TaxTMI Updates e-Newsletter
Apr 25,2017

Reopening under Section 148/Section 147 - escapement of income test - Change of opinion - Allowability of higher rate depreciation versus normal rate depreciation - Validity of reassessment where scrutiny officer previously considered and accepted claim

Reopening under Section 148/Section 147 - escapement of income test - Change of opinion - Allowability of higher rate depreciation versus normal rate depreciation - Validity of reopening assessment for Assessment Year 2010-2011 where higher rate depreciation (30%) was allowed in scrutiny assessment and subsequently sought to be disallowed by reopening. - HELD THAT: - The Assessing Officer reopened assessment contending that higher rate depreciation was inapplicable because the vehicles were used in the assessee's own business and not in the business of running them on hire. However, the court found that the very question of entitlement to 30% depreciation was raised, examined and accepted during the scrutiny assessment: a specific query (Item No. 28) was issued under Section 142(1), the assessee replied, and the scrutiny assessment allowed depreciation at 30%. The subsequent reopening therefore amounted to a mere change of opinion by a later officer. In view of authoritative decisions of the Supreme Court and this Court that reassessment cannot be sustained on the basis of a change of opinion where the issue was considered in the original assessment, the notice under Section 148 and the reopening were held to be impermissible. The court applied this principle to the facts and quashed the notice and reopening. [Paras 5, 6]

Impugned notice dated 28.04.2014 under Section 148 and the reopening order dated 19.09.2014 for A.Y. 2010-2011 are quashed and set aside.

Final Conclusion: Writ petition allowed; reassessment proceedings for Assessment Year 2010-2011 quashed on the ground that reopening amounted to impermissible change of opinion where the higher-rate depreciation claim had been considered and accepted in the original scrutiny assessment.

Natural justice - special audit under Section 142(2A) of the Income Tax Act - quashing and remand for fresh consideration - exclusion of period for computation of limitation

Natural justice - special audit under Section 142(2A) of the Income Tax Act - The impugned order of special audit was passed in breach of principles of natural justice and is liable to be quashed. - HELD THAT: - The Court found that the Assessing Officer had granted a final opportunity to the petitioner up to 11/11/2016 by communication dated 07/11/2016 which was, however, received by the petitioner only on 15/11/2016. The petitioner thereafter sought further time and filed objections on 25/11/2016. Meanwhile the Assessing Officer had made the proposal for special audit on 15/11/2016 and the Commissioner granted approval on 25/11/2016. The Court held that, in the circumstances, the satisfaction leading to the order of special audit and the consequential order were recorded without giving the petitioner a proper opportunity to be heard, thereby breaching principles of natural justice. On that ground alone the impugned order cannot stand. [Paras 4, 5]

The impugned order dated 28/11/2016 ordering special audit under Section 142(2A) is quashed and set aside for breach of natural justice.

Quashing and remand for fresh consideration - Whether the matter should be remanded for fresh consideration and what directions should be given to the Assessing Officer. - HELD THAT: - The Court directed that the matter be remanded to the Assessing Officer to pass a fresh order in accordance with law and on merits after considering the objections submitted by the petitioner on 25/11/2016 and after following the due procedure. The remand requires the Assessing Officer to re-examine satisfaction, consider the petitioner's objections and apply mind afresh before passing any order under Section 142(2A). The Court did not decide the merits of the special audit requirement but confined its order to correcting the procedural infirmity and ensuring a fresh adjudication. [Paras 6]

Matter remanded to the Assessing Officer to pass an order afresh in accordance with law after considering the objections dated 25/11/2016 and following due procedure.

Exclusion of period for computation of limitation - Whether time lost on account of the quashed order under Section 142(2A) should be excluded for computation of limitation for passing assessment. - HELD THAT: - The Court ordered that while computing the period of limitation for passing the assessment order the period taken from the date of the order under Section 142(2A) of the Income Tax Act till the date of the present order shall be excluded for the purpose of counting limitation. This direction is ancillary to the remand and is intended to ensure that the petitioner is not prejudiced by the period during which the quashed order remained in effect. The Assessing Officer was directed to complete the exercise as early as possible. [Paras 6]

The period from the date of the order under Section 142(2A) till today shall be excluded for computing limitation for passing the assessment order.

Final Conclusion: The petition is allowed to the extent that the order dated 28/11/2016 directing special audit under Section 142(2A) is quashed and set aside for breach of natural justice; the matter is remitted to the Assessing Officer to decide afresh after considering the petitioner's objections and following due procedure, with the period of the quashed order excluded for computation of limitation.

Meaning of "chargeable expenditure" - Time of incurrence of expenditure - Mercantile versus cash system of accounting - Levy and incidence of expenditure tax - Obligation to remit tax notwithstanding failure to collect

Meaning of "chargeable expenditure" - Time of incurrence of expenditure - Mercantile versus cash system of accounting - Levy and incidence of expenditure tax - Whether chargeable expenditure for the purposes of the Expenditure Tax Act is incurred before a composite bill is raised (day-to-day accrual) or only upon raising of the composite bill on conclusion of the hotel stay, and whether tax is payable before such bill is raised. - HELD THAT: - Section 5 defines chargeable expenditure by reference to expenditure "incurred" in or payments made to the hotel; the statutory language contemplates both mercantile (accrual) and cash (payment) aspects. The court examined the statutory scheme, the composite nature of hotel charges under Section 3 and Section 5, and the practical norm that composite charges are quantified at conclusion of stay when a bill is raised. While expenditures may accrue day-to-day, the levy under the Act is on chargeable expenditure as crystallised by the composite bill. The court rejected the Revenue's proposition that incurrence for chargeability occurs daily during stay, holding instead that where a guest remains in occupation on the closing day of the year, expenditure cannot be quantified mid-stay and is incurred only when the composite bill is raised at check-out. The court noted the Act's object and incidence of the levy and considered relevant precedents and statutory context in arriving at this interpretation. Although Sub-section (4) of Section 7 makes the person responsible for collection liable to remit tax even if not collected, that provision does not alter the point in time when chargeable expenditure is said to be incurred for the purpose of attracting the levy under Section 5; the incurrence is triggered by quantification via the composite bill. [Paras 12, 18]

Chargeable expenditure is incurred only upon raising of the composite bill on conclusion of the hotel stay (check-out); accordingly, tax is not payable before such bill is raised, and the Tribunal's deletion of the addition was justified.

Final Conclusion: The substantial question of law is answered in favour of the assessee: chargeable expenditure crystallises on raising the composite bill at the conclusion of stay, not earlier. The Department's appeal is dismissed.

Undisclosed cash deposits - burden of proof on the assessee to explain source of deposits - requirement of contemporaneous corroboration in company books for advances - evaluation of witness credibility and corroborative evidence

Undisclosed cash deposits - burden of proof on the assessee to explain source of deposits - requirement of contemporaneous corroboration in company books for advances - evaluation of witness credibility and corroborative evidence - Validity of addition of Rs. 25,73,500 made on account of unexplained cash deposits in the assessee's bank account - HELD THAT: - The Tribunal affirmed the findings of the authorities below that the assessee failed to satisfactorily explain the source of the cash deposits. The claim that the deposits represented monies returned to the assessee after an advance given by the company would, if true, have been reflected in the company's balance sheet as an asset/advance as on 31.03.2005; no such entry existed. The broker whose statement was produced gave vague answers on critical points and no independent documentary proof was furnished to corroborate the asserted transactions. The Assessing Officer's inquiries and comparison with the audited accounts of the company showed absence of the alleged advance; mere production of the broker before the AO did not convert uncorroborated assertions into acceptable evidence. On these bases the Tribunal found that the assessee did not discharge the burden of proof and therefore sustained the addition. [Paras 2, 3, 7, 8]

Addition of Rs. 25,73,500 upheld; assessee failed to substantiate source of deposits.

Undisclosed cash deposits - burden of proof on the assessee to explain source of deposits - Addition of Rs. 31,565 on account of differential interest - HELD THAT: - The record shows that the differential interest addition was noted by the Assessing Officer and confirmed by the appellate authority, and no substantial argument was advanced by the assessee before the Tribunal to challenge this finding. In the absence of any significant contention or corroborative material to dispute the assessment of differential interest, the Tribunal did not find grounds to interfere with the addition. [Paras 1, 3, 4, 8]

Addition of Rs. 31,565 on account of differential interest sustained.

Final Conclusion: The appeal is dismissed; the additions made by the Assessing Officer and confirmed by the CIT(A) - including the addition of Rs. 25,73,500 for unexplained deposits and the addition of Rs. 31,565 for differential interest - are upheld.

Arm's Length Price - Transfer Pricing Regulations - Comparable Uncontrolled Price (CUP) - FIPB/RBI/automatic route approvals not determinative of ALP - Remand for fresh transfer pricing study - Employees' contribution to Provident Fund and ESIC deductible if paid on or before due date of filing return

Arm's Length Price - Transfer Pricing Regulations - FIPB/RBI/automatic route approvals not determinative of ALP - Remand for fresh transfer pricing study - Transfer pricing adjustment on royalty payment remanded for fresh determination of ALP - HELD THAT: - The Tribunal held that rates or ceilings referred to in FIPB/RBI communications or grant of permission under the automatic route do not ipso facto constitute the Arm's Length Price under Sections 92-94A and the Transfer Pricing Regulations. Those approvals serve different regulatory objectives (foreign exchange/industrial policy) and cannot replace an independent comparability/benchmarking exercise required to determine ALP. In view of Press Note No.8 (2009) and subsequent amendments putting royalty payments under the automatic route, the Tribunal observed that ARs cannot treat automatic-route approvals as conclusive proof of ALP; however, specific administrative approvals may have persuasive value as supportive evidence. Having regard to these principles and the factual record, the Tribunal directed that the issue be returned to the file of the Assessing Officer/TPO for fresh transfer pricing analysis, permitting the assessee to furnish evidence and permitting AO/TPO to conduct independent benchmarking and pass a reasoned order after opportunity of hearing. The Tribunal therefore did not decide the ALP on merits but remitted the matter for adjudication consistent with transfer pricing law and methodology. [Paras 12, 15, 21, 22, 23]

Royalty payment issue remanded to Assessing Officer/TPO for fresh transfer pricing study and determination of Arm's Length Price; matter treated as allowed for statistical purposes.

Employees' contribution to Provident Fund and ESIC deductible if paid on or before due date of filing return - Disallowance of employees' contribution to Provident Fund and ESIC deleted - HELD THAT: - The Tribunal applied the legal position reflected in the decision of the Supreme Court in Alom Extrusions Ltd. and subsequent High Court authority, holding that where employees' contributions to PF and ESIC are actually paid on or before the due date for filing the return of income, such payments are not hit by the disallowance under the relevant provisions and must be allowed. The Tribunal noted that the payments in question for the year were made within the financial year and observed no contrary distinction from the departmental side. Consequently, the disallowance made by the Assessing Officer was held unsustainable and was deleted. [Paras 25, 26]

Disallowance of employees' contribution to PF and ESIC deleted; grounds allowed.

Remand for fresh transfer pricing study - General ground challenging assessment order dismissed as not requiring specific adjudication - HELD THAT: - The Tribunal recorded that the general ground (ground No.1) did not require specific adjudication and accordingly dismissed it as generic. [Paras 2]

General ground dismissed.

Final Conclusion: The appeal is partly allowed: the transfer-pricing adjustment in respect of royalty payments is remitted to the Assessing Officer/TPO for fresh ALP determination after independent benchmarking and opportunity to the assessee; the disallowance of employees' contributions to PF and ESIC is deleted.

Depreciation during temporary closure/passive user of plant and machinery - allowability of bad debts written off in the books - effect of rehabilitation scheme sanctioned by BIFR on write offs - treatment of missing assets forming part of block of assets - assessing officer's computation of hypothetical interest versus verifiable actual interest - power of Tribunal to admit and remand additional grounds arising on facts on record (NTPC principle)

Depreciation during temporary closure/passive user of plant and machinery - Allowability of depreciation claimed for the year despite factory being closed for the entire year due to sickness and BIFR proceedings - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the factory remained closed for reasons beyond management's control (liquidity problems and BIFR revival proceedings) and that the plant and machinery were kept ready for use throughout the intervening period; depreciation accrues by passage of time as well as use and therefore is allowable even during the closure when there is passive user. The Tribunal relied on and followed the reasoning in the cited High Court decision concerning similar facts and found the Assessing Officer unjustified in disallowing depreciation. [Paras 6]

Order of the CIT(A) deleting the addition of Rs. 55,10,113 for depreciation is sustained and the revenue's ground is dismissed.

Allowability of bad debts written off in the books - Deductibility of amount written off as sundry debtor (M/s Nam Nam Dhaka) where RBI approval was not on record - HELD THAT: - The Tribunal followed precedent that after 1.4.1989 it is sufficient that a debt is written off in the assessee's accounts for it to qualify for deduction under the statute; the Assessing Officer had not examined whether the debt was in fact written off in the books. A coordinate bench decision with similar facts was held to support allowance. The Tribunal therefore allowed the write off, noting that any subsequent recovery would be assessable in the year of recovery. [Paras 9]

The write off of Rs. 58,80,646 in respect of M/s Nam Nam Dhaka is allowed; the amount, if recovered later, will be treated as income in the year of recovery.

Effect of rehabilitation scheme sanctioned by BIFR on write offs - Allowability of write off of loans and advances written off pursuant to the BIFR sanctioned rehabilitation scheme - HELD THAT: - The Tribunal accepted the assessee's plea that the sanctioned BIFR scheme recast the balance sheet for FY 1999 2000 and limited assets and liabilities to those taken over by the new management; loans and advances shown as not recoverable in the sanctioned scheme were written off accordingly. On these facts, and having regard to the scheme and relevant precedent, the Tribunal found merit in the assessee's claim and allowed the write off. [Paras 12]

Write off of loans and advances of Rs. 1,47,62,069 as per the BIFR scheme is allowed.

Treatment of missing assets forming part of block of assets - Deductibility of write off of fixed assets found missing on takeover by new management - HELD THAT: - The Tribunal found that the assets in question were part of the block of assets for depreciation purposes; writing off such assets separately in the profit and loss account was not the proper treatment, particularly where no FIR, insurance claim or adequate details were furnished. In absence of details and verification, the claim could not be sustained. [Paras 14]

Disallowance of write off of fixed assets of Rs. 13,67,295 is confirmed and the assessee's ground is dismissed.

Assessing officer's computation of hypothetical interest versus verifiable actual interest - Validity of addition computed by AO by assuming hypothetical interest at 15% on Rs. 2 crores resulting in disallowance of Rs. 35,00,000 - HELD THAT: - The Tribunal accepted the assessee's bank account particulars and working capital balances showing substantially higher actual outstanding limits and verifiable borrowings; the AO's assumption of interest on Rs. 2 crores at a hypothetical rate did not reflect actual interest liability. Given verifiable OD account details, nature of loans and the BIFR scheme adjustments, the addition lacked merit and was deleted. [Paras 16]

The addition of Rs. 35,00,000 on account of hypothetical interest is deleted and the assessee's appeal on this point is allowed.

Power of Tribunal to admit and remand additional grounds arising on facts on record (NTPC principle) - Admission and remand of additional grounds alleging that extraordinary income included in profit and loss account is not taxable in view of BIFR scheme - HELD THAT: - Relying on the Supreme Court's NTPC principle that the Tribunal has jurisdiction to consider questions of law arising from facts on record even if not previously raised, the Tribunal exercised its discretion to admit the additional grounds. The matter was remitted to the Assessing Officer for de novo consideration on merits since the issue required verification and assessment-level adjudication. [Paras 18, 19]

Additional grounds are admitted for statistical purposes and remitted to the Assessing Officer for decision on merits.

Final Conclusion: The Tribunal dismissed the revenue's appeal (deletion of depreciation addition sustained), partly allowed the assessee's appeal by allowing the write off of sundry debtor and loans/advances (as per BIFR scheme), confirmed disallowance of missing fixed assets, deleted the hypothetical interest addition, and admitted and remitted the additional ground relating to extraordinary income under the BIFR scheme to the Assessing Officer for fresh adjudication.

Arm's length price - quasi capital - comparable uncontrolled price (CUP) method - guarantee fee adjustment - LIBOR plus basis points as benchmark - speculative transactions and section 43(5) - hedging transactions as business expenditure under section 37(1) - amortisation under section 35D

Arm's length price - quasi capital - comparable uncontrolled price (CUP) method - Whether transfer pricing adjustments including ALP determination in respect of advances to the AE are warranted in principle - HELD THAT: - The Tribunal upheld the authorities below that transfer pricing regulation applies and that an ALP adjustment in principle is warranted in respect of the advance to the subsidiary. The coordinate-bench reasoning on 'quasi capital' was considered: the concept is relevant only to the extent that such advances are materially different from routine loans and must be compared with similar transactions; however, a loan characterized as quasi capital will not automatically attract a nil interest ALP. The assessee's factual contentions that the advance should be treated as investment or as nil-interest quasi capital were rejected because there was no material to show that an arm's-length lender would have advanced funds at nil interest. On this basis the Tribunal confirmed the necessity of ALP adjustment in principle. [Paras 3, 6]

ALP adjustment in principle confirmed against the assessee

Guarantee fee adjustment - LIBOR plus basis points as benchmark - Quantum of ALP: whether an additional adjustment (effectively LIBOR+4% by assuming a corporate guarantee cost) was sustainable and what benchmark rate should apply - HELD THAT: - The Tribunal found the TPO's approach of assuming a corporate guarantee and adding an additional margin for guarantee fees to be unsustainable because no such guarantee transaction existed to be benchmarked. Further, relying on precedent (including a coordinate-bench and High Court approval), the Tribunal held that assumed adjustments for higher lending risk to a subsidiary under the facts were not justified where the parent controls the subsidiary and no material change in facts existed from the preceding year. Having regard to the preceding year's adoption by the TPO of LIBOR+2% and absence of material difference in facts, the Tribunal limited interference to direct that the ALP be determined at LIBOR+2%, rejecting the extra 2% guarantee-risk uplift. [Paras 7, 8]

TPO's additional guarantee-fee/2% risk uplift rejected; ALP to be LIBOR+2% (ground no.3 allowed)

Amortisation under section 35D - Allowability under section 35D of GDR issue expenses and characterisation of foreign-exchange loss relating to GDR issue as capital or revenue - HELD THAT: - Following a coordinate-bench decision in the assessee's own case for AY 2007-08, the Tribunal applied settled law that expenses incurred for issue of share capital are capital in nature. Although capital in nature, such expenses are eligible for amortisation under section 35D only if they meet the statutory conditions (incurred before commencement of business or for extension/setting up of a new undertaking). The Tribunal found those conditions unsatisfied on the facts and therefore upheld the disallowance of the claimed amortisation. Similarly, the AO's view treating exchange fluctuation loss on GDR issue as permanent capital loss was affirmed in view of the binding coordinate-bench precedent and factual matrix. [Paras 11, 12, 13]

Claims relating to GDR issue expenses and the related exchange loss dismissed; authorities below upheld

Speculative transactions and section 43(5) - hedging transactions as business expenditure under section 37(1) - Whether loss on foreign-exchange derivative contracts settled otherwise than by delivery is to be treated as speculative loss under section 43(5) or allowable as business expenditure/hedging loss under section 37(1) - HELD THAT: - The Tribunal rejected the AO's approach of treating the hedging losses as speculative merely because contracts were settled without delivery. Explanation 2 to section 28 and the factual record showed the derivative transactions were specific hedges of export receivables and incidental to the assessee's business. The assessee filed confirmation notes linking the notional principal to underlying obligations and bank confirmations that the derivatives did not exceed underlying exposures. The Tribunal held such hedging transactions do not constitute a separate speculation business and are bonafide business expenses; CBDT instruction relied upon by AO does not bind the Tribunal. Consequently, the loss was held allowable under section 37(1). [Paras 17]

Loss on foreign-exchange derivatives allowed as business deduction; disallowance directed to be deleted (ground no.5 allowed)

Final Conclusion: The appeal is partly allowed: ALP adjustments in principle were confirmed against the assessee, but the Tribunal disallowed the TPO's additional guarantee-fee/credit-risk uplift and directed ALP to be determined at LIBOR+2%; claims relating to GDR issue expenses and the related exchange loss were rejected following precedent; the loss on foreign-exchange derivative hedges was allowed as a business deduction. The remainder of the grounds were dismissed or not pressed.

Cash credits and burden of proof under section 68 - identity, creditworthiness and genuineness of creditors - search assessment and incriminating material under sections 153A/153C - assessment to be based on incriminating material unearthed during search - remand for fresh consideration and opportunity of hearing

Cash credits and burden of proof under section 68 - identity, creditworthiness and genuineness of creditors - remand for fresh consideration and opportunity of hearing - The addition under section 68 in respect of share capital was set aside and remitted to the Assessing Officer for fresh consideration after giving the assessee an opportunity to prove identity, creditworthiness and genuineness of the creditors. - HELD THAT: - The Tribunal found that the assessee had not produced confirmations, bank statements or contemporaneous financials for the years in which the credits arose and that the Assessing Officer accordingly made additions under section 68. Rather than decide the merits finally, the Tribunal set aside the additions and directed that the file be restored to the AO to grant the assessee one more opportunity to establish identity, creditworthiness and genuineness of the deposits. The direction applies to the respective investor companies for the two assessment years and requires the AO to afford proper opportunity of hearing before arriving at a fresh conclusion on the additions. [Paras 12, 19]

Additions under section 68 set aside and remitted to the Assessing Officer for fresh adjudication after granting the assessee an opportunity to prove identity, creditworthiness and genuineness of the creditors.

Search assessment and incriminating material under sections 153A/153C - assessment to be based on incriminating material unearthed during search - remand for fresh consideration and opportunity of hearing - The finding of the CIT(A) that no addition could be made because no incriminating material was found was set aside and remitted to the CIT(A) to examine the materials seized and statements recorded and to decide whether the AO's additions were based on incriminating material. - HELD THAT: - The Tribunal acknowledged the legal principle that search assessments under sections 153A/153C must have nexus with material seized or other post-search material relatable to the seizure, but observed that the Assessing Officer had enumerated seized books, documents, hard disks and statements and had relied on survey and pre/post-search enquiries tying the investor companies to the Today group. The CIT(A) had concluded additions were not based on search material without properly considering those seized materials. The Tribunal accordingly remanded the matter to the CIT(A) with a direction to examine the panchnama, seized documents, statements and survey reports and to determine whether the AO's additions were founded on incriminating material discovered during the search. [Paras 15, 19]

Matter remitted to the CIT(A) to examine the incriminating material seized and related records and to decide whether the additions were made on the basis of such material; CIT(A)'s contrary finding set aside.

Final Conclusion: For both AY 2007-08 and AY 2004-05 the Tribunal allowed the revenue appeals for statistical purposes by setting aside the additions made under section 68 and remitting the issues to the Assessing Officer (and to the CIT(A) as directed) for fresh consideration: the assessee to be given an opportunity to substantiate identity, creditworthiness and genuineness of the creditors, and the seized material and statements to be examined for nexus with the additions.

Transfer Pricing Adjustment - Non-operating expenses - Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price method (CUP) - Profit Level Indicator (PLI) - Arm's Length Price (ALP) - Disallowance/Upward Adjustment to International Transactions - Condonation of delay - Penalty for furnishing inaccurate particulars / concealment of income

Non-operating expenses - Transfer Pricing Adjustment - Transactional Net Margin Method (TNMM) - Profit Level Indicator (PLI) - Arm's Length Price (ALP) - Whether the TPO rightly rejected the assessee's claim to exclude certain employee recruitment, training and consultancy costs as non-operating expenses and thereby correctly made an upward transfer-pricing adjustment to the international transaction for A.Y. 2012-13. - HELD THAT: - The Tribunal accepted the assessee's plea that significant employee recruitment, training and certain consultancy charges incurred in the year under review related to projects expected to generate revenue in subsequent years and were not referable to any specific project billed in the year; such costs were not ordinary operating costs of the assessee's business for that year. The Tribunal observed that comparison with larger, established comparables without excluding the extraordinary item would be inappropriate, and noted factual material showing recruitment and subsequent increase in revenue in succeeding years without change in pricing with the associated enterprise. The TPO's reasoning that absence of a director's report or explicit line-item disclosure in financials justified rejection was held insufficient. Having accepted that the claimed items were non-operating/extraordinary for the year under review, the Tribunal found that inclusion of those costs in computing the assessee's PLI led to a depressed margin and that, after allowing the adjustment, the PLI would be higher than the comparables used by the TPO; accordingly the proposed upward adjustment of income could not be sustained. [Paras 4, 7]

The transfer-pricing upward adjustment of Rs. 2.64 crores was disallowed and the assessee's claim to exclude the specified employee and consultancy costs as non-operating expenses was accepted for computation of ALP for A.Y. 2012-13.

Penalty for furnishing inaccurate particulars / concealment of income - Whether penalty under the concealment / inaccurate particulars provision could be sustained after the Tribunal allowed the transfer-pricing ground. - HELD THAT: - As the Tribunal allowed the assessee's primary challenge to the transfer-pricing adjustment, there remained no basis for imposing penalty for concealment or furnishing inaccurate particulars of income in respect of that adjustment. The Tribunal therefore held that levy of penalty under the relevant penal provision could not stand. [Paras 8, 9]

Penalty under the concealment/inaccurate particulars provision was held not leviable and is therefore not sustained.

Condonation of delay - Whether the appeal filed three days late by the assessee should be admitted. - HELD THAT: - The Tribunal examined the condonation petition and the explanation that delay occurred because a company director was out of station and, upon his return, the appeal was filed with a three-day delay. The Tribunal found the explanation bonafide and accordingly condoned the delay. [Paras 3]

The delay in filing the appeal (three days) was condoned and the appeal admitted.

Final Conclusion: Appeal allowed: the transfer-pricing adjustment made by the TPO for A.Y. 2012-13 is set aside after accepting the assessee's exclusion of specified non-operating employee and consultancy costs from operating expenses for PLI computation; consequent penalty is not leviable; appeal admitted as delay was condoned.

Tested party selection in TNMM - comparability analysis for transfer pricing - arm's length price - transfer pricing adjustment - disallowance under section 40(a)(ia) for failure to deduct tax at source - tax deduction at source under section 195 - business connection and permanent establishment - fees for technical services - disallowance under section 40(a)(iii) for non-deduction on salaries - deductibility under section 36(1)(iii) and commercial expediency - apportionment of rent among co-owners for TDS applicability under section 194-I

Tested party selection in TNMM - comparability analysis for transfer pricing - arm's length price - transfer pricing adjustment - Whether rejection of the foreign associated enterprise (IDS A) as the tested party and consequent transfer pricing adjustment is sustainable. - HELD THAT: - The Tribunal examined the TPO's sole basis for rejection-asserted unavailability of reliable data for foreign comparables-and the assessee's TP documentation showing use of public global databases and full disclosure of the comparables and their P&L. The Tribunal found that (i) IDS A qualified as the least complex party and did not own valuable intangibles, (ii) the assessee had disclosed the search methodology and public sources (Global Symposium with Compustat/Worldscope/SEC data) and furnished comparables' P&Ls, and (iii) the Revenue could access the publicly identified data. The TPO's rejection was inconsistent (foreign tested parties were accepted for other services and had been accepted in the preceding year) and unsupported by specific anomalies in the disclosed data. Accordingly the TPO's rejection was set aside and the assessee's ALP computation on that basis accepted. [Paras 21, 22, 23, 24, 25]

Rejection of IDS A as tested party set aside; transfer pricing adjustment of Rs.45,68,000 deleted and assessee's ALP accepted.

Disallowance under section 40(a)(ia) for failure to deduct tax at source - tax deduction at source under section 195 - business connection and permanent establishment - fees for technical services - Whether disallowance under section 40(a)(ia) for non-deduction of TDS on various payments to non-residents is sustainable. - HELD THAT: - The Tribunal followed its earlier reasoning in the preceding year: section 40(a)(ia) applies only where tax is required to be deducted under the relevant TDS provisions, which in turn requires the amount to be chargeable to tax in India. The authorities below made no finding that the non-resident recipients' income had accrued or was deemed to accrue in India, nor that they had any business connection or permanent establishment in India; nor was there any finding that payments were 'fees for technical services'. On the facts (no services performed in India, absence of business connection/PE and identical earlier ITAT decision in assessee's favour), the payments were not chargeable in India and section 195/TDS was not attracted. Consequently the disallowance was deleted. [Paras 36]

Disallowance of Rs.2,84,52,914 under section 40(a)(ia) deleted.

Apportionment of rent among co-owners for TDS applicability under section 194-I - disallowance under section 40(a)(ia) for failure to deduct tax at source - Whether disallowance under section 40(a)(ia) for non-deduction of TDS on rent is justified where rent was paid to one recipient on behalf of multiple co owners. - HELD THAT: - The lease deeds produced before the authorities showed multiple co owners and explicit provisions for distribution of rent to co owners; the Tribunal accepted that the amount paid to a single recipient was received on behalf of other co owners and therefore constituted income of the co owners to be apportioned. As the Tribunal could not determine apportionment and consequent applicability of section 194 I from the record, it directed restoration to the Assessing Officer to apportion rental income among co owners and then apply section 194 I/section 40(a)(ia) if applicable. [Paras 44, 45, 46, 47, 48]

Matter restored to the Assessing Officer to apportion rent among co owners and re determine TDS liability; ground allowed for statistical purposes and remanded for computation.

Disallowance under section 40(a)(iii) for non-deduction on salaries - tax deduction at source under section 192 - Whether disallowance under section 40(a)(iii) in respect of salaries paid outside India to non residents is sustainable. - HELD THAT: - Section 40(a)(iii) applies only where amounts are chargeable to tax as 'salaries' in India and tax has not been deducted/paid. Salary is deemed to accrue/ arise in India only if earned in India (services rendered in India). The assessee's uncontested case was that the services were rendered outside India and the payments were made outside India; no contrary finding was recorded by lower authorities. Consequently the salaries were not chargeable to tax in India, section 192 was not attracted, and section 40(a)(iii) disallowance could not be sustained. [Paras 60, 61]

Disallowance of Rs.39,73,746 under section 40(a)(iii) deleted.

Deductibility under section 36(1)(iii) and commercial expediency - Whether interest disallowance under section 36(1)(iii) on interest attributable to borrowed funds advanced to wholly owned subsidiaries is justified. - HELD THAT: - On identical facts as decided by the Tribunal for the preceding year, the advances were to wholly owned subsidiaries and no material showed the funds were used for non business or non commercial purposes. Relying on precedent (including S.A. Builders and Hero Cycles) and the earlier ITAT decision in the assessee's favour, the Tribunal held the investments/advances were commercially expedient and the interest deduction could not be disallowed under section 36(1)(iii). [Paras 69]

Disallowance under section 36(1)(iii) (part of the interest) deleted.

Income recognition on sale of assets - Whether alleged non declaration of receipts on sale of assets to Aeromatrix warranted an addition. - HELD THAT: - The assessee produced ledger entries, fixed asset schedules and depreciation records showing receipt and accounting treatment of the consideration for sale of Catia V5 licence; books of account furnished to authorities reflected the receipt and reversal of WDV. The Tribunal found the material on record substantiated the assessee's claim and that the addition for non declaration was therefore unwarranted. [Paras 76]

Addition of Rs.57,68,163 for alleged non declaration deleted.

Final Conclusion: For assessment year 2010 11 the Tribunal partly allowed the appeal: the transfer pricing adjustment (Rs.45,68,000) was deleted by accepting the foreign AE as tested party and the assessee's ALP; disallowances under section 40(a)(ia) (Rs.2,84,52,914), section 40(a)(iii) (Rs.39,73,746), the interest disallowance under section 36(1)(iii), and the addition for non declaration of sale proceeds (Rs.57,68,163) were deleted. The rent TDS issue was remanded to the Assessing Officer for apportionment among co owners and recomputation of TDS liability under section 194 I, if any.

Characterisation of agricultural land versus capital asset - question of fact test for agricultural land - presumption of correctness of revenue records - obligation on assessing officer to verify and rebut documentary and circumstantial evidence - chargeability of capital gains on transfer of non-agricultural land

Characterisation of agricultural land versus capital asset - question of fact test for agricultural land - presumption of correctness of revenue records - obligation on assessing officer to verify and rebut documentary and circumstantial evidence - Whether the land sold by the assessees at the time of sale was agricultural land and therefore not a capital asset within the meaning of section 2(14) of the Act, so that the gain on sale was not chargeable to capital gains tax. - HELD THAT: - The Tribunal examined the documentary and circumstantial evidence placed on record by the assessees - 7/12 extracts, receipts for land revenue, affidavits of persons engaged in agricultural activity, bills and vouchers for agricultural inputs, and a site plan showing wells and plantations - and found that these materials prima facie established actual agricultural use. The authorities below upheld the assessment relying on the purchaser's later conversion of the land and the high sale price, and on precedent that uncultivated or long-barren land may lose agricultural character; but the Tribunal observed that such precedents are guidelines and the question is essentially one of fact. The Assessing Officer did not undertake verification to rebut the assessees' evidence nor examine persons mentioned in affidavits; the Tribunal further noted the purchaser's application under the Maharashtra Land Revenue Act seeking permission for horticulture as corroborative of agricultural character. On the facts before it, and distinguishing the cited Supreme Court authority by reference to material differences in circumstances, the Tribunal held that the presumption of correctness attaching to revenue records and the uncontroverted documentary and circumstantial evidence entitled the assessees to be treated as having sold agricultural land. Because the land was held to be agricultural at the time of sale, it did not fall within the definition of capital asset for purposes of capital gains taxation, and the assessments were set aside. [Paras 6, 10, 13]

Impugned orders treated as erroneous; the land was held to be agricultural at the time of sale and not a capital asset, and the appeals are allowed.

Final Conclusion: The Tribunal set aside the assessment and appellate orders for A.Y.2010-11, holding that the assessees sold agricultural land (not a capital asset) and allowing the appeals.

Mercantile system of accounting - prior period expenditure - crystallization of liability - allowability under section 37(1) of Income-tax Act - treatment of advance receipts as income when due - remand for fresh adjudication

Prior period expenditure - mercantile system of accounting - crystallization of liability - allowability under section 37(1) of Income-tax Act - Whether interest of Rs. 7.14 crores paid to the Government of India on unspent subsidy is a prior period expenditure or an allowable business expenditure in the assessment year 2004-05. - HELD THAT: - The Tribunal held that although the underlying events giving rise to the demand related to earlier years, the liability was admitted, quantified and crystallized by the assessee during the year under consideration (board resolution dated 17/11/2003 and payment on 21/11/2003). Under the mercantile system, only liabilities crystallized in the previous year are to be adjusted; a liability that is determined and accepted in the current year accrues in that year. The Supreme Court decision relied on by the parties concerned approval-related accruals and was distinguished on facts. The payment was a commercial settlement between the assessee and the Government and constituted an expenditure incurred wholly and exclusively for business purposes; accordingly it was allowable in the year of accrual under the recognised principles (including section 37(1)). For these reasons the disallowance treating the payment as a prior period expenditure was reversed. [Paras 8]

Disallowance of Rs. 7.14 crores held not to be prior period expenditure and allowed as deduction in Assessment Year 2004-05.

Mercantile system of accounting - treatment of advance receipts as income when due - Whether excess interest of Rs. 1.20 crores received in the year but adjustable against future dues is taxable in the year of receipt or in the year when it becomes due. - HELD THAT: - The Tribunal accepted the assessee's accounting practice of treating excess interest received in advance as a liability until adjusted against subsequent dues in accordance with the terms of the loan agreements. Receipt in advance before the due date is not income of the year of receipt if, under the mercantile system, it is accounted for as excess/advance and included in income when it becomes due in subsequent years. The revenue did not dispute that the method was consistently followed and accepted in prior years, nor that such amounts were brought to tax when they became due. Accordingly there was no justification for treating the excess as income in the earlier year. [Paras 12]

Addition of Rs. 1.20 crores reversed; excess interest treated as liability and taxable when it becomes due.

Deferred/revenue expenditure written off - capital versus revenue characterisation - remand for fresh adjudication - Whether the financial charges written off (claimed as deferred revenue expenditure) are to be treated as capital expenditure or allowable revenue expenditure. - HELD THAT: - The Tribunal noted that an identical issue in the assessee's earlier years was directed to be reconsidered by a coordinate bench and that the matter had been remitted to the Assessing Officer for fresh adjudication in accordance with the Tribunal's prior directions. Following consistency with the coordinate bench decisions (including directions in ITA Nos. 686/2006 and 687/2006 for earlier years), the Tribunal set aside the issue to the file of the Assessing Officer for fresh adjudication after affording the assessee an opportunity of hearing. [Paras 16]

Ground remitted to the Assessing Officer for fresh adjudication in accordance with law.

Final Conclusion: Appeal allowed for statistical purposes: disallowances of Rs. 7.14 crores (interest to Government on unspent subsidy) and Rs. 1.20 crores (excess interest received pending reconciliation) were reversed; the question of financial charges written off is remitted to the Assessing Officer for fresh adjudication after opportunity of hearing.

Addition on account of unexplained loan - creditworthiness of lender and genuineness of transactions - reliance on coordinate Bench/precedent findings of fact - protective addition - recasting of cash flow and change of head of income - donations and source of funds

Addition on account of unexplained loan - creditworthiness of lender and genuineness of transactions - reliance on coordinate Bench/precedent findings of fact - protective addition - Deletion of addition of Rs. 20 lakhs made in respect of alleged unexplained loan from Shri J.H. Maniyar - HELD THAT: - The Assessing Officer doubted the creditworthiness of Shri J.H. Maniyar and treated the loan as circulation of assessee's own unexplained funds, making a protective addition. The Tribunal examined prior findings in proceedings involving the lender and noted that a coordinate Bench had held the software export business of the lender to be genuine and that export receipts were duly certified/verified by STPI, with no material produced to show the exports were bogus. Respectfully following those findings of fact, the Tribunal rejected the Revenue's challenge to the deletion by the Commissioner of Income Tax (Appeals) and found the Assessing Officer's adverse conclusions to be without basis; hence the protective addition could not be sustained. [Paras 6, 7]

Grounds attacking deletion of the addition in respect of the Rs. 20 lakhs loan are dismissed and the addition is not sustained.

Donations and source of funds - recasting of cash flow and change of head of income - Deletion of addition of Rs. 17 lakhs made on account of donations to Tirupathi Devasthan - HELD THAT: - The Assessing Officer recast the assessee's cash flow and reallocated amounts from agricultural income to income from other sources, concluding that agricultural income was insufficient for the donations. The Tribunal observed that the reclassification altered only the head under which income was assessed without changing total income; funds remained available to the assessee irrespective of the head of income. Consequently, change of head alone did not establish lack of source for donations. The Commissioner of Income Tax (Appeals) therefore rightly deleted the addition. [Paras 8]

Grounds challenging deletion of the addition in respect of donations are dismissed and the addition is not sustained.

Final Conclusion: The appeal filed by the Revenue is dismissed; the additions in respect of the alleged unexplained loan and the donations are not sustained.

Limitation - Statutory notice at registered office - Maintainability of winding up petition - Creditor status - Service returned "Left company. Return to sender" - Duplicate invoices and disputed facts

Limitation - Creditor status - The petitioner's claim was barred by limitation on the date of filing the winding up petition and, consequently, the petitioner ceased to be a creditor entitled to maintain the petition. - HELD THAT: - The petition records that the transactions between the parties occurred during 2006-2007 and that, excluding the disputed cash entry, the last payment by the respondent was on 1st October, 2008. The petitioner relied on an alleged part payment of Rs. 50,000 dated 13th July, 2011, but could not satisfactorily reconcile discrepancies between vouchers and the notices (including differing amounts and dates), and failed to rebut the respondent's averment that the cash receipt related to a different transaction. If the disputed Rs. 50,000 entry is excluded, the claim is ex facie barred by limitation on the date of filing. Following the principle in Modern Dekor Painting Contracts Pvt. Ltd., a winding up petition is maintainable only if the debt is within time on the filing date; a time barred claim means the petitioner ceases to be a creditor and cannot maintain the petition. Applying that principle to the undisputed record, the Court held the petition barred by limitation. [Paras 15, 16, 17, 18]

Claim barred by limitation; petitioner ceased to be a creditor and cannot maintain the winding up petition.

Statutory notice at registered office - Service returned "Left company. Return to sender" - Maintainability of winding up petition - The statutory notice was not served at the respondent's registered office in compliance with law, rendering the winding up petition not maintainable on that ground as well. - HELD THAT: - The statutory notice sent to the registered office by post was returned with the endorsement 'Left company. Return to sender'. The petitioner did not make further efforts to effect personal service at the registered office, and there is no rejoinder disputing the respondent's averment that the registered office address continued to be in use and the company carried on business there. In those circumstances the Court accepted the respondent's submission that service in compliance with the statutory requirement under the Companies Act was not effected, and that omission independently vitiates the maintainability of the winding up petition. [Paras 5, 20]

Statutory notice was not duly served at the registered office; petition not maintainable on this ground.

Duplicate invoices and disputed facts - Maintainability of winding up petition - There are bona fide disputed questions of fact, including apparent duplication of invoices, which cannot be resolved in a winding up petition and weigh against admission. - HELD THAT: - Documents annexed to the petition show some duplication of invoices. The petitioner's explanation that such documents represented distinct works was not persuasive. The Court found the respondent's factual defences to be bona fide and not frivolous or 'moonshine'. As disputed factual issues go to the root of the claim and cannot be resolved in the summary proceedings of a winding up petition, they militate against entertaining the petition. [Paras 12, 21, 22]

Existence of bona fide disputed facts (including duplicate invoices) precludes adjudication in the winding up petition; petition not maintainable.

Final Conclusion: The petition is dismissed as devoid of merits: the claim was time barred making the petitioner no longer a creditor, the statutory notice was not properly served at the registered office, and there are bona fide disputed factual issues; no order as to costs.

Outdoor catering service - restaurant service / sale of food - classification as sale of goods - mutual exclusivity of Sales Tax/VAT and Service Tax - control over menu, price, time and place as determinative of service character

Outdoor catering service - restaurant service / sale of food - control over menu, price, time and place as determinative of service character - Activity of the appellant is running a restaurant and not providing outdoor catering service. - HELD THAT: - The Tribunal examined the contract terms and factual matrix, including who fixes menu, rates, timing and place of service. Relying on the distinction drawn in the cited authorities, outdoor catering is characterised by the customer's freedom to choose the kind, quantum, manner, time and place of service and to negotiate each element; where the service is supplied within fixed premises with a predetermined menu/rates approved by the club, the activity falls within the ambit of a restaurant/sale of food and not outdoor catering. Applying these principles to the admitted facts and the agreement, the Tribunal held that the appellant's operations are those of running a restaurant rather than rendering outdoor catering services. [Paras 4, 7]

The appellant is engaged in running a restaurant and the activity is not classifiable as outdoor catering service.

Classification as sale of goods - mutual exclusivity of Sales Tax/VAT and Service Tax - Service Tax is not leviable on the value of food items where Sales Tax/VAT has been paid on those supplies. - HELD THAT: - The Tribunal applied the principle that once a transaction is held to be sale of goods and Sales Tax/VAT is paid on the food supplied, the same value cannot be subjected to Service Tax; the two levies are mutually exclusive in respect of the taxed element. Having found that the appellant sold food in the restaurant and admitted payment of Sales Tax/VAT on such supplies, the Tribunal concluded that Service Tax could not be demanded on the value of food items. [Paras 5, 7]

No Service Tax is leviable on the sale of food items in respect of which Sales Tax/VAT has been paid.

Final Conclusion: Appeal allowed; impugned order set aside. The appellant is held to be running a restaurant (not an outdoor caterer) and, having paid Sales Tax/VAT on food supplies, is not liable to Service Tax on the value of those food items; appellant entitled to consequential benefits in accordance with law.

Refund of service tax on services used in export - allowability of courier charges for refund under Notification No.41/2007-ST - eligibility of GTA services for refund under Notification No.41/2007-ST - eligibility of specified services dependent on date of notification - direction to adjudicating authority to recalculate refund and grant with interest

Allowability of courier charges for refund under Notification No.41/2007-ST - refund of service tax on services used in export - Courier charges paid to international courier agencies are eligible for refund of service tax when incurred in the course of export. - HELD THAT: - The Tribunal examined sample courier invoices which identify the appellant as consignor, show the consignee located in the United States, contain master bill of lading/AWB numbers, pickup dates, descriptions of goods, chargeable weight and specific export-related charges (inland freight, air freight, terminal handling, export customs clearance, labelling/origin charges) and show service tax. On that material the Tribunal concluded that the charges were incurred in the process of export of goods manufactured by the appellant and therefore fall within the scope of refundable services under Notification No.41/2007-ST. The finding rests on the documentary evidence in the invoices establishing nexus with the export transaction. [Paras 5]

Courier charges held allowable and refundable.

Eligibility of GTA services for refund under Notification No.41/2007-ST - refund of service tax on services used in export - Service tax paid on GTA (goods transport agency) services utilized for transport to port/ICD in relation to export is eligible for refund. - HELD THAT: - On review of sample GTA invoices showing consignee and address abroad and having regard to Notification No.41/2007-ST read with CBEC Circular No.120/01/2010-ST dated 19/01/2010, the Tribunal found that such transport services were received in the course of export transactions and therefore qualify as eligible services for refund. The Tribunal applied the notification and the Circular to conclude that the requisite nexus with export exists and that the appellant is entitled to refund of service tax paid on GTA services. [Paras 7]

GTA service charges held refundable.

Eligibility of specified services dependent on date of notification - refund of service tax on services used in export - Services received prior to the date on which a service was notified under Notification No.41/2007-ST are not eligible for refund; the appellant does not contest non-eligibility of CNF services received before notification. - HELD THAT: - The Commissioner (Appeals) had held that CNF agent services received prior to 07/12/2008 (the date on which that service was notified for refund) were not eligible. The appellant did not contest that conclusion before the Tribunal. Accordingly, the Tribunal recorded that services received prior to their notification date are not refundable and did not disturb the finding as to CNF services. [Paras 7]

CNF agent services received prior to notification date not eligible; finding left undisturbed.

Refund of service tax on services used in export - direction to adjudicating authority to recalculate refund and grant with interest - Service tax paid on certification-type services (e.g., Certificate of Origin) used for export is refundable; adjudicating authority to recalculate eligible refund and grant it with interest within sixty days. - HELD THAT: - Sample invoices from M/s Wig Air Freight Pvt. Ltd. showed services of a certification nature (such as Certificate of Origin) which are relevant to the export process. The Tribunal held that such services were received in the course of export and thus the appellant is entitled to refund of service tax paid on them. The Tribunal further directed the adjudicating authority to recompute the eligible refund in accordance with the findings and to grant the refund along with interest, specifying a time-bound compliance of sixty days from receipt of the order copy. [Paras 7]

Service tax on certification-related services held refundable; adjudicating authority directed to recalculate and grant refund with interest within 60 days.

Final Conclusion: The appeals are allowed in part: courier charges, GTA charges and certification-related services used in export are held eligible for refund of service tax under Notification No.41/2007-ST; CNF services received prior to their notification date remain not eligible; the adjudicating authority is directed to recalculate the refund and grant it with interest within sixty days.

Sub-contractor liability where main contractor has discharged service tax - aggregate of taxable services for threshold exemption under notification No. 06/2005-ST - retrospective amendment and extended period of limitation - interest on retrospective levy - reduction of penalty under Section 78 of the Finance Act, 1994

Sub-contractor liability where main contractor has discharged service tax - Liability of the appellant to pay service tax under Management, Maintenance or Repair Services (MMRS) and Manpower Recruitment and Supply Services (MRAS) where the main contractor had discharged service tax on the same services. - HELD THAT: - The Tribunal accepted the factual position that the main contractors had discharged service tax on the jobs executed through the appellant and relied on precedent where a sub-contractor was held absolved from liability when the main contractor had discharged the tax. The Department's reliance on CBEC Circular No. 96/7/2007-ST was held insufficient to sustain demand against the sub-contractor where the main contractor's payment was shown. Following earlier Tribunal decisions and the referred authorities, the demand in respect of MRA and MMRS was held to be unsustainable and therefore set aside. [Paras 7]

Demand for service tax in respect of MRA and MMRS set aside.

Aggregate of taxable services for threshold exemption under notification No. 06/2005-ST - Whether the appellant could claim the Rs. 10,00,000 threshold exemption for Renting of Immovable Property Service (RIPS) by excluding taxable services rendered as a sub-contractor. - HELD THAT: - The Tribunal held that services provided by the appellant as a sub-contractor are taxable services even if the main contractor discharged the liability, and therefore such services must be aggregated for determining the applicability of the threshold exemption under notification No. 06/2005-ST. Consequently, the exemption could not be availed if the aggregate of all taxable services exceeded Rs. 10,00,000. [Paras 8]

Threshold exemption under notification No. 06/2005-ST not available to the appellant for RIPS because taxable sub-contractor services are to be aggregated.

Retrospective amendment and extended period of limitation - interest on retrospective levy - reduction of penalty under Section 78 of the Finance Act, 1994 - Validity of demand, interest and penalty in respect of Renting of Immovable Property Service (RIPS) for periods before and after 01.07.2010, in light of retrospective amendment and invocation of extended limitation period. - HELD THAT: - The Tribunal recognized that the imposition of levy on RIPS was contentious and that amendments made the service taxable retrospectively from 01.06.2007. Applying settled principles, the Tribunal held that demands based on retrospective amendment for the extended period prior to 01.07.2010 could not be sustained. However, for the period after 01.07.2010 the appellant was held to be liable to pay the tax and interest, since after that date the appellant ought to have paid the tax. Penalty on the sustained demand was moderated: the Tribunal reduced the penalty to 25% of the quantified demand in exercise of the option available under Section 78, noting that the lower authorities had not afforded the appellant that option. [Paras 9, 10]

Demand and interest for RIPS set aside for period prior to 01.07.2010; demand and interest sustained for period after 01.07.2010; penalty under Section 78 reduced to 25% of the quantified demand with option to the assessee.

Final Conclusion: The appeal is partly allowed: demands for MMRS and MRAS are set aside; demand in respect of Renting of Immovable Property Service is set aside for the period prior to 01.07.2010 but sustained for the period after 01.07.2010 with interest, and the penalty under Section 78 is reduced to 25% of the sustained demand.

Management, Maintenance or Repair Services - operation and management of a power plant not falling within management, maintenance or repair services - reimbursement of expenditure not converting management contract into taxable MMR services - consistency with Tribunal precedents

Management, Maintenance or Repair Services - operation and management of a power plant not falling within management, maintenance or repair services - reimbursement of expenditure not converting management contract into taxable MMR services - consistency with Tribunal precedents - Whether the amounts received by the appellant for operating and managing the RAPS unit are exigible to service tax under the category of Management, Maintenance or Repair Services. - HELD THAT: - The appellant entered into an agreement to manage and operate the power plant and related assets on behalf of the Department of Atomic Energy, including management of contracts, capital works and inventory, and to claim reimbursements for expenditure attributable to RAPS. The adjudicating authority treated those activities as taxable under Management, Maintenance or Repair Services. The Tribunal found this characterisation incorrect: the activities were in the nature of operating and managing the power plant and did not fall within the definition of Management, Maintenance or Repair Services for the period involved. Reliance solely on the clause permitting reimbursement of expenditure was a misdirection and did not alter the character of the contract into a taxable MMR service. The Tribunal applied and followed earlier decisions of the Tribunal (including the Polydrill Engineers and CMS (I) Operations & Maintenance precedents, and Evonik Energy Services) which held that operation and maintenance/management of industrial plant/handling activities are not covered by the MMR services category. On that basis the demands confirmed by the adjudicating authority were held unsustainable. [Paras 5]

Demands confirmed under the category of Management, Maintenance or Repair Services set aside; appeal allowed.

Final Conclusion: The Tribunal set aside the impugned order and allowed the appeal, holding that the appellant's operation and management of the power plant do not attract service tax under the Management, Maintenance or Repair Services category and that reliance on reimbursement clauses did not render the services taxable.

Confirmation of demand beyond show cause notice - reversal of proportionate credit on input services - CENVAT Credit Rule 6(3A) - option and 6% payment - separate accounts for common input services - entitlement to credit for input services used for dutiable products

Confirmation of demand beyond show cause notice - Whether the Commissioner could confirm reversal of the entire credit on input services when the show cause notice did not propose such a demand. - HELD THAT: - The Tribunal found that the Commissioner confirmed the entire credit availed on input services despite there being no allegation in the show cause notice to that effect. The order therefore travelled beyond the scope of the show cause notice. Confirmation of a demand not canvassed in the notice is unsustainable. Accordingly, the portion of the impugned order confirming the entire credit on input services was not maintainable.

The confirmation of entire credit on input services is set aside as being beyond the show cause notice.

Reversal of proportionate credit on input services - entitlement to credit for input services used for dutiable products - Whether the appellant's reversal of the proportionate credit in respect of input services used for exempted products is sufficient to sustain the partial reversal and entitle the appellant to retain credit attributable to dutiable products. - HELD THAT: - The appellants had reversed the proportionate credit of Rs. 5,10,346 and paid interest prior to issuance of the show cause notice, and this reversal was not disputed by the department during adjudication. The Tribunal observed that where proportionate credit relating to exempted products has been reversed, the appellant remains eligible to retain credit on input services used for dutiable products. Following the material facts and the appellant's uncontested reversal, the Tribunal modified the impugned order to sustain the proportionate reversal already effected by the appellant.

The proportionate credit reversal of Rs. 5,10,346 (with interest reversed by the appellant) is sustained; the impugned order is modified accordingly.

CENVAT Credit Rule 6(3A) - option and 6% payment - separate accounts for common input services - Whether failure to intimate the option under Rule 6(3A) of the CENVAT Credit Rules permits the Department to insist on payment of 6% of the value of clearances of exempted products where proportionate credit has been reversed. - HELD THAT: - The Tribunal relied on co-ordinate bench precedents cited by the appellant, holding that where the assessee has reversed the proportionate credit, the second limb of Rule 6(3A) - which prescribes payment of 6% of value on clearances of exempted products when option is not intimated - cannot be mechanically imposed. The sole allegation on record related to failure to intimate the option; however, given the prior reversal and authorities relied upon, the Tribunal declined to force the 6% payment and treated the reversal as operative.

Failure to intimate the option under Rule 6(3A) does not entitle the Department to compel the 6% payment where the assessee has already reversed the proportionate credit; the demand for 6% was dropped and the reversal sustained.

Final Conclusion: The appeal is partly allowed: the confirmation of the entire credit on input services is set aside for exceeding the show cause notice; the appellant's reversal of the proportionate credit of Rs. 5,10,346 (with interest) is sustained, and the demand under the second limb of Rule 6(3A) for 6% is not imposed in these circumstances, with consequential reliefs, if any, to follow.

CENVAT credit eligibility on inputs versus capital goods - Immovable property doctrine and fixation to earth - Classification of fabricated plant and machinery as capital goods - Admissibility of CENVAT credit on input services

CENVAT credit eligibility on inputs versus capital goods - Immovable property doctrine and fixation to earth - Classification of fabricated plant and machinery as capital goods - Whether CENVAT credit availed on Angles, Channels, Plates, Sheets (iron & steel items) used in fabrication and erection is liable to be disallowed on the ground that the fabricated goods become immovable property on fixation and therefore are not capital goods - HELD THAT: - The Tribunal considered the factual position that the MS items were used for fabrication of equipment and structures (silos, bulk loading bin, conveyors, loading machines, cable galleries, unloading machine, etc.) and examined the lower authorities' view that such fabricated items when erected piece by piece at site become immovable and hence not capital goods eligible for credit. Applying precedent (including the principle that credit availed under the category of capital goods cannot be denied if the inputs are otherwise eligible as inputs), the Tribunal held that the disallowance was unjustified. The Tribunal accepted the appellant's contention and the authorities relied on to the extent that eligibility cannot be negated merely because fabrication and erection occurred at site; consequently the impugned denial of CENVAT credit on the iron & steel items was set aside. [Paras 9]

Disallowance of CENVAT credit on the MS items is set aside and the credit availed on those items is held to be admissible.

Admissibility of CENVAT credit on input services - Whether CENVAT credit on the various input services availed by the appellant (including rent-a-cab, manpower for railway maintenance, housekeeping, construction of compound wall, horticulture, accommodation, erection & commissioning, insurance, PF reimbursement) is admissible - HELD THAT: - The Tribunal examined each category of input services against the law applicable to the periods concerned. It allowed credit for services used in railway track maintenance (following the appellant's earlier order), housekeeping, gardening, accommodation, erection & commissioning, insurance and PF reimbursement as these were held to be eligible input services. The Tribunal accepted that a small portion of rent-a-cab related to period after 01.04.2011 and that part is not admissible. Likewise, credit on services for construction of compound wall was held admissible for the period prior to 01.04.2011 but the portion availed after 01.04.2011 was not admissible, following authority which treated compound wall construction as an admissible input service for the earlier period. [Paras 10, 11]

Credit on the listed input services is allowed except for the portion of rent-a-cab and the portion of compound-wall construction services that relate to the post-01.04.2011 period.

Final Conclusion: The appeal is partly allowed: the disallowance of CENVAT credit on the iron & steel items is set aside and the contested input services credits are allowed except for the amounts attributable to periods after 01.04.2011, with consequential reliefs granted.

Extended period of limitation - suppression of facts - CENVAT credit - bonafide belief - revenue neutrality - penalty - interest for the normal period

Extended period of limitation - suppression of facts - bonafide belief - Validity of invocation of the extended period of limitation on the ground of suppression of facts by the appellant. - HELD THAT: - The appellant had, by letters dated 05.09.2012 and 16.11.2012, informed the department that they were paying duty on Pegfilgrastim while seeking clarification and disclosed that CENVAT credit was being availed. There is no record of any departmental reply to those queries. The appellant continued to pay duty and avail credit until December 2012 and ceased payment only from January 2013. On these facts the Tribunal found that there was no concealment with intent to evade duty and that disclosure in correspondence and ER-1 returns negated suppression. Consequently the show cause notice invoking the extended period cannot be sustained, although some part of the period falls within the normal period and was dealt with on merits. [Paras 5]

Invocation of the extended period of limitation is not sustainable; allegation of suppression of facts rejected.

CENVAT credit - revenue neutrality - bonafide belief - Whether the demand for CENVAT credit availed on inputs/input services used in manufacture of Pegfilgrastim must be entirely set aside on the ground of revenue neutrality. - HELD THAT: - Although the appellant contended that the situation was revenue neutral because duty had been paid, the Tribunal held this submission unattractive on the facts. The appellant had paid duty for an extended period (till December 2012) even after entertaining reasonable doubt in September 2012, unlike the case relied upon by the appellant which was factually distinguishable. Therefore the Tribunal sustained the demand insofar as it related to the normal period but set aside the demand beyond the normal period. [Paras 6]

Demand sustained for the normal period; demand set aside for the period beyond the normal limitation.

Penalty - bonafide belief - Whether penalty for irregular availment of CENVAT credit can be imposed. - HELD THAT: - Given the appellant's disclosure and correspondence seeking clarification and the finding that there was no suppression with intent to evade duty, the Tribunal concluded that imposition of penalty was not justified. The appellant had acted under a bona fide belief and had paid duty during the disputed period, supporting the view that penalty should not be levied. [Paras 5, 6]

Penalty imposed by the lower authorities is set aside in full.

Interest for the normal period - Maintainability of interest on the demand for the normal period. - HELD THAT: - While setting aside the demand beyond the extended period and cancelling penalty, the Tribunal sustained the impugned order insofar as it relates to interest for the normal period. The interest component pertaining to the portion of demand held within the normal limitation was therefore upheld. [Paras 6]

Interest for the normal period is maintained.

Final Conclusion: The appeal is partly allowed: the invocation of the extended period of limitation is set aside and the demand beyond the normal period is quashed; penalty is wholly cancelled; however the demand and interest insofar as they relate to the normal period (within limitation) are sustained.

Criminal conspiracy - confession under Section 67 of the NDPS Act - admissibility of confessional statement recorded by investigating officer - conviction solely on confession - punishment for abetment and criminal conspiracy

Confession under Section 67 of the NDPS Act - admissibility of confessional statement recorded by investigating officer - conviction solely on confession - criminal conspiracy - Validity of acquittal under Section 8(c) read with Section 29 of the NDPS Act in face of confessional statements recorded under Section 67 and whether those confessions suffice to establish criminal conspiracy. - HELD THAT: - The Trial Court accepted the confessional statements of A-1 and A-2 under Section 67 of the NDPS Act as voluntary and admissible and convicted them for other offences but acquitted them of the conspiracy charge under Section 29 on the ground that no further investigation was conducted based on those statements. The High Court examined the legal position that a criminal conspiracy is proved by meeting of minds and may be inferred from circumstances. Relying on the principle in Kanhaiyalal that a confessional statement recorded by an officer empowered under the NDPS Act is admissible and that conviction can be sustained solely on such confession, and noting that the reference in Tofan Singh to a larger Bench did not displace Kanhaiyalal's precedent, the Court held that the confessions (Exs.P31 and P44) established the conspiracy. The Trial Court was therefore wrong to insist on further investigation as a prerequisite to convicting for conspiracy when it had already accepted the confessions as voluntary and admissible and relied upon them to convict for other NDPS offences. [Paras 16, 17, 18]

The order of acquittal for the offence under Section 8(c) read with Section 29 of the NDPS Act is set aside and both accused are convicted for that offence.

Final Conclusion: Criminal Appeal allowed; the Trial Court's acquittal under Section 8(c) r/w 29 NDPS Act is set aside and both accused are convicted for criminal conspiracy under Section 29; matter posted for sentencing.

Vicarious liability under Section 141 of the Negotiable Instruments Act - requirements of complaint to show person was in charge of and responsible for conduct of company s business - quashing of criminal proceedings under Section 482 CrPC - prima facie satisfaction on basic averments to issue process - need for unimpeachable or incontrovertible evidence to quash process at pre-trial stage

Vicarious liability under Section 141 of the Negotiable Instruments Act - requirements of complaint to show person was in charge of and responsible for conduct of company s business - prima facie satisfaction on basic averments to issue process - need for unimpeachable or incontrovertible evidence to quash process at pre-trial stage - Whether the proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act qua the applicants (non-executive independent directors and members of the audit committee) should be quashed under Section 482 CrPC - HELD THAT: - The Court examined established principles governing Section 141 and its interplay with complaints under Section 138. It applied the settled test that a complaint must contain averments that, read as a whole, disclose that the person accused was "in charge of, and responsible to" the company for conduct of its business at the relevant time; a basic averment of that nature ordinarily suffices at the summons stage. The Court noted the authorities requiring the High Court to look to unimpeachable, uncontrovertible evidence or totally acceptable circumstances before quashing criminal process at the pre-trial stage. In the present case the complaint contained specific averments that the applicants were in charge of and responsible for the company s business; additionally, the record showed that they were members of the audit committee (with the committee s functions disclosed in the company s annual report) and that they received remuneration. On that foundation the Court held there was a prima facie case to put the applicants on trial and that no sterling incontrovertible material had been produced to show prosecution would be an abuse of process. The Court, while rejecting the quashing applications, expressly left open the applicants' right to lead evidence at trial to show they had no role in day-to-day management and that Section 141 liability should not be fastened on them, directing the trial court to consider such evidence without being influenced by the present observations except as to law. [Paras 16, 23, 24]

Both petitions under Section 482 CrPC are dismissed; the criminal proceedings against the applicants shall continue and the applicants are free to adduce evidence at trial to contest vicarious liability under Section 141.

Final Conclusion: The applications under Section 482 CrPC seeking quashing of complaints under Section 138 read with Section 141 of the Negotiable Instruments Act against the two director-applicants are dismissed; the complaints contain basic averments and supporting material (audit committee membership, functions and remuneration) sufficient at the prima facie stage to proceed to trial, although the applicants may contest liability by producing evidence at trial.

Sentence concurrency under Section 138 Negotiable Instruments Act - single transaction doctrine for successive cheques - application of Shyam Pal precedent - exercise of inherent powers under Section 482 Cr.P.C. - consequential reliefs regarding release from custody

Sentence concurrency under Section 138 Negotiable Instruments Act - single transaction doctrine for successive cheques - application of Shyam Pal precedent - Substantive sentences awarded in three complaint cases under Section 138 Negotiable Instruments Act were directed to run concurrently. - HELD THAT: - The Court found that all three complaints arose from successive transactions between the same parties, namely cheques issued to discharge rent paid by the complainant on behalf of the petitioner, were tried together by the same Court on substantially the same evidence and therefore bore overwhelming identicalness. Applying the principle in Shyam Pal v. Dayawati Besoya that successive transactions of an identical character between the same parties may be regarded as a singular transaction or segments of one transaction, the Court exercised its discretion (invoked in the petition under Section 482 Cr.P.C.) to order that the substantive sentences run concurrently. The Court also took into account the period of custody already undergone by the petitioner and the nature of the offence and transactions in exercising that discretion. The order preserved the legal position that default sentences for non-payment of fine remain to be served if applicable.

The substantive sentences of simple imprisonment in the three convictions shall run concurrently; default sentences for non-payment of fine to be served as applicable.

Consequential reliefs regarding release from custody - exercise of inherent powers under Section 482 Cr.P.C. - Petitioner entitled to consequential reliefs, including release from custody, arising from the order directing concurrent sentences. - HELD THAT: - Having directed that the substantive sentences run concurrently and having noted the custody already undergone by the petitioner, the Court held that the petitioner would be entitled to all consequential legal reliefs flowing from this determination, subject to the usual legal processes for release and compliance with payment of fines where applicable.

The petitioner is entitled to consequential reliefs with regard to release from custody as available in law based on this determination.

Final Conclusion: Petition allowed: substantive sentences in the three Section 138 NI Act convictions ordered to run concurrently and the petitioner granted entitlement to consequential reliefs (including release) subject to payment of fines and usual legal formalities.