TaxTMI Updates e-Newsletter
Jan 30,2023

Show cause notice issued under Section 73(1) of the JGST Act requiring clear specification of charges - principles of natural justice - requirement that summary of show cause notice be issued "along with" the show cause notice under Rule 142(1)(a) of the JGST Rules - summary of show cause notice in FORM GST DRC-01 - summary of order in FORM GST DRC-07 - quashing for procedural irregularity

Show cause notice issued under Section 73(1) of the JGST Act requiring clear specification of charges - summary of show cause notice in FORM GST DRC-01 - summary of order in FORM GST DRC-07 - principles of natural justice - requirement that summary of show cause notice be issued "along with" the show cause notice under Rule 142(1)(a) of the JGST Rules - quashing for procedural irregularity - Validity of the show cause notice dated 12.02.2022 (Annexure-1), the summary in FORM GST DRC-01 of the same date (Annexure-2) and the summary order in FORM GST DRC-07 dated 17.02.2022 (Annexure-3). - HELD THAT: - The Court found that the show cause notice dated 12.02.2022 was issued in a pre-printed format without striking out irrelevant particulars and therefore failed to specify the contraventions with sufficient particularity; as such it was vague and did not inform the petitioner of the charges it was required to meet. Rule 142(1)(a) of the JGST Rules requires that a summary of the show cause notice in FORM GST DRC-01 be issued "along with" the show cause notice so as to spell out the contraventions and to enable electronic tracking; that requirement underlines the need for clear, specific charges at the initiation stage. The issuance of the summary order in FORM GST DRC-07 within five days of the show cause notice indicated that no meaningful opportunity of hearing was afforded. Reliance was placed on this Court's earlier decision in M/s NKAS Services Pvt. Ltd., wherein it was held that a show cause notice must specifically set out allegations (including any claim of fraud or willful suppression) so that the noticee may answer; vague or undecipherable charges vitiate the proceedings. Applying those principles, the Court concluded that the foundation of the proceedings was tainted by material irregularity and a violation of the principles of natural justice. The Court did not decide the merits of the underlying tax liability and observed that quashing the impugned notices and order did not preclude the respondents from initiating fresh proceedings in accordance with law from the stage of issuance of a proper show cause notice. [Paras 7, 8, 9, 10]

The show cause notice dated 12.02.2022 (Annexure-1), the summary in FORM GST DRC-01 of the same date (Annexure-2) and the summary order in FORM GST DRC-07 dated 17.02.2022 (Annexure-3) are quashed and set aside; respondents are at liberty to initiate fresh proceedings from the stage of issuance of show cause notice in accordance with law.

Final Conclusion: Writ petition allowed; the impugned show cause notice, its DRC-01 summary and the DRC-07 summary order are quashed for failure to state clear charges and for violation of principles of natural justice, with liberty to the respondents to initiate fresh proceedings in accordance with law.

Power of the High Court under Article 226 to condone delay in statutory appeals - condonation of delay in filing appeal under section 107 of the Central Goods and Services Tax Act, 2017 - judicial discipline and propriety in presence of conflicting Single Judge decisions

Power of the High Court under Article 226 to condone delay in statutory appeals - condonation of delay in filing appeal under section 107 of the Central Goods and Services Tax Act, 2017 - Reference to a Division Bench was made for authoritative decision on whether the High Court can condone delay beyond the maximum time limit under section 107 in exercise of its Article 226 jurisdiction. - HELD THAT: - The Single Judge recorded that two coordinate Single Judges of this Court have taken conflicting views on whether the High Court, exercising jurisdiction under Article 226 of the Constitution, is empowered to condone delay beyond the maximum time limit prescribed by section 107 of the GST Act. In view of the contrary orders (one holding that the High Court may condone the delay in certain extraordinary circumstances and the others holding that it may not), the matter involves a substantial point of law requiring authoritative determination. Judicial discipline and propriety necessitate resolution of the conflict by a Division Bench rather than by further single-judge adjudication. Consequently, the Court did not decide the substantive question on the merits but referred the controverted question for consideration by a Division Bench and directed immediate placement before the Acting Chief Justice for nomination and early hearing.

The writ petitions are referred to an appropriate Division Bench to determine which of the conflicting Single Judge views is correct; registry directed to place the matters before the Acting Chief Justice for posting to a Division Bench for early hearing.

Final Conclusion: Instead of deciding the substantive question, the Single Judge referred the conflicting Single Judge decisions on the High Court's power under Article 226 to condone delay in appeals under section 107 of the GST Act to a Division Bench and directed immediate placement before the Acting Chief Justice for posting to an appropriate Division Bench for early hearing.

Detention, seizure and release of goods and conveyances in transit - notice of detention or seizure to be issued within seven days - time-limit for passing consequential order under section 129(3) - penalty under clause (a) or clause (b) of sub-section (1) - opportunity of being heard before determination of penalty

Notice of detention or seizure to be issued within seven days - time-limit for passing consequential order under section 129(3) - penalty under clause (a) or clause (b) of sub-section (1) - Whether the respondents complied with the time limits prescribed by section 129(3) of the Central Goods and Services Tax Act, 2017 in issuing notice of detention and in passing the consequential order for payment of penalty. - HELD THAT: - Section 129(3) requires the proper officer, after detaining or seizing goods or conveyance, to issue a notice specifying the penalty payable within seven days of such detention or seizure and thereafter to pass an order for payment of penalty within seven days from the date of service of that notice. In the present matter the vehicle and goods were detained on 26.10.2022; the notice was issued on 31.10.2022 which is within seven days of detention. However, the consequential order for payment of penalty was passed on 10.11.2022, which is beyond seven days from the date of service of the notice. The passing of the consequential order after the statutory seven-day period is contrary to the clear mandate of section 129(3). In view of that statutory non-compliance the impugned detention and consequential orders could not be sustained. The court relied on consistent precedent from Single Judges of this Court taking the same view and noted that those orders have attained finality, reinforcing the applicability of the statutory time-limit. [Paras 4, 5, 7]

Non-compliance with the seven-day limit in section 129(3) renders the consequential order invalid; the impugned detention and penalty orders are quashed and the detained goods and conveyance are to be released.

Final Conclusion: The writ petitions are allowed; the detention order dated 31.10.2022 and the consequential order dated 10.11.2022 are quashed for breach of the time-limit under section 129(3) of the CGST Act, 2017, and the respondents are directed to release the detained goods and conveyance within one week from receipt of this order.

Initiation of proceedings under Section 130 of the CGST/SGST Acts - requirement of wilful attempt to evade tax - evidentiary sufficiency of transport documents - appellate remedy and exclusion of limitation period

Initiation of proceedings under Section 130 of the CGST/SGST Acts - evidentiary sufficiency of transport documents - requirement of wilful attempt to evade tax - Validity of initiating and concluding proceedings under Section 130 of the CGST/SGST Acts despite production of transport documents by the petitioners - HELD THAT: - The Court examined whether initiation and conclusion of proceedings under Section 130 was unwarranted where the petitioners produced documents said to validate bona fide transport of gold. It found that a material discrepancy existed between the quantity of gold recorded on the documents produced to the tax authorities and the quantity physically recovered at the time of interception. The unexplained shortfall supported a reasonable suspicion of tax evasion. The Court declined to adjudicate the merits of Ext.P18, observing that the existence of documents alone did not preclude initiation of proceedings under Section 130 where facts (here, a discrepancy in quantity) reasonably indicate possible evasion. The Court also recorded that there was no demonstrable malice, ill-will or lack of jurisdiction in initiating the proceedings, and left merits to appellate consideration.

Proceedings under Section 130 were not shown to be without jurisdiction or vitiated; petition dismissed without interfering with Ext.P18 and petitioners left to raise all contentions on appeal.

Appellate remedy and exclusion of limitation period - Treatment of limitation for filing appeal against Ext.P18 - HELD THAT: - The Court permitted the petitioners to file an appeal and directed that, if an appeal is filed within two weeks from the date of the judgment, the period from 11.10.2022 (date of Ext.P18) till 18.01.2023 (date of this order) shall be excluded for computing limitation. The appellate authority was directed to consider the appeal untrammelled by observations in this judgment.

If appeal filed within two weeks, the period 11.10.2022 to 18.01.2023 is excluded for limitation and the appellate authority to decide the matter afresh.

Final Conclusion: Writ petition dismissed; initiation and conclusion of proceedings under Section 130 could not be held to be without jurisdiction in view of the unexplained discrepancy in quantity; petitioners may pursue appellate remedies and, if appeal is filed within two weeks, the period from 11.10.2022 to 18.01.2023 shall be excluded for limitation and the appellate authority shall decide the appeal de novo.

Game of skill - betting and gambling - misclassification of supply as service versus actionable claim - show cause notice under Section 74(1) of the CGST, 2017 - issue already settled by precedent / res-integra - abuse of process of law - restraint on coercive recovery pending adjudication

Game of skill - betting and gambling - misclassification of supply as service versus actionable claim - issue already settled by precedent / res-integra - abuse of process of law - Whether issuance of the impugned show cause notice challenging the petitioners' classification of online gaming as services (games of skill) rather than actionable claims or betting/gambling was impermissible in view of existing judicial precedents. - HELD THAT: - The Court noted that multiple Division Benches of this High Court and decisions referred to (including an undisturbed Division Bench decision in Chandresh Sankhla and Ravindra Singh Chaudhary, and observations in Dr. K.R. Laxmanan) have held that the games in question are games of skill and not gambling. On the basis of this jurisprudence, the Court was prima facie satisfied that some of the games offered by the petitioners have been judicially classified as games of skill rather than betting/gambling. In those circumstances, issuing a show cause notice which proceeds on the contrary view was characterised as an abuse of process of law. The Court accepted the petitioners' contention that the controversy is not res-integra and that respondents cannot reopen settled legal position by issuing notices contrary to binding precedent, at least on the prima facie record before the Court. [Paras 7, 8, 9, 10, 11]

On a prima facie consideration, the issuance of the impugned show cause notice, insofar as it treats the petitioners' gaming services as betting/gambling or actionable claims contrary to settled precedents, is an abuse of the process of law.

Show cause notice under Section 74(1) of the CGST, 2017 - restraint on coercive recovery pending adjudication - Whether respondents may take coercive measures to recover tax, interest and penalty pursuant to the impugned show cause notice during pendency of the petition. - HELD THAT: - The Court stayed coercive steps for recovery of amounts claimed in the impugned notice subject to the petitioners filing a reply to that notice within one month. The Court directed respondents to file a counter-affidavit within one month and listed the petition for admission/final disposal thereafter. The interim restraint operates until further orders and until the respondents take a final decision on the notice, which will remain subject to the decision in this writ petition. [Paras 12, 13, 14]

Respondents are restrained from taking any coercive measures to recover amounts pursuant to the impugned show cause notice dated 09.12.2022, provided the petitioners file their reply within one month; respondents to file counter-affidavit and matter to be listed for admission/final disposal.

Final Conclusion: On prima facie consideration the High Court found that certain online games offered by the petitioner have been judicially held to be games of skill and that issuance of the impugned show cause notice proceeding on a contrary view amounted to an abuse of process; the Court directed filing of pleadings, restrained coercive recovery pending final decision, and listed the petition for admission/final disposal.

Show cause notice under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - adjudication of show cause notice after considering replies on record - personal hearing and requirement of a speaking order - jurisdictional objection based on no undisclosed foreign income/assets - expeditious adjudication with prescribed timeline and limited non-operation of adverse order

Adjudication of show cause notice after considering replies on record - Impugned show cause notice dated 12.09.2022 under the 2015 Act to be adjudicated by the concerned statutory authority having regard to the replies on record. - HELD THAT: - The court directed that, since the matter was at the stage of a show cause notice, the appropriate course was to require the statutory authority to adjudicate the notice afresh. The authority is to take into account the petitioner's reply dated 07.10.2022 and the earlier responses filed on the record. The writ petition was disposed by remitting the matter back for adjudication rather than deciding the merits of the show cause notice on the writ record. [Paras 15]

The show cause notice is to be adjudicated by the concerned authority after considering the petitioner's replies on the record.

Personal hearing and requirement of a speaking order - Authority must issue notice, grant personal hearing to the petitioner or his authorised representative, and pass a speaking order. - HELD THAT: - The court mandated procedural safeguards to be followed by the authority before making any adverse finding: issuance of notice to the petitioner, an opportunity for personal hearing, and the requirement that the final order be a speaking order setting out reasons. These directions ensure that the adjudication is procedurally fair and reasoned. [Paras 16]

Notice, personal hearing and a speaking order are required before the authority proceeds further.

Jurisdictional objection based on no undisclosed foreign income/assets - The authority must specifically address the petitioner's contention that it lacks jurisdiction because there was no undisclosed foreign income or asset. - HELD THAT: - The court emphasised that the authority, while adjudicating the show cause notice, should specifically consider and decide the petitioner's plea that the 2015 Act is not attracted as there was no income or asset that remained undisclosed - a contention raised before the court and placed on record. The direction confines the authority to deal expressly with this jurisdictional contention in its speaking order. [Paras 16]

The authority is directed to deal specifically with the petitioner's jurisdictional objection in its adjudication.

Expeditious adjudication with prescribed timeline and limited non-operation of adverse order - Adjudication to be completed within eight weeks and any adverse order shall not be given effect to for eight weeks from date of receipt of the speaking order by the petitioner. - HELD THAT: - The court imposed an expeditious timeline, directing the authority to conclude adjudication within eight weeks from receipt of the judgment copy. Further, the court provided a limited protective measure: if the authority's order is adverse to the petitioner, it shall not be given effect to for a period of eight weeks beginning from the date the petitioner receives a copy of the speaking order, thereby affording the petitioner a window to seek appropriate remedies. [Paras 16]

Adjudication to be completed within eight weeks and any adverse order shall not be effectuated for eight weeks from receipt by the petitioner.

Final Conclusion: Writ petition disposed by remitting the matter to the statutory authority to adjudicate the show cause notice under the 2015 Act, taking into account the petitioner's replies, granting personal hearing, issuing a speaking order, addressing the jurisdictional contention that no undisclosed foreign income/assets exist, with adjudication to be completed within eight weeks and any adverse order withheld from operation for eight weeks from receipt.

Reopening of assessment under section 147 of the Income Tax Act - change of opinion doctrine - reasons to believe - fresh tangible material prerequisite for reassessment - reopening quashed as impermissible review

Reopening of assessment under section 147 of the Income Tax Act - change of opinion doctrine - fresh tangible material prerequisite for reassessment - reopening quashed as impermissible review - Reopening of assessment for assessment year 2014-15 was invalid and was quashed. - HELD THAT: - The Tribunal examined the records of the original scrutiny assessment and the reasons recorded for reopening. During the original assessment the Assessing Officer had issued notices under section 142(1) and obtained returns, bank statements, balance-sheets and explanations which included the assessee's disclosure about a purported Rs.5 crore deposit with Prince Foundations Ltd. The Assessing Officer completed assessment under section 143(3) after considering those materials. The reasons recorded for reopening focused on disallowing interest on borrowed funds alleged to have been diverted to a non-business deposit, but no fresh material - i.e., nothing that was not available or considered during the original assessment - was brought on record after completion of assessment. Applying the settled legal principle that reopening cannot be founded on mere change of opinion and that the jurisdiction under section 147 requires formation of belief on fresh tangible material (as articulated in Kelvinator of India Ltd.), the Tribunal found the reassessment to be a review in substance. For these reasons the reopening was held to be impermissible and was quashed. [Paras 10, 11, 12, 13]

Assessment reopened under section 147 for AY 2014-15 quashed as being based on change of opinion and not on fresh tangible material.

Final Conclusion: The appeal is allowed; the reassessment framed under section 143(3) r.w.s. 147 for assessment year 2014-15 is quashed as a prohibited change of opinion, rendering merit adjudication academic.

Deduction under Section 36(1)(va) - Section 43B non-obstante clause - Employees' contribution to PF/ESI held in trust - Interest on delayed deposit of TDS not deductible as business expenditure - Deeming fiction under Section 201 making TDS a liability of the deductor - Definition of "tax" under Section 2(43) and distinction from interest/penalty

Deduction under Section 36(1)(va) - Section 43B non-obstante clause - Employees' contribution to PF/ESI held in trust - Disallowance of deduction for delayed deposit of employees' contribution to PF/ESI - HELD THAT: - The Tribunal, following the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd., held that amounts representing employees' contributions are held by the employer in trust and qualify for deduction under Section 36(1)(va) only if deposited on or before the due date prescribed under the relevant welfare enactments. The non-obstante clause in Section 43B does not override the specific condition in Section 36(1)(va) that requires timely deposit of employees' contributions; permitting deduction merely because payment was made before filing the return would defeat the statutory scheme distinguishing employer's contribution from employees' contribution. Applying that ratio, the addition made under Section 43B read with Section 36(1)(va) in respect of delayed deposit of employees' PF/ESI contributions was upheld. [Paras 5, 6]

Grounds 1 and 2 dismissed; deduction in respect of delayed deposit of employees' contribution to PF/ESI is not allowable unless deposited by the due date prescribed under the welfare enactments.

Interest on delayed deposit of TDS not deductible as business expenditure - Deeming fiction under Section 201 making TDS a liability of the deductor - Definition of "tax" under Section 2(43) and distinction from interest/penalty - Allowability of interest paid on belated deposit of TDS as business expenditure - HELD THAT: - The Tribunal analysed statutory provisions including Sections 4, 201 and 229 and held that failure to deduct or deposit TDS renders the deductor an assessee-in-default and fastens the tax and interest as a charge on the deductor's assets. The interest under Section 201(1A) is a statutory consequence of default and is inextricably linked to the tax liability created by the Act; it is not expenditure incurred wholly and exclusively for carrying on business nor interest on capital borrowed. Reliance on decisions holding that 'tax' does not include interest or penalty was examined and distinguished on the ground that the Income-tax Code contains specific deeming and recovery provisions making interest part of the deductor's statutory liability. Allowing the interest as a business deduction would frustrate the object of the TDS provisions. [Paras 18, 25, 26]

Ground 3 dismissed; interest on delayed deposit of TDS is not an allowable deduction.

Final Conclusion: The appeal is dismissed in entirety: deductions claimed for delayed deposit of employees' PF/ESI contributions and for interest on belated deposit of TDS are disallowed in accordance with the statutory scheme and binding precedent.

Fair market value of shares - valuation of unquoted equity shares - valuation of unquoted shares and securities other than equity shares - Rule 11UA of the Income-tax Rules, 1962 - Section 56(2)(viib) of the Income-tax Act, 1961 - merchant banker/accountant valuation report - redeemable preference shares - addition as income from other sources on account of share premium

Rule 11UA of the Income-tax Rules, 1962 - valuation of unquoted shares and securities other than equity shares - merchant banker/accountant valuation report - Section 56(2)(viib) of the Income-tax Act, 1961 - redeemable preference shares - addition as income from other sources on account of share premium - Applicability of Rule 11UA and the consequent chargeability under section 56(2)(viib) in respect of cumulative redeemable preference shares issued at a premium. - HELD THAT: - The Tribunal examined the text of Rule 11UA. Sub rule (2) specifically prescribes methods for determination of the fair market value of unquoted equity shares. Separately, clause (c) of Rule 11UA(1) deals with the fair market value of unquoted shares and securities other than equity shares and provides that such value shall be estimated as the price it would fetch in the open market on the valuation date and that the assessee may obtain a report from a merchant banker or an accountant. The Assessing Officer applied the valuation formula for unquoted equity shares and computed a negative FMV, treated it as nil and made an addition under section 56(2)(viib). The assessee, however, produced a valuation report by a chartered accountant valuing the cumulative redeemable preference shares, which falls within clause (c) of Rule 11UA(1). The Tribunal held that Rule 11UA(2) is confined to unquoted equity shares and that valuation of non equity unquoted shares (such as the cumulative redeemable preference shares here) is governed by Rule 11UA(1)(c) permitting valuation on the basis of a merchant banker/accountant report. Since such a report was furnished and the Assessing Officer's negative FMV was not in accordance with the applicable provisions, the addition under section 56(2)(viib) could not be sustained. [Paras 13, 14]

The addition under section 56(2)(viib) in respect of the premium on cumulative redeemable preference shares is not sustainable where a valuation report under Rule 11UA(1)(c) is furnished; the CIT(A)'s view rejecting the Assessing Officer's addition is upheld.

Final Conclusion: The revenue's appeal is dismissed; the addition made by the Assessing Officer treating the share premium on cumulative redeemable preference shares as income under section 56(2)(viib) is set aside as Rule 11UA(1)(c) governs valuation of such non equity unquoted shares and the assessee produced the requisite valuation report.

Disallowance under section 14A of the Income tax Act read with Rule 8D of the Income tax Rules - Attribution and apportionment of interest expense between business and investment (borrowed funds used for investment) - Limits on disallowance not exceeding exempt income - Power of first appellate authority to examine and direct computation of section 14A disallowance where assessing officer failed to make requisite deduction - Remand for verification and recomputation by Assessing Officer - Direction to furnish statement relied upon and rehearing on long term capital loss / buy back transaction - Treatment of rental receipts as income from house property and allowance under section 24(b)

Power of first appellate authority to examine and direct computation of section 14A disallowance where assessing officer failed to make requisite deduction - Disallowance under section 14A of the Income tax Act read with Rule 8D of the Income tax Rules - Whether the CIT(A) could examine and direct computation of disallowance under section 14A/Rule 8D where the Assessing Officer had treated exempt income as such but had not made the statutory disallowance - HELD THAT: - The Tribunal agreed with the CIT(A) that where the Assessing Officer has treated exempt income as such but failed to make the statutory disallowance, the appellate authority in the exercise of plenary powers may examine the allowability of expenditure and direct computation under section 14A read with rule 8D. There is a distinction between cases where invocation of section 14A requires the Assessing Officer to record initial satisfaction (those authorities relied upon by the assessee) and the present case where the Assessing Officer had treated the exempt income as such but omitted to enquire into or compute the relevant disallowance; the present case falls in the latter category. The Tribunal therefore rejected the contention that the CIT(A) lacked competence to consider section 14A in these circumstances. [Paras 18, 19]

CIT(A) properly exercised jurisdiction to consider and direct computation of disallowance under section 14A/Rule 8D when Assessing Officer treated exempt income as such but did not compute the disallowance.

Remand for verification and recomputation by Assessing Officer - Limits on disallowance not exceeding exempt income - Disallowance under section 14A of the Income tax Act read with Rule 8D of the Income tax Rules - Quantification and computation of disallowance under section 14A/Rule 8D and whether the matter should be remanded for verification and recomputation - HELD THAT: - The Tribunal held that the quantum of disallowance required verification of facts and figures furnished by the assessee (such as investments from borrowed funds, dates of borrowal and investment and the interest expense). The Tribunal directed that the issue be set aside to the Assessing Officer for verification and recomputation of the section 14A disallowance under rule 8D, expressly stating that the disallowance shall not exceed the exempt income earned during the relevant year and that the AO must verify the figures which may limit the disallowance (for example to the dividend/exempt income actually earned). Consequently, these aspects were remitted for fresh computation and verification. [Paras 21, 22]

Issue remitted to the Assessing Officer to verify documents and recompute disallowance under section 14A/Rule 8D, ensuring the disallowance does not exceed exempt income for the year.

Attribution and apportionment of interest expense between business and investment (borrowed funds used for investment) - Disallowance under section 14A of the Income tax Act read with Rule 8D of the Income tax Rules - Whether the CIT(A)'s factual conclusion that a large portion of investments was funded by borrowed funds (and therefore interest should be apportioned/disallowed to that extent) was sustainable - HELD THAT: - On examination of the assessee's financials the Tribunal found no contrary material to disturb the CIT(A)'s finding that own funds were grossly inadequate and that substantial investments were made from borrowed funds. The Tribunal upheld the CIT(A)'s approach of excluding revaluation reserves (which did not give rise to cash flow) and treating only the realistic own funds as available for investment, thereby concluding that a significant portion of interest expense was attributable to investment. The Tribunal accepted the CIT(A)'s method of allowing interest reasonably attributable to business and disallowing the balance attributable to investment, and agreed that the CIT(A)'s directions aimed at reducing rather than enhancing the disallowance. [Paras 20, 42, 43, 44]

Factual findings of the CIT(A) that investments were financed largely from borrowed funds and consequent apportionment/disallowance of interest are upheld.

Direction to furnish statement relied upon and rehearing on long term capital loss / buy back transaction - Principles of natural justice in assessment additions - Whether addition on account of alleged sham sale (sale at face value to same company) can be sustained without furnishing the statement of a witness relied upon, and whether matter should be reconsidered - HELD THAT: - The Tribunal held that, on the material available, the authorities were justified in disbelieving the assessee's explanation for selling shares at face value when they had been acquired at a high premium and the company had recently raised funds at high premium. Nevertheless, because the computation by the authorities was influenced by the statement of Mr. Raghurama Krishna Raju and the assessee complained that a copy of that statement was not furnished, the Tribunal directed that a copy of the statement be furnished to the assessee and remitted the matter to the Assessing Officer to reconsider the addition afresh after providing the statement and opportunity to the assessee. The Tribunal reasoned that the assessee had not sought the copy earlier but fairness required furnishing and fresh consideration. [Paras 23, 28, 29]

Finding of disbelief in the sale transaction sustained in principle, but the matter is remitted to the Assessing Officer after furnishing the statement relied upon for fresh consideration.

Treatment of rental receipts as income from house property and allowance under section 24(b) - Allowability of deduction under section 24(b) in respect of rent claimed as business income (leasing being part of business) - HELD THAT: - The Assessing Officer had treated rent as income from house property while the assessee contended leasing was an object of business. The CIT(A) directed the Assessing Officer to allow deduction under section 24(b) on the assessee furnishing the relevant interest figure. The Tribunal did not disturb this direction and the matter stands as directed by the CIT(A). [Paras 8]

CIT(A)'s direction to allow deduction under section 24(b) subject to production of relevant interest figures is maintained.

Final Conclusion: For AY 2010 11 and AY 2011 12 the Tribunal upheld the appellate authority's jurisdiction to direct computation under section 14A/Rule 8D where the Assessing Officer treated exempt income but failed to compute the disallowance, sustained the factual conclusion that substantial investments were funded by borrowed funds (warranting apportionment/disallowance of interest), remitted the quantification of section 14A disallowance to the Assessing Officer for verification and recomputation (ensuring it does not exceed exempt income), directed furnishing of the statement relied upon and fresh consideration of the long term capital loss addition, and left the CIT(A)'s direction regarding section 24(b) deduction intact.

Principle of natural justice / audi alteram partem - validity of appointment of special auditor under section 142(2A) - special audit as investigative process entailing civil consequences - challenge to appointment of special auditor by way of appeal against assessment - exclusion of period under Explanation 1(iii) to section 153(3) - prospective overruling and its application to statutory interpretation

Challenge to appointment of special auditor by way of appeal against assessment - jurisdiction of appellate forum to decide validity of 142(2A) appointment - Tribunal's jurisdiction to adjudicate the validity of an order directing special audit under section 142(2A) as part of an appeal against the assessment order. - HELD THAT: - The Tribunal held that an order directing special audit under section 142(2A) is integral to the assessment proceedings because special audit is investigative, entails civil consequences and may determine validity of any assessment passed in the extended period. Consequently, though the 142(2A) order as such may not be separately appealable, its legality can be challenged in an appeal against the final assessment order. The Court relied upon the Supreme Court's reasoning that principles of natural justice attach to a 142(2A) direction and that material gathered or proceedings under special audit are determinative of the assessment; hence the appellate forum can examine whether the reference to special audit was validly made where that issue goes to the root of the assessment. [Paras 5, 6, 15]

The Tribunal may adjudicate the legality of the appointment of a special auditor when that appointment affects the validity of the assessment impugned in appeal.

Validity of appointment of special auditor under section 142(2A) - principle of natural justice / audi alteram partem - requirement of speaking reasons for invoking 142(2A) - Whether the Assessing Officer validly exercised power under section 142(2A) in the present cases. - HELD THAT: - Applying the Supreme Court decisions (notably Sahara India and Rajesh Kumar), the Tribunal found that a 142(2A) direction entails civil consequences and therefore requires observance of audi alteram partem. On the material before it the AO had not examined the assessee's accounts, notices in the 142(2A) proceedings were defectively served by substituted service with dubious witnesses, the show-cause and final 142(2A) orders were non speaking and lacked plausible reasons year wise for complexity, and the CIT's approval was mechanical without consideration of records. These deficiencies meant the statutory and procedural preconditions for a lawful special audit were not satisfied and the appointment was vitiated. [Paras 11, 12, 16, 17, 19]

The appointment of the special auditor under section 142(2A) in these matters was held to be invalid.

Special audit as investigative process entailing civil consequences - exclusion of period under Explanation 1(iii) to section 153(3) - time barred assessment / computation of limitation - Whether the period excluded under Explanation 1(iii) to section 153(3) could be invoked in light of the invalid 142(2A) appointment, and the consequence for the assessments. - HELD THAT: - Because the 142(2A) direction was invalid, the period claimed to be excluded under Explanation 1(iii) could not be reckoned for computing the time limit under section 153. The Tribunal applied the principle that time taken under a jurisdictionally defective special audit cannot extend the limitation period. Noting that the original limitation had expired on 31.12.2008 and the impugned assessments were passed thereafter, the Tribunal concluded the assessments were barred by limitation. The reasoning followed Supreme Court authorities acknowledging that special audit may justify exclusion of time only when the 142(2A) direction is valid. [Paras 7, 13, 17, 19, 20]

The period sought to be excluded on account of special audit could not be excluded; the assessments stood time barred and were quashed.

Consequential relief on quashing of assessment - penalty under section 271(1)(c) dependent on assessment - Consequences for additions and penalties founded on the quashed assessments. - HELD THAT: - Given that the Tribunal quashed the assessments as barred by limitation, consequential additions sustained as part of those assessments fell away. Since the penalty under section 271(1)(c) was levied pursuant to those invalid assessment orders, its foundation ceased to exist. The Tribunal therefore held that the penalty could not survive independently of the quashed assessment. [Paras 20, 21]

The consequential additions were deleted and the penalties under section 271(1)(c) were set aside.

Final Conclusion: The Tribunal admitted the additional legal grounds challenging the reference to a special auditor, held that the 142(2A) directions in these matters were invalid for want of pre decisional opportunity, adequate service and speaking reasons; the period excluded on account of special audit could not be reckoned, the assessments were time barred and are quashed, consequential additions are deleted and the penalties under section 271(1)(c) are set aside; the Revenue's appeal is dismissed.

Disallowance under Section 14A read with Rule 8D - computation of average value of investments for Rule 8D(2)(iii) - investments to be considered only if yielding exempt income during the relevant previous year - application of Section 14A addition to book profits under Section 115JB - depreciation on computer software - classification of application software under Entry 5 Part A and rate of 60% - jurisdiction of appellate authority to entertain additional claims raised during assessment proceedings - treatment of net foreign exchange gain under Section 43A

Disallowance under Section 14A read with Rule 8D - computation of average value of investments for Rule 8D(2)(iii) - investments to be considered only if yielding exempt income during the relevant previous year - Validity and quantum of disallowance computed under Section 14A read with Rule 8D(2)(iii) in respect of exempt dividend income - HELD THAT: - The Tribunal found on the facts that the assessee was debt-free and that the Assessing Officer had included the entire corpus of investments while applying Rule 8D(2)(iii). Reliance was placed on the decision of the Hon'ble Delhi High Court in ACB India Ltd. that, for the purpose of computing average value under Rule 8D(2)(iii), only those investments which yielded exempt income during the relevant previous year are to be taken into account. Applying that principle, the Tribunal set aside the addition and directed the Assessing Officer to re-compute the disallowance under Section 14A read with Rule 8D(2)(iii) by considering only investments yielding exempt income in the relevant year. For Assessment Year 2011-12 the Tribunal additionally directed that the recomputed disallowance be limited to the amount of exempt income actually earned during the relevant previous year. [Paras 10, 20, 24]

Addition/disallowance set aside and Assessing Officer directed to re-compute disallowance under Section 14A read with Rule 8D(2)(iii) taking into account only investments yielding exempt income (with the recomputed amount for AY 2011-12 limited to exempt income earned).

Depreciation on computer software - classification of application software under Entry 5 Part A and rate of 60% - Rate of depreciation applicable to the assessee's application software - HELD THAT: - The Tribunal examined the Appendix entries and the Madras High Court decision which held that the specific entry "Computers including computer software" (Entry 5 Part A) and Note 7 encompass computer software, and that a specific entry cannot be displaced by a more general entry (licenses/intangible assets). On that basis the Tribunal held that the application software used by the assessee falls within the specific entry attracting depreciation at 60% rather than being taxed under the general entry for intangible assets at 25%. The Tribunals' conclusion applied mutatis mutandis across the three assessment years. [Paras 16, 21, 25]

Assessee entitled to claim depreciation at 60% for application software; corresponding disallowances deleted.

Jurisdiction of appellate authority to entertain additional claims raised during assessment proceedings - treatment of net foreign exchange gain under Section 43A - Whether the CIT(A) could entertain the assessee's claim raised during assessment proceedings regarding net foreign exchange gain and the consequent treatment under Section 43A - HELD THAT: - The Tribunal held that appellate authorities have jurisdiction to entertain new or additional claims raised during assessment proceedings and that Goetze (supra) did not oust the appellate jurisdiction. The CIT(A)'s rejection of the claim on the ground that it was not raised by a revised return was therefore erroneous. On the merits the Tribunal directed verification by the Assessing Officer of (a) whether the net foreign exchange gain relates to advance for purchase of a capital asset and (b) whether it was included in Miscellaneous Income in the Profit & Loss Account. If both conditions are satisfied, the Assessing Officer was directed to reduce the income by the net foreign exchange gain and adjust the amount against the cost of the capital asset in accordance with Section 43A. The matter was thus remitted for factual verification and consequential adjustment. [Paras 29]

CIT(A) erred in not adjudicating the claim; matter remitted to Assessing Officer to verify facts and, if satisfied, to adjust the net foreign exchange gain under Section 43A (claim treated as allowed for statistical purposes).

Final Conclusion: The appeals for AY 2009-10, 2010-11 and 2011-12 are partly allowed: the Section 14A/Rule 8D disallowances set aside and directed to be recomputed by considering only investments yielding exempt income (with a further limiting direction for AY 2011-12); the assessee is entitled to depreciation at 60% on application software and corresponding disallowances are deleted; and the claim regarding net foreign exchange gain is remitted to the Assessing Officer for verification and, if established, adjustment under Section 43A. Other minor or infructuous grounds were disposed as recorded.

Treatment of cash found on search - credit to explanations recorded under section 132(4) - unexplained investment under section 69 - assessment of assets not belonging to the assessee - transactions by family members not assessable in assessee's hands - presumption insufficient to make addition - ownership of shares registered in assessee's name held on behalf of others - bona fide hedging transactions and tax treatment of hedging losses - alleged illegality under stock exchange bye laws must be specifically proved

Treatment of cash found on search - credit to explanations recorded under section 132(4) - presumption insufficient to make addition - Addition on account of unexplained cash found at search reduced to Rs.4,900. - HELD THAT: - The assessing officer disregarded the assessee's statement under section 132(4) explaining that Rs.50,000 of the cash belonged to various family members and that the assessee had offered Rs.45,000 in his return, while relying instead on the brother's statement to restrict the explained amount to Rs.20,000. The Tribunal found no reason recorded for rejecting the assessee's statement and observed that the brother's statement did not account for cash belonging to other family members. Accepting the assessee's contemporaneous explanation, the Tribunal gave credit for Rs.50,000 as belonging to family members together with the Rs.45,000 offered in return, leaving only Rs.4,900 as unexplained; accordingly the addition was restricted to that lesser amount. [Paras 5, 6]

Order of lower authorities set aside and AO directed to restrict addition to Rs.4,900.

Ownership of shares registered in assessee's name held on behalf of others - unexplained investment under section 69 - assessment of assets not belonging to the assessee - Addition of Rs.86,300 as unexplained investment in shares deleted as shares belonged to others and were held in assessee's name pursuant to prevailing broker practice. - HELD THAT: - Share certificates stood in the assessee's name, but the assessee produced contemporaneous materials - confirmations from the beneficial holders, broker notes and an affidavit from a broker's employee - explaining the trade practice of registering shares in employees' names until delivery to jobbers/sub brokers. On the basis of this evidence the Tribunal accepted that the impugned shares did not belong to the assessee; when an asset does not belong to the assessee, addition under section 69 could not be sustained. The addition was therefore deleted. [Paras 7, 8, 10]

Addition of Rs.86,300 deleted and order of lower authorities set aside.

Transactions by family members not assessable in assessee's hands - presumption insufficient to make addition - Addition of Rs.3,25,000 relating to bank deposits and loans by family members held not chargeable to the assessee and deleted. - HELD THAT: - The AO's additions arose from loans given to and repaid by a third party, with the family members of the assessee being the contracting parties. The AO did not show that these transactions were made by the assessee himself, and the family members were separately assessable. The Tribunal held that any cause of action, if at all, arose in the hands of the family members and not the assessee, and that AO's presumption about non withdrawal of cash was insufficient to fasten liability on the assessee. The addition in the assessee's hands was therefore set aside. [Paras 11, 12, 13]

Order set aside and AO directed to delete the addition of Rs.3,25,000 in assessee's hands.

Treatment of bank deposits in spouse's account - presumption insufficient to make addition - Addition of Rs.10,000 credited to the assessee on account of cash deposits in wife's joint account deleted. - HELD THAT: - The wife furnished a contemporaneous confirmation that the cash deposits were out of her past savings and not the assessee's income; the account was held jointly and no evidence proved that the assessee alone funded the deposits. The Tribunal found the AO's inference that the assessee alone made the deposits to be a mere presumption not warranting an addition, and accordingly set aside the assessment of this amount in the assessee's hands. [Paras 14, 15]

Addition of Rs.10,000 deleted and order of lower authorities set aside.

Assessment of brokerage income - responsibility to prove denial of liability - Addition of brokerage income of Rs.37,000 confirmed. - HELD THAT: - Although the assessee declared brokerage in his statement under section 132(4), he did not disclose it in the return asserting that the broker denied liability. The assessee produced no credible material to corroborate that the broker disputed the claim; in contrast, contemporaneous correspondence showed substantial dealings and interest payments between the parties, indicating a continuing relationship. The Tribunal found the assessee failed to discharge the burden of proof to show that the brokerage was not receivable and therefore upheld the addition. [Paras 16, 17]

Addition of Rs.37,000 confirmed.

Bona fide hedging transactions and tax treatment of hedging losses - alleged illegality under stock exchange bye laws not proved - presumption insufficient to make addition - Hedging losses claimed by the assessee (losses in AY 1992 93 and AY 1993 94) allowed and disallowances deleted. - HELD THAT: - The CIT(A) accepted the hedging character of transactions but disallowed the loss on the ground that the transactions were illegal under stock exchange bye laws; he also held a CBDT circular inapplicable. The Tribunal examined the CBDT circular and the bye laws: the circular expressly contemplated bona fide hedging in shares related to holdings, and the Tribunal found the circular applicable to shares. The revenue did not point to any specific bye law provision declaring such hedging illegal; contemporaneous broker notes showed that the transaction rollovers and purchases to close hedges were carried out in the relevant period. In absence of a finding that the transactions were not bona fide or specifically illegal, the hedging losses were allowable. The Tribunal therefore set aside the disallowance for both years (including the loss of Rs.20,17,775 in AY 1992 93 and Rs.7,35,750 in AY 1993 94). [Paras 20, 21, 22, 23, 30]

Disallowance of hedging losses set aside; losses allowed and orders of lower authorities deleted.

Unexplained investment in UTI in wife's name - presumption insufficient to make addition - Addition of unexplained investment of Rs.9,000 in UTI schemes in wife's name deleted. - HELD THAT: - The wife furnished a confirmation that the investment was from her own savings. Considering the smallness of the amount and the contemporaneous explanation, the Tribunal accepted the wife's statement and held that the AO's presumption that the investment represented assessee's undisclosed income was not justified, directing deletion of the addition. [Paras 24]

Addition of Rs.9,000 deleted and order of lower authorities set aside.

Unexplained investments and dividend income assessed on estimation - assessment of assets not belonging to the assessee - presumption insufficient to make addition - Additions in respect of unexplained investments and dividend income (including amounts assessed in AY 1992 93 and AY 1993 94) deleted. - HELD THAT: - Dividend credits in the assessee's bank account were explained as pertaining to shares beneficially belonging to the broker and not to the assessee; the relevant share certificates were not found with the assessee. The AO estimated investment values from dividend figures and made additions under section 69, but there was no evidence that the assessee had made the investments or had sold such shares. Given the accepted trade practice of registering broker's shares in employees' names and absence of proof that the assessee owned the investments, the Tribunal held that additions based on presumption and estimation were not justified and therefore set them aside for both years. [Paras 25, 26, 27, 28, 31]

Additions relating to unexplained investments and dividend income deleted and orders set aside.

Final Conclusion: The Tribunal partly allowed the appeal for AY 1992 93 by restricting and deleting several additions (cash, share investment, bank deposits, spouse's deposit, UTI investment, unexplained investments/dividends, hedging loss) while confirming the brokerage addition; the appeal for AY 1993 94 was allowed by deleting the disallowance of hedging loss and related investment/dividend additions. The AO is directed to give effect to these directions.

Revisionary jurisdiction under section 263 - erroneous and prejudicial to the interests of the revenue - failure to make inquiries or verification which should have been made - verification of advances written off and genuineness of transactions - taxability in hands of recipients under Section 51/56(1)(ix) - compliance with Explanation 2 to section 263 - conditions of section 36(2) and CBDT Circular No.12/2016

Revisionary jurisdiction under section 263 - erroneous and prejudicial to the interests of the revenue - failure to make inquiries or verification which should have been made - compliance with Explanation 2 to section 263 - Whether the Principal Commissioner of Income Tax rightly invoked section 263 to set aside the assessment on the ground that the Assessing Officer failed to make enquiries or verification which should have been made. - HELD THAT: - The Tribunal found that the Assessing Officer completed assessment accepting the returned income without factually verifying substantial advances written off by the assessee. Under Explanation 2 to section 263, an order is 'erroneous in so far as it is prejudicial to the interests of the revenue' where it is passed without making inquiries or verification which should have been made. The Tribunal applied this principle and the authorities relied upon by the PCIT and parties (including the Supreme Court and the jurisdictional High Court decisions discussed in the order) to conclude that the AO did not conduct the verification that ought to have been carried out and did not record the extent of verification or reasons for allowing the claim. On that basis the Tribunal held that the PCIT was justified in exercising revisional jurisdiction and setting aside the assessment for fresh examination by the AO. [Paras 6, 7, 8, 11, 12]

The invocation of section 263 was justified and the assessment order was set aside because the AO failed to make requisite enquiries and verifications.

Verification of advances written off and genuineness of transactions - taxability in hands of recipients under Section 51/56(1)(ix) - conditions of section 36(2) and CBDT Circular No.12/2016 - Whether the matter should be remitted to the Assessing Officer for verification of the advances written off, examination of taxability in the hands of recipients, and compliance with the conditions of section 36(2) and CBDT Circular No.12/2016. - HELD THAT: - The Principal Commissioner had directed the AO to verify the genuineness of the transactions/agreements, examine applicability of Section 51/56(1)(ix) in the hands of other parties, and verify whether the advances written off comply with CBDT Circular No.12/2016 and the conditions in section 36(2). The Tribunal agreed that such factual and legal aspects required fresh and proper inquiry by the AO given the absence of adequate verification in the original assessment. Accordingly, the Tribunal modified and upheld the PCIT's order to remit the matter to the AO with directions to examine these specific issues afresh and decide allowability in accordance with law. [Paras 3, 12]

Matter remitted to the Assessing Officer to verify genuineness of advances written off, examine taxability under Section 51/56(1)(ix), and ensure compliance with section 36(2) and CBDT Circular No.12/2016.

Final Conclusion: The Tribunal dismissed the assessee's appeal, held that the PCIT was justified in invoking section 263 because the AO failed to make enquiries or verifications which should have been made, and directed remand to the Assessing Officer to verify the advances written off, examine taxability in the hands of recipients, and determine compliance with section 36(2) and CBDT Circular No.12/2016.

Revision under section 263 - Reassessment under section 147 - Explanation 2 to section 263 - Prudent officer standard - Verification/enquiry on agricultural income

Revision under section 263 - Verification/enquiry on agricultural income - Prudent officer standard - Explanation 2 to section 263 - Validity of the Principal Commissioner's invocation of revisionary jurisdiction under section 263 to set aside the AO's reassessment orders for alleged lack of proper verification of the assessee's claim that cash deposits arose from agricultural sales. - HELD THAT: - Proceedings under section 147 were initiated on information that the assessee had made substantial cash deposits which were not explained in the return. During reassessment the assessee claimed those deposits were cash sales of agricultural produce and produced invoices and revenue records. The Tribunal found the invoices to be self made and unreliable (two invoices to the same party bearing identical invoice numbers, absence of buyer address despite large quantities). Reliance on 7/12 extracts and purchase/sale deed entries was held insufficient without verification that the land was actually used for cultivation. The AO accepted the agricultural source without conducting the enquiries a prudent officer would have made, especially when the claim was first advanced during reassessment and the case was reopened on specific information. Given the lack of adequate verification and enquiry by the AO, the assessment was held to be erroneous and prejudicial to revenue and therefore amenable to revision under section 263 read with Explanation 2. The Tribunal upheld the learned PCIT's direction to undertake thorough verification and framed the assessment afresh. [Paras 11, 12, 13, 14]

The invocation of section 263 was upheld; the assessment orders were set aside for de novo verification and assessment.

Final Conclusion: Both appeals are dismissed. The revision orders passed by the Principal Commissioner under section 263 for assessment years 2012-13 and 2015-16 are upheld and the AO is directed to carry out thorough verification and frame the assessment de novo.

Unexplained investment - search and seizure - onus on revenue to prove investment materialised into asset - corroborative evidence and contemporaneous documentation - ex parte proceedings

Unexplained investment - onus on revenue to prove investment materialised into asset - corroborative evidence and contemporaneous documentation - Validity of additions made by AO and confirmed by CIT(A) on account of alleged unexplained cash payments reflected in an agreement to purchase for AY 2004-05 and AY 2005-06. - HELD THAT: - The Tribunal examined whether the amounts treated as unexplained investments were shown to have resulted in any corresponding asset or completed transaction. The authorities below relied on an agreement to purchase (issar chitthi) and endorsements thereon to disbelieve the assessee's plea that the transaction did not materialise, and made additions of the cash amounts. The Tribunal noted the assessee's affidavit and a confirmation letter from the alleged seller indicating cancellation of the agreement and non-receipt/return of money, and observed that neither the AO nor the CIT(A) verified whether the alleged payments had been returned or whether any asset had been acquired. In the absence of evidence that the alleged cash payments culminated in an investment or a completed property transaction, the burden on the revenue to demonstrate that the amounts represented unexplained investments was not discharged. The Tribunal therefore held that confirming the addition without any material showing an investment was not justified. [Paras 10, 11, 12]

Additions on account of alleged unexplained investments set aside for both assessment years; appeals allowed.

Final Conclusion: The Tribunal allowed the assessee's appeals for AY 2004-05 and AY 2005-06, setting aside the additions made by the AO and confirmed by the CIT(A) because the revenue failed to establish that the alleged cash payments resulted in any investment or completed property transaction.

Arm's Length Price - Comparable Uncontrolled Price (CUP) - Use of State Electricity Board rates as market value for captive power - Exclusion of tariff components (demand charges, time-of-day charges, duties) in transfer pricing benchmarking - Deduction under section 80-IA of the Income Tax Act

Arm's Length Price - Comparable Uncontrolled Price (CUP) - Use of State Electricity Board rates as market value for captive power - Exclusion of tariff components (demand charges, time-of-day charges, duties) in transfer pricing benchmarking - Deduction under section 80-IA of the Income Tax Act - Whether the price of electricity supplied by the assessee's captive power plant to its associated enterprises should be benchmarked by excluding certain tariff components collected by the State Electricity Board, or whether the State Electricity Board's industrial consumer tariff (inclusive of such components) is the appropriate market value for computing ALP for the purpose of deduction under section 80-IA. - HELD THAT: - The Tribunal examined the admitted facts that the assessee operated a captive 10 MW thermal power plant and supplied power to its chemical division and associated enterprises. Comparable supply rates charged by the State distribution company to third parties (ranging from Rs. 8.82 to Rs. 10.71 per unit) were not disputed. The Transfer Pricing Officer excluded several tariff components (demand charges, time-of-day charges, fuel surcharge, electricity duty and similar items) on the basis that the assessee did not incur those specific costs and commitments which the DISCOMs bear. The Tribunal, relying on consistent decisions of higher fora and the Tribunal in analogous captive-power cases, held that when a captive power plant supplies electricity to associated enterprises and the assessee claims deduction under section 80-IA, the market value for such supply should be computed by reference to the rates at which the State Electricity Board supplies industrial consumers. Consequently, the Tribunal concluded that the assessee was justified in adopting the internal CUP average rate of Rs. 8.74 per unit and that the Revenue was not justified in excluding the tariff heads collected by the DISCOM while determining the ALP. [Paras 15, 16]

The ALP of electricity supplied by the assessee to its associated enterprises is to be determined by reference to the State Electricity Board's industrial tariff; the assessee's adoption of Rs. 8.74 per unit as ALP is upheld and the exclusions made by the revenue are rejected.

MAT credit and interest under sections 234B and 234C - Whether quantification of MAT credit and computation of interest under sections 234B and 234C should be adjudicated consequent to the Tribunal's finding on ALP. - HELD THAT: - Having allowed the assessee's contention on valuation of supplied power and accepted the ALP adopted by the assessee, the Tribunal observed that issues relating to quantification of MAT credit and interest under sections 234B and 234C arise only on consequence of tax computation and are therefore academic in the facts of the present appeals. The Tribunal declined to adjudicate these consequential computation issues. [Paras 17]

MAT credit and interest issues are academic in view of the primary finding and are not adjudicated.

Final Conclusion: Both appeals for AY.2017-18 and AY.2018-19 are allowed: the assessee's adoption of the State Electricity Board comparable rates (average Rs. 8.74 per unit) as the ALP for captive power supplied to associated enterprises is accepted for the purpose of deduction under section 80-IA, and consequential issues of MAT credit and interest were held to be academic and not adjudicated.

Transfer Pricing comparable selection - Related Party Transactions (RPT) consideration in comparability - Disallowance of business expenditure as "freebies" under CBDT Circular No.5/2012 and MCI Regulations - Admission of additional evidence under Rule 29 - Remand for verification to the Assessing Officer - Dividend Distribution Tax and applicability of DTAA

Transfer Pricing comparable selection - Related Party Transactions (RPT) consideration in comparability - Whether Lotus Labs could be accepted as a comparable for determining ALP of global clinical trial services. - HELD THAT: - The Tribunal examined the characterization of the assessee's activity and the comparable selection. The TPO had characterized the assessee as a CRO and selected Lotus Labs as the sole comparable with a very high operating margin; the DRP upheld the CRO characterization but rejected Lotus Labs because its financials showed significant related party transactions (RPT) far exceeding 25% of total revenue. The Tribunal noted the RPT calculations (December 2010 and March 2010 financials) were not controverted and observed earlier orders and TPO verification in the assessee's own earlier year also excluded Lotus Labs for the same reason. On this basis the Tribunal concluded Lotus Labs was rightly rejected as a comparable and the TP adjustment was therefore deleted. [Paras 7, 8, 9, 10, 11]

Lotus Labs is not an acceptable comparable due to significant RPT; Revenue's appeal dismissed and TP adjustment deleted.

Disallowance of business expenditure as "freebies" under CBDT Circular No.5/2012 and MCI Regulations - Admission of additional evidence under Rule 29 - Remand for verification to the Assessing Officer - Validity of disallowance of travel, conveyance, gifts and donations to doctors and whether the additional evidence may be admitted and the issue restored to the AO for verification. - HELD THAT: - The Assessing Officer disallowed certain expenditures relying on CBDT Circular No.5/2012 and MCI Regulations; the DRP allowed deduction for cost of samples but sustained disallowance of other items totalling the identified amount. The assessee sought admission of additional evidence (detailed breakup and supporting documents) under Rule 29, arguing lack of critical examination earlier and distinguishing subsequent Supreme Court authority on facts and contractual arrangements with doctors. The Tribunal took the additional evidence on record, noting post-decision developments and that the AO had accepted similar expenses in a subsequent assessment year after detailed scrutiny. Given absence of a critical examination at assessment stage and the need to apply the Apex Court's dictum to the particulars of these expenses, the Tribunal directed fresh verification by the AO and allowed the grounds for statistical purposes. [Paras 15, 16, 17, 18, 19]

Additional evidence admitted; issue of disallowance of travel, conveyance, gifts and donations remitted to the Assessing Officer for fresh examination/verification (grounds 4-8 allowed for statistical purposes).

Transfer Pricing comparable selection - Whether the assessee's grounds challenging characterization as CRO and inclusion of reimbursements in cost base require independent adjudication after TP adjustment was deleted. - HELD THAT: - The Tribunal observed that its disposal of the Revenue's appeal resulted in deletion of the transfer pricing adjustment. Once the TP adjustment was deleted, the issues raised by the assessee challenging recharacterization and cost-base inclusions became academic. No separate adjudication of those TP contentions was necessary. [Paras 20]

Grounds 10 and 11 dismissed as academic.

Dividend Distribution Tax and applicability of DTAA - Remand for verification to the Assessing Officer - Assessee's claim that tax on dividend distribution to non-resident shareholders should be limited to DTAA rates and whether the matter should be restored. - HELD THAT: - The assessee sought refund/adjustment of Dividend Distribution Tax contending DTAA rates apply; the learned AR acknowledged the issue is sub judice before a Special Bench. The Tribunal, having regard to submissions and the reference to the Special Bench, restored the matter to the Assessing Officer with a direction to follow the decision that may be rendered by the Special Bench in future. [Paras 21, 22]

Issue restored to the Assessing Officer for follow-up in accordance with any decision to be rendered by the Special Bench.

Final Conclusion: For Assessment Year 2010-2011 the Tribunal dismissed the Revenue's appeal by upholding the DRP's rejection of Lotus Labs as a comparable (thereby deleting the TP adjustment); the assessee's appeal was partly allowed for statistical purposes by admitting additional evidence and remitting the disallowance issues relating to expenditures to the Assessing Officer for fresh verification, while TP grounds rendered academic were dismissed and the dividend distribution tax claim was restored to the AO to be decided in accordance with any future Special Bench ruling.

Arm's Length Price - Transfer Pricing adjustment - Associated Enterprise - Receipt of Advisory Services - Comparable Uncontrolled Price (CUP) method - Transactional Net Margin Method (TNMM) - Benefit test - Evidence of rendition of services

Arm's Length Price - Transfer Pricing adjustment - Receipt of Advisory Services - Evidence of rendition of services - Comparable Uncontrolled Price (CUP) method - Transactional Net Margin Method (TNMM) - Benefit test - Validity of the transfer pricing adjustment made by the TPO/AO in respect of payments to the Associated Enterprise for receipt of advisory services and whether the impugned amount could be disallowed as having nil ALP. - HELD THAT: - The Tribunal examined the TPO's and AO's determination that the entire payment for advisory services bore nil arm's length value, the methodologies applied (CUP and TNMM) and the evidentiary material filed by the assessee. The TPO had relied on perceived absence of specific instances of service rendition and applied the benefit test to treat the payments as having no value. The Tribunal noted that the assessee's service agreement remained unchanged since 2003 and that voluminous e-mail correspondence and documentary material were on record evidencing managerial, technical and other advisory interactions between the parties. The Tribunal placed weight on the co-ordinate bench's earlier findings in closely related proceedings which analysed the service description and e-mails and recognised the nature of managerial, consultancy and technical services rendered, thereby supporting taxability and rendition. Given this factual matrix, the Tribunal found that the lower authorities erred in arriving at a nil ALP without properly appreciating the agreement, the contemporaneous communications showing rendition of services and the previous judicial findings; consequently the impugned full disallowance could not be sustained and the transfer pricing adjustment was deleted in these facts. [Paras 8, 9, 10, 11, 12]

The transfer pricing adjustment of Rs.3,35,16,306/- made in respect of receipt of advisory services was deleted and the appeal was allowed.

Final Conclusion: The Tribunal allowed the appeal for A.Y. 2009-10, holding that the assessee had sufficiently proved receipt of advisory services from the Associated Enterprise and that the TPO/AO erred in treating the payments as having nil arm's length value; the impugned transfer pricing adjustment was deleted.

Taxability of dividends on Indian Depository Receipts (IDRs) - Application of India-Mauritius Double Taxation Avoidance Agreement - Article 10 (dividends) - Residuary clause of India-Mauritius DTAA - Article 22 (other income) - Source rule and deemed accrual under Section 9(1)(i) of the Income tax Act - Treaty override and more beneficial treaty benefit rule

Taxability of dividends on Indian Depository Receipts (IDRs) - Application of India-Mauritius Double Taxation Avoidance Agreement - Article 10 (dividends) - Residuary clause of India-Mauritius DTAA - Article 22 (other income) - Source rule and deemed accrual under Section 9(1)(i) of the Income tax Act - Whether dividend received by the Mauritius resident assessee in respect of IDRs listed in India is taxable in India or protected by the India-Mauritius DTAA for AY 2016 17. - HELD THAT: - The Tribunal, following the co ordinate Bench decision in Morgan Stanley Mauritius Co. Ltd. v. DCIT on identical facts, held that although the dividend receipts flowed through the overseas custodian and were paid to the assessee in India, the question of treaty entitlement must be determined by the DTAA. Article 10 applies only to dividends paid by a company which is a resident of a Contracting State; neither the foreign issuing company (SC Plc, UK) nor the Indian depository (being a branch/PE of an entity not resident of Mauritius) qualifies as a resident of Mauritius for that purpose. Consequently the dividend in question did not fall within Article 10. Prior to the amendment effective 1 4 2017, Article 22 (the residuary clause) of the Indo Mauritius DTAA provided that items of income not expressly dealt with by the Convention shall be taxable only in the residence State. On the facts and period before 1 4 2017, the IDR dividend was not covered by any specific article and was not excluded by Article 22(2); therefore it was taxable only in the residence State (Mauritius) and not in India. The Tribunal applied the more beneficial treaty rule to hold that treaty protection overrides domestic law for the pre amendment period and deleted the addition made by the Assessing Officer. [Paras 6, 7, 8, 12, 18]

Dividend on IDRs held by the Mauritius resident assessee is not taxable in India for AY 2016 17; treaty protection under Article 22 of the India-Mauritius DTAA (pre 1 4 2017) applies and the assessment addition is deleted.

Penalty under section 271(1)(c) - premature challenge - Whether the initiation of penalty proceedings under section 271(1)(c) could be adjudicated in the present appeal. - HELD THAT: - The Tribunal observed that challenge to initiation of penalty proceedings at the appellate stage is premature. No adjudication of the penalty merits was undertaken in this appeal; the request to decide the penalty initiation was declined as being premature. [Paras 9]

Challenge to initiation of penalty proceedings under section 271(1)(c) is premature and the ground is dismissed.

Final Conclusion: The appeal is partly allowed: the addition relating to IDR dividends for AY 2016 17 is deleted as the assessee is entitled to treaty protection under Article 22 of the India-Mauritius DTAA (pre 1 4 2017); the challenge to initiation of penalty proceedings is dismissed as premature.

Pre-notice consultation under Section 28(1) of the Customs Act, 1962 - Prerogative writs and premature challenge to administrative pre-notice consultation - Duty recovery proceedings under Section 28 of the Customs Act, 1962 - Exemption from IGST on horse feed under notification in Schedule (Integrated Tax - Rate)

Pre-notice consultation under Section 28(1) of the Customs Act, 1962 - Prerogative writs and premature challenge to administrative pre-notice consultation - Challenge to the Audit Consultative Letter (pre-notice consultation) is premature and not amenable to writ relief at this stage. - HELD THAT: - The Audit Consultative Letter dated 26.12.2022 is a pre-notice consultation carried out in compliance with the first proviso to Section 28(1) of the Customs Act, 1962 and is a precursor to any formal notice for recovery of duties. As no notice under Section 28(1) had been issued or final decision taken by the authority, the Court held that interfering by way of writ at this stage would be inappropriate. The petition was therefore held to be premature. The Court recorded that the appropriate course is to await the conclusion of the statutory pre-notice process and any subsequent issuance of notice before entertaining a challenge. [Paras 4, 5]

Writ petition is dismissed as premature in respect of the pre-notice Audit Consultative Letter.

Exemption from IGST on horse feed under notification in Schedule (Integrated Tax - Rate) - Duty recovery proceedings under Section 28 of the Customs Act, 1962 - Petitioner's contentions that horse feed is exempt from IGST must be considered on merits by the respondent before any notice under Section 28(1) is issued. - HELD THAT: - Although the writ was dismissed as premature, the Court directed that the respondent must give due consideration to the substantive contentions raised by the petitioner-specifically the claim that imported horse feed falls within an exemption from IGST as per the relevant notification and statutory definitions-and decide in accordance with law whether a notice under Section 28(1) should be issued. This amounted to remanding the matter for fresh consideration on the merits by the authority, without pronouncing on the correctness of the exemption claim itself. [Paras 5, 6]

Respondent directed to consider the petitioner's contentions on merits and in accordance with law and only thereafter decide on issuance of any notice under Section 28(1).

Final Conclusion: Writ petition dismissed as premature insofar as it challenges the pre-notice Audit Consultative Letter; respondent is directed to consider the petitioner's exemption contentions on merits and in accordance with law before deciding whether to issue a notice under Section 28(1) of the Customs Act, 1962.

Reward to informers - ex gratia payment - interim and final reward - identity of informer - payment to legal heirs - discretionary grant not a matter of right - arbitrariness in administrative denial - verification by handwriting expert

Reward to informers - interim and final reward - identity of informer - payment to legal heirs - discretionary grant not a matter of right - arbitrariness in administrative denial - The Petitioner, as legal heir, is entitled to have the claim for the final reward of the deceased Informer treated as eligible and processed despite the department's belated doubts about identity. - HELD THAT: - The material facts show that specific information supplied in 1991 led to seizure and adjudication; two interim rewards were disbursed to the Informer and the department in its affidavit expressly admitted payment of those interim rewards to Chandrakant. The Petitioner has been recognized as legal heir by a succession certificate and has consistently pressed claims. The department raised identity doubts for the first time in its 2022 reply and relied on an inconclusive forensic report which did not establish authorship. The Circular treats reward as an ex gratia incentive and not a matter of right, but administrative discretion must not be exercised arbitrarily or in a manner that discourages informers. Given the admitted payment of interim rewards to Chandrakant, the long gap without prior challenge to identity, the Petitioner's succession claim and the absence of any assertion that some other person received the interim payments, the withholding of final reward on the stated ground of identity was arbitrary. Considering the policy objective to encourage informers and the peculiar hardship and circumstances of this case, interference by the Court was warranted and the respondents were directed to treat the claim as eligible and process it in the Petitioner's favour. [Paras 18, 19]

Claim of the Petitioner as legal heir is meritorious; respondents shall treat the deceased Informer's claim as eligible for final reward and process the Petitioner's claim accordingly.

Interim and final reward - ex gratia payment - delay in sanction and release - verification by handwriting expert - Quantification and payment of the final reward was remitted to the respondents for computation in accordance with the policy, to be carried out within specified timelines. - HELD THAT: - Although entitlement was declared by the Court, the exact quantum of the final reward falls within the administrative competence of the respondents under the Circular which prescribes ceilings and methods for computation. The Court therefore left the quantification and disbursement to the respondents to be undertaken as per the policy, imposing a clear timetable to ensure finalisation and payment without further undue delay. [Paras 20]

Respondents to quantify the exact amount of final reward as per the policy within ten weeks and pay the amount determined within twelve weeks from the date of the order.

Final Conclusion: Writ allowed; respondents directed to treat the deceased Informer's claim as eligible, process the Petitioner's claim as his legal heir, quantify the final reward within ten weeks and disburse the amount within twelve weeks; no order as to costs.

Principle of natural justice - opportunity of personal hearing - ex-parte decision set aside - remand for fresh hearing - refund of Special Additional Duty of Customs (SAD)

Principle of natural justice - opportunity of personal hearing - ex-parte decision set aside - remand for fresh hearing - The appeal before the 1st Appellate Authority was decided without affording the appellant an opportunity of personal hearing and, consequently, the impugned ex parte appellate order is liable to be set aside. - HELD THAT: - The Tribunal found on the record that the appellant was not heard by the Commissioner of Customs (Appeals). Applying the established principle that justice must not only be done but must be seen to be done, the Tribunal held that deciding the appeal without affording the appellant a hearing contravened natural justice. In view of this failure, the Tribunal declined to decide the merits and instead set aside the impugned appellate order and remitted the matter for fresh disposal after giving due notice and sufficient opportunity for personal hearing to the appellant. [Paras 5]

Impugned appellate order set aside and appeal remitted to the Commissioner of Customs (Appeals) for fresh hearing after affording due notice and opportunity of personal hearing to the appellant.

Refund of Special Additional Duty of Customs (SAD) - remand for fresh hearing - The question whether refund of SAD could be claimed after the period prescribed by Notification No.102/2007-Cus. dated 14.09.2007 was not adjudicated on merits and is remanded for fresh consideration. - HELD THAT: - Although the substantive controversy related to the claim for refund of Special Additional Duty of Customs after the period prescribed by the stated notification was identified in the appeal, the Tribunal refrained from addressing the merits because the appellate proceedings below had been vitiated by the absence of a hearing. Consequently, the substantive issue is to be decided afresh by the Commissioner of Customs (Appeals) when the appellant is given an opportunity to be heard. [Paras 5]

Substantive issue regarding claim of SAD refund after the prescribed period is remitted to the 1st Appellate Authority for fresh adjudication after hearing the appellant.

Final Conclusion: The appeal is allowed only to the extent that the impugned appellate order is set aside and the matter is remitted to the Commissioner of Customs (Appeals) for fresh adjudication after giving the appellant due notice and an opportunity of personal hearing; no decision was recorded on the merits of the SAD refund claim.

Existence of operational debt and default - admissibility of Section 9 application under the Insolvency and Bankruptcy Code, 2016 - effect of an arbitration clause on filing a Section 9 petition - service of process and opportunity to file counter - recall of interim orders in absence of review power

Service of process and opportunity to file counter - recall of interim orders in absence of review power - Whether the Corporate Debtor was denied a fair opportunity to file a counter and whether the orders dated 21.11.2022 and 05.12.2022 required recall. - HELD THAT: - The Tribunal examined the orders dated 28.10.2022 and 21.11.2022 and found that the Corporate Debtor had appeared before the Adjudicating Authority on both dates and had been granted time to file vakalat and a counter. The Adjudicating Authority recorded service of the petition and enclosures on 02.11.2022 and thereafter closed the opportunity to file the counter on 21.11.2022, listing the matter for final hearing on 05.12.2022. The Tribunal noted that although the power of review is not vested in the Adjudicating Authority, it may recall orders in appropriate facts; however, on the facts of this case there were no tangible or substantial grounds to recall the orders since the Corporate Debtor was present on 21.11.2022, aware of the 05.12.2022 posting and could have appeared to submit arguments on the hearing date. Accordingly, there was no denial of fair opportunity warranting recall. [Paras 6, 7, 8]

Opportunity to file counter was not denied and the orders were not recalled; no grounds to interfere with the Adjudicating Authority's closure of the opportunity and subsequent hearing.

Existence of operational debt and default - admissibility of Section 9 application under the Insolvency and Bankruptcy Code, 2016 - Whether the Adjudicating Authority was correct in admitting the Section 9 application by concluding that an operational debt existed and there was default by the Corporate Debtor. - HELD THAT: - The Tribunal reproduced the Adjudicating Authority's findings which recorded absence of denial of the CFA Agreement, acknowledgement of deposit by the operational creditor, undisputed invoices and non-payment by the Corporate Debtor. The Adjudicating Authority concluded that the operational debt exceeding one crore and default were established on the material then on record. The Tribunal found no illegality or infirmity in these conclusions, noting further correspondence and ledger statements sent by the Operational Creditor and the Corporate Debtor's unfulfilled requests regarding inventory dispatch, which supported the Adjudicating Authority's view of recurring defaults and demand for payment. On that basis the Tribunal upheld the admission under Section 9. [Paras 1, 9, 10]

The admission of the Section 9 petition was upheld as the existence of operational debt and default stood established on the record.

Effect of an arbitration clause on filing a Section 9 petition - admissibility of Section 9 application under the Insolvency and Bankruptcy Code, 2016 - Whether the presence of an arbitration clause in the C&F Agreement barred the Operational Creditor from filing a Section 9 petition. - HELD THAT: - The Tribunal observed that the existence of an arbitration clause does not, by itself, prohibit an Operational Creditor from filing a petition under Section 9 of the Code. The object and scope of the Code is to secure resolution and not simply act as a recovery forum; therefore, the Adjudicating Authority was not precluded from admitting the Section 9 application despite the arbitration clause. Having considered the material on record and the recurring defaults alleged, the Tribunal found no legal bar arising from the arbitration clause to the admission of the petition. [Paras 9]

Arbitration clause did not preclude filing or admission of the Section 9 petition; no infirmity in admitting the petition on that ground.

Final Conclusion: The appeal is dismissed. The National Company Law Tribunal's order admitting the Section 9 petition is upheld; no costs and connected interlocutory applications are closed.

Gambling - game of chance vs game of skill - reward element - FDI prohibition for gambling - compounding of FEMA contraventions - statutory duty to consider compounding application - condonation of delay

Gambling - game of chance vs game of skill - reward element - FDI prohibition for gambling - Whether the Petitioner's online gaming activities for the period 2006-2012 constituted gambling rendering them ineligible to receive FDI and disentitled to compounding. - HELD THAT: - The Court confined the inquiry to remittances and activity for the period 23 June 2006 to 1 February 2012. DPIIT's objection rested on identifying games by label observed on the Petitioner's website, without seeking explanation or establishing (a) that the contested offerings were available during the relevant period and (b) that they involved both predominance of chance and an accompanying reward. The Petitioner's uncontradicted case (supported by its Terms of Service and pleadings) is that the so called social/casual offerings did not involve cash or monetary/tangible prizes, that virtual goods were in game only and not redeemable, and that specific games relied on by DPIIT (Call it Right, Ultimate Teen Patti) were introduced after the relevant period. Applying the settled test in the cited Supreme Court decisions, a game constitutes gambling only if (i) it is predominantly a game of chance and (ii) it is played for reward; a game lacking the element of reward is not gambling. On the material before the Court DPIIT did not establish either element for the period 2006-2012 and therefore the Petitioner's activities for that period were not shown to be illicit or prohibited so as to bar compounding. [Paras 26, 34, 35, 36, 37]

The Petitioner's activities during 2006-2012 were not shown to constitute gambling for purposes of FDI prohibition; DPIIT's objection based on website labels and later offerings does not render earlier activities illegal.

Compounding of FEMA contraventions - statutory duty to consider compounding application - condonation of delay - Whether RBI should be directed to consider the Petitioner's compounding application(s) for the procedural FEMA contraventions relating to the period 2006-2012, and related procedural directions. - HELD THAT: - Having found that the Petitioner's activities for the period in question were not shown to be illicit or prohibited, the Court held that compounding of the procedural reporting and allotment contraventions falls to be considered by RBI in accordance with law. The Court made Rule absolute in terms of the prayer seeking mandamus to direct RBI to consider compounding of (i) delayed reporting of foreign remittances, (ii) delayed filing of Form FC GPR, and (iii) delayed allotment of shares. The Court authorised the Petitioner to file a fresh application within two weeks, expressly condoned any further delay in filing, and directed RBI to decide the fresh compounding application expeditiously and preferably within four weeks from filing. [Paras 39, 40, 41, 42, 43]

RBI is directed to consider the Petitioner's compounding application(s) in respect of the 2006-2012 procedural FEMA contraventions; fresh application to be filed and any delay condoned, and RBI to decide expeditiously (preferably within four weeks).

Final Conclusion: The petition is allowed. The Court holds that the Petitioner's activities for 2006-2012 were not shown to be gambling so as to render them ineligible for compounding; RBI is directed to consider the Petitioner's fresh compounding application(s) for the specified procedural FEMA contraventions (with any delay condoned) and to decide the same expeditiously, preferably within four weeks.

Taxability of "Site formation and clearance, excavation and earth moving and demolition" service - Interpretation of an "includes" clause in an illustrative definition - Distinction between "dismantling" and "demolition" - Scope of taxable services under Section 65(97a)

Taxability of "Site formation and clearance, excavation and earth moving and demolition" service - Distinction between "dismantling" and "demolition" - Interpretation of an "includes" clause in an illustrative definition - The activity undertaken by the respondent (dismantling of plant, piping and supporting structures) is not classifiable as "Site formation and clearance, excavation and earth moving and demolition" service for levy of service tax. - HELD THAT: - The Tribunal examined the statutory definition of the taxable service which, while using the word "includes" and giving illustrative examples, lists specific activities such as demolition and wrecking of buildings, land reclamation, soil stabilization and related works. The work order and scope of work show that the respondent performed tagging, unbolting, disconnection, cutting, dismantling of piping, supports and equipment, weighing and removal of material and loading for transport. Those tasks constitute dismantling of plant and structures rather than activities falling within any of the specific illustrative clauses in the definition under Section 65(97a). The adjudicating authority had distinguished the ordinary meanings of "demolition" and "dismantling" and found the respondent's operations to be dismantling only; the Tribunal agreed that the factual scope of work does not attract any of the clauses itemized in the illustrative definition and therefore does not bring the activity within the taxable service. Consequently there was no error in the Commissioner dropping the demand.

Impugned order upholding that the respondent's dismantling activity is not taxable as "Site formation and clearance, excavation and earth moving and demolition" service; Revenue's appeal dismissed.

Final Conclusion: The Tribunal affirmed the Commissioner's finding that the respondent's dismantling work does not fall within the taxable category of "Site formation and clearance, excavation and earth moving and demolition" under Section 65(97a), and dismissed the Revenue's appeal for the tax year 2007-08.

Breach of rule 8 of Central Excise Rules, 2002 - rule 8(3A) of Central Excise Rules, 2002 - compounded levy scheme - debit of account current - disbarment from resort to CENVAT credit account - penalty under section 11AC read with rule 25 of Central Excise Rules, 2002 - invocation of extended period of limitation under section 11A - liability on takeover of a going concern - remand for fresh adjudication

Breach of rule 8 of Central Excise Rules, 2002 - rule 8(3A) of Central Excise Rules, 2002 - debit of account current - compounded levy scheme - penalty under section 11AC read with rule 25 of Central Excise Rules, 2002 - invocation of extended period of limitation under section 11A - liability on takeover of a going concern - remand for fresh adjudication - Whether the demand and penalties confirmed for alleged breach of rule 8(3A) and invocation of extended limitation period are sustainable or require fresh adjudication in light of takeover, deposits in account current, audit actions and pleaded materials. - HELD THAT: - The Tribunal observed that on the face of the record there was a breach of rule 8 as then in force and that the appellant did not immediately make good the deficiency upon awareness but awaited audit; consequently the entitlement to clear goods by debiting CENVAT credit appears to have remained disbarred until the deficiency was discharged. At the same time the Tribunal noted material factual circumstances capable of affecting the determination of liability - transfer of management in November 2008, closure of the unit in November 2010, deposit and subsequent entries in the account current (with no record of refund), assertion that discrepancies were drawn to revenue's attention, and the adjudicating authority's cursory rejection of the appellant's plea against invocation of the extended period and its reliance on the absence of an MoU. Given these factual complexities and the manner in which the limitation plea and related pleas were dealt with, the Tribunal found that summary confirmation without detailed consideration of the said records and contentions would be unjust. Rather than finally deciding the merits of the demand or penalties, the Tribunal directed that the adjudicating authority should re-examine the matter on the basis of all relevant records placed before it and determine liability and any consequential detriment in accordance with law and judicial precedents. The Tribunal therefore set aside the impugned order and remitted the matter for fresh adjudication, placing the onus on the appellant to produce the documents and material relied upon before the adjudicating authority. [Paras 6, 7, 8]

Impugned order set aside and matter remanded to the adjudicating authority for fresh adjudication on the noted factual and legal aspects; appellant to place all relevant records for determination of liability and consequences.

Final Conclusion: The Tribunal set aside the adjudication confirming duty and penalties for the period in dispute and remitted the matter to the adjudicating authority for fresh consideration of the breach, deposits in account current, the takeover-related contentions and the invocation of extended limitation, requiring the appellant to produce relevant records for determination in accordance with law.

Rectification of assessment - error apparent on the face of the record - proviso to Section 84(1) requiring notice and hearing when rectification has the effect of enhancing assessment or penalty - opportunity of hearing / audi alteram partem - finality of assessment

Rectification of assessment - proviso to Section 84(1) requiring notice and hearing when rectification has the effect of enhancing assessment or penalty - opportunity of hearing / audi alteram partem - Whether an assessing authority is required to afford a dealer an opportunity of hearing in every application for rectification under Section 84 of the Tamil Nadu Value Added Tax Act, 2006. - HELD THAT: - The Court examined Section 84 and its proviso and held that rectification under Section 84 is limited to correcting an error apparent on the face of the record and is not to be equated with a fresh or regular assessment. The proviso to Section 84(1) expressly mandates notice and a reasonable opportunity of hearing only where the proposed rectification has the effect of enhancing an assessment or imposing or increasing a penalty. The general principle of audi alteram partem does not require a hearing in every rectification application; requiring such a hearing in all cases would undermine the finality of assessments, which the proviso seeks to protect by limiting mandatory hearings to enhancement cases. The Court therefore concluded that opportunity of hearing is not universally mandatory for all Section 84 rectification requests, but is obligatory where the rectification would enhance assessment or penalty (paras 4, 6, 8). [Paras 4, 6, 8]

Opportunity of hearing is required under Section 84(1) only when the rectification would enhance assessment or penalty; it is not mandatory for all rectification applications.

Rectification of assessment - error apparent on the face of the record - finality of assessment - Whether the first respondent rightly rejected the petitioner's rectification request in respect of the assessment for Assessment Year 2013-14. - HELD THAT: - The Court noted that the petitioner had not preferred the statutory appeal against the 2016 assessment and sought rectification after more than six years. The respondents examined the rectification request and found no error apparent on the face of the record that would warrant rectification. Because the impugned order merely confirmed the earlier assessment and did not enhance assessment or penalty, there was no statutory requirement to afford the petitioner a hearing under the proviso to Section 84(1). Consequently, rejection of the rectification application was upheld as lawful (paras 5, 6, 9). [Paras 5, 6, 9]

The rejection of the rectification application was proper because no error apparent on the face of the record warranted rectification and the order did not enhance assessment or penalty.

Final Conclusion: The writ petition is dismissed. The Court held that Section 84(1) mandates notice and hearing only when rectification would enhance assessment or penalty; since the impugned order confirmed the 2016 assessment for AY 2013-14 without enhancement, no hearing was required and the rejection of the rectification request was upheld. Liberty was, however, granted to the petitioner to file a revision under Section 54 within one week.

Remand for fresh consideration - limitation of objections - service of notices issued by automated/data-processing systems - digital authentication/digital signature of electronic notices - opportunity to file application for condonation of delay

Remand for fresh consideration - limitation of objections - Validity of the Tribunal's remand to the Objection Hearing Authority to decide whether the appellant's objections were barred by limitation and whether the appellant was afforded an opportunity to meet the limitation point. - HELD THAT: - The Tribunal did not decide the limitation controversy on the merits but remanded the matter to the learned Objection Hearing Authority because the appellant had asserted that the OHA had not put the limitation issue to it and therefore the appellant had not had an opportunity to respond. The High Court found no infirmity in that approach and held that it was appropriate for the OHA, in the first instance, to decide the contentious issues including whether the objections were time barred and whether the appellant had been given an opportunity to meet the limitation point. The Court upheld the remand as a proper course to enable adjudication of those factual and legal contentions by the OHA. [Paras 9, 10]

Remand to the learned Objection Hearing Authority affirmed so that the OHA may decide on limitation and whether the appellant was given an opportunity to meet the limitation defence.

Service of notices issued by automated/data-processing systems - digital authentication/digital signature of electronic notices - opportunity to file application for condonation of delay - Whether the notices in question were required to bear a personal signature or be digitally authenticated and the related procedural treatment (including condonation) of delayed objections. - HELD THAT: - The High Court did not resolve the legal question raised by the appellant regarding whether electronic communications under the statutory scheme must be authenticated by a digital signature rather than a personal signature. Instead, the Court directed that the OHA should, in the first instance, decide the contentious issues, including the question of digital authentication of the notices. The Tribunal had granted the appellant an opportunity to file an application for condonation of delay; the High Court clarified that any such condonation application may be filed without prejudice to the appellant's pleaded case that the objections were filed within time because the notices were not received. Thus, the question of digital signature and the merits of any condonation application remain for fresh consideration by the OHA. [Paras 10, 11]

Issue left undecided and remanded to the OHA for fresh consideration; appellant permitted to seek condonation without prejudice to its contention of timely filing.

Final Conclusion: The High Court dismissed the appeal while upholding the Tribunal's remand; the matter is directed back to the Objection Hearing Authority to decide, inter alia, the limitation point, the question of digital authentication of the notices, and any condonation application, with liberty to the appellant to file such application without prejudice to its plea of non receipt.

Reassessment - principle of natural justice - opportunity of hearing - service of notice - statutory Form-F - maintainability of writ petition despite alternative remedy - quashing of assessment and remand for fresh hearing - limitation considerations during COVID-19

Maintainability of writ petition despite alternative remedy - principle of natural justice - Whether the writ petition under Article 226 was maintainable despite existence of an alternative remedy by way of appeal, in view of alleged violation of the principle of natural justice - HELD THAT: - The Court held that the petition was maintainable because the reassessment order was passed without affording the petitioner the requisite opportunity of hearing when she had sought time to procure and produce statutory Form F in circumstances created by the COVID 19 lockdown. The extraordinary and unprecedented nature of the pandemic, and the practical impossibility faced by the petitioner in procuring the Form F in time, meant that the denial of an opportunity to be heard amounted to a breach of the principle of natural justice. In such circumstances, reliance on the availability of an alternative remedy in appeal would not serve the purpose of redress for the procedural infirmity; accordingly the writ petition was entertainable and merits relief. [Paras 6, 8, 9]

The writ petition under Article 226 is maintainable and is allowed on grounds of violation of the principle of natural justice.

Reassessment - opportunity of hearing - statutory Form-F - quashing of assessment and remand for fresh hearing - limitation considerations during COVID-19 - Whether the reassessment order dated 25.03.2020 and the final notice of assessment were valid when passed without allowing the petitioner to tender Form F or to be heard, and what consequential relief should follow - HELD THAT: - The Court found that the reassessment order was passed after the officer took note of the petitioner's request for time to obtain Form F but proceeded without affording a hearing or permitting submission of the Form F in the prevailing lockdown conditions. Given that production of Form F was central to determining whether transactions were zero rated branch transfers or sales, and the petitioner had sought time and taken steps to obtain the Form F from the Rajasthan authority, the absence of an opportunity to tender that material vitiated the reassessment. Although limitation considerations were noted, the Court accepted that at the time the order was passed the officer may not have been aware of later extensions; nevertheless the procedural breach required setting aside the order. The Court quashed and set aside the reassessment order and final notice, directed that proceedings be taken up from the stage where they were left, allowed the petitioner one week to file Form F or other documents, required the officer to afford an opportunity of hearing, and directed completion of the reassessment process within four weeks of receipt of the order. E service on official email was also permitted. [Paras 7, 8, 10, 11]

The reassessment order dated 25.03.2020 and the final notice of assessment are quashed and set aside; matter remitted for fresh consideration with directions to permit filing of Form F and to afford an opportunity of hearing, and to complete proceedings within the stipulated timelines.

Final Conclusion: The petition is allowed: the reassessment order dated 25.03.2020 and the final notice of assessment are quashed and set aside for breach of the principle of natural justice; the matter is remitted for fresh proceedings with directions permitting the petitioner to file Form F within one week, requiring an opportunity of hearing, and mandating completion of reassessment within four weeks, with service also permissible by official e mail.