TaxTMI Updates e-Newsletter
Feb 20,2016

Bar on AAR entertaining applications where question already pending before income-tax authority - scope of 'already pending' in proviso to Section 245R(2) - notice under Section 142(1) as constituting pending question - standard pre-printed Section 143(2) notice insufficiency - discrimination under Article 14 - interaction between domestic law and DTAA / equal treatment of non-residents - remand for fresh decision by the AAR

Discrimination under Article 14 - interaction between domestic law and DTAA / equal treatment of non-residents - Whether the exception in clause (i) of the proviso to Section 245R(2) that exempts certain resident PSUs from the bar is constitutionally discriminatory or inconsistent with the DTAA so as to entitle the non-resident petitioner to relief - HELD THAT: - The Court noted that the petitioner sought not merely a declaration of invalidity but an extension of the statutory exemption to non-residents. The Court held that it could not re-write the statute by reading in an exemption for non-residents and that striking down the exception would simply make the bar operate equally, thereby defeating the petitioner's practical aim. The Court also observed that invalidation of the exception would not render the domestic provision more favourable vis-a -vis the DTAA such as to attract Article 25/Section 90 relief for the petitioner; the provision would become equally burdensome for residents and non-residents. For these reasons the Court declined to pronounce the exemption violative of Article 14 or to grant DTAA-based relief to the petitioner. [Paras 21, 22, 23, 24]

Prayer to declare clause (i) of the proviso to Section 245R(2) unconstitutional and to extend its benefit to the petitioner as a non-resident was declined.

Scope of 'already pending' in proviso to Section 245R(2) - notice under Section 142(1) as constituting pending question - standard pre-printed Section 143(2) notice insufficiency - remand for fresh decision by the AAR - Whether the questions raised in the petitioner's applications were 'already pending' before income-tax authorities on the date of filing such that proviso to Section 245R(2) barred the AAR from allowing the applications, and the consequent remedy for each AY - HELD THAT: - The Court held that the expression 'already pending' must be judged with reference to the date of filing of the application before the AAR. Mere filing of a return does not make the question pending; the Supreme Court's decision in Sin Oceanic was noted to have overruled earlier contrary view. A notice under Section 143(2) in a standard pre-printed form which fails to specify particulars required by the provision does not necessarily make the question 'pending' for purposes of the proviso. By contrast, notices under Section 142(1) accompanied by a detailed questionnaire raising the same issue do render the question already pending if issued before the date of filing the AAR application. Applying these principles, the Court found that for AY 2008-09 and AY 2009-10 notices under Section 142(1) raising the very questions were issued prior to filing and therefore the AAR rightly rejected those applications; for AY 2010-11 the relevant Section 142(1) notices were issued after the applications were filed, so the proviso did not apply and the AAR's rejection of those applications was erroneous. The Court accordingly set aside the AAR order insofar as it rejected the three applications for AY 2010-11 and restored them to the AAR for fresh decision. [Paras 30, 31, 33, 34, 35]

AAR's rejection upheld for applications relating to AY 2008-09 and AY 2009-10; AAR's rejection set aside and three applications for AY 2010-11 restored to the AAR for fresh decision.

Final Conclusion: Writ petitions dismissed insofar as they challenged the AAR's rejection of applications for AY 2008-09 and AY 2009-10; AAR's order rejecting three applications for AY 2010-11 set aside and those applications remitted to the AAR for fresh decision in accordance with law; petitioner's constitutional challenge to the proviso declined.

Deduction under Section 80-IA - consolidated books of accounts - separate books of accounts - eligibility for deduction versus allowability - minimum alternate tax under Section 115JA - binding precedent of IPCA Laboratories - discretion to permit fresh allocation by preparing separate accounts

Deduction under Section 80-IA - consolidated books of accounts - eligibility for deduction versus allowability - binding precedent of IPCA Laboratories - Assessee maintaining a single consolidated set of books for two units cannot claim deduction under Section 80-IA for one unit where consolidated accounts show no positive income. - HELD THAT: - The Court held that where an assessee maintains one consolidated set of books for multiple units, the question of entitlement to deduction under Section 80-IA does not arise unless there is a positive income in the consolidated accounts. The appellant's attempt to treat the Pondicherry unit as showing positive net profit while the Chennai unit showed loss cannot be accepted in the absence of separate books. The decision follows and is governed by the binding precedent of IPCA Laboratories which precludes allowing the Section 80-IA benefit on the basis of segregated unit-level profit not reflected in consolidated accounts. Consequently, the substantial questions of law premised on entitlement to deduction do not survive for consideration in this factual matrix. [Paras 9, 11]

Claim for deduction under Section 80-IA denied where only consolidated books were maintained and consolidated results did not show positive income; IPCA Laboratories applied.

Separate books of accounts - discretion to permit fresh allocation by preparing separate accounts - precedent of Bongaigaon Refinery - Whether the Court should permit the assessee to prepare separate sets of books for units as a remedial measure. - HELD THAT: - The Court considered the submission invoking the Supreme Court's concession in Commissioner of Income Tax v. Bongaigaon Refinery but refused to extend that remedial concession to the present appellant. The Bongaigaon decision was characterised as an exceptional allowance made to end litigation, and the Court declined to exercise a similar discretion here. Thus, the appellant cannot rely on that precedent to compel acceptance of newly prepared separate accounts to establish eligibility for Section 80-IA. [Paras 10, 11]

Request to allow preparation/acceptance of separate books rejected; Bongaigaon Refinery concession not availing the appellant.

Final Conclusion: Appeal dismissed: Section 80-IA deduction not allowable where only consolidated accounts were maintained and consolidated income did not show positive profit; attempt to invoke Bongaigaon Refinery concession to permit separate books was refused, and the decision in IPCA Laboratories governs the result.

Diversion of income by overriding title - deductibility of payments to retired or deceased partners - finality of Tribunal's factual findings - limitations on raising new factual issues in an appeal under Section 260A

Diversion of income by overriding title - deductibility of payments to retired or deceased partners - The Tribunal was justified in holding that sums paid to ex-partners represented diversion of income by overriding title and were therefore excluded from the firm's income. - HELD THAT: - The Tribunal dismissed the Revenue's appeal after recording that the Commissioner (Appeals) had followed the Tribunal's consistent view in the assessee's own earlier years and had placed reliance upon this Court's earlier decision in the assessee's case and the decision in Mulla & Mulla and Craigie, Blunt & Caroe. Given that the Tribunal merely followed those precedents and no distinguishing features were shown to warrant a different view, the matter did not raise any substantial question of law for this Court to entertain. The Court accepted the finality of the Tribunal's factual and legal conclusion on the issue and refused to re-open the matter in the absence of perverse or arbitrary findings or proper challenge before the Tribunal. [Paras 4, 5, 9]

Appeal dismissed insofar as it challenges the Tribunal's holding that the payments to ex-partners amounted to diversion by overriding title and were excluded from the firm's income.

Limitations on raising new factual issues in an appeal under Section 260A - finality of Tribunal's factual findings - The Revenue could not be permitted to raise, for the first time before this Court, an allegation that the assessee adopted a colourable device to evade tax. - HELD THAT: - The additional question of law proposed by the Revenue alleging a colourable device was not argued before the authorities or the Tribunal and did not appear in the memo of appeal. This Court held that such factual contentions cannot be newly raised in an appeal under Section 260A, relying on established principle that questions of fact and new factual pleas must be urged before the fact-finding authority first. The Assessing Officer had not made such a case, and the Tribunal's factual findings stand unless shown to be perverse or arbitrary; reopening by reliance on documents not before the record was disallowed. [Paras 6, 8]

The additional contention of a colourable device is not considered and cannot be entertained in this appeal.

Final Conclusion: Revenue's appeal is dismissed; the Tribunal's order upholding exclusion of amounts paid to ex-partners as diversion by overriding title is affirmed, and the Revenue's belated factual contention of a colourable device is not permitted to be raised under Section 260A.

Prior period expenses - computation of book profit u/s.115JB - provision for redelivery of aircraft - cessation of liability and Section 41(1) of the Income Tax Act - allowability under Section 37(1) - validity of revised return of income - business purpose test for director-related expenses - treatment of provision as contingent liability - depreciation on aircraft acquired on hire-purchase/finance lease - frequent flyer programme expenses - provision for gratuity

Prior period expenses - Deletion of addition made on account of prior period expenses of Rs.1,48,73,553/- and restoration to Assessing Officer for verification - HELD THAT: - The Tribunal restored the issue to the Assessing Officer for verification of the genuineness of the prior period expenditures after noting that supporting details had been filed. The High Court found no fault with that approach since the Tribunal directed verification, which contemplates satisfaction of genuineness and documentary support before allowance. Consequently the question does not raise any substantial question of law warranting interference. [Paras 3]

Question does not give rise to any substantial question of law; not entertained (issue restored to Assessing Officer for verification).

Provision for redelivery of aircraft - cessation of liability and Section 41(1) of the Income Tax Act - Deletion of addition of accumulated provision for redelivery of aircraft acquired on operating lease of Rs.3,28,55,249/- (cessation under Section 41(1) invoked by AO) - HELD THAT: - The Assessing Officer invoked Section 41(1) alleging cessation of liability; both the CIT(Appeals) and the Tribunal found as a fact that the leases for the aircrafts were extended and there was no cessation or remission of liability. The High Court agreed that Section 41(1) applies only where an allowance/deduction in an earlier year results in a benefit obtained in a subsequent year due to cessation/remission; in the present facts no cessation or benefit occurred and the provision continued to be necessitated by the extended leases. [Paras 4]

Question does not give rise to any substantial question of law; not entertained (addition deleted as Section 41(1) inapplicable).

Prior period income adjustment - Disallowance of reduction of prior period income by Rs.68,50,425/- (rectification/adjustment treated as not allowable by AO) - HELD THAT: - The assessee reduced an earlier write-back on inventory by a rectification entry and produced a tax-auditor certificate; CIT(Appeals) and the Tribunal found the amount was erroneously shown as prior period income and was subsequently rectified. The Revenue did not controvert the factual findings. The High Court held the concurrent factual findings were not shown to be perverse or arbitrary. [Paras 5]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Business purpose test for director-related expenses - Disallowance of directors' personal expenses of Rs.11,65,950/- - HELD THAT: - The CIT(Appeals) and the Tribunal examined the nature of the expenses (fuel for staff vehicle, hotel accommodation, parking, travel, car hire, driver's expenses, telephone, repair and maintenance, business promotion) and concluded they were incurred for business purposes. The High Court accepted the concurrent findings of fact and noted no perversity or arbitrariness in the conclusion that the expenses were deductible business expenditures. [Paras 6]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Depreciation on aircraft acquired on finance lease - validity of revised return of income - allowability under Section 37(1) - Deletion of addition relating to aircraft taken on finance lease of Rs.25,22,70,223/- claimed in revised return - HELD THAT: - The expenditure was claimed in a revised return which was not disputed as invalid. CIT(Appeals) and the Tribunal treated the expenditure as incurred wholly and exclusively for business and allowable under Section 37(1); similar claims in other assessment years had been allowed. The High Court held the Assessing Officer was not justified in rejecting the claim solely because it appeared in the revised return and accepted that the expenditure is eligible for deduction. [Paras 7]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Sale and lease-back / Section 41(1) of the Income Tax Act - Addition under Section 41(1) on account of sale of five hire-purchase aircrafts (benefit claim of Rs.100.52 Crores) - HELD THAT: - The Assessing Officer treated non-payment of future installments as a benefit under Section 41(1). CIT(Appeals) and the Tribunal held the assessee was the owner, had claimed and been allowed depreciation in earlier years, and on sale the assets were removed from the block so there was no cessation/remission of liability producing a taxable benefit. The High Court reiterated that Section 41(1) is attracted only where an earlier allowance/deduction results in a subsequent year benefit on cessation; here the future installments were never claimed as a deduction/expenditure/loss or trading liability and thus Section 41(1) is not attracted. [Paras 8, 9]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Treatment of provision as contingent liability - Deletion of addition treating provision for obsolescence as contingent liability while computing profit u/s.115JB (Rs.19,47,65,816/-) - HELD THAT: - The Revenue conceded that identical questions had been dismissed in a related Revenue Appeal (Appeal No.1159 of 2010). The High Court observed that these questions had been disposed of following binding precedent and that no distinguishing features were shown to warrant departure. Accordingly the Tribunal's deletion was accepted and no substantial question of law arises. [Paras 10]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Depreciation on aircraft acquired on hire-purchase/finance lease - Deletion of addition on account of depreciation on aircraft acquired on hire purchase (Rs.98,42,67,988/-) - HELD THAT: - The High Court noted the Revenue had raised identical issues in a related appeal which were dismissed; the impugned deletions follow binding decision and no distinguishing facts were shown. Consequently the question does not raise any substantial question of law. [Paras 10]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Capitalisation of repairs to premises, furniture and fixtures - Deletion of addition treating repair of premises, furniture and fixtures as capital expenditure (Rs.2,85,09,245/-) - HELD THAT: - The Revenue's challenge mirrored issues dismissed in a related Revenue appeal; the Tribunal's deletion was consistent with prior determinations and no legal distinction was shown. The High Court therefore found no substantial question of law to admit. [Paras 10]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Interest income: business income v. income from other sources - Deletion of addition treating interest income as business income instead of income from other sources (Rs.55,42,37,262/-) - HELD THAT: - The Revenue relied on identical questions already dismissed in the related appeal. The High Court observed the impugned deletions followed binding precedent and that no distinguishing features were shown, hence the question lacked substantial legal content to be entertained. [Paras 10]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Provision for gratuity - computation of book profit u/s.115JB - Deletion of addition on account of provision for gratuity while computing book profit u/s.115JB (Rs.104,41,07,743/-) - HELD THAT: - The Tribunal followed binding decision of this Court in Commissioner of Income Tax v. Echjay Forgings Pvt. Ltd. The Revenue did not establish any distinguishing factual feature that would justify not following the precedent. The High Court therefore held the question did not raise a substantial question of law. [Paras 10]

Question does not give rise to any substantial question of law; not entertained (addition deleted).

Computation of book profit u/s.115JB - frequent flyer programme expenses - Admission of appeal on substantial question of law in respect of deletion of addition for leave encashment and frequent flyer expenses and related book-profit adjustments - HELD THAT: - The High Court admitted the appeal on Questions Nos.2, 3, 4 and 8 (relating to leave encashment adjustment in computing book profit u/s.115JB; additions relating to redelivery of aircraft under normal provisions; provision for redelivery of aircraft; and frequent flyer expenses under section 115JB). These issues were not decided on merits by the High Court and remain for consideration-the Registry was directed to communicate with the Tribunal so records can be produced and the matters to be heard (to be heard along with a related appeal). [Paras 11]

Appeal admitted on the substantial questions of law framed at Questions Nos.2, 3, 4 and 8; those issues remain to be adjudicated further.

Final Conclusion: The High Court declined to entertain as substantial questions of law the Revenue's challenges on multiple additions and deletions (questions exemplified at paras 3-10), concluding that concurrent factual findings and applicability of Section 41(1) and relevant precedents did not warrant interference; the appeal was admitted only on Questions Nos.2, 3, 4 and 8 which are retained for further adjudication and the Tribunal directed to keep the papers ready for production.

Arm's length price (ALP) in international transactions - Transactional Net Margin Method (TNMM) under Rule 10B(1)(e) - Comparable Uncontrolled Price (CUP) method and internal CUP - Use of actual realized profit margin as Profit Level Indicator (PLI) - Adjustment permitted in profit margins of comparables, not in assessee's realized margin - Comparability analysis and functional profile matching for selecting comparables - Related party transactions (RPT) threshold affecting comparability - Eligibility for deduction under section 10A and its effect on transfer pricing adjustments - Proviso to section 92C(4) - non allowance of deductions in respect of income enhanced by TP adjustment

Use of actual realized profit margin as Profit Level Indicator (PLI) - Transactional Net Margin Method (TNMM) under Rule 10B(1)(e) - Validity of assessee's PLI computed by including projected profits for subsequent years - HELD THAT: - The Tribunal held that under section 92/92C read with Rule 10B(1)(e) the ALP comparison under TNMM requires the net profit margin 'realized' by the enterprise from the international transaction to be computed on actual figures. Projected profits for subsequent years cannot replace the actual income/profit earned in the year under consideration. The assessee's use of a four year weighted average including three years of projections was therefore impermissible and rejected. The Tribunal upheld the TPO's computation based on actual current year figures. [Paras 6]

Assessee's computation of PLI by including projected profits is rejected; TPO's calculation on actual year figures sustained.

Adjustment permitted in profit margins of comparables, not in assessee's realized margin - Foreign exchange fluctuation - Whether foreign exchange fluctuation adjustment can be made to assessee's PLI or must be applied to comparables - HELD THAT: - Interpreting Rule 10B(1)(e) the Tribunal held that adjustments to account for differences between international and comparable uncontrolled transactions are to be effected in the margins of the comparables and not by altering the actual realized margin of the assessee. On the facts-agreements effective from 1.4.2007 and common impact of exchange movement on comparables-the Tribunal found no basis to allow any exchange rate adjustment either to the assessee's margin or to the comparables in the instant case. [Paras 7]

No foreign exchange adjustment to assessee's PLI; no adjustment to comparables warranted on the facts; TPO's approach upheld.

Comparable Uncontrolled Price (CUP) method and internal CUP - Transactional Net Margin Method (TNMM) under Rule 10B(1)(e) - Permissibility of applying revenue sharing/internal CUP as alternative benchmark instead of TNMM - HELD THAT: - The assessee first adopted TNMM and was accepted as the tested party. The Tribunal observed that internal CUP compares the price charged by the assessee with prices charged by it in uncontrolled transactions; the assessee's revenue sharing arrangement between its AE and third parties relates to the AE and not to price charged by the assessee in uncontrolled transactions. No evidence of a comparable uncontrolled price charged by the assessee was furnished. The DRP's rejection of the CUP argument was therefore upheld and TNMM remained the most appropriate method. [Paras 8]

Assessee's CUP/revenue sharing argument rejected; TNMM retains primacy as the appropriate method.

Comparability analysis and functional profile matching for selecting comparables - Exclusion of Avani Cimcon Ltd. from the final list of comparables - HELD THAT: - On examination of public records and earlier tribunal findings, Avani Cimcon Ltd. was found to be a product company owning software products and IP, which materially differentiates its functional profile from the assessee-a captive software services provider without IP. Such product company characteristics render it non comparable on an entity level to the assessee. [Paras 14]

Avani Cimcon Ltd. excluded from the list of comparables.

Comparability analysis and functional profile matching for selecting comparables - Comparability challenge in respect of Bodhtree Consulting, Persistent Systems Ltd., Quintegra Solutions Ltd., Tata Elxsi, Thirdware Solutions Ltd. - HELD THAT: - Although these companies were accepted as comparables before the TPO, the assessee contested their comparability before the Tribunal. The Tribunal held that an assessee may challenge inclusion before the Tribunal and, since the TPO had not examined comparability on the points now raised, remittance to AO/TPO was necessary so comparability of these companies may be examined afresh in accordance with principles of functional comparability. [Paras 15]

Matter remitted to AO/TPO for fresh examination of comparability of these companies.

Comparability analysis and functional profile matching for selecting comparables - Inclusion of e Zest Solutions as a comparable - HELD THAT: - The company's annual report and auditor's annexure indicate engagement in software development with no inventory or product sales. Its functional profile aligns with the assessee's software development services. The Tribunal found its inclusion by the TPO justified and rejected the assessee's contention that it was KPO versus BPO. [Paras 16]

E Zest Solutions retained in the list of comparables.

Comparability analysis and functional profile matching for selecting comparables - Exclusion of Infosys Technologies Ltd. from the final list of comparables - HELD THAT: - Applying functional and other relevant factors (size, brand, IP, R&D, risk profile), and following jurisdictional High Court precedents, the Tribunal concluded Infosys's scale, branded products and IP distinguish it materially from the assessee (a captive service provider), making Infosys incomparable. [Paras 17]

Infosys Technologies Ltd. excluded from the list of comparables.

Comparability analysis and functional profile matching for selecting comparables - Exclusion of KALS Information Systems Ltd. (segmental) from comparables - HELD THAT: - The company's segmental statements aggregate software products with development under 'Application software' and thus include product income. Inclusion of product effects in comparables distorts comparability with a pure services provider. Therefore the company was held non comparable. [Paras 18]

KALS Information Systems Ltd. (segment) excluded from the list of comparables.

Comparability analysis and functional profile matching for selecting comparables - Intellectual property rights (IPR) and R&D as comparability factors - Exclusion of Wipro Ltd. (segmental) from comparables - HELD THAT: - Although the software development segment was considered, Wipro owns significant IPR and undertakes R&D, factors that materially affect profitability. A captive service provider without IPR cannot be compared with an entity leveraging proprietary IP; thus segmental inclusion was inappropriate. [Paras 19]

Wipro Ltd. (software segment) excluded from the list of comparables.

Comparability analysis and functional profile matching for selecting comparables - Retention of Softsol India Ltd. as a comparable - HELD THAT: - Although initially contested, the assessee subsequently accepted Softsol's comparability. The Tribunal approved the inclusion and the TPO's approach on this point. [Paras 20]

Softsol India Ltd. retained in the list of comparables.

Related party transactions (RPT) threshold affecting comparability - Comparability analysis and functional profile matching for selecting comparables - Exclusion of Aditya Birla Minacs group companies from comparables - HELD THAT: - The TPO found RPT ratios exceeding commonly applied thresholds (over 25%), indicating controlled character and non comparability; additionally these entities had product sales which further differentiated them from the assessee. Reimbursement items counted in RPT were also addressed and held appropriately included. On overall evaluation, exclusion was upheld. [Paras 22]

Aditya Birla Minacs IT Services Ltd. and Aditya Birla Minacs Tech. Ltd. excluded from comparables.

Comparability analysis and functional profile matching for selecting comparables - Exclusion of Indium Software (I) Ltd. from comparables - HELD THAT: - The company derived material revenue from 'Sale of software' and also provided training income; even if some items were small, their presence could affect overall profitability. The Tribunal agreed with the TPO that Indium was functionally different and non comparable. [Paras 23]

Indium Software (I) Ltd. excluded from the list of comparables.

Comparability analysis and functional profile matching for selecting comparables - Inclusion of SIP Technologies and Exports Ltd. as comparable - HELD THAT: - On review of annual accounts the Tribunal found no abnormal investment activity affecting margins and noted the company is engaged exclusively in software development services; therefore it is functionally comparable to the assessee and should be reinstated as a comparable. [Paras 24]

SIP Technologies and Exports Ltd. included in the list of comparables.

Comparability analysis and functional profile matching for selecting comparables - Exclusion of VMF Soft Tech Ltd. from comparables due to outsourcing - HELD THAT: - Annual accounts showed the company outsourced the major part of its software activity via substantial sub contracting costs; such operational model materially differs from assessee's in house service provisioning and renders VMF non comparable. [Paras 25]

VMF Soft Tech Ltd. excluded from the list of comparables.

Eligibility for deduction under section 10A and its effect on transfer pricing adjustments - Proviso to section 92C(4) - non allowance of deductions in respect of income enhanced by TP adjustment - Whether availability of deduction under section 10A bars making of transfer pricing addition or entitles assessee to corresponding increase in deduction - HELD THAT: - The Tribunal held that the statutory scheme contains no exception exempting assessees enjoying section 10A deduction from determination of ALP; subsection (4) and its proviso to section 92C expressly contemplate computation of total income after determination of ALP and bar allowance of deduction under section 10A (or Chapter VIA) in respect of the amount by which income is enhanced due to TP adjustment. The Special Bench precedents support that TP provisions apply notwithstanding 10A eligibility. Consequently neither immunity from TP adjustments nor automatic allowance of additional 10A deduction for the TP addition is permissible. [Paras 26]

Eligibility to section 10A does not bar TP adjustments; deduction under section 10A cannot be allowed in respect of income enhanced by TP adjustment.

Remand for fresh determination of ALP in accordance with appellate findings - Whether matter should be remitted for fresh determination of ALP - HELD THAT: - In light of the Tribunal's findings on PLI calculation, foreign exchange adjustments, CUP/TNMM issue and the directions on which comparables are to be excluded, included or re examined, the Tribunal found it necessary to remit the matter to the file of AO/TPO to re compute the ALP of the software development services international transaction consistent with these conclusions, allowing the assessee reasonable opportunity of hearing. [Paras 27]

Matter remitted to AO/TPO for fresh determination of ALP in accordance with Tribunal's directions.

Deduction under section 10A - eligibility of reversed/credited amounts - Claim for inclusion of Rs. 1,22,342 in eligible profit of Noida unit for 10A deduction - HELD THAT: - The Tribunal accepted that items earlier claimed (provision written back and miscellaneous/bank refund) had reduced earlier years' eligible income and were reversed in the current year. The AO had apportioned and placed Rs. 1,22,342 against the Noida eligible unit. The Tribunal held that the reversed amounts relatable to the eligible unit should be included for computing eligible profit for section 10A purposes. [Paras 28]

Direct the inclusion of Rs. 1,22,342 in eligible profit of Noida unit for section 10A deduction.

Depreciation disallowance and its interaction with section 10A - Sustainability of disallowance of depreciation of Rs. 1,53,300 and corresponding effect on section 10A deduction - HELD THAT: - The depreciation relating to provision of computer software had been disallowed in the earlier year and the opening WDV was correspondingly excessive. The Tribunal upheld AO's disallowance of Rs. 1,53,300 for the year under appeal. However the Tribunal directed that the consequent increase in eligible profits of the Noida unit (resulting from the disallowance) be allowed as deduction under section 10A-so that the disallowance is effectively set off by increased 10A claim. [Paras 29]

Disallowance of depreciation of Rs. 1,53,300 upheld; assessee to be allowed corresponding benefit under section 10A so there is no net addition on this account.

Final Conclusion: The Tribunal partly allowed the appeal: it upheld the TPO's rejection of projected profits and the treatment of foreign exchange and CUP arguments; excluded specified comparables (Avani Cimcon, Infosys, KALS segment, Wipro segment, VMF, Indium, Aditya Birla Minacs group) and retained/accepted others (e Zest, Softsol, SIP), remitted the issues of certain comparables (Bodhtree, Persistent, Quintegra, Tata Elxsi, Thirdware) and directed AO/TPO to re determine the ALP of the software development services international transaction in conformity with these findings; allowed inclusion of Rs. 1,22,342 in Noida unit's eligible profit for section 10A and upheld depreciation disallowance of Rs. 1,53,300 but directed corresponding 10A relief, with consequential interest/contentions disposed accordingly.

Exemption under section 54 - indexation of cost of acquisition - treatment of assets acquired by inheritance - computation of long-term capital gains

Exemption under section 54 - investment in residential property outside India - conditions for grant of exemption - Entitlement to exemption under section 54 in respect of investment made in a residential property situated outside India - HELD THAT: - The Tribunal followed its Coordinate Bench decisions which held that, for assessment years prior to the statutory amendment effective A.Y. 2015-16, the plain language of section 54 did not restrict the new residential house to be situated in India. Applying those precedents to the facts, the Tribunal held that the assessee is prima facie entitled to exemption under section 54 for the amount invested in the acquisition of the residential property in the USA, subject to compliance with the other statutory conditions. The AO was directed to verify fulfillment of the conditions of section 54, including verification of the actual acquisition by reference to transfer deeds and other requisite particulars, before allowing the exemption in computation. [Paras 4]

Exemption under section 54 allowed in principle for the investment in the foreign residential property; AO to verify compliance with other conditions and actual acquisition.

Indexation of cost of acquisition - treatment of assets acquired by inheritance - reference year for indexation - Date to be adopted for computing indexed cost of acquisition of the share of property received by inheritance - HELD THAT: - Relying on the jurisdictional decision in Manjula J. Shah, the Tribunal held that where the asset was first held by an earlier owner prior to 01.04.1981, indexation is to be allowed with reference to 01.04.1981 even though the assessee became owner later by inheritance. Applying that principle to the facts - where 50% of the property was first held by the previous owner before 01.04.1981 - the Tribunal directed that indexation of the entire cost of acquisition be computed with effect from 01.04.1981 and not from the year in which the assessee became owner in 2006. [Paras 9]

Indexation of the cost of acquisition of the inherited property to be allowed from 01.04.1981 for computing long-term capital gains; Revenue's appeal dismissed on this point.

Final Conclusion: Assessee's appeal for A.Y. 2009-10 allowed (exemption under section 54 permitted in principle subject to verification); Revenue's cross-appeal dismissed (indexation to be allowed from 01.04.1981).

Registration under section 80G(5) - charitable purpose under section 2(15) - not expressed to be for the benefit of any particular religious community or caste - Explanation 3 to section 80G(5) - whole or substantially whole of which is of a religious nature - 80G(5B) deeming provision regarding limited religious expenditure

Registration under section 80G(5) - not expressed to be for the benefit of any particular religious community or caste - Assessee entitled to registration under section 80G(5) for the relevant previous year - HELD THAT: - The Tribunal found that the assessee's objects and activities, read as a whole, are not expressed to be for the benefit of any particular religious community or caste and therefore do not fall within clause (iii) of section 80G(5). The material on record (objects clause, accounts and undisputed activities such as education, medical relief, relief to poor, distribution of provisions, free medical camps, library, training centres and aid to flood victims) demonstrates charitable activity of general public utility. The Revenue produced no evidence to show that the trust's objects or activities advance, support or propagate a particular religion or restrict entry or benefits to a religious community. Applying the statutory test in section 80G(5) and the authorities considered, the Tribunal held that the condition in clause (iii) is not attracted and directed grant of registration under section 80G(5) for the previous year ending 31-03-2015. [Paras 6, 7, 8]

Appeal allowed and CIT(E) directed to grant section 80G(5) registration for the previous year ending 31-03-2015.

Explanation 3 to section 80G(5) - whole or substantially whole of which is of a religious nature - 80G(5B) deeming provision regarding limited religious expenditure - charitable purpose under section 2(15) - Whether the trust's objects or expenditure render it excluded by Explanation 3 or saved by the 5% deeming provision - HELD THAT: - The Tribunal observed that Explanation 3 excludes only where the whole or substantially the whole of the institution's objects are religious in nature. Here, the assessee's activities predominantly relate to charitable objects listed in section 2(15) (education, medical relief, relief to poor and other objects of public utility). The accounts showed negligible or no expenditure for religious purposes in the relevant year and, in any event, section 80G(5B) permits limited religious expenditure not exceeding the statutory threshold. The onus to prove that the trust is wholly or substantially religious rests on the Revenue, which failed to discharge it. Consequently, Explanation 3 does not operate to deny registration in this case. [Paras 5, 6, 7]

Explanation 3 not attracted and, where applicable, the 5% deeming provision supports entitlement to registration; Revenue failed to prove that the trust is wholly or substantially for religious purposes.

Final Conclusion: The appeal is allowed; the Tribunal directs the Commissioner to grant the assessee registration under section 80G(5) in respect of the previous year ending 31-03-2015, holding that the trust is not expressed to be for the benefit of any particular religious community or caste and is not wholly or substantially of a religious character.

Transfer - capital asset - relinquishment of rights - long-term capital gains - deduction under section 54F - brokerage or commission - part performance under section 53A of the Transfer of Property Act, 1882 - documents impounded in survey under section 133A of the Income-tax Act, 1961

Relinquishment of rights - transfer - capital asset - long-term capital gains - Whether the sum of Rs. 3 crores received by the assessee is taxable as long term capital gain arising from relinquishment of rights in immovable property or is taxable as brokerage/commission/business income. - HELD THAT: - The Tribunal accepted the factual matrix recorded in the MOU impounded during survey, contemporaneous statements of the purchaser and the assessee, and earlier proceedings to conclude that the assessee had been given rights (including power of attorney and the right to obtain development agreement) which he released in consequence of the transaction. The Tribunal noted that the purchaser paid amounts to multiple parties to obtain the land free of litigation and that the payment to the assessee was for surrendering his rights and withdrawal of the civil suit. Applying the statutory definition of "transfer" and "capital asset" and following precedent that a right to obtain conveyance or other proprietary rights in immovable property constitutes property, the Tribunal held that the receipt represented consideration for relinquishment of a right in a capital asset and therefore resulted in capital gain. The Tribunal also observed that the revenue could not selectively accept parts of the impounded MOU while rejecting other parts, and that commercial expediency of making payments to get the property free of litigation supported treating the payment as genuine consideration for surrender of rights rather than commission. [Paras 26, 29, 31]

The sum of Rs. 3 crores received by the assessee is held to be consideration for relinquishment of rights and constitutes long term capital gain, not brokerage or commission; the Tribunal upholds the view that the amount is chargeable as capital gain.

Deduction under section 54F - verification and quantification - Whether the assessee is entitled to deduction under section 54F in respect of the capital gain arising from the relinquishment. - HELD THAT: - The Tribunal held that, having found the receipt to be capital gain, the assessee is entitled to claim deduction under section 54F. However, the lower authorities had not examined or verified the factual and documentary foundation for the claim for deduction. Consequently the Tribunal restored the matter to the Assessing Officer for verification of the assessee's claim and, upon satisfaction, allowance of appropriate relief under section 54F. The remand is for verification and computation only, not for re-adjudication of the character of the receipt which the Tribunal has determined to be capital gain. [Paras 31]

Issue of allowability and quantification of deduction under section 54F is remitted to the Assessing Officer for verification and appropriate grant of relief if the claim is substantiated.

Compensation for breach of agreement - taxability of damages - Whether the amount received by the assessee is in the nature of damages (compensation) and therefore not exigible to tax. - HELD THAT: - The Tribunal considered the additional ground that the receipt was damages for breach of agreement and thus exempt, but found the contention inapplicable on the facts. The payment, as per the MOU and supporting material, was for surrender of rights and withdrawal of litigation to enable the purchaser to acquire the property, and not a heads up award of damages for breach. The Tribunal therefore rejected the contention that the receipt was taxable as non taxable damages. [Paras 32]

The plea that the Rs. 3 crores constituted damages and were exempt from tax is rejected.

Final Conclusion: The Tribunal holds that the Rs. 3 crores received by the assessee represented consideration for relinquishment of rights in immovable property and is therefore long term capital gain; the assessee may claim deduction under section 54F and the matter of allowability and computation of that deduction is remitted to the Assessing Officer for verification and appropriate relief; the alternative contention that the sum was non taxable damages is rejected. Appeal is partly allowed for statistical purposes.

Deduction under section 57(iii) of the Income tax Act, 1961 - Nexus between interest paid and interest earned - Assessments under section 153A of the Income tax Act, 1961 - Completed assessments-interference only on basis of incriminating material found in search - Rule of consistency/change of opinion in successive assessments

Nexus between interest paid and interest earned - Deduction under section 57(iii) of the Income tax Act, 1961 - Allowability of interest expenditure claimed against interest income where assessing officer disallowed the claim for want of nexus - HELD THAT: - The Tribunal held that the claim for deduction of interest expenditure against interest income had already been examined and allowed in assessments framed pursuant to the first search (order dated 31 12 2009). The Assessing Officer in subsequent assessments framed after the second search disallowed the deduction for want of nexus, but no incriminating material relating to this issue was found in the second search. Applying the principle that completed assessments cannot be disturbed under section 153A except on the basis of incriminating material discovered in the later search, the Tribunal found no reason to upset the earlier allowance. The Tribunal noted that the flow of funds between receipts into the bank account and advances was not disputed and that the CIT(A) had found a direct correlation on perusal of bank statements. Reliance was placed on the Special Bench decision in All Cargo and on decisions of the Bombay and Delhi High Courts to the effect that interference with concluded assessments under section 153A is permissible only if fresh incriminating material is unearthed; accordingly the disallowance was deleted. [Paras 8, 12]

Deduction of interest expenditure allowed; addition of Rs. 47,22,282/- deleted.

Assessments under section 153A of the Income tax Act, 1961 - Completed assessments-interference only on basis of incriminating material found in search - Rule of consistency/change of opinion in successive assessments - Whether assessment orders already concluded pursuant to an earlier search can be reopened under a later search in absence of any new incriminating material - HELD THAT: - The Tribunal reiterated that assessments concluded under section 153A in respect of an earlier search (here, assessments concluded on 31 12 2009) cannot be reopened or changed in subsequent proceedings initiated after a later search unless some incriminating material connected with the issue is discovered in the later search. The Tribunal observed that no such incriminating material was brought on record in the second search and therefore the Assessing Officer was not justified in making fresh additions on the same set of facts. The Tribunal accordingly applied the principle of consistency and followed relevant precedents holding that change of view by a successor officer on identical material, in absence of new incriminating material, is not permissible under section 153A. [Paras 12, 13]

Completed assessments under section 153A cannot be disturbed by the AO in subsequent search proceedings unless new incriminating material is found; Revenue's appeal dismissed on this ground.

Assessments under section 153A of the Income tax Act, 1961 - Applicability of the Tribunal's decision to the other two assessment years before the Tribunal - HELD THAT: - The Tribunal applied the reasoning recorded in respect of assessment year 2007 08 mutatis mutandis to assessment years 2008 09 and 2009 10, observing that the same facts and legal principles governed those years and no new incriminating material had been produced for them either. [Paras 13]

Order for 2007 08 applies mutatis mutandis to 2008 09 and 2009 10; Revenue's appeals for those years dismissed.

Final Conclusion: Revenue's appeals for assessment years 2007 08, 2008 09 and 2009 10 are dismissed; the disallowance of interest expenditure was deleted because the claim had been previously examined and allowed in assessments pursuant to the first search and no incriminating material was found in the subsequent search to justify disturbing those concluded assessments.

Deduction under section 80IB(10) - date of completion to be the date of issue of completion certificate by local authority - effect of Finance Act, 2004 (w.e.f. 01-04-2005) introducing requirement of completion certificate - delay in issuance of completion certificate attributable to local authority and not to assessee - benefit of a possible view in favour of the assessee where two views exist

Deduction under section 80IB(10) - date of completion to be the date of issue of completion certificate by local authority - effect of Finance Act, 2004 (w.e.f. 01-04-2005) introducing requirement of completion certificate - delay in issuance of completion certificate attributable to local authority and not to assessee - Assessee entitled to deduction under section 80IB(10) for the project 'Laxmi Vihar' despite the completion certificate being issued after the cutoff where the project was approved prior to 01-04-2005 and steps to obtain completion/occupation certificate were taken before the cutoff and delay in issuance was for reasons beyond assessee's control. - HELD THAT: - The Tribunal found that the project was approved and commenced prior to 01-04-2004 and that the assessee had applied for occupation/completion certificate on 16-05-2005; the final completion certificate was, however, issued by the local authority on 09-10-2009. The Finance Act (No.2), 2004 introduced the insertion requiring production of a completion certificate w.e.f. 01-04-2005. Relying on the principle that the amendment could not be given retrospective effect to deprive an assessee of benefit where the project was approved prior to the amendment, and on coordinate decisions of the Tribunal and High Courts favourable to the assessee, the Tribunal held that non-issuance of the completion certificate by the local authority before the prescribed cutoff cannot be attributed to the assessee when the assessee had taken all necessary steps and there was no objection recorded by the municipal authority. The Tribunal distinguished the decision of the Hon'ble Madhya Pradesh High Court in Commissioner of Income Tax Vs. Global Reality on facts and observed that the view taken by the Hon'ble Delhi High Court in Commissioner of Income Tax Vs. CHD Developers Ltd. and related Tribunal decisions represent a possible view which must be followed in favour of the assessee in accordance with the Supreme Court authority cited by the assessee in Commissioner of Income Tax Vs. Vegetable Products Limited . Applying these principles, the Tribunal concluded that the delay in issuance of completion certificate was not attributable to the assessee and therefore non-obtaining of the completion certificate in the circumstances did not render the assessee ineligible for deduction under section 80IB(10) for the impugned assessment years. [Paras 8, 9, 10, 11, 12]

Impugned disallowances of deduction under section 80IB(10) are set aside and the assessee's claim under that provision is allowed for the assessment years in question.

Final Conclusion: Appeals partly allowed; the Tribunal set aside the orders denying deduction under section 80IB(10) and held the assessee eligible for the deduction in respect of the 'Laxmi Vihar' project for AYs 2003-04 to 2006-07.

Disallowance of expenditure on account of alleged accommodation entries - estimation of disallowance where supporting evidence is deficient - offer-based settlement of disputed expenditure - deemed income under section 41(1) / cessation of liability - onus on assessing officer to prove remission or cessation of liability

Disallowance of expenditure on account of alleged accommodation entries - estimation of disallowance where supporting evidence is deficient - offer-based settlement of disputed expenditure - Whether the Assessing Officer's disallowance of the entire subcontract expenditure debited in the names of 14 parties could be sustained or should be restricted. - HELD THAT: - The Tribunal examined the material: confirmations from 14 parties, income-tax return and bank-account copies from some, M.Book entries with supervisors' signatures, TDS and payments by cheque, and that two parties did not respond to summons. The Assessing Officer disallowed the entire amount on the basis that most payments lacked bills and some parties appeared non-genuine. The CIT(A) accepted that while some deficiency in documentary support existed and there was potential inflation, the existence of work and payments was not disproved; having regard to earlier practice and comparable authorities permitting estimation, and in view of the assessee's offer to treat 10% of the claimed amount as additional income, the CIT(A) restricted disallowance to 10% of the disputed expenditure. The Tribunal agreed that, given the nature of roadwork contracts, M.Book entries counter-signed by subcontractors, evidence of payments and TDS, and the absence of affirmative material showing payments were sham or wholly non-genuine, the Assessing Officer could not sustain rejection of the entire claim; where evidence is deficient part of the expenditure may be estimated and disallowed. Applying that principle, the Tribunal upheld the CIT(A)'s discretion to restrict the disallowance to 10% of the subcontract expenses. [Paras 5]

Tribunal dismissed Revenue's ground and sustained the CIT(A)'s restriction of disallowance to 10% of the subcontract expenditure.

Deemed income under section 41(1) / cessation of liability - onus on assessing officer to prove remission or cessation of liability - Whether amounts payable to creditors outstanding for more than three years could be treated as income under section 41(1) by presuming cessation of liability. - HELD THAT: - The Assessing Officer treated long-outstanding creditors as having ceased and made additions under section 41(1). The CIT(A) found no evidence of remission: the assessee had not written off the liabilities in its books, no enquiry was made by the AO to establish that creditors had given up their dues, and Explanation 1 to section 41(1) did not apply. The Tribunal held that mere passage of time and the presence of amounts in the balance sheet do not permit presuming cessation; where the assessee continues to acknowledge the liability in its accounts the Assessing Officer must bring material showing remission or cessation before invoking section 41(1). In absence of such material, the addition was unjustified. [Paras 8]

Tribunal confirmed the CIT(A)'s deletion of the addition made under section 41(1).

Final Conclusion: The Revenue's appeal is dismissed: the Tribunal upheld the CIT(A)'s restriction of the subcontract expense disallowance to 10% and confirmed deletion of the addition under section 41(1) for alleged cessation of creditors' liability.

Interest on refund under section 244A - Entitlement to interest on excess tax paid including self-assessment tax, advance tax and TDS - Exclusion of interest on interest - Computation period of interest and exclusion of period attributable to the assessee

Interest on refund under section 244A - Entitlement to interest on excess tax paid including self-assessment tax, advance tax and TDS - Assessee is entitled to simple interest under section 244A on refund of excess tax paid irrespective of the mode of payment (self-assessment tax, advance tax or TDS). - HELD THAT: - Having examined section 244A and the cited authorities, the Tribunal held that where a refund of any amount becomes due to the assessee, the assessee is entitled to receive simple interest thereon. The character of the payment (whether advance tax, tax deducted at source or self-assessment tax) does not exclude it from being a pre-paid tax for the purposes of attracting interest under section 244A. Consequently, excess tax paid by whatever name called qualifies for interest under the statutory scheme, and the assessee's claim for interest on the refunded amount is maintainable. [Paras 7]

Allowed the appellant's claim for interest on excess tax paid; appeal allowed on this ground.

Exclusion of interest on interest - Assessee is not entitled to claim interest on interest (i.e., interest that accrued to the assessee by reason of the delayed refund). - HELD THAT: - The Tribunal, after considering the statutory provisions and precedents, observed that section 244 and section 244A prescribe the procedure and calculation of refund and interest thereon and do not permit recovery of compound interest or interest upon interest. The appellant's claim for interest on interest was therefore rejected. [Paras 7, 9]

Claim for interest on interest denied.

Computation period of interest and exclusion of period attributable to the assessee - Interest is payable after adjustment of taxes due and from the date from which the assessee claims it; any period of delay attributable to the assessee must be excluded as provided in section 244A. - HELD THAT: - The Tribunal noted that section 244A prescribes the manner and periods for calculation of interest and contemplates exclusion of periods of delay attributable to the assessee. The refund interest is payable after adjustment of taxes due and is to be computed from the date from which the assessee claims the refund, subject to exclusion of any period of delay attributable to the assessee as determined under the statute. [Paras 8, 9]

Interest to be paid after adjustment of taxes due and from the date the assessee claims the refund, with exclusion of any period attributable to the assessee.

Final Conclusion: The Tribunal allowed the appeal, holding that the assessee is entitled to simple interest under section 244A on the refund of excess tax paid (whether by TDS, advance tax or self-assessment tax), rejected the claim for interest on interest, and directed that interest be computed after adjustment of taxes due and from the date the assessee claimed the refund subject to exclusion of any period of delay attributable to the assessee.

Registration under section 12A - approval under section 80G - charitable purpose - education - CIT(Exemptions)'s power limited to examination of objects at registration stage - genuineness of activities to be tested after commencement and on assessment - section 13(2)(g) allegations not a ground to refuse initial registration

Registration under section 12A - charitable purpose - education - CIT(Exemptions)'s power limited to examination of objects at registration stage - genuineness of activities to be tested after commencement and on assessment - section 13(2)(g) allegations not a ground to refuse initial registration - Denial of registration under section 12A of the Income-tax Act to the appellant-trust - HELD THAT: - The Tribunal held that at the stage of initial registration the CIT(Exemptions) is confined to examining whether the objects of the trust, as set out in the trust deed, are charitable. The appellant's objects, being the imparting of education in medical and related areas, fall within charitable purpose and the procedural requirements had been complied with. Allegations that a settler's son was constructing a building in the name of a private company and references to a possible violation of section 13(2)(g) do not justify refusal of registration because (i) there was no finding that trust funds were so applied, and (ii) issues of misuse, application of funds and contravention of section 13 are matters for assessment or for cancellation proceedings under the statutory scheme after registration. The Tribunal followed the legal position in the cited High Court and Tribunal authorities that genuineness of activities can be examined only after activities commence and that registration cannot be refused for the reasons relied upon by the CIT(Exemptions). Accordingly the CIT(Exemptions)'s order denying registration was set aside and registration under section 12A was directed to be granted. [Paras 8, 9]

Registration under section 12A directed to be granted to the appellant-trust.

Approval under section 80G - approval consequential on registration - Denial of approval under section 80G of the Income-tax Act to the appellant-trust - HELD THAT: - The Tribunal treated the denial of approval under section 80G as consequential to the wrongful denial of registration under section 12A. Because the Tribunal directed grant of registration, it also directed grant of approval under section 80G, noting that the CIT(Exemptions) had refused 80G for the same reasons used to deny section 12A registration. Therefore, having set aside the refusal of registration, the Tribunal ordered approval under section 80G to be granted. [Paras 10]

Approval under section 80G directed to be granted to the appellant-trust.

Final Conclusion: The Tribunal allowed the appeals: the denial of registration under section 12A was set aside and registration was directed to be granted; approval under section 80G was held to be consequential and was likewise directed to be granted.

Genuineness of trust activities at initial registration - registration under section 12A as a charitable trust - approval under section 80G consequential on 12A registration - examination of objects of the trust for charitable nature at registration

Genuineness of trust activities at initial registration - registration under section 12A as a charitable trust - examination of objects of the trust for charitable nature at registration - Denial of registration under section 12A on the ground that the trust had not yet commenced activities. - HELD THAT: - The Tribunal found the CIT(Exemptions)'s sole reason for refusal - that the assessee-trust had not commenced activities and therefore had not established the genuineness of its objects - to be legally impermissible. Relying on the ratio of the jurisdictional High Court in CIT Vs Sri Gururaja Seva Samithi and the decision in Sanjeevamma Hanumanthe Gowda Charitable Trust Vs DIT(Exemptions) , the Tribunal held that verification of the genuineness of activities is a matter that arises after registration when the trust commences activities and income streams. At the stage of initial registration the proper inquiry for the tax authority is whether the objects as set out in the trust deed are charitable in nature; the CIT is not entitled to test the actual nature or quantum of activities which can only be examined subsequently in assessment proceedings. Applying these principles to the facts, the Tribunal directed the CIT(Exemptions) to grant registration under section 12A after satisfying himself that the objects are charitable in nature, and restored the matter to the file of the CIT(Exemptions) for that limited purpose.

Registration under section 12A was to be granted; the CIT(Exemptions)'s refusal for want of commenced activities quashed and matter remitted for grant of registration after satisfaction about charitable objects.

Approval under section 80G consequential on 12A registration - Whether approval under section 80G could be denied independently when 12A registration was refused. - HELD THAT: - The Tribunal treated approval under section 80G as consequential upon registration under section 12A. Having directed that registration under section 12A be granted after satisfying himself as to the charitable nature of the objects, the Tribunal restored the 80G application to the file of the CIT(Exemptions) with the direction that if registration under section 12A is granted, approval under section 80G should be considered and granted accordingly. Thus, the 80G issue was not finally adjudicated on merits but remitted for consequential decision in the light of the grant of registration.

The 80G approval issue was remitted as consequential to grant of registration under section 12A and restored to the CIT(Exemptions) for appropriate action.

Final Conclusion: The Tribunal set aside the CIT(Exemptions)'s refusal to register the trust under section 12A for want of commenced activities, directed the CIT to grant registration after satisfying himself that the objects are charitable, and remitted the consequential application for approval under section 80G to the CIT(Exemptions) for decision upon grant of registration; appeals partly allowed for statistical purposes.

Estimation of income by applying net profit rate - unverifiable purchases - double disallowance - cash credit under section 68

Estimation of income by applying net profit rate - unverifiable purchases - Appropriate net profit rate to be applied for estimating income where purchases were not substantiated by bills and AO had made ad hoc disallowance of 15% of purchases. - HELD THAT: - AO treated part of purchases as non-genuine and made an ad hoc disallowance of 15% of purchases. CIT(A) after examining the nature of the waste-paper trade, comparative orders in the circle and the assessee's disclosed gross profit, directed adoption of net profit rate of 2% for estimation. The Tribunal noted absence of purchase bills before AO and CIT(A) but observed no material demonstrating year-to-year trend of turnover and NP/GP; it considered remand undesirable as it would prolong litigation. Applying judicial discretion on facts, the Tribunal held that a slightly higher NP rate than CIT(A)'s would better meet ends of justice and directed adoption of NP rate at 2.5% for computation of taxable income. [Paras 5]

Net profit rate of 2.5% to be adopted for estimating taxable income; Revenue's appeal on this ground allowed and assessee's cross-objection dismissed.

Double disallowance - Validity of AO's adhoc disallowance of part of indirect expenses when CIT(A) had directed application of a net profit rate. - HELD THAT: - AO disallowed a portion of indirect expenses on the ground that supporting evidence was not produced. CIT(A) deleted the disallowance observing that expenses cannot be disallowed on adhoc basis, AO had not recorded concrete findings, and confirming an adhoc disallowance in addition to adopting a NP rate would amount to double disallowance. Revenue did not controvert the CIT(A)'s finding of double disallowance before the Tribunal. In view of the unchallenged reasoning and to avoid duplicative adjustments, the Tribunal upheld the deletion. [Paras 6]

Deletion of the adhoc disallowance of indirect expenses upheld; Revenue's appeal on this ground dismissed.

Cash credit under section 68 - Whether advances accepted in the balance sheet constituted unexplained cash credits under section 68 where confirmations and ledger copies were produced before CIT(A). - HELD THAT: - AO treated advances against sales as cash credit u/s 68 in absence of confirmations. CIT(A) accepted the confirmations and ledger copies furnished before him and deleted the addition. The Tribunal found no material placed by Revenue to rebut the CIT(A)'s factual finding that confirmations and ledger account copies were on record, and accordingly declined to interfere with the deletion. [Paras 7]

Addition made u/s 68 deleted; Revenue's appeal on this ground dismissed.

Final Conclusion: Tribunal directed estimation of income by applying net profit rate of 2.5% (allowing Revenue's appeal in part), and upheld CIT(A)'s deletions of the adhoc disallowance of indirect expenses and the addition under section 68; assessee's cross-objection dismissed.

Validity of bail conditions - Habeas corpus and maintainability - Lawful arrest under Section 104 of the Customs Act - Failure to initiate criminal proceedings for alleged economic offences - Investigation into dereliction of duty by customs officials

Validity of bail conditions - Habeas corpus and maintainability - Quashing of the condition imposed by the High Court directing the detenu to deposit Rs. 4.5 crores as a prerequisite for bail. - HELD THAT: - The High Court had entertained a habeas corpus petition and granted bail subject to conditions including deposit of Rs. 4.5 crores. This Court examined the correctness of that condition. Having regard to the proceedings and the stay previously granted by this Court on the deposit direction, the Court found it appropriate to quash the conditional requirement imposed by the High Court. The appeal filed by the detenu is allowed insofar as the impugned bail condition is concerned and those conditions are set aside. The criminal appeal filed by the Union of India challenging the High Court's order on maintainability is dismissed. [Paras 8]

The conditions imposed by the High Court requiring deposit of Rs. 4.5 crores for grant of bail are quashed; the detenu's appeal is allowed and the Union's appeal is dismissed.

Lawful arrest under Section 104 of the Customs Act - Failure to initiate criminal proceedings for alleged economic offences - Investigation into dereliction of duty by customs officials - Direction for investigation into why criminal proceedings were not initiated against the detenu and concerned officials despite arrest on allegations of offences under the Customs Act. - HELD THAT: - The Court observed that, notwithstanding the arrest of the detenu under statutory power (Section 104 of the Customs Act) on allegations of offences under Sections 111 and 135 read with Section 2(25), no satisfactory explanation was placed on record for the absence of criminal proceedings thereafter. The Court treated the lack of action as prima facie indicative of serious dereliction of duty by the concerned customs officials. In view of the economic nature of the alleged offence and the unexplained inaction, the Court directed the Central Bureau of Investigation to investigate the reasons for non-initiation of proceedings and to submit a report to the competent authority and compliance to this Court. [Paras 6, 7, 9]

Directed the C.B.I. to investigate the failure to initiate criminal proceedings and to report to the competent authority with compliance to this Court.

Final Conclusion: The Court set aside the High Court's condition requiring deposit of Rs. 4.5 crores for bail and allowed the detenu's appeal; the Union's challenge was dismissed. Separately, the Court directed the C.B.I. to investigate the unexplained non-initiation of criminal proceedings against the detenu and concerned officials and to report compliance.

Notice requirement under Section 155(2) of the Customs Act - protection under Section 155 of the Customs Act - prior sanction under the Prevention of Corruption Act - vitiation of prosecution for non-compliance of mandatory procedural protection - inherent jurisdiction under Section 482 Cr.P.C. to quash proceedings

Notice requirement under Section 155(2) of the Customs Act - vitiation of prosecution for non-compliance of mandatory procedural protection - Validity of prosecution where no prior notice as mandated by Section 155(2) of the Customs Act was issued to the accused/customs officers. - HELD THAT: - The Court held that Section 155(2) prescribes a mandatory prior notice requirement and non-compliance renders the prosecution invalid. Reliance was placed on earlier precedents of this Court and the Supreme Court (including J.L. Batra and R. Raju), which construed analogous provisions as applying to proceedings for 'anything done or ordered to be done' under the statute and held that limitation/notice provisions operate irrespective of whether the accused are public servants or private individuals. Applying that principle, the Court concluded that prosecution commenced without the month's previous notice (or within the statutory limitation) contravenes Section 155(2) and is vitiated.

Prosecution is invalidated on account of non-compliance with the mandatory notice requirement of Section 155(2) of the Customs Act.

Prior sanction under the Prevention of Corruption Act - protection under Section 155 of the Customs Act - Whether obtaining sanction under the Prevention of Corruption Act obviates the requirement of prior notice under Section 155(2) of the Customs Act. - HELD THAT: - The Court rejected the contention that sanction under the Prevention of Corruption Act supplants or removes the independent statutory protection conferred by Section 155(2). It observed that the two protections operate independently and the presence of sanction under the Prevention of Corruption Act does not cure the absence of the notice mandated by the Customs Act. Reliance on higher authority that invalidated prosecutions for non-compliance with similar notice/limitation provisions reinforced this conclusion.

Sanction under the Prevention of Corruption Act does not obviate the requirement of prior notice under Section 155(2) of the Customs Act; both protections are independent.

Inherent jurisdiction under Section 482 Cr.P.C. to quash proceedings - abuse of process - Maintainability of petitions under Section 482 Cr.P.C. to quash charges and whether this Court should exercise inherent jurisdiction where prosecution is illegal for non-compliance of Section 155(2). - HELD THAT: - While acknowledging authorities that restrict interference under Section 482 in proceedings under the Prevention of Corruption Act, the Court held that exceptional circumstances exist where inherent jurisdiction is available - specifically, where the prosecution is found illegal due to non-compliance with mandatory statutory protection and continuing trial would be futile and an abuse of process. Given the finding that the prosecution was vitiated by failure to comply with Section 155(2), the Court exercised its inherent powers to set aside the impugned orders and quash proceedings to prevent a trial that would be 'still-born'.

Section 482 Cr.P.C. may be invoked in exceptional cases to quash proceedings; it was appropriately exercised here because the prosecution was illegal for non-compliance with Section 155(2).

Quashing of FIR - vitiation of prosecution for non-compliance of mandatory procedural protection - Whether the FIR against petitioner Raj Kumar Patial should be quashed. - HELD THAT: - Having determined that the prosecution generally was vitiated by non-compliance with the notice requirement of Section 155(2), the Court found it unnecessary to adjudicate additional factual grounds (such as transfer of the petitioner prior to the alleged scam). On the legal ground established, the Court allowed the miscellaneous petition and quashed the FIR insofar as it pertained to petitioner Raj Kumar Patial.

FIR is quashed qua petitioner Raj Kumar Patial.

Final Conclusion: All Criminal Revisions are allowed and the impugned orders framing charges are set aside. The criminal miscellaneous petition quashing the FIR is allowed as to petitioner Raj Kumar Patial. Pending related miscellaneous applications are disposed of.

Legality of administrative policy of categorization of importers - Provisional country cap for import allocation - Allocation by draw of lots and first-come-first-served mechanisms - Wednesbury/unreasonableness review of executive action - Mala fides allegations and abandonment of prior notifications

Legality of administrative policy of categorization of importers - Provisional country cap for import allocation - Allocation by draw of lots and first-come-first-served mechanisms - Wednesbury/unreasonableness review of executive action - Validity of the impugned notification dated 14.9.2015 and the policy of categorising importers and fixing a provisional country cap for import of poppy seeds from Turkey. - HELD THAT: - The court considered whether the policy-dividing applicants into Category A (regular importers) and Category B (others), fixing a provisional country cap for Turkey, prescribing differing maximum allocations and permitting allocation by draw of lots-is arbitrary or illegal. Respondents furnished import statistics and availability figures from the Turkish side to demonstrate a rational basis: historical import proportions showed Category A accounted for the large majority of past imports, and the fixed provisional cap corresponded to quantities available for export. The scheme of higher allotment limits for established importers and lower initial allotments for newer entrants was held to pursue legitimate administrative objectives (assurance of supply by regular importers while permitting entry to newer importers). The adoption of draw of lots as a selection method in circumstances of limited availability and the departure from earlier first come first served practice were considered part of a new policy response to grievances and interim orders, and not so unreasonable as to warrant interference. Although the court observed that the policy might not be the only or best possible method, on the material placed before it the classification and provisional cap could not be characterised as arbitrary or violative of Wednesbury standards; the petition therefore lacked merit on this contention.

The impugned notification and the policy of categorisation and provisional country cap for imports from Turkey are not arbitrary or illegal; challenge dismissed.

Mala fides allegations and abandonment of prior notifications - Standing and participation in administrative process - Effect of prior notifications, allegations of mala fides, and the petitioner's non participation in the registration exercise on the maintainability and merits of the petition. - HELD THAT: - The court recorded that earlier notifications which gave rise to mala fides allegations had been withdrawn/abandoned by the respondents and that the presently challenged notification was issued as an attempt to address grievances and to frame a fairer policy. It was also an admitted fact that the petitioner had not applied under the impugned notification. In these circumstances the historic allegations of favouritism in respect of abandoned notifications were rendered largely irrelevant to the legality of the present policy. The court treated the petitioner's non participation and the withdrawal of earlier notices as factors weighing against interference with the fresh policy, and declined to entertain the petition on those grounds.

Allegations of mala fides relating to earlier, abandoned notifications do not sustain the present challenge; petitioner's non application under the impugned notification undermines the contention and petition dismissed.

Final Conclusion: The petition challenging the notification dated 14.9.2015 and the attendant policy of categorisation, provisional country cap and allocation mechanism is dismissed; respondents' policy is held not to be arbitrary or illegal, though the court encouraged consideration of the petitioner's suggested alternatives for future regulation.

No interference under Article 226 at the interim stage of adjudicatory proceedings - no interference with interim orders of quasi judicial/adjudicating authorities - non supply of non relied upon documents - remedy lies against the investigative agency, not the adjudicating authority - appeal under Section 129A(1)(a) of the Customs Act, 1962

No interference under Article 226 at the interim stage of adjudicatory proceedings - no interference with interim orders of quasi judicial/adjudicating authorities - High Court will not normally exercise jurisdiction under Article 226 to stay or interfere with ongoing adjudication by a statutory adjudicating authority at the interim stage. - HELD THAT: - The Court observed that where a statute confers jurisdiction on a Tribunal or adjudicating authority and proceedings are properly before it, the High Court should not, in exercise of extraordinary jurisdiction under Article 226, intervene during pendency merely because interim relief is sought. Interim directions that would stall or delay adjudicatory proceedings are generally to be avoided; interference is permissible only when proceedings are without jurisdiction. The order of the Commissioner of Customs (Import) dated 29th October, 2015 calling upon the petitioners to file replies was characterised as at best an interim order, and the settled principle is not to disturb such interim orders so as to allow the authority to conclude the proceedings. [Paras 7, 9]

Petitions seeking interim interference under Article 226 were not maintainable on the ground of general non supply of documents and would not be entertained; the High Court will not intervene at this interim stage.

Non supply of non relied upon documents - remedy lies against the investigative agency, not the adjudicating authority - appeal under Section 129A(1)(a) of the Customs Act, 1962 - Grievance for non supply of non relied upon documents is against the investigative agency (DRI) which was not impleaded; the appropriate remedy against the impugned interim direction is by appeal under Section 129A(1)(a) of the Customs Act, 1962. - HELD THAT: - The Court noted that the adjudicating authority possesses only the relied upon documents furnished by the investigative agency and does not hold the non relied upon documents sought by the petitioners; accordingly any grievance about non supply lies against the DRI, which was not made a party to these petitions. The respondent counsel also pointed out that the petitioners' remedy against the order directing filing of replies is before the Appellate Tribunal under Section 129A(1)(a) of the Customs Act, 1962. In view of these facts the writ petitions seeking interim relief for supply of documents were liable to be dismissed. [Paras 5, 10, 11, 12]

Petitions dismissed as not maintainable for want of proper party impleaded and because the appropriate remedy is to pursue the investigative agency or to file the statutory appeal.

Final Conclusion: Writ petitions seeking interim relief for supply of non relied upon documents were disposed of and dismissed: the High Court will not ordinarily interfere under Article 226 at the interim stage of adjudicatory/quasi judicial proceedings, the grievance as to non supply lies against the investigative agency (not impleaded), and the petitioners may pursue the statutory appellate remedy under Section 129A(1)(a) of the Customs Act, 1962.

Sanction of a Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956 - Sanction of scheme involving a wholly owned subsidiary with cancellation of equity and no issuance of transferee shares - Dispensation of separate convening of meetings and dispensation of postal ballot/'e' voting where all consents obtained and no shares to be issued - Compliance with applicable SEBI circulars and Clause 5.16(a) - non-applicability where no new shares are to be issued - Acceptance of Official Liquidator's report and directions for preservation of books and records under Section 396(A) framework - Answering observations of the Regional Director (MCA) including FEMA/RBI and Income tax department queries - Mandated filing, stamping and registration formalities following sanction

Sanction of a Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956 - Sanction of the Scheme of Amalgamation between Zyg Pharma Private Limited (Transferor) and Torrent Pharmaceuticals Limited (Transferee). - HELD THAT: - Having considered the petition, affidavits, the report of the Official Liquidator, the replies to observations of the Regional Director and submissions on record, the Court found that the proposed amalgamation is in the interest of shareholders, creditors and public interest. The Court recorded that the observations made by the Regional Director, Ministry of Corporate Affairs, have been answered on the material before it and that no outstanding objection prevents sanction. On that basis the Scheme is sanctioned and the prayers in Paragraph 17(a) of the petition are granted. [Paras 13, 14]

The Scheme of Arrangement is sanctioned and the petition is disposed of accordingly.

Dispensation of separate convening of meetings and dispensation of postal ballot/'e' voting where all consents obtained and no shares to be issued - Dispensation of meetings of shareholders and secured creditors where written consents exist - Whether separate proceedings, convening of meetings or postal ballot/'e' voting were required in respect of the Transferee Company and the Transferor Company. - HELD THAT: - The Court accepted that the Transferor was a wholly owned subsidiary and that all requisite written consents of equity shareholders and secured creditors of the Transferor had been placed on record, leading to orders earlier dispensing with meetings. Because no new shares of the Transferee Company are to be issued under the Scheme, and given the Chartered Accountant's certificate and Undertaking regarding non-applicability of Clause 5.16(a) of the SEBI circulars, the Court held that separate proceedings and postal ballot/'e' voting were not required in the circumstances. [Paras 5, 6]

Dispensation of separate proceedings, meetings and postal ballot/'e' voting was proper and no such procedure was required.

Sanction of scheme involving a wholly owned subsidiary with cancellation of equity and no issuance of transferee shares - Treatment of equity shares of the Transferor Company held by the Transferee Company and effect on capital structure and shareholders' rights. - HELD THAT: - Clause 8 of the Scheme provides for automatic cancellation of the Transferor Company's equity shares held by the Transferee and for no issuance of new shares by the Transferee. The Court noted that as the capital structure of the Transferee would not change, the rights and interests of existing shareholders would remain unaffected, and therefore no further procedural safeguards relative to issuance of shares were necessary. [Paras 4, 5]

Cancellation of Transferor equity held by Transferee and non-issuance of Transferee shares under the Scheme is acceptable and does not affect existing shareholders' rights.

Acceptance of Official Liquidator's report and directions for preservation of books and records under Section 396(A) framework - Whether the Official Liquidator's report supports dissolution without winding up and whether directions as to preservation of records should be issued. - HELD THAT: - The Official Liquidator reported that the Transferor's affairs were conducted within its objects and not prejudicial to members or public interest, and recommended dissolution without winding up. The Court accepted that report and directed the Transferee to preserve the Transferor's books, papers and records and not to dispose of them without prior Central Government permission, and reiterated that the Transferor shall remain liable to comply with applicable statutory obligations even after sanction. [Paras 8, 9]

Official Liquidator's report accepted; directions issued to preserve records and to ensure statutory liabilities of the Transferor are not absolved.

Compliance with applicable SEBI circulars and Clause 5.16(a) - non-applicability where no new shares are to be issued - Answering observations of the Regional Director (MCA) including FEMA/RBI and Income tax department queries - Whether further directions were necessary in respect of SEBI approvals, FEMA/RBI considerations, accounting treatment of reserves and Income tax Department objections raised by the Regional Director. - HELD THAT: - The Court examined the Regional Director's observations and the petitioners' replies: (i) stock exchanges had issued observation letters after requisite clearances and the Transferee accepted applicability of SEBI circulars but showed non applicability of Clause 5.16(a) since no new shares would be issued; (ii) foreign shareholding details were factual and no prior FEMA/RBI approvals were required for the Scheme though compliance with relevant rules was affirmed; (iii) Clause 11.2 of the Scheme provided for the accounting treatment (Capital Reserve) and no restriction on dividends was necessary as the Scheme did not contemplate distribution from such reserves; and (iv) the lapse of the statutory period for Income tax objections indicated none were outstanding and the petitioner agreed to comply with tax laws. The Court concluded these observations had been adequately answered and required no further directions. [Paras 3, 12, 13]

Observations of the Regional Director on SEBI, FEMA/RBI, accounting treatment and Income tax issues have been answered on the record and no additional directions are required.

Mandated filing, stamping and registration formalities following sanction - Post sanction procedural obligations regarding stamping, filing with Registrar of Companies and issuance of authenticated order copies. - HELD THAT: - The Court directed the petitioner to lodge a copy of the order, the schedule of immovable assets as on the date of the order and the Scheme, duly authenticated by the Registrar, with the Superintendent of Stamps for adjudication within sixty days; to file a copy of the order and Scheme with the Registrar of Companies electronically along with INC 28 and a physical copy; and directed the Registrar to issue authenticated copies of the order and Scheme for action by concerned authorities. [Paras 16, 17, 20]

Petitioner to comply with stamping and filing requirements and Registrar to issue authenticated copies for compliance by authorities.

Quantification and payment of costs to Central Government Standing Counsel and Official Liquidator - Liability to pay costs to the Central Government Standing Counsel and Official Liquidator. - HELD THAT: - The Court quantified costs payable to the Central Government Standing Counsel and to the Official Liquidator and directed that such costs be paid by the Transferor Company to the designated recipients. [Paras 15]

Costs are quantified and directed to be paid by the Transferor Company as ordered.

Final Conclusion: The Scheme of Amalgamation between Zyg Pharma Private Limited and Torrent Pharmaceuticals Limited is sanctioned. The Court accepted the Official Liquidator's report, dispensed with meetings and postal ballot/'e' voting in the circumstances, recorded that SEBI/FEMA/Income tax observations have been answered on the record, directed preservation of Transferor's records, quantified costs, and ordered requisite stamping and filing formalities to be completed by the petitioner.

Right to be heard - non-speaking order - reasoned order - opportunity of personal hearing - service tax liability for Goods Transport Operator Service (16.11.1997 to 01.06.1998) - arguable case

Right to be heard - non-speaking order - reasoned order - The validity of the CESTAT order passed without giving reasons and without affording sufficient opportunity to the assessee - HELD THAT: - The Court found that the Tribunal's order was cryptic and devoid of reasons, quoting the Tribunal's statement that "None appeared for the appeallant although the matter was adjourned from time to time beginging from 02.12.2014." The High Court held that reasons are the soul of a judgment and an order passed without adequate reasons or without affording the assessee an opportunity to put forth legal contentions cannot be sustained. The Court noted the assessee's contention that written submissions were filed (albeit sent by post due to counsel's hospitalization) and that vital legal issues were raised requiring detailed scrutiny. On this basis the Court concluded that the assessee had an arguable case and that sufficient opportunity of hearing ought to have been afforded before passing the final order. [Paras 4, 5]

The CESTAT order dated 21.09.2015 is set aside as it is non-speaking and the assessee was not given sufficient opportunity to be heard.

Opportunity of personal hearing - service tax liability for Goods Transport Operator Service (16.11.1997 to 01.06.1998) - arguable case - Direction for fresh hearing on merits by the CESTAT and restoration for consideration of the service tax demand - HELD THAT: - Having set aside the impugned order, the Court directed that the assessee or its counsel be given personal hearing before the CESTAT on 15.02.2016 or such other date to which the case may be adjourned, and directed the Tribunal to hear the matter on merits and pass orders in accordance with law expeditiously. The Court observed that the questions of law raised relating to liability for goods transport service during the period 16.11.1997 to 01.06.1998 deserve detailed scrutiny and therefore remitted the matter for fresh consideration on merits. [Paras 6]

Matter remitted to the CESTAT for personal hearing and fresh adjudication on merits; CESTAT to hear and decide expeditiously.

Final Conclusion: The appeal is allowed: the CESTAT order dated 21.09.2015 is set aside for being non-speaking and for depriving the assessee of adequate hearing; the matter is remitted to the CESTAT for personal hearing (on 15.02.2016 or such adjourned date) and fresh decision on merits regarding the service tax demand for the period 16.11.1997 to 01.06.1998.

Refund of unutilised CENVAT credit on input services used in export of services - treatment of software maintenance and software development services for refund under Rule 5 of the Cenvat Credit Rules, 2004 - application of the ratio export turnover/total turnover under Notification No. 5/2006-CE(NT) - inclusion/exclusion of SEZ exports in both numerator and denominator of the refund formula - beneficial construction of Rule 5 and the principle of avoiding export of taxes

Refund of unutilised CENVAT credit on input services used in export of services - treatment of software maintenance service as Management, Maintenance or Repair Service (MMRS) - exempted/non taxable output services and entitlement to refund - Entitlement to refund of unutilised CENVAT credit in respect of input services used in export of software services where software maintenance/development services were not taxable or were treated as exempt during the relevant period. - HELD THAT: - The Tribunal examined ST 3 returns and records showing payment of service tax and availment of CENVAT credit by the appellant on MMRS. It applied precedent of the Karnataka High Court and coordinate Tribunal decisions holding that services which were not taxable during the period or which fall within the definition of 'exempted services' under the CENVAT Credit Rules do not disentitle an exporter from refund of accumulated input/input service credit used in export. The reasoning emphasises the objective of Rule 5 as a beneficial provision to avoid export of taxes and notes that where the assessee has paid service tax, availed credit and exported services, refund of unutilised credit is allowable subject to the conditions of Notification No. 5/2006-CE(NT). The Tribunal found the Revenue's contrary approach - accepting tax payment at one stage but denying refund later by treating the service as non taxable - to be unsustainable and followed binding/co ordinate precedents to allow the refunds. [Paras 19, 20]

Refunds of unutilised CENVAT credit in respect of input services used in export of software services are allowable; impugned orders rejecting such refunds are set aside and the assessee appeals allowed with consequential relief.

Application of the ratio export turnover/total turnover under Notification No. 5/2006-CE(NT) - inclusion/exclusion of SEZ exports in both numerator and denominator of the refund formula - uniformity of ingredients in numerator and denominator of statutory formula - Correct method of computing 'export turnover' and 'total turnover' for the purpose of the refund formula under clause 5 of Notification No. 5/2006-CE(NT), specifically whether SEZ exports excluded from the numerator may nonetheless be retained in the denominator. - HELD THAT: - The Tribunal analysed clause 5 and its explanations and applied authoritative decisions (including Tribunal and High Court precedents) holding that there must be uniformity in the components used in the numerator and denominator of the statutory formula; components excluded from export turnover when computing the numerator cannot be retained in total turnover in the denominator because that would produce anomalous results and defeat the beneficial object of the provision. The Tribunal found that the adjudicating authority had deducted SEZ exports from export turnover but continued to include them in total turnover, thereby reducing the eligible refund. Following precedent, the Tribunal held that SEZ exports must be treated consistently and, for the appellants (a single entity with centralized registration), the value of exports (including SEZ) should be included appropriately so that export turnover and total turnover are computed on a uniform basis for the formula. [Paras 21, 22, 25]

The adjudicating authority's method was incorrect; SEZ exports should be included consistently and the appellant's refunds recalculated accordingly. Impugned orders restricting refunds on this basis are set aside and the assessee appeals allowed with consequential relief.

Review and sustainment of Commissioner (Appeals) orders in revenue appeals - consistency of appellate relief across related appeals - Whether the Commissioner (Appeals) orders allowing refunds (by setting aside original orders) should be upheld in the revenue appeals arising out of OIA Nos. 39 42/2011. - HELD THAT: - Having decided that (a) input service credit refunds are allowable for exported software services under Rule 5 and (b) the correct computation requires uniform inclusion/exclusion of SEZ exports in numerator and denominator, the Tribunal found no infirmity in the Commissioner (Appeals) orders that followed those principles. Consequently, revenue appeals challenging those Commissioner (Appeals) orders were dismissed as the grounds on which the original rejections/restrictions were made were held incorrect. [Paras 26, 27]

Revenue appeals are rejected and the Commissioner (Appeals) orders restoring refunds are upheld; consequential orders granting refunds are restored.

Final Conclusion: The Tribunal allowed the assessee appeals to the extent of refunds wrongly rejected or restricted: (i) refunds of unutilised CENVAT credit on input services used in export of software services (including where services were non taxable/exempt during the period) are allowable; and (ii) the formula under Notification No. 5/2006 must be applied with uniformity between numerator and denominator (SEZ exports must be treated consistently), leading to recalculation and grant of the restricted amounts. Revenue appeals contesting Commissioner (Appeals) orders were dismissed.

Reversal under Cenvat Credit Rules, Rule 6(3)(b) - Valuation for reversal of credit - Inclusion of amounts collected from buyers in assessable value - Inclusion of transportation charges in value of exempted goods - Time-bar / limitation in excise demands - Place of removal and job work permission

Reversal under Cenvat Credit Rules, Rule 6(3)(b) - Inclusion of amounts collected from buyers in assessable value - Whether the 8% reversed under Rule 6(3)(b) should include the 8% amount collected from buyers and thus be treated as part of the sale value for calculating reversal. - HELD THAT: - The Commissioner (Appeals) found that the 8% amount paid under Rule 6(3)(b) cannot be treated as part of the sale price of the goods and that the respondent's collection of the 8% from buyers was known to the Department. There was no finding of nondisclosure with intent to evade duty. The Tribunal agrees with the Commissioner (Appeals) that the 8% collected from buyers does not form part of the assessable sale value for the purpose of quantifying the reversal, and that there is no sustainable demand on merits in this respect.

The 8% collected from buyers is not to be included as part of the sale value for quantification of reversal under Rule 6(3)(b); no demand sustainable on merits.

Valuation for reversal of credit - Inclusion of transportation charges in value of exempted goods - Place of removal and job work permission - Whether freight/transportation up to the job worker's premises must be included in the value on which 8% reversal under Rule 6(3)(b) is to be computed when coating is done at a job worker. - HELD THAT: - The Commissioner (Appeals) recorded that the respondent quantified the 8% with reference to the sale value of bare pipes and that the coating cost was contractually dealt with. The respondent cleared bare pipes to job worker premises under permission from the Commissioner. On these facts the Commissioner (Appeals) held that inclusion of transportation cost for computing the 8% did not arise, and that any demand on this ground was time barred. The Tribunal finds no reason to interfere with that conclusion and accepts that the transportation up to the job worker's site need not be added for the purpose of the 8% reversal on the facts found.

Transportation up to the job worker's premises need not be included in the value for computing 8% reversal on the facts found; demand not sustainable and time barred.

Time-bar / limitation in excise demands - Whether the demands confirmed by the original authority were barred by limitation. - HELD THAT: - The Commissioner (Appeals) examined both issues on merits and categorically held that the demands were clearly hit by the time bar. The Tribunal concurs with the Commissioner (Appeals)'s finding that the Department had knowledge of the clearances and the collections, and that the demands were therefore time barred. On the second issue as well, the Commissioner (Appeals) held the demand to be time barred and the Tribunal finds no reason to interfere.

The confirmed demands are barred by limitation; the appeals against the Commissioner (Appeals) order fail on the ground of time bar.

Final Conclusion: The Tribunal affirms the Commissioner (Appeals) order: the demands and penalties confirmed by the original authority are not sustainable, being without merit and/or hit by time bar; the revenue appeal is dismissed.

Penalty under Rule 26 of the Central Excise Rules, 2002 - exemption under Notification No. 6/2002-CE - penalty consequential to a duty demand - effect of a prior Tribunal decision on identical demand - appeal allowed with consequential relief

Penalty under Rule 26 of the Central Excise Rules, 2002 - penalty consequential to a duty demand - effect of a prior Tribunal decision on identical demand - Sustainability of the penalty imposed under Rule 26 which is consequential to the duty demand set out in the impugned Order-in-Original. - HELD THAT: - The Tribunal examined the impugned Order-in-Original which imposed excise duty by denying exemption under the stated notification and, consequentially, imposed penalty under Rule 26. It noted that in proceedings arising from the same impugned order the demand against the related company was dropped by this Tribunal in Relpol Plastic Products Ltd. v. Commissioner of C. Ex., Nagpur. Since the penalty imposed on the present appellant is consequential to the duty demand that has been set aside in the related proceeding, the penalty cannot be sustained. On that basis the Tribunal set aside the penalty and allowed the appeal, granting consequential relief in accordance with law.

Penalty imposed under Rule 26 set aside; appeal allowed with consequential relief.

Final Conclusion: The penalty imposed under Rule 26 of the Central Excise Rules, 2002, being consequential to a duty demand which has been set aside in a related Tribunal decision, is not sustainable; the appeal is allowed and the penalty is set aside with consequential relief as per law.

CENVAT credit of input services - input service credit for travel agent services - services availed for the business of manufacture of final product - services used for visiting job-workers - precedential effect of Tribunal and High Court decisions

CENVAT credit of input services - input service credit for travel agent services - services used for visiting job-workers - Appellant is entitled to CENVAT credit on travel agent services used for travelling technicians and accountants to job-workers engaged in processing/packing of inputs for manufacture of final product. - HELD THAT: - The Tribunal found the issue covered by its earlier decision in the appellant's own case and by the Bombay High Court's ruling in Ultra Tech Cement Ltd., which holds that services availed for the business of manufacturing the final product qualify for input service credit. The Tribunal observed that travel agency services employed to send technical and accounting personnel to job-workers are in connection with the manufacturing activity and therefore eligible as input services. The earlier Tribunal decision applied Rule 2(l) of the CENVAT Credit Rules, 2004 in support of this conclusion, and the present appeal was allowed with consequential relief on that basis. [Paras 4, 5]

Allowing the appeal; CENVAT credit granted on the travel agent services used for visits to job-workers, with consequential relief.

Final Conclusion: Appeal allowed: appellant entitled to CENVAT/input service credit for travel agent services used to send technical and accounting staff to job-workers, following Tribunal and High Court precedent; consequential relief granted.

Imposition of penalty for alleged suppression or evasion of excise duty - claim of exemption under Notification No. 161/71 dated 11.7.1971 - payment of duty and interest prior to issuance of show-cause notice - mandatory equal penalty under Section 11AC - reliance on antecedent tribunal precedents in mitigation of penalty

Imposition of penalty for alleged suppression or evasion of excise duty - claim of exemption under Notification No. 161/71 dated 11.7.1971 - payment of duty and interest prior to issuance of show-cause notice - Whether penalty should be sustained where the assessee bona fide informed the department of clearance of prototype vehicles, claimed exemption, and paid the differential duty with interest before issuance of show-cause notice. - HELD THAT: - The Tribunal found on the material that the respondent from the outset informed the department about removal of 105 prototype vehicles and sought exemption under Notification No. 161/71; on rejection of that claim the respondent voluntarily discharged the excise liability together with interest before any show-cause notice was issued. The show-cause notice framed was confined to imposition of penalties and did not allege suppression of facts or mis-declaration. In these circumstances the facts did not indicate mala fide intent to evade duty. Having regard to the disclosure to the department, the bona fide claim of exemption, and preemptive payment of the differential duty with interest, the Commissioner (Appeals) correctly exercised discretion to drop the penalty. The Revenue's reliance on authorities holding mandatory imposition of an equal penalty was considered but the Tribunal proceeded on the determinative factual finding of absence of intent to evade and the admitted payment prior to initiation of penalty proceedings.

Penalty dropped; impugned Order in Appeal setting aside the Order in Original is upheld and Revenue's appeal dismissed.

Final Conclusion: On the facts of full disclosure to the department, an antecedent claim of exemption and voluntary payment of duty with interest before issuance of any show cause notice, there was no intention to evade duty and the penalty was rightly dropped; Revenue's appeal fails.

CENVAT credit admissibility - courier bill of entry as documentary proof - Rule 9 of the CENVAT Credit Rules, 2004 - imported inputs used in manufacture - technical infirmity not to deny credit

CENVAT credit admissibility - courier bill of entry as documentary proof - Rule 9 of the CENVAT Credit Rules, 2004 - technical infirmity not to deny credit - Photocopy of the courier bill of entry is a valid document for claiming CENVAT credit under Rule 9 of the CENVAT Credit Rules, 2004, where the imported inputs were received and used in manufacture. - HELD THAT: - The Tribunal found on the admitted facts that the appellant imported the material and utilised it in manufacture of excisable goods. The departmental objection rested solely on non-production of the original bill of entry and on the photocopy/consolidated courier bill of entry being relied upon. Having examined the cited precedents, the Tribunal held those authorities to be squarely applicable and concluded that denial of CENVAT credit on such merely technical grounds was not warranted. Accordingly, the photocopy of the courier bill of entry filed by the appellant was held to be admissible proof for claiming CENVAT credit under Rule 9, and the impugned order denying credit was set aside. [Paras 3, 5]

Appeal allowed; appellant entitled to CENVAT credit on the photocopy of the courier bill of entry and the impugned order is set aside with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, holding that the photocopy of the courier bill of entry sufficed for grant of CENVAT credit under Rule 9 and setting aside the orders denying credit, with consequential relief if any.

Liability for excise duty on scrap generated at job worker's premises - CENVAT Credit Rules, 2004 - Rule 4(5)(a) - treatment of job-work scrap - job worker's liability for scrap clearances - refund of duty paid - unjust enrichment

Liability for excise duty on scrap generated at job worker's premises - CENVAT Credit Rules, 2004 - Rule 4(5)(a) - treatment of job-work scrap - job worker's liability for scrap clearances - Whether the principal manufacturer is liable to pay excise duty on scrap generated at the premises of the job worker when inputs were sent for job work under Rule 4(5)(a) of the CENVAT Credit Rules, 2004. - HELD THAT: - The Tribunal applied the ratio of the decision of the High Court in Rocket Engineering Corporation Pvt. Ltd. and subsequent Tribunal authorities, holding that Rule 4(5)(a) does not impose a liability on the principal manufacturer for scrap generated at the job-worker's premises. Any duty liability in respect of scrap cleared from the job worker's premises, if at all, would be that of the job worker who effected the clearance. The appellants had discharged amounts claimed as duty but, on the legal construction adopted, they were not liable to pay excise on such clearances and consequently those payments were not mandatory tax liabilities of the principal.

Principal manufacturer not liable to pay excise duty on scrap generated and cleared at job-worker's premises; any such liability would be of the job worker.

Refund of duty paid - unjust enrichment - Whether the appellants' refund claim of duty paid on scrap cleared from job-worker premises is maintainable and whether unjust enrichment bars recovery. - HELD THAT: - The Tribunal found that the appellants had debited their CENVAT account after the scrap was cleared by the job worker and that the appellants did not issue any invoice to the ultimate buyers; thus there was no direct interaction or benefit received by the appellants from the clearance of scrap by the job worker. Given that the appellants were not legally liable to pay excise on such clearances, amounts paid by them are refundable. The Revenue's contention of unjust enrichment was not sustained on the material on record.

Refund claim allowed; unjust enrichment not established and does not bar refund.

Final Conclusion: Impugned order set aside; appeal allowed - amounts paid as duty on scrap cleared from job-worker premises are refundable to the appellants as the principal was not liable to pay excise on such clearances and unjust enrichment was not made out.

Admissibility of CENVAT credit on CHA services - place of removal for export consignments - input service - CENVAT Credit eligibility for export transactions - binding effect of CBE&C clarification (Circular No. 999/6/2015-CX dated 28.2.2015)

Admissibility of CENVAT credit on CHA services - place of removal for export consignments - CENVAT Credit eligibility for export transactions - binding effect of CBE&C clarification (Circular No. 999/6/2015-CX dated 28.2.2015) - Validity of demand for reversal of CENVAT credit claimed on Customs House Agent (CHA) services utilised in respect of export consignments. - HELD THAT: - The Tribunal examined whether credit of service tax paid on CHA services in relation to export of goods could be denied on the ground that such services were availed beyond the place of removal and thus did not qualify as input services. The Tribunal held that the Central Board of Excise & Customs has issued a clear clarification (Circular No. 999/6/2015-CX dated 28.2.2015) stating that for manufacturer-exporters who file the shipping bill and hand goods to the shipping line, the transfer of property is to be treated as taking place at the port/ICD/CFS where the shipping bill is filed and that eligibility to CENVAT credit shall be determined accordingly. Applying that administrative clarification, the Tribunal concluded that CHA services utilised for export fall within the place of removal and qualify for CENVAT credit; consequently the demand for reversal could not be sustained. [Paras 4]

Demand for reversal of CENVAT credit for CHA services used in export was disallowed and the appeal was allowed.

Final Conclusion: The appeal was allowed: in view of CBE&C Circular No. 999/6/2015-CX, CHA services used for export are within the place of removal and eligible for CENVAT credit, and the demand for reversal cannot be sustained.

Cenvat credit of service tax - Input services - Part recovery of service charges from employees - Service tax borne by the ultimate consumer - Reversal of proportionate/embedded credit

Cenvat credit of service tax - Part recovery of service charges from employees - Service tax borne by the ultimate consumer - Reversal of proportionate/embedded credit - Whether cenvat credit of service tax is allowable on catering and rent-a-cab services to the extent the charges for those services were recovered from employees - HELD THAT: - The Tribunal accepted the respondent's reliance on the decision of the Hon'ble Bombay High Court in CCE, Nagpur v. Ultratech Cement Ltd., which held that where the cost of a service (and consequently the service tax) is borne by the ultimate consumer - here the employee - the manufacturer cannot claim cenvat credit of that portion of service tax. The High Court observed that the Larger Bench's contrary observation in GTC Industries Ltd. could not be upheld and noted that proportionate credit embedded in amounts recovered from employees must be reversed. Applying that principle to the facts that the appellant had taken service tax credit on charges recovered from its employees for catering and rent-a-cab services during June 2005 to October 2009, the Tribunal found no infirmity in the orders below denying the cenvat credit and upholding the requirement to reverse the proportionate credit embedded in such recoveries. [Paras 4, 5]

The denial of cenvat credit in respect of service tax attributable to charges recovered from employees is upheld and the appellant's appeal is dismissed.

Final Conclusion: Appeal dismissed; denial of cenvat credit on service charges recovered from employees (June 2005 to October 2009) upheld in view of the principle that service tax borne by the ultimate consumer cannot be claimed as cenvat credit.

Tax on luxuries - luxury provided in a banquet hall - inclusion of charges for amenities provided by third parties in taxable turnover - legislative competence under Entry 62, List II, Schedule VII - definition of "luxury" as services ministering to enjoyment, comfort or pleasure extraordinary to necessities of life - requirement that tax be levied only by authority of law (Article 265) - judicial standard for striking down statutes - lack of legislative competence or violation of fundamental rights

Luxury provided in a banquet hall - inclusion of charges for amenities provided by third parties in taxable turnover - definition of "luxury" as services ministering to enjoyment, comfort or pleasure extraordinary to necessities of life - Validity of Explanation to Section 2(k) of the Haryana Tax on Luxuries Act, 2007 insofar as it requires inclusion of charges for amenities (even if charged separately or provided by persons other than the proprietor) in computing the threshold for levy of luxury tax on banquet halls. - HELD THAT: - The Court held that the Explanation to Section 2(k) is clarificatory and legitimately defines the manner of computing the threshold of Rs.20,000 for determining when accommodation/space in a banquet hall becomes a "luxury" under the Act. Treating amenities provided within the precincts of the banquet hall as part of the charge, even if billed separately or provided by others on the proprietor's behalf, is a reasonable legislative method to identify the object of taxation. The Court applied established principles that the concept of "luxury" includes services and that legislative entries must be construed broadly to cover ancillary matters fairly comprehended by the entry. No arbitrariness or unreasonableness was demonstrated by the petitioner sufficient to invalidate the Explanation. [Paras 17, 18]

Explanation to Section 2(k) is valid and the amenities so described can be included in computing the taxable threshold for luxury tax on banquet halls.

Tax on luxuries - legislative competence under Entry 62, List II, Schedule VII - requirement that tax be levied only by authority of law (Article 265) - judicial standard for striking down statutes - lack of legislative competence or violation of fundamental rights - Whether the Haryana legislature had competence to enact the provisions of the Act (including Sections 9, 11 and 12 relating to levy, collection, registration and security) and whether those provisions are otherwise unconstitutional, arbitrary or based on impermissible presumptions. - HELD THAT: - Relying on precedents that Entry 62 authorises taxation of luxuries including services, the Court held the State legislature possessed competence to enact the impugned provisions. Article 265 and constitutional interpretative principles were applied to note that power to tax must be exercised by law and construed broadly. The Court reiterated the limited judicial grounds for invalidating statutes - lack of competence or breach of constitutional rights - and found that the petitioner had not shown any such deficiency, arbitrariness or infringement of Article 14 or other constitutional provisions. Challenges alleging assessment based on assumptions or that holding functions in banquet halls is a mere necessity were insufficient to demonstrate invalidity of the statutory scheme. Consequently, provisions relating to levy, registration and security under Sections 9, 11 and 12 were upheld. [Paras 9, 13, 18, 21]

Provisions of the Act impugned in the petition (including Sections 9, 11 and 12) are within legislative competence and are not unconstitutional; the petition is dismissed.

Final Conclusion: The Court upheld the validity of the Explanation to Section 2(k) and the challenged provisions of the Haryana Tax on Luxuries Act, 2007 (including Sections 9, 11 and 12), holding that the State is competent to tax luxuries in banquet halls as defined and that the statutory scheme is not shown to be arbitrary or violative of constitutional provisions; the petition is dismissed.