TaxTMI Updates e-Newsletter
Feb 01,2020

Writ under Article 226 - mandamus - direction to administrative authority to consider representation - authority to permit upload of Form GST ITC-01 - remedy for technical glitches on common GST portal - judicial supervision of administrative decision

Direction to administrative authority to consider representation - authority to permit upload of Form GST ITC-01 - remedy for technical glitches on common GST portal - judicial supervision of administrative decision - Joint Commissioner of State Tax directed to consider the writ applicant's representation for uploading Form GST ITC-01 and to communicate a decision within a stipulated period. - HELD THAT: - The Court took notice of the communication from the office of the Commissioner, Central GST, Gandhinagar and the writ applicant's separate written request to the Joint Commissioner of State Tax. Exercising supervisory jurisdiction under Article 226, the Court did not itself mandate uploading but directed the Joint Commissioner to immediately examine the representation (including the referred communication regarding nodal officer assistance for portal glitches) and take an appropriate decision thereon. The direction is procedural and limited: it requires prompt administrative consideration and communication of the outcome to the applicant within two weeks, thereby ensuring judicial oversight without substituting the administrative decision-making process. [Paras 4]

Writ disposed by directing the Joint Commissioner of State Tax, Mahesana Division, to consider the representation for uploading ITC-01 and communicate the decision to the applicant within two weeks from receipt of the writ.

Final Conclusion: The writ petition is disposed of by a direction to the Joint Commissioner of State Tax to consider the applicant's request to upload Form GST ITC-01 (including the communicated guidance on portal glitches) and to communicate an appropriate decision within two weeks; direct service permitted.

Show cause notice - confiscation of goods under Central Goods and Services Tax - release of seized goods pending adjudication - prima facie case for confiscation arising from invalid transport documents - mandamus against interim seizure - appealability of confiscation order

Show cause notice - release of seized goods pending adjudication - mandamus against interim seizure - prima facie case for confiscation arising from invalid transport documents - appealability of confiscation order - Whether the writ petition seeking release of seized goods and vehicle should be entertained at the stage when a show cause notice under the GST regime has been issued and prima facie discrepancies are recorded. - HELD THAT: - The Court recorded that a show cause notice in Form GST MOV 10 had been issued alleging that the goods were being transported without valid documents and listing specific discrepancies observed on physical verification, including materially mismatched quantities, suspicious registration and returns activity, and absence of corroborative premises or stock at the consignee's address. In view of those prima facie findings the Court held that the appropriate course was for the writ applicant to file a reply to the show cause notice and establish that no provision of the Act or Rules has been breached. The Court declined to entertain the writ at the show cause stage and observed that any final order under the statutory confiscation provisions would be subject to the appellate remedy available under the statute. [Paras 2, 3]

Writ petition not entertained at show cause stage; petitioner directed to file response to the show cause notice and challenge, if necessary, after adjudication and by availing the statutory appeal.

Final Conclusion: The writ petition for interim release of seized goods and vehicle is dismissed at this stage; the petitioner is directed to respond to the show cause notice and pursue remedies after adjudication, noting that the statutory confiscation order is appealable.

Ultra vires - legislative competency - constitutionality of tax notification - levy of IGST on ocean freight

Ultra vires - legislative competency - constitutionality of tax notification - levy of IGST on ocean freight - Validity of Notification No.8/2017-Integrated Tax (Rate) dated 28.6.2017 and Entry 10 of Notification No.10/2017-Integrated Tax (Rate) dated 28.6.2017 under the Integrated Goods and Services Tax Act, 2017. - HELD THAT: - The Court recorded that by its judgment and order dated 23rd January 2020 in Special Civil Application No.726 of 2018 and allied matters, the impugned Notification No.8/2017 and Entry 10 of Notification No.10/2017 were declared ultra vires the Integrated Goods and Services Tax Act, 2017 on the ground of lack of legislative competency. Given that prior declaration, the present writ petition challenging the same notifications and seeking related reliefs (including a declaration that IGST is not leviable on ocean freight and consequential reliefs) did not require further adjudication and could be disposed of on that basis.

The impugned notifications stand declared ultra vires for want of legislative competency; the petition is disposed of accordingly.

Final Conclusion: The writ petition was disposed of as infructuous in view of this Court's earlier declaration (23 January 2020) that the challenged notifications are ultra vires the IGST Act for lack of legislative competency.

Release of detained goods on furnishing bank guarantee - adjudication and finalisation after affording opportunity of being heard - consideration of plea on applicable GST rate (12% v. 28%) - sympathetic consideration for bona fide or limited knowledge of GST law

Release of detained goods on furnishing bank guarantee - immediate interim relief pending adjudication - Detained goods and vehicles to be released to the petitioner on furnishing bank guarantees for the values shown in the impugned notices. - HELD THAT: - The High Court directed immediate release of the detained goods and vehicles involved in the two writ petitions upon the petitioner furnishing bank guarantees for the respective values stated in the impugned documents. The order provides interim relief while preserving the right of the tax authority to adjudicate the demand. The direction is operative immediately and is intended to maintain the status quo subject to the security provided by the bank guarantee. [Paras 3]

Goods and vehicles released on production of bank guarantees as per the impugned notices.

Adjudication and finalisation after affording opportunity of being heard - consideration of plea on applicable GST rate (12% v. 28%) - sympathetic consideration for bona fide or limited knowledge of GST law - The adjudication officer must adjudicate and finalise the proceedings afresh after affording the petitioner a reasonable opportunity of being heard and specifically considering the petitioner's contentions including the applicable tax rate and plea of limited knowledge. - HELD THAT: - The Court remitted the matter to the 2nd respondent for fresh adjudication and finalisation, directing that the proceedings be completed without much delay, preferably within 3 to 4 weeks from production of a certified copy of the judgment. The 2nd respondent is required to specifically advert to and consider the petitioner's plea that the transaction relates to used motor cycles (and therefore attracts the lower rate as per the notification dated 25.1.2018) and the submission that the petitioner lacked thorough knowledge of nuanced provisions of the GST law, inviting sympathetic consideration. The remand contemplates fresh decision-making on the merits of these contentions rather than precluding the tax authority from reassessing the demand. [Paras 4, 5, 6]

Proceedings remitted to the 2nd respondent for adjudication after hearing the petitioner and considering the specific pleas raised.

Final Conclusion: The writ petitions are disposed of by directing immediate release of the detained goods and vehicles on bank guarantees and by remitting the matters to the adjudicating officer for finalisation after affording the petitioner a reasonable opportunity of being heard, including consideration of the contention as to the correct GST rate and the plea of limited knowledge of the GST law.

Invalidity of show cause notice for vagueness - requirement of specific allegations and particulars in a show cause notice - withdrawal of impugned notice with liberty to issue a fresh notice - cancellation of registration under GST as antecedent fact

Invalidity of show cause notice for vagueness - requirement of specific allegations and particulars in a show cause notice - Impugned show cause notice dated 21.11.2019 is vague and does not disclose specific allegations or the legal basis of the demand. - HELD THAT: - The Court examined the show cause notice and found it does not state whether the demand arises from non-payment of tax, short payment of tax, erroneous refund, or erroneous availment and utilisation of input tax credit. The notice therefore fails to disclose the particulars constituting the basis of the claim against the petitioner and is vague in tenor. The absence of specific allegations and particulars renders the notice deficient for the purposes of fair adjudication. [Paras 2]

The show cause notice dated 21.11.2019 is held to be vague and deficient for want of specific allegations and particulars.

Withdrawal of impugned notice with liberty to issue a fresh notice - cancellation of registration under GST as antecedent fact - Relief to be granted in consequence of the defect in the impugned notice and the course to be followed by the respondents. - HELD THAT: - The respondents accepted that the impugned notice lacks proper particulars and undertook to issue a fresh show cause notice containing the requisite particulars. In view of that concession and to ensure proper adjudication, the Court withdrew the impugned show cause notice and permitted the respondents to issue a fresh notice. The respondents are directed to incorporate clear and specific allegations and the basis of the demand in any fresh notice, having regard to the antecedent fact that the petitioner's registration under the GST Act was cancelled. [Paras 5, 6]

Impugned show cause notice is withdrawn; respondents are granted liberty to issue a fresh show cause notice with proper particulars.

Final Conclusion: The petition is disposed of by withdrawing the impugned show cause notice dated 21.11.2019 as vague; respondents are permitted to issue a fresh notice containing specific allegations and particulars.

Release of seized goods on furnishing security - provisional release upon execution of bond and furnishing of security - detention and seizure and release on payment of tax and penalty - opportunity of being heard before determination of tax and penalty - appellability of orders under Section 107 - alternative remedy bars writ relief

Release of seized goods on furnishing security - provisional release upon execution of bond and furnishing of security - detention and seizure and release on payment of tax and penalty - Whether seized goods and conveyance are entitled to release upon furnishing security or on payment as provided under the Act. - HELD THAT: - The Court considered sub section (6) of Section 67 and Section 129 of the Uttarakhand Goods and Services Tax Act, 2017, which contemplate provisional release of goods on execution of a bond and furnishing of security or on payment of applicable tax, interest and penalty, and specify modes of release after detention or seizure. The petitioner urged that furnishing security entitles release. The Court recognised that the statutory scheme permits release on furnishing security in the prescribed form or on payment as an alternative, and observed that the impugned order is capable of being acted upon by the petitioner by providing security (for example, a bank guarantee) to obtain release of the goods and vehicle. [Paras 3, 5]

Seized goods and the vehicle are liable to be released on furnishing security or on payment as provided under the Act; the petitioner has the right to seek release by giving a security in the form of a bank guarantee to the Department.

Appellability of orders under Section 107 - alternative remedy bars writ relief - opportunity of being heard before determination of tax and penalty - Whether the writ petition is maintainable when an alternative statutory appellate remedy exists under Section 107. - HELD THAT: - The State submitted that the impugned order is appellable under Section 107 of the Act. The Court accepted that the order is appealable and that the statutory appellate forum provides an effective alternate remedy enabling the petitioner to challenge the detention/seizure and to seek release by furnishing security. Given the availability of that remedy and the statutory procedures (including notice and opportunity of hearing before determination of tax and penalty), the Court declined to exercise writ jurisdiction. [Paras 4, 6, 7]

Writ jurisdiction is declined on the ground of the availability of an alternative statutory remedy under Section 107; the writ petition is dismissed.

Final Conclusion: The Court held that the statutory scheme permits provisional release of seized goods and conveyance on furnishing prescribed security or on payment, and that the impugned order is appealable under Section 107; in view of the alternative remedy, the writ petition is dismissed.

Reimbursement of differential tax arising from change of tax regime from Value Added Tax to Goods and Services Tax - works contract treated as composite supply under GST - determination of GST-inclusive work value for balance work - revised guidelines for works contract issued by State Government dated 10.12.2018 - supplementary agreement for revised GST-inclusive work value - reimbursement or recovery of excess payment on account of GST adjustment

Revised guidelines for works contract issued by State Government dated 10.12.2018 - determination of GST-inclusive work value for balance work - reimbursement or recovery of excess payment on account of GST adjustment - supplementary agreement for revised GST-inclusive work value - Claim for reimbursement of differential tax on contracts tendered before 01.07.2017 but executed partly or wholly after 01.07.2017 was directed to be considered afresh by the competent authority in light of the revised guidelines dated 10.12.2018; interim protection granted against coercive action until 29.02.2020. - HELD THAT: - The Court noted the grievance that contractors are required to pay tax post-introduction of GST which was not envisaged at contract formation. The Finance Department's revised guidelines dated 10.12.2018, issued in supersession of earlier guidelines, prescribe the procedure to determine the GST-exclusive and GST-inclusive work value for balance works, adjustment by application of revised SoR-2014, enhancement/reduction in proportion to tender premium/discount, addition of applicable GST rate, execution of a supplementary agreement, and reimbursement or recovery depending on whether the revised GST-inclusive work value is higher or lower than the original agreement value. In view of these guidelines, the petitioner was directed to file a comprehensive representation within four weeks, whereupon the competent authority is to consider and dispose of the representation expeditiously and in accordance with the revised guidelines, preferably by 29.02.2020. The Court did not adjudicate the substantive entitlement on merits but remitted the grievance for fresh consideration under the stated procedure. Pending such consideration, no coercive action shall be taken against the petitioner until 29.02.2020, and the petitioner may challenge the authority's decision if aggrieved. [Paras 5, 6, 7]

Petitioner's claim remitted to the appropriate authority for fresh consideration in accordance with the Finance Department's revised guidelines dated 10.12.2018; petitioner to file representation within four weeks; no coercive action till 29.02.2020; further challenge permitted against the authority's decision.

Final Conclusion: Writ petition disposed by directing the petitioner to make a representation within four weeks and remitting the grievance to the competent authority to decide in accordance with the State Government's revised guidelines dated 10.12.2018, with interim protection from coercive action until 29.02.2020 and liberty to challenge the authority's decision thereafter.

Supply of goods versus supply of services - Classification under Notification No. 11/2017 (Entry 7(ia)) - Catering service - Tax @ 5% without Input Tax Credit - Input Tax Credit on licence fees

Supply of goods versus supply of services - Catering service - Classification under Notification No. 11/2017 (Entry 7(ia)) - The supply by the appellant at General Minor Units (GMUs) at railway platforms is a supply of service classified as catering service under Entry 7(ia) of Notification No. 11/2017 (as amended), and not a sale of goods. - HELD THAT: - The license agreement between the appellant and the Divisional Railway Manager expressly defines the scope as to "operate, manage and supply catering service on the GMU", and the terms of the licence and the Sr. DCM letter permit vendors to carry goods to customers on platforms, demonstrating elements beyond mere across-the-counter sale. Following the plain language and scope of Entry 7(ia) inserted into Notification No. 11/2017, supplies of food or drink by Indian Railways or their licensees at platforms are to be treated as supply of service. The Authority is bound to apply the legislative text and cannot read down or add words to it; consequently the appellant's contention that the transactions are purely sale of goods is not tenable in light of the contractual terms and the amended notification. [Paras 12]

Supply at GMUs by the appellant is a catering service falling within Entry 7(ia) of Notification No. 11/2017 (as amended) and is to be treated as supply of service.

Tax @ 5% without Input Tax Credit - Input Tax Credit on licence fees - The supplies by the appellant are taxable at 5% without entitlement to claim Input Tax Credit (ITC) on licence fees paid to Indian Railways or IRCTC under the said entry. - HELD THAT: - Having held that the appellant's activity falls within Entry 7(ia) of Notification No. 11/2017 (as amended), the consequential fiscal treatment follows: the entry prescribes taxation at 5% without ITC for supplies by Indian Railways or their licensees at platforms. The Advance Ruling correctly applied the amended notification and denied ITC on licence fees; reliance on pre-GST authorities or on decisions concerning different factual matrices does not alter the clear post-amendment statutory position. [Paras 13, 15]

The whole revenue is taxable at 5% without ITC under Entry 7(ia) of Notification No. 11/2017 (as amended), and the appellant cannot claim ITC on licence fees.

Final Conclusion: The Appellate Authority affirms the Advance Ruling: the appellant's supplies at GMUs are catering services covered by Entry 7(ia) of Notification No. 11/2017 (as amended), taxable at 5% without entitlement to Input Tax Credit; the appeal is dismissed and the Advance Ruling upheld.

Arm's Length Price - comparability analysis - functional dissimilarity - segmental reporting - Safe Harbour Rules prospective effect - remand for verification of comparable data

Comparability analysis - functional dissimilarity - segmental reporting - Exclusion of CAT Technologies Ltd. from the final set of comparables - HELD THAT: - The Tribunal examined the business profile and annual report of CAT Technologies Ltd. and found that its operational income comprised diverse activities including training, medical transcription, job-portal and BPO services with no segmental reporting. The company had launched job-portal activities and exhibited abnormal profit growth, indicating functional dissimilarity with the assessee (a captive offshore software services provider). Reliance was placed on a coordinate bench decision which had excluded the company for similar reasons. Accordingly, CAT Technologies Ltd. was directed to be excluded from the final set of comparables. [Paras 22]

CAT Technologies Ltd. excluded from the final set of comparables.

Comparability analysis - segmental reporting - Safe Harbour Rules prospective effect - Exclusion of Persistent Systems Ltd. from the final set of comparables - HELD THAT: - The Tribunal noted significant variations between operating profit ratios with and without forex items and that the Safe Harbour Notification dealing with forex treatment has prospective effect and therefore could not be applied for the year under consideration. On perusal of the annual report, the company showed mixed activities (sales of software services and products, commissions, advertisement and sponsorship expenses) and lacked segmental reporting to segregate comparable software services. For want of segmental reporting and functional dissimilarity, Persistent Systems Ltd. was held not to be a robust comparable and directed to be excluded. [Paras 29]

Persistent Systems Ltd. excluded from the final set of comparables.

Comparability analysis - functional dissimilarity - segmental reporting - Exclusion of Tata Consultancy Services Ltd. (TCS) from the final set of comparables - HELD THAT: - The Tribunal observed that TCS is a highly diversified enterprise with significant revenues from multiple lines (enterprise solutions, BPO, IT infrastructure, licensed products), substantial R&D expenditure, ownership of intangibles and very large-scale operations relative to the assessee. These features, together with functional and scale dissimilarity and brand/intangible intensity, made TCS unsuitable as a comparable for a captive service provider. The Tribunal followed coordinate bench reasoning and directed exclusion of TCS. [Paras 33]

TCS excluded from the final set of comparables.

Comparability analysis - segmental reporting - functional dissimilarity - Exclusion of Thirdware Solutions Ltd. from the final set of comparables - HELD THAT: - On examination of the annual report, Thirdware Solutions Ltd. derived revenues from multiple sources (license sales, software services, SEZ/STPI exports, subscription) and did not provide segmental accounts to isolate comparable software services. Given the absence of segmental reporting and functional dissimilarity with the assessee's captive offshore services, the Tribunal directed exclusion of Thirdware from the final set of comparables. [Paras 36]

Thirdware Solutions Ltd. excluded from the final set of comparables.

Remand for verification of comparable data - statistical adjustment/remand for verification - Examination of corrected margins for Goldstone Technologies Ltd. and Sasken Technologies Ltd. - HELD THAT: - The assessee pointed out alleged errors in the operating margin computations of Goldstone Technologies Ltd. and Sasken Technologies Ltd. The Tribunal considered the submissions and directed the TPO to examine the corrected margins furnished by the assessee and, if verified, to decide afresh whether those companies should be included or excluded from the final set of comparables. [Paras 38]

Issue remanded to the TPO to verify corrected margins and decide inclusion/exclusion of Goldstone Technologies Ltd. and Sasken Technologies Ltd.

Remand for verification of comparable data - Re-examination of employee cost of CG VAK Software & Exports Ltd. for inclusion as a comparable - HELD THAT: - The TPO had excluded CG VAK on the basis that employee cost was 7.22% (failing the employee-cost filter). The Tribunal found, from the annual report and computations on record, that employee cost is around 75.42% and directed the TPO to re-examine the employee cost; if established at 75.42%, the company should be included in the final set of comparables. [Paras 39]

Issue remanded to the TPO to re-examine employee cost of CG VAK and include it if employee cost is found to be 75.42%.

Comparability analysis - turnover filters - remand for verification of comparable data - Re-examination of SIP Technologies & Exports Ltd. for exclusion based on turnover and employee cost filters - HELD THAT: - The TPO excluded SIP Technologies on grounds of turnover below Rs. 5 crores and employee cost below the filter. The Tribunal observed that the assessee's own turnover was around Rs. 35 crores, making the Rs. 5 crore filter inappropriate where there is no functional dissimilarity. The Tribunal directed the TPO to re-examine the employee cost (found on record to be about 38.28%); if employee cost is confirmed, there is no reason to exclude SIP Technologies from the comparables. [Paras 41]

Issue remanded to the TPO to re-examine SIP Technologies; include it if employee cost is confirmed at around 38.25-38.28%.

Comparability analysis - abnormal profit - Upheld exclusion of Bodhtree Consulting Ltd. from the final set of comparables (Revenue appeal) - HELD THAT: - The Tribunal accepted the ld. CIT(A)'s finding that Bodhtree Consulting Ltd. displayed extraordinary and volatile profit growth (notably in the year under consideration) and diversified operations, which rendered it an unreliable comparable. The Tribunal declined to interfere with the appellate authority's exclusion of Bodhtree on this basis. [Paras 46]

Exclusion of Bodhtree Consulting Ltd. from the final set of comparables upheld; Revenue's challenge dismissed on this point.

Comparability analysis - functional dissimilarity - turnover and scale considerations - Upheld exclusion of Infosys Ltd. from the final set of comparables (Revenue appeal) - HELD THAT: - The Tribunal found no infirmity in the ld. CIT(A)'s reliance upon factors such as risk profile, branded products/intangible intensity, R&D and advertising expenditure, onsite/offshore mix and the captive nature of the assessee's operations to exclude Infosys Ltd. as non-comparable. The Tribunal distinguished the coordinate bench decision relied upon by Revenue on facts and filters applied in that case, and dismissed the Revenue's appeal seeking inclusion of Infosys. [Paras 50]

Exclusion of Infosys Ltd. from the final set of comparables upheld; Revenue's appeal dismissed.

Final Conclusion: For A.Y. 2009-10 the Tribunal directed exclusion of CAT Technologies Ltd., Persistent Systems Ltd., TCS and Thirdware Solutions Ltd. from the final set of comparables; upheld the exclusion of Bodhtree Consulting Ltd. and Infosys Ltd. as directed by the ld. CIT(A); and remanded specific comparability questions (verification of corrected margins for Goldstone and Sasken, re-examination of employee cost for CG VAK, and re-examination of SIP Technologies' employee cost/turnover filter) to the TPO for fresh verification and appropriate exercise of judgment.

Tax deduction at source under Section 194H - Commission or brokerage - Principal-to-principal transaction - Restoration/remand for verification to Assessing Officer

Tax deduction at source under Section 194H - Commission or brokerage - Principal-to-principal transaction - Provisions of Section 194H are not attracted on discounts given by the assessee to distributors of prepaid SIM cards. - HELD THAT: - The Tribunal concluded that sale of SIM cards/recharge coupons at discounted rates to distributors did not amount to commission or brokerage but was a principal-to-principal transaction. This Court, following its earlier decisions in Pr. Commissioner of Income Tax-8, Mumbai v. Reliance Communications Infrastructure Ltd. and Commissioner of Income Tax (TDS) Pune v. IDEA Cellular Ltd., agreed with the Tribunal's characterisation and reasoning. Having examined the matter and the Tribunal's findings, the Court found no error or infirmity in the Tribunal's conclusion that Section 194H was not attracted and held that no substantial question of law arose from that finding. [Paras 9, 10]

Tribunal's finding that discounts to distributors of prepaid SIM cards do not attract Section 194H is upheld; no substantial question of law arises.

Restoration/remand for verification to Assessing Officer - Tribunal's restoration of the issue to the Assessing Officer for verification was recorded and left intact by the Court. - HELD THAT: - The Tribunal had directed restoration of the matter to the file of the Assessing Officer for necessary verification in the light of an earlier Karnataka High Court decision. The High Court noted this direction in the Tribunal's order (recorded by the Tribunal) but, having upheld the Tribunal's conclusion on the inapplicability of Section 194H, did not disturb the procedural course adopted by the Tribunal. The remand was thus acknowledged as a limited verification exercise ancillary to the Tribunal's substantive finding. [Paras 8]

The Tribunal's direction to restore the issue to the Assessing Officer for verification is recorded; the High Court did not interfere with that procedural direction while upholding the Tribunal's substantive conclusion.

Final Conclusion: Appeals dismissed; the Tribunal's conclusion that discounts to distributors of prepaid SIM cards do not attract deduction under Section 194H is affirmed and no substantial question of law arises; no order as to costs.

Disallowance under Section 14A of the Income Tax Act - application of Rule 8D of the Income Tax Rules - expenditure in relation to income not includible in total income - requirement of actual receipt or receipt being receivable of exempt income

Disallowance under Section 14A of the Income Tax Act - application of Rule 8D of the Income Tax Rules - requirement of actual receipt or receipt being receivable of exempt income - Whether disallowance under Section 14A read with Rule 8D could be made when the assessee had not earned or declared any exempt income for the relevant year - HELD THAT: - The Court examined sub-section (1) of Section 14A and the expression "does not form part of the total income" and adopted the view in Cheminvest Ltd. that Section 14A envisages an actual receipt or receivability of exempt income in the relevant previous year before any expenditure in relation to such income can be disallowed. The Tribunal relied on a consistent line of High Court decisions applying this principle and deleted the substantial disallowance, reducing it in the first instance and finally dismissing the revenue's appeal. This Court noted that its earlier decision in Principal Commissioner of Income Tax, Mumbai v. MAN Infraprojects Ltd. followed Cheminvest Ltd., and that the Supreme Court had declined to entertain a challenge to Cheminvest Ltd., underscoring that Section 14A does not apply where no exempt income is received or is receivable in the relevant year. Applying that determinative principle, the Court found no substantial question of law arising from the Tribunal's order. [Paras 8, 9, 10]

Assessee entitled to deletion of disallowance under Section 14A/Rule 8D where no exempt income was earned or declared; revenue's appeal dismissed.

Final Conclusion: The appeal is dismissed; the Tribunal's order deleting the disallowance under Section 14A/Rule 8D in the absence of any exempt income for the relevant year is affirmed and no substantial question of law arises.

Provisional attachment under Section 281B of the Income tax Act - exercise of writ jurisdiction under Article 226 - availability of statutory appeal as an alternative and efficacious remedy - principles of natural justice - re characterisation of receipts (capital receipt v. taxable receipt)

Exercise of writ jurisdiction under Article 226 - availability of statutory appeal as an alternative and efficacious remedy - principles of natural justice - Whether the High Court should interfere with the assessment order in exercise of writ jurisdiction under Article 226 when a statutory appeal is available and there is no shown violation of principles of natural justice. - HELD THAT: - The Court declined to interfere with the assessment order at the writ stage. Noting binding guidance that extraordinary jurisdiction under Article 226 is to be sparingly exercised where a statutory appeal lies, the Court observed that the assessing officer had considered the petitioner's contentions and reached a reasoned finding. There was no demonstration that the officer acted without jurisdiction or in violation of principles of natural justice. The Court distinguished the Balmiki Prasad Singh decision (which upheld interference where natural justice was breached) on the basis that no such breach is shown here. Errors in the exercise of jurisdiction or contested points of law are matters to be examined in the statutory appellate forum under the Act, not by premature writ intervention. [Paras 7]

Writ relief against the assessment order refused; petitioner to avail statutory appeal and remedies before the appellate authority.

Provisional attachment under Section 281B of the Income tax Act - provisional attachment under Section 281B of the Income tax Act - re characterisation of receipts (capital receipt v. taxable receipt) - Whether the provisional attachment effected under Section 281B was justified and sustainable in the facts of the case. - HELD THAT: - The Court held that provisional attachment under Section 281B is a drastic power to be exercised only in rare cases where the bona fides of the assessee are in question or there is clear evasion of tax. The attachment provision carries a limited and provisional lifespan and requires meaningful reasons beyond formulaic recitation of the statute. On the facts, the taxability of the large receipt was a debatable question (the assessing officer himself had changed the head of charge), the officer did not supply reasons in the attachment notice, and the Revenue's stated justification (that the demand was large) was inadequate. Given this uncertainty and absence of proper reasons, the provisional attachment was quashed and set aside. The Court therefore restrained coercive steps until the appellate process is invoked and determined. [Paras 8, 9, 10]

Provisional attachment under Section 281B quashed; authorities restrained from coercive action subject to the petitioner filing the appeal and stay application within the time directed.

Final Conclusion: Writ petition disposed: assessment order not interfered with at this stage and petitioner granted liberty to file appeal and stay petition before the Commissioner (Appeals); provisional attachment under Section 281B quashed and coercive steps restrained pending disposal of stay petition by CIT(A).

Deduction under Section 10A - computation of deduction prior to set-off under Chapter VI (Sections 70, 72, 74) - set-off of business loss and depreciation against eligible undertaking profits - status and relevance of departmental circulars vis-a -vis judicial precedent - precedential application of Commissioner of Income Tax v. Yokogawa India Ltd.

Deduction under Section 10A - computation of deduction prior to set-off under Chapter VI (Sections 70, 72, 74) - Deduction under Section 10A must be computed in respect of the eligible undertaking independently and prior to application of set-off and carry-forward provisions under Chapter VI. - HELD THAT: - The Court accepted the revenue's concession that the Supreme Court's decision in Commissioner of Income Tax v. Yokogawa India Ltd. governs the controversy. That decision holds that the deduction under Section 10A relates to the eligible undertaking standing on its own and, therefore, the stage for computing the Section 10A deduction is immediately after determining the profits and gains of that undertaking. Application of set-off and carry-forward provisions in Chapter VI (including Sections 70, 72 and 74) to arrive at the assessee's total income would be premature at that stage. The Tribunal's conclusion following this principle was thus affirmed. [Paras 4]

Section 10A deduction is to be computed prior to the exercise of set-off and carry-forward under Chapter VI; the Tribunal's view in this respect is upheld.

Status and relevance of departmental circulars vis-a -vis judicial precedent - precedential application of Commissioner of Income Tax v. Yokogawa India Ltd. - The Tribunal was not in error in declining to treat Circular No. 7/DV/2013 as displacing the legal position settled by the Supreme Court in Yokogawa. - HELD THAT: - The revenue conceded that the Supreme Court's authoritative interpretation in Yokogawa governs the legal question. In light of that precedent, the Tribunal's decision which did not rely upon the departmental Circular No. 7/DV/2013 was held to be correct. The Court found no infirmity in the Tribunal's approach of following the binding judicial pronouncement rather than treating the later circular as altering the settled legal position. [Paras 4]

Tribunal's refusal to give effect to Circular No. 7/DV/2013 on the issue was justified; Yokogawa governs.

Set-off of business loss and depreciation against eligible undertaking profits - computation of deduction prior to set-off under Chapter VI (Sections 70, 72, 74) - Business loss and depreciation of the assessee are not to be set off against the profits of the eligible undertaking prior to computing the deduction under Section 10A. - HELD THAT: - Relying on the Yokogawa ratio, the Court accepted that the statutory scheme contemplates computation of the Section 10A deduction as an exercise confined to the eligible undertaking's profits and gains. Consequently, set-off of business losses or depreciation under the Chapter VI provisions against the eligible undertaking's profits prior to computing Section 10A deduction is impermissible. The Tribunal's conclusion that such losses and depreciation could not be set off before computing the Section 10A deduction was therefore sustained. [Paras 4]

Business losses and depreciation cannot be set off against the eligible undertaking's profits before computing the Section 10A deduction; Tribunal's finding affirmed.

Final Conclusion: The revenue appeal is dismissed: the Tribunal's order for AY 2007-08 is affirmed as being consistent with the Supreme Court's decision in Commissioner of Income Tax v. Yokogawa India Ltd.; no substantial question of law arises and there shall be no order as to costs.

Stay of demand - notice of demand under Section 156 of the Income Tax Act - garnishee notice under Section 226(3) of the Income Tax Act - recovery notice to directors under Section 179 of the Income Tax Act - exercise of jurisdiction pending statutory appeal - first appellate authority to decide appeal expeditiously

Stay of demand - garnishee notice under Section 226(3) of the Income Tax Act - recovery notice to directors under Section 179 of the Income Tax Act - exercise of jurisdiction pending statutory appeal - Validity of issuance of garnishee and recovery notices while the assessee's statutory appeal and stay application were pending - HELD THAT: - The Court found that when the assessee had filed a statutory appeal under Section 246A and had a pending application for stay before the administrative Commissioner, it was not justified for revenue to issue notices under Section 226(3) and Section 179 without a decision on the appeal or the stay application. The Court observed that rejection of the stay by the Assessing Officer, while the appeal was pending before the first appellate authority and the stay application remained pending with the administrative Commissioner, did not render issuance of the impugned notices lawful. Consequently, the impugned notices were ordered to remain in abeyance during the limited period prescribed for adjudication of the appeal by the first appellate authority. [Paras 13]

Impugned notices under Section 179 and Section 226(3) shall remain in abeyance during the period prescribed for the appellate authority to decide the appeal.

First appellate authority to decide appeal expeditiously - exercise of jurisdiction pending statutory appeal - Direction to the first appellate authority to hear and decide the appeal filed by the assessee - HELD THAT: - The Court directed that the appeal registered as CIT(A)-20.Mumbai/10324/2018-19 be heard and decided by the first appellate authority in accordance with law within four weeks from receipt of an authenticated copy of the order. The Court kept all contentions on merits open and provided that if the appellate order is adverse to the assessee, enforcement of the order shall be kept in abeyance for a further period of two weeks to enable the assessee to avail statutory remedies. The direction was procedural and limited to expeditious adjudication; no opinion was expressed on merits. [Paras 13, 15]

CIT(A) to hear and decide the appeal within four weeks; if adverse, enforcement stayed for a further two weeks to enable statutory remedies.

Final Conclusion: Writ petition disposed by directing the first appellate authority to decide the registered appeal within four weeks; meanwhile notices under Section 179 and Section 226(3) are stayed. No opinion expressed on merits; further limited abeyance provided if the appellate order is adverse.

Claim of depreciation - asset "put to use" for claiming depreciation - requirement of commercial production for depreciation - treatment of civil and electrical components as part of block of asset for higher depreciation - choice between Written Down Value method and Straight Line Method

Asset "put to use" for claiming depreciation - requirement of commercial production for depreciation - Whether the windmills were "put to use" for more than 180 days so as to entitle the assessee to full depreciation and whether commercial production is a pre condition for claiming depreciation under Section 32. - HELD THAT: - The Tribunal found, and this Court noted, that the windmills were interconnected to the grid on 17.07.2010 and that electricity was generated during the intervening period before the date on which the first reading was taken; consequently the asset had been put to use. This Court held that the Tribunal's conclusion that there is no requirement of actual commercial production for an asset to be considered "put to use" for the purposes of claiming depreciation is consistent with earlier decisions of this Court. Reliance was placed on the Court's earlier judgment in T.C.A.No.120 of 2009 dated 07.02.2019 (B. Loganathan v. Income Tax Officer) which covers entitlement to full depreciation where the asset was put to use beyond the threshold period. The determinative legal principle applied is that physical readiness and use (including generation and supply to the grid) suffice for the asset to be regarded as put to use; commercial production per se is not a prerequisite for claiming depreciation under the statute. [Paras 8, 9]

The windmills were held to have been "put to use" for the requisite period and commercial production is not a prerequisite for claiming depreciation; entitlement to full depreciation upheld.

Choice between Written Down Value method and Straight Line Method - claim of depreciation - Whether the assessee's failure to elect or reflect Written Down Value treatment (or auditor's omission) disentitles it to the higher depreciation claimed and whether only a straight line rate applies. - HELD THAT: - The Court held that the failure or omission of the auditor to choose or reflect the Written Down Value method cannot be visited upon the assessee to deny the higher allowance. The Court relied on its earlier decision in Commissioner of Income-tax, Coimbatore v. Kikani Exports (P) Ltd [2015] 55 taxmann.com 428 (Madras) to answer the question against the Revenue. Thus, procedural or auditorial lapses do not automatically restrict the assessee to the straight line computation when the law and facts otherwise entitle it to the claimed depreciation. [Paras 10]

The assessee's entitlement to the higher depreciation cannot be denied on account of the auditor's failure; the Revenue's contention is rejected.

Final Conclusion: The appeal is dismissed: the Tribunal was correct in holding that the windmills were "put to use" (commercial production not being a precondition) entitling the assessee to full depreciation, and the assessee cannot be denied that allowance on account of the auditor's omission or failure to elect Written Down Value.

Reopening of assessment - reasons to believe - failure to disclose fully and truly all material facts - disallowance under Section 40(a)(ia) for failure to deduct TDS - deduction of tax at source on MICR charges - addition to book profits for MAT under Section 115JB - effect of disallowance under Section 14A on book profits for Section 115JB

Reopening of assessment - reasons to believe - failure to disclose fully and truly all material facts - Validity of the notice issued under Section 148/147 to reopen the assessment for AY 2005-06 - HELD THAT: - Tribunal held, and this Court agrees, that the reasons recorded by the Assessing Officer were bald and did not specify which material fact or material was not disclosed by the assessee in the return so as to justify reopening beyond four years. The Tribunal observed that mere assertions that there was a failure on the part of the assessee to add back certain amounts without identifying the undisclosed fact(s) do not satisfy the statutory requirement to show sufficient reason to believe that income had escaped assessment. Since the notice itself was unsustainable, the reassessment was declared invalid and the consequent additions could not stand. [Paras 19, 20, 22, 23]

Notice to reopen assessment held invalid; reassessment set aside.

Deduction of tax at source on MICR charges - disallowance under Section 40(a)(ia) for failure to deduct TDS - Sustainability of addition made for MICR charges on ground of failure to deduct TDS - HELD THAT: - The Court examined the merits and agreed with the appellate authorities that the question whether TDS was required on MICR charges was debatable and supported by tribunal decisions, including a coordinate bench decision. Where the taxability/deduction obligation is arguable, such a disputed legal question does not justify invoking jurisdiction to reopen a concluded assessment. Consequently, the addition relating to MICR charges was rightly deleted by the Commissioner of Income Tax (Appeals). [Paras 16, 21]

Addition for MICR charges deleted; reassessment not justified on this ground.

Disallowance under Section 40(a)(ia) for failure to deduct TDS - addition to book profits for MAT under Section 115JB - effect of disallowance under Section 14A on book profits for Section 115JB - Sustainability of addition for alleged failure to deduct TDS on payment to caterer and correctness of addition to book profits under Section 115JB - HELD THAT: - With respect to the payment to the caterer, the assessee produced bank records and internal vouchers showing TDS deduction; the Assessing Officer declined to accept these without seeking verification from the bank. The Court held that, if there remained doubt, the proper course was verification (for example, notice to the bank) rather than treating the matter as undisclosed material to justify reopening. Regarding the addition to book profits under Section 115JB by effect of a disallowance under Section 14A, the Court noted existing precedent addressing whether a Section 14A disallowance can be added for computation of book profits; in the circumstances the question did not raise a substantial question of law requiring interference. Given the unsustainable basis for reopening, the additions were not maintainable. [Paras 13, 14, 17, 18, 21]

Addition for non-deduction of TDS on payment to caterer deleted; addition to book profits under Section 115JB not sustained as a basis to validate reopening.

Final Conclusion: The High Court affirms the Tribunal's conclusion that the notice to reopen the assessment for AY 2005-06 was invalid for lack of adequate reasons; the deletions made by the first appellate authority are upheld and no substantial question of law arises. Appeal dismissed with no order as to costs.

Chargeability of fringe benefit tax requiring employer-employee relationship - scope of fringe benefits vis-a -vis promotional free samples - interpretative role of CBDT Circular No. 8/2005 and Explanatory Notes to Finance Act, 2005 - precedential application of Tata Consultancy Services Ltd. on FBT

Chargeability of fringe benefit tax requiring employer-employee relationship - scope of fringe benefits vis-a -vis promotional free samples - precedential application of Tata Consultancy Services Ltd. on FBT - Whether expenditure on distribution of free pharmaceutical samples to doctors and others is includible for the purpose of fringe benefit tax. - HELD THAT: - The Court held that levy of fringe benefit tax under the statutory charging provision requires that fringe benefits be provided or deemed to be provided by an employer to his employees; the existence of an employer-employee relationship is a sine qua non for chargeability. Applying this principle, and following the decision of this Court in Tata Consultancy Services Ltd., the Tribunal correctly concluded that the assessee did not establish any employer-employee relationship between itself and the recipients of the free samples (doctors and others). Consequently, expenditure on distribution of free samples could not be treated as fringe benefits liable to the additional tax even though lower authorities had characterised such distribution as sales promotion. The Court noted the CBDT Circular No. 8/2005 and the Explanatory Notes as interpretative background but reaffirmed that the foundational requirement for FBT is the employer-employee nexus; absent that nexus, the Assessing Officer's inclusion of the expenditure in the fringe benefit value was untenable. [Paras 6, 13, 16, 17]

Expenditure on free samples distributed to doctors and others is not includible as fringe benefits for levy of fringe benefit tax in the absence of an employer-employee relationship; the Assessment Officer's addition is set aside.

Final Conclusion: Appeal dismissed; the Tribunal's order setting aside the Assessing Officer's addition is upheld on the ground that FBT cannot be levied in the absence of an employer-employee relationship between the assessee and recipients of the free samples.

Certificate for deduction of tax at source under Section 197 - withholding tax certificate - profit attribution to Permanent Establishment - consideration of assessed or returned income of last four previous years - notification by Principal Director General of Income-tax (Systems) under Rule 28(2) - application of assumed tax and interest for estimating liability

Certificate for deduction of tax at source under Section 197 - withholding tax certificate - profit attribution to Permanent Establishment - application of assumed tax and interest for estimating liability - consideration of assessed or returned income of last four previous years - Validity of the withholding tax certificate dated 05.07.2019 prescribing deduction at 10% on payments by THDC India Limited. - HELD THAT: - The impugned certificate prescribing deduction at 10% was quashed. The respondents justified the rate on the basis of a survey, alleged assessments reopening and by applying deemed profitability and attribution percentages without adequate foundation; such justifications could not be supplemented or improved by the counter-affidavit in the face of the petition (Mohinder Singh Gill v. Chief Election Commr. applied). The respondents applied assumed tax and interest under Sections 234B and 234C and considered business turnover and assessed/estimated income beyond the permissible period, without properly accounting for tax already paid by the petitioner. The computation relied upon by the respondents, even on their own pleaded figures, did not justify a withholding rate of 10% (application of deemed profit of 10% and attribution rates relied upon did not support the 10% rate). Consequently the order fixing withholding at 10% was held unsustainable and quashed. [Paras 3, 4, 7, 8]

Impugned withholding tax certificate of 05.07.2019 fixed at 10% is quashed; respondents directed to reconsider the application under Section 197 taking into account the aspects noted by the Court.

Notification by Principal Director General of Income-tax (Systems) under Rule 28(2) - consideration of assessed or returned income of last four previous years - Whether the notification dated 31.12.2018 issued under Rule 28(2) expands the Assessing Officer's power to consider assessed/returned/estimated income beyond the last four previous years for determining existing and estimated liability. - HELD THAT: - The notification under Rule 28(2) is an empowering provision concerned with procedure, formats and data security for furnishing Form No.13; it does not enlarge the substantive scope of rule 28AA(2)(ii). The Assessing Officer's determination of existing and estimated liability for issuance of a certificate under rule 28AA must be confined to the assessed, returned or estimated income for the last four previous years as prescribed by rule 28AA(2)(ii). Therefore the respondents could not lawfully take into account incomes or liabilities beyond that four-year window by relying on the systems notification. [Paras 5, 6]

The notification dated 31.12.2018 cannot be read so as to permit consideration of periods beyond the last four previous years; the respondents erred in doing so.

Quashing and remand for fresh consideration - continuation of prior withholding certificate pending fresh decision - Relief and directions consequential to quashing of the 10% withholding certificate. - HELD THAT: - In view of the deficiencies in the respondents' reasoning and consideration, the Court directed that the impugned order be quashed and the matter be remanded to the respondents to consider the petitioner's application afresh under Section 197 after taking into account the correct parameters (including limitation to the last four previous years, proper attribution analysis, and tax already paid). Until a fresh certificate is issued, the petitioner shall remain bound by the withholding certificate applicable in the immediately preceding year at the rate of 1.5% in respect of payments from THDC India Limited. The respondents were also directed to effect any necessary system modifications within one week to give effect to this order. [Paras 8]

Matter remanded for fresh consideration; interim continuation of the prior 1.5% withholding certificate ordered and directions given for compliance.

Final Conclusion: The writ petition is allowed in part: the withholding tax certificate dated 05.07.2019 fixing deduction at 10% is quashed; the respondents must reconsider the petitioner's Section 197 application afresh in accordance with law (including limitation to the last four previous years and proper accounting of tax paid), and until such fresh certificate is issued the earlier certificate at 1.5% remains in operation.

Section 68 unexplained cash credit - identity of the creditor - genuineness of the transaction - credit-worthiness of the creditor - onus of proof and burden shifting under section 68 - no requirement to prove source of the source

Section 68 unexplained cash credit - identity of the creditor - genuineness of the transaction - credit-worthiness of the creditor - onus of proof and burden shifting under section 68 - no requirement to prove source of the source - Validity of addition of Rs. 14,00,000 to the assessee's income as unexplained cash credit under section 68 where the assessee proved identity, genuineness and creditworthiness of the creditor but the revenue questioned the sources of the creditor's funds. - HELD THAT: - The Court applied the settled threefold requirement under section 68 - proof of identity of the creditor, genuineness of the transaction and creditworthiness of the creditor - and found that the assessee had discharged the initial onus by adducing evidence satisfying these conditions. Reliance was placed on precedent holding that the assessee need only explain the source of the credit and is not obliged to prove the 'source of the source'. Once the assessee met the primary evidentiary burden, the onus shifted to the Revenue to produce material to impeach the explanation. The Revenue failed to bring any material that would satisfactorily rebut the creditor's explanation; mere suspicion about the creditors' regular income or the fact that the donors had not filed returns was held insufficient. For these reasons the Tribunal's upholding of the addition was held unjustified and was set aside. [Paras 13, 14, 15, 16, 17]

Addition of Rs. 14,00,000 as unexplained cash credit under section 68 is set aside; the assessee's explanation was accepted and the Tribunal's contrary finding is vacated.

Final Conclusion: The appeal is allowed; the Tribunal's order upholding the addition of Rs. 14,00,000 under section 68 is set aside for assessment year 2010-11 and the question is answered in favour of the assessee and against the Revenue, with no order as to costs.

Condonation of delay - sufficient cause - appeal time-bar - cancellation of registration under section 12AA(3) - hearing on merits

Condonation of delay - sufficient cause - appeal time-bar - Whether the Income Tax Appellate Tribunal was justified in refusing to condone a delay of 253 days in filing the appeal. - HELD THAT: - Tribunal dismissed the delay-condonation application on the ground of alleged inconsistency in the affidavits filed by the assessee and concluded that sufficient cause was not shown, thereby treating the appeal as time barred. The High Court examined the affidavits filed by the assessee and the counsel and, taking an overall view, found that the Tribunal was not justified in refusing to condone the delay. In the interest of justice, and because the underlying dispute concerns cancellation of registration as a charitable trust, the Court exercised its discretion to condone the delay so that the appeal may be heard on merits. The Court expressly refrained from expressing any opinion on the merits of the appeal.

Delay of 253 days in filing the appeal is condoned and the Tribunal's order refusing condonation is set aside.

Hearing on merits - cancellation of registration under section 12AA(3) - The procedural consequence to follow after condonation of delay. - HELD THAT: - Having condoned the delay, the High Court directed that the appeal be heard and decided by the Tribunal on its merits. The Court required the appellant to deposit a modest amount with the Maharashtra State Legal Services Authority as a condition precedent to revival of the appeal. The High Court clarified that it has not expressed any view on the substantive merits and left all contentions open for adjudication by the Tribunal.

Tribunal to hear and decide the appeal on merits after the appellant deposits the directed sum and files the receipt; all merits are kept open.

Final Conclusion: The Tribunal's refusal to condone a 253-day delay was set aside; delay is condoned, the appeal relating to cancellation of registration under section 12AA(3) (AY 2009-10) is restored for adjudication on merits by the Tribunal subject to the appellant depositing the directed sum with the Maharashtra State Legal Services Authority; no opinion expressed on merits.

Speculative transaction under section 43(5) - business loss attributable to hedging/forward contracts incidental to business - hedging by forward contracts against foreign exchange risk - delivery/non-delivery is not determinative of speculativeness

Speculative transaction under section 43(5) - business loss attributable to hedging/forward contracts incidental to business - hedging by forward contracts against foreign exchange risk - delivery/non-delivery is not determinative of speculativeness - Whether foreign exchange losses on forward contracts entered into against confirmed export orders constitute speculative loss or are allowable as business loss. - HELD THAT: - The Court accepted the factual findings of the Tribunal and the CIT(A) that the assessee entered into foreign exchange forward contracts with banks only to hedge exposure arising from confirmed export orders and did not deal in foreign exchange as a business. The forward contracts were entered to safeguard receivables from fluctuation in exchange rates and were backed by specific export orders; therefore they were incidental to the assessee's manufacturing and export business. Reliance was placed on this Court's earlier decision in CIT v. Badridas Gauridu (P.) Ltd. and subsequent authorities which held that such forward contracts, when entered by an exporter to hedge against foreign exchange variation, are not speculative transactions within the meaning of the definition in section 43(5) and the resultant losses are business losses. The Tribunal's conclusion that delivery or non-delivery of the underlying foreign currency is irrelevant where the contract is directly linked to and incidental to the assessee's business was endorsed. In view of concurrent findings of fact that the transactions were hedging in nature and not speculative, no question of law arose warranting interference. [Paras 10, 11, 12, 13, 15]

Foreign exchange losses on forward contracts entered against confirmed export orders are not speculative losses but allowable as business losses; Revenue's appeal dismissed.

Final Conclusion: Appeal dismissed; the Tribunal's and CIT(A)'s findings that the foreign exchange forward contracts were hedging transactions incidental to the export business and the resulting losses were business losses (not speculative) are upheld.

Revisional jurisdiction under Section 263 - Assessment erroneous and prejudicial to the interests of revenue - Requirement of independent enquiry by the Assessing Officer - Treatment of disclosed cash as income from other sources - Applicability of Section 45(2) to transfers between group concerns

Revisional jurisdiction under Section 263 - Assessment erroneous and prejudicial to the interests of revenue - Requirement of independent enquiry by the Assessing Officer - Whether the Commissioner was justified in invoking revisional jurisdiction under Section 263 on the ground that the Assessing Officer failed to verify alleged contrived land sale rates. - HELD THAT: - The Tribunal found that the disparity in sale rates across assessment years did not result in any revenue loss such as would render the assessment order erroneous and prejudicial to the interests of the revenue. The Court accepted the Tribunal's conclusion that where the Assessing Officer had inquired into the disclosures during assessment proceedings, the Commissioner was not justified in invoking Section 263 merely because he considered further verification desirable. The revisional jurisdiction under Section 263 requires the order to be shown to be erroneous and prejudicial to revenue; absent such a showing or a quantifiable prejudice, assumption of jurisdiction is not warranted.

Assumption of jurisdiction under Section 263 on the ground of alleged contrived sale rates was not justified; Tribunal's reversal of the CIT's order on this point is upheld.

Treatment of disclosed cash as income from other sources - Revisional jurisdiction under Section 263 - Whether the CIT was justified in treating the cash of Rs. 6.85 lakhs found on survey as undisclosed income and exercising revisional jurisdiction when the assessee had disclosed and the Assessing Officer had taxed the amount under 'income from other sources'. - HELD THAT: - The Tribunal examined the assessee's submissions and record, noting that the amount in question had been disclosed in the return and expressly included in the assessment under the head 'income from other sources'. Since the amount was brought to tax by the Assessing Officer, the assessment could not be said to be erroneous or prejudicial to the revenue on this issue. Consequently the CIT's assumption of jurisdiction under Section 263 in relation to the said amount was invalid.

CIT's invocation of Section 263 in respect of the Rs. 6.85 lakhs was not justified; the Tribunal's reversal of the CIT's findings on this issue is affirmed.

Applicability of Section 45(2) to transfers between group concerns - Revisional jurisdiction under Section 263 - Whether the Assessing Officer's order was erroneous for failing to apply Section 45(2), and whether the CIT was justified in invoking Section 263 on that ground. - HELD THAT: - The Tribunal observed that the Commissioner had accepted the applicability of Section 45(2). Having accepted that the provision applied, there was no error in the Assessing Officer's order on this point that would render it prejudicial to the revenue. Accordingly, the exercise of revisional jurisdiction under Section 263 on the basis of Section 45(2) was not warranted.

No error found in the assessment regarding applicability of Section 45(2); CIT's invocation of Section 263 on this ground is not sustained.

Final Conclusion: The High Court dismissed the Revenue's appeal, upholding the Tribunal's findings that the Commissioner was not justified in exercising revisional jurisdiction under Section 263 on the grounds raised; no substantial question of law arises and the Tribunal's order is affirmed.

Charitable purpose - proviso to section 2(15) - activity in the nature of trade, commerce or business - application of sections 11 to 13 of the Income Tax Act - interest on permitted investments under section 11(5) - incidental activity versus dominant object test - principle of mutuality - precedential effect of Supreme Court decision in Commissioner of Income Tax-III, Pune Vs. Rajasthan and Gujarat Charitable Foundation, Poona

Interest on permitted investments under section 11(5) - proviso to section 2(15) - activity in the nature of trade, commerce or business - application of sections 11 to 13 of the Income Tax Act - Whether interest income earned on permitted investments is taxable because the trust lost its charitable character by operation of the proviso to section 2(15). - HELD THAT: - The Tribunal's finding that the interest income was earned from investments made in accordance with the prescription in section 11(5) and therefore could not be treated as an activity in the nature of trade, commerce or business was upheld. The court accepted the Tribunal's reasoning that mere receipt of interest on permitted deposits, effected to preserve and apply funds for charitable objects, does not convert the trust's activities into trade or business within the meaning of the proviso to section 2(15). The Tribunal also relied on its coordinate decision in Bombay Presidency Golf Club Limited, which this Court subsequently upheld in Revenue's appeal, reinforcing that no question of law arose. Having considered the provisions of sections 11 to 13 and the factual finding that the receipts arose from permitted investments and were not shown to be applied otherwise, the addition of the interest income was not sustained. [Paras 11, 12, 13]

Interest income earned on permitted investments is not hit by the proviso to section 2(15) and is eligible for consideration under sections 11-13; the addition of such interest income was rightly deleted.

Incidental activity versus dominant object test - charitable purpose - proviso to section 2(15) - activity in the nature of trade, commerce or business - Whether receipts such as compensation from caterer, compensation from decorator and miscellaneous income are taxable because they amount to trade, commerce or business under the proviso to section 2(15). - HELD THAT: - The Tribunal held, and this Court accepted, that such receipts arose from activities incidental to the dominant charitable objects of the Trust (promotion of sports, games and recreation). Relying on established principles (including Supreme Court authority cited by this Court), the decisive test is the dominant object: if the activity's dominant object is charitable, incidental receipts and even surpluses do not convert the trust into a trading or business entity. Mere charging of fees or generation of surplus, without evidence of a profit-motive making the activity one of trade or commerce, is insufficient to attract the proviso to section 2(15). The Tribunal's factual findings that there was no application of income for non-charitable purposes and that these receipts were incidental were sustained. [Paras 16, 17, 18, 19, 20]

Receipts from caterer, decorator and miscellaneous sources were incidental to the dominant charitable objects and are not caught by the proviso to section 2(15); the additions were rightly deleted.

Precedential effect of Supreme Court decision in Commissioner of Income Tax-III, Pune Vs. Rajasthan and Gujarat Charitable Foundation, Poona - double deduction / depreciation issue - acceptance of coordinate judicial decisions - Whether questions raised regarding double deduction/depreciation and reliance on certain High Court/Tribunal decisions (questions (b), (c) and (d) in the appeal) raise substantial questions of law justifying interference. - HELD THAT: - The court observed that the contentions in questions (b), (c) and (d) are covered by the Supreme Court's decision in Commissioner of Income Tax-III, Pune Vs. Rajasthan and Gujarat Charitable Foundation, Poona, which was held to answer those points in favour of the assessee and against the Revenue. Accordingly, the challenge to the Tribunal's reliance on the cited authorities and the submissions on double deduction/depreciation did not furnish any substantial question of law warranting interference with the Tribunal's order. [Paras 21]

Questions regarding depreciation/double deduction and the reliance on certain High Court/Tribunal decisions are answered by the cited Supreme Court precedent in favour of the assessee; no substantial question of law arises.

Final Conclusion: The Tribunal's order deleting the additions made by the Assessing Officer for assessment year 2009-10 is unimpeachable: interest on permitted investments and other incidental receipts were not caught by the proviso to section 2(15) and the other legal questions raised are covered by Supreme Court precedent - appeal dismissed.

Inter-State sale vs intra-State sale - relevance of Form XXVIII-B road permit - precedential rule in Laxmi Hard Coke - burden on assessing authority to verify documentary satisfaction - remand for verification of the four points in the State letter dated 10.01.2002 - returns filed under protest

Inter-State sale vs intra-State sale - relevance of Form XXVIII-B road permit - precedential rule in Laxmi Hard Coke - returns filed under protest - Issuance of blue coloured Form XXVIII-B alone is not a conclusive determinant that the sales were inter-State sales. - HELD THAT: - The Division Bench decision in Laxmi Hard Coke establishes that mere movement of goods outside the State or issuance of a State-prescribed road permit (Form XXVIII-B) cannot be treated as determinative of an inter-State sale; other attendant factors must be considered. The Court found that Section 3 of the CST Act cannot be the sole guiding factor and that issuing Form XXVIII-B, which is prescribed under State law to regulate movement, is not conclusive of the character of the sale. The petitioner consistently maintained that the transactions were intra-State sales and had filed returns under protest in respect of the disputed turnover. The High Court held that the Assessing Authority and the Tribunal erred in treating the blue coloured road permits as the decisive factor without applying the broader legal test affirmed in Laxmi Hard Coke and without examining the other relevant factors and documents. [Paras 7, 14, 15, 16]

The orders treating the transactions as inter-State sales solely on the basis of the blue coloured road permits cannot be sustained.

Remand for verification of the four points in the State letter dated 10.01.2002 - burden on assessing authority to verify documentary satisfaction - The assessment and the Tribunal judgment are set aside and the matter is remanded for fresh adjudication after verification of the four points specified in the State's letter dated 10.01.2002. - HELD THAT: - The State's letter dated 10.01.2002 specifies four points to be satisfied by Assessing Authorities before treating a transaction as inter-State sale. The High Court found no record in the impugned assessment order or the Revisional Judgment that the Assessing Authority or the Tribunal had examined or been satisfied on those four points. Because the determinations were made without the required documentary verification and satisfaction, the Court set aside both impugned orders and remitted the matter to the Assessing Authority to determine CST liability afresh after satisfying itself on the four points. The Court directed that if the Assessing Authority concludes the transactions were not inter-State sales, the tax deposited shall be refunded with statutory interest. [Paras 16, 17]

Assessment order and Tribunal judgment set aside; matter remitted to the Assessing Authority for fresh determination after verification of the four points in the 10.01.2002 letter, with directions as to refund and interest if sales are found to be intra-State.

Final Conclusion: Writ allowed. The assessment order dated 11.01.2009 and the Tribunal judgment dated 05.12.2017 are set aside and the matter is remanded to the Assessing Authority to determine CST liability afresh after satisfying itself on the four points specified in the State's letter dated 10.01.2002; if transactions are held intra-State, the tax deposited shall be refunded with statutory interest.