TaxTMI Updates e-Newsletter
Apr 29,2020

Detention and seizure of goods in transit - Release of goods on payment of tax and penalty under Section 129 - Confiscation proceedings under Section 130 - Requirement of prior proceedings under Section 129 before invoking Section 130 - Recording of reasons and material basis for invoking confiscation at the threshold - Application of mind and good faith in invocation of penal consequences - Provisional release on bond or security

Requirement of prior proceedings under Section 129 before invoking Section 130 - Confiscation proceedings under Section 130 - Application of mind and good faith in invocation of penal consequences - Whether a notice under Section 130 can be issued at the threshold without following the procedure under Section 129 and without recording reasons or material on which belief of intent to evade tax is founded. - HELD THAT: - The Court noted and relied upon the observations in Synergy Fertichem Pvt. Ltd. (paras 99-104) to the effect that Section 129 contemplates issuance of a notice specifying tax and penalty and affords an opportunity of hearing, and that Section 130 should not ordinarily be invoked at the threshold upon mere suspicion. Confiscation under Section 130 is an aggravated, penal consequence and may be invoked at the early stage only where there is a very strong case indicating on the face of the transaction that the contravention was with a definite intent to evade tax. Where Section 130 is invoked at the stage of detention and seizure, authorities must have material upon which a bona fide belief is formed and, if challenged, should disclose the materials forming the basis of that belief so that a court can examine whether an honest and reasonable person could base a belief upon them. The court stressed that the formation of opinion must reflect application of mind and good faith and that routine issuance of confiscation notices without justification would render Section 129 otiose and cause undue detention of goods and conveyances. The present petitioner was permitted to place reliance on those observations and to make good the contention that the impugned notice under GST-MOV-10 is liable to be discharged. [Paras 5, 6, 7]

Observations in Synergy (paras 99-104) apply; Section 130 should not be routinely invoked at the threshold and must rest on material and recorded reasons; petitioner may challenge the impugned GST-MOV-10 notice on those grounds.

Release of goods on payment of tax and penalty under Section 129 - Provisional release on bond or security - Whether the vehicle and goods may be released on payment of the tax demanded under the notice and whether interim release granted earlier stands. - HELD THAT: - The Court recorded that, pursuant to the interim order passed by a Coordinate Bench, the petitioner obtained release of the vehicle and goods upon payment of the tax amount. The Court directed that proceedings under Section 130 may continue in accordance with law, but the interim release on payment pursuant to the earlier order is recognised and the petitioner remains entitled to press the challenge to the confiscation notice while the substantive proceedings proceed. [Paras 3, 4, 5, 8]

Interim release obtained on payment of tax is recognised; proceedings under Section 130 to continue; the petition is disposed with leave to challenge the show cause notice.

Final Conclusion: Writ petition disposed; rule made absolute to the limited extent recorded - the petitioner may challenge the impugned GST MOV 10 notice relying on the Court's observations (including those in Synergy), the interim release on payment of tax stands acknowledged, and the confiscation proceedings under Section 130 shall proceed in accordance with law.

Detention and seizure of goods and conveyances in transit - release of detained goods on payment of tax and penalty or furnishing security - confiscation under Section 130 of the GST Act - requirement of application of mind and recording of reasons for invoking confiscation - presumption of culpable mental state not available for Section 130 proceedings - show cause notice in Form GST-MOV-10

Release of detained goods on payment of tax and penalty or furnishing security - detention and seizure of goods and conveyances in transit - Whether the detained vehicle and goods should be released pending adjudication upon payment of tax as directed by the Court - HELD THAT: - The Court recorded that, on the earlier interim order of a Co-ordinate Bench dated 7.8.2019, the writ applicant paid the amount directed and availed the benefit of release of the truck and goods. The Court reiterated that release of a detained conveyance and goods may be effected upon payment of the applicable tax and penalty (or furnishing security) in terms of the statutory scheme, and accordingly directed release of the vehicle and goods upon payment in the earlier order. The present order records that the applicant in fact obtained release on payment and that the statutory proceedings continue thereafter in accordance with law. [Paras 3, 4]

Vehicle and goods were to be released upon payment of the tax as directed; the applicant obtained release on payment and proceedings under the GST Act continue.

Confiscation under Section 130 of the GST Act - requirement of application of mind and recording of reasons for invoking confiscation - presumption of culpable mental state not available for Section 130 proceedings - Legal standard for invoking confiscation under Section 130 at the threshold and the requirement of reasons and material to support the belief of intent to evade tax - HELD THAT: - The Court, by reference to its recent pronouncement (Synergy Fertichem Pvt. Ltd.), explained that not every contravention during transit warrants immediate invocation of Section 130. Authorities must examine the nature of contravention and whether there is material to form a bona fide belief of intent to evade tax; mere suspicion or absence of documents (e.g., e way bill) without other indicia may not suffice. While the Court did not rule out invocation of Section 130 at the seizure stage, it held that a very strong case and reasons recorded in writing - disclosing the materials on which the belief is formed - are necessary to justify issuance of a confiscation notice at the threshold; otherwise the issuance renders Section 129 otiose. The Court further noted that the statutory presumption of culpable mental state is available in prosecutions but not for the purpose of Section 130 proceedings. [Paras 5]

Authorities may invoke Section 130 at the threshold only on the basis of material and reasoned satisfaction of intent to evade tax; reasons and disclosure of materials are required where the sufficiency of satisfaction is challenged.

Show cause notice in Form GST-MOV-10 - confiscation under Section 130 of the GST Act - Whether the show cause notice issued in Form GST MOV 10 deserved to be discharged - HELD THAT: - The Court did not adjudicate the merits of the show cause notice. Instead, it left open the question to be made good by the applicant. The order expressly permits the applicant to rely upon and place before the authorities the observations in the Synergy Fertichem judgment (paras 99-104) and to challenge the sufficiency of the grounds for invoking Section 130. The substantive proceedings under Section 130 were directed to continue in accordance with law, leaving determination of discharge or otherwise of the notice to the appropriate forum or authority on consideration of the materials. [Paras 6, 7]

Issue of discharge of the Form GST MOV 10 show cause notice is not finally decided and remains open for the applicant to contest; proceedings continue.

Final Conclusion: Writ petition disposed to the extent indicated: earlier interim direction for release of the vehicle and goods on payment of tax/penalty is recorded and the applicant obtained release on payment; the Court reiterated the legal standard that invocation of Section 130 at the seizure stage requires reasoned satisfaction supported by material and permitted the applicant to challenge the show cause notice; further proceedings under the GST Act shall continue in accordance with law.

Release of detained goods on payment of tax and penalty - detention and seizure under Section 129 of the GST Act - confiscation under Section 130 of the GST Act - requirement of formation of opinion based on material before invoking confiscation at the threshold - recording of reasons for belief when invoking confiscation - application of principles of natural justice to show-cause proceedings

Release of detained goods on payment of tax and penalty - detention and seizure under Section 129 of the GST Act - Direction for release of the detained vehicle and goods on payment of the tax was justified and implemented; interim relief in that respect was confirmed. - HELD THAT: - A co-ordinate Bench of this Court directed release of the truck and goods upon payment of the applicable tax and penalty. The writ applicant availed that interim order, paid the tax amount and obtained release of the vehicle and goods. The Court recorded that the proceedings in respect of the show-cause notice under Section 130 will continue in accordance with law, but the limited relief of release on payment in terms of the impugned notice was granted and acted upon by the applicant. The writ was disposed of to the extent of confirming that interim relief and directing that the statutory proceedings may go on.

The Rule is made absolute to the extent of directing release of the vehicle and goods on payment of tax; the vehicle and goods stand released and the interim relief is confirmed.

Confiscation under Section 130 of the GST Act - requirement of formation of opinion based on material before invoking confiscation at the threshold - recording of reasons for belief when invoking confiscation - application of principles of natural justice to show-cause proceedings - The validity of the show-cause notice issued in Form GST-MOV-10 under Section 130 was not quashed; the applicant was permitted to challenge it and to rely on the observations in Synergy Fertichem regarding threshold for invoking confiscation. - HELD THAT: - The Court declined to pronounce final adjudication on the merits of the Section 130 show-cause notice. Instead, the applicant was granted the opportunity to make out his case that the notice deserves to be discharged and was permitted to rely on the Court's earlier observations (Paragraphs 99-104 of Synergy Fertichem) which emphasise that invocation of Section 130 at the seizure stage requires a belief founded on material, not mere suspicion, and that reasons should be recorded where confiscation is invoked at the threshold. The proceedings under Section 130 shall therefore continue and afford the applicant the appropriate opportunity to contest the notice, subject to statutory procedures and principles of natural justice.

Show-cause proceedings under Section 130 continue; no quashing of the Form GST-MOV-10 notice was ordered at this stage and the applicant may challenge the same relying on established principles regarding invocation of confiscation.

Final Conclusion: Writ disposed of: interim direction for release of the detained truck and goods on payment of tax is confirmed and has been availed by the applicant; the substantive show-cause/confiscation proceedings under Section 130 remain pending and may be contested by the applicant in accordance with law, applying the principles that confiscation at the threshold requires material satisfaction and, where invoked, reasons for belief should be disclosed.

Input tax credit - plant and machinery - any other civil structures - works contract services - zero rated supply - Section 17(5) exclusion - ejusdem generis

Input tax credit - zero rated supply - Section 17(5) exclusion - Whether input tax credit is admissible on goods and services used to construct bunds because bunds are indispensible to the manufacture of salt (zero-rated supply). - HELD THAT: - The Authority noted that while the applicant's case that bunds are indispensible to manufacture of salt is not in dispute, the non-obstante opening of sub section (5) of Section 17 has overriding effect on Section 16(1). Consequently, even if goods or services are indispensible to manufacture, input tax credit is not available where they fall within the categories blocked by Section 17(5). The availability of credit for making zero rated supplies under Section 16(2) of the IGST Act is likewise subject to the restriction in Section 17(5) of the CGST Act. Therefore indispensability to the manufacturing process does not, by itself, entitle the applicant to credit if the supplies are covered by Section 17(5). [Paras 17]

Indispensability of bunds to manufacture does not entitle the applicant to input tax credit if the goods or services used for their construction fall within the exclusions of Section 17(5).

Plant and machinery - apparatus - equipment - machinery - Whether the bunds/crystallizers qualify as 'plant and machinery' within the definition in the explanation to Section 17. - HELD THAT: - The explanation to Section 17 uses the word 'means' and therefore provides a narrowly definitional description: 'plant and machinery' means apparatus, equipment and machinery fixed to earth by foundation or structural support used for making outward supplies, and includes such foundations and supports but excludes specified items. The Authority examined dictionary meanings of 'apparatus', 'equipment' and 'machinery' and applied those meanings to the facts and method of construction and use of the bunds. On that analysis the bunds/crystallizers are not a compound instrument, collection or assembly of parts or a group of machines; they are constructed earth/soil structures lined and strengthened for holding and conducting saline water. Hence they do not satisfy the primary limbs of the statutory definition of 'plant and machinery' and cannot be brought within that definition merely because they are used in manufacture or are permanently fixed. [Paras 19]

Bunds/crystallizers do not qualify as 'plant and machinery' under the definition in the GST Acts.

Any other civil structures - works contract services - Section 17(5) exclusion - ejusdem generis - Whether the bunds fall within the exclusion 'land, building or any other civil structures' in the explanation to Section 17 and the consequence thereof for input tax credit under clauses (c) and (d) of Section 17(5). - HELD THAT: - The Authority considered the applicant's plea that 'any other civil structures' should be read ejusdem generis with 'land' and 'building' and thereby be restricted. It concluded that the context of the definition and the scheme of clauses (c) and (d) show that foundations or structural supports used to fix apparatus, equipment and machinery are already included in the main part of the definition of 'plant and machinery', so the exclusion 'any other civil structures' naturally refers to civil structures other than such foundations and supports. Given the method of construction and composition of the bunds (dug earth compacted, mixed with chemicals, lined with LDPE, interconnected by box culverts, etc.), the bunds are civil structures within the exclusion. As a result, works contract services and goods/services used for construction of such immovable civil structures are covered by clauses (c) and (d) of Section 17(5) and are blocked from credit unless the structure qualifies as plant and machinery (which these bunds do not). [Paras 20]

Bunds are 'any other civil structures' within the exclusion and, not being 'plant and machinery', the input tax credit on goods and services used for their construction is not admissible under clauses (c) and (d) of Section 17(5).

Input tax credit - works contract services - Section 17(5) exclusion - Final disposition of the GAAR advance ruling regarding admissibility of input tax credit on construction of bunds. - HELD THAT: - Applying the above conclusions - that bunds do not fall within the statutory definition of 'plant and machinery' and do fall within 'any other civil structures' - the appellate authority held that the earlier GAAR ruling which had allowed credit subject to bunds qualifying as plant and machinery must be modified. The works contract services and goods/services used in construction of the bunds are therefore covered by the blocked categories in Section 17(5). [Paras 22]

The GAAR ruling is modified: input tax credit on works contract services or goods/services used in construction of the bunds is not admissible to the applicant.

Final Conclusion: The advance ruling is modified. The bunds (crystallizers) are not 'plant and machinery' under the GST definition but are 'any other civil structures'; accordingly, goods and services or works contract services used for their construction fall within the exclusions of Section 17(5) and input tax credit in respect thereof is not admissible to M/s. Satyesh Brinechem Private Limited.

Permanent establishment - preparatory or auxiliary character - Article 5(3)(e) of DTAA - Article 7 - business profits taxable only if permanent establishment - Section 90 - supremacy of DTAA over inconsistent provisions of the Income tax Act - liaison office - business connection

Income accrued in India - liaison office engaged in remittance services - PE in India - liaison offices in India - India- UAE DTAA - second mode of remittance through the liaison offices in India on account of the activity undertaken in the liaison office in India of downloading the particulars of remittances through electronic media and printing cheques/drafts drawn on the banks in India, which, in turn, are couriered or dispatched to the beneficiaries in India, in accordance with the instructions of the NRI remitter - HELD THAT:- The expression “business connection” can be discerned from Section 9(1), as also, the meaning of expression “business activity”. We will advert to those provisions a little later and for the time being, assume that the stated activities of the respondent are business activities. However, since the stated activities of the liaison offices of the respondent in India are of preparatory or auxiliary character, the same would fall within the excepted category under Article 5(3)(e) of the DTAA. Resultantly, it cannot be regarded as a PE within the sweep of Article 7 of DTAA. The expression “preparatory” is not defined in the 1961 Act or the DTAA.

permitted activities are required to be carried out by the respondent subject to conditions specified in clause 3 of the permission, which includes not to render any consultancy or any other service, directly or indirectly, with or without any consideration and further that the liaison office in India shall not borrow or lend any money from or to any person in India without prior permission of RBI.

The conditions make it amply clear that the office in India will not undertake any other activity of trading, commercial or industrial, nor shall it enter into any business contracts in its own name without prior permission of the RBI. The liaison office of the respondent in India cannot even charge commission/fee or receive any remuneration or income in respect of the activities undertaken by the liaison office in India. From the onerous stipulations specified by the RBI, it could be safely concluded, as opined by the High Court [2009 (2) TMI 56 - DELHI HIGH COURT], that the activities in question of the liaison office(s) of the respondent in India are circumscribed by the permission given by the RBI and are in the nature of preparatory or auxiliary character. That finding reached by the High Court is unexceptionable.

We agree with the finding recorded by the High Court about the nature and character of stated activities carried on by the liaison offices of the respondent and in our view, the High Court justly reckoned the same as being of preparatory or auxiliary character, falling under Article 5(3)(e).

The meaning of expressions “business connection” and “business activity” has been articulated. However, even if the stated activity(ies) of the liaison office of the respondent in India is regarded as business activity, as noted earlier, the same being “of preparatory or auxiliary character”; by virtue of Article 5(3)(e) of the DTAA, the fixed place of business (liaison office) of the respondent in India otherwise a PE, is deemed to be expressly excluded from being so. And since by a legal fiction it is deemed not to be a PE of the respondent in India, it is not amenable to tax liability in terms of Article 7 of the DTAA. We uphold the conclusions reached by the High Court for the reasons stated hitherto.

Cash credits under Section 68 - use of books of account after rejection for best judgment assessment - relevance of subsequent appellate findings in penalty proceedings to assessment additions - finality of appellate fact finding affecting assessment

Cash credits under Section 68 - finality of appellate fact finding affecting assessment - Validity of addition of Rs. 2,26,000 treated as unexplained cash credits under Section 68 for AY 1998-1999 in view of subsequent acceptance of evidence in penalty proceedings. - HELD THAT: - The Assessing Officer added the credits as unexplained cash credits under Section 68 on the basis that the assessee failed, during assessment proceedings, to prove genuineness of purchases from certain unregistered dealers. Subsequent penalty proceedings produced affidavits and recorded statements of the alleged dealers, and the CIT(A) found their identity and the genuineness of purchases proved, concluding there was no concealment or furnishing of inaccurate particulars for AY 1998-1999. Those appellate findings dispelled the factual basis of the assessment addition. The Supreme Court held that the factual basis on which the Section 68 addition was made stands overturned by the accepted evidence and appellate conclusion in the penalty proceeding, and therefore the addition could not be justified or maintained. [Paras 13, 14, 15, 17]

The addition of Rs. 2,26,000 treated as unexplained cash credits under Section 68 for AY 1998-1999 is set aside.

Final Conclusion: Appeal allowed; the addition under Section 68 of Rs. 2,26,000 for assessment year 1998-1999 is quashed in view of the appellate acceptance of evidence in penalty proceedings; remaining parts of the assessment order as modified by CIT(A) remain undisturbed.

Constitutional validity of clause (f) of Section 43B - presumption of constitutionality - Article 14 challenge to fiscal classification - non obstante clause and conditionality of deductions - relation between Section 145 method of accounting and Section 43B conditional deductions - mischief rule / remedial construction for fiscal statutes - legislature's power to alter statutory basis of judicial decisions prospectively - limits of judicial inquiry into objects and reasons of legislation

Constitutional validity of clause (f) of Section 43B - presumption of constitutionality - Article 14 challenge to fiscal classification - Clause (f) of Section 43B is constitutionally valid and not violative of Article 14. - HELD THAT: - The Court applied the twofold approach to validity: first, legislative competence exists; second, whether the provision infringes Part III rights. There is a strong presumption in favour of constitutionality of fiscal enactments and wider latitude for classification in taxation. Section 43B operates as an additional condition for claiming specified deductions (a non obstante provision) and may regulate the timing of deduction without denying the underlying deduction or impinging on the assessee's choice of accounting method under Section 145(1). The clause targets a remedial mischief - prevention of abuse and protection of employees' interest - and is amenable to a liberal construction in favour of the revenue where appropriate. The respondents failed to demonstrate any form, substance or operational infirmity of clause (f) that would render it unconstitutional. [Paras 17, 19, 21, 41, 42]

Clause (f) of Section 43B is upheld as constitutionally valid and operative.

Limits of judicial inquiry into objects and reasons of legislation - limits on invalidating statute for nondisclosure of objects and reasons - Absence of publication of objects and reasons for insertion of clause (f) does not, by itself, invalidate the provision. - HELD THAT: - Objects and reasons are external aids useful only where textual ambiguity requires recourse to background to ascertain legislative intent. Where legislative competence is not in doubt and the statutory text is comprehensible, failure to publish or disclose objects and reasons does not amount to constitutional infirmity. Judicial review must be confined to examining the statute as enacted and not the motives of the legislature; invalidation on the ground of nondisclosure would amount to impermissible scrutiny of legislative wisdom. [Paras 26, 27, 28, 29, 30]

Non disclosure of objects and reasons is not a ground to strike down clause (f) in the absence of textual ambiguity or demonstrated Part III violation.

Relation between Section 145 method of accounting and Section 43B conditional deductions - non obstante clause and conditionality of deductions - Insertion of clause (f) regulating timing of deduction does not negate the mercantile character of the leave encashment liability nor does it unlawfully remove assessee's accounting choice under Section 145. - HELD THAT: - Section 145(1) permits assessees to follow cash or mercantile accounting subject to statutory qualifications; Section 43B is a specific, overriding provision that conditions allowance of certain deductions on actual payment. Clause (f) does not convert the nature of the leave encashment liability; it only defers the tax benefit until actual payment, which is a permissible legislative regulation of deductions and fits within the remedial and fiscal objectives of Section 43B. [Paras 16, 17, 18, 19, 39]

Clause (f) validly regulates the timing of deduction without abolishing the mercantile characterization of the liability or the assessee's accounting choice.

Legislature's power to alter statutory basis of judicial decisions prospectively - separation of powers and limits on legislature overruling judicial decisions - Parliament may enact legislation that renders ineffective a prior judicial interpretation by removing or altering the statutory basis on which that decision rested; the insertion of clause (f) to regulate deductions prospectively is constitutionally permissible and not an impermissible encroachment on judicial power. - HELD THAT: - A judicial decision stands binding on law as it existed at the relevant time, but the legislature can validly change the legal framework, including prospectively regulating the subject matter, so long as competence is present and constitutional limits are respected. Clause (f) does not directly overrule Bharat Earth Movers; it alters the statutory scheme prospectively to regulate the timing of deduction, which is within legislative competence and consistent with precedents permitting the legislature to remove defects or alter conditions that formed the basis of judicial rulings. [Paras 36, 37, 38, 40, 41]

Enactment of clause (f) to address the statutory basis of prior judicial interpretation is constitutionally permissible and does not violate separation of powers.

Final Conclusion: The Division Bench judgment of the High Court is reversed; clause (f) of Section 43B is held constitutionally valid and operative, and the appeal is allowed. No order as to costs.

Penalty under section 271(1)(c) read with Explanation 5A - search initiated under section 132 and assessment under section 153A - requirement of seized assets or book entries to invoke deemed concealment under Explanation 5A - disclosure during search statement is not equivalent to discovery of incriminating material - deletion of penalty where no seized material supports addition

Penalty under section 271(1)(c) read with Explanation 5A - requirement of seized assets or book entries to invoke deemed concealment under Explanation 5A - disclosure during search statement is not equivalent to discovery of incriminating material - Whether penalty under section 271(1)(c) read with Explanation 5A could be imposed where no money, bullion, jewellery, other valuables or incriminating book entries were found during the course of search and the assessee voluntarily disclosed additional income by reducing a claim under section 54F. - HELD THAT: - The Tribunal examined Explanation 5A and held that its application is contingent on the search revealing assets (money, bullion, jewellery or other valuable articles) or entries in books/documents which form the basis for treating declared income as previously concealed. Explanation 5A cannot be invoked merely because an assessee, consequential to a search, revises or discloses additional income; there must be seized material or book entry evidence discovered in the search that justifies deeming the income as concealed. In the present case the assessing officer's order does not refer to any material seized during the search to support the addition or the invocation of Explanation 5A; the assessee had voluntarily withdrawn part of a deduction and offered the amount as income. The Tribunal followed the view expressed by the Rajkot Bench in IT(SS)A Nos.46-52/RJT/2012 that a mere declaration or statement under section 132(4) without seized assets or documentary book entries does not permit penalty under Explanation 5A, and therefore found force in the assessee's contention and deleted the penalty. [Paras 7, 8]

Impugned penalty under section 271(1)(c) read with Explanation 5A deleted.

Final Conclusion: Appeal allowed; penalty confirmed by the authorities set aside because Explanation 5A could not be invoked in absence of seized assets or incriminating book entries and the assessment order contains no reference to such material.

Unexplained cash credit and burden of proof under section 68 - genuineness of gift and source verification - occasion of gift (marriage) as evidentiary circumstance

Unexplained cash credit and burden of proof under section 68 - genuineness of gift and source verification - occasion of gift (marriage) as evidentiary circumstance - Whether the addition made to the assessee's income in respect of cash deposited in bank could be sustained where it was explained as received from the assessee's son by way of gift from his father in law on the occasion of marriage. - HELD THAT: - The Tribunal examined the explanation that the deposited cash was received from the assessee's son, who in turn had received the funds as a gift from his father in law on the occasion of the son's marriage. The Assessing Officer's objection related to the source of the donor rather than the receipt by the assessee. The assessee placed evidence that the donor had withdrawn sufficient amounts (Rs. 16,75,000/- during the period 09.12.2013 to 13.03.2015) to meet the gift, and the occasion for the gift was explained. On this material the Tribunal found that the assessee had discharged the burden of proof required to rebut the presumption of unexplained credit under section 68. In view of the established source and the explained occasion of the gift, there was no justification for making the addition in the hands of the assessee.

Addition under section 68 deleted and appeal allowed.

Final Conclusion: The Tribunal set aside the CIT(A)'s order and deleted the addition made by the Assessing Officer; the assessee's appeal is allowed.

Royalty - tax deducted at source - deduction of tax at source under section 194J - disallowance under section 40(a)(ia) - deeming definition of "process" (Explanation 6 to section 9(1)(vi)) - retrospective application of explanatory deeming provision - reconciliation with Form 26AS and timing differences - TDS credit and inter-year adjustment - revenue recognition under Accounting Standard-9 (proportionate completion method) - depreciation at prescribed rate for UPS

Royalty - deduction of tax at source under section 194J - deeming definition of "process" (Explanation 6 to section 9(1)(vi)) - disallowance under section 40(a)(ia) - retrospective application of explanatory deeming provision - Characterisation of toll-free telephone charges as royalty attracting TDS under section 194J and consequent disallowance under section 40(a)(ia). - HELD THAT: - The Tribunal held that the payments for dedicated toll free telephone lines constituted consideration for provision of bandwidth/telecommunications services amounting to the "use of" or "right to use" a process/equipment and therefore fall within the wide definition of "royalty" in Explanation 2 to section 9(1)(vi). Explanation 6, which deemingly defines "process" to include transmission by cable, optic fibre etc., must be read into Explanation 2 and applies for determining whether the payment is for a "process". The Tribunal rejected the assessee's objection to retrospective application of Explanation 6 and accepted the CIT(A)'s view (following the Madras High Court decision relied upon) that the payments are taxable as royalty and liable to TDS under section 194J. However, recognising that disallowance under section 40(a)(ia) is avoidable if tax due has in fact been paid by the payee, the Tribunal set aside this issue to the Assessing Officer to verify whether the payee has discharged the tax liability, giving the assessee an opportunity of being heard and directing deletion of the disallowance if payment of tax by the payee is established.

Payments for toll free telephone charges held to be "royalty" for AY 2014-15 (and similarly for AYs 2011-12 to 2013-14); disallowance under section 40(a)(ia) sustained in principle but remanded to the AO for verification whether the payee has paid the tax, with consequential deletion if so.

Reconciliation with Form 26AS and timing differences - TDS credit and inter-year adjustment - revenue recognition under Accounting Standard-9 (proportionate completion method) - Addition of amounts reflected in Form 26AS but not in assessee's books as undisclosed income and denial of corresponding TDS credit. - HELD THAT: - The Assessing Officer made additions on account of unreconciled receipts as per Form 26AS and disallowed TDS credit on the ground that the underlying amounts pertained to earlier years. The Tribunal did not finally accept the AO's approach as a closed finding; instead it set aside the issue to the AO for verification on the reconciliatory particulars furnished by the assessee and for appropriate treatment of timing differences arising from the assessee's accounting (proportionate completion method under AS 9). The Tribunal directed that AO consider whether the discrepancies are timing differences and to allow relief or TDS credit in the relevant assessment years where the underlying income has been offered to tax, applying the same directions mutatis mutandis for AYs 2011-12 to 2013-14.

Addition based on Form 26AS discrepancies and related denial of TDS credit set aside to the AO for fresh verification and consequential relief/adjustment in the appropriate assessment years.

Depreciation at prescribed rate for UPS - Allowability of depreciation on batteries and UPS at 60% for AY 2012-13. - HELD THAT: - An additional ground in AY 2012-13 challenged restriction of depreciation on UPS and batteries to 15% instead of 60%. The Tribunal followed the ratio of the Delhi High Court in CIT vs. BSES Yamuna Power Ltd., and directed the Assessing Officer to grant depreciation on UPS at 60% for AY 2012-13.

Depreciation on UPS allowed at 60% for AY 2012-13 in accordance with binding precedent.

Final Conclusion: Appeals partly allowed for statistical purposes: the Tribunal held toll free telephone charges to be "royalty" attracting TDS under section 194J but remanded the disallowance under section 40(a)(ia) to the AO for verification whether the payee has paid the tax; additions and denial of TDS credit arising from Form 26AS discrepancies were set aside to the AO for fresh verification and appropriate inter year adjustment; depreciation on UPS for AY 2012-13 allowed at 60% following precedent.

Validity of assessment where demand notice issued on basis of draft assessment order - Mandatory procedure under section 144C - reference to Dispute Resolution Panel and filing of objections or acceptance - Draft assessment order cannot be basis for issuance of demand or penalty - Assessment as an integrated process - AO becomes functus officio after issuing demand on draft - Non-curability of omission to follow mandatory procedure

Validity of assessment where demand notice issued on basis of draft assessment order - Mandatory procedure under section 144C - reference to Dispute Resolution Panel and filing of objections or acceptance - Draft assessment order cannot be basis for issuance of demand or penalty - Assessment as an integrated process - AO becomes functus officio after issuing demand on draft - Non-curability of omission to follow mandatory procedure - Final assessment order passed after issuance of demand and penalty notices based on the draft assessment order without following the procedure under section 144C is invalid and liable to be quashed. - HELD THAT: - The AO passed a draft assessment proposing additions and issued demand and penalty notices before completing the statutory procedure under section 144C, which requires the eligible assessee to be forwarded the draft and to file either acceptance of variation or objections with the Dispute Resolution Panel within the prescribed period. The Tribunal applied the principle that assessment is an integrated process involving determination of income and tax, relying on authority that a notice of demand issued at the draft stage renders the AO functus officio for completion of assessment. Where the AO issues demand and penalty notices on the basis of a draft order and does not await or follow the mandatory steps under section 144C (including the period for filing acceptance or objections and reference to the DRP), such omission is not a curable procedural irregularity. Consequently the final assessment order, being rendered after issuance of demand on the draft, lacked validity and was set aside. [Paras 7, 13, 15, 16]

Final assessment order dated 28-04-2014 passed under section 143(3) read with section 144C(3) is quashed; additional grounds 5 and 6 allowed and the appeal is allowed.

Final Conclusion: The Tribunal set aside the assessment for AY 2011-12, holding that issuance of demand and penalty notices on the basis of a draft assessment without following the mandatory procedure under section 144C rendered the subsequent final assessment order invalid; the appeal of the assessee is allowed.

Bogus purchases - third party statements as basis for additions - right to cross examination of witnesses relied upon by the revenue - rejection of books of account under section 145(3) of the Income tax Act - estimation of income on best judgment basis - use of past gross profit history for estimation of income

Third party statements as basis for additions - right to cross examination of witnesses relied upon by the revenue - Whether additions treating purchases as bogus could be sustained when founded solely on third party statements recorded by the investigation wing without independent verification or opportunity to cross examine those witnesses. - HELD THAT: - The Tribunal found that the reassessment and additions rested solely on statements attributed to persons connected with the supplier group as recorded by the Investigation Wing, without any independent enquiry by the Assessing Officer and without furnishing those statements to the assessee or granting an opportunity for cross examination. The assessee had produced purchase invoices, export documents accepted by Customs, stock records reconciling inward and outward quantities, ledger entries and bank payment evidence. In these circumstances the Tribunal applied the settled principle that an order based only on third party statements which have not been subjected to independent verification and where the assessee was denied a chance to test the statements by cross examination is unsustainable. The Tribunal relied on the reasoning of the higher authorities referred to in the judgment, observing that denial of cross examination of witnesses whose statements form the basis of the impugned order is a breach of natural justice and vitiates the assessment. Having regard to the retraction of statements in related records and the documentary material produced by the assessee which went unrebutted by tangible contrary evidence, the Tribunal concluded that the addition could not be sustained.

Addition based solely on unverified third party statements and without opportunity for cross examination is unsustainable; addition deleted.

Rejection of books of account under section 145(3) of the Income tax Act - estimation of income on best judgment basis - use of past gross profit history for estimation of income - Whether the AO/CIT(A) applied the correct method in estimating income after rejection of books of account, and in particular whether applying an 18% profit rate on alleged bogus purchases was justified. - HELD THAT: - The Tribunal noted that once books are rejected under section 145(3), the Assessing Officer must estimate income on a best judgment basis and that such estimation should proceed on judicial considerations with nexus to materials on record. Past gross profit history of the assessee or comparable precedents is an appropriate guide for estimation. In the present case the AO made an arbitrary addition by disallowing a fixed percentage of purchases, and the CIT(A) applied an 18% gross profit rate without properly following the settled approach to best judgment assessment or correlating the estimate with the assessee's past GP or relevant comparables. Given that sales/exports were not disputed and quantitative reconciliation was available, the Tribunal held that the methodology adopted by the authorities below was not in conformity with the legal principles governing estimation and could not sustain the addition.

Estimation by applying an arbitrary 18% profit rate was not in accordance with best judgment principles after rejection of books; sustained addition set aside.

Final Conclusion: The Tribunal allowed the appeal, deleting the addition sustained by the CIT(A) in respect of alleged bogus purchases for AY 2009 10, holding that the disallowance founded solely on unverified third party statements (without opportunity for cross examination) and the arbitrary estimation methodology after rejection of books were not sustainable in law.

Rejection of books of account under section 145(3) - estimation of income after rejection of books - use of past gross profit history for estimation - trading addition and disallowance of direct expenses (freight) - adhoc disallowance of office administrative expenses - reasonable household expenditure estimation

Rejection of books of account under section 145(3) - use of past gross profit history for estimation - trading addition and disallowance of direct expenses (freight) - Validity of lump-sum trading addition and disallowance of freight where books were rejected under section 145(3). - HELD THAT: - The Tribunal found that the assessing officer himself recorded that the gross profit (GP) rate for the year under consideration (8.60% on sales of Rs.2.82 crores) was better than the preceding year and better than the assessee's past history. Where books are rejected and income is to be estimated under section 145(3) read with section 144, the AO must base the estimate on some proper and reasonable basis; the assessee's past GP history is an appropriate guide. Since the declared GP for the year was not lower than past years but in fact higher, the adhoc lump-sum trading addition of Rs.1,00,000/- and the disallowance of direct freight expenses (part of trading account) made by the AO and confirmed by the CIT(A) were unsustainable and deleted. [Paras 5]

Lump-sum trading addition of Rs.1,00,000/- and the disallowance of direct freight expenses are deleted.

Adhoc disallowance of office administrative expenses - estimation of income after rejection of books - Sustainability of the AO's adhoc 20% disallowance (restricted to 50% by CIT(A)) of office administrative and related expenses. - HELD THAT: - The AO disallowed about 20% of various expenses on the ground of personal element without applying his mind to the nature of individual items. The Tribunal observed that, except for relatively small amounts for telephone and vehicle-related items, the bulk of the expenses related to office, administrative, selling and other business expenses for which no defect was found. The CIT(A) also failed to examine the nature of expenses before confirming an adhoc adjustment. In these circumstances the adhoc disallowance sustained below was not justified. [Paras 8]

Adhoc disallowance of office administrative and related expenses is deleted.

Reasonable household expenditure estimation - Validity of addition on account of underreported household expenses. - HELD THAT: - The AO estimated the assessee's household expenses at a higher monthly amount having regard to the joint family status and standing, arriving at a reasonable figure which produced the impugned addition. The Tribunal found the AO's estimation of household expenses at the assessed level to be reasonable and not excessive, and therefore requiring no interference. [Paras 9]

Addition on account of household expenses is sustained.

Final Conclusion: The appeal is partly allowed: the lump-sum trading addition and the disallowance of direct freight and the adhoc disallowance of office/administrative expenses are deleted; the addition on account of household expenses is sustained.

Penalty for concealment of particulars of income or furnishing inaccurate particulars of income under section 271(1)(c) - certainty of charge at initiation and requirement of conclusive finding in the penalty order - scope of miscellaneous application under section 254(2) - limited to apparent error and not for rehearing or review

Penalty for concealment of particulars of income or furnishing inaccurate particulars of income under section 271(1)(c) - certainty of charge at initiation and requirement of conclusive finding in the penalty order - Validity of the penalty order where initiation used alternative charges (concealment/furnishing inaccurate particulars) and the penalty order concluded with a finding of furnishing inaccurate particulars but imposed penalty on concealed income. - HELD THAT: - The Tribunal had upheld the penalty after referring to precedents permitting use of alternative expressions at initiation provided the final penalty order reaches a decisive conclusion as to which default is alleged. The assessee contended that the charge remained uncertain both at initiation and in the penalty order, rendering the penalty vitiated. The Tribunal's order and the penalty order were examined: the AO in the penalty order expressly found the assessee guilty of "furnishing inaccurate particulars of income" to the extent specified. Given that the initiation allowed for alternative formulations but the penalty order contained a clear, specific finding on one mode of default, there is no infirmity in law or mistake apparent on the face of the record warranting interference in a miscellaneous application under section 254(2). The application was therefore dismissed insofar as it challenged the legality of the penalty on this ground. [Paras 8]

Challenge that the penalty was vitiated for uncertainty in charge is dismissed; the AO's conclusive finding of furnishing inaccurate particulars sustains the penalty and the Tribunal's confirmation is not interfered with.

Penalty for concealment of particulars of income or furnishing inaccurate particulars of income under section 271(1)(c) - scope of miscellaneous application under section 254(2) - limited to apparent error and not for rehearing or review - Whether the assessee's suo-motu filing of a revised computation and payment of tax, and the contention that penalty (if at all imposable) should be limited to tax sought to be evaded, required fresh adjudication or reduction of penalty by the Tribunal. - HELD THAT: - The assessee argued that a bona fide belief and subsequent voluntary compliance (revised computation and payment) mitigated or precluded imposition of full penalty, and that any penalty should be computed only on the tax sought to be evaded. The Tribunal considered the matter and recorded relevant findings (referred to at paragraph 11 of its order). The Appellate Tribunal in the present order noted that those findings have been addressed by the Tribunal and that revisiting them in a miscellaneous application would amount to a review or rehearing, which is beyond the restricted jurisdiction under section 254(2). There is no apparent error of record justifying interference; hence the contention for reduction or fresh consideration was refused. [Paras 8]

The Tribunal's treatment of the suo-motu revised computation and the quantum of penalty is upheld; no interference is warranted in the miscellaneous application.

Final Conclusion: Miscellaneous application under section 254(2) dismissed; the Tribunal's confirmation of the penalty stands because the AO's penalty order contains a specific finding of furnishing inaccurate particulars of income and the Tribunal's conclusions on voluntariness/revised computation and penalty quantum do not disclose an apparent error warranting review.

Penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income - show cause notice under Section 274 must specifically state the limb (concealment or furnishing inaccurate particulars) - requirement of definite grounds in penalty initiation and consequences for principles of natural justice - penalty proceedings are distinct and independent from assessment proceedings - deeming provisions in Explanation-1/1(B) and Explanation IB relevant to initiation of penalty proceedings

Show cause notice under Section 274 must specifically state the limb (concealment or furnishing inaccurate particulars) - penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income - principles of natural justice - Validity of the show cause notice and the consequent sustainment of penalty imposed under Section 271(1)(c). - HELD THAT: - The Tribunal examined whether the show cause notice issued to the assessee adequately specified whether penalty was being proposed for concealment of income or for furnishing inaccurate particulars of income. Relying on the reasoning and conclusions of the co ordinate bench and the principles laid down by the Hon'ble Karnataka High Court, it was held that a printed form which leaves both limbs intact without striking out the inapplicable limb fails to inform the assessee of the specific grounds he is called upon to meet and thus offends principles of natural justice. The court's reasoning - adopted herein mutatis mutandis - emphasises that initiation of penalty proceedings must disclose the exact limb relied upon; initiation on one limb and imposing penalty on another is impermissible; and, where the assessment or order does not disclose the requisite satisfaction or direction to initiate penalty proceedings, the notice must still plainly state the grounds so the assessee may fairly contest them. Applying these principles to the facts before it, the Tribunal found the show cause notice defective and, accordingly, that the penalty could not be sustained. The Tribunal therefore directed deletion of the penalty.

Show cause notice was defective for not specifying the limb of Section 271(1)(c); penalty set aside and deleted.

Final Conclusion: The penalty imposed under Section 271(1)(c) for assessment year 2014-15 is cancelled as the show cause notice failed to specify whether proceedings were for concealment of income or for furnishing inaccurate particulars, and the appeal is allowed.

Income from Business v. Income from House Property - Deduction under section 80ID of the Income-tax Act (eligibility of hotel income) - Management/License Agreement and the control test for characterisation of receipts - Intention to continue business and exploitation of commercial asset - Net minimum guarantee and characterization of guaranteed receipts - Use of statutory registrations, licences and accounting treatment as indicia of business

Income from Business v. Income from House Property - Deduction under section 80ID of the Income-tax Act (eligibility of hotel income) - Management/License Agreement and the control test for characterisation of receipts - Use of statutory registrations, licences and accounting treatment as indicia of business - Net minimum guarantee and characterization of guaranteed receipts - Whether the receipts of the assessee from the hotel operation are taxable as income from business (making the assessee eligible for deduction under section 80ID) or are to be treated as rent/lease income under the head Income from House Property. - HELD THAT: - The Tribunal examined the written agreement with the operator and the overall facts and circumstances. It acknowledged clauses granting operational control to the operator and a net minimum guarantee arrangement, but placed decisive weight on the factual matrix showing that the assessee retained and exercised attributes of carrying on the hotel business: licences and registrations (liquor licence, sanitary and performance licences), service tax/VAT/labour/PF/ESIC registrations in the name of the assessee, hotel receipts and payments routed through the assessee's bank account, sale invoices in the assessee's name, employees on the assessee's payroll and TDS certificates issued to the assessee. The Tribunal applied the established principle that the question whether receipts are business income or rent depends on the terms of exploitation of the commercial asset and the intention and position of the owner - whether the owner has abandoned the business or continues in it. Relying on the coordinate-bench precedent (Jai Mahal Hotel) and the test that exploitation of a commercial asset in a manner indicating retention of business intention results in business income, the Tribunal found that the assessee did not abandon the hotel business and continued to undertake the material operations and statutory responsibilities. On that basis the Tribunal held that the receipts are profits and gains of business and that the assessee is eligible for the deduction claimed under section 80ID.

The receipts from the hotel are assessable as income from business and the deduction under section 80ID is allowable; the revenue's appeal is dismissed.

Final Conclusion: On the facts and in law the Tribunal held that the assessee carried on the hotel business and that the receipts were business income (not rent/lease), making the claim under section 80ID admissible; the revenue appeal is dismissed.

Reopening of assessment under section 147 - reason to believe - change of opinion - audit objection not constituting material for reopening - application of section 43B - CENVAT credit and excise duty receivable treatment - consistency principle - low tax effect - CBDT Circular limiting appeals

Reopening of assessment under section 147 - reason to believe - change of opinion - audit objection not constituting material for reopening - Reopening of assessment for A.Y. 2009-10 was not in accordance with section 147 and was to be quashed. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the reassessment notice issued u/s 148 was based on facts and material already available to the Assessing Officer at the time of the original assessment and amounted to a mere change of opinion. The CIT(A) relied on the principle that an audit objection standing on the file does not by itself constitute fresh material to form a new 'reason to believe' under section 147, and that reopening on the same material to take a contrary view is impermissible. The Tribunal found the CIT(A)'s application of the relevant High Court precedent and the factual finding that no new material had emerged to be fair and reasonable, and therefore declined to interfere with the quashing of reassessment. [Paras 9]

Grounds challenging reopening (grounds 1-4) dismissed; reassessment for A.Y. 2009-10 quashed.

Application of section 43B - CENVAT credit and excise duty receivable treatment - consistency principle - Addition made by invoking section 43B in respect of excise duty receivable from DGFT for A.Y. 2009-10 was erroneous and was deleted. - HELD THAT: - The Tribunal affirmed the CIT(A)'s finding that the assessee had utilised CENVAT credit for payment of excise duty and the receivable from DGFT represented claimable reimbursement, not an outstanding liability attracting disallowance under section 43B. The decision emphasised consistency with earlier and subsequent assessment years where identical facts were considered and no addition under section 43B was made. On these grounds the Tribunal found the deletion by the CIT(A) to be justified and not liable to interference. [Paras 14]

Grounds relating to disallowance under section 43B (grounds 5-7) dismissed; addition deleted.

Final Conclusion: Both appeals by the Revenue are dismissed. The reassessment for A.Y. 2009-10 is quashed and the addition under section 43B is deleted; the appeal for A.Y. 2012-13 is dismissed on account of low tax effect in terms of the CBDT circular permitting the Department not to file appeals below the prescribed monetary threshold.

Deduction under Section 54F - ownership of residential house - Proviso to Section 54F - ownership of more than one residential house - Capital Gain Account Scheme deposit and Section 54F - mandatory interest under Sections 234A and 234B

Deduction under Section 54F - ownership of residential house - Proviso to Section 54F - ownership of more than one residential house - Capital Gain Account Scheme deposit and Section 54F - Whether the assessee was eligible for deduction under Section 54F for A.Y. 2013-14 where he owned other residential properties on the date of transfer of the original asset - HELD THAT: - The Tribunal examined whether the assessee owned more than one residential house on the date of transfer (01.03.2013). The record showed a registered agreement of purchase and a construction agreement for a bungalow at Lonawala and a complaint filed by the assessee in the Consumer Dispute Redressal Forum setting out defects in the constructed bungalow. Those documents established ownership of the bungalow; there was no evidence that the bungalow had been demolished or ceased to exist by the relevant date. The proviso to Section 54F disqualifies an assessee who "owns more than one residential house, other than the new asset, on the date of transfer" from claiming the deduction. Possession or habitability was held not to be decisive: the statutory test focuses on ownership. Consequently, having owned both the Lonawala bungalow and the Kamothe house on the date of transfer, the assessee was ineligible to claim deduction under Section 54F, and the amounts claimed (including the deposit in the Capital Gain Account Scheme) were rightly disallowed by the assessing officer and upheld by the CIT(A). [Paras 5, 9, 10]

Assessee ineligible for Section 54F deduction for A.Y. 2013-14 because he owned more than one residential house on the date of transfer; disallowance upheld

Mandatory interest under Sections 234A and 234B - Whether interest under Sections 234A and 234B was rightly levied - HELD THAT: - The Tribunal noted that levy of interest under Sections 234A and 234B is mandatory and, in the absence of any infirmity shown in the computation or charging of such interest, there was no reason to interfere with the assessing officer's action. The Tribunal relied on the settled position that interest under these provisions must be charged as applicable. [Paras 11]

Levy of interest under Sections 234A and 234B upheld

Final Conclusion: The appeal is dismissed; the disallowance under Section 54F (including the Capital Gain Account Scheme deposit) is upheld for A.Y. 2013-14, and the levy of interest under Sections 234A and 234B is sustained.

Allowability of interest expenditure under business deduction doctrine (Sec.36(1)(iii)) - disallowance under income-from-other-sources correlation rule (Sec.57(iii)) - admissibility of additional grounds/claims before appellate authority - remand for verification of entitlement to deduction

Allowability of interest expenditure under business deduction doctrine (Sec.36(1)(iii)) - interest-bearing advance - Vacating disallowance of interest expenditure in respect of amount shown against M/s Aristo Shelters Pvt. Ltd. - HELD THAT: - The Tribunal found on the record that the amount of Rs. 72,81,370/- reflected against M/s Aristo Shelters Pvt. Ltd. related to interest recoverable by the assessee in respect of an earlier interest-bearing loan of Rs. 25 crores. That interest had no nexus with the interest-bearing funds borrowed by the assessee from banks during the year under consideration. Independently, the loan to Aristo was advanced on interest. On these facts the disallowance effected by the assessing officer could not be sustained as a disallowance under Sec.36(1)(iii) was not warranted in respect of that amount. [Paras 9]

Disallowance in respect of the amount reflected against M/s Aristo Shelters Pvt. Ltd. is vacated; AO directed to delete the disallowance.

Allowability of interest expenditure under business deduction doctrine (Sec.36(1)(iii)) - remand for verification of entitlement to deduction - Remand for fresh adjudication of claim for deduction of interest expenditure in respect of advances to four parties under Sec.36(1)(iii). - HELD THAT: - The Tribunal held that the CIT(A) erred in summarily rejecting the assessee's claim to treat advances to M/s Atiti Builders and Constructors Pvt. Ltd., M/s Ayyappa Developers Pvt. Ltd., M/s Crystal City Mall Pvt. Ltd. and M/s Rikki Ronie Developers as business advances entitling the assessee to deduction under Sec.36(1)(iii). The claim was raised on the basis of facts already on record and therefore was admissible before the appellate authority (relying on the principle recognised by the Bombay High Court that additional factual claims may be raised before appellate authorities). Because the CIT(A) did not consider the claim on merits, the Tribunal directed that the matter be restored to the CIT(A) for verification of entitlement to deduction, consideration of commercial expediency and related facts (including correspondence on record), and for affording the assessee a reasonable opportunity of being heard. [Paras 10]

Matter restored to the file of the CIT(A) for fresh adjudication limited to the assessee's claim for deduction under Sec.36(1)(iii) in respect of the four advances, with directions to afford a reasonable opportunity to the assessee.

Admissibility of additional grounds/claims before appellate authority - Admission of additional grounds of appeal raised by the assessee before the Tribunal. - HELD THAT: - The Tribunal admitted the additional grounds because they raised a legal issue based on facts on record and were therefore entertainable in view of the principle that appellate authorities may permit additional grounds where they depend on facts already available on record (as indicated by the Tribunal referencing the Supreme Court's decision in National Thermal Power Company Ltd.). [Paras 5]

Additional grounds of appeal seeking alternative claim under Sec.36(1)(iii) were admitted.

Final Conclusion: Appeal allowed for statistical purposes: additional grounds admitted; disallowance in respect of interest recoverable from M/s Aristo Shelters Pvt. Ltd. vacated; claim for deduction in respect of advances to four other parties remitted to the CIT(A) for fresh consideration with an opportunity to the assessee to be heard.

Transaction value - inclusion of post-importation engineering, design and supervision charges in transaction value - condition of sale under Rule 9(1)(e) of the Customs Valuation Rules, 1988 - Interpretative Note to Rule 4 - exclusion of charges for construction, erection, assembly or technical assistance undertaken after importation - turnkey contracts and valuation - distinction between charges necessary for production of imported goods and post-importation services

Inclusion of post-importation engineering, design and supervision charges in transaction value - condition of sale under Rule 9(1)(e) of the Customs Valuation Rules, 1988 - Interpretative Note to Rule 4 - exclusion of charges for construction, erection, assembly or technical assistance undertaken after importation - Whether the charges for basic design and engineering, drawings and foreign supervision (relating to post-importation assembly, erection, commissioning and performance testing) could be added to the invoice value of imported plant and equipment for customs valuation under Rule 4 read with Rule 9(1)(e) of the Customs Valuation Rules, 1988. - HELD THAT: - The Court held that the disputed items related to post-importation activities and were not shown to be a condition of the sale of the imported equipments. Rule 9(1)(e) permits addition of payments made as a condition of sale, but the expression "condition" requires evidence that importation of the equipments was contingent on obtaining the services or drawings from the same supplier or that the buyer was obliged to make such payments as a pre-condition to the sale. No part of the contract demonstrated such a condition; the purchaser had the contractual right to change supplied goods and there was no material to show compulsion to obtain post-importation designs or supervision from the foreign vendor. The Interpretative Note to Rule 4 (which excludes charges for construction, erection, assembly or technical assistance undertaken after importation if distinguishable from the price actually paid) applies where the post-importation items are separable and paid for separately. The mere label or appearance of a turnkey project does not automatically attract Rule 9(1)(e); absent a specific finding of the requisite "condition", the value of post-importation engineering, drawings and supervision cannot be added to the assessable value of the imported equipments. Applying these principles to the facts, the Court found no basis to disturb the Tribunal's conclusion that the challenged charges were excluded from the transaction value and therefore could not be included in the assessable value for customs duty. [Paras 25, 26, 28, 29]

The additions sought by the revenue for basic design and engineering, drawings and supervision charges were not includible in the transaction value of the imported equipments; the Tribunal's order excluding those items is upheld.

Final Conclusion: The appeals are dismissed; the order of the Customs, Excise and Service Tax Appellate Tribunal, which excluded the disputed post-importation design and supervision charges from the assessable value of the imported equipment, is affirmed. There shall be no order as to costs and connected applications are disposed of.

Initiation of corporate insolvency resolution process - operational creditor - pre-existing dispute - interim measures under section 9 of the Arbitration and Conciliation Act, 1996 - financial service provider exclusion from "corporate person" - jurisdiction of adjudicating authority under the IBC - moratorium under section 14 of the IBC - appointment of interim resolution professional

Financial service provider exclusion from "corporate person" - initiation of corporate insolvency resolution process - Maintainability of an application under section 9 of the IBC against a respondent holding RBI registration as an NBFC/financial service provider - HELD THAT: - The Tribunal found on record that the respondent holds a valid Certificate of Registration from the RBI to carry on business as a non banking financial institution and that its memorandum contemplates financial activities. However, the Tribunal also found that, for the transaction under dispute, the respondent executed KYC and dealt with the applicant in the capacity of a Private Limited Company and that the RBI registration was not disclosed to the applicant at the time of executing the KYC or in the reply to the statutory demand. Having regard to those facts, the Tribunal held that the respondent cannot avoid liability in respect of the transaction under consideration by invoking the status of NBFC; accordingly the petition under section 9 of the IBC is maintainable against the respondent in respect of that transaction. [Paras 19, 28, 29]

Application under section 9 is maintainable against the respondent in respect of the transaction despite its RBI registration as an NBFC.

Pre-existing dispute - interim measures under section 9 of the Arbitration and Conciliation Act, 1996 - existence of dispute - Whether filing of an application under section 9 of the Arbitration and Conciliation Act for interim relief, without commencement of arbitral proceedings or a notice invoking arbitration, constitutes a pre-existing dispute barring admission under section 9 of the IBC - HELD THAT: - The Tribunal examined the scope of interim relief under section 9 of the Arbitration Act and the jurisprudence requiring that a notice or plausible contention of a dispute be brought to the operational creditor's notice to constitute a pre existing dispute. The respondent had filed an application under section 9 of the Arbitration Act seeking interim protection, but did not show commencement of arbitral proceedings or service of a notice invoking arbitration under section 21. The demand notice was delivered on 16 3 2018 and the respondent's reply arrived on 5 4 2018; the Tribunal treated the section 9 filing for interim measures as only an intention to initiate arbitration and not as establishing the existence of a dispute. Applying the test in Mobilox Innovations and related authorities, the Tribunal concluded that the contention based solely on the pending interim application was a patently feeble legal argument unsupported by evidence and did not amount to a pre existing dispute that would require rejection of the IBC application. [Paras 30, 31, 34]

The interim application under section 9 of the Arbitration Act did not establish a pre existing dispute; it did not bar admission of the section 9 IBC petition.

Jurisdiction of adjudicating authority under the IBC - overriding effect of the IBC - Whether this Tribunal has jurisdiction to entertain the section 9 application - HELD THAT: - The Tribunal noted that the registered office of the corporate debtor is situated in Jaipur and therefore the Tribunal has territorial jurisdiction to entertain and try the application. The Tribunal also observed the overriding effect of the Code vis a vis the Arbitration Act as relevant to adjudication of the application. [Paras 35]

This Tribunal has jurisdiction to hear and decide the application under the IBC; the Code has overriding effect where applicable.

Appointment of interim resolution professional - moratorium under section 14 of the IBC - Admission of the section 9 application and consequential orders including appointment of IRP and invocation of moratorium - HELD THAT: - Finding the application otherwise complete and not defeated by any established pre existing dispute or jurisdictional infirmity, the Tribunal admitted the section 9 petition. The Tribunal appointed an Interim Resolution Professional and directed him to carry out duties prescribed under the Code. The moratorium under section 14 was declared to be in effect for the corporate debtor and consequential directions regarding claims, publication and cooperation from management were issued. The applicant was directed to deposit funds to defray IRP expenses as ordered. [Paras 36, 37]

The section 9 application is admitted; IRP appointed and moratorium under section 14 is invoked.

Final Conclusion: The Tribunal admitted the operational creditor's petition under section 9 of the IBC, holding the application maintainable against the respondent despite its RBI registration as an NBFC in view of the respondent's conduct in the specific transaction; it rejected the respondent's contention that an interim application under section 9 of the Arbitration Act constituted a pre existing dispute barring admission, found the Tribunal to have jurisdiction, appointed an IRP and directed invocation of the moratorium and related consequences.

Exclusive jurisdiction clause - maintainability of a petition under section 9 of the IBC - pre-existing bona fide dispute - crystallisation of debt after reconciliation - IBC not to be used as a recovery mechanism

Exclusive jurisdiction clause - maintainability of a petition under section 9 of the IBC - Whether the petition under section 9 of the IBC is maintainable in view of an exclusive jurisdiction clause vesting disputes under the agreement in an Italian court. - HELD THAT: - The Tribunal found that the agreements between the parties contained an express clause making the Italian version authoritative and conferring jurisdiction on the courts in Italy, and that proceedings in the Tribunal of Vicenza, Italy, were pending in respect of the contractual dispute. Given that the subject-matter required interpretation under the Italian Civil Code and was before the Italian forum, the dispute fell within the exclusive jurisdiction of the Italian court and excluded the jurisdiction of Indian courts including this Tribunal. The timing of institution of the foreign proceedings was immaterial once the Italian court had cognisance of the dispute on the date of adjudication. On this ground the petition was held not maintainable. [Paras 7, 8]

Petition dismissed as not maintainable due to exclusive jurisdiction of the Italian courts.

Pre-existing bona fide dispute - crystallisation of debt after reconciliation - IBC not to be used as a recovery mechanism - Whether there was an undisputed, crystallised debt and default at the time of the demand notice so as to sustain a section 9 petition. - HELD THAT: - The Tribunal examined the contract terms that provided for reciprocal invoicing, set-off and reconciliation, and noted the respondent's contemporaneous communications that its books did not match the figures and reconciliation was required. A part payment was made during reconciliation. Relying on the settled principle that a clear, crystallised and undisputed debt is a sine qua non for initiating proceedings under section 9, the Tribunal concluded that no final undisputed debt existed at the time of the demand notice. The claim was therefore a recovery action rather than a proper insolvency proceeding; the existence of a bona fide dispute and the need for adjudication (then pending in Italy) precluded admission of the petition. [Paras 9, 10, 11, 12]

Petition dismissed for want of a clear, crystallised undisputed debt and because a bona fide dispute existed; petition impermissibly sought recovery through insolvency process.

Final Conclusion: The Company Petition under section 9 of the IBC is dismissed: the dispute falls within the exclusive jurisdiction of the Italian courts and, in any event, there was a bona fide dispute and no crystallised undisputed debt at the time of the demand notice; dismissal without costs, without prejudice to other proceedings to settle the payments.

Condonation of delay - infructuous writ petition - failure to prosecute appeal - revival of writ petition - counsel's negligence and relief

Condonation of delay - failure to prosecute appeal - counsel's negligence and relief - Applications for condonation of delay in filing the appeals and maintainability of the appeals filed after dismissal of the writ petition. - HELD THAT: - The impugned order of the first appellate authority was passed and communicated to the appellant in 2011 and was not brought to the attention of the Hon'ble High Court. The appellant's writ petition before the High Court remained pending and ultimately was held to have become infructuous because no stay had been granted and no appeal against the Commissioner (Appeals) order was then pending. The Tribunal noted the High Court's observation that revival could be sought if an appeal were pending. Because no appeal was pending at the relevant time and the order had been received by the appellant in 2011, the applications for condonation of delay-filed after a substantial delay-could not be entertained despite contentions of counsel's negligence. Reliance placed on the decision cited by the appellant was considered but the dispositive facts (non-prosecution of the appeal and the writ becoming infructuous) led to refusal of condonation. [Paras 5, 6, 7]

Applications for condonation of delay are dismissed and, consequently, the appeals are dismissed; the appellant has liberty to seek appropriate remedy before the appropriate forum.

Final Conclusion: The Tribunal dismissed the applications for condonation of delay and the appeals as time-barred because the impugned order was received in 2011, no appeal was pending when the writ was held infructuous, and therefore condonation could not be granted; the appellant retains liberty to pursue other appropriate remedies.

Movement of goods in course of inter-State trade or commerce - Explanation to Section 3 - termination of movement upon delivery being taken from carrier - benefit under Section 6(2) of the Central Sales Tax Act, 1956 - constructive delivery - administrative circulars imposing time-limits for termination of transit - ultra vires administrative instructions fettering quasi judicial discretion - relevance of Section 51, Sale of Goods Act, 1930 to duration of transit

Explanation to Section 3 - termination of movement upon delivery being taken from carrier - benefit under Section 6(2) of the Central Sales Tax Act, 1956 - Whether the termination of movement for the purposes of clause (b) of Section 3 is governed solely by the time when delivery is taken from the carrier, and whether tax authorities can impose a time limit for taking delivery as a condition to deny exemption under Section 6(2). - HELD THAT: - The first explanation to Section 3 creates a legal fiction that, where goods are delivered to a carrier for transmission, movement is deemed to terminate only when delivery is taken from that carrier. The provision contains no temporal qualification of the word 'delivery' and does not incorporate a concept of constructive delivery or permit the tax administration to supply a statutory time limit within which physical delivery must be taken. Consequently, administrative fixation of a cut off period for concluding transit and denying the benefit of Section 6(2) is impermissible; if the legislature intended a temporal limitation, it must enact such an amendment. The Court therefore upholds the High Court's conclusion that there is no scope to read a timeframe into the deeming provision in Section 3. [Paras 12, 15]

Movement terminates only when delivery is taken from the carrier as per the first explanation to Section 3; tax authorities cannot lawfully impose a timeframe as a condition to deny exemption under Section 6(2).

Administrative circulars imposing time-limits for termination of transit - ultra vires administrative instructions fettering quasi judicial discretion - Whether the circulars issued by the Commissioner of Commercial Taxes imposing or suggesting specific reasonable periods (ten or thirty days) for treating transit as ended are valid. - HELD THAT: - The Rajasthan High Court had quashed the two circulars which sought to prescribe or endorse temporal limits and to direct assessing authorities to invoke the doctrine of constructive delivery after such periods. The Supreme Court agrees that such circulars seek to add a qualification to the statutory deeming provision and unduly fetter the quasi judicial discretion of assessing authorities by supplying words omitted by the legislature. There is no statutory power enabling the Commissioner to issue directions that bind assessing authorities to adopt a particular legal interpretation that effectively amends the statute. The High Court's finding that the circulars were ultra vires and were rightly quashed is sustained. [Paras 7, 13]

The circulars prescribing or endorsing ten or thirty day cut offs are ultra vires and cannot be used to deny exemption under Section 6(2).

Relevance of Section 51, Sale of Goods Act, 1930 to duration of transit - Whether Section 51 of the Sale of Goods Act, 1930 furnishes a separate statutory basis for treating transit as terminated by acknowledgment or other events so as to support the revenue's case. - HELD THAT: - Section 51 defines when goods are deemed to be in transit and gives examples of circumstances in which transit ends (for example, where the carrier acknowledges possession on behalf of the buyer). The record does not show any acknowledgment by the carrier that it held the goods as bailee for the buyer in these appeals. Thus Section 51 does not supply material to justify denying the exemption on the facts before the authorities, and it does not validate the administrative imposition of a temporal cut off where no statutory qualification exists in the CST deeming provision. [Paras 13, 14]

Section 51 does not assist the revenue on the facts; there is no evidence of the carrier's acknowledgment, and it does not cure the absence of a statutory temporal limitation in the CST provisions.

Final Conclusion: The High Court's orders upholding exemption under Section 6(2) in the cases before it and quashing the Commissioner's circulars are sustained. Administrative instructions prescribing temporal cut offs for termination of transit are ultra vires; the statutory deeming in Explanation 1 to Section 3 controls termination of movement and, in the absence of legislative change, delivery means taking delivery from the carrier. The appeals are dismissed.

Maintainability of writ petition - alternative and efficacious remedy - writ jurisdiction under Article 226 - duty to record reasons for exercise of writ jurisdiction despite alternative remedy - appeal under Section 62 of the Karnataka Value Added Tax Act, 2003 - input tax credit claim via audit statement in Form VAT 240 - entertaining writ despite availability of statutory appeal

Maintainability of writ petition - alternative and efficacious remedy - duty to record reasons for exercise of writ jurisdiction despite alternative remedy - appeal under Section 62 of the Karnataka Value Added Tax Act, 2003 - Whether the writ petitions were maintainable in view of the availability of a statutory appeal under Section 62 and whether the writ court ought to have recorded reasons for exercising writ jurisdiction. - HELD THAT: - The Court found that a preliminary objection as to maintainability - namely that an alternative and efficacious remedy of statutory appeal under Section 62 existed - was raised but not answered by the learned Single Judge. The High Court held that where such an alternative remedy is available the writ court must first consider and record why it is exercising its extraordinary jurisdiction under Article 226 instead of directing the party to the statutory appellate remedy. The impugned order was therefore incorrect in proceeding to decide the merits without addressing maintainability. The Court relied on the availability and scope of the appellate remedy under Section 62 as a reason why the writ court should not have entertained the petitions without recording justification for doing so. [Paras 11, 12]

The writ court should have addressed the availability of the statutory appeal and recorded reasons for entertaining the writ petitions; entertaining the matter without such consideration was erroneous.

Input tax credit claim via audit statement in Form VAT 240 - entertaining writ despite availability of statutory appeal - Whether, on the merits, interference with the reassessment and rectification orders was warranted. - HELD THAT: - Although the High Court found fault with the Single Judge's failure to consider maintainability, it examined the merits to the extent recorded and observed that the learned Single Judge did not find any ground to interfere with the reassessment and rectification orders. The appellate court, after considering submissions, saw no good ground to interfere with the learned Single Judge's conclusion on merits and therefore declined to disturb the orders under challenge. [Paras 13]

No interference with the impugned orders on merits; the writ appeal dismissed.

Final Conclusion: The High Court held that the Single Judge erred in entertaining the writ petitions without first answering the preliminary objection of an available statutory appeal under Section 62 and recording reasons for exercising writ jurisdiction; however, since no merit was found to disturb the reassessment and rectification orders, the writ appeal was dismissed and no interference was made with the impugned orders.

Duplication of proceedings - re-assessment - scope of quashing proceedings - partial quashing limited to specific period

Duplication of proceedings - partial quashing limited to specific period - Whether the writ court erred in quashing the entire reassessment proceedings as duplication where earlier reassessments had been concluded only for part of the period. - HELD THAT: - The High Court found that earlier reassessments had been completed specifically for the period April to July 2009, while the impugned reassessment proceedings and notice related to the broader period 2009-10 (April 2009 to March 2010). Quashing the entire proceedings on the ground of duplication was therefore excessive. The correct approach is to confine quashing to the time-span already subjected to prior reassessment and allow the reassessment to proceed for the remaining period. Applying this principle, the learned Single Judge's order was modified to set aside proceedings only for the period April to July 2009, and the reassessment for the balance period was permitted to continue.

Proceedings quashed only for April to July 2009; reassessment may continue for the remaining period April 2009 to March 2010.

Final Conclusion: Writ appeal allowed in part; the Single Judge's order quashing the entire reassessment proceedings is set aside insofar as it extended beyond the period already reassessed (April to July 2009), and the reassessment proceedings shall continue for the remaining period.

Judicial review of transfer orders - Administrative exigency of service - Transfer policy/guidelines do not confer a legally enforceable right - Mala fide and statutory violation as limits to interference with transfers - Jurisdiction of the Central Administrative Tribunal and writ maintainability

Judicial review of transfer orders - Mala fide and statutory violation as limits to interference with transfers - Administrative exigency of service - Whether the Tribunal exceeded its jurisdiction in quashing the transfer order of the respondent. - HELD THAT: - The High Court held that the Tribunal impermissibly substituted its judgment for the administrative authority by quashing the common transfer order. Reliance was placed on Supreme Court precedents establishing that transfers are incidents of service and ordinarily attract judicial restraint; interference is warranted only where the order is vitiated by mala fides, violates statutory provisions, or is passed by an incompetent authority. The transfer in the present case formed part of a single administrative exercise involving 94 officers and was undertaken due to administrative exigency and prior litigation-related delay. The Tribunal exceeded its jurisdiction by setting aside the transfer on grounds of hardship and the respondent's proximity to superannuation without establishing mala fide or statutory illegality. [Paras 20, 21]

The Tribunal exceeded its jurisdiction in quashing the transfer; its judgment was set aside and the Original Application dismissed.

Transfer policy/guidelines do not confer a legally enforceable right - Administrative exigency of service - Whether the DoPT guideline regarding consideration for officers nearing superannuation applied to the respondent and justified quashing the transfer. - HELD THAT: - The Court examined the respondent's date of birth and the timing of the transfer order and concluded that the respondent had over two years and nine months of service remaining at the time of transfer. The departmental guideline, which ordinarily gives weight to requests by officers with two years or less to superannuation, therefore did not apply. The Court emphasised that executive transfer guidelines are administrative in nature and do not create a legally enforceable right to a particular posting; they must, however, be considered by the authority in light of administrative exigencies. [Paras 12]

The guideline for officers nearing superannuation was not attracted in the respondent's case and did not warrant quashing the transfer.

Jurisdiction of the Central Administrative Tribunal and writ maintainability - Judicial review of transfer orders - Whether the writ petition challenging the Tribunal's order was maintainable and whether the Tribunal's jurisdiction equates to that of a civil court. - HELD THAT: - The Court rejected the contention that the writ petition was not maintainable on the basis that the Central Administrative Tribunal is a civil court; it reiterated that the Tribunal is a statutory forum under Article 323-A and that its orders are amenable to writ jurisdiction before the High Court as enunciated by the Supreme Court. The decision noted that the Tribunal's jurisdiction in service matters is akin to the High Court's jurisdiction under Article 226, and constraints on interference apply equally to the Tribunal. Thus, the challenge to the Tribunal's order by way of writ petition was rightly entertained. [Paras 11]

The writ petition against the Tribunal's order was maintainable; the Tribunal is not to be equated with a civil court for excluding writ jurisdiction.

Final Conclusion: Writ petition allowed; the Tribunal's judgment dated 24.01.2020 quashing the transfer order was set aside, the Original Application dismissed, and the transfer order restored.

Criminal breach of trust - Entrustment of property - Ingredients of Section 405 IPC - Breach of employment contract versus criminal offence - Predominantly civil dispute - Quashing of criminal proceedings under Section 482 CrPC

Criminal breach of trust - Entrustment of property - Ingredients of Section 405 IPC - Breach of employment contract versus criminal offence - Whether the allegations that the petitioners incorporated a rival company and used respondent's software during their employment attract the ingredients of offences under Sections 405, 406 and 408 IPC and warrant continuation of criminal proceedings. - HELD THAT: - The Court found no material showing that any property was entrusted to the petitioners within the meaning of Section 405 IPC, or that any entrusted property was dishonestly misappropriated or converted by them. Although the company in question was incorporated during the petitioners' employment, the documentary record indicates that business operations, including registrations and commencement of activities, occurred only after their resignation. Further, the evidence relied upon by the prosecution establishes that the exclusive rights in the alleged software vested with a third party (Smartcomm) and that respondent No.2 was its distributor, undermining any claim that respondent No.2 held title to the software which could have been entrusted and misappropriated by the petitioners. Accepting the allegations at best demonstrates a breach of employment obligations, for which a civil remedy has been invoked by respondent No.2. Applying the principle that where the factual matrix predominantly raises civil wrongs rather than criminal offences the criminal process should not be permitted to continue, and having regard to the absence of ingredients of Section 405 IPC, the prosecution could not be sustained. [Paras 12, 13, 14]

Proceedings in C.C.No.24121/2015 quashed as the facts do not disclose the offences under Sections 405, 406 and 408 IPC.

Final Conclusion: The petition is allowed; criminal proceedings are quashed because the materials do not disclose entrustment or dishonest misappropriation necessary for offences under Sections 405/406/408 IPC, and the dispute is essentially civil in nature without warranting continuation of criminal prosecution.