TaxTMI Updates e-Newsletter
Feb 18,2016

Disallowance under section 14A read with Rule 8D - Expenditure incurred in relation to tax-exempt income - Disallowance not permissible in absence of expenditure attributable to exempt income - Remand to Assessing Officer for fresh determination under section 14A(2)

Disallowance under section 14A read with Rule 8D - Expenditure incurred in relation to tax-exempt income - Disallowance under section 14A read with Rule 8D is sustainable only if expenditure in relation to earning tax exempt income is shown or established. - HELD THAT: - The Tribunal applied the settled principle that section 14A permits disallowance only to the extent of expenditure incurred in relation to tax exempt income and that the Assessing Officer, in terms of section 14A(2), must collect material to determine such expenditure where the assessee denies incurrence. In the present case the Assessing Officer computed a disallowance materially exceeding the dividend income, effectively disallowing the entire exempt income without establishing expenditure attributable to that income. The High Court held that the Tribunal's conclusion, following the view in earlier decisions, that such disallowance is not in accordance with law is a plausible legal view and does not warrant interference. [Paras 4]

Tribunal's conclusion that disallowance cannot stand in absence of material showing expenditure in relation to the exempt income is upheld.

Remand to Assessing Officer for fresh determination under section 14A(2) - Matter remitted to the Assessing Officer to decide afresh, after affording the assessee due opportunity, the question of disallowance under section 14A read with Rule 8D. - HELD THAT: - Having found that the Assessing Officer's computation was not in accordance with law, the Tribunal set aside the CIT(A)'s order and remitted the issue for fresh adjudication. The High Court found the Tribunal's order to remit appropriate: the Assessing Officer is required to gather and consider material under section 14A(2) and to compute any permissible disallowance consistent with law and after hearing the assessee. The remand is for fresh consideration and decision in accordance with law. [Paras 4]

Order remitting the matter to the Assessing Officer for fresh decision after affording due and reasonable opportunity to the assessee is upheld.

Final Conclusion: The revenue appeal is dismissed; the Tribunal's order setting aside the CIT(A)'s decision and remitting the issue to the Assessing Officer for fresh consideration in accordance with law (after giving the assessee an opportunity of being heard) is upheld.

Bogus purchases - burden of proof for genuineness of purchases - reliance on information from Sales Tax Department as starting point - duty of Assessing Officer to investigate further before making additions - proof of movement of goods - addition to income on basis of unverified third party information

Bogus purchases - burden of proof for genuineness of purchases - proof of movement of goods - duty of Assessing Officer to investigate further before making additions - Whether additions to the assessee's income treating purchases from certain suppliers as bogus were sustainable. - HELD THAT: - The Tribunal found that the Assessing Officer had made additions solely on the basis of information received from the Sales Tax Department that the suppliers were providing hawala entries, but had not carried the inquiry to a logical conclusion by independent investigation. The assessee had produced delivery challans, goods inward registers, ledger accounts of the suppliers, bank payment evidence, and agreements/work orders with recipients (KIL and GIL), and there was documentary material showing delivery at the assessee's workplace and vehicle/transport particulars. The AO/FAA did not reject the assessee's books, nor did they verify the sales made by the assessee to the recipients; they also did not demonstrate cash trail irregularities or that funds had returned to the assessee. Given that the information from Sales Tax was only a starting point for further enquiry, and that the assessee's documentary evidence supported movement and receipt of goods and payments through banking channels, the Tribunal held that the assessee had discharged the burden of proof and that suspicion alone could not supplant evidence. Following earlier Tribunal precedent in similar circumstances, the additions were held unsustainable and reversed. [Paras 5]

Addition treating the purchases as bogus is reversed and the ground of appeal is allowed in favour of the assessee.

Final Conclusion: The Tribunal reversed the impugned addition of Rs. 1.47 crores treating purchases as bogus, holding that the Assessing Officer failed to conduct adequate investigation after receiving Sales Tax information and that the assessee had produced sufficient documentary evidence to discharge its burden; the appeal is allowed.

Comparability of entities for transfer pricing - functional comparability and functional analysis in transfer pricing - exclusion of non-comparable entities from comparable set - recomputation of Arm's Length Price and Transfer Pricing Adjustment

Comparability of entities for transfer pricing - functional comparability and functional analysis in transfer pricing - exclusion of non-comparable entities from comparable set - recomputation of Arm's Length Price and Transfer Pricing Adjustment - Inclusion of M/s. Motilal Oswal Investment Advisors Pvt. Ltd. as a comparable for benchmarking international transactions of the assessee and consequent direction for recomputation of ALP/TP adjustment. - HELD THAT: - The Tribunal found that Motilal Oswal is functionally dissimilar to the assessee, which is a captive provider of non-binding investment advisory services with limited risk and no decision making or implementation role. Motilal Oswal, by contrast, undertakes diversified activities including merchant banking, equity capital markets, mergers & acquisitions, private equity syndications and structured debt, and derives material income from such varied verticals. The directors' report and segmental profile demonstrate substantive functional differences and differing risk profiles. Prior Tribunal and High Court decisions on materially similar facts have excluded Motilal Oswal from comparable sets. Applying the functional comparability test and following these precedents, Motilal Oswal was held not to be a valid comparable for determination of Arm's Length Price. The AO/TPO was directed to exclude Motilal Oswal from the comparable list and to recompute the Arm's Length Price and any Transfer Pricing adjustment accordingly. [Paras 4]

Motilal Oswal Investment Advisors Pvt. Ltd. is not comparable and is to be excluded; AO/TPO to recompute ALP and any Transfer Pricing adjustment after excluding it.

Procedural consequence of allowed transfer pricing ground - Whether remaining grounds raised by the assessee require separate adjudication after allowing the primary ground concerning comparables. - HELD THAT: - The Tribunal held that the other grounds were consequential upon and dependent on Ground No.1. Having allowed Ground No.1 by excluding the contested comparable and directing recomputation of ALP, the Tribunal found that the remaining grounds had become academic and infructuous and therefore did not require separate adjudication. [Paras 4]

Other grounds dismissed as infructuous.

Final Conclusion: Appeal partly allowed: Motilal Oswal Investment Advisors Pvt. Ltd. excluded from comparables and AO/TPO directed to recompute Arm's Length Price and any Transfer Pricing adjustment for AY 2010-11; remaining grounds dismissed as infructuous.

Speculative transaction - speculation business - hedging transaction - integral or incidental to business - Explanation 2 to section 28 - section 43(5) definition of speculative transaction - requirement of 1:1 correlation between forward contracts and export invoices

Speculative transaction - hedging transaction - integral or incidental to business - Explanation 2 to section 28 - section 43(5) definition of speculative transaction - requirement of 1:1 correlation between forward contracts and export invoices - Allowability of loss on cancellation of foreign exchange forward contracts claimed as business loss by an exporter or characterization as speculative loss - HELD THAT: - The Tribunal examined whether forward contracts in foreign exchange entered into by an exporter are speculative transactions or hedging transactions incidental to the export business. Applying the definition in section 43(5) and Explanation 2 to section 28, the Tribunal followed binding and persuasive decisions (including Bombay and Calcutta High Court authorities and coordinate Tribunal precedents) holding that forward exchange contracts entered by an exporter with banks to hedge exposure on export receivables are integral or incidental to the export business and, as hedging transactions, do not constitute speculation. The Tribunal rejected the proposition that a precise 1:1 rupee correlation between each forward contract and an export invoice is a precondition for treating the contract as hedging; it held that so long as the aggregate forward contracts do not exceed export realizations plus outstanding receivables, the contracts can be hedging. The Tribunal also treated premature cancellation per se as not altering the transactional character where the assessee gives acceptable commercial reasons for cancellation, and it distinguished authorities treating such transactions as speculative on different facts or in different statutory contexts. Applying these principles to the facts, the Tribunal concluded that the forward contracts were hedging transactions incidental to the assessee's export business and that the loss on their cancellation is a business loss, not a speculative loss. [Paras 6, 8]

The loss on cancellation of foreign exchange forward contracts was held to be a business loss (not a speculative loss) and allowed as deductible for the assessment year in question.

Final Conclusion: Appeal allowed: the Tribunal set aside the appellate authority's confirmation of disallowance and directed the Assessing Officer to allow the claim relating to loss on cancellation of foreign exchange forward contracts for AY 2009-10, treating those losses as business losses incidental to the export activity.

Inclusion of mobilisation/mobilisation charges in aggregate amount under sub section (2) of Section 44BB - taxability of hiring/provision of vessels and equipment under the presumptive scheme of Section 44BB as opposed to fee for technical services - clarificatory amendment cannot be given retrospective effect where it changes substantive liability - interest under Section 234B where payer fails to deduct TDS - liability depends on assessee's role in securing lower/no deduction certificate

Inclusion of mobilisation/mobilisation charges in aggregate amount under sub section (2) of Section 44BB - Whether revenue/receipts from mobilisation charges for work performed outside India fall within the aggregate amounts to be taken into account under sub section (2) of Section 44BB. - HELD THAT: - The Tribunal followed the binding decision of the jurisdictional High Court in Sedco Forex International Drilling Inc., which construed sub section (2) of Section 44BB to include amounts paid or payable whether in or out of India and amounts received or deemed to be received in India on account of provision of services and supply of plant and machinery. The Tribunal accepted that mobilisation charges received outside India were not mere reimbursements linked to actual expenditure and, in view of the fictional taxing provision in Section 44BB, such mobilisation receipts are includible in the aggregate specified by sub section (2). Applying that precedent to the facts, the Tribunal upheld the CIT(A)'s inclusion of the mobilisation receipts in the Section 44BB aggregate. [Paras 7]

Mobilisation charges of Rs. 3,84,54,152/- received for work performed outside India are rightly included in the aggregate amount under sub section (2) of Section 44BB; assessee's ground is dismissed.

Taxability of hiring/provision of vessels and equipment under the presumptive scheme of Section 44BB as opposed to fee for technical services - Whether income from provision/hiring of vessels, ROV equipment and personnel to Allseas for survey work is taxable under Section 44BB and not as fee for technical services/royalty. - HELD THAT: - The Tribunal relied on its earlier decision in the assessee's own case for AY 2008 09, which had examined identical facts and concluded that income arising on account of letting out of equipment/vessels and related activities falls within Section 44BB. The Tribunal found no material change in facts for AY 2009 10 (the vessels and the assessee's status as a second leg contractor remaining the same) and therefore adopted the same reasoning, holding that the receipts are taxable under the presumptive provisions of Section 44BB rather than as FTS/royalty under Sections 9(1)(vi)/(vii). [Paras 10]

Income from hiring/provision of vessels and equipment is taxable under Section 44BB; Revenue's grounds 1 and 2 are dismissed.

Clarificatory amendment cannot be given retrospective effect where it changes substantive liability - Whether the Finance Act, 2011 amendment to the proviso to Section 44BB and to Section 44DA should be given retrospective (clarificatory) effect to alter taxability for the year under appeal. - HELD THAT: - The Tribunal applied the principle in Sedco Forex (Supreme Court) that an Explanation or amendment which is merely clarificatory may be read into the main provision from its inception, but where an amendment effects a substantive change increasing tax burden it cannot be given retrospective effect. The Tribunal observed that the amendment could not be applied retrospectively to the prejudice of the assessee and, following the Tribunal's earlier reasoning in the assessee's AY 2008 09, declined to give retrospective effect to the Finance Act, 2011 changes. Consequently, grounds premised on retrospective application were rejected. [Paras 11]

Amendment brought by Finance Act, 2011 is not to be given retrospective effect so as to change taxability for the year; Revenue's grounds 3, 4 and 6 are dismissed.

Interest under Section 234B where payer fails to deduct TDS - liability depends on assessee's role in securing lower/no deduction certificate - Whether interest under Section 234B is chargeable where tax was not deducted at source by the payer, and whether the assessee had any role in procuring a certificate for lower or no deduction. - HELD THAT: - Relying on precedents of the jurisdictional High Court and the Delhi High Court, the Tribunal noted that where the non resident assessee had no role in causing lower or no deduction of tax at source, interest under Section 234B is not chargeable; the payer who defaulted can be proceeded against under Section 201. However, because factual circumstances might differ year to year, the Tribunal remitted the question to the Assessing Officer to verify whether the assessee obtained any certificate for lower or no deduction or otherwise played a role in securing lower/no deduction. If no such role or certificate is shown, Section 234B interest is not chargeable. [Paras 11]

Issue remanded to the Assessing Officer to verify whether the assessee procured lower/no deduction certificate or played any role; if not, no interest under Section 234B is chargeable.

Final Conclusion: For assessment year 2009 10 the Tribunal: (i) upheld inclusion of mobilisation charges in the Section 44BB aggregate and dismissed the assessee's appeal on that point; (ii) affirmed that income from hiring/provision of vessels and equipment is taxable under Section 44BB and dismissed Revenue's related grounds; (iii) held that the Finance Act, 2011 amendment is not to be given retrospective effect for the year and rejected Revenue's contention on that basis; and (iv) remitted the question of levy of interest under Section 234B to the Assessing Officer for factual verification of any role by the assessee in obtaining lower/no deduction, directing that no interest would be chargeable if no such role or certificate is established.

Valuation by District Valuation Officer for capital gains purposes - Fair market value as on 01.04.1981 for computation of capital gains - Reference to Valuation Officer under section 55A in relation to valuation dispute - Sham transaction / tax avoidance doctrine in relation to capital loss disallowance - Bad debts written off in accounts as sufficient evidence of irrecoverability - Cessation of liability and the ambit of section 41(1) - Deduction under section 35DDA for VRS payments - Allowability of expenses under section 43B where payment made before filing return - Business character of communication, vehicle running and staff welfare expenditures

Valuation by District Valuation Officer for capital gains purposes - Fair market value as on 01.04.1981 for computation of capital gains - Reference to Valuation Officer under section 55A in relation to valuation dispute - Whether the additions on account of long term and short term capital gains based on the DVO report could be sustained without affording adequate opportunity of hearing and proper valuation material - HELD THAT: - The Tribunal found that the DVO's valuation was arrived at on the basis of subjective local inquiry without cogent documentary comparables and that both the Assessing Officer and the DVO had not afforded adequate opportunity of hearing to the assessee. Given these infirmities and the factual matrix (including the assessee's reliance on an approved valuer and its book treatment), the Tribunal concluded that the matter required fresh adjudication by the CIT(A) after providing proper opportunity to the parties to address valuation aspects. The Tribunal therefore restored the matter to the CIT(A) for fresh decision on grounds 1 and 2. [Paras 11]

Matter remanded to the CIT(A) to decide afresh on valuation and the additions for capital gains after giving adequate opportunity of hearing.

Sham transaction / tax avoidance doctrine in relation to capital loss disallowance - Whether the claimed long term capital loss arising from sale of shares to Shri Vinay Kumar Gupta was a genuine transaction or a sham transaction arranged to create a tax loss - HELD THAT: - The Assessing Officer recorded contemporaneous material (bank statements, cheque movement and failure of summoned parties to appear) which, in the AO's view, established that the Rs.5,00,000 receipt and payments reflected a contrived arrangement. The Tribunal held that the AO's conclusions were supported by cogent reasons: unexplained source of purchaser's funds, suspicious timing of bank credits and debits, and the incongruity of selling long-held subsidiary shares at a loss when large funds were otherwise available. On this basis the Tribunal sustained the AO's disallowance and determined ground No.3 in favour of the Revenue. [Paras 12]

Addition sustained; the long term capital loss disallowance upheld as a sham transaction.

Bad debts written off in accounts as sufficient evidence of irrecoverability - Whether the assessee's claim for write off of bad debts, recorded as irrecoverable in its books, could be disallowed for lack of independent proof of irrecoverability - HELD THAT: - Relying on the legal position that after 1 4 1989 a debt written off as irrecoverable in the assessee's accounts is, in principle, sufficient for allowability, the Tribunal observed that the assessee had written off the debts in the books for the relevant year. The Tribunal found no reason to interfere with the CIT(A)'s deletion of the addition and held that the A.O. could not sustain disallowance merely for want of further proof where the write off was reflected in accounts. [Paras 14]

Addition on account of bad debts deleted; claim upheld in favour of the assessee.

Cessation of liability and the ambit of section 41(1) - Whether unilateral entries/time barred debts amount to cessation of liability attracting section 41(1) - HELD THAT: - The Tribunal applied the settled principle that expiry of the limitation period does not extinguish the debt and that a unilateral entry in the books does not by itself extinguish liability. Noting that the liabilities remained on the balance sheet and were not shown to have ceased, the Tribunal agreed with the CIT(A) that section 41(1) was not attracted and therefore the addition could not be sustained. [Paras 15]

Addition under section 41(1) deleted; finding in favour of the assessee.

Deduction under section 35DDA for VRS payments - Whether VRS payments for financial year 2000 01 could be disallowed because section 35DDA came into effect from 01.04.2001 - HELD THAT: - The Tribunal observed that the Assessing Officer's addition flowed from an erroneous interpretation. The availability of the deduction is to be considered in the appropriate assessment year (2001 02) when section 35DDA became effective, and the payment represented a consequential claim. Moreover, the AO had earlier allowed VRS payment in an earlier year. The Tribunal found no reason to upset the CIT(A)'s deletion of the addition. [Paras 16]

VRS deduction upheld; addition deleted in favour of the assessee.

Allowability of expenses under section 43B where payment made before filing return - Whether late deposit of employees' PF contribution made shortly after due date but before filing return could be disallowed as business expenditure - HELD THAT: - Applying the settled rule that liabilities deductible under section 43B are allowable if paid before the filing of the return, the Tribunal noted that the PF amount, though deposited after the due date, was paid before filing the return for the relevant year. Accordingly, the Tribunal affirmed the CIT(A)'s deletion of the addition. [Paras 17]

Addition for late PF deposit deleted; deduction allowable.

Business character of communication, vehicle running and staff welfare expenditures - Whether the Assessing Officer rightly disallowed portions of communication, vehicle running, staff welfare and conveyance expenses as non business/personal - HELD THAT: - The Tribunal held that the AO's disallowances were speculative and based on estimation despite acceptance of books of account and explanations. For a company (a juristic person) such expenditures could not be lightly characterized as personal without tangible material. The Tribunal also relied on earlier favourable findings in the assessee's own cases and coordinate precedents to conclude there was no justification to interfere with the CIT(A)'s deletions. [Paras 18, 19]

Additions on account of communication, vehicle running, staff welfare and conveyance expenses deleted; findings upheld for the assessee.

Final Conclusion: The Revenue's appeal was partly allowed: grounds 1 and 2 (valuation for capital gains based on DVO report and related additions) are remanded to the CIT(A) for fresh adjudication after affording opportunity of hearing; ground 3 (sham sale of shares) is decided for the Revenue and the long term capital loss disallowed; grounds 4 to 9 are decided against the Revenue and the respective additions are deleted. Appeal disposed of partly in favour of the Revenue and partly for statistical purposes.

Short term capital loss claimed on sale of shares - sham transaction / booking artificial loss - lock-in period restriction on transfer of preferential shares - tripartite agreement cannot override statutory prohibition - lifting the corporate veil in related party share transactions - disallowance under section 14A in absence of exempt income - applicability of Rule 8D

Short term capital loss claimed on sale of shares - sham transaction / booking artificial loss - lock-in period restriction on transfer of preferential shares - tripartite agreement cannot override statutory prohibition - lifting the corporate veil in related party share transactions - Claim of short term capital loss of Rs. 4,84,73,750/- on sale of preferential shares was held to be not allowable as the sale was a sham transaction effected during the lock in period between related/group companies. - HELD THAT: - The Tribunal recorded that the preferential allotment to Harprashad & Co. Pvt. Ltd. carried an express lock in until 30.03.2009 and the share certificates bore the prohibition on sale, hypothecation or transfer during that period. The assessee relied on a tripartite agreement and bank payments to contend beneficial ownership and genuineness of purchase and subsequent sale back to the allottee. The Tribunal agreed with the AO and CIT(A) that a private tripartite arrangement cannot override the statutory prohibition contained in the SEBI/ allotment conditions and therefore the alleged purchase could not vest lawful transferable title in the assessee prior to expiry of the lock in. The Tribunal further noted transactions were between group entities having common management, the sale was at a price lower than exchange prices on the date, and the assessee gave contradictory and misleading explanations (including inconsistent dates and inadequate evidence of an urgent tax liability). On these facts the Tribunal concluded the transactions were arranged to create an artificial loss and were sham, permitting the authorities to look behind form to substance and to lift the corporate veil. Consequently the loss was disallowed as not a genuine capital loss. [Paras 9, 11, 12, 13, 21]

Disallowance of the entire claimed short term capital loss was upheld; grounds 1 and 2 dismissed.

Disallowance under section 14A in absence of exempt income - applicability of Rule 8D - Disallowance of expenditure under section 14A (read with Rule 8D) of Rs. 8,48,019/- was deleted because no exempt income was claimed or required to be excluded. - HELD THAT: - The Tribunal noted it was undisputed that the assessee had not claimed any exempt income for AY 2009 10 and that the dividend income shown had been included in and taxed as business income. Relying on the legal proposition from the cited precedent of the Jurisdictional High Court, the Tribunal held that where there is no exempt income, no disallowance under section 14A read with Rule 8D can be made. On that basis the assessment addition under section 14A was set aside. [Paras 22, 23]

Addition under section 14A read with Rule 8D deleted; ground 3 (and 4 to the extent argued) allowed.

Final Conclusion: Appeal partly allowed: disallowance of the claimed short term capital loss was sustained as the sale was held a sham effected during the statutory lock in between related parties; disallowance under section 14A was deleted because no exempt income was claimed for AY 2009 10.

Bogus purchases - verifiability of purchases - confrontation/cross-examination of third-party witness - application of reasonable profit rate on unverifiable purchases - acceptance of sales as a check on acceptance of purchases

Bogus purchases - confrontation/cross-examination of third-party witness - verifiability of purchases - Validity of addition of entire purchase value to income where AO relied on a third party statement and information not confronted to the assessee - HELD THAT: - The Tribunal held that the Assessing Officer made the addition of the entire purchase value of Rs. 2,38,86,670/- primarily on the basis of a statement attributed to the proprietor of M/s Riddhi Siddhi Enterprises and communications from another tax office, without giving the assessee an opportunity to confront or cross examine the third party or supplying the material relied upon. The CIT(A) examined bank records, books and the stock register and found no defect in sales, and that payments and receipts flowed through banking channels. Where sales are accepted and no defects in books or heavy unexplained cash deposits are shown, purchases characterized as "unverifiable" cannot legally be added in full to the assessee's income merely on the basis of third party assertions. The Tribunal agreed that findings recorded in the third party's assessment cannot be generalized to substitute for independent enquiry in the assessee's case and that the AO had not established that withdrawals by the third party were routed back to the assessee. On this basis the Tribunal deleted the addition made by the AO. [Paras 4, 6]

Addition of entire purchase value deleted.

Application of reasonable profit rate on unverifiable purchases - acceptance of sales as a check on acceptance of purchases - Appropriate treatment where purchases are unverifiable but sales and trading results are accepted - HELD THAT: - The CIT(A) had treated the disputed purchases as unverifiable and, instead of adding full purchase value, applied a net profit rate of 5% on the unverifiable purchases and sustained that amount as income. The Tribunal analysed the legal correctness of adding the entire purchase value and held that when sales and stock records are accepted and no infirmity in books is demonstrated, the proper judicial course is not to add the entire purchase value; a reasonable profit rate may be considered if necessary. However, on the facts of the case - including accepted sales, banking channel transactions and lack of evidence that monies returned to the assessee - the Tribunal followed the view taken in a closely related decision and ultimately deleted the addition sustained by the CIT(A). [Paras 4, 6]

Direction to apply a notional profit rate was not upheld as a basis to sustain any addition; the Tribunal deleted the addition.

Reliance on findings in another assessee's proceeding - independent enquiry - Whether findings recorded against M/s Riddhi Siddhi Enterprises could be imported wholesale into the assessee's assessment - HELD THAT: - The Tribunal held that findings recorded in the assessment of the third party reflected that party's specific circumstances and conduct and could not be generalized or mechanically applied to the assessee's case without independent enquiry. The AO had not conducted any independent verification in the assessee's records to establish that the purchases were bogus, and therefore the third party's statement and related assessment findings could not justify the impugned addition in the assessee's assessment. [Paras 6]

Findings in the third party's assessment cannot be used as a substitute for independent enquiry in the assessee's case.

Procedural grounds not raised before CIT(A) - Whether ground relating to telescopy (ground no.7) arises from the CIT(A)'s order - HELD THAT: - The Tribunal observed that ground no.7 raised by the Revenue did not arise from the order of the CIT(A) and therefore was not entertainable in the appeal. [Paras 7]

Ground no.7 dismissed as not arising from the CIT(A)'s order.

Final Conclusion: The Department's appeal is dismissed; the addition of the disputed purchases to the assessee's income is deleted and grounds 1 to 6 of the appeal are disallowed, while ground 7 is dismissed for not arising from the CIT(A)'s order.

Deemed dividend under section 2(22)(e) - advance versus business/trade advance - adjustment of advance against dues in ordinary course of business - noscitur a sociis in construing 'advance' - year of taxation/realisation of payment by cheque - proportionate addition based on shareholding

Deemed dividend under section 2(22)(e) - advance versus business/trade advance - adjustment of advance against dues in ordinary course of business - noscitur a sociis in construing 'advance' - year of taxation/realisation of payment by cheque - proportionate addition based on shareholding - Whether the sum of Rs. 2 crores received by the partnership firm from Pudhari Publications Pvt. Ltd. and routed back as share application money constitutes a deemed dividend in the hands of the assessee under section 2(22)(e), and whether the transaction is taxable in Assessment Year 2008-09. - HELD THAT: - The Tribunal found on facts that Shri Chhatrapati Press and Pudhari Publications Pvt. Ltd. carried on continuous and substantial printing and related business with recurring bills between the parties and that the Rs. 2 crores was adjusted against printing labour charges and not repaid as a loan. Applying the line of authorities culminating in CIT v. Creative Dyeing and Printing Pvt. Ltd., the Tribunal held that sums advanced in the ordinary course of commercial business transactions, which are intended to be adjusted against dues for job work, do not fall within the mischief of section 2(22)(e). The Tribunal relied on the principle that the word 'advance' must be construed in the company of 'loan' (noscitur a sociis) and that the deeming provision targets arrangements by closely held companies to distribute accumulated profits in the guise of loans/advances where there is an obligation to repay. The assessee's contention that the cheques were encashed later and therefore taxable in a subsequent year was not treated as determinative because the parties had recognised the transactions in their books as at 31-03-2008 and the amount was shown adjusted against the bills; the departmental representative did not controvert that adjustment. Given these findings and the precedent, the Tribunal concluded that the Rs. 2 crores did not qualify as deemed dividend under section 2(22)(e) and thus was not taxable for AY 2008-09 under that head. The Tribunal accordingly set aside the authorities' orders and directed deletion of the addition. [Paras 24, 26, 28]

The addition of Rs. 2 crores under section 2(22)(e) is deleted; the amount is held to be part of commercial business transactions/adjustment against dues and not a deemed dividend for AY 2008-09.

Final Conclusion: Appeal allowed; the Tribunal set aside the CIT(A)'s order, deleted the addition made under section 2(22)(e) and directed the Assessing Officer to give effect to the deletion for Assessment Year 2008-09.

Reopening of assessment and validity of notice under section 147/148 - Application of the first proviso to section 147 where return was processed under section 143(1) - Deductibility of commission and after sales service fees as business expenditure under section 37 - Scope of the Explanation to section 37 regarding payments made for an offence or prohibited by law - Admissibility and probative value of affidavit evidence in income tax proceedings - Principle of consistency in revenue treatment of recurring business expenditures - Computation of profit on transfer of DEPB for adjusted profit under section 80HHC

Reopening of assessment and validity of notice under section 147/148 - Application of the first proviso to section 147 where return was processed under section 143(1) - Validity of reassessment notices issued under section 148 and reopening under section 147 for AY 2002-03 and AY 2003-04 - HELD THAT: - The Tribunal held that where the original returns were processed and accepted under section 143(1) the assessing officer had no prior opportunity to form an opinion and therefore the restriction of the first proviso to section 147 (which applies where an assessment has been made under section 143(3)) does not preclude reopening after four years. The Tribunal applied the reasoning of the Apex Court in DCIT v. Juari State Development and Investment Co. Ltd. and concluded that initiation of proceedings and issuance of notices under section 148 for both assessment years were valid; the assessee's contention that reopening was invalid for being based on retrospective amendment or for lack of disclosure was rejected. [Paras 11, 12, 13]

Reopening and notices under section 147/148 held valid for AY 2002-03 and AY 2003-04; assessee's grounds attacking reopening dismissed.

Deductibility of commission and after sales service fees as business expenditure under section 37 - Admissibility and probative value of affidavit evidence in income tax proceedings - Principle of consistency in revenue treatment of recurring business expenditures - Allowability of commission payments (other than ASSF to Iraq) debited as commissions and direction to allow on merits - HELD THAT: - On the evidence produced (contracts, ledgers, bank advices, confirmations and affidavit) and noting past departmental allowance of similar commissions, the Tribunal agreed with the CIT(A) that the commission payments debited under the head 'commissions' were bona fide business expenditure deductible under section 37. The AO's conclusion that recipients were unverifiable and services not rendered was not sustainable in view of the documents placed on record and the longstanding business practice; accordingly the Tribunal upheld deletion of the AO's disallowance of Rs. 59,13,059/- (i.e. directed AO to allow such commissions). The Tribunal emphasized that consistency of departmental treatment and documentary proof satisfied the requirements for deductibility. [Paras 26, 28, 29]

Part of the AO's disallowance (commissions other than ASSF to Iraq) deleted; CIT(A)'s allowance of those commissions upheld.

Deductibility of commission and after sales service fees as business expenditure under section 37 - Scope of the Explanation to section 37 regarding payments made for an offence or prohibited by law - Admissibility and probative value of affidavit evidence in income tax proceedings - Allowability of After Sales Service Fees (ASSF) paid in respect of exports to Iraq for AY 2002-03 - HELD THAT: - Applying the legal principle developed by the coordinate Kolkata bench and upheld by the Calcutta High Court, the Tribunal held that payments made in the course of bona fide business (including payments under the UN 'Oil for Food' regime) are deductible under section 37 unless it is established that the assessee was a willing participant in illegal payments. The AO did not show that the assessee knowingly made kickbacks or was a willing partner in illegality; the assessee had produced contracts, UN approvals, ledgers, bank remittances, confirmations and an affidavit of the managing director which were not controverted. The CIT(A)'s upholding of part disallowance was founded on a factual misreading of the affidavit (erroneous finding that no sales to Iraq were made). In view of the documentary record and applicable precedents the Tribunal held the ASSF payments allowable and directed the AO to allow them for AY 2002-03. [Paras 33, 35, 43, 46]

Disallowance of ASSF relating to supplies to Iraq for AY 2002-03 set aside; ASSF allowed as deductible business expenditure.

Remand for fresh adjudication - Disposition of the claim relating to ASSF and related adjustments for AY 2003-04 - HELD THAT: - The Tribunal noted that the ground for AY 2003-04 on ASSF was similar to that in the connected appeal (AY 2004-05) and, since the matter for AY 2004-05 had been restored to the file of the AO for fresh adjudication, the Tribunal applied that outcome mutatis mutandis. Accordingly the Tribunal treated the assessee's ground for AY 2003-04 as restored/dealt with in line with the order for AY 2004-05 and recorded it as a matter to be proceeded with in accordance with the tribunal's direction in the related matter. [Paras 49]

Ground in respect of AY 2003-04 deemed to be allowed for statistical purposes in line with the tribunal's order for AY 2004-05 (restored to AO for fresh adjudication in related proceedings).

Computation of profit on transfer of DEPB for adjusted profit under section 80HHC - Nature of profit on transfer of DEPB to be included for computing adjusted profit under section 80HHC - HELD THAT: - Relying on the Supreme Court authority in Topman Export v. CIT, the Tribunal affirmed that only the difference between the sale value and the face value of DEPB constitutes 'profit on transfer' and that only this profit element (not the entire sale proceeds) should be considered for computing the adjusted profits under section 80HHC. The CIT(A)'s direction to the AO to consider only the profit element was upheld. [Paras 53, 54]

Only the surplus (sale value minus face value) on transfer of DEPB is to be treated as profit for adjustment under section 80HHC; CIT(A)'s direction upheld.

Final Conclusion: The Tribunal upheld the validity of reopening for AY 2002-03 and AY 2003-04; it allowed the assessee's claim in part by directing deletion of the AO's disallowance of ordinary commission payments and, on merits for AY 2002-03, held ASSF relating to supplies to Iraq allowable as business expenditure (disallowance vacated). The AY 2003-04 ASSF issue was dealt with in conformity with a related restoration to the AO. The CIT(A)'s direction that only the profit element on transfer of DEPB be considered for computing adjusted profit under section 80HHC was affirmed. Appeals of the revenue were dismissed.

Taxability of capital gains under Article 13(5) of the India-Netherlands DTAA - scope of "reorganization" / "reorganisation" exception in Article 13(5) - tendering of shares under a buy back as transfer - concessional tax rate under the second proviso to section 112 - double taxation relief under section 90 and DTAA purpose

Taxability of capital gains under Article 13(5) of the India-Netherlands DTAA - tendering of shares under a buy back as transfer - Capital gain on tendering shares to the Indian company under the buy back is taxable in India under Article 13(5) of the India-Netherlands DTAA. - HELD THAT: - The Tribunal agreed with the revenue that Article 13(5) permits taxation in the State where the company is resident if shares forming part of at least 10% of capital are alienated to a resident of that State. The assessee tendered shares to Century Enka Ltd (an Indian resident) under a court approved buy back scheme, which amounted to transfer of shares notwithstanding subsequent cancellation by the company. The Tribunal rejected the contention that absence of taxability in the Netherlands precluded taxation in India, noting that taxability in one country is not a precondition for treaty application. The Tribunal also held that there is no colourable device apparent on the facts and proceeded to apply the Treaty provision to hold the gains taxable in India. [Paras 11, 15, 16]

The capital gains arising from the buy back/tendering of shares are taxable in India under Article 13(5) of the India-Netherlands DTAA.

Scope of "reorganization" / "reorganisation" exception in Article 13(5) - definition of reorganization and scheme of arrangement - The transfer by tendering shares under the buy back scheme did not fall within the "reorganization" exception in Article 13(5). - HELD THAT: - The Tribunal examined whether the assessee's transfer formed part of a corporate "reorganization" as contemplated by the Treaty. Applying definitions and authorities, it found that a reorganization requires a major change in the financial structure resulting in alteration of rights and interests of security holders. The buy back in this case provided an exit route to non resident shareholders and, although it resulted in reduction of paid up capital by cancellation of purchased shares, it did not effect a fundamental alteration of shareholders' rights or constitute financial restructuring of the company. The Tribunal therefore upheld the finding that the transaction did not qualify as a reorganization within Article 13(5). [Paras 12, 13, 15, 16]

The reorganization exception in Article 13(5) is not attracted to the assessee's buy back/tendering transaction.

Concessional tax rate under the second proviso to section 112 - application of precedent on concessional rate - The assessee is entitled to the concessional rate of tax of 10% under the second proviso to section 112 on the impugned capital gains. - HELD THAT: - The revenue's challenge to the CIT(A)'s allowance of the concessional rate was considered. The Tribunal agreed with the CIT(A), relying on the Delhi High Court decision in Cairn U.K. Holdings Ltd and the Tribunal's follow on authority, as correctly applied by the CIT(A). On that basis the Tribunal held that the assessee was entitled to the concessional 10% tax rate on the capital gains. [Paras 17]

The assessee is entitled to tax the capital gains at the concessional rate of 10% under the second proviso to section 112.

Final Conclusion: The Tribunal upheld the taxability of the capital gains in India under Article 13(5) of the India-Netherlands DTAA and held that the buy back/tendering did not qualify as a "reorganization" exception; however, the assessee is entitled to tax the gains at the concessional 10% rate under the second proviso to section 112. Both appeals are dismissed.

Levy of fee under section 234E for defaults in furnishing statements - Scope of adjustments permissible under section 200A while processing TDS statements - Impossibility of raising demand under section 234E by intimation under section 200A as it stood before amendment - Appealability of intimation under section 246A(a)

Levy of fee under section 234E for defaults in furnishing statements - Scope of adjustments permissible under section 200A while processing TDS statements - Impossibility of raising demand under section 234E by intimation under section 200A as it stood before amendment - Legality of an intimation issued under section 200A that effects a demand by way of fee under section 234E as the law stood at the relevant time. - HELD THAT: - As the law stood prior to the amendment of section 200A effective 1 June 2015, processing of a TDS statement under section 200A permitted adjustments only for arithmetical errors, incorrect claims apparent from the statement, and interest computed on the basis of sums deductible as computed in the statement. There was no provision in section 200A then to compute or adjust a fee under section 234E. Consequently an intimation under section 200A which raised a demand by way of fee under section 234E exceeded the limited scope of adjustments authorised by section 200A and was not legally sustainable. Further, intimation under section 200A is subject to the one year time bar from the end of the financial year in which the statement is filed; where the statement was filed before the amendment introducing express provision for section 234E adjustments, that time window had lapsed and the defect could not be cured by subsequently enacted provisions. The Commissioner (Appeals) erred in upholding the levy without examining whether section 200A then authorised such an adjustment; the correct approach is to test the impugned levy by reference to the scope of section 200A as it existed at the relevant time.

The levy of fee under section 234E made by way of intimation under section 200A (as it stood prior to its amendment effective 1 June 2015) is unsustainable and is deleted; the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, deleting the fee charged under section 234E which was raised by an intimation under section 200A issued before the amendment of section 200A effective 1 June 2015, on the ground that section 200A then did not permit such an adjustment.

Capital asset - transfer under section 2(47) - part performance under section 53A of the Transfer of Property Act - extinguishment or relinquishment of rights - transaction enabling enjoyment of immovable property - agreement to sell as assignment of capital rights - registration requirement and proviso to section 49 of the Registration Act - taxability in the year of transfer - sham transaction/ genuineness of agreement

Capital asset - agreement to sell as assignment of capital rights - extinguishment or relinquishment of rights - Rights acquired by SDS under the agreement dated 4.4.2008 are of capital nature. - HELD THAT: - The Tribunal held that the rights assigned by the assessee to SDS under the agreement dated 4.4.2008 constitute a right of capital nature within the meaning of the expression "capital asset". Such a right is enforceable under the Specific Relief Act (suit for specific performance within the limitation period) and, on relinquishment or transfer, would attract capital gains treatment. The decision drew on precedents where courts treated rights arising under agreements to sell (and their subsequent relinquishment or assignment) as capital assets, and concluded that the assessee's proprietary interest was curtailed by the agreement such that the right vested with SDS is a capital right. [Paras 14]

The right acquired by SDS under agreement dated 4.4.2008 is a capital asset.

Transfer under section 2(47) - part performance under section 53A of the Transfer of Property Act - transaction enabling enjoyment of immovable property - Execution of the agreement dated 2.3.2009 together with handing over of possession completed a transfer within the meaning of section 2(47)(v) and (vi) of the Income Tax Act. - HELD THAT: - The Tribunal analysed the widened statutory definition of "transfer" (including sub-clauses (v) and (vi)) and the Board's explanatory circular, concluding that transactions whereby possession is allowed to be taken or arrangements enabling enjoyment of immovable property fall within section 2(47). On the facts, the agreement dated 2.3.2009 involved delivery of possession and obligations to obtain permissions and thereby effected a transfer for tax purposes even though legal conveyance under general property law may have occurred later. [Paras 21]

The agreement dated 2.3.2009 with delivery of possession amounted to a transfer under section 2(47)(v) and (vi).

Registration requirement and proviso to section 49 of the Registration Act - sham transaction/ genuineness of agreement - taxability in the year of transfer - The agreements of 4.4.2008 and 2.3.2009 were not to be ignored as sham; the AO's addition of the disputed capital gain to the assessee's income was deleted. - HELD THAT: - The Tribunal rejected the CIT(A)'s reasons for treating the agreements as non-genuine. It observed that non-registration does not invalidate enforceability of an agreement for specific performance (proviso to section 49 permits unregistered agreements to be evidence in suits for specific performance) and that statutory provisions restricting enforcement (e.g., tenancy laws) do not prevent entering into contracts nor necessarily render them void. The Tribunal also examined surrounding circumstances relied upon by the Revenue (funding from related concerns, rapid price rise) and found they did not establish sham transactions. Applying legal precedents and the principle that the expanded definition of "transfer" is designed to tax such arrangements in the year they are effected, the Tribunal found the assessee was wrongly assessed on the basis of the AO's conclusions and deleted the addition. [Paras 31, 32, 33]

The addition of Rs. 6,83,09,792/- as short term capital gain in the hands of the assessee is deleted and the appeal is allowed.

Final Conclusion: The Tribunal held that the rights under the 4.4.2008 agreement were capital in nature and that the 2.3.2009 agreement with delivery of possession constituted a transfer under section 2(47); however, on the facts the agreements were not sham and the addition of the disputed capital gain to the assessee's income for Asstt.Year 2010-2011 was deleted and the appeal allowed.

Deduction under section 80IB - Income from sale of scrap as part of industrial undertaking - By-product receipts included in profits of industrial undertaking - Manufacturing activity in notified/backward area qualifying for 80IB

Deduction under section 80IB - Income from sale of scrap as part of industrial undertaking - By-product receipts included in profits of industrial undertaking - Income from sale of scrap of the assessee's manufacturing unit is eligible for deduction under section 80IB for Asst. Year 2009-10. - HELD THAT: - The Tribunal examined whether receipts from sale of scrap arising in or proximate to the assessee's manufacturing activities fall within the gains of the industrial undertaking for the purpose of computing deduction under section 80IB. The Tribunal relied on earlier decisions of the jurisdictional High Court in Harjivandas Juthabhai Zaveri & Others and in CIT vs. Jikar A. Saiyed, and the decision of the Delhi High Court in Commissioner of Income Tax vs. Sadhu Forging Limited, holding that amounts realised from sale of empty containers, waste, or scrap which are incident to or generated by the manufacturing process form part of the profits of the industrial undertaking and are therefore eligible for deduction under section 80IB. Applying that ratio to the facts - where the assessee's manufacturing activity was accepted as eligible for 80IB and it derived income from sale of scrap from the manufacturing unit - the Tribunal held that such scrap receipts are integrally connected to the manufacturing activity and fall within the ambit of gains derivable from the industrial undertaking for computing the deduction under section 80IB. The Tribunal also noted and followed its coordinate decision in ACIT vs. Standard Oil & Greases which took the same view and rejected the Revenue's reliance on contrary coordinate orders and precedents such as D.P. Agrawal. [Paras 5, 6, 7, 9]

Revenue's disallowance of deduction in respect of scrap sales is rejected and such receipts are held eligible for deduction under section 80IB for AY 2009-10.

Final Conclusion: The Revenue's appeal is dismissed; income from sale of scrap of the assessee's manufacturing unit is held to be includible within gains of the industrial undertaking and eligible for deduction under section 80IB for Asst. Year 2009-10, in view of the cited High Court and Tribunal precedents.

Deduction under section 80P(2)(a)(i) - profits and gains attributable to business - meaning of "attributable to" versus "derived from" - interest income from fixed/short term bank deposits - exemption of interest income of co operative credit societies

Deduction under section 80P(2)(a)(i) - interest income from fixed/short term bank deposits - profits and gains attributable to business - Whether interest earned by a credit co operative society on funds deposited with scheduled banks is deductible under section 80P(2)(a)(i) as profits and gains attributable to the business of providing credit facilities to members. - HELD THAT: - The Tribunal examined whether interest on amounts deposited in banks by a co operative credit society constitutes profits and gains "attributable to" the activity of providing credit facilities to members and therefore qualifies for deduction under section 80P(2)(a)(i). Relying on the wider import of the expression "attributable to" (as distinguished from the narrower "derived from"), the Tribunal followed High Court authority which held that where deposits represent operational/business funds (not liabilities or amounts retained on behalf of members) and are invested temporarily because they were not immediately required for lending, the interest thereby earned is attributable to the society's credit business. The Tribunal distinguished Totgars (Supreme Court) on the facts: in Totgars the funds were retained amounts payable to members (liabilities) and hence interest was not attributable to the business activity under section 80P; that decision was confined to its facts and did not lay down a rule barring deduction in cases where invested funds are operational business funds. The Tribunal also followed co ordinate Bench decisions which accepted that liquid/operational funds of a credit society parked in bank deposits to meet business exigencies give rise to interest that is part of business profits attributable to providing credit. Applying these principles to the facts, the Tribunal held the interest in dispute arises from operational funds of the credit society and is deductible under section 80P(2)(a)(i). [Paras 5, 6, 7, 8]

Interest earned on short term/bank deposits held out of operational funds of the credit co operative society is deductible under section 80P(2)(a)(i) as profits and gains attributable to the business of providing credit facilities; the assessee's appeal is allowed.

Final Conclusion: The appeal is allowed: the Tribunal directs the AO to grant exemption under section 80P(2)(a)(i) in respect of the interest income earned on bank deposits which were operational business funds of the co operative credit society for Asstt.Year 2012-13.

Failure to realize export proceeds within the prescribed or extended period under Section 18 of FERA - presumption of contravention arising from non-repatriation of export proceeds - post adjudication realization and admissibility of additional evidence at appellate stage - time is of the essence in economic offences - mitigation of penalty in quasi criminal fiscal proceedings

Failure to realize export proceeds within the prescribed or extended period under Section 18 of FERA - presumption of contravention arising from non-repatriation of export proceeds - time is of the essence in economic offences - Adjudicating Authority's finding of contravention of provisions of FERA for non-realization of export proceeds was upheld. - HELD THAT: - The Tribunal found undisputed that export proceeds were not realized within the statutory six month period or any extended period. The Adjudicating Authority considered the appellants' submissions and correspondence but concluded that the efforts were inadequate, and that RBI had denied extension requests. Given the statutory scheme and the stringent character of FERA, the non repatriation within the prescribed time gave rise to the presumption of contravention and the Adjudicating Authority's conclusion of guilt was held to be legally sustainable. [Paras 15, 16, 17]

Findings of contravention under FERA were affirmed.

Post adjudication realization and admissibility of additional evidence at appellate stage - post adjudication realization does not erase the fact of non compliance within the statutory period - Realization of export proceeds after the adjudication does not negate the earlier contravention, but appellate court may admit and consider such evidence. - HELD THAT: - The Tribunal declined to remit the matters to the Adjudicating Authority after long delay and held that an appellate court, having admitted additional evidence, may itself evaluate its consequences. While the appellants established that substantial realization occurred post adjudication (many years later), such belated recovery does not cure the failure to comply within the prescribed or extended period; therefore it does not vitiate the finding of contravention. The court nevertheless retained discretion to consider subsequent realization when determining appropriate relief or mitigation. [Paras 13, 14, 15]

Post adjudication realization does not undo the contravention, but the appellate tribunal may consider it for purposes of relief.

Mitigation of penalty in quasi criminal fiscal proceedings - penalty discretion to be exercised in view of all relevant circumstances - Penalties imposed by the Adjudicating Authority were excessive and were reduced by the Tribunal. - HELD THAT: - Recognising that penalty proceedings are quasi criminal and that imposition of penalty calls for consideration of all relevant circumstances, the Tribunal took into account the substantial post adjudication realization and other equities (age of appellant, closure of business, long delay). While upholding the finding of contravention, the Tribunal exercised its discretion to reduce each monetary penalty to one half of the amount originally imposed as a just and fair measure given the subsequent recovery of foreign exchange and the passage of time. Directions were given for deposit of the modified penalties within one month. [Paras 18, 19, 20]

Penalties modified - each penalty reduced to one half of the amount originally imposed; findings of contravention maintained.

Final Conclusion: Appeals partly allowed: Adjudicating Authority's findings of contravention under FERA affirmed; admitted post adjudication realizations did not negate the contraventions but were considered for relief; penalties imposed by the Adjudicating Authority are reduced to one half and appellants directed to deposit the modified amounts within one month.

Taxability of construction services - construction for educational or charitable purposes versus commercial or industrial construction - refund of service tax where service was not ultimately borne by recipient - relevance of approved building plan and statutory approvals to determine end-use - effect of credit note/refund adjustment on recovery from service recipient

Construction for educational or charitable purposes versus commercial or industrial construction - relevance of approved building plan and statutory approvals to determine end-use - Whether construction of the college building undertaken for a public charitable trust and approved for educational use falls within taxable commercial or industrial construction services - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) finding that the building constructed by the respondent was a college building used to provide technical education, with approval from AICTE and the Technical & Higher Education Department of the State, and that the service recipient is an established charitable trust registered under the Bombay Public Trust Act, 1950. The approved building plan and the trust's constitution (showing sole educational objects and restrictions on surplus application) demonstrate that the structure was to be used for non-commercial, educational purposes. Applying these facts, the Tribunal concluded that the works do not constitute "commercial or industrial construction" and thus do not attract service tax as commercial or industrial construction services; settled precedents addressing construction for educational or charitable institutions were found applicable.

Construction of the college building for the charitable trust, shown by approved plan and statutory approvals to be used for education, is not taxable as commercial or industrial construction; refund of service tax paid in respect thereof is warranted.

Refund of service tax where service was not ultimately borne by recipient - effect of credit note/refund adjustment on recovery from service recipient - Whether the service tax paid by the respondent is refundable where the respondent issued a credit note/adjustment and did not recover the tax from the service recipient - HELD THAT: - The Tribunal accepted the Commissioner (Appeals) finding that the respondent had issued a credit adjustment to the service recipient and thereby refunded the service tax and interest to the recipient (despite a mislabelled document). There was no dispute on the record that the respondent did not collect the tax from the recipient. Given the absence of collection from the recipient and the nature of the transaction established by documentary evidence, the Tribunal held that the service tax so paid was refundable to the respondent.

Amount of service tax paid by the respondent is refundable because it was not collected from the service recipient and was refunded/adjusted by issuance of a credit.

Final Conclusion: The Tribunal upheld the Commissioner (Appeals) order setting aside the adjudicating authority's rejection of the refund claim, held that construction of the college building for a registered charitable trust is not taxable as commercial or industrial construction, and ruled that the service tax paid (which was not collected from the recipient and was refunded/adjusted) is refundable; the Revenue's appeal is dismissed.

Exemption under notifications - Cenvat credit - reversal of Cenvat credit - recovery and coercive enforcement of duty - prima facie case and issuance of rule - interim relief

Exemption under notifications - Cenvat credit - reversal of Cenvat credit - recovery and coercive enforcement of duty - interim relief - Grant of interim protection restraining coercive recovery of duty pending adjudication of the applicant's challenge to denial of exemption and consequences of Cenvat credit reversal. - HELD THAT: - The respondents issued show cause notices proposing denial of the exemption claimed by the applicant under the relevant notifications and sought recovery of the duty allegedly payable, principally on the ground that the applicant had utilized Cenvat credit and could not suo motu reverse such credit. The Tribunal, on the merits, had earlier held in favour of the applicant and allowed the benefit of the exemption notifications. Having considered the submissions and the fact that the applicant had deposited a part of the claimed amount pending the appeal before the Tribunal, the High Court found that a prima facie case was made out for interim protection. On that basis the Court issued a rule returnable and granted ad interim relief restraining enforcement of coercive recovery pursuant to the impugned order, in the terms sought in the application (paragraph 11A).

Rule issued returnable on 1st March, 2016; ad interim relief granted restraining coercive recovery in terms of paragraph 11A of the application.

Final Conclusion: The High Court, recording a prima facie case and noting the Tribunal's favourable finding on exemption, granted ad interim protection restraining coercive recovery and issued a rule returnable on 1 March 2016.

Discrimination under Article 14 - judicial review of delegated legislation - exemption notification for small scale industries - treatment of exports to Nepal - rebate under Rule 18 of the Central Excise Rules - exports on furnishing bond under Rule 19 of the Central Excise Rules

Treatment of exports to Nepal - exemption notification for small scale industries - discrimination under Article 14 - Validity of the words "and Nepal" in Explanation (G) to Notification No.8/2003-C.E. insofar as they require inclusion of clearances for export to Nepal within the SSI exemption limit. - HELD THAT: - The Court found that prior to 01.03.2012 exports to Nepal were treated as domestic clearances because of a bilateral regime under which excise duty collected by India on goods exported to Nepal was passed to Nepal. Following revision of the Indo-Nepal trade arrangements, the Government amended notifications under Rules 18 and 19 to place exports to Nepal on parity with exports to other countries (rebate under Rule 18 and export on bond under Rule 19 effective 01.03.2012). Despite this change, Notification No.8/2003 retained an Explanation treating clearances for export to Nepal as "clearances for home consumption" and thus includable for computing the Rs.150 lakh SSI exemption limit. The Court held that, having placed exports to Nepal on par with other exports, continuation of a special inclusion of Nepal in the SSI exemption notification created an unjustified sub classification among SSI units and produced differential treatment between otherwise similarly situated manufacturers. Applying settled principles on the limited but real scope of judicial review of delegated legislation, and the requirement that exemption notifications, once granted to a class, not discriminate between similarly situated members of that class, the Court concluded that the reference to "and Nepal" in Explanation (G) had become redundant and discriminatory after 01.03.2012 and therefore was unconstitutional from that date. The Court relied on the factual matrix of amendments effectuating parity for Nepal and on authorities acknowledging that exemption notifications are amenable to review when they result in invidious discrimination. [Paras 19, 20, 21]

The phrase "and Nepal" in Explanation (G) to Notification No.8/2003-C.E. is declared unconstitutional with effect from 01.03.2012; consequent departmental orders based on inclusion of exports to Nepal in computing the SSI exemption are set aside.

Final Conclusion: The expression "and Nepal" in Explanation (G) to SSI Notification No.8/2003-C.E. is declared unconstitutional with effect from 01.03.2012; the impugned Order in Original and Appellate Order are invalidated and the petitions are allowed.

Modvat credit - procedural non-compliance of Rule 57T(1) and 57T(2) - vagueness of show cause notice - benefit of credit not to be denied for procedural lapse - Board circulars condoning procedural lapses - precedents permitting condonation of procedural lapses

Modvat credit - procedural non-compliance of Rule 57T(1) and 57T(2) - benefit of credit not to be denied for procedural lapse - Board circulars condoning procedural lapses - Denial of Modvat credit on capital goods solely for non-filing of declarations under Rule 57T(1) and intimation under Rule 57T(2). - HELD THAT: - The Tribunal found that both lower authorities disallowed Modvat credit on capital goods only on the ground that declarations under Rule 57T(1) and intimations under Rule 57T(2) were not filed. The Court held that filing of such declarations is a procedural requirement and that denial of substantial benefit of Modvat on account of this procedural lapse is not warranted. Reliance was placed on the Board's clarifications (circulars) which treat non-filing as a procedural lapse that should not defeat the grant of credit, and on precedents upholding condonation of such lapses. Consequently, Modvat credit could not be denied merely because the requisite forms were not furnished in the prescribed format when the defect was procedural and curable. [Paras 6]

Modvat credit could not be denied solely for non-filing of Rule 57T(1)/57T(2) declarations; the denial on this ground is unsustainable.

Vagueness of show cause notice - Modvat credit - Validity of the show cause notice which did not specify the particular capital goods in respect of which declarations were alleged to be missing. - HELD THAT: - The Tribunal observed that the show cause notice was vague and failed to identify which capital goods lacked the requisite declaration, rendering it impossible to ascertain the precise basis of the demand. In absence of a specific description, the notice appeared to be founded on assumption or presumption rather than concrete allegations. Given this absence of particularity and that it was undisputed the assessee had filed declarations in respect of various capital goods and spares, the demand based on such a vague notice could not be sustained. [Paras 6, 7]

The show cause notice was deficient for want of particularity and therefore the demand based thereon could not be upheld.

Final Conclusion: Impugned order setting aside the modvat credits was found unsustainable on the grounds that denial rested solely on procedural non-compliance and on a vague show cause notice; the appeal was allowed and the demand set aside.

Eligibility for tax exemption - eligibility certificate issued by Khadi and Village Industries Commission - retrospective operation of certificate - strict application of exemption conditions - departmental recall of wrongly granted exemption

Eligibility for tax exemption - eligibility certificate issued by Khadi and Village Industries Commission - retrospective operation of certificate - strict application of exemption conditions - Whether a dealer is disentitled from claiming the exemption under the Government circular for failure to have an eligibility certificate issued by the Commission prior to 1.4.2006 where the dealer applied in time but the Commission issued the certificate belatedly with retrospective effect - HELD THAT: - The Court examined the eligibility condition in the Government circular requiring that a registered dealer who is a manufacturer must have obtained the Eligibility Certificate from the Commission prior to 1.4.2006 in order to claim the exemption. While acknowledging that exemption conditions are to be applied strictly, the Court held that the phrase requiring that the certificate be obtained prior to 1.4.2006 must be read in the context of the manufacturer's practical ability, which is to apply to the Commission and await its decision. The Court found no record support for the Tribunal's presumption that the petitioner had not applied in time or failed to fulfil the Commission's requirements; the Department did not contend that the petitioner was late, and the Commission confirmed timely application. Given that the Commission ultimately issued a certificate operative for the period 25th December, 2005 to 24th December, 2008, the Court concluded that mere delay by the Commission in issuing the certificate should not defeat the petitioner's entitlement to the exemption, and the Department's cancellation of the exemption was therefore erroneous. [Paras 7, 8, 9]

The impugned orders cancelling the exemption are quashed and the petitions are allowed.

Final Conclusion: The High Court held that where a manufacturer applied in time and met the Commission's requirements, a belated issuance of an eligibility certificate by the Commission (albeit after 1.4.2006) but covering the relevant earlier period cannot be allowed to defeat the claim for exemption; the orders cancelling the exemption were quashed.

Detention of vehicle with goods - Safeguards for release pending assessment - Security deposit towards possible tax liabilities - Proof of delivery requirement - Expeditious completion of assessment - Protection of revenue interest

Detention of vehicle with goods - Safeguards for release pending assessment - Security deposit towards possible tax liabilities - Proof of delivery requirement - Expeditious completion of assessment - Appropriateness of releasing the detained truck and goods and the conditions to be imposed to safeguard revenue pending completion of assessment - HELD THAT: - The Court recognised that detention of a vehicle with goods is an extreme measure which requires strong material to justify irreversible interference, while also acknowledging the legitimate concern to protect the revenue where transporters or dealers may be untraceable at assessment. Balancing these considerations, the Court directed the release of the truck with goods subject to protective conditions: (a) deposit of an amount equal to 15% of the dealer's price of Rs. 3,22,410/- with the department as security for possible tax liabilities, to be made by the specified date; (b) retention of the deposit by the department towards possible liabilities and adjustment upon completion of assessment; (c) disclosure of full name, address and details of the originating dealer and the consignee; (d) production of proof of delivery to the consignee by the specified date; and (e) completion of assessment proceedings expeditiously and preferably within three months. These directions collectively operate as interim safeguards to protect the revenue while permitting release of the vehicle and goods. [Paras 3, 4]

Truck and goods released subject to deposit of security, provision of dealer/consignee details, production of proof of delivery by the dates directed, and expeditious completion of assessment by the department.

Final Conclusion: Writ petition disposed by directing release of the detained vehicle with goods on specified conditions (security deposit at 15% of the stated dealer price, disclosure of dealer/consignee details, production of proof of delivery) and by directing the department to complete assessment expeditiously, preferably within three months.

Existence of Hindu Undivided Family (HUF) - partition decree binding for quantification of HUF properties - assessment of assets in hands of HUF versus individual - remand to Assessing Officer to verify source of funds and quantify agricultural income - protective assessment

Existence of Hindu Undivided Family (HUF) - partition decree binding for quantification of HUF properties - Existence of M.N. Navale (Bigger HUF) and effect of partition decree on ownership of disputed assets - HELD THAT: - The Tribunal noted that a Coordinate Bench had accepted the existence of the M.N. Navale Bigger HUF in ITA No. 149/PN/2010; consequently the existence of the HUF is no longer in dispute. While the partition decree was relied upon by the assessee to demonstrate HUF ownership of the listed assets, the decree itself was not placed before this Bench; nevertheless, the Tribunal accepted the earlier finding that the partition decree is sacrosanct and binds tax authorities to the extent of quantification of HUF properties. The Tribunal therefore treated the question of HUF existence and the binding character of the earlier determination as settled for the purposes of these appeals. [Paras 5]

Existence of the Bigger HUF accepted and the earlier finding on partition decree's effect taken as binding.

Assessment of assets in hands of HUF versus individual - remand to Assessing Officer to verify source of funds and quantify agricultural income - protective assessment - Whether the disputed assets are to be included in the net wealth of the HUF or in the hands of the individual assessee - HELD THAT: - The Tribunal affirmed the Commissioner of Wealth Tax (Appeals)'s approach of remitting the matter to the Assessing Officer to ascertain whether the HUF had adequate source of funds to acquire the disputed assets. The Commissioner directed that if the quantification exercise-principally by estimating agricultural income generated from lands held by the HUF and matching reinvestments and other available funds-establishes that the HUF furnished the sources for acquisition, the assets are to be treated as HUF wealth on substantive assessment. Conversely, to the extent the AO's exercise does not establish availability of funds in the HUF, those assets (or the balance) should be included in the net wealth of the individual. The Tribunal found no infirmity in this remand direction and characterized the order as reasoned and justified, thereby dismissing the appeals against the remand. [Paras 5, 6, 12]

Matter remitted to the Assessing Officer to verify and quantify HUF sources; assets to be assessed in HUF if sources match, otherwise included in individual's net wealth.

Final Conclusion: The Tribunal dismissed the appeals as devoid of merit, upheld the Commissioner (A)'s remand to the Assessing Officer to verify and quantify HUF sources of acquisition (principally agricultural income) and directed that assets be treated as HUF wealth if matched by such sources, or otherwise included in the individual's net wealth.