TaxTMI Updates e-Newsletter
Mar 03,2016

Deduction under section 80IA(5) - treatment of separate undertakings and set off of losses - allowability of depreciation on capital assets integral to eligible business - substantiation and estimation of disallowance of business expenses (foreign travel)

Deduction under section 80IA(5) - treatment of separate undertakings and set off of losses - Entitlement to deduction under section 80IA(5) in respect of profits of an eligible undertaking (Satara unit) without setting off losses of other undertakings engaged in the same business. - HELD THAT: - The Tribunal held that for the purpose of deduction under section 80IA(5) every unit constitutes a separate undertaking and profits derived by an eligible undertaking are available for deduction even if other undertakings of the same enterprise have incurred losses. The Assessing Officer erred in setting off losses of other windmill units against profits of the Satara unit when computing the quantum of deduction; losses were not ignored for arriving at Gross Total Income but were inappropriately applied to deny the statutory deduction. The decision is placed on authority of the Supreme Court in Synco Industries Ltd. v. ACIT and CIT v. Canara Workshops P. Ltd., and on Tribunal precedent (J Sons Foundry Pvt. Ltd.), and the Gujarat High Court decision in Sintex Industries Ltd. was held distinguishable on facts. Presence of a positive Gross Total Income and profits from an eligible undertaking suffices to claim the deduction, and therefore CIT(A)'s reversal of the Assessing Officer was upheld. [Paras 9, 10, 11]

Deduction under section 80IA(5) allowed in respect of profits of the Satara unit without setting off losses of other units; Revenue's appeals dismissed for the relevant years on this point.

Allowability of depreciation on capital assets integral to eligible business - Whether depreciation at the higher rate applicable to windmills is allowable on foundation/civil work and erection/commissioning expenditure incidental to windmills. - HELD THAT: - The Tribunal followed its earlier finding in the assessee's own case for assessment year 2010 11 and coordinate Bench precedents holding that expenditure on foundation, civil work and erection/commissioning are integral to the windmill and serve no purpose other than for generation of power by the windmill. Such capital expenditure therefore qualifies for the same higher rate of depreciation as the windmill itself. The Assessing Officer's restriction of depreciation was held to be a misdirection in law. [Paras 18]

Depreciation at the rate applicable to the windmill allowed on foundation, civil work and erection/commissioning; Ground No.1 of the assessee's appeals allowed.

Substantiation and estimation of disallowance of business expenses (foreign travel) - Validity of 30% estimated disallowance of certain foreign tour and travel expenses on account of lack of business purpose substantiation. - HELD THAT: - The Assessing Officer disallowed 30% of foreign travel expenses after noting absence of evidence to justify business purpose for specific visits. The CIT(A) confirmed the estimation because the replies were general and did not substantiate business purpose for some visits. The Tribunal, on review of the material and in absence of specific supporting details, declined to interfere with the estimation and confirmation by the CIT(A). [Paras 20, 23, 24]

Estimated disallowance of foreign travel expenses upheld; Ground No.2 of the assessee's appeals dismissed.

Final Conclusion: For assessment years 2008 09, 2009 10 and 2010 11 the Tribunal dismissed the Revenue's appeals regarding denial of deduction under section 80IA(5) and held that profits of an eligible undertaking may be claimed without setting off losses of other undertakings; the assessee's appeals were partly allowed by permitting higher rate depreciation on capital expenditure integral to windmills and partly dismissed by upholding the estimated disallowance of foreign travel expenses, resulting in overall partly allowed assessee appeals and dismissed revenue appeals.

Jurisdictional requirement of notice under section 143(2) of the Income-tax Act for framing assessment - validity of assessment framed under section 143(3) after initiation under section 148 where return has been furnished - obligation to serve statutory notice within proviso period to section 143(2) upon receipt of return in response to notice under section 148

Jurisdictional requirement of notice under section 143(2) of the Income-tax Act for framing assessment - validity of assessment framed under section 143(3) after initiation under section 148 where return has been furnished - Whether the assessment framed under section 143(3) is valid where no notice under section 143(2) was served after the assessee filed a return in response to notice under section 148. - HELD THAT: - The Tribunal admitted the additional ground challenging the assessment on the legal question that no notice under section 143(2) was served after the assessee filed the return in response to the section 148 notice. On verification the Assessing Officer's file did not contain any notice under section 143(2) nor proof of service. The Court applied the principle that issuance and service of notice under section 143(2) within the time prescribed by the proviso is a jurisdictional prerequisite to framing assessment under section 143(3) where a return has been furnished in response to a notice under section 148. Reliance was placed on earlier decisions, including National Thermal Power Co. Ltd. and ACIT v. Hotel Blue Moon , and a High Court decision in CIT v. Cebon India Ltd. , to hold that in the absence of compliance with the statutory notice requirement the assessment is without jurisdiction and invalid. In consequence the Tribunal set aside the assessment order as bad in law and declined to adjudicate the merits of the additions since the assessment itself was held void. The same reasoning was applied mutatis mutandis to the other connected appeals with identical facts. [Paras 6, 8, 9]

Assessment framed under section 143(3) is without jurisdiction and set aside for failure to serve notice under section 143(2); merits not adjudicated.

Final Conclusion: All appeals are allowed; the assessments for Assessment Year 2006-07 are held to be without jurisdiction and are set aside for failure to serve the notice under section 143(2) after return was filed in response to notice under section 148, and the Tribunal did not decide the substantive additions on merits.

Revision under section 263 of the Income-tax Act - order erroneous and prejudicial to the interests of the revenue - lack of inquiry versus inadequate inquiry - accrual basis recognition of incentive income - speculative transaction under section 43(5) - application of mind by the Assessing Officer

Accrual basis recognition of incentive income - order erroneous and prejudicial to the interests of the revenue - application of mind by the Assessing Officer - Whether the Commissioner was justified in invoking revision under section 263 on the ground that the Assessing Officer failed to verify and tax Industrial Promotion Assistance receivable (IPA incentive) for A.Y.2007-08 making the assessment order erroneous and prejudicial to the revenue - HELD THAT: - The Tribunal found that the Assessing Officer had issued a detailed questionnaire under section 142(1) specifically calling for details of grants/subsidies and reconciliation of the IPA entry, and that the assessee had furnished comprehensive replies and supporting material which the AO examined. The Tribunal applied authoritative tests distinguishing lack of inquiry from inadequate inquiry and held that where the AO has access to records, issues specific queries and considers the explanations and documents filed, the mere absence of elaborate discussion in the assessment order does not prove absence of application of mind. In the factual matrix the AO had considered the accrual accounting treatment and the subsequent reversal in the following year; therefore the CIT's conclusion of an erroneous order for lack of inquiry was not sustainable. The Tribunal accordingly quashed the revision on this ground. [Paras 16, 17]

Revision under section 263 cannot be sustained on the IPO incentive/IPA ground; the assessment is not erroneous for lack of inquiry and the CIT's action is quashed.

Speculative transaction under section 43(5) - lack of inquiry versus inadequate inquiry - application of mind by the Assessing Officer - Whether the Commissioner was justified in invoking revision under section 263 on the ground that the AO failed to verify currency swap transactions and that the currency swap loss should have been treated as speculative under section 43(5) - HELD THAT: - The Tribunal recorded that the AO's questionnaire specifically sought complete details of currency swap (loss/gain) and that the assessee had supplied detailed explanations and annexures showing the hedging/swap transactions and their business nexus. Applying precedent, the Tribunal held that the presence of specific inquiries and considered replies demonstrates application of mind by the AO; inadequacy of discussion in the assessment order alone does not render it erroneous. Further, the CIT's ipse dixit characterisation of the transactions as speculative without demonstrating that the AO failed to examine the factual matrix was insufficient. On these findings the Tribunal concluded that s.263 could not be invoked to substitute the Commissioner's view where the AO had taken a possible view after relevant inquiry. [Paras 16, 17]

Revision under section 263 cannot be sustained on the currency-swap/speculation ground; the assessment is not erroneous and the CIT's action is quashed.

Final Conclusion: The assessee's appeal is allowed; the order passed by the Commissioner under section 263 for A.Y.2007-08 is quashed and the assessment order upheld insofar as the two impugned grounds (IPA incentive treatment and currency swap loss) are concerned.

Section 40(a)(iii) of the Income tax Act - disallowance of deduction for salaries payable outside India where tax has not been paid or deducted under Chapter XVII B - Section 192 - employer's obligation to deduct tax at source on salaries - Chapter XVII B - machinery for collection of tax by deduction at source - CBDT Circular granting amnesty for belated deposit of TDS - Disincentive provision / non obstante clause - constriction of deductions despite Sections 30 38 - Distinction between proviso to Section 40(a)(i) and absence of similar proviso to Section 40(a)(iii) - Claim for deduction under Section 37 where TDS subsequently deposited

Section 40(a)(iii) of the Income tax Act - disallowance of deduction for salaries payable outside India where tax has not been paid or deducted under Chapter XVII B - Section 192 - employer's obligation to deduct tax at source on salaries - CBDT Circular granting amnesty for belated deposit of TDS - Distinction between proviso to Section 40(a)(i) and absence of similar proviso to Section 40(a)(iii) - Claim for deduction under Section 37 where TDS subsequently deposited - Whether Section 40(a)(iii) precludes a deduction for salaries payable outside India where the employer failed to deduct and deposit TDS within the prescribed time but subsequently deposited the tax pursuant to the CBDT amnesty circular. - HELD THAT: - Section 40(a)(iii) (as in force for the relevant years) excludes from deduction payments chargeable under 'Salaries' if payable outside India and if tax has not been paid thereon nor deducted therefrom under Chapter XVII B. Chapter XVII B (including Section 192) constitutes the statutory machinery imposing on the employer the obligation to deduct and deposit tax which is ultimately the employee's tax. The assessee had, pursuant to CBDT Circular No. 685 (17/20 June 1994), deposited the tax and interest due in respect of salaries paid or provided abroad for services rendered in India; those deposits were verified and accepted by the revenue and the amnesty communicated by the Commissioner. The Court held that such belated compliance was a discharge of the assessee's obligation under Chapter XVII B and thereby removed the condition of non payment or non deduction which triggers Section 40(a)(iii). The absence of a proviso in Section 40(a)(iii) analogous to that in Section 40(a)(i) does not permit reading into sub clause (iii) an additional requirement that the tax must have been deducted and paid strictly within the time prescribed - where Parliament has intended such a time limited precondition it has expressly provided for it in the amended text of Section 40(a)(i). The Court further rejected the contention that an expense not reflected in the profit and loss account is automatically disallowed, relying on the settled principle that entitlement to deduction depends on the law and not on the presence of entries in the books. Applying these principles, the Court concluded that once the assessee had deposited the requisite TDS and interest (and the deposits were accepted by the revenue), the rigour of Section 40(a)(iii) no longer operated to deny the deduction which was otherwise allowable under Section 37; however, where assessments for earlier years had been concluded, the assessee would have lost the right to claim deduction for those closed years (a separate consequence of time barred assessments and not of Section 40(a)(iii) once tax is paid). [Paras 14, 16, 18, 21, 22]

Belated deposit of TDS pursuant to the CBDT amnesty effected discharge of the obligation under Chapter XVII B; Section 40(a)(iii) does not operate to deny deduction where tax has thereafter been paid and accepted by the revenue, and the assessee is entitled to the deduction in respect of the relevant year which remains open (appeal allowed).

Final Conclusion: The appeal is allowed: where an employer has subsequently deposited tax and interest under Chapter XVII B pursuant to the CBDT amnesty and such deposit is verified and accepted by the revenue, Section 40(a)(iii) does not bar the deduction otherwise allowable; consequences as to years where assessments had already been concluded follow from the timing of assessment and not from a continued operation of Section 40(a)(iii).

Most appropriate transfer pricing method - Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price method (CUP) - aggregation versus segregation of transactions - onus on the assessee to establish arm's length price - re-characterisation where form and substance differ / commercially rational manner test

Most appropriate transfer pricing method - Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price method (CUP) - aggregation versus segregation of transactions - onus on the assessee to establish arm's length price - Adoption of CUP by revenue was justified and TNMM was not the most appropriate method for imports from Sumitomo Corporation for the assessment years in question - HELD THAT: - The Court examined whether the revenue was entitled to segregate a portion of the assessee's bundled transactions and apply the CUP method instead of accepting the assessee's TNMM-based, entity-level benchmarking. The material facts showed that a substantial part of imports (over 80% of imports and about 37-38% of raw material consumption) were routed through Sumitomo Corporation, an entity related both to the assessee and the manufacturer, Denso. The TPO and AO found the assessee's explanations for sourcing via Sumitomo unconvincing and noted absence of necessary data (such as cost of purchase in the hands of Sumitomo) which precluded application of TNMM or other methods reliably. Applying the legal framework (Sections 92/92C read with Rule 10B), the Court affirmed that the appropriateness of a method depends on the nature of the transaction or class of transactions and the evidence placed before the TPO; the primary onus lies on the assessee to establish ALP. Given the unexplained commercial arrangement and the plausible inference that purchases were routed to camouflage purchases from the manufacturer-AE, the Tribunal correctly invoked the principle (as recognised in precedents) that where the arrangements differ from those an independent enterprise would adopt, tax authorities may re-characterise the transaction. On these facts the CUP method was a justified and appropriate technique for determining ALP of the imports from Sumitomo, and the TNMM-based aggregated approach could be set aside for that portion of transactions. [Paras 11, 12, 14, 15, 16]

The adoption of CUP for the component imports from Sumitomo Corporation was upheld and the TNMM aggregation relied upon by the assessee was rejected for those transactions.

Re-characterisation where form and substance differ / commercially rational manner test - most appropriate transfer pricing method - Comparable Uncontrolled Price method (CUP) - No contradiction in the Tribunal's order in directing application of CUP; the Court found the Tribunal's approach consistent with its findings - HELD THAT: - The Court noted that the question of alleged contradiction in the ITAT's order was raised but not pressed by the appellant. Having concluded that the CUP method was properly applied on the facts and in law, the Court found no inconsistency in the Tribunal directing the TPO/AO to apply CUP. The framing of the question was recorded at the insistence of the appellant, but in light of the substantive finding that CUP was appropriate for the disputed imports, any suggestion of contradiction was unfounded. [Paras 17]

The contention of contradiction in the ITAT's direction to apply the CUP method is rejected; the direction is upheld.

Final Conclusion: The appeals are dismissed; the revenue was justified in applying the CUP method to determine ALP for imports from Sumitomo Corporation for AY 2002-03 and AY 2003-04, and the Tribunal's direction to adopt CUP is upheld.

Allowability of bad debt under section 36(1)(vii) read with section 36(2) - cash system of accounting - taxability of advance receipts - treatment of refundable advance/earnest money - allowability of depreciation for assets "owned and used" in business under section 32(1) - business user of premises - deemed to be let out and determination of annual letting value - remand for de-novo determination and admission of cogent evidence - application of CBDT Circular No.21/2015 - maintainability of Revenue appeal below monetary threshold

Allowability of bad debt under section 36(1)(vii) read with section 36(2) - Deletion of addition of Rs. 4,38,395 as irrecoverable advance written off claimed as bad debt. - HELD THAT: - The Tribunal found that the assessee had advanced money to Prachi Narmada Films Pvt. Ltd. in 2001 as part of a distribution joint venture and had offered the venture loss (the assessee's share) in the assessment year 2002-03. The balance of Rs. 4,38,395 remained recoverable and was subsequently written off; the assessee produced the agreement, year-wise accounts, and reminders to the payee to show the commercial character of the advance and efforts to recover it. The Tribunal held that the conditions of section 36(1)(vii) read with section 36(2) were satisfied because the loss (negative income) arising from the venture had been taken into account in the earlier year and the balance amount had become irrecoverable; accordingly the amount written off was allowable as a revenue deduction. [Paras 9]

Addition of Rs. 4,38,395 made by the AO and sustained by the CIT(A) is deleted.

Cash system of accounting - taxability of advance receipts - treatment of refundable advance/earnest money - Deletion of addition of Rs. 25,00,000 treated by Revenue as assessable receipt though shown as an advance refundable unless film commenced. - HELD THAT: - Although the assessee follows cash system of accounting, the Tribunal examined the mutual understanding dated 05-02-2008 and found that the Rs. 25,00,000 received from Tips Industries Ltd. was expressly described as an advance on signing to secure the assessee's acceptance of directorial assignments, not as remuneration; it was to be adjusted against remuneration only upon commencement of the first film and refundable if no film started. The films were not commenced and Tips Industries was demanding refund. On these terms the assessee was holding the amount on behalf of Tips until appropriation on commencement; hence under the contract the receipt did not vest as the assessee's income even under cash accounting. The Tribunal therefore held the AO's addition unsustainable. [Paras 16]

Addition of Rs. 25,00,000 made by the AO and confirmed by the CIT(A) is deleted.

Allowability of depreciation for assets "owned and used" in business under section 32(1) - remand for de-novo determination and admission of cogent evidence - Remand of claim for depreciation on furniture, fixtures and computers at four properties for de-novo determination of business user. - HELD THAT: - The Tribunal observed that the assessee claimed depreciation on assets installed at four premises, asserting business use; the AO and CIT(A) rejected the claim for lack of cogent evidence (for example commercial electricity bills). The Tribunal held that while commercial electricity usage is an important indicator it is not the sole evidence; the assessee must be permitted to produce other cogent material to establish business user. In the interests of justice the Tribunal set aside the matter to the AO for de-novo adjudication, directing that the AO admit and consider evidence tendered, give the assessee adequate opportunity of hearing, and decide the claim on merits. [Paras 23]

Claim for depreciation is remanded to the AO for de-novo determination on production and consideration of cogent evidence.

Business user of premises - deemed to be let out and determination of annual letting value - remand for de-novo determination and admission of cogent evidence - Remand of the question whether three properties are to be treated as deemed to be let out and the ALV computation. - HELD THAT: - The Tribunal noted that the claim that the three properties were used for the assessee's profession is interconnected with the depreciation issue already remanded. Applying the same approach, the Tribunal set aside the AO's treatment and directed a de-novo determination by the AO after considering cogent evidence to be produced by the assessee. The AO was further directed to decide the ALV in the light of guidelines of the Hon'ble Bombay High Court in Tiptop Typography and to afford proper hearing. [Paras 29]

Issue of deemed to be let out status and ALV of the three properties is remanded to the AO for de-novo determination after admission and consideration of evidence.

Application of CBDT Circular No.21/2015 - maintainability of Revenue appeal below monetary threshold - Dismissal of Revenue's appeal as not maintainable because tax effect is below the monetary limit specified in CBDT Circular No.21/2015. - HELD THAT: - The Tribunal noted that the tax effect in the Revenue's appeal was less than Rs.10 lakhs. The Revenue's authoritiy (D.R.) conceded applicability of CBDT Circular No.21/2015 (which prescribes monetary thresholds for filing appeals) and that pending appeals below the specified monetary limits may be withdrawn or not pressed. Applying the circular retrospectively to pending appeals, the Tribunal held the Revenue's appeal not maintainable and dismissed it, while preserving the Revenue's liberty to seek recall if the tax effect exceeds the threshold or otherwise comply with the circular's provisions. [Paras 32]

Revenue appeal ITA No.5601/Mum/2012 dismissed as not maintainable being below the monetary limit prescribed in CBDT Circular No.21/2015.

Final Conclusion: The assessee's appeal is partly allowed: the Tribunal deleted the additions of Rs.4,38,395 (bad debt) and Rs.25,00,000 (advance) and remanded the issues of depreciation allowance and deemed-to-be-let-out status/ALV of three properties to the AO for de-novo determination on production and consideration of cogent evidence; the Revenue's appeal is dismissed as not maintainable under CBDT Circular No.21/2015.

Recording of satisfaction note - precondition for assuming jurisdiction under Section 153C - invalidity of notice issued under Section 153C - quashing of assessment made under Section 153C - applicability of CBDT Circular No.24/2015 to Section 153C

Recording of satisfaction note - precondition for assuming jurisdiction under Section 153C - invalidity of notice issued under Section 153C - Validity of initiation of proceedings and notice issued under Section 153C where no satisfaction note was recorded by the Assessing Officer of the searched person. - HELD THAT: - The Tribunal found on the material on record, including RTI replies placed by the assessee, that no satisfaction note had been recorded by the Assessing Officer of the searched persons. The Tribunal followed the decision of the Hon'ble Delhi High Court in RRJ Securities Ltd. holding that the first and foremost step for initiation of proceedings under Section 153C is the Assessing Officer of the searched person recording satisfaction that seized assets/documents belong to another person, and the CBDT Circular No.24/2015 which applies the Supreme Court's guidance in Calcutta Knitwears to Section 153C and directs that recording of satisfaction is a prerequisite. In absence of any satisfaction note recorded or produced by Revenue, the Tribunal held the initiation of proceedings under Section 153C to be invalid. Because the notice under Section 153C was held invalid, the consequential assessment order passed under Section 153C/143(3) was also quashed. The Tribunal noted that other objections raised by the assessee need not be examined once the foundational defect of non-recording of satisfaction was established. [Paras 7, 8, 9, 10]

Proceedings initiated under Section 153C are invalid for want of a recorded satisfaction note by the Assessing Officer of the searched person; the Section 153C notice and consequential assessment order are quashed.

Final Conclusion: Following the Delhi High Court precedent and CBDT Circular No.24/2015, the Tribunal quashed the notice and assessment framed under Section 153C for want of the requisite recorded satisfaction by the Assessing Officer of the searched person; Revenue's appeals are dismissed and the assessee's cross-objections are allowed.

Exemption under section 54 of the Income Tax Act, 1961 - Interpretation of "purchase" and "construct" under section 54 - Capital gains account scheme deposit requirement under section 54(2) - Time limit for deposit and its interplay with section 139(1) and section 139(4) - Purposive and liberal interpretation of exemption provisions

Exemption under section 54 of the Income Tax Act, 1961 - Interpretation of "purchase" and "construct" under section 54 - Capital gains account scheme deposit requirement under section 54(2) - Time limit for deposit and its interplay with section 139(1) and section 139(4) - Assessee's entitlement to exemption under section 54 in respect of long term capital gain arising on transfer dated 15 04 2008 - HELD THAT: - The Tribunal held that the assessee satisfied the essential conditions of section 54 and was entitled to the exemption. The payment structure, agreements and subsequent actions were to be viewed pragmatically rather than by rigid formalism: payments and agreements showing genuine intention to acquire/construct a residential house qualified as 'purchase' or commencement of 'construction' for the purposes of section 54. The Tribunal accepted the narrower chronology advanced by the assessee - agreement with Mrs. Mary Susan dated 10 03 2010, cheque payment encashed on 18 12 2010 and the subsequent agreement with the builder - and applied a purposive and liberal interpretation of 'purchase' and 'construct' drawing support from precedents that permit a pragmatic reading of these terms. On the capital gains deposit requirement in section 54(2), the Tribunal held that the assessee had time up to 31 03 2011 to deposit under the capital gains account scheme, applying the view that the due date in section 139(1) must be read with the extended filing period under section 139(4), and that the assessee had complied with the timeline. Having found that the assessee had earnestly demonstrated intention and taken sufficient steps to acquire/construct a new residential house within the statutory period, the claim under section 54 was allowed. [Paras 11, 12, 13]

Assessee's claim for exemption under section 54 allowed; disallowance deleted.

Computation of cost of acquisition - Claim regarding consideration/cost of acquisition of the original asset (claimed at Rs. 23.80 lakhs) and its effect on computation of capital gains - HELD THAT: - The Tribunal observed that, having allowed the claim under section 54, the question of computing the cost of acquisition of the transferred property became academic for the purposes of this appeal. The Tribunal therefore did not adjudicate the claim as to the cost figure on merits. [Paras 13]

Computation of cost of acquisition left academic and not decided in this appeal.

Final Conclusion: The Tribunal allowed the appeal, deleted the disallowance of exemption under section 54 and treated questions as to computation of cost of acquisition as academic in view of the allowance.

Registration under section 12AA - genuineness of objects and activities - scope of enquiry under section 12AA: objects vs. commencement of activities - distinction between registration under section 12AA and claim for exemption under section 11 - burden on the Commissioner to call for documents and make enquiries

Registration under section 12AA - genuineness of objects and activities - scope of enquiry under section 12AA: objects vs. commencement of activities - Validity of the Commissioner's refusal to register the society on the ground that no charitable activities had been carried out at the time of application - HELD THAT: - The Tribunal held that Section 12AA authorises the Commissioner to call for documents and make enquiries to satisfy himself about the genuineness of objects and activities, but the enquiry at the registration stage is limited. Where an applicant is in the process of setting up an educational institution and has shown bona fide steps towards its establishment, mere lack of substantial or vigorous activities at the initial stage is not a valid ground to refuse registration. The CIT(Exemptions) drew an adverse inference from relative inactivity at the time of application; the Tribunal found that such inference was not justified because the statutory scheme contemplates that the Commissioner should test the genuineness of objects and not, at the registration stage, probe utilization of funds, commercial character, or whether activities have already commenced in full. The Tribunal relied on earlier judicial precedents to the effect that registration under section 12AA should not be refused solely because the trust/institution has not yet commenced its charitable activities and that detailed scrutiny of application of funds or profit motive is for assessment proceedings. Applying these principles to the facts, the Tribunal found no material showing that the principal objects were not charitable or that activities were a sham; the assessee had undertaken bona fide steps (planning an educational institution, purchases and investments, documented welfare activities) which the Department did not controvert. Accordingly the refusal was held to be unsustainable. [Paras 8, 9, 10]

The refusal to register the society under section 12AA was set aside and the Commissioner was directed to grant registration.

Final Conclusion: The appeal is allowed; the order refusing registration under section 12AA is set aside and the Commissioner is directed to grant registration to the society.

Expenditure incurred in relation to income not includible in total income - Assessment of disallowance under section 14A read with Rule 8D(2)(iii) - Onus on the assessee to make a substantiated claim of no expenditure and requirement of AO's satisfaction/dissatisfaction - Statutory computation by Rule 8D and its mandatory application once attracted - Apportionment of common expenditure between business and investment activities - Sufficiency of interest free funds not determinative without examination of accounts

Expenditure incurred in relation to income not includible in total income - Assessment of disallowance under section 14A read with Rule 8D(2)(iii) - Onus on the assessee to make a substantiated claim of no expenditure and requirement of AO's satisfaction/dissatisfaction - Validity of the disallowance under section 14A read with Rule 8D(2)(iii) in respect of tax exempt income. - HELD THAT: - Section 14A permits disallowance only where expenditure has in fact been incurred in relation to income not includible in total income; the assessee bears the initial onus of making a claim, with reference to its accounts, that no expenditure was incurred. The Assessing Officer, confronted with such a claim, must examine the assessee's accounts and, if not satisfied with the correctness of the claim, determine the expenditure in accordance with the prescribed method. Rule 8D provides a mandatory method of computation once the AO records dissatisfaction. A mere bald assertion of no expenditure without account based substantiation cannot prevail. In the facts, the assessee maintained significant common and indirect expenditures in its business accounts (including staff, rent, utilities and other overheads) and also held investments within the business and personal balance sheets; the routing of common expenditure through business books did not preclude its attribution to investment activities. The tribunal held that the AO was justified in applying rule 8D(2)(iii) to compute indirect administrative disallowance, and that the contention regarding sufficiency of own funds was not a ground to negate disallowance absent a finding based on the accounts. [Paras 4]

The disallowance under section 14A read with Rule 8D(2)(iii) in respect of tax exempt income is upheld and the assessee's appeal is dismissed.

Final Conclusion: The Tribunal held that section 14A applies only where expenditure is incurred and that the assessee failed to substantiate a claim of no expenditure with reference to its accounts; having regard to the accounts and the mandatory prescription of Rule 8D, the indirect administrative disallowance was sustained and the appeal dismissed.

Capital receipt v. income from other sources - inextricably linked to the setting up of the project - interest on advances to contractors as capital receipt - interest on temporary bank deposits linked to project expenses - surplus funds distinction (Tuticorin principle)

Capital receipt v. income from other sources - inextricably linked to the setting up of the project - interest on advances to contractors as capital receipt - interest on temporary bank deposits linked to project expenses - surplus funds distinction (Tuticorin principle) - Whether interest earned from advances to contractors and from temporary bank deposits is a capital receipt to be capitalized against pre operative/project construction expenses or taxable as income from other sources - HELD THAT: - The Tribunal accepted the CIT(A)'s factual and legal conclusion (paras 4.1-4.9) that the project was under construction in the relevant year and the funds raised (shareholders' funds and borrowings) were being applied to acquisition/construction of fixed assets and advances to contractors. There was no finding that the advances were made out of surplus funds; balance sheet figures showed investments in fixed assets exceeded available funds and bank balances were minimal (para 4.4). The Tribunal applied the Supreme Court ratio in Bokaro Steel Ltd. and subsequent High Court decisions, holding that receipts which are directly connected with or incidental to construction (including interest on advances to contractors and interest on temporarily parked funds) are "inextricably linked" to setting up the project and reduce the cost of construction, thus constituting capital receipts to be capitalized (paras 4.5-4.8). The decision distinguished Tuticorin Alkali where the Apex Court taxed interest on funds held as truly surplus; here, because construction was ongoing and funds were not surplus, the Tuticorin principle did not apply (para 4.2, 4.4, 4.6). Applying these principles, the CIT(A)'s deletion of the addition was held to be justified and not to be interfered with (para 4.9). [Paras 4]

Addition of Rs. 1,75,74,129/- treated as capital receipt to be capitalized against project/pre operative expenses; AO's addition under "income from other sources" deleted

Final Conclusion: The Tribunal upheld the CIT(A)'s order deleting the addition of interest income, holding the interest to be capital in nature as inextricably linked to the setting up of the power project; the Revenue's appeal is dismissed.

Additions based on mismatch between books and Form 26AS - recognition of advance receipts under mercantile system of accounting - disallowance under section 40(a)(ia) for failure to deduct tax at source - payments paid within the financial year not liable for disallowance under section 40(a)(ia) - condonation of delay by the Tribunal

Additions based on mismatch between books and Form 26AS - recognition of advance receipts under mercantile system of accounting - Deletion of addition made on account of suppressed/unaccounted turnover quantified by difference between books and Form 26AS - HELD THAT: - The Assessing Officer made additions by quantifying differences between the assessee's books and Form 26AS. The assessee explained the variance by party-wise reconciliations showing that the differences arose from advances received on which customers deducted TDS and which were not recognised as income in the year under mercantile accounting but in subsequent years. The AO did not point to any defect in the books of account, nor did he reject the books; he merely relied on Form 26AS. The Tribunal found the reconciliation and accounting method satisfactory and held that additions could not be sustained where no flaw in the books was shown and the difference was adequately explained as advances accounted in later years. The addition was therefore deleted and the AO directed to give effect accordingly. [Paras 8]

Addition on account of suppressed/unaccounted turnover deleted.

Disallowance under section 40(a)(ia) for failure to deduct tax at source - payments paid within the financial year not liable for disallowance under section 40(a)(ia) - Deletion of disallowances under section 40(a)(ia) in respect of payments that were paid during the financial year - HELD THAT: - The AO disallowed certain advertisement and finance charges for non-deduction of TDS. The assessee contended that the amounts were paid during the financial year and nothing remained payable at the balance sheet date. The Tribunal examined coordinate-bench and special-bench authority (including the Visakhapatnam decisions and Mukundara Engineers & Contractors) and noted that where amounts have been paid before 31st March and nothing is outstanding at year-end, section 40(a)(ia) disallowance is not attracted. The revenue did not dispute the factual finding as to payments made. Applying those precedents and the factual finding recorded by the CIT(A) that the amounts were paid within the year, the Tribunal directed deletion of the disallowances made under section 40(a)(ia). [Paras 9, 10, 11]

Disallowances under section 40(a)(ia) in respect of payments made during the financial year deleted.

Condonation of delay by the Tribunal - Admission of time-barred appeal by condoning delay of 171 days - HELD THAT: - The assessee filed the appeal 171 days late and sought condonation, explaining delay as due to reliance on expert advice and waiting for consequential order. The Revenue did not oppose the condonation. Exercising the Tribunal's power, the delay was found to be for a valid reason and the appeal was admitted for hearing on merits. [Paras 16]

Delay condoned and the appeal admitted.

Final Conclusion: Appeals allowed: additions for unaccounted turnover deleted for lack of defect in books and on acceptable reconciliation; disallowances under section 40(a)(ia) deleted in respect of payments made within the financial year; time-barred appeal admitted after condonation of delay.

Dismissal of appeal on account of low tax effect under CBDT Circular No.21/2015 - unexplained investment brought to tax - burden of proof on assessee to establish source of investment - remand for verification of bank records - reliance on third party's returns and bank statement as proof of source - interest under S.234B

Dismissal of appeal on account of low tax effect under CBDT Circular No.21/2015 - Revenue's appeal dismissed as tax effect is below the threshold specified in the CBDT Circular - HELD THAT: - Both parties' calculations showed the tax effect in the Revenue's appeal to be below Rs. 10 lakhs. Applying CBDT Circular No.21/2015 (F.No.279/Misc.142/2007-ITI(Pt)), which is held applicable to pending appeals, the Tribunal dismissed the Revenue's appeal for lack of sufficient tax effect to merit admission. [Paras 2]

Revenue's appeal dismissed as per CBDT Circular since tax effect is less than Rs. 10 lakhs.

Burden of proof on assessee to establish source of investment - remand for verification of bank records - Proof of advance of Rs. 7 lakhs from Sundaram Home Finance to the assessee's wife as source for purchase of land remanded for verification - HELD THAT: - The assessee produced the loan account statement showing advance to his wife, but did not place before the Tribunal bank statements demonstrating withdrawal and application of those funds toward the land purchase prior to the date of the sale agreement. The Tribunal therefore directed that the Assessing Officer re-examine the matter, verify the wife's bank statements and related records, and ascertain whether the Rs. 7 lakhs was withdrawn and utilised for the land transaction; if so, it should be accepted as a proved source. [Paras 8]

Issue remanded to the Assessing Officer for verification of the assessee's wife's bank statements and reconsideration; acceptance of the Rs. 7 lakhs as source is contingent on verification.

Reliance on third party's returns and bank statement as proof of source - Amount of Rs. 10,75,000 shown as investment by Shri Viswanath taken as proved source for purchase of land - HELD THAT: - The Tribunal found that Shri Viswanath had reflected the advance in his bank statement and in his returns and balance sheets for the relevant years, and there was no adverse finding challenging the correctness of those filings. On that basis the Tribunal held that the transaction was established and the amount furnished by Shri Viswanath must be accepted as a proved source for the investment in the land. Accordingly, the corresponding ground of the assessee was allowed (treated as allowed for statistical purposes). [Paras 8]

The investment by Shri Viswanath of Rs. 10,75,000 is held proved and accepted as source for the land purchase.

Interest under S.234B - Claim for consequential relief against levy of interest under S.234B granted - HELD THAT: - Ground relating to interest under S.234B was considered consequential upon the adjustments to the assessed income. The Tribunal directed the Assessing Officer to grant consequential relief in accordance with the primary findings. [Paras 9]

Assessing Officer directed to allow consequential relief in respect of interest under S.234B.

Final Conclusion: The Tribunal dismissed the Revenue's appeal under the CBDT Circular for low tax effect and partly allowed the assessee's appeal: the Rs. 10,75,000 from Shri Viswanath was accepted as proved source, the claim relating to the Rs. 7 lakhs loan was remanded to the Assessing Officer for verification of bank records, and consequential relief as to interest under S.234B was directed to be granted.

Treatment of agricultural land as asset under the Wealth Tax Act - classification as agricultural land in the records of the Government - proviso excluding land described as agricultural land used for agricultural purposes - onus on the Assessing Officer to verify classification and applicability of Wealth Tax provisions - inclusion of buildings let out in net wealth - deletion of additions by Commissioner (Appeals) for absence of reasons in assessment order

Treatment of agricultural land as asset under the Wealth Tax Act - classification as agricultural land in the records of the Government - onus on the Assessing Officer to verify classification and applicability of Wealth Tax provisions - deletion of additions by Commissioner (Appeals) for absence of reasons in assessment order - Whether additions made by the Assessing Officer by treating lands shown as agricultural as taxable assets could be sustained where the lands are classified as agricultural in government records and agricultural operations were carried on - HELD THAT: - The Tribunal held that lands which are agricultural in nature cannot be treated as capital assets for the purposes of the Wealth Tax Act. The amended proviso to the definition of asset excludes land that is described as agricultural in government records and used for agricultural purposes, even if situated within the distance limits for urban land. The Assessing Officer had not recorded reasons in the assessment order for treating the lands as assets nor contradicted the assessee's claim and documentary proof that the lands were agricultural and agricultural operations were carried on; consequently the Commissioner (Appeals) was justified in deleting the additions. The Tribunal emphasised that it is for the AO to examine and verify classification and applicability of the Act at assessment stage, and the CIT(A) was not required to perform an exercise not prescribed by the statute. [Paras 5, 13]

Revenue's additions treating the agricultural lands as assets deleted; Revenue's grounds on this issue dismissed.

Inclusion of buildings let out in net wealth - deletion of additions by Commissioner (Appeals) for absence of reasons in assessment order - onus on the Assessing Officer to verify classification and applicability of Wealth Tax provisions - Whether additions to net wealth by valuing buildings (other than self-occupied) could be sustained where the assessee had disclosed and admitted rental income from those buildings and the AO gave no reasons for increasing values - HELD THAT: - The Tribunal found that where the assessee had admitted rental income from the properties and some properties were under construction (let out in subsequent years), the AO had not explained why such properties were to be treated as wealth under the Act. The AO merely increased the declared values by a percentage without discussion. The CIT(A) examined the records and income-tax returns and correctly deleted the additions because the properties, being let out or not demonstrably includable as assets, could not be treated as part of net wealth. The Tribunal therefore saw no reason to interfere with the CIT(A)'s deletions. [Paras 7, 15]

Revenue's additions on valuation of buildings deleted; Revenue's grounds on this issue dismissed.

Final Conclusion: All seven Revenue appeals (AY 2009-10 and AY 2007-08) are dismissed; the Tribunal upheld the Commissioner (Appeals)'s deletions of additions relating to agricultural lands and buildings where the AO did not record reasons or contradict the assessee's documentary claims and admitted rental/agricultural income.

Charitable purpose - preservation of environment as charitable object - revisionary powers under section 263 - registration under section 12A and approval under section 80G - predominant commercial character and profit motive

Revisionary powers under section 263 - charitable purpose - Validity of the CIT(E)'s revisionary order cancelling the assessment and directing reassessment under section 263. - HELD THAT: - The Tribunal found that the Commissioner of Income-tax (Exemptions) erred in holding that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the revenue. On the materials - trust deed, registration under section 12A, approval under section 80G, audited accounts, documentary evidence of activities, appreciation letters and media coverage - the Tribunal concluded that the Assessing Officer had examined records and that the trust's objects and routine showed service-oriented charitable activity. The CIT(E)'s conclusion that the assessment was erroneous lacked basis because the Assessing Officer had not been shown to have failed to examine material facts relevant to the charitable status. [Paras 7]

Revision order under section 263 set aside insofar as it cancelled the assessment; CIT(E)'s conclusion that the assessment was erroneous was not sustained.

Preservation of environment as charitable object - charitable purpose - Whether the activities of the trust (solid waste management and related awareness) fall within the ambit of 'preservation of environment' and thus constitute charitable purpose. - HELD THAT: - On review of the trust deed, audited accounts, records of activities (awareness programmes, waste removal, project implementation) and consistent conduct since registration, the Tribunal held that the trust's primary objective is solid waste management and related civic services which advance a public purpose. The evidence showed bona fide operation in furtherance of a clean environment and public health, and any surplus is incidental. The Tribunal accepted that such activities fall within the meaning of charitable purpose as preservation of the environment. [Paras 7]

The trust's activities were held to be charitable and to fall within preservation of environment; the CIT(E)'s contrary conclusion was not upheld.

Predominant commercial character and profit motive - revisionary powers under section 263 - Whether the trust's entry into tenders and contracts rendered its activities predominantly commercial and justified re-opening the assessment without further inquiry. - HELD THAT: - While rejecting the CIT(E)'s broad conclusion that the trust was commercial, the Tribunal noted that the Assessing Officer had not specifically verified aspects of the tender process and the commercial terms to ascertain whether profit motive predominated. Consequently, the Tribunal directed limited further enquiry: the Assessing Officer should verify the processes of tendering and contracting, examine whether actions displayed a profit motive, afford the assessee an opportunity to be heard and consider the documents already filed, and then pass a reasoned order on merits. [Paras 7]

Matter remanded to the Assessing Officer for limited verification of tender/contract procedures and any predominance of profit motive; assessee to be given opportunity of hearing.

Final Conclusion: The Tribunal set aside the CIT(E)'s revisionary order insofar as it cancelled the assessment and held that the trust's activities amount to charitable purpose under preservation of environment; however, it remanded limited issues concerning tendering and possible predominance of profit motive to the Assessing Officer for fresh verification and a merits decision after affording the assessee hearing.

Show cause notice - duty drawback - limitation period - reasoned order - opportunity of hearing

Show cause notice - duty drawback - limitation period - reasoned order - opportunity of hearing - Petitioner permitted to file supplementary reply and respondent No.3 directed to decide the pending show cause notice by passing a reasoned order after hearing and dealing with the question of limitation and merits. - HELD THAT: - The Court refrained from adjudicating the merits because only a show cause notice had been issued and no final order was passed. The petitioner's contention that actions to recover duty drawback beyond five years are time barred was noted and the Court observed that the question of limitation, including reliance on the case law cited by the petitioner, requires consideration by the adjudicating authority. Consequently the matter was remitted to respondent No.3 with a direction to afford the petitioner an opportunity to file a supplementary reply, to hear the petitioner's representative, and to pass a reasoned order addressing both limitation and merits; the Court thereby preserved the petitioner's right to pursue appellate or other remedies against any adverse order.

Writ petition disposed with liberty to file supplementary reply; respondent No.3 to decide the show cause notice by a reasoned order after hearing and addressing limitation and merits.

Final Conclusion: The writ petition is disposed of by remitting the matter to respondent No.3 with directions to permit a supplementary reply, hear the petitioner, and pass a reasoned order dealing with the question of limitation and the merits; liberty reserved to the petitioner to pursue appellate or other remedies against any adverse order.

Provisional release of seized goods - security for provisional release (bond and bank guarantee) - relegation to statutory remedy - binding precedent of the Supreme Court governing provisional release - differential duty

Relegation to statutory remedy - provisional release of seized goods - Whether the writ petition seeking modification of conditions for provisional release can be entertained or the petitioner must be relegated to the statutory appellate remedy under the Customs Act, 1962. - HELD THAT: - The Court noted the departmental contention that the order dated 23 February 2015 is appealable and that the petitioner should pursue the statutory remedy. Having regard to earlier decisions of this Court and the Supreme Court prescribing limited securities for provisional release, and observing that the respondents were nonetheless imposing substantially harsher conditions and thereby compelling repeated petitions to the Court, the High Court found that relegation to the statutory remedy would not be efficacious. The Court therefore exercised writ jurisdiction to consider and modify the conditions for provisional release rather than directing the petitioner to pursue an appeal under the Customs Act. [Paras 3, 4, 6]

Writ petition entertained; relegation to statutory remedy declined as not efficacious and Court proceeded to modify conditions for provisional release.

Provisional release of seized goods - security for provisional release (bond and bank guarantee) - binding precedent of the Supreme Court governing provisional release - differential duty - What security and conditions should be imposed for the provisional release of the seized goods. - HELD THAT: - The Court reviewed precedent in which this Court and the Supreme Court had allowed provisional release upon furnishing limited security (notably a bank guarantee of 30% of the differential duty). Observing that the Deputy Commissioner had imposed markedly harsher conditions (payment of 100% of differential duty, bond for 100% of goods' value, and BG of 25% of differential duty), the High Court modified those conditions. The petitioner's willingness not to dispute quantity and weight was recorded; the Court expressly reserved all other contentions for adjudication in the statutory proceedings. The modified conditions for provisional release were set out to align with the controlling precedent while addressing the departmental concern for security. [Paras 1, 5, 6, 7, 8]

Provisional release directed on petitioner executing a bond equal to 100% of the value of the goods and furnishing a bank guarantee equal to 30% of the differential duty with an auto-renewal clause as per RBI guidelines; other contentions reserved for adjudication.

Final Conclusion: The High Court entertained the writ petition instead of relegating the petitioner to the statutory appellate route, and directed provisional release of the seized goods upon execution of a bond for 100% of the goods' value and furnishing a bank guarantee equal to 30% of the differential duty (auto-renewal per RBI), while reserving other contentions for the adjudication proceedings; the petition and pending application were disposed of on these terms.

Appellate authority cannot decide against non party - Principles of natural justice - Appeal confined to specific noticee - Availability of alternative statutory remedy - Quashing order for lack of notice

Appellate authority cannot decide against non party - Principles of natural justice - Quashing order for lack of notice - Validity of the Commissioner (Appeals) disturbing the order of the Commissioner insofar as it related to noticees other than the appellant before the Commissioner (Appeals). - HELD THAT: - The Commissioner (Appeals) entertained and adjudicated on the culpability of all noticees though the departmental appeal had been filed only against the partnership firm, Krishna Clearing. The other noticees had earlier obtained an order of the Commissioner dropping proceedings and were not respondents before the Commissioner (Appeals). By reversing the drop-order qua those non appealed noticees and remitting for de novo adjudication, the appellate authority acted without giving those parties notice and without a departmental appeal against them. Such action is open to challenge because it breaches the principles of natural justice and an appellate authority cannot ordinarily pronounce adverse findings against persons who are not parties to the appeal and who have earned the benefit of the dropping order in their favour. On this ground the impugned order is liable to be quashed insofar as it affects petitioners other than Krishna Clearing. [Paras 7, 8]

Impugned order dated 12.10.2015 quashed insofar as it affects petitioners No.2 to 5 for want of notice and in breach of principles of natural justice; quashing is not on merits.

Availability of alternative statutory remedy - Appeal confined to specific noticee - Whether writ jurisdiction should be exercised in respect of Krishna Clearing or the firm should be relegated to the statutory appellate remedy before the Tribunal. - HELD THAT: - Petitioner No.1 (Krishna Clearing) has a statutory remedy by way of appeal to the Tribunal against the order of the Commissioner (Appeals). In respect of the partnership firm the High Court declined to entertain the petition and relegated Krishna Clearing to prefer the statutory appeal. The court granted a limited indulgence that if such an appeal is filed by the specified date it shall not be dismissed on the ground of limitation, having regard to the firm having approached the High Court pursuant to available remedies. This preserves the statutory appellate route while safeguarding the firm from a limitation plea. [Paras 6]

Petition not entertained qua Krishna Clearing; Krishna Clearing is relegated to file appeal before the Tribunal (with time bar protection if filed by the date directed).

Final Conclusion: The impugned appellate order is quashed insofar as it adjudicated against noticees who were not parties to the appeal before the Commissioner (Appeals) for want of notice and in breach of natural justice; petitioners other than Krishna Clearing succeed on that ground. Petition of Krishna Clearing is not entertained and the firm is relegated to the statutory remedy of appeal to the Tribunal, with a protective direction on limitation if filed within the time permitted by the Court.

Direction to draw samples - submission of samples to Notified Laboratory for analysis - visual inspection insufficient to declare perishable food unfit for human consumption - consideration of laboratory report together with prior certification by Directorate of Plant Protection, Quarantine and Storage - prompt disposal of import clearance of perishable goods

Direction to draw samples - visual inspection insufficient to declare perishable food unfit for human consumption - Direction to the second respondent to draw samples from the consignment and forward them to the Notified Laboratory for testing. - HELD THAT: - The court found that mere visual inspection by the second respondent, without laboratory testing, could not conclusively determine that the imported wet dates were unfit for human consumption. Having regard to the perishable nature of the goods and the petitioner's request, the court directed that samples be drawn and sent to the Notified Laboratory so that an authoritative scientific analysis may be obtained before taking a final clearance decision. This direction was given to secure an objective basis for adjudication rather than relying solely on the second respondent's visual assessment. [Paras 6]

Samples to be drawn from the consignment and forwarded to the Notified Laboratory for testing.

Submission of samples to Notified Laboratory for analysis - consideration of laboratory report together with prior certification by Directorate of Plant Protection, Quarantine and Storage - prompt disposal of import clearance of perishable goods - Respondents to consider the laboratory report and the earlier certificate of the Directorate of Plant Protection, Quarantine and Storage and pass orders on release within a specified short period. - HELD THAT: - The court required that the respondents consider the petitioner's representations and all relevant documents, including the Origin Certificate and the certificate dated 18.12.2015 issued by the Directorate of Plant Protection, Quarantine and Storage recommending release. The respondents were directed to base their decision on the Notified Laboratory's report and the government authority's recommendations, and to conclude the matter expeditiously to avoid prolonging demurrage and deterioration of the perishable consignment. The court imposed a two week timeline from receipt of the order copy for the respondents to pass necessary orders. [Paras 6]

Respondents to consider laboratory report and prior Directorate certificate and pass necessary orders within two weeks.

Final Conclusion: Writ petitions allowed in part: respondents directed to draw and send samples to the Notified Laboratory, permit petitioner to produce relevant documents, and to consider the laboratory report together with the Directorate's certificate and pass orders on release within two weeks; writ petitions disposed of with no costs.

Refund claim for excess duty paid on import - finality of assessment/non-challenge of assessment - requirement to challenge assessment before seeking refund - binding effect of Supreme Court precedents on refund claims - irrelevance of fulfillment of notification/Board circular where assessment not challenged

Refund claim for excess duty paid on import - finality of assessment/non-challenge of assessment - requirement to challenge assessment before seeking refund - binding effect of Supreme Court precedents on refund claims - Whether a refund claim for difference in duty paid on clearance of an imported vehicle is admissible where the assessment/order under the relevant Bill of Entry was not challenged before the appropriate appellate authority. - HELD THAT: - The Tribunal found that the refund application was rejected by the authorities solely because the appellant did not challenge the assessment order made under the Bill of Entry and paid the duties at the time of clearance. The authorities relied on Supreme Court decisions which hold that where an assessment order has not been challenged and has attained finality, a subsequent refund claim for the same assessment is not maintainable. The appellant's contention that statutory notification conditions were fulfilled and that Board circulars and foreign registration requirements entitled them to refund was held to be immaterial in the face of the settled legal position on the finality of assessment. Applying the ratio of the cited Supreme Court authorities and the subsequent decision upholding the same principle, the Tribunal concluded that the refund claim could not be entertained because the assessment was not contested when it was open to be challenged.

Impugned order upholding rejection of the refund claim is affirmed; refund inadmissible as the assessment was not challenged and had become final.

Final Conclusion: The appeal is dismissed and the impugned order rejecting the refund claim is affirmed, the Tribunal following binding Supreme Court precedent that a refund cannot be allowed where the assessment order has not been challenged.

Removal of director requiring special notice under section 284(2) - Mandatory production of instrument of transfer for registration under section 108 - Proviso to section 108 permitting registration on proof of lost instrument subject to board's bona fide satisfaction and indemnity - Right to seek rectification of the register of members notwithstanding non appearance on the register at the time of filing - Company Law Board's power to order rectification and interim relief under section 59 read with sections 397/398

Removal of director requiring special notice under section 284(2) - Validity of removal of Petitioner No.1 as director for want of special notice and the effect of E Form 32 filed with ROC. - HELD THAT: - Section 284(2) mandates special notice of any resolution to remove a director and entitles the director to be heard and, where written representations are made, to have them notified or read out at the meeting. Respondents failed to plead or prove service of any notice of the EGM; no authenticated notice was placed on record and the mode of service was unexplained. In the absence of such proof the petitioners were deprived of the statutory opportunity to be heard. The resolution of the EGM dated 27.06.2013 and the E Form 32 uploaded on 04.07.2013 are therefore in breach of the mandatory procedure and are null and void. Consequentially Petitioner No.1 is reinstated as director, subject to the limited restriction on signing cheques because of withdrawal of his bank guarantee. [Paras 44, 45]

The EGM resolution of 27.06.2013 is null and void; E Form 32 dated 04.07.2013 is declared illegal and Petitioner No.1 is reinstated as director (with limitation on signing cheques).

Mandatory production of instrument of transfer for registration under section 108 - Proviso to section 108 permitting registration on proof of lost instrument subject to board's bona fide satisfaction and indemnity - Board's satisfaction must be bona fide and not self serving (natural justice) - Validity of the transfer and registration of petitioners' shares in the absence of a produced, stamped and executed instrument of transfer and applicability of the first unnumbered proviso to section 108. - HELD THAT: - Sections 108(1) and 108(1A) require a proper stamped instrument of transfer, executed by or on behalf of transferor and transferee, and its presentation to the prescribed authority; compliance is mandatory. The proviso permits registration where the instrument is proved to have been lost, but this requires credible proof of the instrument's prior existence and a bona fide satisfaction of the Board. Respondent's case of loss (bag stolen) was unsupported by evidence of execution (no attesting witnesses, no stamp purchase proof) and relied on self serving statements by transferee who was a controlling director. The Board's purported satisfaction was therefore tainted by the possibility of bias and did not meet the proviso's requirements. Consequently there is nothing on record to establish that the transfer deed ever existed or was validly executed; registration without the prescribed instrument was unlawful. [Paras 49, 50, 60, 62, 64]

The transfers were not registered in accordance with section 108; the first unnumbered proviso is inapplicable because the requisite proof of an executed instrument and bona fide board satisfaction is absent; petitioners' shareholding is restored and the 2013 annual return showing the transfers is declared null and void.

Right to seek rectification of the register of members notwithstanding non appearance on the register at the time of filing - Company Law Board's power to order rectification and interim relief under section 59 read with sections 397/398 - Maintainability of petition for rectification and oppression/mismanagement relief by erstwhile members not shown in the register at the time of filing. - HELD THAT: - The Board held that an erstwhile member who challenges an improper entry in the register may maintain a petition for rectification and for oppression/mismanagement relief even if, at the date of filing, the petitioner does not appear on the register. The Supreme Court's reasoning in World Wide Agencies was applied to conclude that insisting on presence on the register before filing would frustrate the remedial purpose. Thus preliminary objections based on lack of locus standi under historical provisions were rejected and the petition was held maintainable. [Paras 35, 36, 40]

The petition for rectification and consequential relief under sections 397/398 read with section 59 is maintainable despite the petitioners not appearing on the register at the time of filing.

Final Conclusion: The petition partially succeeds: the EGM resolution dated 27.06.2013 and the E Form 32 filed on 04.07.2013 are declared void and Petitioner No.1 is reinstated as director (subject to bank guarantee limitation); the purported transfers of the petitioners' shares were not effected in compliance with section 108 and are set aside, the 2013 annual return is declared null and void and the company's register of members is ordered to be rectified by re entering the petitioners; petitioners to refund the amount received from Respondent No.2 within the time directed.