TaxTMI Updates e-Newsletter
Apr 15,2020

Recovery proceedings - AO required the petitioner to deposit 20% of the disputed amount - projection of Tax on Returned Income - as decided by HC [2020 (4) TMI 335 - DELHI HIGH COURT] writ petition seeking protection from coercive recovery was dismissed because the petitioner materially misrepresented its tax position (including non disclosure of its MAT liability) and breached the condition against seeking adjournments; discretionary relief was refused and costs were awarded.

HELD THAT:- Issue notice.

Status quo, as of today, in respect of demand/recovery shall be maintained in the meantime.

Taxability of profit or loss on realisation/sale of investments by general insurance companies - treatment of profits realised from investments (real versus hypothetical receipts) - applicability of minimum alternate tax/book profit computation under Section 115JB to insurance companies - liability to deduct tax at source on payments to non-resident surveyors - liability to deduct tax at source on commission paid for receipt of re-insurance premium - interaction of IRDA Regulations and income-tax treatment of investment realisations - HC [2019 (7) TMI 387 - MADRAS HIGH COURT] decided issues in favour of assessee - HELD THAT:- Delay condoned.

Leave granted. Hearing expedited.

Pleadings to be completed in the meanwhile.

Reopening of assessment in exercise of powers u/s 153A - Tribunal quashing the order u/s 153A stating that in absence of any incriminating material on issue which has already been examined and finalized in original assessment cannot be reexamined and reopened - as decided by HC [2019 (12) TMI 406 - BOMBAY HIGH COURT] Tribunal correctly quashed the assessment under section 153A because the incriminating material relied upon was already before the Assessing Officer and the issue (including the claim u/s 80-IB(10)) had been examined and finalized in the original assessment.

HELD THAT:- Application seeking exemption from filing certified copy of the impugned order is allowed.

Issue notice.

Disallowance of interest under section 36(1)(iii) - availability of interest free funds for deployment - nexus between interest free funds and interest free advances - proof of purchase advances - remand for limited verification of interest free capital

Disallowance of interest under section 36(1)(iii) - availability of interest free funds for deployment - proof of purchase advances - Assessee's appeal for A.Y. 2010-11 against disallowance of proportionate interest on alleged interest free advances - HELD THAT: - The Tribunal upheld the Assessing Officer's finding that the assessee failed to demonstrate availability of interest free funds. Sundry creditors for goods and expenses and partner's fixed capital were rejected as constituting interest free funds since these represented outstanding liabilities and initial capital already utilised. The fact that sundry debtors exceeded these liabilities and absence of documentary evidence proving that the advances were purchase advances supported the conclusion that interest bearing funds were utilised to make the advances. The Tribunal also noted that the assessee began charging interest on such loans in subsequent years, further weakening the claim of interest free advances. On these determinations the disallowance computed by the Assessing Officer was sustained. [Paras 6, 13, 15]

Dismissal of the assessee's appeal for A.Y. 2010-11; disallowance of proportionate interest sustained.

Disallowance of interest under section 36(1)(iii) - availability of interest free funds for deployment - nexus between interest free funds and interest free advances - proof of purchase advances - remand for limited verification of interest free capital - Assessee's appeal for A.Y. 2013-14 against disallowance of proportionate interest on alleged interest free advances and related claim of interest free funds - HELD THAT: - For A.Y. 2013 14 the Tribunal found, as in the earlier year, that the assessee did not produce cogent evidence to establish that the advances were purchase advances; therefore that limb of the claim was rejected. The Assessing Officer's blanket rejection of all alleged interest free funds was, however, examined in part: the Tribunal identified that the Assessing Officer had not adequately addressed the claim relating to partner's current capital of Rs. 43,97,689. Citing the principle that where interest free funds are shown to exist the assessee is entitled to credit thereof without a strict one to one tracing, the Tribunal set aside the matter to the file of the Assessing Officer for limited re examination of whether the partner's current capital constituted available interest free funds and, if so, for proportionate relief to be granted. [Paras 8, 9, 14, 15]

Assessee's appeal for A.Y. 2013-14 partly allowed; matter remanded to Assessing Officer for limited verification of partner's current capital as interest free funds and grant of proportionate relief if established; claim of purchase advances dismissed.

Final Conclusion: The Tribunal dismissed the appeal for A.Y. 2010-11 upholding the disallowance of proportionate interest for lack of proved interest free funds and absence of evidence that advances were purchase advances. For A.Y. 2013-14 the Tribunal dismissed the purchase advance plea but remitted the limited issue of whether partner's current capital of Rs. 43,97,689 constituted available interest free funds to the Assessing Officer for verification and proportionate relief if found available.

Reassessment under section 147 and notice under section 148 - Accommodation entries / bogus purchases - Addition under section 69C treated as undisclosed income - Failure to produce books of account and evidential burden on assessee

Reassessment under section 147 and notice under section 148 - Reassessment proceedings and notice were valid and the reopening was sustainable. - HELD THAT: - The Assessing Officer reopened the assessment after receiving information from the Investigation Wing and issued a show cause notice detailing alleged accommodation entries. Statements recorded from third parties during search and subsequent proceedings, and affidavits confirming issuance of bogus purchase bills, were relied upon by the AO. The CIT(A) considered the material and rejected the assessee's contention that the reasons were vague or that statutory procedure was not complied with. The Tribunal, noting the record and absence of any attendance or further defence by the assessee, upheld the reopening and the consequential proceedings. [Paras 3, 7]

Reassessment initiation and the notice under section 148 are sustained.

Addition under section 69C treated as undisclosed income - Accommodation entries / bogus purchases - Addition treating purchases as bogus and taxable as unexplained cash credit / income under section 69C was justified and confirmed. - HELD THAT: - The AO treated purchases amounting to the specified sum as bogus after recording that third parties admitted in statements and affidavits that they issued bogus purchase bills as accommodation entries. The assessee failed to produce books of account or offer satisfactory explanation in response to a detailed show cause notice. The CIT(A) examined the evidence placed before the revenue authorities and confirmed the addition. The Tribunal, on perusal of the assessment and appellate record and having heard the Revenue, found no infirmity in treating the purchases as accommodation entries and making the addition under section 69C read with the relevant provisions. [Paras 3, 7]

Addition under section 69C confirmed.

Failure to produce books of account and evidential burden on assessee - Claims that the suppliers were engaged in actual business and that purchases/sales tallied were not established and therefore were rejected. - HELD THAT: - The assessee contended that suppliers carried on actual business and that quantities purchased and sold tallied. The revenue disproved the claim by relying on statements and affidavits of the alleged suppliers and the assessee did not produce books of account or other cogent evidence to rebut the inference of accommodation entries. The CIT(A) and the Tribunal recorded that the assessee failed to discharge the evidential burden to demonstrate genuineness of the transactions. [Paras 7]

Contentions regarding genuineness of suppliers' business and tallying of transactions are rejected.

Final Conclusion: The appeal is dismissed; the reassessment and the addition treating specified purchases as bogus and taxed under section 69C are upheld, the assessee having failed to produce books or otherwise rebut the evidence relied on by the revenue.

Limited scrutiny - scope of scrutiny - extension of scrutiny without prior approval - void ab initio - disallowance under Section 14A read with Rule 8D - CBDT Instruction No.7/2014 (CASS limited scrutiny)

Limited scrutiny - scope of scrutiny - extension of scrutiny without prior approval - CBDT Instruction No.7/2014 (CASS limited scrutiny) - void ab initio - Validity of the assessment framed pursuant to a limited scrutiny notice where the Assessing Officer proceeded to make disallowance under Section 14A read with Rule 8D without obtaining prior written approval of the Commissioner as required by the Board's instructions. - HELD THAT: - The Tribunal found it is an undisputed fact that the case was selected for limited scrutiny on the basis of AIR information relating to cash deposits and that the Assessing Officer did not obtain the written approval of the concerned Commissioner before extending the scope of the limited scrutiny to include disallowance under Section 14A. The Tribunal noted CBDT Instruction No.7/2014 prohibits Assessing Officers from extending the scope of scrutiny beyond issues authorized under CASS without prior approval. Since no scrutiny in respect of Section 14A was authorised or carried out and the Assessing Officer nonetheless made the disallowance and recorded that the amount would be added to book profits under clause (f) below Explanation-1 to section 115JB, the assessment was held to be beyond the authorised scope of limited scrutiny and therefore bad in law. Consequentially, the Tribunal treated adjudication of other grounds on merits as academic and did not decide them. [Paras 7]

Assessment framed by extending the scope of limited scrutiny without prior Commissioner approval is void ab initio; appeal allowed and other grounds left undecided as academic.

Final Conclusion: The assessment for Assessment Year 2015-16 is set aside as void ab initio because the Assessing Officer, conducting a limited scrutiny, extended its scope to make a Section 14A/Rule 8D disallowance without the prior written approval mandated by CBDT Instruction No.7/2014; the appeal is allowed and other contentions were not adjudicated.

Valuation of closing stock under inclusive and exclusive methods - computation of income under section 145A - impact of indirect taxes/duty/cess/fee on trading account and profit - arithmetical errors vitiating assessment adjustments - role of tax audit report in appellate verification - precedential weight of earlier Tribunal findings

Valuation of closing stock under inclusive and exclusive methods - computation of income under section 145A - impact of indirect taxes/duty/cess/fee on trading account and profit - arithmetical errors vitiating assessment adjustments - role of tax audit report in appellate verification - Whether an addition on account of difference in trading account arising from adopting the inclusive method (including duty/cess/fee) under section 145A was justified for assessment year 2010-11 - HELD THAT: - The Tribunal examined whether the profit before tax differs when stock valuation is done under the inclusive method (which incorporates indirect taxes/duties) as compared to the exclusive method. The Commissioner (Appeals) found that the asserted excess profit arose from differences in trading account computations under section 145A, but on scrutiny identified multiple arithmetic and accounting errors in the Assessing Officer's computation (totalling mismatches, non-consideration of excise adjustments, incorrect treatment of sales tax, and duplication of closing stock/WIP). The assessee's tax audit report, which analysed inclusive and exclusive methods, demonstrated no difference in profit before tax. The Tribunal also noted and followed earlier Tribunal decisions in the assessee's favour for related years, which accepted the tax auditor's examination and declined remand for fresh verification. In consequence, the alleged addition was attributable to computation errors rather than a genuine income shift under section 145A, and the deletion of the addition by the Commissioner (Appeals) was upheld. [Paras 5]

Addition of Rs. 3,74,11,219/- made under section 145A is deleted and no addition is required for AY 2010-11.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal upholds the Commissioner (Appeals) finding that, after rectification of arithmetic and accounting errors and having regard to the tax audit report and earlier Tribunal precedents, no addition under section 145A is warranted for assessment year 2010-11.

Long term capital gain - indexation under section 48 - characterisation of sale of shares as capital asset - treatment of shares of Indian company versus foreign company - requirement of STT where sale is on stock exchange - admissibility of documents produced before appellate authority

Long term capital loss - short term capital loss - admissibility of purchase and sale documents on appeal - Whether the CIT(A) was justified in admitting documents and directing the AO to compute long term and short term capital loss on sale of shares of Galaxy Entertainment Corp. Ltd. - HELD THAT: - The Tribunal recalled and reaffirmed its earlier reasoning that the assessee had purchased shares of Galaxy Entertainment Corp. Ltd. on the stock exchange and had produced purchase notes and sale bills before the appellate authority. The CIT(A) forwarded those documents to the AO in remand proceedings; although the AO objected to their admission, the CIT(A) admitted them as proceedings aim to assess correct tax liability. On this basis the CIT(A) directed the AO to compute the assessee's long term and short term capital losses. The Tribunal found no infirmity in the CIT(A)'s approach of admitting the documents for assessing the correct tax liability and in directing computation of long term/short term losses. [Paras 3]

The Tribunal upheld the CIT(A)'s order admitting the documents and directed computation of long term and short term capital loss; ground no.3 of the revenue's appeal is dismissed.

Treatment of shares of Indian company versus foreign company - characterisation of sale of shares as capital asset - indexation under section 48 - requirement of STT where sale is on stock exchange - Whether the profit on sale of shares of TCG Urban Infra Holding Limited (TUIHL) is taxable as long term capital gain with indexation or is assessable as income from other sources because the company was alleged to be a foreign company and STT was not paid. - HELD THAT: - The AO treated the receipts as income from other sources on the premise that TUIHL was a foreign company and that indexation and long term treatment were not available because the shares were unlisted abroad and STT was not paid. On appeal the assessee produced ROC incorporation documents showing TUIHL to be an Indian company registered since 1981; the AO's remand report contained no adverse finding to contradict that position. The CIT(A) accepted that TUIHL is an Indian company and recorded that the assessee held the equity shares as investment for more than twelve months. The CIT(A) noted that STT is payable only where sale is effected on a stock exchange and, since the shares were not sold on an exchange, the absence of STT did not preclude long term treatment. Applying the statutory tests for capital asset and computation under section 48, the CIT(A) held indexation to be allowable. The Tribunal, on review of the remand report and records, found the AO's foundational premise to be incorrect and found no infirmity in the CIT(A)'s conclusion. [Paras 4, 5, 6, 7, 8]

The Tribunal upheld the CIT(A)'s finding that TUIHL is an Indian company, that the shares were long term capital assets and that indexation was allowable; ground no.4 of the revenue's appeal is dismissed.

Final Conclusion: The Tribunal, on limited rehearing, dismissed the revenue's appeal on the remaining grounds: ground no.3 (regarding computation of long term and short term capital loss on Galaxy Entertainment shares) is reiterated and upheld, and ground no.4 (characterisation and indexation on sale of TUIHL shares) is dismissed, thereby upholding the CIT(A)'s relief to the assessee.

Low tax effect - CBDT Circular No. 17/2019 - exceptions under the CBDT Circular (para 10) - comparability in transfer pricing - persistent loss - functionally comparable - inclusion and exclusion of comparables - Transactional Net Margin Method (TNMM) - Profit Level Indicator (OP/OC) - remand for de novo examination of comparables

Low tax effect - CBDT Circular No. 17/2019 - exceptions under the CBDT Circular (para 10) - Whether the Revenue's appeal should be dismissed for low tax effect under the CBDT instructions. - HELD THAT: - The Tribunal found the tax effect in the Revenue's appeal to be below the enhanced monetary threshold of Rs. 50 lakhs prescribed by CBDT Circular No. 17/2019 and, without adjudicating merits, dismissed the appeal on that ground. The Tribunal noted the Department may seek restoration of the appeal by producing material showing applicability of the exceptions set out in para 10 of the earlier Circular and its amendment. The dismissal was therefore procedural, based solely on the low tax effect criterion and subject to the Department's right to invoke the specified exceptions for restoration. [Paras 4, 5]

Revenue's appeal dismissed on account of low tax effect; Revenue permitted to seek restoration with material satisfying exceptions in the CBDT Circular.

Inclusion and exclusion of comparables - comparability in transfer pricing - persistent loss - Transactional Net Margin Method (TNMM) - Profit Level Indicator (OP/OC) - Whether the three excluded loss-making companies (PSI Data Systems Ltd., SIP Technologies & Exports Ltd., TVS Infotech Ltd.) are to be included in the final set of comparables for determining ALP. - HELD THAT: - Applying the Tribunal's settled approach, only entities showing persistent losses (continuous loss for more than three years including the relevant year) are to be rejected as comparables. The record showed each of the three companies had positive income in the financial year preceding the relevant year and therefore did not meet the test of persistent loss. The Tribunal held that the period of loss, not the quantum of loss, governs the exclusion test and, following precedents such as John Deere, directed inclusion of these three companies in the final comparable set. [Paras 19, 20, 21]

PSI Data Systems Ltd., SIP Technologies & Exports Ltd., and TVS Infotech Ltd. to be included in the final set of comparables as they are not persistent loss making companies.

Functionally comparable - inclusion and exclusion of comparables - Whether KALS Information Systems Ltd. and E-Zest Solutions Ltd. are functionally comparable and should be retained in the final set of comparables. - HELD THAT: - On examination of the functional profile and corroborative material, the Tribunal found KALS to be predominantly a product company (evidenced by significant inventory) and E-Zest to be a product/KPO/ITeS concern, both differing materially from the assessee's software development services model. Reliance was placed on earlier Tribunal and High Court decisions holding KALS and E-Zest functionally dissimilar to pure software development service providers. In light of this functional disparity, the Tribunal directed exclusion of KALS and E-Zest from the final comparable list. [Paras 22, 23]

KALS Information Systems Ltd. and E-Zest Solutions Ltd. excluded from the final set of comparables for lack of functional comparability.

Inclusion and exclusion of comparables - remand for de novo examination of comparables - Whether the assessee's additional ground challenging inclusion of Acropetal Technologies Ltd., Cepha Imaging Pvt. Ltd. and Polaris Retail Infotech Ltd. should be admitted and referred back for fresh examination. - HELD THAT: - The Tribunal observed that selection of comparables in the transfer pricing study may be revisited if functional disparity or failure to satisfy applied filters is shown later; inclusion in the assessee's TP study does not estop it from later seeking exclusion. Following precedents, the Tribunal admitted the additional ground despite the assessee not having objected before the DRP and restored the matter to the TPO/Assessing Officer for de novo examination of those comparables. [Paras 24, 25]

Additional ground admitted and remanded to the TPO/Assessing Officer for fresh examination of Acropetal Technologies Ltd., Cepha Imaging Pvt. Ltd., and Polaris Retail Infotech Ltd.

Final Conclusion: The Revenue's appeal and the assessee's cross-objection are dismissed as to the Revenue's appeal on account of low tax effect; the assessee's appeal is partly allowed - three previously excluded loss-making companies are ordered to be included as comparables and two entities (KALS and E-Zest) are excluded for lack of functional comparability; one additional challenge to three comparables is admitted and remanded to the TPO for de novo examination.

Capitalisation versus revenue expenditure - unexplained cash credit under section 68 - pro rata share of co owner for capitalization of expense

Capitalisation versus revenue expenditure - Deletion of addition of Rs. 8,00,000 made by the AO by treating payment to the occupant as not exigible to income as the assessee had capitalised the payment in the balance sheet and had not claimed it as an expenditure in the profit and loss account. - HELD THAT: - The Tribunal found no dispute about payment having been made to Ms. Kamladevi K. Agarwal and noted that the assessee had reflected the amount as capitalised in the schedule of fixed assets and had not claimed it as an expenditure or depreciation. The authorities below rejected the claim primarily on the ground that the payment was made in an earlier financial year, but since the payment was capitalised and not claimed as revenue expenditure, the addition was not warranted. On this basis the Tribunal set aside the concurrent finding and directed deletion of the addition. [Paras 7]

Addition of Rs. 8,00,000 deleted and AO directed to delete the addition.

Pro rata share of co owner for capitalization of expense - Confirmation of the CIT(A)'s allowance of capitalization to the extent of 81% and upholding the addition of 19% (Rs. 2,19,810) of the payment to Bombay Municipal School on the ground that the assessee owned only 81% of the property. - HELD THAT: - The Tribunal accepted the finding that the assessee was owner of 81% of the property and that any expenditure incurred in relation to the property had to be shared in the ratio of 81:19 between the assessee and the co owner, C.K. Thakkar. The Tribunal sustained the CIT(A)'s treatment which permitted capitalization of 81% of the total payment and disallowed 19% as not attributable to the assessee's share. Accordingly the appellate authority's adjustment was held to be correct and was confirmed. [Paras 10]

CIT(A)'s finding confirmed; addition of 19% of the payment upheld and assessment adjusted accordingly.

Unexplained cash credit under section 68 - Deletion of addition of Rs. 50,00,000 treated as unexplained cash credit under section 68, the Tribunal holding that the assessee had furnished sufficient documentary evidence to establish genuineness and creditworthiness of the lender. - HELD THAT: - The Tribunal examined the material placed on record including confirmations, bank certificates from the NRI branch, opening balances, solvency certificates, FCNR receipts and other documents evidencing the financier's funds and creditworthiness. The Tribunal also noted that the director had advanced similar unsecured loans in earlier years without addition and that no material change was pointed out. On this cumulative material the Tribunal concluded that the CIT(A) erred in affirming the AO's addition under section 68 and directed deletion of the addition. [Paras 13]

Addition of Rs. 50,00,000 under section 68 deleted and AO directed to delete the addition.

Final Conclusion: The appeal is partly allowed for Assessment Year 2012-13: the addition of Rs. 8,00,000 and the addition of Rs. 50,00,000 under section 68 are deleted; the CIT(A)'s treatment permitting capitalization of 81% of the payment to Bombay Municipal School and disallowing 19% is confirmed.

Condonation of delay in filing appeal - rectification under section 154 - mistake apparent from record versus debatable issue - computation of book profit for Minimum Alternate Tax (MAT) and interaction with deduction under section 80IB - levy of interest under sections 234B and 234C where tax liability arises under MAT computation

Condonation of delay in filing appeal - Whether the delay in filing appeals before the CIT(A) should be condoned so that the merits of rectification and MAT issues may be adjudicated. - HELD THAT: - The Tribunal accepted that the assessee, acting under bona fide belief and on advice, relied on the outcome of the appeal in AY 2010-11 and therefore delayed filing appeals against the rectification orders for the other years. Noting that the underlying question was debatable on merits and that the assessee had a bona fide belief and arguable case, the Tribunal exercised its discretion to remit the matter to the CIT(A) with a direction to condone the delay and decide the appeals on merits. The Tribunal thus did not decide the merits itself but found sufficient cause to require fresh consideration by the CIT(A). [Paras 8, 9]

Remitted to the file of the CIT(A) with direction to condone the delay and decide the appeals on merits.

Rectification under section 154 - mistake apparent from record versus debatable issue - computation of book profit for Minimum Alternate Tax (MAT) and interaction with deduction under section 80IB - Whether the rectification orders passed under section 154 could be sustained where the correctness of applying MAT by disallowing deduction under section 80IB from book profit was a debatable question. - HELD THAT: - The Tribunal observed that the AO had passed rectification orders after reassessing the applicability of MAT following findings in AY 2010-11, but that the question whether deduction under section 80IB should be excluded from book profit under the MAT computation was debatable and had been the subject of conflicting decisions. Given that the issue involved an arguable point of law (the overriding effect and application of the MAT provision vis-a -vis the deduction), the Tribunal did not adjudicate the substantive question itself. Instead, it remitted the matter to the CIT(A) to decide the issue on merits after condoning the delay in filing the appeals, thereby requiring fresh consideration of whether the rectification was permissible as a 'mistake apparent from record' or was a debatable question unsuitable for summary rectification. [Paras 3, 8, 9]

Issue remitted to the CIT(A) for fresh adjudication on merits (whether rectification under section 154 was permissible) after condonation of delay.

Levy of interest under sections 234B and 234C where tax liability arises under MAT computation - Whether interest under sections 234B and 234C is leviable where tax is computed under the MAT provision and the correctness of MAT computation itself is disputed. - HELD THAT: - The Tribunal noted that the CIT(A) in AY 2010-11 had granted relief on the levy of interest under sections 234B and 234C when the tax liability was contested due to invocation of MAT provisions. Recognising that the chargeability of interest was linked to the disputed question of MAT computation and was thus part of the remitted controversy, the Tribunal refrained from expressing a conclusive view and directed the CIT(A) to examine and decide the chargeability of interest along with the substantive MAT issue on merits after condoning the delay. [Paras 3, 9]

Remitted to the CIT(A) to decide on the chargeability of interest under sections 234B and 234C after adjudicating the MAT-related issues on merits.

Final Conclusion: All appeals are allowed for statistical purposes and the matters are remitted to the CIT(A) with directions to condone the delay in filing the appeals and to decide, on merits, the applicability of MAT vis-a -vis deduction under section 80IB and the consequent chargeability of interest under sections 234B and 234C for the specified assessment years.

Deduction under section 35(1)(ii) - accommodation entries / bogus donation - evidentiary value of statements recorded during survey under section 133A - right to cross-examination / principles of natural justice - Explanation to section 35(1)(ii) - protection for donation when approval was in force

Deduction under section 35(1)(ii) - accommodation entries / bogus donation - Explanation to section 35(1)(ii) - protection for donation when approval was in force - Whether the assessee was entitled to claim deduction under section 35(1)(ii) for the donation to M/s. Herbicure Healthcare Bio-Herbal Research Foundation despite adverse material suggesting that the donee provided accommodation entries. - HELD THAT: - The Tribunal held that the assessee had made the donation when the donee's recognition under section 35(1)(ii) was valid and that the statutory Explanation prevents denial of the deduction merely because the approval was subsequently withdrawn. The Tribunal applied precedents holding that once statutory conditions for claiming the deduction are satisfied at the time of donation, a subsequent retrospective withdrawal of recognition or later adverse admissions by the donee do not automatically disentitle the donor. The Tribunal further relied on coordinate-bench decisions and appellate authorities concluding that suspicion alone cannot supplant documentary proof of a donor's bona fides and that the donor's due diligence and contemporaneous records (receipt, certificate, bank payments) supported allowance of the claim.

Deduction under section 35(1)(ii) allowed in respect of the donation; the disallowance of Rs. 35 lakhs is deleted.

Evidentiary value of statements recorded during survey under section 133A - right to cross-examination / principles of natural justice - Whether statements recorded during survey and relied upon by the Assessing Officer could be the sole basis for disallowing the deduction without furnishing copies to the assessee or permitting cross-examination of adverse witnesses. - HELD THAT: - The Tribunal held that statements recorded during survey under section 133A do not, by themselves, constitute conclusive evidence and cannot be the sole basis for adverse findings unless corroborated. It emphasized the requirement of natural justice: adverse witnesses' statements relied upon in assessment must be made available to the assessee and, where requested, cross-examination ought to be permitted. The Tribunal followed precedents holding that denial of opportunity to cross-examine witnesses whose statements are the basis of assessment is a serious flaw and renders such reliance impermissible, particularly where the statements are not corroborated and the assessee produced contemporaneous documentary evidence of payment and certificate.

Statements recorded during survey could not, without corroboration and without affording opportunity for cross-examination, justify disallowance; therefore the disallowance based solely on such statements was set aside.

Final Conclusion: The Tribunal allowed the assessee's appeal for AY 2015-16, deleted the disallowance of Rs. 35 lakhs and directed that deduction under section 35(1)(ii) be granted, holding that survey statements unsupported by corroboration and relied upon without furnishing materials or permitting cross-examination cannot defeat a claim where the donee's approval was in force at the time of donation.

Treatment of share application money as unexplained cash credit under section 68 - treatment of unsecured loans as unexplained cash credit - treatment of unexplained expenditure as income under section 69C - disallowance for non-deduction of tax at source under section 40(a)(ia) - claim of deduction under section 10AA and alternative claim under section 80IB - remand for verification of subsequent share allotment and additional evidence

Treatment of share application money as unexplained cash credit under section 68 - treatment of unsecured loans as unexplained cash credit - remand for verification of subsequent share allotment and additional evidence - Whether the share application money and unsecured loans should be treated as unexplained credits or sent back to the AO for verification in view of subsequent allotment and additional evidence. - HELD THAT: - The Tribunal found that the assessee produced additional evidence indicating that shares were subsequently allotted to the purported contributors and supplied confirmations. The Tribunal held that this material, which may establish identity, genuineness and creditworthiness and the link between contributors and share allotment, requires verification by the assessing officer. Consequently the additional evidence was admitted and the matter remitted to the file of the AO for de novo consideration in accordance with law. [Paras 13]

Admitted additional evidence and remitted the issue of share application money and unsecured loans to the AO for fresh adjudication; grounds on this issue treated as allowed for statistical purposes.

Treatment of unexplained expenditure as income under section 69C - remand for de novo consideration of expenditure claims - Whether the disallowance of expenditure should be sustained or the matter should be remanded for fresh consideration in light of bills, vouchers and ledger copies said to have been furnished. - HELD THAT: - The Tribunal noted the assessee's contention that supporting bills, vouchers and ledger copies were placed before the CIT(A) and that portions of the disallowance relate to ordinary business expenses. Observing that the material requires verification, the Tribunal directed that the AO reconsider the claim of expenditure afresh. The Tribunal further clarified that if such expenditure is disallowed and thereby increases income, the assessee may claim the alternative deduction under section 80IB and directed the AO to consider that aspect. [Paras 14, 16]

Remitted the issue of disallowed expenditure to the AO for de novo consideration; directed AO to consider entitlement to deduction under section 80IB if disallowance increases income.

Disallowance for non-deduction of tax at source under section 40(a)(ia) - Whether disallowance under section 40(a)(ia) in respect of payments for which TDS was not deducted should be upheld where the assessee was not treated as an assessee in default under section 201(1). - HELD THAT: - The Tribunal observed the assessee's submission that it was not treated as an assessee in default under section 201(1) and that salaries and wages are not subject to disallowance under the proviso to section 40(a)(ia). Since the entire disallowance issue was remitted, the Tribunal directed the AO to consider these arguments while adjudicating the matter afresh. [Paras 17]

Directed the AO to consider the assessee's contentions on applicability of section 40(a)(ia) and section 201(1) while reconsidering the disallowance.

Claim of deduction under section 10AA and alternative claim under section 80IB - Whether the assessee's claim for deduction under section 10AA (and its alternative claim under section 80IB) should be admitted and remitted for consideration. - HELD THAT: - The Tribunal admitted the additional grounds relating to the alternate claim under section 80IB and remitted the matter to the AO, directing that if the assessee satisfies the statutory conditions for deduction under section 80IB the AO shall allow the deduction. The Tribunal treated the appeal on this issue as allowed for statistical purposes pending AO's verification of eligibility under section 80IB. [Paras 18, 19]

Admitted additional grounds and remitted the claim under section 10AA/alternative claim under section 80IB to the AO for fresh adjudication; directed allowance of section 80IB if conditions are fulfilled.

Final Conclusion: The Tribunal admitted additional evidence and grounds and remitted the substantive issues - share application money and unsecured loans, disallowed expenditure (including related implications under section 80IB), and the claim under section 10AA/alternative claim under section 80IB - to the assessing officer for de novo consideration. The appeal is treated as allowed for statistical purposes; the stay application is dismissed as infructuous.

Penalty under section 271(1)(c) of the Income Tax Act - Requirement to record Assessing Officer's satisfaction before initiating penalty - Show cause notice under section 274 - Discernibility of satisfaction from assessment order - Effect of amendment and deeming provision in section 271(1B) - Invalidity of penalty where initiation does not specify which limb of section 271(1)(c) is invoked

Penalty under section 271(1)(c) of the Income Tax Act - Requirement to record Assessing Officer's satisfaction before initiating penalty - Show cause notice under section 274 - Effect of amendment and deeming provision in section 271(1B) - Validity of penalty levied under section 271(1)(c) where the assessment order does not record which limb (concealment or furnishing inaccurate particulars) attracted penalty and no specific show cause notice under section 274 was issued. - HELD THAT: - The Tribunal held that initiation of penalty under section 271(1)(c) requires the Assessing Officer to record satisfaction during the course of assessment (or other specified proceedings) that the assessee has either concealed income or furnished inaccurate particulars. In the present case the assessment order merely stated that "action under section 271(1)(c) of the Act is initiated on this score" without specifying which limb was attracted or issuing a clear show cause notice under section 274 identifying the infraction. Reliance was placed on precedents establishing that the Assessing Officer's satisfaction must be discernible and that where initiation is on one limb but levy proceeds on another, absence of proper notice vitiates the penalty. The Tribunal considered the Revenue's submission invoking section 271(1B) (deeming/amendment) but concluded that even with the retrospective amendment, the Assessing Officer must explicitly indicate which limb of section 271(1)(c) is being invoked so that a valid notice under section 274 can be issued; failure to do so renders initiation and consequent penalty invalid. Applying these principles to the facts, the Tribunal found total non-recording of any satisfaction as to which limb was attracted and absence of a proper show cause notice, and therefore deleted the penalty. [Paras 8, 9, 13, 14]

Penalty under section 271(1)(c) deleted for failure to record requisite satisfaction and absence of a proper show cause notice; appeal allowed.

Final Conclusion: The Tribunal set aside the penalty imposed under section 271(1)(c) for assessment year 2007-08, holding that initiation of penalty proceedings without recording which limb of the provision was attracted and without issuing a proper show cause notice is invalid; the appeal is allowed.

Deduction under section 10AA - computation of gross total income of eligible undertaking - set off of brought forward losses and unabsorbed depreciation - stage of deduction prior to Chapter VI set off - interest under section 234D - remand for verification after opportunity of being heard

Deduction under section 10AA - computation of gross total income of eligible undertaking - set off of brought forward losses and unabsorbed depreciation - stage of deduction prior to Chapter VI set off - Deduction under section 10AA must be allowed first for the eligible undertaking and thereafter brought forward losses and unabsorbed depreciation may be set off from the remaining profit, if any. - HELD THAT: - The Tribunal followed the reasoning of the Hon'ble Supreme Court in CIT v. Yokogawa India Ltd. which held that the deduction under section 10A (and by parity section 10AA) is to be determined qua the eligible undertaking while computing its gross total income under Chapter IV, and therefore precedes application of provisions for set off and carry forward under Chapter VI. The contemporaneous administrative guidance (Circular No. 794) and the statutory scheme indicate that the benefit is conferred on the individual eligible undertaking independently of other units of the assessee. Applying that principle, the Assessing Officer was directed to grant the deduction under section 10AA first and only thereafter to set off any brought forward losses and unabsorbed depreciation against the remaining profit, if any. [Paras 4, 5]

Allowed; Assessing Officer to grant section 10AA deduction first and then set off brought forward losses and unabsorbed depreciation from any remaining profit.

Interest under section 234D - remand for verification after opportunity of being heard - Levy of interest under section 234D was not finally determined and was remanded for fresh verification and decision after allowing the assessee an opportunity of being heard. - HELD THAT: - The Tribunal observed that the Assessing Officer had not taken into account an amount paid by the assessee on account of excess refund when considering the liability under section 234D. In view of this omission, the matter required verification and a fresh decision in accordance with law. The Assessing Officer was therefore directed to verify the payments and decide the issue afresh after affording the assessee an opportunity to be heard. [Paras 6]

Remanded to the Assessing Officer for verification and fresh decision on section 234D after allowing the assessee an opportunity of being heard.

Final Conclusion: The appeal is partly allowed: deduction under section 10AA to be granted first and thereafter set off of brought forward losses and unabsorbed depreciation to be made; the levy under section 234D is remanded for verification and fresh decision after hearing the assessee.

Definition of import as completion when goods enter territorial waters of India - possession of valid import licence at the time of import - confiscation for contravention of import policy where licence required - remand for verification of date of import

Definition of import as completion when goods enter territorial waters of India - possession of valid import licence at the time of import - confiscation for contravention of import policy where licence required - Whether the goods were liable to confiscation for import without a DGFT licence or whether possession of a licence at the date of import precludes confiscation; and whether the matter requires remand for verification of the date of import. - HELD THAT: - The Tribunal examined the definition of import and held that import is completed when the goods enter the territorial waters of India, not merely on filing the Bill of Entry. Consequently, the determinative question is whether the appellant possessed a valid DGFT licence on or before the date the goods entered India. The impugned orders relied on the Bill of Lading date and concluded absence of licence, but the record does not establish the actual date on which the goods entered India. Because that date is material to decide whether the licence held by the appellant at the time of filing the Bill of Entry covered the import, the Tribunal found that the adjudicating authority must verify and determine the date of import from the available documents before finally deciding confiscation and allied penalties. The Tribunal therefore set aside the adjudicating order and remanded the case for fresh adjudication limited to verification of the date of import and consequential decision on liability for confiscation and penalties. [Paras 6, 7, 8]

Impugned order set aside and appeal allowed by remand to the adjudicating authority for verification of the date of import and fresh decision on confiscation and penalties.

Final Conclusion: The appeal is allowed by remand: the matter is sent back to the adjudicating authority to verify the actual date of import (the point at which import is complete) and to pass a fresh order thereafter on confiscation and penalties in accordance with the finding whether a valid DGFT licence covered the import.

Service of show cause notice - personal service and authorised agent - jurisdictional requirement for adjudication - setting aside of order for want of service

Service of show cause notice - personal service and authorised agent - jurisdictional requirement for adjudication - Whether the show cause notice was validly served on the appellant and whether the impugned adjudication order suffers from want of jurisdiction on that ground. - HELD THAT: - The Tribunal found no satisfaction recorded in the impugned order regarding service of the show cause notice and noted the adjudicator's statement that there was no reply or written submission from the noticees and multiple personal hearings were fixed (paras 3 and 4). On verification, the only proof of service produced was a receipt signed by a third party, who was said to be authorised to receive on behalf of the appellant; no documentary authorisation was produced and Revenue did not take further steps to effect service (para 4). In the absence of proper authorisation or other effective mode of service, the Tribunal held that there was no effective service of the notice. Since service of the show cause notice is a pre-condition for assuming jurisdiction to adjudicate, the Tribunal concluded that the impugned order was passed without jurisdiction (para 5). [Paras 3, 4, 5]

Impugned adjudication order set aside insofar as it relates to the appellant for want of effective service of the show cause notice; appellant entitled to consequential benefit in accordance with law.

Final Conclusion: The appeal succeeds: the adjudication order is quashed against the appellant for lack of valid service of the show cause notice and consequent want of jurisdiction; relief granted to the appellant with consequential benefits as per law.

Eligibility for duty exemption under Notification No.32/97-Cus - requirement of job work within India for exemption - re-exportation of imported goods to overseas supplier - initiation of show-cause proceedings after re-export - scope of duty demand for irregular importation

Eligibility for duty exemption under Notification No.32/97-Cus - requirement of job work within India for exemption - The imported goods satisfied the conditions of Notification No.32/97-Cus at the time of importation. - HELD THAT: - The Tribunal recorded that it was an admitted fact that the goods were imported for carrying out job work pursuant to a contract with the overseas supplier. The contract contemplated job work in India followed by re-export to the overseas supplier. Although the contract was subsequently cancelled, there is no finding that the conditions required by the Notification were not complied with at the time of importation. The Court therefore held that the eligibility for exemption under the Notification was established on the admitted facts. [Paras 6]

Eligibility for the duty exemption under the Notification was satisfied at the time of importation.

Re-exportation of imported goods to overseas supplier - initiation of show-cause proceedings after re-export - scope of duty demand for irregular importation - Show-cause proceedings initiated after the goods had been re-exported cannot sustain a duty demand where irregular importation was not alleged. - HELD THAT: - The Tribunal noted that the goods were re-exported to the overseas supplier following cancellation of the job order and that the Revenue did not contend that show-cause proceedings had been initiated prior to re-export. Given that at the time of issuance of the show-cause notice the subject goods were not available in India, and that the department did not specifically allege irregular importation, the adjudged demand for duty and interest premised on non-fulfillment of Notification conditions could not be sustained. The Tribunal characterized the duty demand as confined to cases of irregular importation, which was not the case here. [Paras 6]

The demand confirmed by the authorities could not be sustained where the goods had been re-exported before initiation of proceedings and irregular importation was not alleged.

Final Conclusion: Impugned order of the Commissioner (Appeals) is set aside and the appeal is allowed in favour of the appellant.

Issue and redemption of preference shares - class action under Section 245 - locus standi of preference shareholders to seek relief - consent of holders of three-fourths in value of preference shares - inherent powers of the Tribunal (Rule 11 of NCLT Rules, 2016)

Issue and redemption of preference shares - locus standi of preference shareholders to seek relief - consent of holders of three-fourths in value of preference shares - Whether preference shareholders are remediless and/or lack locus to seek remedy for non-redemption of preference shares under Section 55(3) or under Section 245 of the Companies Act, 2013. - HELD THAT: - The Tribunal erred in holding that preference shareholders have no locus to seek relief for non-redemption. Section 55(3) contemplates that where a company cannot redeem preference shares it may, with the consent of holders of three-fourths in value and with Tribunal approval on a petition filed by the company, issue further redeemable preference shares; the provision also protects dissenting holders by mandating their redemption. Though Section 55(3) does not expressly provide for a remedy initiated by preference shareholders, the legislative intent to prohibit irredeemable preference shares and to secure redemption permits invocation of the Tribunal's inherent powers to grant appropriate relief to aggrieved preference shareholders. Separately, preference shareholders qualify as "members" and may, where appropriate, initiate a class action under Section 245 of the Act on behalf of similarly situated members. Accordingly, preference shareholders are not without remedy and can seek relief either by proceedings under Section 55(3) (with the Tribunal's intervention) or by a class action under Section 245. [Paras 12, 13, 14, 15, 16]

Preference shareholders are not remediless; they have locus to seek relief for non-redemption and may proceed under Section 55(3) and/or as a class action under Section 245.

Inherent powers of the Tribunal (Rule 11 of NCLT Rules, 2016) - class action under Section 245 - Whether the NCLT's dismissal of the Appellant's application on the sole ground of lack of locus was correct and what relief should follow. - HELD THAT: - The Appellate Tribunal found the NCLT's conclusion-that preference shareholders have no locus to file for redemption-incorrect. Given that preference shareholders may invoke Section 55(3) with Tribunal intervention or file a class action under Section 245, and considering the Tribunal's inherent powers under Rule 11, the impugned order is unsustainable. The Appellate Tribunal accordingly set aside the NCLT order and remitted the matter for fresh adjudication in accordance with law. [Paras 11, 17]

Impugned NCLT order set aside; matter remitted to NCLT, Chennai Bench for decision in accordance with law.

Final Conclusion: The NCLT's dismissal on the ground that preference shareholders lack locus to seek redemption was incorrect; preference shareholders may pursue relief under Section 55(3) and/or as a class action under Section 245, the Tribunal's inherent powers being available to grant appropriate relief. The NCLT order is set aside and the matter is remitted to the NCLT, Chennai Bench for fresh decision as per law.

Approval of resolution plan - commercial wisdom of Committee of Creditors - conditional resolution plan - extinguishment of claims not submitted or not adjudicated during CIRP - power of Adjudicating Authority to rectify mistake apparent on record - validity of CIRP despite pendency of winding up petition - overriding effect of the Insolvency and Bankruptcy Code

Approval of resolution plan - commercial wisdom of Committee of Creditors - Whether the approval of the Resolution Plan and the distribution/payment to stakeholders was in accordance with the I&B Code - HELD THAT: - The Appellate Tribunal held that when the Adjudicating Authority is satisfied that a resolution plan approved by the Committee of Creditors meets the requirements of Section 30(2) and provides for effective implementation, it must approve the plan under Section 31. The Tribunal applied the principle that the Adjudicating Authority and Appellate Tribunal should respect the commercial wisdom of the Committee of Creditors and not re-evaluate the feasibility or viability of the plan. Consequently, the conditional Resolution Plan in the present case was found to be in accordance with the I&B Code and the principles laid down by the Supreme Court in the referred authorities. [Paras 30, 31, 32]

The Resolution Plan as approved by the Adjudicating Authority is in accordance with the Insolvency and Bankruptcy Code and the established propositions of law; no interference is warranted.

Conditional resolution plan - Whether a conditional Resolution Plan can be approved - HELD THAT: - The Tribunal noted that the Adjudicating Authority must ensure the plan provides for effective implementation but should not substitute its view for the commercial decision of the Committee of Creditors. A plan containing conditions for implementation may be approved if it otherwise conforms to the requirements of Section 30(2) and the Committee of Creditors has, in commercial wisdom, accepted it. The facts showed the Committee had approved the plan and subsequent clarifications established requisite approvals in principle. [Paras 24, 25, 30]

A conditional Resolution Plan may be approved if it satisfies statutory requirements and is accepted by the Committee of Creditors; the plan in this case was so approved.

Extinguishment of claims not submitted or not adjudicated during CIRP - Whether claims not dealt with under the resolution plan stand extinguished under the I&B Code - HELD THAT: - Relying on the principle that a successful Resolution Applicant must know the liabilities it assumes, the Tribunal held that claims which were not submitted to, or were not accepted/admitted by, the Resolution Professional during CIRP, and which therefore were not dealt with in the approved Resolution Plan, stand extinguished upon approval. This prevents unresolved or undeclared claims from surfacing after approval and disturbing the settled payment obligations under the plan. [Paras 30]

Claims not submitted or not accepted/admitted during CIRP and not dealt with in the approved Resolution Plan are extinguished.

Power of Adjudicating Authority to rectify mistake apparent on record - Whether the Adjudicating Authority has power to modify its own order - HELD THAT: - The Tribunal analysed statutory and procedural provisions and held that the NCLT does not have a general power to review and modify its substantive orders but can correct mistakes apparent on the face of the record (Section 420(2) Companies Act and Rule 154 NCLT Rules). An apparent, manifest error that does not require consideration of extraneous material may be rectified; however, substantive modification of rights or conclusions is not permissible. The Tribunal further observed that the order dated 03.07.2019 was not a final order and contemplated further filing by the Resolution Applicant; the subsequent order dated 22.07.2019 approving the plan followed that process and did not amount to impermissible review. [Paras 27, 28, 29, 30]

The Adjudicating Authority cannot modify substantive parts of its order but may correct patent errors apparent on record; the 22.07.2019 order did not amount to an impermissible review of the 03.07.2019 order.

Validity of CIRP despite pendency of winding up petition - overriding effect of the Insolvency and Bankruptcy Code - Whether initiation of CIRP was vitiated by pendency of a winding up petition before the High Court - HELD THAT: - The Tribunal noted that the Bombay High Court had granted leave to initiate CIRP and retrospectively validated the CIRP by order dated 02.11.2018. Further, Section 238 confers overriding effect to the I&B Code over other laws, and therefore initiation and admission of the Section 7 application were proper. On these bases, the Tribunal found no illegality in commencing CIRP notwithstanding the earlier winding up proceedings. [Paras 5, 30]

The initiation of CIRP was not vitiated by the pendency of the winding up petition; the CIRP was validly commenced and retrospectively validated by the High Court.

Final Conclusion: For the reasons stated, the Appellate Tribunal found no merit in the challenges: the Adjudicating Authority lawfully approved the Resolution Plan in accordance with the I&B Code and established precedents, claims not filed or admitted during CIRP stand extinguished, the NCLT cannot exercise a broad power of review beyond rectifying apparent errors, and initiation of CIRP was valid; the impugned order dated 22.07.2019 is accordingly upheld.

Stay of liquidation - Revival of corporate insolvency resolution process - Reinstatement of Liquidator as Resolution Professional - Return of records and control to Successful Resolution Applicant - Implementation of Resolution Plan - Corporate insolvency resolution process cost - Power to approach the Insolvency and Bankruptcy Board of India to seek withdrawal of criminal complaint and request non-cognizance

Stay of liquidation - Reinstatement of Liquidator as Resolution Professional - Revival of corporate insolvency resolution process - Order of liquidation stayed and the Liquidator directed to function as Resolution Professional. - HELD THAT: - The Tribunal recorded that the amount directed by its earlier order dated 21 January 2020 has been paid and that the Committee of Creditors has accepted the same. In view of this development the Tribunal stayed the order of liquidation and directed that the Liquidator shall perform the functions of the Resolution Professional, thereby reviving the corporate insolvency resolution process and restoring the insolvency framework necessary for implementation of the resolution plan.

Liquidation stayed; Liquidator to act as Resolution Professional and corporate insolvency resolution process revived.

Return of records and control to Successful Resolution Applicant - Implementation of Resolution Plan - Resolution Professional/Liquidator permitted to hand over records and control to the Successful Resolution Applicant and parties directed to implement the resolution plan in letter and spirit. - HELD THAT: - Having recorded payment and acceptance by the Committee of Creditors, the Tribunal allowed the Resolution Professional (acting as Liquidator) to hand over records, control and related material to the Successful Resolution Applicant, Liberty House Group Pte. Ltd. The Tribunal directed the parties to ensure implementation of the approved resolution plan in its letter and spirit and ordered filing of detailed affidavits by the Successful Resolution Applicant and the Committee of Creditors within one week to record compliance.

Resolution Professional/Liquidator to hand over records and control to successful resolution applicant; parties to implement the plan and file affidavits.

Corporate insolvency resolution process cost - Question regarding the corporate insolvency resolution process cost not finally decided and kept for further consideration. - HELD THAT: - The Tribunal identified the corporate insolvency resolution process cost as the remaining question requiring determination. The Appellant asserted that the amount has already been paid and provided a table of payments. The Tribunal did not adjudicate the matter on the merits in the present order but recorded that the question remains to be decided and listed the matter for further orders on the next date, thereby leaving the issue open for final determination after requisite filings and consideration.

Issue of corporate insolvency resolution process cost left for consideration on the next date; not finally decided.

Power to approach the Insolvency and Bankruptcy Board of India to seek withdrawal of criminal complaint and request non-cognizance - Liberty House Group permitted to approach the Insolvency and Bankruptcy Board of India and to request relevant criminal courts not to take cognizance of the offence. - HELD THAT: - The Tribunal observed that, having complied with the resolution plan, it would be open to the Successful Resolution Applicant to move the Insolvency and Bankruptcy Board of India with a request to withdraw the complaint pending before the Special Judge, Cuttack. The Tribunal further stated that the Appellant may request the learned Session Judge, High Court of Orissa and the learned Special Judge, Cuttack not to take cognizance of the offence. This constituted permission to seek administrative and judicial relief in the appropriate fora; the Tribunal did not itself withdraw or quash any criminal proceedings.

Appellant permitted to approach the IBBI and to request the concerned criminal courts not to take cognizance; Tribunal did not itself decide the criminal matters.

Final Conclusion: The Tribunal recorded payment and acceptance of the resolution plan, stayed the order of liquidation, directed the Liquidator to function as Resolution Professional and to hand over records and control to the Successful Resolution Applicant, directed parties to implement the plan and file affidavits, left the question of corporate insolvency resolution process cost for further adjudication, and permitted the Successful Resolution Applicant to approach the Insolvency and Bankruptcy Board of India and the criminal courts for appropriate relief.

Refund of service tax - unjust enrichment - passing on of tax incidence - remand for verification of factual reversal - Cenvat credit adjustment on refund where exemption claimed

Refund of service tax - passing on of tax incidence - unjust enrichment - remand for verification of factual reversal - Whether the appellant is entitled to refund of service tax paid where the tax was initially recovered from the service recipient but subsequently returned, and whether the matter requires fresh verification by the Adjudicating Authority. - HELD THAT: - The Tribunal observed that although the appellant initially charged and recovered service tax from the service recipient, a subsequent reversal occurred by way of reduction from later receivables and a certificate from the service recipient was produced before the Commissioner (Appeals) and later before the Tribunal. Relying on the Supreme Court decision in Addison & Co. Limited, the Tribunal noted that if the incidence initially passed on is subsequently reversed by returning the amount to the service recipient, the liability to show unjust enrichment does not automatically preclude refund. The Tribunal found this to be a factual question requiring verification by the Adjudicating Authority because the certificate evidencing reversal was not considered by the Adjudicating Authority and the Commissioner (Appeals) did not advert to it. Consequently, the Tribunal set aside the impugned order and remitted the matter for fresh adjudication limited to verification of whether the incidence of tax was ultimately passed on or reversed. [Paras 4, 5]

Impugned order set aside; appeal allowed by way of remand for the Adjudicating Authority to verify the factual reversal of tax incidence and decide the refund claim afresh.

Cenvat credit adjustment on refund where exemption claimed - refund of service tax - Whether the amount of Cenvat credit availed by the appellant must be adjusted against any refund payable where the appellant has claimed exemption. - HELD THAT: - The Tribunal agreed with the Revenue's submission that where the appellant has claimed exemption under the Finance Act, they are not entitled to retain Cenvat credit. The Tribunal recorded that the appellant had availed Cenvat credit and held that such credit is not admissible concurrently with the claimed exemption; therefore, any refund found payable must be reduced by the amount of Cenvat credit availed. [Paras 3, 4]

If refund is allowed, it shall be reduced by the amount of Cenvat credit already availed by the appellant.

Final Conclusion: The Tribunal set aside the impugned order and remitted the refund claim for fresh decision by the Adjudicating Authority to verify whether the tax incidence was ultimately passed on or reversed; if refund is allowed, it must be reduced by the Cenvat credit availed by the appellant.

Cenvat credit on capital goods used for construction of premises rented out - Input definition for provision of output service - Installation of duty-paid capital goods does not convert them into immovable goods for denial of credit - Credit on items mistakenly classified as capital goods (procedural lapse) - Renting of immovable property service

Cenvat credit on capital goods used for construction of premises rented out - Input definition for provision of output service - Installation of duty-paid capital goods does not convert them into immovable goods for denial of credit - Renting of immovable property service - Admissibility of Cenvat credit on capital goods used in construction of a shopping mall which was subsequently given on rent under the renting of immovable property service. - HELD THAT: - The Tribunal held that capital goods procured on payment of duty and used in setting up the mall, which was thereafter offered on rent, are eligible for Cenvat credit. The goods were employed to facilitate operation of the mall and thereby directly related to the appellant's output service of renting immovable property. Mere installation of duty paid capital goods does not convert them into immovable property so as to disentitle the assessee from credit; if accepted, that principle would unrealistically deny credit on machinery and equipment installed in factories. The decision follows earlier Tribunal decisions applying the principle that duty paid inputs and capital goods used for constructing premises that discharge service tax liability as renting of immovable property qualify for credit, and the earlier findings denying credit on goods used solely for construction services (not the output service) are distinguishable on the facts.

Cenvat credit on the capital goods used in construction of the mall and used for providing renting of immovable property service is admissible; the demand insofar as it relates to denial of such credit is set aside and the appeal is allowed on this ground.

Credit on items mistakenly classified as capital goods (procedural lapse) - Input definition for provision of output service - Renting of immovable property service - Admissibility of credit on litter bins which were used for maintenance of cleanliness in the mall but were inadvertently availed as credit on capital goods. - HELD THAT: - The Tribunal accepted that litter bins do not fall within the definition of capital goods but were used as inputs for providing the output service (maintenance/operation of the mall as part of renting activity). The incorrect classification as capital goods was a procedural lapse that does not defeat substantive entitlement to input credit where the item is otherwise an input used for the output service. Accordingly, credit under the head 'input' was allowed.

Credit on litter bins is admissible as inputs used in providing the output service; the procedural error in classifying them as capital goods does not justify denial of the credit.

Final Conclusion: The appeal is allowed: Cenvat credit is permitted on duty paid capital goods used in constructing the mall that was subsequently rented out (being directly used in providing renting of immovable property service), and credit is allowed on litter bins as inputs despite their inadvertent classification as capital goods.

Suppression of facts - wilful suppression - extended period of limitation under proviso to Section 73(1) - burden on Revenue to prove suppression - relevant date

Suppression of facts - wilful suppression - extended period of limitation under proviso to Section 73(1) - burden on Revenue to prove suppression - Invocation of the extended five year limitation period under the proviso to Section 73(1) for the period 1 June, 2007 to 31 March, 2011. - HELD THAT: - The Tribunal held that the proviso to Section 73(1) permitting a five year limitation applies only where suppression of facts is shown to be deliberate and with intent to evade payment of service tax. Relying on the Supreme Court authorities cited in the judgment, the expression 'suppression of facts' must be construed strictly and, although the word 'wilful' does not precede 'suppression' in the statutory text, the surrounding statutory context requires a finding of deliberate concealment with intent to evade tax. The Department must bear the burden of proving such wilful suppression. In the present case the Show Cause Notice did not allege wilful suppression with intent to evade tax and the Commissioner did not record a finding of wilful suppression; the Commissioner's observations that the appellant obtained registration later did not suffice to establish deliberate suppression with intent to evade. Consequently the extended five year period could not be invoked. [Paras 15, 16, 18, 25, 28]

Extended period of limitation under the proviso to Section 73(1) could not be invoked as suppression with intent to evade was neither alleged in the notice nor found by the Commissioner.

Relevant date - extended period of limitation under proviso to Section 73(1) - Validity of demand and further proceedings for the period within the normal one year limitation. - HELD THAT: - The Tribunal affirmed that the Department remains entitled to proceed within the normal one year limitation period prescribed by Section 73(1) insofar as the demand relates to the period under challenge. The Tribunal directed that the Commissioner shall determine the demand that falls within the normal period afresh, after giving the appellant an opportunity of hearing, and shall also consider whether interest or penalty is payable for that period. The Tribunal prescribed a time limit of three months for the Commissioner's fresh determination. [Paras 29]

Demand insofar as it is within the normal one year period is sustained in principle but remitted to the Commissioner for fresh quantification and determination of interest/penalty within three months after giving opportunity to the appellant.

Final Conclusion: The appeal is allowed to the extent that invocation of the extended five year limitation under the proviso to Section 73(1) is set aside for lack of proved wilful suppression with intent to evade; the demand within the normal one year period is upheld in principle but remitted to the Commissioner for fresh determination (including interest and penalty, if any) within three months after affording the appellant an opportunity of hearing.

Cenvat credit on input services - exempted service - application of Rule 6(3) of the Cenvat Credit Rules, 2004 - extended period of limitation - reversal/quantification of proportionate credit - penalty under Section 78

Extended period of limitation - audit disclosure and suppression - Whether the extended period of limitation could be invoked where the disputed amounts were recorded in the assessee's audit and balance sheet for the period 2009-10 to 2012-13. - HELD THAT: - The Tribunal applied its earlier Division Bench reasoning in M/s Balaji Industrial Products Ltd, observing that where the entire activity and amounts are recorded in proper books of account and reflected in the balance sheet following an audit, there is no evidence of suppression with mala fide intent. In such circumstances, invocation of the extended period is impermissible and the demand must be confined to the normal period of limitation. The matter was therefore remanded to the original adjudicating authority for re-quantification of the demand limited to the period within the normal limitation, permitting the assessee to contest demands in respect of the normal period before the authority. [Paras 8, 9, 10, 11]

Extended period of limitation cannot be invoked for amounts reflected in audited books and balance sheet; remand for re-quantification of demand within the normal period.

Cenvat credit on input services - exempted service - application of Rule 6(3) of the Cenvat Credit Rules, 2004 - reversal/quantification of proportionate credit - Whether the appellant's trading activity attracted the definition of exempted service and thereby required reversal or payment under Rule 6 of the Cenvat Credit Rules, 2004 for the relevant period. - HELD THAT: - The Commissioner had held that trading was clarified as an exempted service (with effect from 01.04.2011 and by later changes) and therefore Rule 6 would apply, obliging the assessee to maintain segregated records or reverse proportionate credit or pay the prescribed percentage of trading value. The Tribunal did not adjudicate the correctness of that tax liability for the periods pressed by the assessee, and observed that the contention as to whether trading ceased to be a service after 1 July 2012 (on account of the new definition of service) is a matter fit for fresh examination by the Commissioner. Accordingly the question of entitlement to reversal of proportionate credit and the applicability of Rule 6 is remitted to the Commissioner for fresh determination in light of the observations and applicable law. [Paras 3, 11, 13]

Applicability of Rule 6 and entitlement to reversal/quantification of proportionate credit in relation to trading activity remanded to the Commissioner for fresh consideration.

Penalty under Section 78 - mens rea and imposition of penalty - Validity of penalty imposed under Section 78 of the Finance Act, 1994 in the absence of mala fide or suppression. - HELD THAT: - The Tribunal noted that, applying the Division Bench precedent, there was no evidence of mala fide intent or suppression where the amounts were disclosed in audited books. While the Department relied on authority for imposition of penalty without mens rea, the Tribunal observed that, given the statutory language of Section 78 and the facts indicating disclosure, penalty could not be sustained. The Commissioner's imposition of penalty was therefore set aside and the issue left to be reviewed by the adjudicating authority in accordance with the remand where necessary. [Paras 4, 11, 12]

Penalty under Section 78 set aside on the facts; no malafide/suppression found and matter to be revisited as necessary on remand.

Final Conclusion: Impugned order modified: invocation of the extended period of limitation is disallowed for amounts reflected in audited books and balance sheet for 2009-10 to 2012-13 and the matter is remanded to the Commissioner for re-quantification of demand within the normal period; questions regarding applicability of Rule 6 and reversal of proportionate Cenvat credit in respect of trading activity, and the position post 1 July 2012, are remitted for fresh consideration; penalty under Section 78 set aside on the record of no mala fide.

Includibility of cost of spare parts in value of taxable service - sale versus service distinction in levy of service tax - split contracts - separate invoicing of goods and services - payment of VAT/Sales Tax as indicium of sale - interpretation and application of Master Circular dated 23 August 2007 - precedential application of Semtech Industries on assessable value

Includibility of cost of spare parts in value of taxable service - sale versus service distinction in levy of service tax - payment of VAT/Sales Tax as indicium of sale - interpretation and application of Master Circular dated 23 August 2007 - precedential application of Semtech Industries on assessable value - Value of spare parts sold while servicing a motor vehicle is not includible in the assessable value of the taxable service where the transaction in respect of those parts is treated as a sale and subjected to VAT/Sales Tax. - HELD THAT: - The Tribunal examined the Master Circular dated 23 August 2007 which states that transactions treated as sale of goods and subjected to VAT/Sales Tax are not liable to service tax and that payment of VAT/Sales Tax indicates the transaction is treated as a sale. The Court relied on the Tribunal's earlier decision in Semtech Industries holding that where invoices separately show the value of goods used and service charges and VAT/Sales Tax is paid on the goods, the supply of those goods must be treated as sale and cannot be included in the assessable value of the service. In the present case the appellant's invoices separately recorded the cost of spare parts and the service component and VAT was charged on the spare parts. Applying the Master Circular and the Semtech Industries ratio, the Tribunal held that the value of spare parts cannot be included in the assessable value for service tax. [Paras 7, 10, 11, 12, 13]

The value of spare parts shown separately in invoices and subjected to VAT/Sales Tax is not includible in the assessable value of the service; the impugned order is set aside and the appeal is allowed.

Final Conclusion: The Commissioner's order confirming demand of service tax for 2009-10 to 2012-13 is set aside: where spare parts are invoiced separately and VAT/Sales Tax is paid, their value is not includible in the service-taxable value and no service tax is leviable on that component.

Cenvat Credit on Education Cess and Secondary and Higher Education Cess - Application of Rule 3(7)(a) of the Cenvat Credit Rules, 2004 - Retrospective effect of clarificatory amendment - Calculation of admissible Cenvat credit for supplies from 100% EOU

Cenvat Credit on Education Cess and Secondary and Higher Education Cess - Application of Rule 3(7)(a) of the Cenvat Credit Rules, 2004 - Retrospective effect of clarificatory amendment - Appellant entitled to Cenvat credit in respect of Education Cess and Secondary and Higher Education Cess on inputs received from 100% EOU for the period prior to the 7-9-2009 amendment. - HELD THAT: - The Tribunal applied its earlier decisions holding that the insertion by Notification No.22/2009-CE(N.T.) of the Cess components in Rule 3(7)(a) is clarificatory and thus applicable to the pre-amendment period. The Tribunal reasoned that the expression used in the formula under Rule 3(7)(a) (i.e., CVD as Additional Duty of Customs) embraces the cess component and that the restriction in the proviso aims to exclude Basic Customs Duty but not the Additional Customs Duty (which includes cess). Reliance was placed on earlier Tribunal precedents which held that cess forms part of the CVD-equivalent for calculating admissible credit, and the revenue decisions cited were found not to be on the identical controversy. Consequently, the appellant's claim for Cenvat credit inclusive of Education Cess and SHE Cess was allowed. [Paras 5, 6]

Allowed; Cenvat credit on Education Cess and SHE Cess relating to supplies from 100% EOU is admissible for the pre-amendment period.

Calculation of admissible Cenvat credit for supplies from 100% EOU - Adjudicating Authority permitted to compute and quantify the correct amount of admissible Cenvat credit after including Education Cess and SHE Cess. - HELD THAT: - While the Tribunal allowed entitlement to credit of the cess components, it observed that the Adjudicating Authority retains the liberty to recompute the admissible quantum correctly using the formula in Rule 3(7)(a) after factoring in Education Cess and SHE Cess. The Tribunal also noted, by reference to earlier proceedings, that any excess credit arising from incorrect rate application must be addressed (as recorded in the earlier order excerpt), leaving quantification to the authority. [Paras 8]

Matter remitted for correct calculation and quantification of admissible Cenvat credit by the Adjudicating Authority.

Final Conclusion: Appeal allowed: entitlement to Cenvat credit on Education Cess and Secondary and Higher Education Cess for inputs from 100% EOU upheld for the pre-amendment period; matter remitted to the Adjudicating Authority for correct computation of the admissible credit.

Input service - Cenvat credit in respect of services used in or in relation to manufacture of excisable goods - storage of excisable goods as an input service - maintenance of factory installations (including AC) as an input service - garden maintenance within factory premises as an input service - definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004

Maintenance of factory installations (including AC) as an input service - input service - Entitlement to Cenvat credit for management, maintenance and repair of ACs installed within the factory premises - HELD THAT: - The Tribunal accepted the appellant's submission that the ACs are installed within the factory to maintain proper temperature and a pollution-free environment directly related to the manufacturing activity. Applying the definition of input service under the Cenvat Credit regime, and relying on earlier Tribunal decisions where maintenance of ACs was held to be an input service, the Court held that maintenance and repair of factory-installed ACs are used in or in relation to manufacture and therefore eligible for Cenvat credit. The reasoning emphasises the functional nexus between the service and the manufacturing process rather than the incidental nature of the service. [Paras 2, 4]

Cenvat credit allowed for management, maintenance and repair of factory-installed ACs as input service.

Garden maintenance within factory premises as an input service - input service - Entitlement to Cenvat credit for services used for maintenance of garden within factory premises - HELD THAT: - The Tribunal accepted the appellant's contention that garden maintenance within the factory is required given the hazardous atmosphere of the copper plant and obligations under pollution control norms, and that such services are integrally connected to the running of the factory. The Bench noted precedent in which garden services were held to be input services and concluded that the maintenance of garden within factory premises is used in or in relation to manufacture and thus qualifies for Cenvat credit under the definition of input service. [Paras 2, 4]

Cenvat credit allowed for garden maintenance services used within the factory as input service.

Storage of excisable goods as an input service - input service - Entitlement to Cenvat credit for outward GTA/transport service insofar as the service provided constituted storage and handling of gold in vaults prior to removal on payment of duty - HELD THAT: - On examination of the invoice from the service provider, the Tribunal found the service was not mere GTA but comprised storage and handling charges for safe custody of gold bars in vaults. Given that the gold is an excisable good cleared on payment of duty, the storage and handling service formed part of activities used in or in relation to manufacture/clearance. The Bench concluded that such storage of excisable goods falls within the definition of input service and is eligible for Cenvat credit. The decision rests on the functional characterisation of the service as storage/handling of excisable goods rather than a simple outward transport service. [Paras 2, 4]

Cenvat credit allowed for storage and handling service (as characterised) provided for gold held in vaults prior to removal on payment of duty.

Final Conclusion: The impugned order is set aside and the appeal is allowed: the Tribunal held that (i) management, maintenance and repair of factory-installed ACs, (ii) garden maintenance within the factory premises, and (iii) storage and handling (as characterized) of excisable gold in vaults are input services under the definition in Rule 2(l) and eligible for Cenvat credit.

Entitlement to cenvat credit - reversal of cenvat credit on clearance on payment of duty - manufacture vs. non-manufacture - clearance without any process

Entitlement to cenvat credit - manufacture vs. non-manufacture - clearance without any process - reversal of cenvat credit on clearance on payment of duty - Whether cenvat credit taken on duty-paid MS pipes (Black), which were not inputs and were cleared without any process, was required to be reversed and whether payment of duty on such clearance suffices as reversal of the credit. - HELD THAT: - The Tribunal accepted the factual concession that the MS pipes (Black) were not inputs for the appellant and that no manufacturing process was undertaken on them. Applying the principle in the High Court decision relied upon by the parties, the Tribunal held that where goods are cleared without undergoing any manufacturing process and duty is paid on such clearance, that payment operates as reversal of the cenvat credit availed on those goods. In light of that principle and the fact that duty was paid on clearance of the MS pipes (Black), the demand for reversal of cenvat credit confirmed by the adjudicating authority was rendered unsustainable.

The impugned order confirming demand for reversal of cenvat credit is set aside and the appeal is allowed with consequential relief, the Tribunal treating payment of duty on clearance as sufficient reversal of the cenvat credit.

Final Conclusion: The appeal is allowed: since the MS pipes (Black) were not inputs and were cleared without any process, payment of duty on such clearance was held to operate as reversal of the cenvat credit; the impugned order is set aside with consequential relief.

Normal loss on stock verification - abnormal loss - clandestine removal - handling loss and evaporation loss - sampling and assaying errors - metal balance statement - extended period of limitation

Normal loss on stock verification - handling loss and evaporation loss - sampling and assaying errors - metal balance statement - Discrepancy in ore/concentrate stock and metal content is a normal loss arising from handling, moisture variation, weighing/sampling and assaying errors and estimation methods, not an abnormal loss. - HELD THAT: - The Tribunal accepted the appellant's explanation that ore production and stocks are assessed by mechanical belt weightometers and alternate estimation methods when weightometers break down, and that physical verification at year-end and metal balance statements are maintained. World-wide accepted variations arise from sampling and assaying and from handling/moisture losses; mechanical weightometers have inherent inaccuracies. In the facts, the admitted discrepancy of 21,873 MT (about 3.8% of production) falls within permissible variation and is attributable to the enumerated factors. The Tribunal found the appellant's explanation cogent and not shown to be untrue by the lower authority, and therefore treated the shortage as normal handling/estimation loss requiring no adverse treatment. [Paras 13]

The shortage is a normal loss and not an abnormal loss.

Clandestine removal - extended period of limitation - Demand and penalty framed by show cause notice treating the shortage as clandestine removal and raising duty and penalty are misconceived and unsustainable. - HELD THAT: - The show cause notice invoked the extended period for 2003-04 and demanded duty and penalty treating the quantified shortage and derived metal content as clandestine removal. Having held the shortage to be a normal loss arising from accepted operational and measurement factors, the Tribunal concluded the show cause notice and consequential adjudication were misplaced. There was no instance of clandestine removal established on the record; accordingly, the adjudicatory findings upholding demand and penalty were set aside. [Paras 14]

The demand and penalty based on alleged clandestine removal are set aside as misconceived.

Final Conclusion: Appeal allowed; impugned adjudication confirming demand and penalty set aside and the appellant granted consequential benefits in accordance with law.

Stay of tax collection on pre-deposit - Binding effect of Advance Ruling - Pre-deposit condition in appellate stay - Arbitrariness under Article 14 - Right to property under Article 300-A

Stay of tax collection on pre-deposit - Pre-deposit condition in appellate stay - Binding effect of Advance Ruling - Arbitrariness under Article 14 - Validity of the order directing payment of 50% of disputed tax as condition for stay of collection pending appeal - HELD THAT: - The Court examined the order dated 23-12-2019 by which the 1st respondent required the petitioner to pay 50% of the disputed tax as a condition for stay pending disposal of the appeal before the VAT Appellate Tribunal. The petitioner had already made a pre-deposit of 25% before the Tribunal and relied on earlier Advance Rulings issued in respect of identical goods, which recognised taxability at 5% for photo albums. Having regard to those Advance Rulings and the fact that the petitioner had deposited 25% as required by the appellate regime, the High Court found the imposition of an additional 50% payment by the 1st respondent to be arbitrary and contrary to the settled appellate pre-deposit framework. The Court treated the respondents' action-seeking to treat the goods as subject to a higher residuary rate and compelling an onerous additional payment despite prior Advance Rulings-as unsupported and violative of equal protection and property rights principles invoked under Article 14 and Article 300-A. For these reasons the impugned condition was held unlawful and unsustainable. [Paras 8, 9]

Impugned order setting condition of payment of 50% is set aside; pending disposal of the appeal the collection of the disputed tax shall be stayed in view of the petitioner's existing 25% pre-deposit.

Final Conclusion: Writ petition allowed; the order imposing payment of 50% as condition for stay is quashed and, in view of the petitioner's 25% pre-deposit and prior Advance Rulings, collection of the disputed tax for AYs 2013-14 and 2014-15 is stayed pending disposal of the appeal.