TaxTMI Updates e-Newsletter
Apr 28,2020

Cash credits under Section 68 - Burden of proof in respect of unexplained credits - Identity, creditworthiness and genuineness of creditors - Distinction between addition in hands of firm and in hands of partners - Assessing Officer's satisfaction and discretionary invocation of deeming provision

Cash credits under Section 68 - Distinction between addition in hands of firm and in hands of partners - Whether the cash credits appearing in the capital accounts as deposits by partners could be added as income of the firm under Section 68 or had to be considered in the hands of the partners - HELD THAT: - The Court held that Section 68 requires an enquiry into credits appearing in the books and that the mere presence of entries in the firm's books does not automatically render them the firm's income. Where the firm establishes that credits represent amounts invested by identifiable partners and satisfactorily explains the source as contributions by those partners, the firm discharges its onus and the amounts cannot be treated as the firm's income. If the Assessing Officer is not satisfied with the partners' financial capacity, any addition (if justified) ought to be considered in the hands of the partners and not the firm. The Court distinguished decisions where entries were found to be fictitious or made close to the year end, noting that factual matrices determine whether Kapur Brothers or Jaiswal Motor Finance (and related precedents) apply. Applying these principles to the facts, since this was the firm's first year and partners were identifiable and had shown agricultural income in their returns, the addition in the hands of the firm was not justified. [Paras 30, 32, 33]

The addition under Section 68 could not be made in the hands of the firm; if any addition were to be made it would be in the hands of the partners, and the order of the Tribunal restoring the Assessing Officer's addition was set aside.

Burden of proof in respect of unexplained credits - Identity, creditworthiness and genuineness of creditors - Assessing Officer's satisfaction and discretionary invocation of deeming provision - What is the onus on the assessee and the scope of the Assessing Officer's satisfaction under Section 68 when credits are shown as contributions by partners - HELD THAT: - The Court reiterated that Section 68 places an initial burden on the assessee to satisfactorily explain credits by proving (i) identity of the creditor, (ii) creditworthiness of the creditor, and (iii) genuineness of the transaction. Once the firm proves these aspects, its onus is discharged and the burden shifts to the Revenue to show that the amount belonged to the firm. The Court noted that the Assessing Officer's satisfaction must be based on a proper, objective appreciation of material and cannot be illusory; the deeming provision confers discretion (use of 'may') and does not mandate addition in every case where an explanation is found unsatisfactory. The assessee is not required to prove the 'source of the source'. Applying these principles, the partners' prior agricultural income shown in their returns, acceptance by the department and their identifiability meant the firm had satisfactorily explained the credits. [Paras 15, 27, 28, 30]

The firm discharged the onus under Section 68 by establishing identity and genuineness of the credits; the Assessing Officer's dissatisfaction did not justify treating the credits as the firm's income in the circumstances of this case.

Final Conclusion: The appeal is allowed: the additions made under Section 68 in the hands of the firm were not justified on the facts (first year of the firm, identifiable partners with previously declared agricultural income); the orders of the authorities restoring the Assessing Officer's addition are set aside.

Stay of recovery on appeal - attachment of bank accounts as a recovery measure - interim relief during the COVID-19 pandemic - deposit of the demanded amount in an interest-bearing fixed deposit pending appeal - liberty of appellate authority to decide appeals expeditiously

Attachment of bank accounts as a recovery measure - stay of recovery on appeal - Whether attachment of petitioners' bank accounts should be lifted where the revenue received the demanded amount prior to the Supreme Court order dated March 20, 2020. - HELD THAT: - The court noted that in two writ petitions the recovery notice and attachment preceded the Supreme Court's March 20, 2020 order but, in those matters, the revenue had already received the demanded amount from the concerned banks. Given that receipt of the demanded amount rendered the recovery complete, the court directed that the orders of attachment on the bank accounts in those two writ petitions be lifted. This relief was granted as an application of the principle that where the revenue has already recovered the demand, continuing the attachment is unnecessary. The court also contextualised the decision as an interim measure taken in view of the COVID-19 pandemic and clarified that its observations would not prejudice the pending appeals.

Attachments on the bank accounts in WP No.5350(W) of 2020 and WP No.5348(W) of 2020 are lifted as the revenue received the demanded amount.

Deposit of the demanded amount in an interest-bearing fixed deposit pending appeal - operation of bank accounts subject to setting aside demanded amount - interim relief during the COVID-19 pandemic - What interim relief should be afforded where the recovery notice dated March 5, 2020 preceded the Supreme Court's March 20, 2020 order and the demanded amount has not been received by the revenue. - HELD THAT: - For WP No.5351(W) of 2020 the court observed that the notice of demand and attachment dated March 5, 2020 were issued prior to the Supreme Court's March 20, 2020 direction. In the interest of justice and given the pandemic context, the court directed the petitioner's bank to set aside the amount demanded in the March 5, 2020 notice in a separate interest-bearing fixed deposit account pending disposal of the appeal by the appellate authority. Once the bank complies by setting aside the demanded sum in the specified manner, the petitioner is permitted to operate the remainder of the bank account. The court emphasised that this is an interim measure and that the appellate authority remains free to decide the appeal expeditiously and according to law; the order does not prejudice the rights of any party in the pending appeal.

Bank in WP No.5351(W) of 2020 to set apart the demanded amount in a separate interest-bearing fixed deposit pending the appeal; upon doing so the petitioner may operate the bank account.

Final Conclusion: Interim relief granted: in two petitions attachments are lifted because the revenue received the demanded amount; in the third petition the bank is directed to segregate the demanded amount in an interest-bearing fixed deposit pending the appellate decision, and on such segregation the petitioner may operate the bank account; the appellate authority remains at liberty to decide the appeal expeditiously and the order is confined to interim relief during the COVID-19 pandemic.

Stay of attachment of bank accounts - operation of bank accounts subject to conditions - interim relief during COVID-19 pandemic - security by way of fixed deposit pending appeal - liberty of appellate authority to decide appeal

Stay of attachment of bank accounts - operation of bank accounts subject to conditions - interim relief during COVID-19 pandemic - Whether the attachment of the petitioners' bank accounts should be stayed and the petitioners permitted to operate their bank accounts in view of the COVID-19 pandemic and pending disposal of appeals against assessment orders. - HELD THAT: - The Court noted the existence of pending appeals and stay petitions before the appellate authority and observed that the petitioners, being retired persons, face hardship from notices of recovery. In the context of the Hon'ble Supreme Court's order dated March 20, 2020 restraining initiation of recovery proceedings during the pandemic, the Court found it appropriate to grant interim relief tailored to each petitioner. For the petitioner in WP No.5354(W) of 2020, the Court directed the petitioner's banker to set apart a sum of Rs. 5 lakhs (which the Court was informed is available in one account) in a separate interest-bearing fixed deposit to abide by the result of the appeal, and thereafter permit the petitioner to operate his accounts; the order of attachment is stayed subject to these conditions. For the petitioner in WP No.5347(W) of 2020, where the banker has already paid a sum to the revenue authorities, the Court permitted operation of the bank account and stayed the order of attachment. The Court qualified that these measures are temporary, prompted by the prevailing pandemic, and do not prejudice the parties before the appellate authority, which remains free to decide the appeals according to law.

Attachment orders stayed and petitioners permitted to operate bank accounts subject to the specified conditions (setting apart of Rs. 5 lakhs in a separate interest-bearing fixed deposit in WP No.5354(W) of 2020; operation permitted in WP No.5347(W) of 2020 where amounts have already been paid), without prejudice to the appellate authority's decision.

Security by way of fixed deposit pending appeal - liberty of appellate authority to decide appeal - Whether the interim arrangement should affect the appellate authority's power to decide the appeals. - HELD THAT: - The Court expressly clarified that the interim measures granted (including the requirement of a separate interest-bearing fixed deposit to secure part of the claimed demand) are limited to the pandemic context and are not intended to prejudice any party in the appeal. The appellate authority was left free to proceed and adjudicate the appeals in accordance with law and as expeditiously as possible; the interim relief does not circumscribe the authority's jurisdiction or power to decide the merits.

Appellate authority retains full liberty to decide the appeals on merits; the interim directions are without prejudice to such adjudication.

Final Conclusion: Interim stay of attachment of the petitioners' bank accounts granted for pandemic-related hardship: in one case subject to banker setting apart Rs. 5 lakhs in an interest-bearing fixed deposit to abide the appeal, and in the other case permitting operation where amounts were already paid; interim relief is without prejudice to the appellate authority which shall decide the appeals in accordance with law.

Cash credits under Section 68 - Onus on assessee to prove identity, creditworthiness and genuineness - Prima facie case for grant of stay - Power to grant stay subject to deposit and discretion to accept less than twenty per cent - Role of CBDT circulars and office memoranda in stay applications

Cash credits under Section 68 - Onus on assessee to prove identity, creditworthiness and genuineness - Whether the assessee discharged the primary onus under Section 68 in relation to unsecured loans received from M/s Glebe Trading Pvt. Ltd. - HELD THAT: - The Court examined Section 68 and the settled law requiring the assessee to prove the identity of the creditor, the creditor's capacity to advance the loan and the genuineness of the transaction. The Assessing Officer's factual findings, reproduced and relied upon by the respondent, recorded deficiencies including multiple registered addresses with no proof of actual existence at those addresses, absence of utility/billing evidence, lack of evidence of business activity or returns, low declared incomes in earlier years contrasted with large unsecured loans in AY 2017-18, common directorships and email identifiers linking the lender to the group, and absence of assets or employee payment records. On these material findings and independent field enquiries, the Court held that the identity and creditworthiness of M/s Glebe Trading Pvt. Ltd. and the genuineness of the unsecured loans were not established, so the assessee failed to discharge the primary onus under Section 68. [Paras 7, 8, 9, 10, 11]

Assessee failed to discharge the onus under Section 68; the transactions were not shown to be genuine.

Prima facie case for grant of stay - Power to grant stay subject to deposit and discretion to accept less than twenty per cent - Role of CBDT circulars and office memoranda in stay applications - Whether the statutory authorities were obliged to grant stay or accept a deposit lower than twenty per cent in the facts of the present case and whether reliance on CBDT instructions alone was impermissible. - HELD THAT: - The Court noted that while CBDT instructions and OMs guide the approach to pre-deposit conditions, they do not substitute the statutory adjudicatory exercise; authorities retain discretion and, as clarified by the Supreme Court, may permit a deposit lower than twenty per cent on appropriate facts. However, the Court found that the stay application had been decided on merits by the authorities after considering the Assessing Officer's detailed findings. Given the absence of a prima facie case on the material placed before the AO and reproduced in the impugned order, the facts did not warrant relief by imposing a lesser deposit. Consequently, the Court upheld the exercise of discretion by the authorities in refusing stay on the present facts. [Paras 4, 5, 6, 10, 11]

Authorities acted within discretion; relief to deposit less than twenty per cent is permissible in law but not warranted on the facts of this case.

Final Conclusion: Writ petition dismissed as devoid of merit; the court recorded that the appeal before the appellate authority shall be decided within thirty days from the end of the Lockdown, and observations in this order shall not bind the appellate authority.

Characterisation of income as business income or capital gains - classification of immovable property as stock-in-trade or capital asset - conversion of capital asset into stock-in-trade - treatment of rental receipts as income from house property - question of fact arising from appreciation of evidence

Characterisation of income as business income or capital gains - classification of immovable property as stock-in-trade or capital asset - treatment of rental receipts as income from house property - Income from sale of the building at 16/1, Museum Road, Bangalore is long term capital gains and not business income. - HELD THAT: - The Tribunal's finding that the property was shown as a capital asset in the assessee's books, that it had been let out and produced rental income offered under the head 'income from house property' for a long period (except the last nine years), and that no depreciation was claimed on the property, supports the conclusion that the asset was not treated as stock-in-trade. There was no material on record to demonstrate that the assessee had converted the property into stock-in-trade; mere engagement of the assessee in construction activity did not suffice to treat this particular land and building as part of business inventory. These conclusions are findings of fact based on appreciation of evidence and the Tribunal's factual conclusion that the receipts on sale were long term capital gains was upheld.

Tribunal's conclusion that the sale proceeds are assessable as long term capital gains is sustained; not business income.

Final Conclusion: The substantial question of law is answered against the revenue and in favour of the assessee; the appeal is dismissed and the income on sale of the property is held to be long term capital gains.

Sanction under Section 279 - prior approval by superior authority - subjective satisfaction - application of mind - quashing of sanction and prosecution

Sanction under Section 279 - prior approval by superior authority - subjective satisfaction - application of mind - quashing of sanction and prosecution - Validity of the sanction order dated 12.03.2014 issued by the Commissioner of Income Tax where prior approval was sought from the Chief Commissioner and whether the consequent proceedings could be sustained. - HELD THAT: - The Court examined the statutory scheme and the material on record and held that the sanctioning authority under Section 279 is the Commissioner (or Principal Commissioner/Commissioner Appeals) and Section 279(1) does not make the Chief Commissioner a sanctioning authority. The Commissioner's act of writing to the Chief Commissioner seeking approval, and thereafter issuing a sanction purportedly on the basis of that approval, rendered the Commissioner's subjective satisfaction conditional on the superior authority's assent; if the superior authority had refused, the Commissioner could not have proceeded. That procedure is inconsistent with the independence of the Commissioner's satisfaction required by Section 279. Further, the approval communicated by the office of the Chief Commissioner did not demonstrate any independent application of mind by the Chief Commissioner nor was it signed by the Chief Commissioner. For these reasons the Court found that the procedure adopted was not in accordance with law and that the sanction order could be treated as influenced by the superior authority and therefore invalid. The defect was procedural/technical in the manner of obtaining and recording the sanction rather than a decision on merits of the allegations. [Paras 17, 18, 19, 20, 21]

Sanction order dated 12.03.2014 and the proceedings in C.C.No.219/2014 on the file of the JMFC III Belagavi are quashed; the sanction was invalid because it was issued after seeking prior approval of the Chief Commissioner without evidence of independent application of mind. No liberty for a parallel or general right to re-initiate is required, but the Department remains free to initiate proceedings in accordance with law.

Final Conclusion: The court quashed the sanction dated 12.03.2014 and the consequent criminal proceedings in C.C.No.219/2014 as the Commissioner's procedure of obtaining prior approval from the Chief Commissioner was inconsistent with the statutory scheme and did not demonstrate independent application of mind; the Department may, if advised, initiate proceedings afresh in accordance with law.

Stay of recovery - suspension of garnishee proceedings - interest and penalty liabilities - prima facie arguable case - use of released funds for payment of wages and salaries - direction for out-of-turn hearing - Vivad se Vishwas Scheme

Stay of recovery - suspension of garnishee proceedings - interest and penalty liabilities - prima facie arguable case - Grant of interim relief by staying recovery and suspending garnishee orders in respect of outstanding demand pertaining to interest and penalty. - HELD THAT: - The Tribunal, having considered that the assessee has already discharged the tax component and that the remaining outstanding demand pertains to interest and penalty, and being satisfied that the assessee has a prima facie arguable case on appeal, granted interim relief. The Tribunal noted the practical hardships caused by attachment of bank accounts and debtors, including inability to pay employees and to perform obligations in the public interest during the Covid-19 pandemic. Balancing the revenue's interest against the assessee's immediate inability to meet essential obligations and the fact that full tax liability has been paid (and that under the Vivad se Vishwas Scheme no further tax may be payable), the Tribunal concluded that the legitimate interests of the revenue would not be prejudiced by a temporary stay of recovery of the specified outstanding demand. Consequently, the Tribunal stayed collection/recovery of the outstanding demand of Rs. 2,91,05,660 until disposal of the appeal or till the end of six months from the date of order, whichever is earlier, subject to specified conditions. [Paras 2, 3, 7, 9]

Stay on collection/recovery of the outstanding demand of Rs. 2,91,05,660 granted until disposal of the appeal or for six months from the date of the order, whichever is earlier; all garnishee orders suspended and declared no longer in force, subject to conditions.

Use of released funds for payment of wages and salaries - direction for out-of-turn hearing - Conditional terms attached to the stay and directions for expeditious disposal of the appeal. - HELD THAT: - The Tribunal made the stay conditional: any amounts released as a consequence of lifting garnishee proceedings must first be applied to overdue and current wages and salaries of labourers and employees; thereafter to carry out construction activity necessary for providing quarantine facilities as directed by the Collector; any surplus may be used for business construction activities. The assessee was required to give an undertaking to this effect and to file a statement of utilization within 15 days. The Tribunal also directed that the appeal be listed for out-of-turn hearing on 8th June 2020 and that the assessee cooperate and not seek adjournment, with requisite papers filed in advance. [Paras 7, 8]

Stay granted subject to conditions concerning prioritised use of released funds, filing of utilization statement within 15 days, and cooperation for an out-of-turn hearing fixed for 8th June 2020.

Final Conclusion: The stay petition is allowed: the Tribunal suspended all garnishee orders and stayed recovery of the specified outstanding demand subject to conditions requiring prioritized payment of wages/salaries, utilization reporting, and cooperation for an out-of-turn hearing; the Registry was directed to list the appeal on 8th June 2020 and to communicate the order to field authorities.

Deduction under Section 80P(2) of the Income-tax Act - Section 80P(4) - exclusion for banking activity - Mistake apparent on record - rectification under Section 154 - Assessing Officer's duty to examine activities of a co operative society - Interest income from investments as part of banking/business activity - Each assessment year is a separate unit for eligibility under Section 80P

Mistake apparent on record - rectification under Section 154 - Section 80P(4) - exclusion for banking activity - Validity of the Commissioner (Appeals)'s rectification under Section 154 to withdraw allowance of deduction under Section 80P - HELD THAT: - The Tribunal upheld the rectification. The Tribunal applied the principle that where an appellate order was founded on a High Court decision subsequently reversed by a Larger/Full Bench, the earlier appellate order may contain a rectifiable mistake within the meaning of Section 154. The Larger Bench of the Kerala High Court in Mavilayi overruled the Division Bench in Chirakkal and held that after insertion of sub section (4) the Assessing Officer must enquire into the factual activities of the society and is not bound by the registration certificate alone. In those circumstances the CIT(A) was entitled to recall its earlier order granting deduction and to rectify it in view of the subsequent Full Bench authority; the assessee's challenge to the Section 154 action was therefore dismissed. [Paras 8]

The rectification under Section 154 was held to be valid and the challenge to the CIT(A)'s recall of the earlier allowance of deduction under Section 80P was dismissed.

Assessing Officer's duty to examine activities of a co operative society - Deduction under Section 80P(2) of the Income-tax Act - Each assessment year is a separate unit for eligibility under Section 80P - Whether the question of the assessee's entitlement to deduction under Section 80P(2) requires fresh enquiry and verification of the society's activities by the Assessing Officer - HELD THAT: - The Tribunal held that the Larger Bench's ruling requires factual enquiry by the Assessing Officer into the activities of the society to determine eligibility for deduction under Section 80P in each assessment year. The CIT(A) ought not to have finally rejected the claim under Section 80P without such examination. Accordingly, the Tribunal remitted the matter to the Assessing Officer for examination of whether the assessee's activities conform to those of a co operative society entitled to the deduction under Section 80P(2), applying the legal tests laid down by the Larger Bench and the principle that each assessment year is separate. [Paras 8]

Issue of entitlement to deduction under Section 80P(2) is remitted to the Assessing Officer for fresh enquiry and determination of activities for AY 2011-2012.

Interest income from investments as part of banking/business activity - Deduction under Section 80P(2)(d) of the Income-tax Act - Treatment of interest income from investments with treasuries and other banks and whether such income is eligible for deduction under Section 80P (including Section 80P(2)(d)) - HELD THAT: - The Tribunal noted coordinate bench authority treating interest from investments with treasuries and banks as part of banking activity assessable as business income. However, grant of deduction under Section 80P on such interest depends on the factual enquiry mandated by the Larger Bench. The Assessing Officer is directed to examine whether the interest income arises in the course of activities qualifying for Section 80P and, if relevant facts exist on record, whether Section 80P(2)(d) applies. The question is therefore remitted for verification and decision by the Assessing Officer in accordance with the Larger Bench ruling. [Paras 8]

The Assessing Officer shall examine and decide, after factual enquiry, the correct characterisation of interest income and its eligibility for deduction under Section 80P (including Section 80P(2)(d)) for AY 2011-2012.

Final Conclusion: Delay in filing the appeal was condoned; the Tribunal upheld the CIT(A)'s exercise of rectification under Section 154 in view of the Larger Bench decision, but restored the question of entitlement to deduction under Section 80P (including treatment of interest income) to the Assessing Officer for fresh factual enquiry and determination for AY 2011-2012; the appeal is allowed for statistical purposes.

Capital expenditure versus revenue expenditure - allowability under section 37(1) and capital/revenue distinction - enduring benefit test - commercial expediency - preliminary (lay out) expenditure and allocation over assessment years

Capital expenditure versus revenue expenditure - allowability under section 37(1) and capital/revenue distinction - enduring benefit test - Whether the service fees of Rs. 2,89,29,114 paid to group entities in AY 2009-10 are capital in nature or deductible as revenue expenditure. - HELD THAT: - The Tribunal examined the nature and purpose of payments made to group entities for provision of management and operational personnel, together with the factual matrix including disclosure as international transactions and subsequent years' accounts. It noted that the payments were incurred to extend services to the assessee's customers in overseas markets, were disclosed in Form 3CD, and that in subsequent years the assessee replaced the external services by employing its own staff (employee cost rising while service charges fell), indicating the payments related to ongoing operational requirements rather than the creation of a lasting asset or right. The Tribunal held that an abnormal or one time large quantum alone does not convert revenue expenditure into capital expenditure where the payments are directly connected with the business and consumed in the course of carrying on the business. Applying the enduring benefit test and considering intention and commercial reality, the Tribunal concluded these payments were revenue in nature and allowable under section 37(1). [Paras 14]

Ground No.1 allowed: the service fees are revenue expenditure deductible under section 37(1).

Capital expenditure versus revenue expenditure - enduring benefit test - preliminary (lay out) expenditure and allocation over assessment years - Whether the membership and subscription charges of Rs. 69,32,256 for trading terminals in AY 2009-10 are capital in nature or allowable as revenue expenditure, and if capital how they should be treated. - HELD THAT: - The Tribunal considered the purpose of the payments for membership/subscription of trading terminals that enabled Indian clients to transact with overseas group entities. It observed that the assessee did not install or own the terminals, the payments were made to facilitate transactions for clients, and the assessee contended that from subsequent years the cost was shifted to clients. While acknowledging the possibility that such payments may appear akin to an institutional membership that can confer an enduring benefit, the Tribunal found no direct enduring asset created for the assessee. Treating the expenditure as preliminary to the business and capable of yielding business in subsequent years, the Tribunal directed a spreading of the expenditure: one fifth in the year of payment and the balance over the next four assessment years, thereby recognising a capital/preliminary character requiring phased allowance. [Paras 15]

Ground No.2 partly allowed: one fifth of the membership and subscription charges to be allowed in AY 2009-10 and the balance to be allowed equally over the next four assessment years as preliminary expenditure.

Final Conclusion: The appeal is partly allowed: the disallowance of the service fees is reversed and treated as revenue expenditure deductible under section 37(1); the disallowance of membership and subscription charges is modified - one fifth allowed in AY 2009 10 and the balance to be allowed over the next four assessment years.

Disallowance under section 40(a)(ia) - Applicability of section 194C - Reimbursement of actual expenses versus payment in nature of contract receipts - Second proviso to section 40(a)(ia) - curative/retrospective effect - Restriction of disallowance to 30 percent by amendment with effect from 01.04.2015

Disallowance under section 40(a)(ia) - Applicability of section 194C - Second proviso to section 40(a)(ia) - curative/retrospective effect - Restriction of disallowance to 30 percent by amendment with effect from 01.04.2015 - Validity of disallowance of vehicle hire charges under section 40(a)(ia) for failure to deduct TDS under section 194C and the consequences of subsequent payment of tax by the payees/legislative amendments on quantum of disallowance. - HELD THAT: - The Tribunal held that payments made as vehicle hire charges to cab owners fall within the ambit of section 194C if made pursuant to a contract (which may be oral or inferred from conduct) and that all payments to a cab owner during the year are to be aggregated for applicability of TDS thresholds. Following earlier authorities and the legislative scheme, the Tribunal directed restoration of the issue to the Assessing Officer for verification under the second proviso to section 40(a)(ia) (inserted by Finance Act, 2012) - i.e., the AO must verify whether the recipients furnished returns, included the amounts in income and paid tax, and examine supporting certificates; if recipients have duly paid tax, the addition is to be deleted. Separately, the Tribunal observed that the subsequent amendment (Finance (No.2) Act, 2014) restricting disallowance to 30% with effect from 01.04.2015 is beneficial and, in the interest of justice, limited the disallowance in the present assessment to 30% of the amount liable for TDS under section 194C, thereby partly allowing the ground. [Paras 8]

Issue restored to Assessing Officer for verification of tax payment by recipients; if recipients have paid tax and complied with conditions, addition to be deleted; otherwise disallowance restricted to 30% of the amount liable for TDS (ground allowed partly for statistical purposes).

Reimbursement of actual expenses versus payment in nature of contract receipts - Applicability of section 194C - Disallowance under section 40(a)(ia) - Whether amounts shown as reimbursement of petrol and diesel expenses paid by the assessee are liable to disallowance under section 40(a)(ia) as payments requiring deduction under section 194C. - HELD THAT: - The Tribunal examined the nature of the petrol/diesel amounts and the mode of payment. It found that where cab owners separately raised bills for actual petrol/diesel expenses (with no element of profit) and the assessee paid those expenses (including by paying petrol pumps directly), such payments amounted to reimbursement of actual expenses and were not in the nature of payments covered by section 194C. Consequently, TDS under section 194C was not attracted on reimbursements of actual expenses and the disallowance under section 40(a)(ia) was not warranted. The Tribunal set aside the orders of the Income-tax authorities on this point and directed the AO to verify the claim in light of these observations. [Paras 9, 11]

Disallowance of petrol and diesel reimbursements under section 40(a)(ia) set aside; AO directed to verify the reimbursement claim (issue allowed).

Allowability of penalty/compensatory payments as business expenditure - Disallowance under section 30 to 38 (relevant deductibility rules) - Allowability of an amount debited as penalty/compensatory payment for deficiency of service. - HELD THAT: - The assessee failed to produce any evidence or submissions to substantiate the claim that the penalty amount was an allowable business expenditure. The CIT(A) had confirmed the Assessing Officer's disallowance for lack of substantiation, and the Tribunal, on the same basis, upheld the findings of the lower authorities. [Paras 13, 14]

Disallowance of the penalty amount confirmed (appeal on this point dismissed).

Interest under sections 234B and 234D - consequential nature - Challenge to charging of interest under sections 234B and 234D. - HELD THAT: - The Tribunal noted that interest under sections 234B and 234D is consequential and mandatory once tax computation and demand are finalized; no separate adjudication was required as these charges arise from the assessment outcome. [Paras 15]

Ground challenging interest under sections 234B and 234D dismissed as consequential/mandatory.

Final Conclusion: The appeal is partly allowed for statistical purposes: the addition in respect of vehicle hire charges is restored to the Assessing Officer for verification under the second proviso to section 40(a)(ia) and, failing qualifying compliance by recipients, is limited to 30% of the amount liable to TDS; the disallowance of petrol/diesel reimbursements is set aside and the AO is directed to verify the reimbursement claim; the penalty disallowance is confirmed; interest challenges are dismissed as consequential.

Charitable purpose within the meaning of section 2(15) - proviso to section 2(15) (activity in the nature of trade, commerce or business / rendering services for a fee) - exemption under section 11 and section 12 - accumulation under section 11(2) - deduction under section 11(1)(a) - regulatory fees/cess vis-a -vis commercial/profiteering activity - statutory urban development authority constituted under Gujarat Town Planning and Urban Development Act, 1976

Charitable purpose within the meaning of section 2(15) - proviso to section 2(15) (activity in the nature of trade, commerce or business / rendering services for a fee) - regulatory fees/cess vis-a -vis commercial/profiteering activity - statutory urban development authority constituted under Gujarat Town Planning and Urban Development Act, 1976 - Whether the activities of the Surat Urban Development Authority constitute charitable purposes under section 2(15) and whether the proviso to section 2(15) is attracted - HELD THAT: - The Tribunal examined whether SUDA, a statutory Urban Development Authority constituted under the Gujarat Town Planning and Urban Development Act, 1976, carries on activities that fall within the last limb of section 2(15) but are excluded by the proviso because they amount to trade, commerce or business or render services for a fee. Applying the reasoning of the Gujarat High Court in Ahmedabad Urban Development Authority and consistent coordinate Tribunal decisions, the Tribunal held that SUDA's functions-preparation and execution of town planning schemes and provision of public utilities such as roads, drainage, water supply, parks and reservation of land for public purposes-are statutory, regulatory and intended for public welfare. The power to sell limited plots (e.g., up to prescribed percentages) to meet infrastructure expenditure, conducted by public auction to avoid favouritism and to raise funds for development, does not convert those activities into profiteering or commercial business. Collections in the nature of regulatory fees/cess are incidental to statutory objects and must be applied to public utility purposes under governmental control and audit. Applying these principles, the proviso to section 2(15) was found not to be attracted and SUDA's activities were held to be charitable within section 2(15).

The proviso to section 2(15) is not attracted and SUDA's activities are charitable under section 2(15); consequently SUDA is entitled to the benefits of sections 11 and 12.

Exemption under section 11 and section 12 - accumulation under section 11(2) - deduction under section 11(1)(a) - Whether the disallowance of claimed exemption for accumulated income under section 11(2) and denial of 15% deduction under section 11(1)(a) was justified - HELD THAT: - Having held that SUDA's activities are charitable, the Tribunal proceeded to address the specific claims under section 11. The Tribunal accepted that amounts accumulated or set apart in conformity with section 11(2) are not includible in total income if the statutory conditions (statement, period, and investment modes) are complied with; accordingly the disallowance of the sum claimed to be accumulated under section 11(2) was not justified. Similarly, where a trust does not apply its entire income, section 11(1)(a) permits accumulation up to fifteen per cent and the Tribunal held that the claimed deduction under section 11(1)(a) was allowable. The Tribunal directed the Assessing Officer to grant relief in accordance with law, in light of the classification of SUDA as a charitable authority and consistent judicial precedents relied upon.

The disallowance of the accumulation under section 11(2) and the denial of the 15% deduction under section 11(1)(a) are quashed; relief is to be granted in accordance with law.

Final Conclusion: Assessee's appeal (ITA No. 955/Ahd/2016 for AY 2012-13) is allowed; Revenue's appeals (ITA Nos. 2432 & 2433/Ahd/17 for AYs 2013-14 and 2014-15) are dismissed. The Assessing Officer is directed to grant relief under sections 11(2) and 11(1)(a) in accordance with law.

Bogus/benami purchases and estimation of suppressed profit element - addition under section 69 - unexplained investment/expenses from impounded documents - disallowance under proviso to section 40(a)(i) and applicability of DTAA/Article 14 for non-resident service payments - deduction under section 37(1) - business nexus for donations - project completion method and adjustment of closing work-in-progress (WIP) - untallied trial balance/rough trial run records and evidentiary value of impounded excel/loose papers - cash shortfall at survey - explanation by cash lying at site offices - addition under section 68 - unexplained cash credit arising from impounded rough notings

Bogus/benami purchases and estimation of suppressed profit element - project completion method and adjustment of closing work-in-progress (WIP) - Whether a portion of purchases from an entity alleged to have issued bogus bills can be treated as embedded suppressed profit and assessed by estimating profit at 12.5%, and whether such estimated profit reduces closing WIP. - HELD THAT: - The Tribunal upheld the CIT(A)'s application of the principle of estimating suppressed profit at 12.5% of the disputed purchases where independent material showed the seller to be issuing bogus bills and enquiries (including the Ward Inspector's report and DGIT statement) indicated no genuine supplies. The CIT(A) followed earlier authority in this context - Simit P. Sheth and Bholanath Polyfab - and the Tribunal found that the facts warranted taxing the estimated profit element (applied to the purchases shown) and that, because the assessee follows the project completion method, the suppressed profit element reduces closing WIP and is therefore assessable accordingly. The order of the CIT(A) on this issue was held to be based on proper appreciation of facts and law.

Addition of estimated suppressed profit @12.5% of disputed purchases sustained; effect on WIP upheld; first ground dismissed.

Disallowance under proviso to section 40(a)(i) and applicability of DTAA/Article 14 for non-resident service payments - Whether consultancy payments to a non-resident (Modern Line Distribution LLC, Dubai) were correctly disallowed for failure to deduct tax at source, and whether treaty relief under DTAA Article 14 justified non-deduction. - HELD THAT: - The Tribunal did not decide the legal question on merits. It held that the assessee's contention that Article 14 of the Indo-UAE DTAA (and related certificate under section 195(6)) might absolve the assessee from TDS obligations required re-examination. Consequently the CIT(A)'s confirmation of disallowance was set aside and the matter restored to the Assessing Officer for fresh adjudication after affording the assessee opportunity to place relevant documents and evidence before the AO.

Order restored to AO for fresh consideration on merits after giving opportunity; second ground allowed for statistical purposes (remanded).

Addition under section 69 - unexplained expenses/impounded loose papers - project completion method and adjustment of closing work-in-progress (WIP) - Whether entries on impounded loose papers/rough pages could sustain addition under section 69 for unexplained expenditure of Rs. 7,63,865 and whether the disallowance must be sustained without further verification. - HELD THAT: - While the CIT(A) sustained the addition on the basis that multiple entries on the same document obliged the assessee to prove that particular entries did not represent unexplained expenditure, the Tribunal found that the questioned amount required further examination and directed the AO to re-examine the claim after giving the assessee a reasonable opportunity to produce evidence. The Tribunal thereby set aside the CIT(A)'s confirmation and remitted the matter for fresh consideration rather than finally adjudicating the addition on merits.

Addition set aside and restored to AO for fresh enquiry and adjudication on evidence; third ground allowed for statistical purposes (remanded).

Deduction under section 37(1) - business nexus for donations - project completion method and adjustment of closing work-in-progress (WIP) - Whether payments made to Shri Sai Prerna Charitable Trust could be carried in WIP or allowed as business expenditure where no nexus or tax-exempt certificate was established. - HELD THAT: - The Tribunal agreed with the CIT(A) that the assessee failed to establish business nexus for the donations or to show that the Trust had requisite tax-exempt status enabling deduction. The Tribunal accepted that the assessee had added the sums to WIP (effectively claiming reduction of taxable income in year of project completion) and held that, absent proof of nexus or entitlement to deduction, the amounts could not be carried forward as allowable cost in WIP. The CIT(A)'s disallowance was therefore upheld.

Disallowance of donations sustained and effect on WIP affirmed; fourth ground dismissed.

Addition under section 69 - return of defective goods versus cash payment - Whether an item recorded on impounded documents as Rs. 1,27,999 represented a cash outflow (unexplained payment) assessable under section 69 or was a non-payable reversal arising from return of defective goods. - HELD THAT: - On examining the documents, the Tribunal found that the goods were returned to the supplier and no payment was made or payable in respect of the Rs. 1,27,999 entry. The Tribunal concluded that the CIT(A)'s confirmation of addition could not be sustained because the factual material showed the entry to be a reversal and not a cash payment or unexplained outflow.

Addition of Rs. 1,27,999 deleted; fifth ground allowed.

Addition under section 68 - unexplained receipt shown in rough notings - Whether a noted amount of Rs. 5,00,000 on impounded rough page relating to booking by R.A. Chug constituted an unexplained receipt assessable under section 68. - HELD THAT: - The Tribunal examined the impounded notings, the accountant's statement that the notings related to booking and a promise to pay Rs. 5,00,000 by a specified date, and the rough recovery letter. Finding the material to be rough, unsigned and not conclusive of an actual cash receipt, the Tribunal concluded that the addition could not be sustained on the available material and deleted the addition.

Addition of Rs. 5,00,000 under section 68 deleted; sixth ground allowed.

Cash shortfall at survey - explanation by cash lying at site offices - Whether the alleged shortfall in cash found at survey could be sustained as unexplained income where the assessee explained that cash was held at various site offices and produced corroborative entries. - HELD THAT: - The Tribunal accepted the assessee's contemporaneous explanation that portions of cash were held at various site offices and found this explanation corroborated by books of account and earlier statements furnished during survey and to the investigating officer. On that basis the Tribunal held there was no unexplained cash discrepancy and deleted the addition.

Addition for cash discrepancy deleted; seventh ground allowed.

Untallied trial balance/rough trial run records and evidentiary value of impounded excel/loose papers - project completion method and adjustment of closing work-in-progress (WIP) - Whether differences shown in an impounded excel 'Difference in TB' (trial balance) prepared on a hard disk during a trial run for migration of accounting software could constitute unexplained income warranting addition. - HELD THAT: - The Tribunal found that the excel sheet represented incomplete accounts arising from a trial run during migration from one accounting software to another and did not record final or audited accounts. The assessee maintained regular audited books and the AO had not rejected those books; no material showed that transactions were omitted from the final accounts. The Tribunal therefore held that the rough trial balance did not represent income or expenditure and deleted the addition.

Addition of Rs. 16,77,178 deleted; eighth ground allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal upheld the estimated suppressed profit addition and the disallowance relating to donations (grounds 1 and 4), deleted additions based on returns/rough documents, untallied TB, cash shortfall and the tentative receipt (grounds 5, 6, 7, 8), and remitted two matters (consultancy payment/TDS issue and unexplained expenses from loose papers - grounds 2 and 3) to the Assessing Officer for fresh consideration after giving the assessee an opportunity of hearing.

Disallowance for expenditure in relation to exempt income under section 14A read with Rule 8D - Requirement of assessment officer's satisfaction before invoking section 14A - Computation of book profits for MAT under section 115JB and treatment of disallowances - Statutory disallowance for failure to deduct tax at source under section 40(a)(ia) - Remission/cessation of trading liability and applicability of section 41(1)

Disallowance for expenditure in relation to exempt income under section 14A read with Rule 8D - Requirement of assessment officer's satisfaction before invoking section 14A - Validity and quantum of disallowance under section 14A r.w. Rule 8D for AY 2010-11 - HELD THAT: - The Tribunal found that the Assessing Officer had recorded sufficient satisfaction that exempt income (dividend and long term capital gains) had been earned and therefore could proceed to compute disallowance under section 14A read with Rule 8D. However, the Tribunal accepted the assessee's contention that only investments which actually yielded exempt income during the year should be relevant for computation; applying that methodology reduced the disallowance. The separate addition of bank charges was not sustained because it was not shown that the bank account was used exclusively for earning exempt income. The AO was directed to verify and restrict the disallowance to investments that yielded exempt income and to exclude the bank charges disallowance. [Paras 5]

Disallowance under section 14A r.w. Rule 8D partly reduced; AO directed to recompute considering only investments that yielded exempt income during the year and to delete separate bank charges disallowance.

Computation of book profits for MAT under section 115JB and treatment of disallowances - Statutory disallowance for failure to deduct tax at source under section 40(a)(ia) - Whether disallowances under section 14A and section 40(a)(ia) are to be added back while computing book profits under section 115JB for AY 2010-11 - HELD THAT: - The Tribunal held that additions made by way of disallowance under section 14A cannot be mechanically added back to book profits under section 115JB unless the fact of actual debit of such expenditure in the profit and loss account was brought on record and shown to form part of the company's book profit computation. Likewise, the statutory disallowance under section 40(a)(ia) for non deduction of TDS could not be added to book profits unless such disallowance is specifically covered by the manner of computation prescribed under section 115JB. In consequence, both disallowances were held not to be exigible as additions for computing book profits. [Paras 5]

Disallowances under section 14A and section 40(a)(ia) shall not be added back in computing book profits under section 115JB.

Disallowance for expenditure in relation to exempt income under section 14A read with Rule 8D - Validity and quantum of disallowance under section 14A r.w. Rule 8D for AY 2013-14 - HELD THAT: - Finding the facts pari materia to AY 2010 11, the Tribunal directed the Assessing Officer to recompute the Rule 8D disallowance for AY 2013 14 by considering only those investments which actually yielded exempt income during the year. A chart placed on record by the assessee indicating the reduced computation was noted, and the AO was directed to verify and restrict the disallowance accordingly. [Paras 6]

Disallowance under section 14A r.w. Rule 8D for AY 2013 14 to be recomputed considering only investments yielding exempt income; ground partly allowed.

Remission/cessation of trading liability and applicability of section 41(1) - Whether trade payable of the assessee treated as income under section 41(1) for AY 2013-14 - HELD THAT: - The assessee produced a debt confirmation from the creditor which acknowledged the outstanding payable and also recorded amounts due by the creditor's directors to the assessee. On the basis of that confirmation, the Tribunal concluded that the liability had not ceased to exist and there was no remission or cessation attracting section 41(1). The confirmation evidence led to deletion of the addition made by the Assessing Officer and confirmed by the CIT(A). [Paras 6]

Addition under section 41(1) deleted; liability held to be subsisting on the basis of creditor's confirmation.

Final Conclusion: Both appeals are partly allowed: for AY 2010 11 the section 14A disallowance is to be restricted to investments yielding exempt income and bank charges disallowance is deleted, and neither the section 14A nor the section 40(a)(ia) disallowance shall be added to book profits under section 115JB; for AY 2013 14 the section 14A disallowance is to be recomputed on the same basis and the addition under section 41(1) is deleted on the creditor's confirmation.

Reimbursement of expenses not taxable as income - fee for technical services taxable on gross basis - contractual bifurcation between internal employment cost and third party costs - application of DIT v. A.P. Moller Maersk ratio to distinguish reimbursement from FTS - DTAA rate is inclusive of surcharge and education cess - binding effect of Coordinate Bench decisions in identical facts

Reimbursement of expenses not taxable as income - contractual bifurcation between internal employment cost and third party costs - application of DIT v. A.P. Moller Maersk ratio to distinguish reimbursement from FTS - binding effect of Coordinate Bench decisions in identical facts - Whether amounts received from GIA India as reimbursement of travel and related third party costs are taxable as part of fee for technical services in the hands of the assessee - HELD THAT: - The Tribunal found on the materials and the agreement that the contract separately identifies (a) fee for training and technical services - comprising internal cost to employ individuals plus a specified markup - and (b) reimbursement of third party costs (travel, meals, insurance, etc.). Applying the ratio of the Supreme Court in DIT v. A.P. Moller Maersk, the Tribunal accepted the factual finding that the reimbursements were cost to cost with no profit element and therefore not income chargeable as FTS. The Bench noted that a Coordinate Bench had reached the same conclusion for immediately preceding assessment years on identical facts, held such decisions binding on other Benches unless and until overturned, and accordingly deleted the addition made by the Assessing Officer. [Paras 5, 6]

Addition treating reimbursements as income deleted; ground allowed

DTAA rate is inclusive of surcharge and education cess - Whether surcharge and education cess could be levied separately when tax is computed applying the DTAA rate - HELD THAT: - The Tribunal held that, on the authorities relied upon, the tax computed under the relevant DTAA provision includes surcharge and education cess and therefore such levies cannot be imposed separately. The Bench followed precedents (including a decision of the Delhi High Court and Tribunal pronouncements) to direct deletion of the surcharge and education cess charged by the Assessing Officer. [Paras 11, 12]

Surcharge and education cess deleted; ground allowed

Final Conclusion: Appeal allowed: the addition for reimbursement of expenses is deleted and the surcharge and education cess levied are directed to be deleted.

Bogus purchases - onus of proof - disallowance of profit element in bogus purchases - re-opening of assessment on information received - consistency in assessment proceedings

Bogus purchases - onus of proof - disallowance of profit element in bogus purchases - consistency in assessment proceedings - Deletion of addition made by the Assessing Officer on account of alleged bogus purchases and direction to allow purchases from Girnar Sales Corporation and Jainam Enterprises - HELD THAT: - The Assessing Officer reopened assessment on the basis of information from the Sales Tax Department and the DGIT (Investigation) that certain dealers were entry providers. The AO issued enquiries under section 133(6) which, except in respect of Dharmi Enterprises, were returned unserved; Dharmi Enterprises filed an affidavit and its purchases were accepted. The AO estimated and disallowed 12.5% as the profit element in purchases from eight parties. Before the Commissioner (Appeals) the assessee produced the death certificate of the proprietor of Girnar Sales Corporation and Jainam Enterprises and pointed out that the AO in subsequent years had accepted purchases from those parties. The CIT(A) deleted the additions in respect of Girnar Sales Corporation and Jainam Enterprises, noting that producing the proprietor was impossible and that the AO had allowed similar purchases in later assessments. The Tribunal held that the CIT(A)'s approach was correct, emphasizing that where the same set of facts has been treated consistently by the AO in subsequent assessments, the AO should follow that consistency. The Tribunal found no infirmity in the CIT(A)'s conclusion and noted that no contrary facts or law were placed before it to justify a different view.

The deletion of the addition in respect of purchases from Girnar Sales Corporation and Jainam Enterprises is upheld and the order of the CIT(A) is affirmed.

Final Conclusion: The revenue's appeal is dismissed and the order of the Commissioner of Income-tax (Appeals) dated 16.08.2018 for Assessment Year 2009-10 is affirmed.

Liquidation under the Insolvency and Bankruptcy Code - failure to implement resolution plan - appointment of liquidator from erstwhile resolution professional - vesting of management powers in the liquidator - public notice and intimation to Registrar of Companies - prohibition on institution of suits without Adjudicating Authority's approval - deemed discharge of officers, employees and workmen on liquidation - fees of liquidator payable from proceeds of the liquidation estate under section 53

Liquidation under the Insolvency and Bankruptcy Code - failure to implement resolution plan - appointment of liquidator from erstwhile resolution professional - Order for liquidation of the Corporate Debtor and appointment of the liquidator on account of non-performance of the approved Resolution Plan. - HELD THAT: - The Financial Creditor filed an MA under the Code contending that the Resolution Applicant (promoter-directors) did not comply with the obligations in the approved Resolution Plan, having infused only a part of the committed funds and failing to bring the remaining amounts and take over management as envisaged. The Tribunal observed that after approval of the plan the promoters paid a sum short of the committed fresh infusion, appeared intermittently without concrete proposals and did not comply with other material terms despite repeated adjournments and an opportunity to remedy the defaults. Having waited and afforded opportunities, the Tribunal concluded that the Resolution Applicant contravened the Resolution Plan and, in exercise of the power to order liquidation where the plan is not complied with, directed liquidation and appointed the erstwhile Resolution Professional as Liquidator, as he had given written consent to act. [Paras 3, 4, 5, 6, 9]

MA/965/2019 in CP/548/IB/CB/2017 is allowed; the Corporate Debtor is ordered to be liquidated and Mr. Chandramouli Ramasubramaniam is appointed as Liquidator.

Vesting of management powers in the liquidator - public notice and intimation to Registrar of Companies - prohibition on institution of suits without Adjudicating Authority's approval - deemed discharge of officers, employees and workmen on liquidation - fees of liquidator payable from proceeds of the liquidation estate under section 53 - Directions governing the conduct of liquidation and the powers, duties and entitlements of the liquidator consequent to the liquidation order. - HELD THAT: - On issuance of the liquidation order the Tribunal directed that the liquidation be carried out as per the Code and the Liquidation Process Regulations, including publication of a public notice and communication of the order to the Registrar of Companies. All powers of the board, key managerial personnel and partners cease and vest in the liquidator, who is to be extended all necessary cooperation by the corporate debtor's personnel. The Tribunal further declared that no suit or other legal proceedings shall be instituted by or against the corporate debtor without prior approval of the Adjudicating Authority except as permitted by the Code, that the liquidation order shall operate as notice of discharge to officers, employees and workmen except to the extent the business is continued during liquidation, and that the liquidator's fees shall be charged in proportion to the value of the liquidation estate and paid from the proceeds of the liquidation estate in terms of the statutory scheme. [Paras 7, 8]

The Tribunal issued the specified directions for carrying out the liquidation process and for administration of the liquidation estate, including vesting of management in the liquidator, public notice/ROC intimation, stay on suits without prior approval and payment of liquidator's fees from the liquidation proceeds.

Final Conclusion: The Tribunal allowed the MA and ordered liquidation of the Corporate Debtor for non performance of the approved Resolution Plan, appointed the erstwhile Resolution Professional as Liquidator and issued consequential directions governing the conduct of liquidation, intimation to ROC, stay on suits without prior approval and payment of the liquidator's fees from the liquidation estate.

Power of the Appellate Tribunal to confirm, modify or set aside orders on appeal - independence of attachment proceedings from criminal proceedings - obligation to decide appeals expeditiously (time limit for disposal) - provisional attachment and the requirement of reasons to believe - burden on the person under Section 24 to disclose legitimate source

Power of the Appellate Tribunal to confirm, modify or set aside orders on appeal - independence of attachment proceedings from criminal proceedings - obligation to decide appeals expeditiously (time limit for disposal) - Validity of the Appellate Tribunal's order keeping the appeal in abeyance pending disposal of the criminal prosecution and vacating interim protection - HELD THAT: - The Court held that under the statutory scheme the Appellate Tribunal instituted under the PMLA is empowered, on receipt of an appeal against an adjudicating authority's order, to examine the legality, validity and propriety of that order and to confirm, modify or set it aside. The Tribunal is required to deal with appeals expeditiously and endeavour to dispose of them within the period prescribed. Attachment proceedings before the adjudicating authority and criminal proceedings before the Special Court are parallel and independent; the pendency of criminal prosecution does not justify the Appellate Tribunal keeping an appeal in abeyance indefinitely instead of deciding it on merits. Consequently, the Appellate Tribunal exceeded its proper role by postponing its statutory appellate function and vacating interim protection merely because criminal proceedings were pending. The High Court therefore set aside the Tribunal's order and directed that the appeal be decided within a fixed short period. [Paras 33, 34, 35, 36]

Order of the Appellate Tribunal dated 03.04.2019 keeping the appeal in abeyance and vacating interim protection is set aside and the Tribunal is directed to decide the pending appeal within three months.

Final Conclusion: The appellate tribunal's order keeping the appeal pending until disposal of the criminal prosecution was set aside; the tribunal was directed to decide the appeal on its merits within three months from production of this order.

Deemed sale - transfer of right to use - definition of "service" under the Finance Act - declared services - mutual exclusivity of VAT and service tax

Deemed sale - transfer of right to use - definition of "service" under the Finance Act - declared services - Leasing of digital cinema equipment whether constitutes a taxable "service" under the Finance Act or is a "deemed sale" and therefore not leviable to service tax. - HELD THAT: - The Tribunal applied the statutory exclusion in the post July 2012 definition of "service" which excludes transfers that are "deemed to be a sale" under clause (29A) of Article 366 of the Constitution. It was found that the appellant's transactions involved transfer of possession and effective control - amounting to transfer of right to use the goods in a manner treated as a deemed sale - and thus fall outside the definition of "service". The Tribunal also noted that the provision declaring certain transfers as services (Section 66E(f)) applies to transfers without transfer of right to use; it does not capture transactions where right, possession and effective control pass so as to constitute a deemed sale. The Bench followed the earlier Tribunal decision in Qube Cinema Technologies Pvt. Ltd. which had analyzed the same activity (including the post July 2012 definition) and held it not leviable to service tax. Applying that reasoning, the demand for service tax could not be sustained.

Demand of service tax set aside; impugned orders quashed and appeal allowed with consequential relief.

Final Conclusion: The Tribunal concluded that leasing of digital cinema equipment, insofar as it involves transfer of possession and effective control amounting to a deemed sale, is excluded from the definition of "service" and the service tax demand cannot be sustained; the impugned orders are set aside and the appeal is allowed.

Return of original documents - validity of equitable mortgage - power of DRT under the SARFAESI Act to retain or release documents - effect of sale certificate/public auction on entitlement to title documents - res judicata and finality of earlier DRT/DRAT findings - approbate and reprobate arising from admissions by a party - interaction between prior civil decree and SARFAESI auction proceedings

Return of original documents - effect of sale certificate/public auction on entitlement to title documents - power of DRT under the SARFAESI Act to retain or release documents - Whether the DRT/DRAT should have directed return of Exhibits A110 to A114 to the auction purchaser and the extent to which title documents must be handed over after issuance of sale certificate. - HELD THAT: - The Court found that an auction purchaser who has complied with the auction formalities and to whom a sale certificate has been issued is ordinarily entitled to receive the original title documents from the Bank to complete the sale, and the Bank was therefore justified in seeking return of the documents filed with the DRT to hand them over to the purchaser. The High Court erred in entertaining the writ petition filed by the guarantor to prevent handing over of the documents where the guarantor had repeatedly raised and lost objections regarding the mortgage and in some proceedings had admitted the mortgage and offered to pay the dues. In view of these facts, the DRAT's direction to return the documents should be upheld subject to specific limitations necessary to protect existing final decrees. The Court modified the DRAT order to allow return of the original documents except as to documents relating to land covered by a prior final civil decree (old Paimash No. 722/4), and left the DRT free to decide remaining contentions in the pending OA on merits. [Paras 17, 19, 20, 21]

I.A. No. 995/2017 in O.A. No. 11/2008 is partly allowed: Exhibits A110 to A114 are to be returned to the Bank/auction purchaser except in respect of documents pertaining to old Paimash No. 722/4; DRT to decide the pending OA and any remaining issues on merits.

Approbate and reprobate arising from admissions by a party - res judicata and finality of earlier DRT/DRAT findings - validity of equitable mortgage - Whether the guarantor could resile from prior admissions and repeated adverse findings on the mortgage when seeking to restrain return of the documents. - HELD THAT: - The Court held that the guarantor had, in earlier proceedings before the DRT and by affidavit, admitted creation of the equitable mortgage and had offered to repay the debt; further, earlier DRT findings on creation of the mortgage attained finality insofar as appeals were dismissed for non compliance. On these bases the guarantor could not be permitted to approbate and reprobate by repeatedly raising the same contention to obstruct handing over of documents to the purchaser. The Court observed that successive unsuccessful challenges by the guarantor and admissions made in the record weighed against entertaining the writ petition filed to prevent release of documents. [Paras 11, 12, 14, 15]

The guarantor cannot resile from its prior admissions and repeated adverse findings; its plea to forestall return of documents is rejected.

Interaction between prior civil decree and SARFAESI auction proceedings - power of DRT under the SARFAESI Act to retain or release documents - Whether documents relating to land identified as old Paimash No. 722/4 (subject of a prior final civil decree) should be released to the auction purchaser despite the sale certificate. - HELD THAT: - The Court recognised that a prior civil decree, which has attained finality, creates a subsisting right of the decree holder in the specific land covered by that decree. Consequently, even though a sale certificate was issued in the SARFAESI auction, documents pertaining to the land which is the subject of the earlier final decree (old Paimash No. 722/4 admeasuring 1.80 acres) ought not to be released until the pending OA is finally decided or a competent court declares otherwise. To safeguard that decree holder's rights, the Court carved out an exception to the general rule of handing over title documents. [Paras 16, 20]

Documents concerning old Paimash No. 722/4 are not to be released to the auction purchaser; they shall remain with the DRT until final adjudication of O.A. No. 11/2008 or until a competent court directs otherwise.

Final Conclusion: The appeal is partly allowed: the order of the High Court is set aside and the DRAT's direction to return the original documents is restored subject to modification - Exhibits A110 to A114 shall be returned to the Bank/auction purchaser except those documents relating to old Paimash No. 722/4 (1.80 acres), which shall remain with the DRT pending final disposal of O.A. No. 11/2008; parties remain free to urge all contentions before the DRT, which shall decide the pending proceedings on merits.