final list of comparables - HELD THAT: - The Tribunal took note of MPS's business mix of content solutions and platform services and, importantly, the acquisitions (Think Subscription and Tata Interactive Systems) occurring in the relevant period. The Tribunal applied the settled principle that extraordinary events such as acquisitions/amalgamations materially affect margins of the acquiring entity in the relevant years, making such entities unsuitable as comparables. In view of these extraordinary events and the impact on margins, MPS was directed to be excluded. [Paras 7]

MPS Ltd. excluded from the list of comparables.

Selection and exclusion of comparables in transfer pricing - Functional comparability between KPO and BPO / ITES - Vitae International Accounting Services Pvt. Ltd. excluded from the final list of comparables - HELD THAT: - The Tribunal observed that Vitae renders a diversified set of services including accounting, auditing, consultancy, technical content writing and staffing. Relying on earlier Tribunal decisions which treated such diversified or staffing oriented entities as functionally dissimilar to ITES/BPO providers, the Tribunal held that Vitae was not functionally comparable to the assessee and directed its exclusion. [Paras 7]

Vitae International Accounting Services Pvt. Ltd. excluded from the list of comparables.

Selection and exclusion of comparables in transfer pricing - Functional comparability between KPO and BPO / ITES - Access Healthcare Services Pvt. Ltd. excluded from the final list of comparables - HELD THAT: - The Tribunal found that Access Healthcare principally provides services of a KPO nature requiring higher skill and specialised knowledge (for example coding and clinical processes), which are not comparable to back office BPO/ITES services. The Tribunal applied the principle affirmed by the Bombay High Court that KPO services are not comparable to BPO/back office services and directed the TPO to exclude Access Healthcare from the comparable set. [Paras 7]

Access Healthcare Services Pvt. Ltd. excluded from the list of comparables.

Acceptance of comparables having different financial year where audited quarterly results permit reasonable extrapolation - Selection and exclusion of comparables in transfer pricing - R Systems International Ltd. included in the list of comparables - HELD THAT: - Although R Systems followed a different financial year ending 31 December, audited quarterly financial results for the relevant period were publicly available and placed on record. The Tribunal held that where audited quarterly results enable reasonable extrapolation of the relevant financial year results, a different financial year ending alone is not a valid ground for exclusion. The Tribunal also noted that the TPO had accepted R Systems as a comparable in preceding and succeeding assessment years without any change in facts, and no functional dissimilarity was shown. Accordingly, R Systems was directed to be included. [Paras 8]

R Systems International Ltd. to be included in the list of comparables.

Selection and exclusion of comparables in transfer pricing - Sundaram Business Services included in the list of comparables - HELD THAT: - The Tribunal observed that Sundaram Business Services was previously accepted as a comparable by the TPO in the immediately preceding and succeeding assessment years and there was no change in its business activities. In absence of any dispute from Revenue about functional dissimilarity in the sandwich year, the Tribunal held there was no plausible reason to reject the company in the impugned year and directed its inclusion. [Paras 8]

Sundaram Business Services to be included in the list of comparables.

Mandatory levy of interest for defaults in advance tax - Ground assailing levy of interest under the relevant provisions dismissed - HELD THAT: - The Tribunal noted that charging of interest under the stated provisions is mandatory and consequential. Consequently, the assessee's challenge to the levy of interest was dismissed. [Paras 10]

Assessee's ground challenging levy of interest dismissed.

Prematurity of initiation of penalty proceedings - Ground challenging initiation of penalty proceedings held premature and dismissed - HELD THAT: - The Tribunal held that assailing initiation of penalty proceedings at the present stage was premature and therefore dismissed the ground impugning initiation of proceedings under the relevant penalty provision. [Paras 11]

Ground challenging initiation of penalty proceedings dismissed as premature.

Final Conclusion: The appeal is partly allowed: four companies (Domex E Data Pvt. Ltd., MPS Ltd., Vitae International Accounting Services Pvt. Ltd., and Access Healthcare Services Pvt. Ltd.) are excluded from the comparable set; R Systems International Ltd. and Sundaram Business Services are directed to be included as comparables. Grounds challenging levy of interest and initiation of penalty proceedings are dismissed.

Disallowance under section 40(a)(ia) - short deduction of tax at source - assessee in default and section 201 consequences - second proviso to section 40(a)(ia) - disallowance under section 43B - service tax collected but not paid - revenue expenditure versus capital expenditure - decommissioning and dismantling costs - fees for professional or technical services - deduction of grants and contributions from gross block for depreciation - depreciation on assets not in use

Disallowance under section 40(a)(ia) - short deduction of tax at source - assessee in default and section 201 consequences - second proviso to section 40(a)(ia) - Whether payments were liable to disallowance under section 40(a)(ia) for failure to deduct or remit TDS - HELD THAT: - The Tribunal held that disallowance under section 40(a)(ia) is attracted where the assessee was required to deduct tax and failed to do so; mere short deduction (i.e., deduction under a wrong provision leading to shortfall) does not justify disallowance under section 40(a)(ia) and the proper remedy is to invoke section 201 as the payee may be an assessee in default. Applying that principle, the portion of expenditure where TDS was deducted but at a lower rate (short deduction pursuant to application of section 194J instead of 194C or vice versa) cannot be disallowed under section 40(a)(ia). Consequently the Tribunal held that the disallowance relating to the expenditure of Rs. 5,87,05,736/- on account of short deduction cannot be sustained. As to amounts where TDS was not deducted or deducted but not remitted before the specified date, the Tribunal observed that if the recipient furnished a return and paid tax on the income, the second proviso to section 40(a)(ia) may apply; this factual question was not adjudicated on merits and is remitted to the Assessing Officer for examination in the light of these observations. [Paras 3, 4, 6]

Part allowance: disallowance cannot be sustained for short deduction of TDS; issue as to amounts where TDS was not remitted is remitted to the Assessing Officer for fresh examination under the second proviso to section 40(a)(ia).

Disallowance under section 43B - service tax collected but not paid - treatment under mercantile system and section 145A - Whether amounts not paid to Government before the due date are disallowable under section 43B even though not charged to profit and loss account - HELD THAT: - The Tribunal affirmed the view that sums collectible as tax, duty, cess or fee which remain unpaid by the due date of filing the return are liable to be disallowed under section 43B notwithstanding the assessee's accounting treatment. The non-obstante clause in section 43B overrides the regular accounting treatment under section 145A; service tax collected and not paid to the Government by the due date partakes the character which attracts the rigour of section 43B. The Tribunal applied relevant precedents and statutory provisions concerning point of taxation and obligations to remit service tax, and held that the Assessing Officer correctly disallowed the impugned sums under section 43B even though they were not routed through the profit and loss account. [Paras 8, 10]

Disallowance under section 43B sustained; grounds challenging that disallowance dismissed.

Revenue expenditure versus capital expenditure - decommissioning and dismantling costs - Whether expenditure incurred on decommissioning and dismantling is capital in nature or allowable as revenue expenditure - HELD THAT: - The Tribunal examined the nature of the expenditure incurred for dismantling old/faulty assets and found that the amounts related to labour charges for removal of non-useful assets and did not result in creation of a new asset or enhance the value or life of existing assets. The expenditure was therefore akin to repairs and maintenance and properly claimable as revenue expenditure. On that basis the Tribunal allowed the claim. [Paras 11, 12, 14]

Expenditure on decommissioning and dismantling held to be revenue in nature and allowed.

Fees for professional or technical services - transmission charges not taxable under section 194J - Whether payments to KPTCL and SLDC for transmission and related charges are taxable as fees for professional/technical services attract TDS under section 194J - HELD THAT: - Relying on the coordinate and binding decision in the assessee's own case (CIT v. Hubli Electricity Company Ltd.), the Tribunal found that the transmission agreements evidenced a plain commercial arrangement for use of transmission network at charges fixed by the regulator, and did not amount to an offer and acceptance of any technical service. There was no material to show transfer of technology or rendering of technical services. As KPTCL/SLDC merely provided transmission of power under statutory/regulatory framework, the payments did not constitute fees for professional or technical services under section 194J. In view of the binding precedent, the Tribunal allowed the ground. [Paras 15, 16]

Payments to KPTCL and SLDC for transmission charges held not liable to TDS under section 194J; ground allowed.

Deduction of grants and contributions from gross block for depreciation - Whether grants and contributions received during the year should be deducted from the cost of assets for computing depreciation - HELD THAT: - The Tribunal accepted the Assessing Officer's treatment that all grants and contributions received in the year (the aggregate amount) had the effect of reducing the cost of capital assets and therefore should be deducted from the gross block for computation of depreciation. The assessee's contention that a portion related to earlier years was not accepted because the amount was received in the assessment year under consideration and had not been capitalized into assets; the rectification claimed by the assessee was not substantiated and the AO's correction was upheld. [Paras 18, 20]

Adjustment of gross block by deducting grants and contributions affirmed; addition for excess depreciation sustained.

Depreciation on assets not in use - Whether depreciation is allowable on assets shown as 'assets not in use' - HELD THAT: - The Tribunal reiterated that depreciation under section 32 is available only for assets owned by the assessee and used for the purpose of business. The assets in question were admitted to be not in use; the assessee's explanations and records did not demonstrate continued inclusion of those assets in the block as being put to use. Consequently the Assessing Officer's denial of depreciation on those assets was confirmed. [Paras 21, 22, 24]

Depreciation on assets not in use disallowed; ground dismissed.

Procedural default - ground not pressed - Claim for full depreciation on low value items (< Rs. 500) which was not pressed before the NFAC - HELD THAT: - The Tribunal noted that the ground was not pressed before the NFAC and the appellant provided no new circumstances to justify raising it before the Tribunal. In the absence of such a foundation, the ground could not be entertained. [Paras 17]

Ground dismissed as not pressed before lower forum.

Final Conclusion: The appeal is partly allowed. Disallowance under section 40(a)(ia) is set aside insofar as it arises from short deduction of TDS; the question of amounts where TDS was not remitted and whether the recipient has declared the income is remitted to the Assessing Officer for examination. Disallowances under section 43B and for excess depreciation by not deducting grants from gross block, and denial of depreciation on assets not in use are upheld. Expenditure on decommissioning and dismantling is allowed as revenue expenditure. Other grounds are dismissed as indicated.

Deduction under section 80P(2)(a)(i) - Interest income on surplus funds attributable to business of providing credit to members - Grace/extended period under EPF and due date under section 36(1)(va) - Payment within grace period treated as payment on or before the due date

Deduction under section 80P(2)(a)(i) - Interest income on surplus funds attributable to business of providing credit to members - Deductibility of interest income earned on amounts deposited by the co-operative society in commercial/nationalised banks under section 80P(2)(a)(i). - HELD THAT: - Following precedent of the coordinate Bench and relevant High Court authorities, the Tribunal held that interest earned on surplus or idle funds of a co-operative society, which were deposited as short-term deposits because there were no takers for lending at that time, is inextricably interlinked with the society's business of providing credit to its members. The expression 'attributable to' in section 80P(2)(a)(i) is of wider import than 'derived from' and covers receipts that, although not directly derived from the immediate conduct of the lending business, are attributable to that business. The Totgars Co-operative Sale Society Ltd. decision was distinguished on its facts because there the amounts earned interest on were retained sums due to members (shown as liabilities) and thus not attributable to the lending business. Applying these principles, the Tribunal directed that interest income on deposits in banks (including commercial/nationalised banks) be allowed as deduction under section 80P(2)(a)(i). [Paras 8, 9]

Interest on surplus funds deposited in banks is allowable as deduction under section 80P(2)(a)(i); appeals on this ground are allowed.

Grace/extended period under EPF and due date under section 36(1)(va) - Payment within grace period treated as payment on or before the due date - Whether employees' share of EPF paid within the statutory/extended grace period qualifies as payment on or before the 'due date' for the purpose of section 36(1)(va). - HELD THAT: - The Tribunal accepted the principle, as applied by earlier coordinate Bench and expounded by the High Court of Bombay and other authorities, that payments made within the statutory or permitted grace period under the EPF enactments are to be treated as having been made within the period prescribed by law and thus satisfy the 'due date' requirement in Explanation 1 to section 36(1)(va). However, the factual question whether the assessee actually made the EPF payments within the prescribed/grace period was left open. Accordingly, the Tribunal directed the Assessing Officer to verify the payment dates and, if payments were within the prescribed time (including the grace period applicable at the relevant time), to vacate the disallowance; otherwise to sustain it. [Paras 10, 12, 13]

Disallowance under section 36(1)(va) is not sustained if EPF payments are proved to have been made within the prescribed/grace period; matter remitted to the AO for verification of payment dates.

Final Conclusion: Appeals concerning allowance of interest on surplus funds deposited in banks are allowed and deduction under section 80P(2)(a)(i) is granted; the disallowance under section 36(1)(va) for delayed EPF payments is remitted to the Assessing Officer for verification of whether payments were made within the statutory/grace period, with directions to vacate the disallowance if so proved.

Jurisdiction of Directorate of Revenue Intelligence - effect of Supreme Court decision in Canon India - stay of show cause notice - consolidation of petitions for joint hearing - delay in adjudication and prejudice

Jurisdiction of Directorate of Revenue Intelligence - effect of Supreme Court decision in Canon India - Prima facie conclusion that the jurisdictional competence of the Directorate of Revenue Intelligence to issue the impugned show cause notice is doubtful and is governed by the Supreme Court's decision in Canon India. - HELD THAT: - The Court, applying the principle in Canon India, observed that the show cause notice dated 13 July, 2012 was issued by the Directorate of Revenue Intelligence and that, on a prima facie view, this raises a question going to the root of the authority's jurisdiction. Given the similarity of issues in other pending petitions and the Supreme Court's ruling, the Court found sufficient grounds to treat jurisdiction as a determinative preliminary question requiring adjudication alongside companion matters.

Petition admitted for substantive hearing and to be considered with the batch of related petitions addressing the same jurisdictional question.

Stay of show cause notice - delay in adjudication and prejudice - Whether interim relief by way of staying the operation of the impugned show cause notice should be granted. - HELD THAT: - The Court noted that the show cause notice has remained undecided for over eleven years and, in light of the prima facie jurisdictional objection and the potential prejudice from prolonged inaction, granted interim protection. The Court distinguished the course adopted in other decisions and relied upon the need to address fundamental jurisdictional defect before permitting adjudication to proceed.

The impugned show cause notice dated 13 July, 2012 is stayed pending hearing and final disposal of the petition.

Consolidation of petitions for joint hearing - Whether the present petition should be heard together with a batch of companion petitions raising similar issues. - HELD THAT: - Observing multiple pending petitions which raise identical or closely related questions (including jurisdictional challenges in light of Canon India and related proceedings such as review petitions before the Supreme Court and challenges to legislative amendments), the Court directed that the present petition be placed with the listed companion matters for joint hearing. The Court also provided respondents liberty to apply for vacation of the interim relief if appropriate, particularly after relevant higher court determinations.

The petition shall be heard along with the identified batch of petitions; respondents may move to vacate the interim relief as indicated by subsequent developments.

Final Conclusion: The petition is admitted; the show cause notice dated 13 July, 2012 is stayed pending final disposal; the petition will be heard together with the listed companion matters, with respondents permitted to seek vacation of the interim stay in light of subsequent judicial determinations.

Remission of duty on lost, destroyed or abandoned goods - extended period of limitation - jurisdictional assumption - show cause notice - short shipment / loss in transit

Extended period of limitation - jurisdictional assumption - show cause notice - Whether invocation of the extended period of limitation by the Revenue to deny exemption and demand customs duty was justified. - HELD THAT: - The Tribunal found that from early communications (beginning 20.02.2009) between the appellant and the Superintendent and other documentary exchanges, the Revenue had contemporaneous knowledge of the shortage and related facts. The adjudicating authority invoked the extended period without adducing any fresh material or uncovering fraud or suppression that would justify enlargement of limitation. The record, including survey reports and correspondence relied upon in the Show Cause Notices, demonstrated that nothing material was concealed by the importer. In the absence of any basis for concluding fraud, suppression or new material justifying the extended period, the assumption of jurisdiction by invoking the larger period was arbitrary. The Tribunal therefore held that the demands raised insofar as predicated on the extended limitation period were unsustainable and must be set aside. [Paras 14, 15, 16]

Invocation of the extended period of limitation was unjustified; the impugned order insofar as it upheld demands based on the extended limitation is set aside and the appeal is allowed on that ground with consequential benefits as per law.

Remission of duty on lost, destroyed or abandoned goods - short shipment / loss in transit - Whether the undelivered goods fall within the ambit of 'lost' under Section 23 and the nature of the shortage i.e., pilferage or loss. - HELD THAT: - Applying Section 23, the Tribunal observed that the shortage was not shown to be on account of pilferage nor were the goods destroyed; they therefore assumed the characteristic of 'lost' as contemplated by Section 23. The materials on record, including surveyor reports and correspondence, did not establish pilferage or concealment by the importer. This finding informed the view that there was no basis to treat the shortage as a case warranting denial of remission on grounds of pilferage. [Paras 13, 14]

The undelivered goods qualify as 'lost' under Section 23 rather than as pilferage; there was no sufficient basis to deny remission on the ground that the shortage constituted pilferage.

Final Conclusion: The appeal is allowed insofar as the Revenue invoked the extended period of limitation to deny exemption and demand duty; the impugned order is set aside to that extent, and consequential benefits, if any, shall follow in accordance with law.

Termination of Depository Participant under bye laws - Compliance with SEBI (Depositories and Participants) Regulations, 2018 (amendment 2022) - net worth requirement - Legitimate expectation arising from regulatory communication - Power to permit rectification or grant time under bye laws - Proportionality of regulatory action - Interim relief - stay of termination - Show cause notice - Net worth certificate

Termination of Depository Participant under bye laws - Compliance with SEBI (Depositories and Participants) Regulations, 2018 (amendment 2022) - net worth requirement - Net worth certificate - Validity of termination of the petitioner as a Depository Participant by CDSL on the ground of non compliance with the 2022 amendment requiring specified net worth - HELD THAT: - The Court recorded prima facie satisfaction with the petitioners' contention that CDSL itself had put the petitioners to a specific timeframe by its letter requiring submission of a net worth certificate by a stated date, and that the petitioners had submitted a net worth certificate before that date. The Court noted that CDSL appeared to be uncertain about the consequence of non compliance under the SEBI amendment and had sought clarification from SEBI, which did not direct CDSL on the position. In that context the Court found substantial merit in the petitioners' contention that termination, without accepting or dealing with the certificate submitted in response to CDSL's communication, called for further examination at the final hearing. On this prima facie view the petition was admitted and the impugned termination order was stayed pending final disposal. [Paras 9, 10, 11, 13, 14]

Petition admitted; prima facie case found in favour of petitioners on the question of validity of termination and the termination order dated 10 November, 2023 (and its confirmation) stayed pending final hearing.

Legitimate expectation arising from regulatory communication - Power to permit rectification or grant time under bye laws - Proportionality of regulatory action - Whether CDSL's conduct in first granting time for compliance and later proceeding to terminate created legitimate expectation and rendered the termination disproportionate - HELD THAT: - The Court observed prima facie that CDSL's communication created an expectation in the petitioners that compliance could be achieved by the date specified and that bye laws permit CDSL to allow rectification or remedy of defaults. The Court expressed the view that compliance with the net worth requirement, in the circumstances and as a matter of prima facie assessment, did not appear to be of such a nature as to justify immediate termination of the participant's registration, particularly given the impact on the petitioners' clients. These matters were held to require full consideration at the final hearing and supported interim relief. [Paras 6, 11, 12]

On prima facie assessment the petitioners' plea of legitimate expectation and disproportionate action has substance; the issue to be examined at final hearing and supports interim stay.

Interim relief - stay of termination - Recall of client communications / clarificatory communication - Reliefs to be granted pending final disposal - HELD THAT: - The Court granted interim relief staying the impugned termination order and directed that the petition proceed to final hearing. Additionally, in view of the interim relief and the position of the petitioners' clients, the Court directed that respondent no. 1 recall any emails sent to the petitioners' clients and/or issue clarificatory emails. The Court also allowed the petitioners to continue operations as a Depository Participant without restriction, including opening new demat accounts, until final disposal. [Paras 14, 15, 19]

Interim stay of termination granted; petitioners permitted to continue DP operations without restriction; respondent no. 1 to recall or issue clarificatory emails to clients.

Final Conclusion: The petition was admitted on a prima facie basis; the High Court found substantial merit in the petitioners' contentions concerning CDSL's communication, the submission of a net worth certificate and the proportionality of termination, stayed the termination and related appellate confirmation pending final disposal, permitted the petitioners to continue DP operations, and directed recall/clarificatory communication to clients; the substantive issues remain for final adjudication.

Conditions precedent - Effective Date - Resolution Plan implementation - Infusion of funds - Performance Bank Guarantee (PBG) - Adjustment/Invocation of performance security - Extension of time / exclusion - Monitoring Committee

Adjustment/Invocation of performance security - Performance Bank Guarantee (PBG) - Infusion of funds - Permissibility of adjusting the last tranche of the agreed infusion against the PBG at the interlocutory stage - HELD THAT: - The Court examined the affidavit filed by SBI which conditioned lenders' forbearance on the SRA infusing a specified sum by stipulated dates and on compliance with the Resolution Plan and employee-payment obligations. The affidavit used the expression 'infuse' to describe the obligation to make cash payments in three tranches. The NCLAT's interlocutory order permitting adjustment of the last tranche against the PBG substituted cash infusion with invocation/adjustment of the PBG contrary to the tenor of SBI's affidavit. The Court held that ''infuse'' in the context of the affidavit and the Resolution Plan required actual deposit of the last tranche and could not be replaced, at the interlocutory stage, by adjustment of the PBG. Consequently, the NCLAT was not justified in allowing the SRA to meet its obligation by adjusting the PBG instead of making the cash payment as agreed. [Paras 21, 22]

NCLAT's order permitting adjustment of the last tranche of the infusion against the PBG is set aside; the SRA must make the cash payment of the last tranche.

Interim arrangement during pendency - Performance Bank Guarantee (PBG) - Extension of time / exclusion - Interim directions governing payment timeline and status of the PBG pending final adjudication - HELD THAT: - Recognising the need to preserve the parties' positions while the pending appeals are decided, the Court fashioned interim measures. The SRA, having accepted the terms in SBI's affidavit and already deposited the first two tranches, was given a final opportunity to complete the agreed infusion by a peremptory deadline. Simultaneously, to protect the lenders' contractual security rights, the PBG is to remain in full force and effect until final disposal of the appeal, and shall abide by the outcome and any directions issued by the NCLAT. These directions substitute the interlocutory permission previously granted by NCLAT to adjust the PBG for the last tranche. [Paras 25, 26]

SRA shall deposit the outstanding amount by the specified date; the PBG shall continue in operation pending the appeal.

Conditions precedent - Resolution Plan implementation - Monitoring Committee - Whether the SRA has complied with all conditions of the Resolution Plan - HELD THAT: - The Supreme Court confined itself to interim relief and expressly refrained from finally adjudicating compliance with the conditions precedent. The Court noted that the contention whether the SRA satisfied the conditions in clause 7.6 and paragraph 8 of SBI's affidavit falls to be determined by the NCLAT in the pending appeal. The observations in this order are therefore limited to what must operate during the pendency of that appeal and do not preclude the NCLAT from deciding compliance on merits. [Paras 19, 25, 26]

Determination of compliance with the conditions precedent is remitted to the NCLAT for decision in the pending appeal.

Final Conclusion: The NCLAT's interim permission to adjust the outstanding tranche against the PBG is set aside; the SRA is directed to deposit the remaining amount by the time fixed by this Court, the PBG shall remain in force pending the appeal, and the question of compliance with the Resolution Plan's conditions precedent is left for determination by the NCLAT.

Classification of service - cargo handling service - manpower recruitment or supply agency service - exemption for export-related services - reliance on service recipient's contemporaneous statement

Classification of service - cargo handling service - manpower recruitment or supply agency service - exemption for export-related services - reliance on service recipient's contemporaneous statement - Whether the services rendered by the appellant fall within cargo handling service (exempt as export-related) or within manpower recruitment/supply agency service attracting service tax, and whether the demand confirmed by Revenue can be sustained. - HELD THAT: - The Tribunal examined documentary evidence and recorded statements which consistently indicated that the appellant was engaged by the service recipient (CCFS) as a contractor for cargo handling for loading and unloading of export cargo. CCFS replied to Revenue enquiries denying that the appellant was supplied as manpower and explained that the appellant did not charge service tax as the services were treated as exempt being in respect of export cargo (paras 5.1-5.3). The appellant's own statement recorded thereafter corroborated that engagement as a contractor for cargo handling of export goods and that no service tax was charged in view of the perceived exemption (para 5.4). On this material, the Tribunal concluded that the Revenue's classification of the activity as manpower recruitment or supply agency service was not supported and that Revenue could not displace the actual understanding between the parties. Because the activity related to export cargo and was treated as exempt, the demand and its confirmation in the orders under challenge could not be sustained (paras 6-7). [Paras 5, 6, 7, 8]

The impugned demand and orders confirming service tax under the manpower recruitment/supply agency category are set aside and the appeal is allowed with consequential benefits as per law.

Final Conclusion: The Tribunal found on the facts and documents on record that the appellant provided cargo handling services in relation to export goods (exempt), not manpower recruitment/supply services; accordingly the demand confirmed by the Revenue was unsustainable, the impugned order is set aside and the appeal is allowed with consequential relief.

Auctioneer's Service - Business Support Service - distinction between auction and tender - service tax liability on internal cost recovery

Auctioneer's Service - distinction between auction and tender - The appellant's marketing and sale of agricultural produce through tender process does not attract Service Tax as "Auctioneer's Service". - HELD THAT: - The Tribunal applied its earlier consistent decisions which distinguish auction from tender and held that Auctioneer's Service is leviable only where goods are sold by auction. On the facts, the appellant sold goods through a tender process and not by auction. The Bench found the ratio in earlier orders of the same Tribunal directly applicable and observed that no contrary higher court decision was placed on record by the Revenue to distinguish those precedents. Therefore the demand confirming tax under Auctioneer's Service was unsustainable and was set aside. [Paras 7]

Demand under "Auctioneer's Service" set aside.

Business Support Service - service tax liability on internal cost recovery - The jewel-appraisal charges collected by the appellant from its members do not constitute taxable "Business Support Service". - HELD THAT: - The Tribunal relied on its precedents and the factual finding that the appellant borrows monies on its own account from a cooperative bank and on-lends to its members. The charges for appraising pledged jewels were held to be costs incurred by the appellant in the process of sanctioning loans to its members and were not services rendered to the bank or any third party. As such, these charges do not fall within the ambit of Business Support Service. In absence of any contrary legal authority placed by the Revenue, the demand under BSS, along with interest and penalties, was found to be unsustainable and was set aside. [Paras 7]

Demand under "Business Support Service" set aside.

Final Conclusion: Following earlier co ordinate Bench decisions distinguishing auction from tender and treating appraisal charges as internal cost recovery not constituting Business Support Service, the Tribunal allowed the appeal, set aside the confirmed demands (including interest and penalties) for the periods April 2011 to March 2012 and April 2012 to June 2012, and remitted consequential benefits, if any, as per law.

Sale of mineral by e-auction is a transaction of sale and not a service - liability to pay Royalty vests on the mining lease holder under the MMDR Act - reverse charge liability for service tax cannot be fastened on buyer where primary statutory liability rests on lease holder - Monitoring Committee's collection and remittance of sale proceeds, Royalty and taxes as directed by the Supreme Court is administrative/collecting function and does not convert the transaction into a service to the buyer - mutual exclusivity of sale and service transactions

Sale of mineral by e-auction is a transaction of sale and not a service - liability to pay Royalty vests on the mining lease holder under the MMDR Act - reverse charge liability for service tax cannot be fastened on buyer where primary statutory liability rests on lease holder - Monitoring Committee's collection and remittance of sale proceeds, Royalty and taxes as directed by the Supreme Court is administrative/collecting function and does not convert the transaction into a service to the buyer - Whether the appellant received a taxable service of lease of mine and assignment of right to use natural resources from the State Government, attracting service tax under the reverse charge mechanism for the period April 2016 to June 2017. - HELD THAT: - The Tribunal found that transactions under challenge were regulated e auction sales conducted by the Monitoring Committee constituted under orders of the Hon'ble Supreme Court, which directed the mechanism for receipt of sale price, Royalty, Forest Development Tax (FDT) and other applicable taxes and their remittance to government. Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 places the primary statutory liability to pay Royalty on the holder of the mining lease. The Supreme Court's directions (including payment of 90% of sale price to lease holders and deposit of the balance 10% with the Monitoring Committee along with Royalty and taxes) merely prescribed the manner of collection and remittance and did not alter the statutory incidence of Royalty. Consequently, payment by the buyer to the Monitoring Committee, which in turn remitted amounts under the lease holder's registrations, did not import receipt by the buyer of a service from the State Government or render the buyer a service recipient for levy of service tax under reverse charge. Applying the principle that a transaction of sale is mutually exclusive from a taxable service when the character of the transaction is sale, and having regard to the Monitoring Committee's role as an implementing/collecting authority under the Apex Court's directions, the impugned demands for service tax, interest and penalty were held unsustainable and were set aside. [Paras 10, 11, 13, 14, 16]

The demand of service tax under reverse charge on Royalty, FDT and other taxes collected through the Monitoring Committee for April 2016 to June 2017 is unsustainable and is set aside.

Final Conclusion: Appeal allowed; impugned order confirming demand of service tax (with interest and penalty) set aside for the period April 2016 to June 2017 and consequential reliefs to the appellant, if any, granted as per law.

Input Tax Credit - genuineness of transactions - production of original tax invoices under Rule 10(2) of the TNVAT Rules - assessment officer's duty to examine evidence and record reasons - remand for fresh consideration

Input Tax Credit - genuineness of transactions - production of original tax invoices under Rule 10(2) of the TNVAT Rules - assessment officer's duty to examine evidence and record reasons - remand for fresh consideration - Whether the assessment orders rejecting ITC claims could be sustained where the dealer had produced invoices, declaration letters and bank statements but the assessing officer did not examine those documents or record reasons why they were inadequate - HELD THAT: - The court found that the assessing officer's orders referred to documents submitted by the petitioner (invoices, supplier declaration letters, buyers' statements, bank statements and Annexure-II) but did not examine their materiality or explain why those documents failed to establish the genuineness of purchases. The assessing officer recorded formulaic findings that verification could not be made for non submission of originals or purchase ledger accounts, whereas the petitioner had offered to and did produce documents and asserted possession of original tax invoices. Given the assessing officer's failure to assess the evidence and to give reasons demonstrating why the submitted documents were insufficient to support the ITC claims, the orders were unsustainable. The matters were therefore quashed and remanded for fresh consideration, with liberty to the petitioner to produce all supporting documents (including original tax invoices) within two weeks and a direction that, after affording a reasonable opportunity, the assessing officer shall complete fresh assessments within four weeks thereafter. [Paras 7, 9]

Impugned assessment orders quashed; matters remanded for fresh consideration with directions permitting production of original invoices within two weeks and completion of reassessment within four weeks after opportunity to the petitioner.

Final Conclusion: The High Court quashed the assessment orders rejecting ITC without adequate consideration of the documents furnished by the dealer and remanded the matters for fresh assessment, permitting production of supporting documents (including original invoices) within two weeks and directing completion of reassessment within four weeks thereafter.

Declaration of public holidays as executive policy - judicial review for arbitrariness (Wednesbury principle) - misuse and abuse of Public Interest Litigation; requirement of bonafides - doctrine of locus standi in public interest litigation - recognition of essential religious practices within a secular State - scope of delegated executive power under a central notification to State Governments

Declaration of public holidays as executive policy - judicial review for arbitrariness (Wednesbury principle) - recognition of essential religious practices within a secular State - Validity of the State notification declaring 22 January 2024 as a public holiday on the occasion of Shri Ram Lalla Pran Pratishtha Din - HELD THAT: - The Court held that the decision whether to declare a public holiday falls squarely within executive policy and is ordinarily not amenable to judicial interference unless shown to be arbitrary or procedurally improper. Reliance on precedents of this Court and other High Courts established that holidays declared for religious occasions can be a valid exercise of executive power and may reflect recognition of essential religious practices consistent with constitutional secularism. The petitioners failed to plead or demonstrate any specific illegality or arbitrariness in the State's decision; having regard to the settled standards of judicial review (including Wednesbury unreasonableness), no such infirmity was made out. The Court therefore found no merit in the challenge to the impugned State notification. [Paras 1, 4, 16, 17, 18]

The challenge to the State notification declaring 22 January 2024 a public holiday is dismissed on merits for want of arbitrariness or illegality.

Scope of delegated executive power under a central notification to State Governments - Effect of the central Government notification dated 8 May 1968 and the petitioners' failure to place it on record or to plead how it vests unlawful power in the State - HELD THAT: - The petition included a prayer assailing the Central Government notification of 8 May 1968 but that notification was not placed on record and there were no specific averments explaining how the central delegation rendered the State's action unlawful. The Court observed that a mere pleading without foundational material or legal framework renders the challenge incapable of adjudication. In the circumstances the petitioners could not sustain the contention that the State lacked authority to issue the holiday notification. [Paras 2, 18]

The challenge to the central notification was found to be defectively pleaded and unsupported; it did not furnish a basis to invalidate the State notification.

Misuse and abuse of Public Interest Litigation; requirement of bonafides - doctrine of locus standi in public interest litigation - Whether the petition qualified as a bona fide Public Interest Litigation or was an abuse of process warranting dismissal in limine - HELD THAT: - The Court examined the petitioners' pleadings and conduct, noting multiple averments and submissions that indicated political motive, publicity seeking and lack of bonafides. Applying settled principles that PILs require clean hands and genuine public interest, the Court found the petition to be frivolous and an abuse of the extraordinary jurisdiction. The Court also admonished the petitioners (law students) for failing to respect locus standi and the circumspection required in PILs, and emphasised the duty to guard against 'publicity interest' or politically motivated filings. [Paras 20, 21, 22, 25, 26]

The petition is a patent abuse of process of law and is dismissed in limine for want of bonafides; the Court refrained from imposing costs considering the petitioners' status as students.

Final Conclusion: The writ petition challenging the State notification is dismissed in limine: the Court held that declaration of public holidays is an executive policy decision not shown to be arbitrary, the challenge to the central notification was defectively pleaded, and the petition was an abuse of PIL jurisdiction; dismissed, no costs.

Suppression of material information in application/attestation form - disclosure of pendency of criminal prosecution - cancellation/revocation of candidature for false statement - ambiguity in application/verification queries - benefit of doubt - specificity requirement for attestation/verification forms - consistency in administrative action / arbitrariness

Suppression of material information in application/attestation form - cancellation/revocation of candidature for false statement - disclosure of pendency of criminal prosecution - Validity of High Court's revocation of petitioner's candidature on ground of alleged concealment of prosecution - HELD THAT: - The Court held that the sole basis for revocation was alleged concealment of the fact that a criminal prosecution was pending. It recognised the settled principle that suppression or false statements regarding prosecution/conviction materially affect suitability and may justify cancellation. However, the Court examined whether the petitioner in fact suppressed the pendency of the criminal complaint, noting that she disclosed the criminal complaint in her later attestation form and that the application form required true and correct disclosure under a declaration. Applying precedents, the Court concluded that because the query at serial no.6 was capable of more than one interpretation, and given the petitioner's subsequent explicit disclosure in the attestation form, the High Court's decision to revoke candidature on the ground of concealment could not be sustained. [Paras 16, 17, 43, 46]

Impugned communication cancelling candidature and recommendation is set aside.

Ambiguity in application/verification queries - benefit of doubt - specificity requirement for attestation/verification forms - Whether the wording of the application query at serial no.6 was unambiguous such that a negative answer could be treated as suppression - HELD THAT: - The Court applied the doctrine that attestation/verification queries must be specific and not vague, and that where a query is ambiguous the benefit of doubt goes to the applicant. Relying on and analysing Daya Shankar Yadav and the summary in Avtar Singh, the Court found the language of serial no.6 capable of two readings (either disjunctive covering any of arrest/prosecution/detention/conviction or conjunctive requiring all events). In the circumstances, and noting the petitioner's disclosure in the attestation form, the Court held the petitioner could have reasonably misunderstood the query and therefore could not be penalised for suppression. [Paras 36, 37, 38, 40, 42]

Ambiguity in the query entitles the petitioner to benefit of doubt; negative response cannot be treated as suppression.

Final Conclusion: Petition allowed; order cancelling the petitioner's candidature and recommendation for appointment to the Delhi Judicial Service is set aside.