TaxTMI Updates e-Newsletter
Feb 19,2021

Pre-deposit under the Goods and Services Tax regime - time for deposit under Section 78 of the Goods and Services Tax Act - bank guarantee encashment and its quashing - interference with enforcement steps pending statutory appeal

Pre-deposit under the Goods and Services Tax regime - bank guarantee encashment and its quashing - time for deposit under Section 78 of the Goods and Services Tax Act - Direction to the bank to encash the bank guarantee and forward the demand draft to the State Tax Officer was quashed and set aside, with the petitioner permitted to maintain the bank guarantee pending filing of appeal. - HELD THAT: - The Court, having considered the statutory scheme providing for pre-deposit and the period available to the assesseee under Section 78 of the GST Act for making the deposit as per assessment, held that the impugned direction to the 2nd respondent-bank to encash the bank guarantee and remit the proceeds to the 1st respondent was per se illegal. In view of the statutory protection afforded by the provisions governing pre-deposit and the time granted to the petitioner to deposit the assessed amount and prosecute the statutory appeal, the Court stayed the enforcement step of encashing the bank guarantee and directed that the petitioner shall continue the bank guarantee until the filing of the appeal. The order of the tax authority in Ext.P3 to the extent directing encashment was therefore quashed and set aside, while the petitioner's obligation to maintain the bank guarantee was preserved to secure the revenue during the pendency of appellate remedy. [Paras 4]

The direction to encash the bank guarantee is quashed; the bank shall not comply with that direction and the petitioner shall continue the bank guarantee until filing of the appeal.

Final Conclusion: Writ petition allowed: the order directing encashment of the bank guarantee is quashed and set aside; the bank is restrained from complying with that direction and the petitioner is permitted to keep the bank guarantee in force until filing of the statutory appeal.

Statutory requirement of personal hearing before suspension of GST registration - suspension of registration under second proviso to Section 29(2) of the CGST Act - Rule 21A - hearing prior to suspension (pre-amendment) - judicially mandated remand for adjudication of cancellation with reasoned order

Statutory requirement of personal hearing before suspension of GST registration - Rule 21A - hearing prior to suspension (pre-amendment) - Validity of suspension of petitioner's GST registration effected from 2nd December, 2020 without a personal hearing - HELD THAT: - When the show cause notice in Form GST REG-17 dated 2nd December, 2020 was issued, Rule 21A (pre-amendment) required that a personal hearing be afforded before suspension of registration under the second proviso to Section 29(2) of the CGST Act. No personal hearing was given to the petitioner prior to the suspension recorded with effect from 2nd December, 2020. The court declined to enter into the merits of the cancellation proceedings themselves but held that the statutory precondition of a personal hearing for suspension had not been complied with and therefore the suspension portion of the show cause notice was legally infirm.

Suspension of registration effected from 2nd December, 2020 is set aside for non-compliance with the statutory requirement of a personal hearing.

Judicially mandated remand for adjudication of cancellation with reasoned order - suspension of registration under second proviso to Section 29(2) of the CGST Act - Procedure to be followed for adjudication of the cancellation show cause notice dated 2nd December, 2020 - HELD THAT: - The court refrained from adjudicating the merits of the cancellation notice and directed that the authority empowered under the statute must adjudicate the show cause notice after giving the petitioner a personal hearing in terms of Section 29(2) of the CGST Act. The authority is directed to issue a specific notice of date and time well in advance, conclude the hearing within three weeks from the date of the order, and thereafter pass a reasoned order. The authority remains free to pass appropriate orders if the petitioner fails to participate in the hearing. The court left all substantive points in respect of cancellation open for the statutory authority to decide.

Matter remitted to the concerned authority for fresh adjudication of the cancellation after affording personal hearing and for passing a reasoned order within three weeks.

Final Conclusion: The court set aside the suspension of GST registration effected on 2nd December, 2020 for failure to afford the statutory personal hearing, and remitted the cancellation show cause notice to the competent authority to be adjudicated after giving a personal hearing and passing a reasoned order within three weeks; other substantive points were left open.

Recovery during search/inspection proceedings - Voluntary payment after completion of search proceedings - Grievance/complaint mechanism for alleged forced payments - Disciplinary action for officers violating prescribed directions - Issuance of administrative guidelines/circulars by the Central Board of Indirect Taxes and Customs and Chief Commissioner

Recovery during search/inspection proceedings - Voluntary payment after completion of search proceedings - Grievance/complaint mechanism for alleged forced payments - Disciplinary action for officers violating prescribed directions - Interim directions to the tax administration prescribing conduct and remedies in relation to payment/recovery during search/inspection proceedings under the GST law. - HELD THAT: - The Court, on an interim basis, directed the Central Board of Indirect Taxes and Customs and the Chief Commissioner of Central/State Tax of Gujarat to issue suitable guidelines/circulars prescribing that: no recovery by cheque, cash, e-payment or adjustment of input tax credit shall be made at the time of search/inspection proceedings; where an assessee offers voluntary payment by filing Form DRC-03 during the search, the assessee should be advised to file such form on the next day after the search proceedings conclude and after the visiting officers have left the premises; a facility to file a complaint/grievance after the conclusion of the search should be made available to an assessee who alleges it was forced to make payment during the search; and where a complaint establishes that an officer acted contrary to these directions, strict disciplinary action should be initiated against the concerned officer. These interim directions were issued to govern administrative practice during searches and to provide a post-search remedy and disciplinary consequence for non-compliance. The operative directions were recorded as part of the Court's order and will be considered further after the respondents and departmental officers rejoin the proceedings as directed. [Paras 2]

Interim order directing the revenue authorities to issue guidelines containing the four specified measures, and directing reappearance of officers for further consideration.

Final Conclusion: Interim directions were issued to the Central Board of Indirect Taxes and Customs and the Chief Commissioner (Central/State Tax, Gujarat) to frame and circulate guidelines prohibiting recoveries during search/inspection, providing for deferred voluntary payment, a post-search grievance mechanism, and disciplinary consequences for contraventions; officers are to rejoin the hearing and the matter is posted for further consideration on 18/02/2021.

Urgent notice - Service by email - Direct service - Video conferencing appearance - Interim directions - Allegations of harassment, threats and coercion

Urgent notice - Service by email - Direct service - Issuance of urgent notice and authorization of direct service by email to respondents. - HELD THAT: - The Court directed that urgent notice be issued to the respondents and expressly permitted direct service on the day of the order by email. The direction for direct electronic service was ordered as an interim procedural step to ensure prompt notice to the respondents and to make the matter returnable on the specified date. [Paras 1]

Urgent notice to be issued and respondents to be served directly by email today; matter returnable on 16th February 2021.

Video conferencing appearance - Interim directions - Allegations of harassment, threats and coercion - Direction for respondents Nos.3, 4 and 5 to appear before the Court by video conferencing for questioning in light of allegations of harassment and coercion. - HELD THAT: - Having recorded serious allegations of threats, pressure and coercion against respondents Nos.3, 4 and 5, and noting similar matters in which those respondents were directed to appear, the Court directed that respondents Nos.3, 4 and 5 shall appear via video conferencing on the returnable date so that limited questions may be put to them. This is an interim investigatory procedural direction aimed at enabling the Court to address the allegations promptly. [Paras 2]

Respondents Nos.3, 4 and 5 to appear before the Court through video conferencing on 16th February 2021 for the Court to put questions regarding the allegations.

Interim directions - Service of paper book - Substitution in service of the petitioners' paper book to the Standing Counsel due to the Additional Solicitor General's hospitalization. - HELD THAT: - The Court considered the practical difficulty caused by the hospitalization of the Additional Solicitor General and directed that, in the circumstances, the petitioners shall serve one copy of the entire paper book on the Standing Counsel who ordinarily appears with the Additional Solicitor General. This is a limited procedural direction to ensure the respondents' counsel receive the papers for the hearing. [Paras 3]

Petitioners to serve one copy of the entire paper book on the Standing Counsel today in place of the hospitalized Additional Solicitor General.

Final Conclusion: The Court issued urgent notice returnable on 16th February 2021 with direct service by email permitted; directed respondents Nos.3, 4 and 5 to appear by video conferencing on that date in view of allegations of harassment; and ordered service of the paper book on the Standing Counsel owing to the Additional Solicitor General's hospitalization.

Prohibition on initiation of proceedings by another proper officer on the same subject matter under Section 6(2)(b) of the CGST Act, 2017 - overlapping investigations and jurisdictional competence of DGGI - misuse of Input Tax Credit - cognizability and punitive nature of alleged contraventions under the CGST Act, 2017

Prohibition on initiation of proceedings by another proper officer on the same subject matter under Section 6(2)(b) of the CGST Act, 2017 - overlapping investigations and jurisdictional competence of DGGI - misuse of Input Tax Credit - Whether investigations by DGGI, Ludhiana and DGGI, Bhopal into alleged misuse of Input Tax Credit are barred by Section 6(2)(b) of the CGST Act, 2017 as overlapping proceedings already initiated by the Commissioner, CGST, Kanpur. - HELD THAT: - The petition challenged summons and investigations on the ground that once the 'proper officer' (Commissioner, CGST, Kanpur) had initiated proceedings, no other officer could initiate proceedings on the same subject matter under Section 6(2)(b). The Court examined the factual matrix as set out in the respondents' reply and found that the investigations by the different authorities related to distinct transactions and suppliers: DGGI, Ludhiana alleged transfer of fraudulent ITC from the petitioner to a sister concern owned by his wife; the Commissioner, CGST, Kanpur's inquiry arose from information about fake availment of ITC from a set of firms in Kanpur/Agra; and DGGI, Bhopal's probe concerned purchases from a separate supplier. On this basis the Court concluded there was no impermissible overlap of subject matter attracting Section 6(2)(b). The Court also noted that the alleged contraventions are prima facie cognizable and punitive under the CGST law, and accepted the respondent's assurance that investigations would not encroach upon matters already under inquiry by other competent authorities. For these reasons the constitutional challenge to the summons and investigations was rejected.

The investigations and summons issued by DGGI, Ludhiana and DGGI, Bhopal are not barred by Section 6(2)(b) and are not interfered with; the writ petition is dismissed.

Final Conclusion: The writ petition seeking quashing of summons and restraint on investigations is dismissed; the High Court found that different competent officers are investigating distinct subject matters and that the investigations are not hit by Section 6(2)(b) of the CGST Act, 2017.

Validity of provisions relating to anti-profiteering under Section 171 of the Central Goods and Services Tax Act - challenge to rules governing anti-profiteering inquiries under the Central Goods and Services Tax Rules - scope of liability of a franchisor for anti-profiteering in respect of multiple franchisees - issuance of notice and interim directions for production of franchise agreements

Issuance of notice and interim directions for production of franchise agreements - Application for exemption from filing was allowed and interim procedural directions were issued. - HELD THAT: - The Court allowed the exemption application subject to just exceptions and extant rules and disposed of that application. The petition challenging statutory provisions was taken at the stage of notice, the Court issued notice which was accepted by respondent counsel, and directed the petitioner to place before the Court, before the next date, the agreement or arrangement with the foreign trademark holder and a sample franchise/sub-franchise agreement or be prepared to state that the agreements are common.

Exemption application allowed; notice issued and interim direction to produce franchise/trademark agreements given.

Validity of provisions relating to anti-profiteering under Section 171 of the Central Goods and Services Tax Act - challenge to rules governing anti-profiteering inquiries under the Central Goods and Services Tax Rules - scope of liability of a franchisor for anti-profiteering in respect of multiple franchisees - Challenge to the anti-profiteering provision and Rules admitted for adjudication but not decided on merits; matter is at notice stage and directed to be placed for further hearing after production of documents. - HELD THAT: - The petition raises substantive questions concerning the provisions of Section 171 of the CGST Act and Rules 126, 128 and 133 of the CGST Rules, and the petitioner contends that as franchisor it cannot be subjected to enquiries in respect of over 500 franchises. The Court has not adjudicated the merits of these contentions; instead, it issued notice, recorded acceptance by respondent counsel, and required production of the trademark/franchising arrangements and a sample franchise agreement to facilitate further consideration at the next hearing.

Substantive challenge admitted for consideration; directed steps for further adjudication (production of agreements) and listed for further hearing.

Final Conclusion: The Court allowed the exemption application, issued notice in the challenge to anti profiteering provisions and Rules (matter at notice stage), and directed the petitioner to produce the trademark/franchise agreements or file a representative statement before the next hearing; matter listed for further consideration.

Provisional attachment of bank account - defreeze by efflux of time - withholding of IGST refund in respect of zero-rated supplies - departmental inquiry into alleged risky exporters - completion of inquiry within a fixed time-frame - opportunity of hearing before final withholding of refund

Provisional attachment of bank account - defreeze by efflux of time - Whether the bank account attached under the CGST Act would remain attached or get defreezed on expiry of the statutory period. - HELD THAT: - The Court noted that the statutory period for keeping the bank account attached would expire on 25/02/2021 and therefore the bank account attached as on date would get defreezed by efflux of time. The Court did not quash the attachment proceedings but recorded that the attachment will cease by operation of law on the stated date.

The attachment will cease and the bank account will be defreezed on expiry of the statutory period (25/02/2021); the attachment proceedings were not quashed.

Withholding of IGST refund in respect of zero-rated supplies - departmental inquiry into alleged risky exporters - completion of inquiry within a fixed time-frame - opportunity of hearing before final withholding of refund - Validity and continuance of withholding the IGST refund pending departmental inquiry and the manner and timeframe in which the inquiry should be concluded. - HELD THAT: - The Court recognised the respondents' ongoing preliminary inquiry into the writ-applicant's dealings which led to classification as a 'risky exporter' and accepted that the inquiry may continue. However, the Court directed that the inquiry must not be indefinite: it must be completed within eight weeks from the date of the order, after which the department shall take an appropriate decision in accordance with law. The Court further directed that if incriminating material emerges and the department intends to withhold the refund permanently, the writ-applicant must be afforded an opportunity of hearing before any final decision is taken.

Inquiry to be completed within eight weeks; department to take appropriate decision thereafter; if decision to permanently withhold refund is contemplated upon incriminating material, an opportunity of hearing must be given before the final decision.

Final Conclusion: Writ petition disposed: attachment will cease by efflux of time on 25/02/2021 and the bank account will be defreezed; the departmental inquiry concerning the IGST refund shall be completed within eight weeks and a reasoned, lawful decision taken thereafter, with an opportunity of hearing before any final permanent withholding of refund.

Jurisdiction to inquire into export under the Customs Act - interference with exclusive functions of the Customs Authority - legal effect of an E-way bill on export - impleadment of the Deputy Commissioner of Customs for adjudication - interim protection against summons and harassment

Jurisdiction to inquire into export under the Customs Act - interference with exclusive functions of the Customs Authority - legal effect of an E-way bill on export - interim protection against summons and harassment - Validity of respondent No.2's inquiry into export and its direction to the Customs Authority, and interim restraint on summoning the writ applicant. - HELD THAT: - The Court examined whether respondent No.2 possessed any authority to inquire into the export of goods or to instruct the Customs Authority to withhold refund of IGST. The Court found no satisfactory basis for respondent No.2's purported intervention into matters falling within the domain of the Customs Authority. The Court observed that once an E-way bill is generated, the export cannot be lightly disputed by a non-Customs authority and any doubt as to export is for the Customs Authority to investigate. It was noted that goods initially detained at respondent No.2's instance were subsequently cleared and exported by Customs, undermining respondent No.2's asserted supervisory role. In view of these conclusions, and to prevent undue harassment pending final hearing, the Court restrained respondent No.2 from summoning the writ applicant until the next date of hearing. [Paras 2, 4, 6]

Respondent No.2 has no demonstrated jurisdiction to interfere with Customs' functions in relation to export; until hearing, respondent No.2 shall not summon the writ applicant.

Impleadment of the Deputy Commissioner of Customs for adjudication - interference with exclusive functions of the Customs Authority - Requirement to implead the Customs Authority and give it opportunity to be heard. - HELD THAT: - The Court directed that the Customs Authority be added as a party so that the authority whose jurisdiction and conduct are central to the controversy may be heard. The learned counsel for the writ applicant was asked to implead the Deputy Commissioner of Customs, Air Cargo Complex, Old Airport, Ahmedabad, as respondent No.3 and amend the cause title. Notice to the newly added party was directed to be issued and the matter listed for final hearing on the specified date, with priority on the board. [Paras 5, 6]

Deputy Commissioner of Customs, Air Cargo Complex, Ahmedabad, to be impleaded as respondent No.3; notice returnable on 23.02.2021 and matter to be finally heard on that date.

Final Conclusion: Draft amendment permitted; the Court restrained respondent No.2 from summoning the writ applicant pending final hearing, directed impleadment and notice to the Deputy Commissioner of Customs, and listed the matter for final hearing on 23.02.2021.

Provisional attachment to protect revenue - Temporary/Provisional attachment ceasing after one year - Right to operate bank accounts following expiry of provisional attachment - Mandamus to defreeze bank accounts

Temporary/Provisional attachment ceasing after one year - Right to operate bank accounts following expiry of provisional attachment - Provisional attachment of the petitioners' bank accounts under Section 83 of the PGST Act ceased after one year and the banks/respondents must permit operation of the accounts. - HELD THAT: - The Court applied the statutory proviso embodied in subsection (2) of Section 83 of the PGST Act, under which every provisional attachment made under subsection (1) ceases to have effect after the expiry of one year from the date of the order of attachment. Relying on the reasoning in A.P. Steels (as cited in the judgment), the Court held that the provisional attachment dated 13.06.2019 no longer subsisted after the one-year period and therefore could not lawfully continue. In consequence, and absent any continuing statutory basis for the attachment, the respondents (including the banks) were directed to defreeze the accounts and allow the petitioners to operate them forthwith.

Writ petitions allowed; respondents directed to permit operation of the petitioners' bank accounts and to defreeze the accounts immediately.

Final Conclusion: The provisional attachment of the petitioners' bank accounts under Section 83 expired after one year; the writ petitions are allowed and the respondents/banks are directed to defreeze the accounts and permit their operation forthwith.

Rate of Goods and Services Tax - Charging provision under Central Goods and Services Tax Act - Tax liability upon supply or receipt of payment - Determination of tax rate included in tender - Interim stay on coercive recovery

Rate of Goods and Services Tax - Charging provision under Central Goods and Services Tax Act - Tax liability upon supply or receipt of payment - Determination of tax rate included in tender - Disputed question whether GST at 12% or 18% is payable on the contract and whether the tender submitted by the petitioner incorporated GST at 12% or 18%. - HELD THAT: - The court recorded that the petitioner was awarded the contract on 14.10.2017 and that a notification dated 22.08.2017 reduced the GST rate from 18% to 12%. The petitioner contends liability arises on supply or receipt of payment (whichever is earlier) and that the relevant date falls after the notification, attracting 12%. The respondents contend the contract requires payment including GST at 18% and that tenders had contemplated the 18% rate. The Court found this to be a disputed factual question which cannot be resolved on the papers and directed reciprocal affidavits so that the precise rate included in the tender and the factual matrix for the date of liability can be examined before final adjudication. The court therefore refrained from adjudicating the substantive tax liability on merits and ordered exchange of affidavits and listing for final disposal. [Paras 3, 5, 6, 8]

Remanded for factual determination: respondents to file a counter affidavit stating the rate included in the tender and the petitioner to file an affidavit clarifying its stand; matter listed for final disposal on exchange of affidavits.

Interim stay on coercive recovery - Whether coercive steps may be taken to realise the additional tax demanded pending disposal of the petition. - HELD THAT: - Having directed reciprocal affidavits and further hearing, the Court restrained the respondents from taking coercive measures to recover the claimed additional tax until further orders. The order preserves the petitioner's position while the factual dispute on the applicable rate is ventilated and determined. [Paras 9]

Until further orders no coercive steps shall be taken against the petitioner to realise any additional tax in connection with the disputed contract.

Final Conclusion: The petition raises a disputed factual question whether GST at 12% or 18% applies; the matter is directed to be resolved on exchange of affidavits (respondents to file counter affidavit and petitioner to file affidavit) and listed for final disposal, and meanwhile coercive recovery of the additional tax is stayed.

Summary order. Proceedings adjourned sine die. Court recorded that the validity/application of Rule 5A of the Service Tax Rules, 1994 has been earlier decided in favour of assessees by a Division Bench of the Delhi High Court but that decision is presently subject to a stay by the Supreme Court; parties are at liberty to list the matter after the Supreme Court's final adjudication.

Change of taxpayer status - procedural requirement for change of status - filing of returns as composite taxpayer - portal unlock for return filing - waiver of late fee and other charges

Change of taxpayer status - procedural requirement for change of status - Whether the respondents were entitled to change the petitioner's status in the GST portal from a composite taxpayer to a regular taxpayer without following the prescribed procedure and without producing any proceedings authorising such change. - HELD THAT: - The Court recorded that a prescribed procedure exists for changing the status of a taxpayer. The respondents have not been able to produce any proceedings or show compliance with the procedure that resulted in the petitioner's status being altered on the portal. On this basis the Court concluded that the authority concerned cannot lawfully change the petitioner's status without adopting the prescribed procedure, and that the respondents have not shown any valid proceeding effecting such change.

The change of the petitioner's status on the portal cannot be accepted in the absence of evidence of the prescribed procedure having been followed; respondents have not shown any such proceedings.

Filing of returns as composite taxpayer - portal unlock for return filing - waiver of late fee and other charges - Whether the petitioner can be permitted to file the pending returns from the quarter commencing 1st April, 2019 as a composite taxpayer and whether the portal can be directed to be unlocked to allow such filing without imposition of late fee or other charges, or alternatively how the filing may be permitted without such charges. - HELD THAT: - The Court did not decide this question on the merits. Instead, it directed that the respondents obtain instructions on two points: (i) whether any proceeding led to the change of status, and (ii) whether the system will allow filing of the pending returns as a composite taxpayer without late fees if the portal is unlocked up to 31st December, 2020, and if not, what alternative means exist to permit filing without late fee or other charges. The Court adjourned the matter to enable the respondents to take and place such instructions for effective adjudication.

Remanded to respondents for instructions on whether proceedings were initiated to change status and on technical or alternative means to allow filing of pending returns as a composite taxpayer without late fees up to 31st December, 2020.

Final Conclusion: The Court recorded that the prescribed procedure must be followed to change a taxpayer's status and that respondents have not produced any proceedings effecting the change; the matter is adjourned to 12th February, 2021 for respondents to take instructions on whether any proceeding was initiated and whether the portal can be unlocked or other means provided to permit filing of pending returns as a composite taxpayer without late fee or other charges up to 31st December, 2020.

Vires of sub-rule (10) of Rule 96 of the Central Goods and Services Tax Rules, 2017 - exemption from payment of Integrated Goods and Services Tax on goods imported under advance authorization - refund of IGST paid on goods imported under advance authorization - interim protection against recovery of tax

Interim protection against recovery of tax - refund of IGST paid on goods imported under advance authorization - Interim relief against recovery of IGST already paid on goods imported under advance authorization. - HELD THAT: - The petitioner challenged the vires of sub rule (10) of Rule 96, CGST Rules, 2017 and disputed a communication requiring it to clarify whether it sought exemption from IGST on imported goods under advance authorization or refund of IGST already paid. The petitioner informed the Court that it has already paid IGST and submitted that, at most, the impugned provision could have prospective effect. On consideration of the submissions and without adjudicating the merits of the vires challenge, the Court granted an interim measure restraining recovery of the IGST already paid by the petitioner on the goods imported under advance authorization until the next date of hearing. [Paras 7]

No recovery of IGST already paid by the petitioner on the goods imported under advance authorization shall be made till the next date.

Final Conclusion: Notice issued on the challenge to sub rule (10) of Rule 96, CGST Rules, 2017; interim protection granted against recovery of IGST already paid; matter adjourned to 16.03.2021 for further consideration.

Refund of GST - liability to pay tax - processing and disposal of refund application within statutory period - personal responsibility of officials for negligence - liberty to seek writ for inaction

Liability to pay tax - Liability to pay GST in respect of the transactions under the Act is upon the petitioner. - HELD THAT: - The Court recorded that it is not disputed between the parties that, for compliance with the Central Goods and Services Tax Act, 2017, the liability to pay the tax rests with the petitioner. The observation is recorded as a factual concession and forms the basis for addressing the refund claim, rather than a fresh adjudication on tax liability.

The petitioner's liability to pay tax under the Act is acknowledged and recorded.

Refund of GST - processing and disposal of refund application within statutory period - Direction for initiation, processing and decision of the petitioner's refund application arising from the agreement dated 23.06.2016. - HELD THAT: - The Court directed the petitioner to initiate proceedings for refund under the Act within two weeks. It further directed that the application filed by the petitioner shall be processed and decided within four weeks thereafter or within the statutory period prescribed under the Act. The Court noted there was no material on record showing inaction by the authorities in processing the refund, but granted the directions to ensure expeditious disposal consistent with statutory timelines.

Petitioner to file refund application within two weeks; authorities to process and decide it within four weeks or the statutory period.

Personal responsibility of officials for negligence - liberty to seek writ for inaction - Consequences for failure to process the refund and preservations of remedies. - HELD THAT: - The Court warned that officials negligent in taking appropriate action shall be held personally responsible. The Court also granted liberty to the petitioner to file a writ petition in the event of the same and substantial inaction by the concerned authorities in processing or deciding the refund application. Additionally, the Court ordered that any amount deposited by the petitioner shall be processed along with the refund application.

Officials may be held personally responsible for negligence; petitioner granted liberty to move the Court for substantial inaction; deposited amounts to be processed with the refund claim.

Final Conclusion: Writ petition disposed by directing the petitioner to file a refund application within two weeks; the application to be processed and decided within four weeks or the statutory period; officials may be held personally responsible for negligent failure to act; petitioner granted liberty to approach the Court in case of substantial inaction; any deposited amount to be processed with the refund application.

Classification of composite supply - composite supply under Section 2(30) of the CGST Act - supply to State Government under Entry 28 of the Eleventh Schedule - tax rate contingent on sale component threshold under Notification No.12/2017 dated 28-06-2017 - manufacturing services on physical inputs (heading 9988) and applicable rate contention - summons and inquiry under Section 70 of the CGST Act - inquiry procedure and restrictions on personal attendance during pandemic

Classification of composite supply - composite supply under Section 2(30) of the CGST Act - tax rate contingent on sale component threshold under Notification No.12/2017 dated 28-06-2017 - manufacturing services on physical inputs (heading 9988) and applicable rate contention - The core dispute is classificatory - whether the transaction is a composite supply covered by supply to State Government attracting Nil/5% under the notification or whether it is to be taxed at 18% as manufacturing services. - HELD THAT: - The Court found that the transaction primarily raises a question of classification. The petitioners and SGST authorities treat the composite supply (PDS-related services) as supply to the State Government falling under Entry 28 of the Eleventh Schedule and, under the notification, attracting Nil rate if the sale component is not more than 25% and 5% if it exceeds that threshold. The CGST authorities contend the transaction is manufacturing services under the heading for services on physical inputs, attracting 18%. Given that the classification determines the applicable rate, the Court concluded that the initial step in the inquiry is to ascertain classification by examining the petitioners' documents and records and then, if classification is determined, to compute tax on the basis of transaction value and related scrutiny.

Classification is the determinative question and must be ascertained first by scrutiny of the petitioners' documents and records before any assessment of tax rate or quantum.

Summons and inquiry under Section 70 of the CGST Act - inquiry procedure and restrictions on personal attendance during pandemic - The procedural course of the ongoing inquiry and limits on requiring personal attendance during the document-production stage. - HELD THAT: - The Court directed that the petitioners produce the documents listed in Annexure-A to the summons dated 7th January, 2021 on the specified date and time through a proper officer. The Inquiry Officer shall receive and preliminarily scrutinise those documents and release the person producing them immediately without detaining them for recording evidence. After study of the produced documents the Inquiry Officer shall communicate whether further documents are required; the petitioners are bound to produce further requested documents in their possession. The Inquiry Officer shall not require personal presence of any officials of petitioner no.1 while the stage of document production continues; only after documents are examined will the officer call persons for recording statements or evidence. This modification was directed in view of the pandemic and to avoid multiple persons being called together at short notice.

Specific procedural directions issued: production of listed documents through a proper officer; immediate release of producing persons after preliminary scrutiny; no compulsory personal attendance during document-production stage; further documents to be demanded in writing after examination; persons to be called only after document scrutiny.

Final Conclusion: The writ petition was adjourned with liberty to mention; the Court ordered production and preliminary scrutiny of specified documents, confined personal attendance during the document-production stage in view of the pandemic, and directed that classification be ascertained first before determining the applicable tax rate and quantum.

Applicability of Section 50C of the Income Tax Act - Revision under Section 264 of the Income Tax Act - Penalty under Section 271(1)(c) of the Income Tax Act - Limitation for filing a revision application

Applicability of Section 50C of the Income Tax Act - The question whether the addition made under Section 50C should be sustained was not decided on merits and is remitted to the Principal Commissioner for fresh adjudication. - HELD THAT: - The Court recorded that the Principal Commissioner in the impugned order did not finally adjudicate the contention raised by the assessee concerning the applicability of the proviso to Section 50C (relating to stamp valuation on the date of agreement where payment was through account payee cheque/bank draft/ECS). Given that the coordinate Bench in the earlier order had remitted the matter to the Principal Commissioner for fresh consideration of Section 50C and the Principal Commissioner thereafter proceeded inconsistently by both rejecting the revision as time-barred and deciding merits without disposing consistently, the present Court held that the issue under Section 50C must be decided afresh by the Principal Commissioner in accordance with law. No opinion was expressed by this Court on the merits of the Section 50C controversy. [Paras 3, 4]

The issue under Section 50C is remitted to the Principal Commissioner for fresh consideration on merits.

Penalty under Section 271(1)(c) of the Income Tax Act - The question of imposing penalty under Section 271(1)(c) was not finally adjudicated and is remitted to the Principal Commissioner for fresh decision. - HELD THAT: - The Court observed that since the substantive issue under Section 50C is being sent back for fresh adjudication, the consequential question of the penalty imposed under Section 271(1)(c) arising out of the addition must also be reconsidered by the Principal Commissioner. The impugned order imposing penalty dated 20.03.2018 was therefore quashed to enable a coherent re-examination of both the substantive addition and the penalty. [Paras 3, 4]

The penalty matter is remitted to the Principal Commissioner to be decided afresh along with the Section 50C issue.

Limitation for filing a revision application - The Court confirmed that the question of limitation for filing the revision application stands concluded and shall not be re-opened by the Principal Commissioner while adjudicating the Section 50C issue. - HELD THAT: - The Court reiterated the clarification recorded by the coordinate Bench that, although the Principal Commissioner previously held the revision to be time-barred, the present remit is limited and does not permit the Principal Commissioner to re-open or re-examine the limitation question. The Court expressly stated that it has not expressed any opinion on the merits of the Section 50C issue and confined the Principal Commissioner to decide that issue on merits without revisiting the limitation conclusion. [Paras 4]

Limitation is concluded and shall not be re-opened by the Principal Commissioner in the fresh adjudication of Section 50C.

Final Conclusion: The impugned order dated 20.03.2018 is quashed and set aside; the matters relating to the applicability of Section 50C and the penalty under Section 271(1)(c) are remitted to the Principal Commissioner of Income Tax, Ahmedabad for fresh adjudication in accordance with law, with the limitation point kept closed.

Eligibility for depreciation on asset purchased through application of income - carry forward and set off of deficit of a charitable trust to subsequent years - application of precedents in tax exemption and income application contexts

Eligibility for depreciation on asset purchased through application of income - application of income by a charitable trust - Assessee-trust entitled to claim depreciation on asset purchased out of application of its income. - HELD THAT: - The Court accepted the assessee's submission that the question whether depreciation can be claimed on an asset acquired by applying the trust's income has been answered against the revenue by earlier authorities relied upon by the assessee. The Bench recorded that the substantial question of law on this point is covered by the decision in CIT Vs. RAJASTHAN & GUJARAT CHARITABLE FOUNDATION POONA and by this Court's earlier decision in DIT Vs. AL-AMEEN CHARITABLE FUND TRUST , and that the revenue did not dispute those precedents. Having regard to the reasoning in those decisions, the Court held that the Tribunal was correct in allowing depreciation when the asset was purchased through application of the trust's income.

Substantial question answered against the revenue; depreciation allowable on asset purchased by application of income.

Carry forward and set off of deficit of a charitable trust to subsequent years - treatment of deficits in exempt charitable trusts - Assessee-trust entitled to carry forward the deficit to subsequent years for set off against future income. - HELD THAT: - The Court noted that the second substantial question concerning the right to carry forward and set off deficits was similarly covered by decisions of this Court relied upon by the assessee. The Bench referred to CIT Vs. OHIO UNIVERSITY CHRIST COLLEGE and PCIT Vs. MANIPAL ACADEMY OF HIGHER EDUCATION , and observed that learned counsel for the revenue did not dispute the applicability of those rulings. On that basis, and for the reasons stated in the cited judgments, the Court held that the Tribunal's conclusion permitting carry forward of the deficit was correct.

Substantial question answered against the revenue; deficit may be carried forward for set off in subsequent years.

Final Conclusion: Both substantial questions of law framed on admission are answered against the revenue in view of the cited precedents; the appeal is dismissed in respect of Assessment Year 2009-10.

Disallowance under Section 11(1)(a) - application of Section 13(1)(c) read with Section 13(2) and Section 13(3) - revisional powers under Section 263 - limitation of denial of exemption to amount diverted

Disallowance under Section 11(1)(a) - application of Section 13(1)(c) read with Section 13(2) and Section 13(3) - limitation of denial of exemption to amount diverted - Whether the Tribunal was correct in restricting the disallowance of accumulation to the amount diverted for purchase of a car in the name of the trustee instead of denying exemption for the entire income under the provisions of Section 13. - HELD THAT: - The Tribunal examined earlier High Court decisions which held that where funds of a charitable trust are used for the benefit of a prohibited person (trustee) the denial of exemption under Section 11 read with Section 13 is to be confined to the amount actually diverted for the prohibited purpose rather than forfeiture of the entire income of the trust. Applying those authorities to the facts - viz., disallowance relating to expenditure for purchase of a car in the name of the trustee - the Tribunal restricted the disallowance to the diverted amount. The High Court, on review, found no error of law in the Tribunal's reliance on those precedents or in its conclusion limiting the disallowance, and expressly agreed with the decisions cited by the Tribunal. The High Court therefore upheld the Tribunal's approach of restricting the disallowance to the diverted amount rather than denying the entire exemption under Section 11. [Paras 11, 12, 13]

Tribunal's restriction of disallowance to the amount diverted for purchase of the car was correct and is upheld.

Revisional powers under Section 263 - disallowance under Section 11(1)(a) - Whether the Tribunal erred in not deciding the preliminary question of whether proceedings under Section 263 were rightly invoked by the CIT(Exemptions). - HELD THAT: - The Revenue challenged the Tribunal's failure to adjudicate whether the CIT(E) was justified in invoking revisional jurisdiction under Section 263 to direct a broader disallowance. The High Court confined its review to whether the Tribunal committed any error in its final order. Having found the Tribunal's substantive conclusion - limiting disallowance to the diverted amount - to be supported by binding precedents, the High Court held that no error of law existed in the Tribunal's disposition and did not find cause to fault the Tribunal for the course it adopted on the Section 263 contention. [Paras 10, 11, 14]

No error in the Tribunal's treatment; the Revenue's contention regarding invocation of Section 263 does not warrant interference.

Final Conclusion: The High Court upheld the Tribunal's order limiting the disallowance to the amount diverted for purchase of the car and found no error of law in the Tribunal's approach; the Revenue's appeal is dismissed.

Validity of reopening under section 148 - Sanction/satisfaction under section 151(1) proviso of the Income-tax Act - Reopening after four years from the end of the relevant assessment year - Applicability of higher authority's satisfaction irrespective of Assessing Officer's rank - Quashing of reassessment as void ab initio

Validity of reopening under section 148 - Sanction/satisfaction under section 151(1) proviso of the Income-tax Act - Reopening after four years from the end of the relevant assessment year - Applicability of higher authority's satisfaction irrespective of Assessing Officer's rank - Quashing of reassessment as void ab initio - Reopening of assessment under section 148 issued on 29.03.2014 for AY 2007-08 is invalid for want of the mandatory satisfaction of the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner required by the proviso to section 151(1). - HELD THAT: - The Tribunal examined Section 151 as it stood at the relevant time and noted that cases where an assessment under section 143(3) has been completed and a notice under section 148 is issued after the expiry of four years from the end of the relevant assessment year fall squarely under the proviso to section 151(1). The proviso mandates satisfaction of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner on the reasons recorded by the Assessing Officer before issuance of such a notice. This mandatory condition applies irrespective of the rank of the Assessing Officer who issues the notice. The CIT(A)'s contrary conclusion - that section 151(2) applied because the reopening was made by a Deputy Commissioner and therefore satisfaction of the Joint Commissioner sufficed - was held to be contrary to the statutory scheme and to the binding view of the jurisdictional High Court in Reliable Finhold Ltd. Consequently, because the Assessing Officer obtained only the satisfaction of the Joint Commissioner and not of the higher authority prescribed by the proviso to section 151(1), the reopening was invalid. Following this legal determination, the reassessment founded on that reopening was quashed as void ab initio. [Paras 9]

Reopening under section 148 quashed for non-compliance with proviso to section 151(1); consequent reassessment declared void ab initio.

Final Conclusion: The Tribunal allowed the appeal: the reopening dated 29.03.2014 was quashed for want of the mandatory satisfaction of the higher authority under the proviso to section 151(1), the reassessment was held void ab initio, and the order under appeal was set aside.

Right to cross-examine - statements recorded against the assessee at the back of the assessee - inadmissibility of untested statements as evidence - reliance on contemporaneous documentary evidence to rebut allegations of accommodation entries - addition under the Income-tax Act, 1961 (section 68) - unexplained/credited investments - reopening of assessment under the Income-tax Act, 1961 (sections 147/148) - procedural foundation

Right to cross-examine - statements recorded against the assessee at the back of the assessee - inadmissibility of untested statements as evidence - Whether statements recorded in the course of search/inspection against third parties, which were adverse to the assessee and were not confronted to or subjected to cross-examination by the assessee, could be relied upon to make additions against the assessee. - HELD THAT: - The Tribunal held that statements recorded against third parties in the search, which were adverse to the assessee and were not confronted to the assessee nor allowed to be cross-examined, cannot be used as evidence against the assessee. The authorities below had refused the assessee's specific request for cross-examination, and relied upon such statements to justify an addition. Relying on settled precedents, the Tribunal reiterated that material collected or statements recorded at the back of the assessee, if not confronted and if the assessee is not given an opportunity to test them, are inadmissible for making additions. Because the assessee's request to cross-examine the declarants was denied, those statements could not form the basis for sustaining the addition.

Statements of third parties recorded without confronting the assessee and without affording opportunity to cross-examine are inadmissible and could not be relied upon against the assessee.

Addition under the Income-tax Act, 1961 (section 68) - unexplained/credited investments - reliance on contemporaneous documentary evidence to rebut allegations of accommodation entries - Whether the addition of Rs. 10 lakhs made as unexplained/credited investment under section 68 could be sustained on the material on record. - HELD THAT: - The Tribunal examined the documentary evidence produced by the assessee - including allotment request, MOA/AOA, ITR and balance-sheet of the investor, board resolution, bank statements evidencing payment through banking channels, investor's affidavit/confirmation and share allotment acknowledgments - and noted that these documents were neither independently investigated by the Assessing Officer nor rebutted by any contrary material. In absence of admissible adverse statements (which were held inadmissible for want of confrontation and cross-examination) and given the uncontroverted documentary evidence showing banking route and investor's capacity to make the investment, there was no material to sustain the addition. The Tribunal therefore concluded that the addition was wholly unjustified and deleted it. The Tribunal expressly left the legality of the reopening of assessment undecided as academic, since deletion of the addition rendered that question unnecessary for disposal of the appeal.

Addition of Rs. 10 lakhs under section 68 deleted for lack of admissible adverse material and on account of unrefuted documentary evidence supporting genuineness of investment.

Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y. 2011-2012, deleted the addition of Rs. 10 lakhs made under section 68, holding that untested statements recorded against third parties could not be relied upon and that the assessee's documentary evidence remained unrefuted; the question of reopening was left undecided as academic.

Disallowance under section 40A(3) of the Income tax Act, 1961 - first proviso to section 40A(3A) and prescription of exceptions by rule 6DD - genuineness of transaction versus statutory requirement of banking channel - disallowance under section 14A read with Rule 8D - availability and application of interest free funds for investments - binding precedent of the jurisdictional High Court

Disallowance under section 40A(3) of the Income tax Act, 1961 - first proviso to section 40A(3A) and prescription of exceptions by rule 6DD - genuineness of transaction versus statutory requirement of banking channel - binding precedent of the jurisdictional High Court - Whether the cash purchase of stock in trade of Rs. 9,52,000/- attracted disallowance under section 40A(3) and whether the transaction could be excluded from disallowance on the ground of business expediency or genuineness under the proviso to section 40A(3A) and Rule 6DD. - HELD THAT: - The Tribunal found as an admitted fact that the assessee purchased plots as stock in trade by cash in excess of the statutory limit and that both buyer and seller had bank accounts. Section 40A(3) mandates disallowance for payments otherwise than by banking instruments exceeding the prescribed limit. The first proviso to section 40A(3A) permits non disallowance only in cases and circumstances as may be prescribed having regard to banking facilities, business expediency and other relevant factors; the CBDT has exhaustively specified those cases by Rule 6DD. The proviso therefore affords a rule based exception and does not permit the Tribunal to invent additional exceptions based on general notions of business expediency or the mere genuineness of transactions. The Tribunal cannot expand or dilute the exhaustively prescribed clauses in Rule 6DD. The assessee did not show that the transaction fell within any clause of Rule 6DD (clause (j) relating to bank holiday or strike was not made out). In view of the binding precedent of the jurisdictional High Court upholding disallowance even in genuine transactions, the Tribunal upheld the disallowance under section 40A(3). [Paras 6, 8, 9, 14, 15]

Disallowance of Rs. 9,52,000/- under section 40A(3) sustained; plea of genuineness and business expediency not a ground for exclusion unless falling within Rule 6DD.

Disallowance under section 14A read with Rule 8D - availability and application of interest free funds for investments - Whether the disallowance computed under section 14A read with Rule 8D, particularly the interest component, was correctly made or required re examination in light of availability of interest free funds. - HELD THAT: - The Tribunal noted that the assessee had claimed that interest free funds were available and that, applying the principle approved by the Supreme Court in Reliance Industries (that where sufficient interest free funds are available investments may be presumed to have been financed from them), the interest disallowance requires factual verification. Accordingly, the Tribunal held that the question of interest disallowance (objected portion) should be remitted to the Assessing Officer to examine and determine, on the factual matrix and documentary evidence, the extent to which interest free funds were available and utilised for investments yielding exempt income. The portion computed as one half percent of average investments under Rule 8D was, however, upheld as correctly disallowed. [Paras 16, 18]

Interest disallowance remanded to the AO for fresh examination of availability and application of interest free funds; one half percent component under Rule 8D of Rs. 91,398/- upheld.

Final Conclusion: Appeal partly allowed: disallowance under section 40A(3) of Rs. 9,52,000/- upheld; disallowance under section 14A read with Rule 8D partly remitted to the Assessing Officer for quantification of the interest component after examining interest free funds, while the Rule 8D one half percent component is confirmed.

Exemption under section 11 - charitable purpose and relief of the poor - proviso to section 2(15) relating to trade, commerce or business - registration under section 12A - commerciality of activity and exorbitant rate of interest

Exemption under section 11 - charitable purpose and relief of the poor - commerciality of activity and exorbitant rate of interest - proviso to section 2(15) relating to trade, commerce or business - registration under section 12A - Whether the claim for exemption under section 11 was rightly rejected on the ground that the trust's micro finance and hostel activities had become commercial and therefore fell within the proviso to section 2(15), and whether non intimation of amendment to the trust deed and generation of surplus disentitled the trust to exemption for the year under consideration. - HELD THAT: - The Tribunal found that the assessing officer's conclusion that the trust charged an exorbitant effective interest rate was not supported by any basis and was mere surmise; the rate of interest of 14% charged by the trust was held to be comparable to normal bank lending rates for the period and adopted to meet administrative costs and credit risk, and therefore not indicative of profit motive or commerciality (paras 15). The inspector's report regarding hostel charges was not confronted with the assessee nor supported by comparable evidence; moreover the charges included board and utilities, and in absence of satisfactory comparators the finding of commerciality was not sustainable (para 16). Generation of surplus was held not to be decisive: where surplus is incidental and applied to the trust's objects, mere year to year surplus does not disqualify exemption under section 11 (para 17). On the applicability of the proviso to section 2(15), the Tribunal accepted that in absence of profit motive the micro finance activity falls within the trust's charitable objective of relief to the poor and therefore the proviso did not apply (para 18). As to the amendment of the trust deed without prior intimation to DIT(Exemption), the Tribunal noted that the trust was registered under section 12A during the year and that any proposal for cancellation would operate prospectively; non intimation did not justify denial of exemption for the year under consideration (para 19). Applying these conclusions, none of the grounds relied upon by the tax authorities justified rejection of the section 11 exemption for the year under appeal (para 20). [Paras 16, 17, 18, 19, 20]

Exemption under section 11 allowed for Assessment Year 2009-10; the assessments rejecting exemption were set aside and the AO directed to grant exemption for the year under consideration.

Final Conclusion: The Tribunal allowed the appeal, holding that the micro finance and hostel activities did not, on the materials before it, establish commerciality or profit motive sufficient to attract the proviso to section 2(15) or justify denial of exemption under section 11 for Assessment Year 2009-10; registration under section 12A remained effective and the assessment rejecting exemption was set aside.

Arm's length price limited to international transactions - Transactional Net Margin Method (TNMM) - Entity level adjustment versus transaction level adjustment - Profit level indicator (OP/OR) - Balance sheet items not basis for direct transfer pricing adjustment - Remand for verification and proportionate allocation to international transactions

Arm's length price limited to international transactions - Entity level adjustment versus transaction level adjustment - Transactional Net Margin Method (TNMM) - Profit level indicator (OP/OR) - Transfer pricing adjustment cannot be made at entity level without restricting the adjustment to the international transactions with associated enterprises; ALP under section 92 applies to international transactions and, where TNMM yields an entity level margin, the adjustment must be proportionately confined to the international transactions. - HELD THAT: - Section 92 mandates computation of income arising from an international transaction having regard to the arm's length price, hence ALP and consequent adjustments pertain to international transactions and not to entity level results. Where a combined TNMM is used and comparables yield a solitary PLI (here OP/OR at the median 2.40%), the PLI can be applied only on one base (either operating revenue or operating cost) and produces an ALP relevant to those international transactions chosen for benchmarking. In the present case the TPO applied the PLI (OP/OR) of comparables to the assessee's operating revenue, computed an entity level operating profit/cost at ALP and then derived a gross entity level adjustment of Rs. 13.10 crore. Having adopted costs as the benchmarking base, the correct course, as articulated, was to restrict the resultant adjustment to the international transactions of expense nature by determining the value wise percentage of those transactions to total operating costs and applying that percentage to the entity level adjustment. The TPO failed to perform this allocation and hence erred in making an unqualified entity level transfer pricing addition. [Paras 4, 6, 7, 8, 9]

TPO's entity level transfer pricing adjustment is unlawful; adjustment must be confined to international transactions by proportionate allocation in conformity with the TNMM approach adopted.

Balance sheet items not basis for direct transfer pricing adjustment - Remand for verification and proportionate allocation to international transactions - Whether the international transaction recorded as "Designing & Product Development Charges" (claimed as an intangible and appearing in fixed assets/intangible assets) forms part of the balance sheet intangible assets and hence should be excluded from the transfer pricing adjustment, and whether the assessee's computation of the value and percentage of international transactions requires verification. - HELD THAT: - The Tribunal observed that balance sheet items ordinarily do not provide a direct base for transfer pricing adjustment because they are not part of operating costs or revenue, although they may affect depreciation. The TPO had not determined ALP for three balance sheet type transactions and thus implicitly accepted them. The assessee contends the Design & Product Development Charges constitute an intangible asset recorded in the Schedule of Fixed Assets (figure of Rs. 15.02 crore) and that the international transaction of Rs. 10.88 crore appears as part of that entry in the notes. The record, however, does not clearly establish whether the international transaction figure is included within the Schedule total. The Tribunal directed the AO/TPO to verify whether the international transaction value is part of the intangible asset figure; if so, that transaction must be excluded from TP reckoning. Separately, the assessee furnished a computation showing the value of international transactions in the manufacturing activity and a percentage (4.26%) to be applied to the entity level adjustment, yielding a much smaller proportionate adjustment; this computation was not examined by the AO/TPO and must be verified. [Paras 5, 10]

Matter remitted to the AO/TPO to verify (a) whether the Design & Product Development Charges international transaction is included in the Schedule of Fixed Assets intangible figure and exclude it from TP adjustment if so, and (b) the correctness of the assessee's value and percentage computation and thereafter decide the adjustment by applying the verified percentage to the entity level figure; assessee to be given reasonable opportunity of hearing.

Final Conclusion: Appeal partly allowed: the Tribunal held that ALP adjustments under section 92 must be confined to international transactions rather than applied at entity level and remitted the matter to the AO/TPO to verify the status of the Design & Product Development Charges and to apply a verified, proportionate allocation of the computed entity level adjustment to the international transactions, with opportunity to the assessee to be heard.

Revisionary jurisdiction under section 263 - Deduction under section 54 - Application of mind by Assessing Officer - Prejudicial to the interests of Revenue - Date of purchase/possession as determinative for section 54

Revisionary jurisdiction under section 263 - Deduction under section 54 - Application of mind by Assessing Officer - Date of purchase/possession as determinative for section 54 - Validity of the Pr. CIT's exercise of revisionary powers under section 263 in setting aside the assessment order insofar as allowance of deduction under section 54. - HELD THAT: - The Tribunal examined whether the Assessing Officer had applied mind to the material on record and whether the allowance of deduction under section 54 was erroneous and prejudicial to the revenue. The AO had accepted the assessee's claim after considering the sale deed, purchase deed and possession letter, and concluded that the purchase deed dated 10.03.2014, reflecting final payment and possession, fell within the one year period before transfer dated 24.11.2014. The Pr. CIT held that payments made in earlier instalments before the one year window disqualified part of the investment and that the AO failed to verify those payments, rendering the assessment erroneous under section 263. The Tribunal construed section 54 to require that the relevant date of purchase is evidenced by the date of purchase/possession as reflected in the purchase deed and that instalment payments made prior to the one year window do not, by themselves, disentitle the assessee where the substantive act of purchase/possession and final payment fall within the statutory period. The Tribunal relied on the principle of looking to the substance of transaction (as in Beena K Jain) and held that all relevant facts were on record and examined by the AO. Consequently, the AO's view was a plausible judicial view and not an erroneous order prejudicial to revenue warranting exercise of section 263. [Paras 11, 12, 13]

The Pr. CIT's revision under section 263 was set aside; the AO's order allowing deduction under section 54 was sustained.

Final Conclusion: Appeal allowed; the order of the Pr. CIT under section 263 is quashed and the assessment order in respect of allowance of deduction under section 54 for A.Y.2015-16 is sustained.

Reason to believe - reopening of assessment under Section 147 - reasons recorded under Section 148 - tangible material - live link between material and belief - change of opinion - proviso to section 147 - reopening after four years for failure to disclose fully and truly

Reason to believe - reopening of assessment under Section 147 - tangible material - live link between material and belief - change of opinion - proviso to section 147 - reopening after four years for failure to disclose fully and truly - Validity of reopening assessment for Assessment Year 2008-09 by issue of notice under Section 148/147 - HELD THAT: - The Tribunal examined whether the Assessing Officer had, prior to issuing notice under Section 148, recorded tangible material giving rise to a bona fide reason to believe that income chargeable to tax had escaped assessment for AY 2008-09. The Court reiterated settled principles that the validity of reopening is to be tested by the reasons recorded and that those reasons must disclose a live link between the material and the formation of belief; reopening cannot rest on mere change of opinion or suspicion. The reasons recorded in the present case did not disclose any new tangible material or any specific failure by the assessee to disclose fully and truly material facts in the original assessment; the AO in the reasons relied on survey findings and surmises about JDA transactions without articulating how those facts established escapement of income for the relevant year. In addition, the original assessment for AY 2008-09 had been completed under Section 143(3) and the notice was issued after the four year period; absent any recorded finding that escapement was due to non disclosure by the assessee, the proviso to Section 147 barred reopening after four years. Having found no tangible material and no proper nexus in the reasons, the Tribunal concluded that the reopening was founded on mere change of opinion and was therefore invalid. The Tribunal accordingly quashed the reassessment and declined to adjudicate the remaining grounds as academic. [Paras 6, 7]

Reopening of assessment for AY 2008-09 was invalid; reassessment proceedings quashed.

Final Conclusion: The appeal is allowed: the reassessment initiated by notice under Section 148/147 for Assessment Year 2008-09 is quashed for lack of tangible material and absence of a live link in the reasons recorded; further adjudication of merits was not undertaken as the reassessment has been annulled.

Deeming provision under section 50C - Penalty under section 271(1)(c) - Explanation 3 to section 271(1)(c) - deemed concealment - Reasonable cause for non-filing of return - Self-declaration and acceptance by Assessing Officer

Deeming provision under section 50C - Penalty under section 271(1)(c) - Self-declaration and acceptance by Assessing Officer - Explanation 3 to section 271(1)(c) - deemed concealment - Reasonable cause for non-filing of return - Validity of penalty under section 271(1)(c) for difference between actual sale consideration and value adopted under section 50C when the assessee accepted the deemed value in the return and the Assessing Officer accepted the returned income. - HELD THAT: - The Tribunal held that the addition arose solely by application of the deeming provision under section 50C and there was no evidence on record that the assessee actually received any amount over and above the sale consideration recorded in the sale deed. The assessee had voluntarily adopted the value determined by the stamp authorities in his return and paid the tax; the Assessing Officer accepted the returned income. In such circumstances, an addition made by invoking section 50C does not ipso facto amount to concealment or furnishing of inaccurate particulars for the purpose of section 271(1)(c). The Revenue's contention that filing the return only after issue of notice under section 148 amounts to deemed concealment under Explanation 3 to section 271(1)(c) was examined. The Tribunal found that Explanation 3 is inapplicable because the assessee had a reasonable cause for not filing the return within time-his bona fide belief that his income (on the basis of actual consideration) was below the taxable limit-and there was no adverse material to show otherwise. One of the essential conditions for invoking Explanation 3 (failure without reasonable cause) was therefore not satisfied. Given the absence of positive evidence of concealment and the self-declaration accepted by the Assessing Officer, there was no basis to sustain penalty under section 271(1)(c). [Paras 11, 12, 14, 15]

Penalty levied under section 271(1)(c) is deleted.

Final Conclusion: The appeal is allowed: penalty under section 271(1)(c) imposed on account of difference between actual sale consideration and value adopted under section 50C is deleted, the returned income having been accepted and no evidence of actual receipt of higher consideration or of culpable concealment being shown.

Turnover filter in comparability - Transactional Net Margin Method (TNMM) - Arm's length price determination - Functional comparability - Comparables exclusion - Remand for fresh consideration

Turnover filter in comparability - Comparables exclusion - Arm's length price determination - Exclusion of specified comparables from the final comparable set on account of turnover filter - HELD THAT: - The Tribunal applied the established principle that size (turnover) is a relevant and material facet of comparability under Rule 10B and related judicial precedents. Having regard to the assessee's turnover, the Tribunal held that companies with turnover materially larger than the assessee ought to be excluded as not comparable. Following coordinate-bench decisions and the reasoning in the assessee's earlier assessment-year decision, the Tribunal directed exclusion of the named companies (including Tata Elxsi, Sasken Communication, Mindtree, Larsen & Toubro Infotech, Infosys Technologies and Zylog Systems) from the final list of comparables because they failed the turnover filter and were therefore not comparable for TNMM analysis. [Paras 10, 15, 16, 20]

The specified companies are excluded from the final list of comparables for failing the turnover filter.

Functional comparability - Comparables exclusion - Transactional Net Margin Method (TNMM) - Exclusion of Bodhtree Consulting Ltd. on the ground of functional dissimilarity - HELD THAT: - The Tribunal examined the functional profile and revenue recognition characteristics of Bodhtree Consulting Ltd. Noting that the company operated in segments and activities (such as web solutions and other services) that are not akin to the captive, fixed-price project model of the assessee, and observing fluctuating margins over the relevant period, the Tribunal followed earlier coordinate-bench decisions which excluded this company for functional dissimilarity with a captive service provider. On that basis Bodhtree was directed to be excluded from the final comparable set. [Paras 11, 12, 15, 16]

Bodhtree Consulting Ltd. is to be excluded from the final list of comparables on account of functional dissimilarity.

Remand for fresh consideration - Revenue v. capital treatment of R&D/website development expenses - Whether research and development/website development expenses disallowed under section 37 are revenue in nature or capital/enduring benefit - HELD THAT: - The Tribunal observed that the factual characterisation of the expenses (website development and related costs) was inconsistent in earlier proceedings and that the correct classification could not be resolved on the materials before it. Relying on its earlier order in the assessee's own case for AY 2007-08, the Tribunal concluded that the matter requires fresh factual examination by the Assessing Officer. Consequently, the Tribunal set aside the disallowance and remanded the issue to the AO for reconsideration after affording the assessee an opportunity of being heard, including consideration under section 35 where appropriate. [Paras 17, 18, 19]

Issue remitted to the Assessing Officer for fresh consideration after affording the assessee an opportunity of being heard.

Final Conclusion: The appeal is partly allowed: the Tribunal directed exclusion of specified comparables (on turnover and functional comparability grounds) from the TPO's comparable set, remitted the question of treatment of the R&D/website development expenses to the Assessing Officer for fresh consideration, and left other unargued grounds open for appropriate consideration.

Revisional jurisdiction under section 263 - erroneous order prejudicial to the interests of the revenue - plausible view / two views rule in assessment - deduction under section 80P(2)(d) - Explanation 2 to section 263 (no inquiry alleged)

Revisional jurisdiction under section 263 - erroneous order prejudicial to the interests of the revenue - plausible view / two views rule in assessment - deduction under section 80P(2)(d) - Explanation 2 to section 263 (no inquiry alleged) - Validity of invocation of revisional jurisdiction under section 263 in AY 2015-16 where assessing officer allowed deduction under section 80P(2)(d) after specific inquiry and taking a plausible view. - HELD THAT: - The Tribunal found that during original assessment the Assessing Officer specifically queried the claim under section 80P(2)(d), the assessee replied relying on this Tribunal's favorable decision and the AO considered those submissions before allowing the deduction. At the time of assessment there existed conflicting judicial views, including a favorable decision of the Karnataka High Court and later an adverse view of the same High Court; no binding decision of the jurisdictional High Court was available. Where two plausible views exist and the AO has applied his mind and taken one such view, the order cannot be treated as 'erroneous' and 'prejudicial to the revenue' so as to warrant exercise of revisional jurisdiction under section 263. Reliance was placed on the principle in Malabar Industrial Co. Ltd. and subsequent authorities that an order is 'erroneous' under section 263 only if it is not in accordance with law; mere difference of opinion or loss of revenue resulting from a view permissible in law does not render the order erroneous. The Pr. CIT's contention that the AO did not verify the issue was negatived on the record; Explanation 2 to section 263 could not be invoked to convert a debatable, appropriately considered view into an erroneous order. Applying these principles, the Tribunal held the revision to be unjustified and quashed the section 263 order for AY 2015-16. [Paras 10, 11, 13, 14, 15]

Revisional order under section 263 quashed for AY 2015-16; assessment order upheld as not erroneous or prejudicial to revenue.

Revisional jurisdiction under section 263 - erroneous order prejudicial to the interests of the revenue - plausible view / two views rule in assessment - deduction under section 80P(2)(d) - Applicability of the AY 2015-16 conclusion to AY 2016-17 where identical facts and grounds for invoking section 263 were recorded. - HELD THAT: - The Tribunal observed that the facts, the nature of inquiry by the Assessing Officer, and the basis for the Pr. CIT's invocation of section 263 in AY 2016-17 are pari materia to AY 2015-16. Since the Tribunal quashed the revisional jurisdiction in AY 2015-16 on the ground that the AO had taken a plausible view after enquiry and no binding adverse precedent of the jurisdictional High Court existed, the same reasoning applies mutatis mutandis to AY 2016-17. Consequently, the section 263 order for AY 2016-17 also lacked validity for the same reasons. [Paras 16]

Revision order under section 263 quashed for AY 2016-17 by application of the reasoning in AY 2015-16.

Final Conclusion: Both appeals are allowed: the orders passed by the Pr. CIT under section 263 dated 03/03/2020 for AY 2015-16 and AY 2016-17 are quashed because the Assessing Officer had made a plausible, duly considered decision on the deduction under section 80P(2)(d), and the condition of an order being 'erroneous and prejudicial to the revenue' was not satisfied.

Reopening of assessment - reason to believe - reassessment limited to reasons recorded - addition not arising from reasons for reopening - legality of addition in reassessment proceedings - deletion of addition made without nexus to reasons for notice

Reassessment limited to reasons recorded - addition not arising from reasons for reopening - Whether the addition of unexplained cash deposits in reassessment is invalid when it does not arise from the reasons recorded for reopening the assessment. - HELD THAT: - The Assessing Officer reopened the assessment pursuant to reasons recorded alleging nondisclosure of income received from Hyderabad Race Club. The only addition actually made in the reassessment order, however, related to unexplained cash deposits in the bank account and had no connection with the specific reason recorded for reopening. The Tribunal held that reassessment proceedings must be confined to the matter(s) forming the basis of the 'reason to believe' and that an addition founded on a different, unrelated ground lacks the requisite nexus to the recorded reasons. Applying that principle, the Tribunal concluded that the addition of unexplained cash deposits, being independent of the stated basis for reopening, was not legally sustainable and therefore liable to be deleted. [Paras 4, 5]

The addition of Rs. 2,18,000/-, being unrelated to the reasons recorded for reopening, is deleted.

Final Conclusion: The appeal is allowed; the addition made in reassessment which did not flow from the reasons recorded for reopening the assessment is set aside and deleted.

Penalty under section 271AAB - definition of "undisclosed income" - requirement of discovery during search under section 132 - discretionary nature of penalty (use of "may" vs "shall") - applicability of section 274 procedure to penalty under section 271AAB - distinction between penalty under section 271AAB and section 271(1)(c)

Penalty under section 271AAB - definition of "undisclosed income" - requirement of discovery during search under section 132 - applicability of section 274 procedure to penalty under section 271AAB - Validity of levy of penalty under section 271AAB where the assessee declared jewellery in the return but no undisclosed income as defined in section 271AAB was found or surrendered during the search. - HELD THAT: - Section 271AAB is self-contained and applies only to "undisclosed income" as defined in its Explanation, namely income represented by money, bullion, jewellery or entries/transactions found in the course of a search under section 132 which (A) were not recorded on or before the date of search in books/documents maintained in the normal course or (B) were otherwise not disclosed to the specified tax authorities before the date of search, or to income represented by false entries in books. The legislative use of the word "may" indicates that levy of penalty under section 271AAB is not automatic; the Assessing Officer has discretion and the procedure safeguards of section 274 apply, including the requirement of hearing. Penal provisions must be strictly construed and cannot be extended beyond the statutory definition. Where the alleged income was not unearthing of "undisclosed income" during the search, and no surrender was made in the search proceedings, imposition of penalty under section 271AAB merely on the basis of a disclosure in the return or assessment does not meet the statutory prerequisites of section 271AAB. The Assessing Officer may, in appropriate cases, initiate penalty proceedings under other provisions such as section 271(1)(c), but section 271AAB cannot be invoked unless the case falls within its four corners as to discovery and definition of "undisclosed income." In the present case the AO initiated penalty during assessment on account of a declaration in the return and not on the basis of any undisclosed income found during the search; accordingly the levy under section 271AAB is not sustainable. [Paras 8, 9]

Impugned penalty under section 271AAB quashed and appeal allowed.

Final Conclusion: The Tribunal held that section 271AAB applies only where the statutory definition of "undisclosed income"-as income/valuables found in the course of a search and meeting the criteria in the Explanation-is satisfied; since no such undisclosed income was found or surrendered during the search and the penalty was imposed during assessment on a return disclosure, the penalty under section 271AAB was quashed and the appeal allowed.

Classification of activity as manufacture versus service - design and preparation of tooling, dies and moulds - negative list regime and exclusion of processes amounting to manufacture from service tax - post-01.07.2012 abandonment of specific service-classification and applicability of Section 65B/Section 66D framework - export of service/place of provision of service (contentions noted but not decided) - consequential interest and penalties contingent on sustainability of demand

Classification of activity as manufacture versus service - design and preparation of tooling, dies and moulds - precedent of tribunal decisions holding tooling preparation as manufacture - Whether the appellant's activity of making tooling kits/dies/moulds amounted to a taxable "design service" or constituted manufacture. - HELD THAT: - The adjudicator found on record that the designs/drawings were supplied by overseas buyers and the appellant manufactured tooling kits strictly as per those drawings and specifications, charging for "die design & preparation" though not themselves creating the designs. The authority relied on binding tribunal precedents in the appellant's favour (CESTAT Kolkata in the appellant's own case; CESTAT Delhi in Metzeler; and Tribunal in Ashok Iron Works) which held that amounts received for preparation/development of tooling used repeatedly in manufacture are part of manufacture and not chargeable to service tax as "design services." The impugned pre-2012 classification under Section 65(105)(zzzzd) cannot be validly invoked for the period 2014-15 onwards because specific service-categorisation under Section 65A/65(105) was omitted w.e.f. 01.07.2012 and activities are to be considered under the negative-list regime. Even assuming service character, clause (f) of Section 66D (exempting processes amounting to manufacture from being services) operated to exclude such processes. Applying these legal principles to the facts, the activity was held to be manufacture and not a taxable service. [Paras 10, 11, 12, 14, 15]

The activity of making tooling kits/dies/moulds is manufacture and not a taxable "design service"; the demand of service tax is unsustainable and is set aside.

Consequential interest and penalties contingent on sustainability of demand - removal of demand renders ancillary impositions inapplicable - Whether interest and penalties proposed and confirmed consequential to the demand could be sustained. - HELD THAT: - Having held that the foundational demand for service tax does not survive, the tribunal-authority reasoned that interest and penalties predicated on that demand have no basis. The impugned order confirming interest and penalties was therefore addressed as consequential upon the main demand and found unsustainable. [Paras 16, 17]

Interest and penalties confirmed with the demand do not survive and are set aside.

Final Conclusion: The appeal is allowed: the activity of preparing tooling/dies/moulds was held to be manufacture and not chargeable as "design service" for Financial year 2014-15 to 2015-16; accordingly the demand, interest and penalties confirmed in the impugned order are set aside.

Input service - CENVAT credit - insurance service by Deposit Insurance and Credit Guarantee Corporation - binding effect of larger bench decision - remand for decision in conformity with higher forum

Input service - CENVAT credit - insurance service by Deposit Insurance and Credit Guarantee Corporation - binding effect of larger bench decision - Whether banks can avail CENVAT credit of service tax paid for the insurance service provided by the Deposit Insurance and Credit Guarantee Corporation. - HELD THAT: - The Court noted that a larger Bench of CESTAT had held by judgment dated 20.03.2020 that the insurance service provided by the Deposit Insurance Corporation to banks is an input service and that CENVAT credit of service tax paid for that service can be availed by banks for rendering output services. Earlier divergent decisions of CESTAT division benches were recorded, and the larger Bench resolved the conflict in favour of allowing the credit. In view of that binding decision, the impugned CESTAT order dated 12.02.2019 could not be sustained. The matter was therefore set aside and remanded to the CESTAT for fresh decision strictly in conformity with the larger Bench's ruling that such insurance service qualifies as an input service and its service tax credit is available to banks. [Paras 7, 8]

Impugned order dated 12.02.2019 is set aside; appeal allowed; matter remanded to the CESTAT for fresh decision in conformity with the larger Bench's decision; no order as to costs.

Final Conclusion: The High Court allowed the appeal, quashed the impugned CESTAT order, and remitted the matter to the CESTAT to be decided in conformity with the larger Bench holding that the Deposit Insurance Corporation's insurance service to banks is an input service and CENVAT credit of the service tax paid thereon is available to banks; no order as to costs.

Availability of alternate statutory remedy - writ jurisdiction under Article 226 - principles of natural justice (audi alteram partem and prejudice requirement) - pre-deposit condition for preferring statutory appeal - relegation to appellate forum for mixed questions of fact and law

Availability of alternate statutory remedy - writ jurisdiction under Article 226 - relegation to appellate forum for mixed questions of fact and law - Maintainability of writ petitions in presence of alternative statutory remedy under the Central Excise Act. - HELD THAT: - The High Court held that ordinarily a petition under Article 226 should not be entertained where an effective alternate statutory remedy exists, more so in fiscal matters involving recovery of public dues. The Court found that the Act provides a complete mechanism, including appeal and revision under Chapter VI-A, capable of adjudicating the mixed questions of fact and law raised. The impugned adjudicatory order was not shown to be ex facie perverse or in total violation of natural justice such as to justify bypassing the statutory remedy. Accordingly, the petitions were held not maintainable and the petitioners were relegated to prefer the statutory appeal. [Paras 2, 3, 9, 10, 25]

Writ petitions dismissed for want of maintainability and petitioners relegated to the appellate remedy under the Act.

Principles of natural justice (audi alteram partem and prejudice requirement) - prejudice exception to non-observance of natural justice - Whether the adjudicatory order was in 'total' violation of principles of natural justice warranting interference under Article 226. - HELD THAT: - Relying on precedent, the Court emphasised that mere non-observance of a procedural limb does not automatically vitiate an order unless demonstrable prejudice is caused. Applying those principles, the Court noted that the petitioners did not deny recoveries or their dealing in the goods and failed to demonstrate material prejudice from non-examination of revenue witnesses. The adjudicating authority's refusal to permit cross-examination was not shown to have caused such prejudice as would attract interference under Article 226. [Paras 3, 5, 6, 11, 16]

No finding of total violation of natural justice; absence of demonstrable prejudice precludes interference in writ jurisdiction.

Pre-deposit condition for preferring statutory appeal - financial incapacity and access to statutory remedy - Whether financial incapacity to make the statutory pre-deposit renders the writ petitions maintainable. - HELD THAT: - The Court rejected the contention that financial hardship to meet the pre-deposit requirement justifies invocation of writ jurisdiction. It held that financial incapacity is not a ground to bypass the alternate appellate remedy provided by the statute. The Court noted that the statutory scheme contemplates mechanisms for appeal and possible consideration of waiver of pre-deposit by the appellate authority, and thus directed the petitioners to pursue the statutory route. [Paras 6, 26, 27]

Financial incapacity does not make the writ petitions maintainable; petitioners must pursue the statutory appeal.

Relegation to appellate forum for mixed questions of fact and law - directions for expeditious adjudication and consideration of waiver of pre-deposit - Procedural directions for pursuing the statutory remedy and treatment of limitation and pre-deposit on filing the appeal. - HELD THAT: - Although dismissing the writ petitions, the Court directed that if the petitioners file the statutory appeal within four weeks, the issue of limitation shall not be permitted to bar adjudication on merits. The appellate proceedings were to be conducted expeditiously and preferably decided within six months. The appellate authority was also directed to consider any request for waiver of the pre-deposit if admissible under law, and to decide the appeal and related applications uninfluenced by the High Court's observations. [Paras 28]

Petitioners allowed four weeks to institute the statutory appeal; appellate authority to decide expeditiously (preferably within six months) and to consider pre-deposit waiver as permissible by law.

Final Conclusion: The writ petitions were dismissed as not maintainable in view of the availability of the alternate statutory remedy; no total violation of natural justice or demonstrable prejudice was found, financial incapacity did not justify bypassing the statutory appeal, and the petitioners were directed to file the statutory appeal within four weeks with directions for expeditious consideration and possible consideration of pre-deposit waiver.