TaxTMI Updates e-Newsletter
May 06,2016

Disallowance under Rule 8D(ii) - expenditure to political parties and section 37(2B) - disallowance of interest where borrowed funds not applied to interest free advances - adhoc disallowance for personal element in business expenses - addition on account of alleged non genuine/bogus purchases - evidentiary value of statements recorded under section 133A

Disallowance under Rule 8D(ii) - Exclusion of strategic investments in joint ventures while computing disallowance under Rule 8D(ii). - HELD THAT: - The CIT(A) held that in computing the average value of investments ('B' in the formula), only investments yielding exempt income must be taken into account and strategic investments in joint ventures not yielding exempt income should be excluded. The Tribunal, following precedent of the Delhi High Court and coordinate Bench decisions of this Tribunal, found no infirmity in the CIT(A)'s direction to adopt the assessee's share investment figure instead of the larger amount taken by the Assessing Officer and upheld deletion of the Rule 8D(ii) disallowance. [Paras 5, 6, 7]

Order of CIT(A) deleting the disallowance under Rule 8D(ii) by excluding strategic joint venture investments is confirmed.

Expenditure to political parties and section 37(2B) - Allowability of expenditure characterized as donation to a political party and applicability of section 37(2B). - HELD THAT: - The Assessing Officer disallowed amounts treating them as advertisement in a political party's souvenir etc. The CIT(A) accepted the assessee's case that the amounts were donations and not payments for political advertisement within the scope of section 37(2B). The Tribunal found that there was no evidence of advertisement expenditure and that the expenditure was incurred wholly and exclusively for business; accordingly the CIT(A)'s deletion of the disallowance was confirmed. [Paras 8, 9, 10]

Disallowance under section 37(2B) is deleted and the CIT(A)'s order is confirmed.

Disallowance of interest where borrowed funds not applied to interest free advances - Whether interest on borrowed funds is disallowable when advances were made out of interest free capital. - HELD THAT: - The AO disallowed interest attributing an imputed interest to interest free advances. The CIT(A) found from balance sheet figures that the assessee had sufficient interest free funds/capital and borrowed monies were not used for advancing interest free loans, relying on the jurisdictional High Court authority that, where interest free funds suffice, a presumption arises that investments/advances were out of such funds. The Tribunal accepted the CIT(A)'s factual finding as supported by record and upheld deletion of the interest disallowance. [Paras 11, 12, 13]

Disallowance of interest is deleted; CIT(A)'s finding that advances were out of own capital is upheld.

Adhoc disallowance for personal element in business expenses - Extent of permissible adhoc disallowance in respect of telephone and vehicle expenses alleged to contain personal element. - HELD THAT: - The Assessing Officer made an adhoc disallowance for possible personal use; the CIT(A) deleted the adhoc addition after the assessee produced vouchers and the AO had no material to demonstrate personal use. The Tribunal found that some personal element could not be ruled out and, balancing the facts, restricted the disallowance to 10% of such expenses, allowing the appeal in part. [Paras 14, 15, 16]

CIT(A)'s deletion is modified: disallowance restricted to 10% of the relevant expenses (appeal allowed in part).

Addition on account of alleged non genuine/bogus purchases - evidentiary value of statements recorded under section 133A - Whether purchases from suppliers appearing in a 'suspicious dealers' list can be treated as bogus and additions sustained where AO relied primarily on survey statements and an external list. - HELD THAT: - The AO added purchases as non genuine relying on a Sales Tax Department list and survey statements; notices under section 133(6) were issued to only two suppliers and the AO did not conduct basic bank/creditor enquiries. The CIT(A) examined contract documents, site certifications by municipal engineers, testing reports, running bills and payment certificates, and concluded materials were received and utilised and that statements recorded under section 133A lack independent evidentiary value absent corroboration. The Tribunal found the CIT(A)'s detailed factual findings supported by material on record, noted absence of any positive contrary material from the Revenue, and refused to interfere with deletion of the addition. [Paras 17, 18, 20]

Addition on account of alleged non genuine purchases is deleted; CIT(A)'s findings are sustained.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletions on the major additions except that it allowed the Revenue's challenge in part by sustaining a 10% adhoc disallowance on telephone/vehicle expenses; the Revenue's appeal is otherwise dismissed (appeal allowed in part).

Payment for shrink wrap software not royalty - business income not taxable in absence of Permanent Establishment - distinction between transfer of copyright and sale of a copyrighted article - definition of royalty under DTAA narrower than under domestic law - application of OECD commentary on software transactions - rule of construction in taxing statutes favouring the assessee where two reasonable views exist - nondiscrimination under DTAA as basis for preferring assessee favourable view

Payment for shrink wrap software not royalty - distinction between transfer of copyright and sale of a copyrighted article - business income not taxable in absence of Permanent Establishment - definition of royalty under DTAA narrower than under domestic law - application of OECD commentary on software transactions - Whether amounts received from Indian resellers for supply of shrink wrap computer software are taxable in India as royalty or are business receipts not taxable in the absence of a PE. - HELD THAT: - The Tribunal, following well reasoned orders of coordinate benches and authoritative decisions (including the Delhi High Court in DIT v. Ericsson A.B. and the AAR in Dassault Systems KK), held that the receipts for shrink wrap software represent the sale of a copyrighted article or commercial receipts and do not amount to payment for transfer or use of copyright within the meaning of the DTAA. The Tribunal applied the OECD commentary approach distinguishing (i) payments that confer rights to exploit a copyright (royalties) from (ii) payments that merely enable the user to operate a programme (commercial income), and noted that incidental rights to copy onto a hard disk to make the software operative do not, by themselves, constitute transfer of copyright. The decision in Tata Consultancy Services was applied to treat software embodied on a medium as goods in the relevant context. Because the assessee is a non resident without a Permanent Establishment in India, such business receipts are not taxable in India under Article 7 of the DTAA. The Tribunal also applied the principle that where two reasonable constructions are possible the construction favourable to the assessee should be adopted, and invoked the DTAA nondiscrimination provision to reject the Department's submission that this rule should not apply to non residents. [Paras 6, 7]

Receipts from software sales are not royalty; they are business receipts not taxable in India in the absence of a PE, and the addition is deleted.

Final Conclusion: Appeal allowed; impugned addition on account of software receipts deleted and receipts for AY 2007-08 held not exigible to tax in India.

Proviso to section 2(15) - activities in the nature of trade, commerce or business and rendering of services for a fee - charitable purpose - advancement of any other object of general public utility - application of income for exemption under section 11 - treatment of lump sum long term lease receipts - revenue receipt v. capital transaction - allowance of depreciation vis a vis deduction as application of income (double deduction) - consequential levy of interest under sections 234A and 234B

Proviso to section 2(15) - activities in the nature of trade, commerce or business and rendering of services for a fee - charitable purpose - advancement of any other object of general public utility - Whether the proviso to section 2(15) applies to the Karnataka Industrial Areas Development Board for the Assessment Year 2010-11 - HELD THAT: - The Tribunal examined the objects, statutory framework and functioning of the Board under the Karnataka Industrial Areas Development Act, 1966, the nature of its income streams and the decision of this Tribunal in the assessee's own case for AY 2009-10 (paras 18-49 of that order). Applying the principles discussed by the Hon'ble Delhi High Court in India Trade Promotion Organization (as set out in the order), the Tribunal held that the proviso to section 2(15) is directed at institutions driven primarily by profit motive and that the dominant and prime objective must be seen. On the facts, the Board is a creation of statute, functions within a ring fenced public law framework, operates on a no profit-no loss basis for its core activity of industrial development, and its surplus mainly arises from passive interest income. The Tribunal concluded that the Board is not driven primarily by profit making and therefore the proviso to section 2(15) is not attracted to its case. [Paras 6]

Proviso to section 2(15) is not applicable to the assessee; the assessee is to be regarded as established for charitable purposes

Application of income for exemption under section 11 - Whether the assessee has satisfied the conditions of application of income under section 11 so as to claim exemption for the year under consideration - HELD THAT: - Although the Tribunal held that the proviso to section 2(15) does not apply, it observed that the authorities below have not examined the question of application of income under section 11. The Tribunal accordingly directed the Assessing Officer to verify whether the assessee satisfies the requirements of section 11 as to application of income for claiming exemption, leaving that factual and compliance verification to the AO. [Paras 6]

Remitted to the Assessing Officer for verification of compliance with section 11 regarding application of income

Treatment of lump sum long term lease receipts - revenue receipt v. capital transaction - Whether the addition made by the Assessing Officer of the lump sum lease charges (treated as understated income) is sustainable - HELD THAT: - The Auditor General had flagged lease transactions. The AO treated the entire lump sum receipt as revenue on the ground that the long lease amounted to transfer. The Tribunal examined the legal nature of the lease transactions, the fact that lease did not confer absolute ownership until conversion to freehold by conveyance and payment of unearned premium, and the assessee's consistent accounting practice of recognizing lease receipts proportionately over the lease period. In absence of material showing tax avoidance by that accounting policy and given long standing consistent treatment accepted in earlier years, the Tribunal found no basis to disturb the assessee's method. [Paras 7]

Addition on account of the lump sum lease receipts deleted; orders of authorities below set aside on this issue

Allowance of depreciation vis a vis deduction as application of income (double deduction) - Whether depreciation can be allowed where the cost of acquisition of the asset had earlier been claimed as application of income (revenue's plea that allowing depreciation would amount to double deduction) - HELD THAT: - The Tribunal followed the consistent view of coordinate benches and relevant High Court precedents that depreciation debited in the books is deductible while computing income for the purposes of section 11(1) and that allowing depreciation does not amount to impermissible double deduction in the circumstances of charitable institutions. The Tribunal referred to the co ordinate bench decision in DCIT v. Jyothi Charitable Trust and authorities distinguishing Escorts Ltd. The Tribunal noted a subsequent prospective legislative amendment (Finance (No.2) Act, 2014 w.e.f. 1.4.2015) but held it inapplicable to the year under consideration. [Paras 9]

Revenue's grounds on double deduction rejected; claim for depreciation permitted for the year under consideration

Consequential levy of interest under sections 234A and 234B - Whether interest under sections 234A and 234B is leviable - HELD THAT: - The Tribunal treated the levy of interest as consequential and mandatory. As the substantive disputes (exemption and computation issues) were decided in part in favour of the assessee (and one issue remitted for verification), the levy of interest was to follow the corrected assessment as applicable; no independent interference on merits of interest was warranted in the impugned order. [Paras 8]

Interest consequences to follow the result of substantive issues; no separate interference with the levy in the impugned order

Final Conclusion: The assessee's appeal is partly allowed and the revenue's appeal is dismissed: the proviso to section 2(15) is not attracted to the assessee; the addition on account of lump sum lease receipts is deleted; the claim for depreciation is sustained (revenue's double deduction plea rejected); the question of application of income under section 11 is remitted to the Assessing Officer for verification; interest consequences to be determined in accordance with the corrected assessment.

Fees for technical services - "make available" - reimbursement of expenses - chargeability to tax - withholding tax under section 195 - beneficial provisions of DTAA

Reimbursement of expenses - chargeability to tax - withholding tax under section 195 - Whether the payment made to TTPL was merely reimbursement of group costs and therefore not a sum chargeable to tax so as to attract withholding obligation under section 195 of the Act. - HELD THAT: - The Tribunal accepted the assessee's uncontested case that TTPL merely pooled and recharged group costs to INCAT entities at cost without any mark-up and acted as a conduit/agent for allocation. In the absence of any profitable element or quid pro quo constituting income in the hands of the recipient, such payments amounted to reimbursement of actual expenditure. Section 195 applies only where the sum paid is chargeable to tax under the Act; if no element of income is embedded in the transaction, there is no obligation to deduct tax at source. Reliance was placed on precedents and the settled principle that mere cost sharing or reimbursement without profit does not give rise to taxable income, and therefore the AO's finding of default under section 201(1) could not be sustained. [Paras 9]

Payment held to be reimbursement of group costs not chargeable to tax; no obligation to withhold tax under section 195 on that basis.

Fees for technical services - "make available" - beneficial provisions of DTAA - Whether, alternatively, the payment fell within the definition of "fees for technical services" under Article 12 of the India-Singapore DTAA by virtue of services that "make available" technical knowledge, skill or know how. - HELD THAT: - The Tribunal examined Article 12(4)(b) and the jurisprudence interpreting "make available" and concluded that services qualify as FTS under the treaty only when the provider supplies or transfers technical knowledge, skill or processes such that the recipient can apply the technology independently after the contract ends. Although technical inputs may have gone into the services rendered by group companies, those inputs were not imparted or retained by the assessee in a manner enabling independent future use. Therefore the payments did not "make available" technical knowledge within the meaning of the treaty and did not constitute FTS. Given that the DTAA provision is more beneficial to the assessee under section 90(2), the treaty exclusion prevails over the domestic charging provision and negates the withholding obligation. [Paras 10, 11]

Payment does not constitute "fees for technical services" under Article 12 of the India-Singapore DTAA as it did not "make available" technical knowledge; DTAA therefore prevents taxation and withholding in India.

Final Conclusion: The Revenue's appeal is dismissed: the remittance to TTPL was held to be a non taxable reimbursement and, in any event, did not constitute FTS under the India-Singapore DTAA; consequently the assessee had no legal obligation to deduct tax at source and the order under section 201/201(1A) is quashed.

Transfer pricing adjustments - arm's length price - notional interest on loans and advances - guarantee commission as arm's length consideration - disallowance under section 40(a)(ia) - retrospective effect of proviso to section 40(a)(ia) - disallowance under section 14A read with rule 8D - remand to the Assessing Officer for fresh examination and verification

Notional interest on loans and advances - remand to the Assessing Officer for fresh examination and verification - Adjustment on account of notional interest on interest-free loans/advances to associated enterprises was not finally adjudicated and was set aside to the Assessing Officer for fresh decision. - HELD THAT: - The Tribunal noted prior treatment of similar issue in earlier assessment years and observed that factual verification and fresh application of law are required. Following the Tribunal's earlier approach, the matter was remitted to the file of the Assessing Officer with directions to examine the claim, consider relevant comparables and facts, and decide after giving the assessee an effective opportunity of hearing. [Paras 7, 22]

Remitted to the Assessing Officer for fresh adjudication in accordance with law; ground allowed for statistical purposes.

Guarantee commission as arm's length consideration - transfer pricing adjustments - Quantum of notional guarantee commission chargeable to associated enterprises determined at 0.5% as arm's length price. - HELD THAT: - Tribunal followed its precedents in the assessee's own case for earlier years where, on identical facts, guarantee commission as the ALP was fixed at 0.5%. The Transfer Pricing Officer's computation at higher percentages was held inconsistent with earlier co-ordinate Bench decisions on the same factual matrix; the Assessing Officer was directed to adopt 0.5% in computing the ALP. [Paras 8, 10]

Adjustment reduced and ALP for guarantee commission fixed at 0.5%; ground partly allowed.

Disallowance under section 40(a)(ia) - retrospective effect of proviso to section 40(a)(ia) - No disallowance under section 40(a)(ia) if the payee has filed return, included the sum in income and paid tax; Assessing Officer to verify whether payees were assessed and whether the assessee claimed the expenditure. - HELD THAT: - The Tribunal held that the proviso inserted by the Finance Act, 2012, is curative/clarificatory and should be given retrospective effect; consequently if the payee has accounted for the sum and paid tax, the assessee cannot be treated as assessee-in-default and no disallowance under section 40(a)(ia) is permissible. Separately, if the assessee has not debited the expenditure to profit and loss, disallowance would not arise. The AO was directed to verify these factual aspects. [Paras 14]

Disallowance under section 40(a)(ia) set aside subject to verification by the Assessing Officer; ground allowed.

Disallowance under section 14A read with rule 8D - Disallowance under section 14A read with rule 8D restricted to the amount of exempt dividend income received. - HELD THAT: - The Tribunal found investments were strategic (to obtain control) and not held merely for earning exempt income; in any event the dividend income was Rs. 7,24,508 and on principle (and authority) disallowance cannot exceed exempt income. The large disallowance made by the Assessing Officer was therefore excessive and was directed to be restricted to the exempt dividend amount. [Paras 19]

Disallowance under section 14A/read with rule 8D restricted to Rs. 7,24,508; ground partly allowed.

Arm's length price - transfer pricing adjustments - Adjustment made by adopting LIBOR/interest rates for continuing debit balances (treatment of debit balances as international transaction) was deleted following Tribunal precedent. - HELD THAT: - Following the Tribunal's earlier decisions in the assessee's own case, a continuing debit balance standing in the account of an associated enterprise was not treated as an independent international transaction warranting LIBOR-based interest adjustments without appropriate comparables; since no proper comparable exercise was carried out, the addition was unsustainable and was deleted. [Paras 24]

Addition based on treating continuing debit balance as international transaction and applying LIBOR/interest rates deleted; ground dismissed (in favour of assessee).

Final Conclusion: The assessee's appeal in part allowed: (i) notional interest issue remitted to the Assessing Officer for fresh decision; (ii) guarantee commission reduced to 0.5% as ALP; (iii) disallowance under section 40(a)(ia) disallowed subject to verification of payee assessment and assessee's claim; (iv) section 14A disallowance restricted to the exempt dividend amount. Revenue's appeal partly allowed for statistical purposes in respect of remanded/deleted adjustments.

Depreciation under Section 32-assets used for purposes of business or profession - Commercial principle of computing income does not override specific statutory provisions - Charitable trusts and exemption under Section 11 are distinct from business activities - Section 11(4) & (4A)-business undertaking held as property under trust treated under Chapter IV for computation

Depreciation under Section 32-assets used for purposes of business or profession - Charitable trusts and exemption under Section 11 are distinct from business activities - Whether a charitable institution is eligible for depreciation in respect of assets used as tools to carry out its charitable object - HELD THAT: - The Tribunal held that Section 32 permits depreciation only in respect of assets "used for the purposes of the business or profession" and that the Act contains no provision for depreciation of assets not so used. Depreciation is an allowance provided as an incentive for wear and tear of business or professional assets and is part of the scheme for computing income under Chapter IV. A charitable institution registered under Section 12AA and claiming exemption under Section 11, which is not carrying on any business or profession, cannot claim depreciation on assets employed merely as tools for carrying out charitable objects. The Tribunal therefore concluded that the assessee was not eligible for depreciation under Section 32 in the facts of the case. [Paras 6, 7, 13, 14]

Claim for depreciation disallowed; assessee not eligible for depreciation under Section 32 where assets are used only for charitable purposes and the assessee is not carrying on business or profession.

Commercial principle of computing income does not override specific statutory provisions - Depreciation under Section 32-assets used for purposes of business or profession - Whether computation on commercial or customary accounting principles entitles a charitable trust to claim depreciation contrary to Section 32 - HELD THAT: - The Tribunal rejected the contention that customary or commercial methods of accounting can displace or override the specific statutory provision contained in Section 32. While commercial principles may provide for depreciation in accounts, the Income-tax Act prescribes the method and heads under which depreciation is allowable; Section 32 is a specific provision applicable to business or professional income. Where there is a conflict between customary accounting practice and the statutory scheme, the statutory provision prevails. [Paras 8, 9, 10]

Commercial or customary accounting practice does not permit allowance of depreciation against the specific statutory requirements of Section 32; Section 32 prevails.

Section 11(4) & (4A)-business undertaking held as property under trust treated under Chapter IV for computation - Charitable trusts and exemption under Section 11 are distinct from business activities - Whether depreciation would be allowable if the trust held a business undertaking as property under trust under Section 11(4) & (4A) - HELD THAT: - The Tribunal noted that where a business undertaking is held as property of the trust (as envisaged by Section 11(4) & (4A)), the income of that undertaking must be computed applying Chapter IV provisions, and in that computation expenditure including depreciation would be allowable; that income could thereafter be claimed as exempt under Section 11 on application/accumulation. However, in the present case no business undertaking was held as property of the trust, and the assets in question were used merely as tools for charitable activities. Consequently Section 11(4)/(4A) does not apply and depreciation cannot be allowed on that basis. [Paras 12]

Depreciation allowable when a business undertaking is held as trust property and income is computed under Chapter IV; not applicable here as no such business undertaking existed.

Final Conclusion: The appeal is dismissed; the assessee, a registered charitable institution not carrying on business or profession and claiming exemption under Section 11, is not entitled to depreciation under Section 32 for assets used solely to carry out charitable objects, commercial accounting principles do not override the statutory scheme, and Section 11(4)/(4A) permitting depreciation applies only where a business undertaking is held as trust property.

Application of section 68 to unexplained trade creditors - treatment of amounts representing purchases on credit where purchases and sales are accepted - disallowance under section 40A(3) and the proviso - business expediency and Rule 6DD - prohibition on double additions where additions inflate profit abnormally

Application of section 68 to unexplained trade creditors - treatment of amounts representing purchases on credit where purchases and sales are accepted - Deletion of additions made by the Assessing Officer treating sundry trade creditors as unexplained credits under section 68 - HELD THAT: - The Assessing Officer added amounts as unexplained credits under section 68 because confirmation from trade creditors and purchase bills were not produced. The Tribunal found, however, that the AO had accepted the assessee's purchases, sales and trading results and determined net profit on that basis. Where outstanding creditors arise from accepted credit purchases, they cannot be treated as bogus liabilities merely because confirmations were not obtained, particularly in the context of an unorganised market where dealings are made on trust and suppliers may not disclose identities. The AO's sole reliance on non-receipt of confirmations, despite acceptance of books and trading results, does not justify invoking section 68. Further, the scale of additions produced unrealistically high profit ratios compared to the nature of the retail garment business, indicating impermissible high pitched assessment. [Paras 11, 12, 13, 21]

The deletion of additions under section 68 by the CIT(A) is upheld; trade creditors standing on account of accepted credit purchases cannot be treated as unexplained credits.

Disallowance under section 40A(3) and the proviso - business expediency and Rule 6DD - prohibition on double additions where additions inflate profit abnormally - Deletion of disallowance made by the Assessing Officer under section 40A(3) for payments made in cash or by bearer cheques - HELD THAT: - Section 40A(3) permits disallowance of payments made in cash above the statutory limit, but the proviso (and Rule 6DD) exempts payments where business expediency, banking facilities and other relevant factors justify cash payment. The Tribunal accepted the assessee's case that she dealt with unorganised suppliers in the Kolkata market who insisted on cash or bearer cheques, and that many payments were by account payee cheques in favour of agents as instructed. The AO had accepted the purchases as genuine; there was no material demonstrating tax evasion purpose in making cash payments. Allowing the disallowance would also have resulted in manifestly excessive profits, indicating double additions. On these facts the exception for business expediency applies and the CIT(A) correctly deleted the disallowance. [Paras 24, 26, 27, 28, 30]

The deletion of the disallowance under section 40A(3) by the CIT(A) is upheld; payments justified by business expediency and accepted purchases cannot be disallowed.

Final Conclusion: Both grounds of the revenue - additions under section 68 treating trade creditors as unexplained credits and disallowance under section 40A(3) for cash/bearer cheque payments - are rejected; the CIT(A)'s deletions are upheld and the appeals are dismissed.

Reopening of assessment u/s. 147 - notice u/s. 148 - reasons to believe/reasons recorded by the Assessing Officer - satisfaction/approval by Addl. Commissioner under proviso to section 151 - application of mind by Assessing Officer - mechanical reopening based on information from Investigation Wing - quashing of reassessment proceedings

Reopening of assessment u/s. 147 - reasons to believe/reasons recorded by the Assessing Officer - satisfaction/approval by Addl. Commissioner under proviso to section 151 - mechanical reopening based on information from Investigation Wing - Validity of reassessment proceedings initiated by issuance of notice under section 148 for AY 2004-05 - HELD THAT: - The Tribunal examined the reasons recorded by the Assessing Officer and the approval recorded by the Addl. Commissioner before issuing notice u/s.148. The AO's reasons consisted principally of a recital that information was received from the Investigation Wing that the assessee was a beneficiary of accommodation entries; there was no independent application of mind or tangible material demonstrating a nexus between the information and escapement of income. The approval by the Addl. Commissioner merely recorded "YES, I AM SATISFIED" / "approved", which the Tribunal found to be cursory and not a proper recording of satisfaction as required by the proviso to section 151. Reliance on the Investigation Wing's information, without identification of supporting material or explanation showing prima facie escapement, rendered the reasons vague and insufficient. The Tribunal applied and followed coordinate and High Court precedents holding that a notice under section 148 is vitiated where the AO acts mechanically on vague information and where the superior officer's sanction is accorded without application of mind. In view of these deficiencies the Tribunal concluded that the AO had not formed a bona fide reason to believe and that the sanction/approval was not properly recorded; accordingly the reassessment proceedings were invalid and liable to be quashed. As the reopening was quashed on this legal ground, the Tribunal did not decide the other substantive issues raised by the assessee, treating them as academic. [Paras 8, 9, 11]

Reassessment proceedings initiated by notice u/s.148 for AY 2004-05 quashed as invalid for lack of proper reasons and for inadequate/ mechanical approval by the Addl. Commissioner; other issues rendered academic.

Final Conclusion: Appeal allowed; reassessment proceedings for Assessment Year 2004-05 quashed on the ground that the AO did not apply his mind to form a reason to believe and the Addl. Commissioner's approval was recorded mechanically, rendering the notice u/s.148 invalid; other grounds not adjudicated as academic.

Jurisdiction of Assessing Officer - Validity of CBDT Instruction for distribution of work as administrative direction - Requirement to raise jurisdictional objection before the Assessing Officer under section 124(3) - Assessing Officer as 'AO' under the definition in section 2(7A) - Addition under section 68 - unexplained/unproved credits - Burden of proof for genuineness of credits - Disallowance under section 40(a)(ia) for failure/shortfall in TDS - Remand for fresh consideration by Assessing Officer

Jurisdiction of Assessing Officer - Validity of CBDT Instruction for distribution of work as administrative direction - Requirement to raise jurisdictional objection before the Assessing Officer under section 124(3) - Assessing Officer as 'AO' under the definition in section 2(7A) - Whether DCIT, Circle I, Udupi had jurisdiction to assess the assessee and whether the assessee could raise lack of jurisdiction for the first time before the appellate authorities. - HELD THAT: - The Tribunal held that CBDT Instruction No.1/2011 (and subsequent clarificatory communications) are administrative instructions issued under section 119 for distribution of work and for alleviating hardship and do not oust or divest territorial jurisdiction vested in an Assessing Officer. Section 124(3) cannot be read down as a proviso confined only to territorial jurisdiction; the statutory scheme requires that objections to jurisdiction ordinarily be raised before the AO and, where an assessee does not object during assessment proceedings, it cannot later contend lack of jurisdiction. Further, a Deputy Commissioner of Income tax falls within the statutory definition of 'Assessing Officer' where vested with jurisdiction under section 120, and there was no case that DCIT exercised jurisdiction without being so vested. In the facts the assessee did not object before the DCIT during assessment; DCIT had territorial jurisdiction over Udupi; therefore DCIT validly completed the assessment. [Paras 6, 7, 8, 9, 10]

Objection to jurisdiction rejected; DCIT, Circle I, Udupi had jurisdiction to assess the assessee and grounds challenging jurisdiction are dismissed.

Addition under section 68 - unexplained/unproved credits - Burden of proof for genuineness of credits - Remand for fresh consideration by Assessing Officer - Whether credits of Rs.17,83,100 shown as loans from Shri. Shravan Naik (via Shri. Praveen Bhaskar Shetty) were genuine and liable to be added under section 68. - HELD THAT: - The AO disbelieved the assessee's explanation and made an addition under section 68. The assessee produced bank statements and affidavits of the alleged payors before the CIT(A) and this Tribunal. The Tribunal found that while the cash receipts of Rs.50,000 and Rs.33,100 lacked linkage to supporting bank evidence and no satisfactory explanation was offered, the credits of Rs.2,00,000 (cash withdrawal by Shri. Praveen Bhaskar Shetty on 25.07.2008), Rs.3,00,000 (RTGS/cheque on 26.07.2008) and Rs.12,00,000 (cheque on 27.09.2008) were supported by bank entries and affidavits though not fully investigated by the AO. Given the affidavits, bank entries, and chequing/discounting evidence, the Tribunal concluded that the AO had not examined the alleged payors and that the matter requires further verification; accordingly those three credits require fresh consideration by the AO in accordance with law. [Paras 12, 13, 14, 15, 16]

Addition sustained in respect of cash credits of Rs.50,000 and Rs.33,100; credits of Rs.2,00,000, Rs.3,00,000 and Rs.12,00,000 are remitted to the file of the AO for fresh consideration in accordance with law (ground partly allowed and remanded).

Interest disallowance for lack of business purpose - Whether disallowance of interest charges claimed by the assessee was justified. - HELD THAT: - Assessee claimed that interest was paid on loans for commercial expediency but failed to produce any records or evidence showing a business purpose for those loans despite opportunities afforded by AO, CIT(A) and before this Tribunal. In the absence of supporting documentation establishing commercial expediency, the Tribunal found no reason to interfere with the disallowance. [Paras 17]

Disallowance of interest upheld; ground dismissed.

Disallowance of car expenses for lack of documentary support - Whether the disallowance of part of the claimed car expenditure was justified. - HELD THAT: - The assessee claimed car expenditure comprising maintenance, interest and depreciation but failed to produce evidence to substantiate the claim before the authorities and before the Tribunal. In absence of documentary support, the AO's disallowance of one fifth of the total claim was sustained. [Paras 18]

Disallowance sustained; grounds 6 and 7 dismissed.

Disallowance under section 40(a)(ia) for failure/shortfall in TDS - Whether payments of Rs.2,60,000 and Rs.2,44,075 were liable to disallowance under section 40(a)(ia) for non deduction or short deduction of tax at source. - HELD THAT: - For the payment of Rs.2,60,000 (no TDS deducted), reliance on the Special Bench decision (Merilyn Shipping) was noted but the jurisdictional High Court's view preferring a different interpretation of section 40(a)(ia) was followed; disallowance in respect of that amount was sustained. In respect of Rs.2,44,075 the assessee had deducted tax (albeit at a lower rate) and on the reasoning in S. K. Tekriwal (as discussed), short deduction under a bona fide but incorrect provision does not, per se, attract disallowance under section 40(a)(ia); accordingly disallowance relating to the shortdeduction was deleted. [Paras 19, 21, 22, 23]

Disallowance of Rs.2,60,000 sustained; disallowance of Rs.2,44,075 deleted - grounds 8 and 9 partly allowed.

Disallowance of donation and penalty under VAT - Whether disallowances relating to donation and VAT penalty should be disturbed. - HELD THAT: - No substantial arguments or evidence were advanced before the Tribunal to challenge the disallowances. The Tribunal found no reason to interfere with the orders of the authorities below on these grounds. [Paras 24]

Disallowances in respect of donation and VAT penalty upheld; grounds 10 to 12 dismissed.

Final Conclusion: The appeal is partly allowed for statistical purposes: jurisdictional challenge dismissed; additions/ disallowances sustained in part; credits of Rs.2,00,000, Rs.3,00,000 and Rs.12,00,000 remitted to the Assessing Officer for fresh consideration; other contested grounds are either upheld or deleted as stated above.

Disallowance under section 40A(2)(b) - specified person - substantial interest (beneficial ownership of 20% of voting power) - disallowance under section 40(a)(i) / 40(a)(ia) - obligation to deduct tax at source and section 195(2) certificate - mischaracterisation of vendor invoices and deductibility - non-reconciliation of ITS details - amortisation of revenue expenditure / matching principle - deferred revenue expenditure

Disallowance under section 40A(2)(b) - specified person - substantial interest (beneficial ownership of 20% of voting power) - Validity of disallowance of payment to Walt Disney India under section 40A(2)(b). - HELD THAT: - The CIT(A) found, and the Tribunal upheld, that the statutory conditions of specified person under section 40A(2)(b) were not satisfied. There was no shareholding or director/relative relationship between the assessee and Walt Disney India, and beneficial ownership thresholds (the substantial interest test) were not met. Reliance on generalized group-entity treatment without fulfilling the express requirements of section 40A(2)(b) was held unsustainable, consistent with the Delhi High Court authority cited in the order. The Assessing Officer's disallowance predicated on group affiliation and the assessee's loss was therefore not justified. [Paras 7, 9, 10, 11]

Disallowance under section 40A(2)(b) deleted; ground dismissed.

Disallowance under section 40(a)(i) / 40(a)(ia) - obligation to deduct tax at source and section 195(2) certificate - Sustenance of disallowance for failure to deduct tax at source where payer ceased TDS and did not obtain section 195(2) certificate. - HELD THAT: - The Tribunal accepted the assessee's position that the question is whether tax was chargeable in the hands of the payee and whether a statutory obligation to deduct existed. Past voluntary deduction of TDS by the assessee is irrelevant and cannot create an ongoing statutory obligation or estop the assessee. The Tribunal applied the settled principle from the Supreme Court authority reproduced in the order that absence of taxability in the payee's hands negates the deduction obligation and that failure to obtain a certificate under section 195(2) does not impose tax deduction liability where no tax is chargeable. Relying on the appellate authority on transponder-hire payments, the CIT(A)'s deletion of the disallowance was sustained. [Paras 11, 12, 14, 15]

Disallowance under section 40(a)(i)/40(a)(ia) deleted; ground dismissed.

Mischaracterisation of vendor invoices and deductibility - Whether distribution expenses disallowed on the basis of auditors' remark as misstatement/mischaracterisation of invoices are not deductible. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the auditors' report disclosed misstatement or improper categorisation of invoices but did not establish that services were not rendered. The invoices existed and the assessee explained the nature of services received and the internal mistake in classification. A mere procedural or clerical mischaracterisation does not convert bona fide business expenditure into a non-deductible item; the test is whether the expense was incurred wholly and exclusively for business. On the material before it, the authorities below correctly concluded that the amounts were deductible. [Paras 17, 20]

Disallowance deleted; ground dismissed.

Non-reconciliation of ITS details - Appropriate treatment of additions confirmed on account of non-reconciliation of ITS details in assessee's returns. - HELD THAT: - The Tribunal found that mere existence of differences in ITS details and books cannot automatically justify addition; the Assessing Officer must identify the specific ITS entries not reflected in the books and afford the assessee an opportunity to explain each such entry. The matter was not suitable for summary confirmation: it requires de novo adjudication by the AO in a speaking order, examining the nature of ITS items, taking the assessee's explanations on each input and then determining any additions on merits rather than mechanically importing reconciliation differences into income. [Paras 30, 31]

Matter remitted to Assessing Officer for fresh adjudication; ground allowed for statistical purposes.

Amortisation of revenue expenditure / matching principle - deferred revenue expenditure - Whether dubbing costs should be allowed in full in the year of incurrence or amortised over the licence period. - HELD THAT: - The Tribunal agreed with the authorities below that, although dubbing costs are revenue in character, the entire useful period over which benefit accrues was known when the expenditure was incurred (the licence period). Applying commercial principles and the reasoning of the Supreme Court reproduced in the order, the Tribunal held that where an expenditure yields continuing benefit over a known period, it may be spread over that period to avoid distortion of profits. Consequently, treating the dubbing cost as to be amortised over the licence period was held to be appropriate. [Paras 34, 35, 36]

Amortisation over the licence period upheld; ground dismissed.

Final Conclusion: All appeals filed by the revenue for AYs 2008-09 and 2009-10 are dismissed. The assessee's appeal for AY 2009-10 is partly allowed: the ITS non-reconciliation matter is remitted to the Assessing Officer for de novo adjudication, while the decision to amortise dubbing costs over the licence period is confirmed.

Capital gains on transfer - date of transfer determined by possession and registered sale deed - Section 53A of the Transfer of Property Act and part performance - preference for registered sale deed over notarized agreement - computation of cost of acquisition as on 01/04/1981 - remand for fresh determination of fair market value

Date of transfer determined by possession and registered sale deed - Section 53A of the Transfer of Property Act and part performance - preference for registered sale deed over notarized agreement - Whether the transfer of the land occurred before 01/04/2008 (so as to escape taxation in A.Y. 2009-10) or on 25/04/2008 and thus chargeable to tax in A.Y. 2009-10. - HELD THAT: - The Tribunal examined competing documents: agreements for sale (including a notarized agreement dated 14/05/2007 and an agreement of 02/11/2006) and the registered sale deed dated 25/04/2008. The documents were contradictory as to the date of handing over possession. The sale deed registered before the land revenue/registrar records expressly states possession was given on the date of execution of the sale deed. The notarized agreement, being unregistered and contradicted by the registered sale deed and by a note on the reverse of the agreement, could not be preferred over the registered instrument submitted to land revenue authorities. In these circumstances the Tribunal accepted the authorities' finding that possession and transfer occurred on the date of registration and that the capital gain is taxable in the assessment year in which the sale deed was executed. [Paras 4, 8]

Transfer held to have taken place on 25/04/2008; capital gain subject to tax in A. Y. 2009-10; ground No. 1 dismissed.

Computation of cost of acquisition as on 01/04/1981 - remand for fresh determination of fair market value - Whether the cost of acquisition (fair market value) of the land as on 01/04/1981 was correctly adopted by the assessing officer at Rs. 70 per square yard. - HELD THAT: - The Tribunal noted that the assessee had not raised this specific ground before the CIT(A) or in the assessment proceedings, and that the rates adopted by the assessing officer lacked a basis. The valuation evidence produced by the assessee related to a different property and could not be accepted as determinative. In the interest of justice and because the rate adopted had no recorded basis, the Tribunal directed that the matter be remitted to the assessing officer for fresh determination of the fair market value as on 01/04/1981, granting the assessee an opportunity to produce evidence in support of the claimed value. [Paras 10]

Ground No. 2 allowed in part; matter remanded to the assessing officer to determine fair market value as on 01/04/1981 with opportunity to the assessee.

Final Conclusion: The appeal is partly allowed: the Tribunal confirms that transfer took place on 25/04/2008 and capital gain is taxable in A. Y. 2009-10, while directing a remand to the assessing officer for a fresh determination of the fair market value as on 01/04/1981 with opportunity to the assessee.

Revisionary jurisdiction under section 263 - Erroneous and prejudicial to the interests of the revenue - Lack of enquiry / failure to apply mind - Purpose test for characterisation of subsidy - Additional depreciation under section 32(1)(iia) - plant and machinery test - Disallowance under section 43B and section 40A(7)

Revisionary jurisdiction under section 263 - Erroneous and prejudicial to the interests of the revenue - Lack of enquiry / failure to apply mind - Validity of the Commissioner's exercise of jurisdiction under section 263 - HELD THAT: - Tribunal examined the statutory test in section 263 that an assessing officer's order must be both erroneous and prejudicial to revenue before the Commissioner may exercise revisionary powers. Applying settled authorities, the Tribunal held that where the AO has not made any purposeful enquiry or has omitted consideration of an issue apparent from material on record, that constitutes lack of enquiry and renders the assessment order erroneous and prejudicial to revenue. On the facts, the Tribunal agreed with the CIT that the AO had not applied his mind on material aspects of the matters specified by the CIT (notably the large sales tax subsidy claim, certain gratuity entries and the additional depreciation claim) and therefore the Commissioner was justified in invoking section 263. The Tribunal did not decide the merit of the underlying additions/disallowances but held that remand to the AO for fresh inquiry was appropriate in respect of issues which were not considered by the AO. [Paras 26, 35, 40, 49, 51]

Assumption of jurisdiction by the CIT under section 263 is sustained; assessment order set aside and matters remitted to the AO for fresh inquiry where lack of enquiry was found.

Purpose test for characterisation of subsidy - Erroneous and prejudicial to the interests of the revenue - Characterisation and taxability of the sales tax exemption/sales tax subsidy shown as 'Sales Tax Subsidy/Capital Reserve' - HELD THAT: - The Tribunal, while admitting additional evidence obtained under RTI for consideration, treated the question of characterisation on merits in the consequential assessment appeal. Having regard to earlier coordinate decisions in the assessee's own case and to Supreme Court and Special Bench authority applying the 'purpose test', the Tribunal concluded that, on the facts and the applicable scheme, the receipts attributable to the sales tax exemption were revenue in nature. The Tribunal noted there were no new facts that would warrant departing from the earlier coordinate bench conclusions and that the change in accounting treatment in the year under consideration did not alter the legal character of the receipts. Accordingly the addition made by the AO treating the amount as trading receipt was sustained. [Paras 36, 62]

Amount treated as revenue receipt; addition of the sales tax subsidy to income is upheld.

Disallowance under section 43B and section 40A(7) - Erroneous and prejudicial to the interests of the revenue - Treatment of provisions for gratuity and related disallowances - HELD THAT: - The Tribunal analysed two related aspects. First, in proceedings under section 263 the CIT found that the AO omitted to disallow an admitted sum transferred to general reserve (Rs. 88 lakhs) and accordingly held the assessment erroneous and prejudicial; the Tribunal upheld the correctness of the CIT's conclusion that omission rendered the assessment subject to revision. Second, in the consequential assessment appeal the AO had disallowed a larger gratuity amount; part of that disallowance comprised Rs. 49.41 lakhs which the assessee had already added back in its return under section 40A(7). The Tribunal found that further disallowance of that already added back sum was unjustified and directed deletion of Rs. 49.41 lakhs. [Paras 45, 71]

CIT's revision for omission of the admitted disallowance is lawful; in the consequential assessment appeal the disallowance of Rs. 49.41 lakhs is deleted.

Additional depreciation under section 32(1)(iia) - plant and machinery test - Lack of enquiry / failure to apply mind - Allowability of additional depreciation on the 'Primavera' computer software - HELD THAT: - The Tribunal noted that the CIT concluded the AO had not made necessary enquiries about the claim. On the merits the AO and the CIT(A) held, and the Tribunal agreed on the material, that the Primavera software operated as a web based project management/office tool and was not installed as plant or machinery integral to the manufacturing process. Even accepting authorities that computers may qualify as plant and machinery in appropriate factual settings, the Tribunal found on the evidence before it that the software was managerial/office oriented and not part of the manufacturing plant; additionally, the proviso to section 32(1)(iia) excludes items not used in actual manufacturing activity from additional depreciation. The AO's failure to consider the issue justified revision; on the consequential appeal the denial of additional depreciation was sustained. [Paras 47, 68]

AO's omission justified revision under section 263; on merits additional depreciation claim for the software is disallowed and that conclusion is sustained.

Final Conclusion: The assessee's challenge to the CIT's exercise of revisionary powers under section 263 is dismissed: the Tribunal upheld the CIT's conclusion that the AO had failed to make necessary enquiries and remitted matters for fresh inquiry where appropriate. On the consequential appeals the Tribunal confirmed the addition treating the sales tax exemption as a revenue receipt and upheld denial of additional depreciation on the Primavera software; the Tribunal, however, deleted the disallowance of Rs. 49.41 lakhs which the assessee had already added back in its return. Additional factual and legal issues are to be addressed in the remanded proceedings and the consequential assessment proceedings as indicated.

Depreciation under section 32 - definition of plant vis-a -vis building - functional test for plant - inclusive definition of plant under section 43(3) - revenue expenditure v. capital expenditure - interest deduction and commercial expediency - precedent of coordinate Bench

Depreciation under section 32 - definition of plant vis-a -vis building - functional test for plant - inclusive definition of plant under section 43(3) - Classification of hoarding structures for depreciation (plant and machinery @15% v. building @10%). - HELD THAT: - The Tribunal applied the scheme of section 32 and the inclusive but non-exhaustive definition of 'plant' in section 43(3), and examined authorities distinguishing buildings from plant (including Anand Theatres and Taj Mahal Hotel). It held that the functional test is only one factor and that buildings normally constitute the premises or setting in which business is carried on, not the apparatus with which business is performed. The hoarding structures were found to be permanent structures embedded with foundations, serving as spaces let out for advertisements and not operating as tools or apparatus indispensable to the assessee's business operations. On these facts the functional test was not satisfied and the structures fell within the category of building for depreciation purposes. [Paras 9]

Hoarding structures are buildings; depreciation allowable at 10% (appeal on this point dismissed).

Interest deduction and commercial expediency - precedent of coordinate Bench - Sustentation of disallowance of part of interest expense on loans where funds were used to provide prolonged credit to group concern. - HELD THAT: - The Tribunal considered the facts showing large sundry debtors from group concerns, the assessee's borrowing and fund use, and the CIT(A)'s computation which treated excess receivables as interest-free credit and applied the assessee's average cost of funds to quantify disallowance. However, the Tribunal noted that an identical issue in respect of a group concern had been decided in favour of the taxpayer by a coordinate Bench and, respectfully following that decision, concluded that the assessing authorities had not made out a case for proportionate disallowance. The Tribunal therefore allowed the interest claim that had been disallowed by the lower authorities. [Paras 16]

Disallowance of Rs. 34,932 sustained by lower authorities set aside; interest expense allowed (appeal allowed on this point).

Revenue expenditure v. capital expenditure - functional test for plant - precedent of coordinate Bench - Whether amounts paid for repairs/works on hoarding structures are capital or revenue expenditure. - HELD THAT: - The Tribunal examined the bills and nature of works (painting, cementing, plastering, repairs and some foundation work). While the assessing officer treated the entire amount as capital, the CIT(A) had held 50% capital for two bills and allowed the rest as revenue. The Tribunal referred to a co-ordinate Bench decision on identical facts (Empress Advertising) which treated recurring maintenance and replacements for hoarding structures as revenue expenditure, emphasising the recurring nature of such works and lack of enduring benefit in the capital sense. Respectfully following the coordinate Bench, the Tribunal held the hoarding expenses to be revenue in nature and deleted the addition. [Paras 23]

Hoarding expenses treated as revenue expenditure; addition deleted (appeal allowed on this point).

Final Conclusion: Appeal partly allowed: classification of hoarding structures as buildings upheld (depreciation at 10%); disallowance of interest (quantified by lower authorities) set aside and interest allowed following coordinate Bench; hoarding repair expenses held to be revenue expenditure and additions deleted.

Selection of tested party - Arm's length price (ALP) - Transactional Net Margin Method (TNMM) - Advance Pricing Agreement persuasive value - Rule 10MA rollback provisions - Deductibility of ESOP expense under section 37(1) - Section 40(a)(ia) tax deduction at source applicability - Deductibility of contributions under sections 35/37 and section 40(a)(ia) - Section 14A and Rule 8D satisfaction requirement - Computation of book profit under section 115JB - Deduction under sections 80IB/80IC and requirement of audit/report under section 80IA(7) and Rule 18BBB - Doctrine of consistency in successive assessment years - Weighted deduction under section 35(2AB) - Deduction for statutory demand under DPCO as business liability - Foreign exchange fluctuation: capitalisation v. revenue treatment and depreciation under section 32 - Adjustment on reversal of provision in computation of book profit under section 115JB

Selection of tested party - Arm's length price (ALP) - Transactional Net Margin Method (TNMM) - Advance Pricing Agreement persuasive value - Rule 10MA rollback provisions - Selection of the overseas associated enterprises as the tested party for TNMM benchmarking of the appellant's international transactions - HELD THAT: - The Tribunal applied international and domestic guidance (OECD, UN, US regulations) and the appellant's FAR analysis. It held that the tested party should normally be the least complex participant for which reliable comparables are available. The APA entered into by the assessee with CBDT for a later year, though not binding for AY 2008-09, carries persuasive value on methodology where the FAR and transactions are similar. Rule 10MA permits rollback where conditions are met and supports applying the APA methodology to comparable prior years. On the facts the FARs were found similar, regional/country comparables were available and the TPO's reasons for rejecting foreign AEs (geography, accounting year differences, data reliability) were unsustainable. Accordingly foreign AEs are accepted as the tested party and TNMM is the appropriate method here; the Tribunal set aside the remaining TP adjustments for fresh computation by the TPO adopting this approach. [Paras 31, 32, 33, 35, 36]

Ground no.2.2 allowed: overseas AEs to be treated as tested party; other TP grounds (2-7 except 2.2) set aside to TPO for recomputation following this decision.

Arm's length price (ALP) - Other transfer pricing grounds (relating to benchmarking, comparables, recasting and supplementary analysis) remanded for recomputation - HELD THAT: - Having decided the threshold issue of the tested party in favour of the assessee, the Tribunal set aside grounds 2 to 7 (except 2.2) to the file of the TPO for recomputation of ALP in accordance with the accepted methodology and with due weight to the APA and the assessee's TP documentation. The TPO/AO is directed to afford the assessee opportunity to substantiate its approach and data. [Paras 36]

Grounds nos.2-7 (except 2.2) remitted to TPO for fresh computation of ALP.

Deductibility of ESOP expense under section 37(1) - Section 40(a)(ia) tax deduction at source applicability - Deferred employee compensation under ESOP debited to P&L is deductible under section 37(1); section 40(a)(ia) not attracted - HELD THAT: - Applying authority favouring deductibility of ESOP discount as an ascertainable liability and the principles that an expense which is a present obligation and can be reliably estimated is deductible, the Tribunal held the ESOP debit allowable under section 37(1). The decision of the Special Bench in Biocon and the Madras High Court in PVP Ventures were followed. The AO's contention that the liability was contingent or hit by section 40(a)(ia) failed: no TDS provision was shown to apply to this employer compensation item. [Paras 41, 42]

Ground no.8 allowed: ESOP expense of Rs.10333543/- treated as deductible; section 40(a)(ia) inapplicable.

Deductibility of contributions under sections 35/37 and section 40(a)(ia) - Contributions to Ranbaxy Community Healthcare Society and Ranbaxy Science Foundation are deductible; section 40(a)(ia) not attracted - HELD THAT: - On the facts and in view of earlier tribunal and High Court decisions in the assessee's case, the Tribunal accepted that the contributions were business related and allowed deductions. Revenue failed to identify any specific TDS obligation that would render the payments disallowable under section 40(a)(ia). [Paras 46]

Ground no.9 allowed: contributions deducted.

Section 14A and Rule 8D satisfaction requirement - Computation of book profit under section 115JB - Disallowance under section 14A computed under Rule 8D is deleted; corresponding addition to book profit under section 115JB is to be excluded - HELD THAT: - The Tribunal held that the AO had not recorded the requisite satisfaction on the assessee's accounts before invoking Rule 8D and that the disallowance could not exceed exempt income. Precedents of the Delhi High Court (Joint Investments, Taikisha, Maxopp, Godrej & Boyce) were followed to require objective satisfaction and account scrutiny prior to applying Rule 8D. Consequently the Rule 8D addition was deleted and the AO was directed to exclude any corresponding addition while computing book profit under section 115JB. [Paras 51, 52, 55]

Ground no.10 allowed; ground no.11 allowed - deletion of section 14A disallowance and exclusion of that amount from book profit.

Deduction under sections 80IB/80IC and requirement of audit/report under section 80IA(7) and Rule 18BBB - Doctrine of consistency in successive assessment years - Deductions claimed under sections 80IB/80IC for five eligible units upheld (subject to facts as presented); earlier acceptance and audited unit reports sustain claim; new unit issues explained - HELD THAT: - The Tribunal examined whether units had maintained separate accounts or adequate SAP/ERP based records and certified Form 10CCB reports. It held that the law and Rule 18BBB do not mandate physical separate ledgers beyond audited segmental accounts and that SAP based unit reporting, supported by audited profit & loss and balance sheets, satisfied section 80IA(7). The principles of consistency were applied: where the revenue permitted and examined claims in initial years, it could not re open identical issues in later years without material change. On these bases the Tribunal allowed the 80IB/80IC claims for the Goa unit and New Tablet Plant I and accepted the accounting and allocation keys as reasonable and consistently followed; claims relating to units in their first examination year were considered on their merits and allowed where documentation supported them. [Paras 76, 79, 80, 81, 91]

Ground no.12 allowed: deductions under sections 80IB/80IC upheld in respect of the eligible units as detailed.

Weighted deduction under section 35(2AB) - Claim for weighted deduction under section 35(2AB) not adjudicated below and remitted to AO for verification - HELD THAT: - The Tribunal found that neither the AO nor the DRP applied their minds to the appellant's claim and material was incomplete before the Tribunal. As the matter is covered by earlier tribunal decisions for the assessee, the Tribunal remitted the claim to the AO to verify facts and allow the deduction if factual requirements are met. [Paras 94]

Ground no.13 allowed for remand: matter remitted to AO for verification and adjudication.

Deduction for statutory demand under DPCO as business liability - Claim for deduction of amount demanded under Drug Price Control Order remitted to AO for verification and allowed in principle if facts support liability - HELD THAT: - Relying on precedents (including Bombay High Court authority), the Tribunal observed that a statutory liability created in the year is prima facie deductible under section 37 and that the AO/DRP should have considered the claim; it directed the AO to verify and allow the deduction if consistent with law and facts. [Paras 97]

Ground no.14 allowed for remand: AO to verify and decide the DPCO claim.

Foreign exchange fluctuation: capitalisation v. revenue treatment and depreciation under section 32 - Adjustment/characterisation of foreign exchange losses/gains and hedging costs in relation to ECB and capital assets remitted to AO for verification - HELD THAT: - The Tribunal found the issue unadjudicated by AO/DRP. It directed the AO to examine whether exchange differences/hedging costs are capital in nature and should be added to cost of asset (with depreciation under section 32) or are revenue expenses (allowable under section 37), and to decide accordingly after verification. [Paras 100]

Ground no.15 allowed for remand: AO to verify and classify/examine for capitalisation or revenue deduction.

Adjustment on reversal of provision in computation of book profit under section 115JB - Reversal of provision in the current year is to be adjusted in the book profit computation under section 115JB (to avoid double taxation) - HELD THAT: - The Tribunal noted that an amount disallowed and added back to book profit in the earlier year, when reversed in the current year, cannot be taxed again in computation of book profit; it directed AO to reduce book profit under section 115JB by the amount of reversal. [Paras 104]

Ground no.16 allowed: book profit to be reduced by reversal amount.

Interest under section 234B and general/non specific grounds - HELD THAT: - No substantive argument was advanced on interest under section 234B; that ground was dismissed. General grounds lacking specific adjudication were dismissed. [Paras 105, 106]

Ground no.17 dismissed (interest under section 234B); general grounds dismissed.

Final Conclusion: The appeal is partly allowed. The Tribunal (i) allowed the selection of overseas associated enterprises as the tested party and remanded TP computation (other TP grounds) to the TPO for recomputation, (ii) allowed several corporate tax reliefs (ESOP deduction, contributions, deletion of Rule 8D/section 14A disallowance and exclusion from book profit, 80IB/80IC deductions) on the stated bases, (iii) set aside certain claims (section 35(2AB), DPCO liability, ECB/hedging treatment) to the Assessing Officer for factual verification and adjudication, and (iv) directed adjustment of reversal of provision in book profit computation; other routine or non specific grounds were dismissed.

Payment for shrink-wrap software not royalty - distinction between sale of a copyrighted article and transfer/licence of copyright - business income v. royalty under DTAA/ domestic law - requirement of permanent establishment for taxation of business profits under Article 7 - rule of construction favouring the assessee where two reasonable interpretations exist - precedential weight of coordinate-bench Tribunal decisions and binding effect of non jurisdictional High Court decisions

Payment for shrink-wrap software not royalty - distinction between sale of a copyrighted article and transfer/licence of copyright - business income v. royalty under DTAA/ domestic law - requirement of permanent establishment for taxation of business profits under Article 7 - rule of construction favouring the assessee where two reasonable interpretations exist - Receipts from sale of shrink wrap software are not taxable in India as royalty but constitute business receipts not taxable in the absence of a permanent establishment. - HELD THAT: - The Tribunal, following well reasoned decisions of coordinate benches (including an elaborate order on facts identical to the present year), applied the legal distinction between acquiring a 'copyrighted article' and acquiring / being granted rights in the copyright. On the facts of shrink wrap distribution (packaged software sold with EULA, no transfer of copyright, restrictions on copying, distribution and reverse engineering, and absence of authority in distributors to conclude sales on behalf of the non resident), the consideration received was held to be for the copyrighted article (commercial sale) and not for transfer or licensing of copyright rights that would amount to royalty under the DTAA or section 9(1)(vi). The Tribunal noted and applied the reasoning in the Delhi High Court and the AAR (Dassault) and the Supreme Court in Tata Consultancy Services that software embodied on a medium may be treated as goods and that incidental rights to make copies necessary to operate the software should be disregarded in characterising the transaction for tax purposes. Where two reasonable constructions of the taxing provision existed, the Tribunal applied the principle of construction favourable to the assessee. As the assessee is a non resident without a permanent establishment in India, the receipts characterised as business income are not taxable in India under Article 7 of the DTAA. [Paras 6, 7]

The addition made by the Assessing Officer is deleted and the appeal is allowed; the receipts from sale of software are not exigible to tax in India for AY 2009-10.

Final Conclusion: Following coordinate bench precedent and authoritative rulings, the Tribunal held that amounts received on sale of shrink wrap software are not royalty but business receipts and, in the absence of a permanent establishment in India, are not taxable; the assessment addition is deleted and the appeal is allowed for AY 2009 10.

Provisional assessment - refund arising from finalization of provisional assessment - doctrine of unjust enrichment - Section 18 provisional assessment of duty - Consumer Welfare Fund - sanction of refund attains finality

Provisional assessment - refund arising from finalization of provisional assessment - doctrine of unjust enrichment - Section 18 provisional assessment of duty - Consumer Welfare Fund - Whether the doctrine of unjust enrichment barred refund of a revenue deposit paid under provisional assessment where the assessment was finally adjusted prior to insertion of Sub section (5) in Section 18 w.e.f. 13.7.2006, and whether crediting the sanctioned refund to the Consumer Welfare Fund was permissible. - HELD THAT: - The Tribunal examined the statutory scheme of Section 18 as it stood at the time of the provisional assessment: Section 18(2) provides that where the duty provisionally assessed is in excess of the duty finally assessed the importer is entitled to refund. The bar of unjust enrichment was introduced later by insertion of sub section (5) into Section 18 w.e.f. 13.7.2006. Consequently, for refunds arising from finalization of provisional assessments before that date the doctrine of unjust enrichment did not operate to require crediting the sanctioned refund to the Consumer Welfare Fund. The Tribunal relied on the Supreme Court's observations in Mafatlal Industries regarding provisional assessment and applicability of Section 11B (as explained in para 95), the Supreme Court decision in TVS Suzuki, and the Board's Circular No.744/60/2003 CX, which treat refunds flowing from provisional assessment differently from independent refund claims or appeals which would attract the provisions governing unjust enrichment. The adjudicating authority had already sanctioned the refund but credited it to the Consumer Welfare Fund; the Tribunal found that sanction of the refund had attained finality and that the only live controversy before the Commissioner (Appeals) concerned unjust enrichment. Since the statutory bar was not in force for the period in question, crediting the sanctioned refund to the Consumer Welfare Fund was incorrect. The Tribunal further observed that the Commissioner (Appeals) erred in deciding the matter on a different ground (non challenge to the assessment) instead of addressing the applicability of unjust enrichment to the sanctioned refund.

The impugned order crediting the sanctioned refund to the Consumer Welfare Fund is set aside and the appeal is allowed; unjust enrichment did not apply to the refund arising from finalization of provisional assessment prior to 13.7.2006.

Final Conclusion: Refund sanctioned pursuant to finalization of a provisional assessment prior to the insertion of Sub section (5) in Section 18 (w.e.f. 13.7.2006) is not subject to the doctrine of unjust enrichment; the adjudicating authority's order crediting such sanctioned refund to the Consumer Welfare Fund was incorrect and the impugned order is set aside.

Binding precedent - finality of judgment pending review - application of Supreme Court observations to assessment proceedings - requirement of a reasoned decision where facts are distinguishable

Binding precedent - finality of judgment pending review - Whether the Supreme Court judgment dated 26th March, 2015 remains binding until it is recalled, modified or varied in review. - HELD THAT: - The Court held that a judgment of the Supreme Court stands finally binding unless and until it is recalled, modified or varied in review. The pendency of a review petition does not, by itself, deprive the earlier judgment of its binding effect. Consequently, the observations made by the Supreme Court in the judgment dated 26th March, 2015 are binding on the authorities unless and until the Supreme Court alters that position in the review proceedings. [Paras 3]

The Supreme Court judgment dated 26th March, 2015 is binding and has reached finality until recalled, modified or varied in review.

Application of Supreme Court observations to assessment proceedings - requirement of a reasoned decision where facts are distinguishable - What direction should be given to the Customs authority in respect of assessment of the Bills of Entry annexed to the writ petition. - HELD THAT: - The petitioner's case is to be decided in accordance with the observations of the Supreme Court in the judgment dated 26th March, 2015. The Court directed the concerned respondent authority to finally assess the Bills of Entry listed in annexure P/1 on the basis of those observations. Where the facts of the instant case are distinguishable from the Supreme Court's decision, the authority must record a decision supported by cogent reasons explaining the distinction and the basis for any departure from the Supreme Court observations. [Paras 1, 4]

The Customs authority is directed to finally assess the specified Bills of Entry applying the Supreme Court observations and, if it considers the facts distinguishable, to give a reasoned decision supported by cogent reasons.

Final Conclusion: Writ petition disposed with direction to the respondent to finally assess the Bills of Entry referred to in annexure P/1 in accordance with the Supreme Court observations dated 26th March, 2015; where the authority considers the facts distinguishable, it must record a cogent, reasoned decision.

Confiscation under Section 115 of the Customs Act, 1962 - penalties under Section 112 of the Customs Act, 1962 - reliance on confessional statements of co-accused corroborated by circumstantial evidence - burden on revenue to establish smuggled nature - agency principle: driver's knowledge imputed to owner - proportionality of redemption fine and computation with reference to auction price

Penalties under Section 112 of the Customs Act, 1962 - confiscation under Section 115 of the Customs Act, 1962 - agency principle: driver's knowledge imputed to owner - Whether confiscation of the vehicles and penalties imposed on the drivers/owners/khalasi under the Customs Act, 1962 are sustainable. - HELD THAT: - The Tribunal accepted the adjudicating authority's factual findings that the convoy was intercepted on specific information, the vehicles attempted to flee, and statements of three apprehended persons admitted loading of goods at Tharhi Bazar (Nepal), use of extra registration plates, prior carriage from Nepal and instruction through a common mobile number. The absence of any person coming forward to claim the seized goods, the nature and scale of the seizure, fabricated documents and other circumstantial facts were treated as corroborative of the drivers' statements. The Tribunal held that the cumulative evidence and circumstances justified treating drivers as agents of the owners so that the drivers' knowledge could be imputed to the owners. Reliance on the confessional statements was held permissible since there was no retraction, no request for cross-examination of those witnesses, and independent circumstantial evidence supported the confessions. On this basis the Tribunal upheld the confiscation under Section 115 and the penalties under Section 112 as upheld by the adjudicating authority. [Paras 4]

Penalties imposed on the appellants under Section 112 and confiscation of vehicles under Section 115 are upheld.

Reliance on confessional statements of co-accused corroborated by circumstantial evidence - burden on revenue to establish smuggled nature - Whether the statements of drivers/khalasi alone, in the absence of test reports establishing foreign origin of goods, suffice to establish smuggled nature. - HELD THAT: - The Tribunal noted that samples were sent for testing but reports were not decisive for the appellants; however, the drivers' statements were un-retracted, no cross-examination was sought, and substantial circumstantial evidence (attempt to flee, fabricated documents, absence of claimants, mobile communications linking parties, distinctive physical characteristics of seized lot and provenance) corroborated the confessions. The Tribunal distinguished cases where confessions were retracted and emphasized that confessional statements, when voluntarily made and supported by independent corroboration, may be acted upon. Thus the Tribunal found the revenue's burden satisfied by the totality of evidence despite pending or absent laboratory reports. [Paras 4]

Statements of drivers/khalasi, when un-retracted and corroborated by contemporaneous circumstantial evidence, are sufficient to establish the smuggled nature of the goods for the purposes of confiscation and penalty.

Proportionality of redemption fine and computation with reference to auction price - Whether the redemption fine fixed at nearly 50% of the seizure value of the vehicles is excessive and requires modification. - HELD THAT: - The Tribunal observed that the redemption fine in the impugned order was computed as nearly 50% of the seizure value determined on the date of interception (02.10.2009), without accounting for subsequent depreciation and in some instances after departmental auction or provisional release. Noting lack of specific particulars from appellants as to which vehicles were auctioned or released provisionally, the Tribunal nevertheless found the 50% redemption fine excessive in the interests of justice. It directed that where vehicles have been disposed of by auction the redemption fine be restricted to 25% of the auction price, and that the same ratio of seizure value versus auction price be applied for purposes of redemption fine on provisionally released vehicles. [Paras 5, 6]

Appeals by owner-appellants allowed in part by reducing the redemption fine to 25% of the auction price (and applying the same ratio for provisionally released vehicles); remaining aspects of penalties and confiscation upheld.

Final Conclusion: The Tribunal upheld confiscation of the vehicles and penalties under the Customs Act, 1962 on the basis of un-retracted confessional statements corroborated by circumstantial evidence and imputation of drivers' knowledge to owners; however, in the interest of justice the redemption fine was moderated and fixed at 25% of the auction price (with the same ratio applied where vehicles were provisionally released), and the owners' appeals were allowed only to that limited extent.

Ownership of seized goods - onus of proof in smuggling cases - reliability of confessional statement and subsequent retraction - requirement of independent verification of documentary claim of licit acquisition - certification by a local goldsmith not determinative of foreign origin - penalty under Section 112(b) of the Customs Act, 1962

Ownership of seized goods - requirement of independent verification of documentary claim of licit acquisition - onus of proof in smuggling cases - Claimant Shri Swadesh Ch. Paul established ownership of the seized gold bars and discharged the onus of licit acquisition in the absence of adequate departmental verification. - HELD THAT: - The Tribunal found that Shri Swadesh Ch. Paul produced a contemporaneous receipt from a jeweller (Nantu Banik) asserting that the seized gold bars were converted from his family's gold ornaments, and that the Department, after remand, did not undertake verification at the jeweller's end before rejecting the claim. The Adjudicating Authority had relied upon an earlier appellate paragraph even though that earlier appellate order had been set aside on remand; such reliance was improper without fresh inquiry. None of the seized bars bore foreign markings and the only direct incriminating material - the first statement of Shri Babul Roy - was retracted on the same day. In these circumstances the Tribunal held that the Department failed to discharge its obligation to investigate and refute the documentary claim, and therefore the claimant succeeded in discharging the onus that the gold was not smuggled. [Paras 5, 7]

Ownership claim of Shri Swadesh Ch. Paul accepted; seized gold bars held to belong to him and not established to be smuggled.

Reliability of confessional statement and subsequent retraction - certification by a local goldsmith not determinative of foreign origin - onus of proof in smuggling cases - The confessional statement of Shri Babul Roy, subsequently retracted, together with an uncertified allegation of foreign origin by a local goldsmith, was insufficient to establish smuggling; the precedent relied upon by the Revenue was not factually applicable. - HELD THAT: - The Tribunal observed that the implicated statement was retracted on the same day and that there were no foreign markings on the seized bars. The Bench could not accept that a local goldsmith's certificate could conclusively determine foreign origin without markings. The Kewal Krishan precedent relied upon by the Revenue was distinguished on facts: in that case seized bars bore clear foreign marks and the burden on the possessor was addressed accordingly. Given the factual distinction and the Department's failure to investigate the claimant's documentary evidence, the case for smuggling was not made out. [Paras 5, 6]

Confessional statement and goldsmith's certificate insufficient to fasten smuggling; Kewal Krishan distinguished and held not applicable on present facts.

Final Conclusion: The Appeals are allowed: the ownership claim of Shri Swadesh Ch. Paul is accepted and the Department's rejection is set aside for want of adequate investigation; the finding of foreign origin/smuggling is not sustained on the record and consequential reliefs are granted to the appellants.

Penalty under Section 112(a) of the Customs Act, 1962 - knowledge and collusion as basis for penalty - liability of proprietor v. manager where authority delegated - lending of IEC code - distinguishing precedents where imports were freely importable

Penalty under Section 112(a) of the Customs Act, 1962 - knowledge and collusion as basis for penalty - Penalty imposed on Shri Kishore P. Shah under Section 112(a) was upheld. - HELD THAT: - The Tribunal relied on the appellant's recorded statement and documentary nexus showing that the intercepted consignment was in the name of M/s Darshana Impex, a firm whose day-to-day activities Shri Kishore Shah managed. The statement indicated that he allowed use of the firm's IEC code in collusion with Shri Sujit Satam and assisted in arranging bankers' cheques/drafts for payment of duty in the name of an employee rather than the firm, which demonstrated awareness of the smuggling scheme where cigarettes and liquor were misdeclared as computer casings. Those facts, as found by the adjudicating authority and accepted by the Tribunal, establish knowledge and collusion sufficient to attract penalty under Section 112(a). [Paras 6]

Penalty imposed on Shri Kishore P. Shah is correct and is upheld.

Penalty under Section 112(a) of the Customs Act, 1962 - liability of proprietor v. manager where authority delegated - Penalty imposed on Shri Pravin V. Gada under Section 112(a) was set aside. - HELD THAT: - The Tribunal noted that Shri Pravin Gada, proprietor of M/s Darshana Impex, had given a Letter of Authority to Shri Kishore Shah to handle day-to-day affairs and in his statement denied awareness of the impugned consignment or payment of duty. The adjudicating authority did not specify how Gada himself participated in or had knowledge of the smuggling activity. Given the delegation of authority and absence of specific findings tying Gada to knowledge or collusion, the Tribunal gave him the benefit of doubt and concluded that the penalty against him was unwarranted. [Paras 6]

Penalty imposed on Shri Pravin V. Gada is set aside.

Lending of IEC code - distinguishing precedents where imports were freely importable - Precedents relied upon for the proposition that mere lending of an IEC code is not an offence were held distinguishable and not applicable. - HELD THAT: - Counsel urged reliance on authorities holding that lending an IEC code did not attract penalty; however, the Tribunal observed those cases involved imports of freely importable goods with correct declarations. By contrast, the present case involved an established intention to smuggle restricted goods (cigarettes and liquor) by misdeclaring them as computer casings. On that factual basis the ratio of the cited decisions does not apply, and mere doctrinal reliance on lending-of-IEC precedents was rejected. [Paras 6]

The cited authorities are distinguishable on facts and do not avail the appellants.

Final Conclusion: The appeal of Shri Pravin V. Gada is allowed and the penalty imposed on him is set aside; the appeal of Shri Kishore P. Shah is rejected and the penalty imposed on him under Section 112(a) of the Customs Act, 1962 is upheld.

Refund of accumulated cenvat credit - export of services not taxable - limitation under Section 11B not applicable to refund of accumulated cenvat credit - registration not a prerequisite for refund of accumulated cenvat credit - refund under Rule 5 of the Cenvat Credit Rules, 2004 - eligible input service - customs clearing and inward transportation services

Refund of accumulated cenvat credit - export of services not taxable - limitation under Section 11B not applicable to refund of accumulated cenvat credit - registration not a prerequisite for refund of accumulated cenvat credit - refund under Rule 5 of the Cenvat Credit Rules, 2004 - Entitlement to refund of accumulated cenvat credit on export of services and applicability of limitation or prior registration as a bar to such refund. - HELD THAT: - The Tribunal found that the appellant provided services exported outside India and that exports of services were not taxable; consequently, accumulated unutilized cenvat credit arose. Relying on the reasoning of the Karnataka High Court in mPortal (paras reproduced), the Tribunal held that the time limit prescribed by Section 11B does not apply to refund of accumulated cenvat credit and therefore limitation cannot be a ground to refuse such refund. Further, in the absence of any statutory provision in the Cenvat Credit Rules making registration at a particular premises a condition precedent to refund, denial of refund on the ground of non-registration of an additional premises was unsustainable. The Tribunal applied these principles to the facts, accepting that factual disputes about when premises were registered did not affect eligibility for refund under the cited authority, and accordingly set aside the orders rejecting the refund claims on these grounds. [Paras 6, 7]

Refund claims for accumulated cenvat credit cannot be rejected on the grounds of limitation under Section 11B or for want of registration of premises; the appeals succeed on these points.

Eligible input service - customs clearing and inward transportation services - availment of cenvat credit on input services - Whether customs clearing services received for imported goods qualify as eligible input service for availment/refund of cenvat credit. - HELD THAT: - The Tribunal examined the nature of the services in question and concluded that customs clearing services were procured for goods imported relating to the appellant's business and constituted services for inward transportation of inputs. Applying the definition of input service as in force during the relevant period, the Tribunal held that such services were directly connected with the business and with provision of the appellant's output service and therefore qualified as eligible input services for the purpose of availing cenvat credit and claiming refund of accumulated credit. [Paras 8]

Customs clearing services received for imported goods qualify as eligible input services and the related credit/refund claim is allowable.

Final Conclusion: The impugned order is set aside and all appeals are allowed: refund claims for accumulated cenvat credit on exported services are not barred by Section 11B limitation or by lack of registration of premises, and customs clearing services qualify as eligible input services for the purpose of cenvat credit/refund.

Power to extend time under provisions of the Code of Civil Procedure applied to appeals under Section 35G(9) of the Central Excise Act - substantial compliance and regularisation of delayed deposit - discretion to relax time for deposit in the interest of revenue and to do substantial justice - judicial precedent recognising power to enlarge time despite a previously fixed order

Power to extend time under provisions of the Code of Civil Procedure applied to appeals under Section 35G(9) of the Central Excise Act - substantial compliance and regularisation of delayed deposit - Whether the Court can regularise a delayed deposit and permit restoration of an appeal under the scheme of Section 35G(9) by applying CPC principles and exercise its discretion to extend time. - HELD THAT: - The Court observed that sub section (9) of Section 35G brings into play, as far as may be, the provisions of the Code of Civil Procedure relating to appeals to the High Court, thereby permitting the exercise of judicial powers to modify time limits. Relying on the cited precedent which rejected a restrictive construction that would preclude the Court from enlarging time once fixed, the Court found that the appellant had made substantial compliance by depositing the amount albeit with a short delay and that the department had accepted the deposit. In light of these facts, and having regard to the interest of revenue and the need to do substantial justice, the Court held that relaxation of the prescribed time for deposit was within its powers under the Act and warranted in the circumstances. [Paras 7, 8, 9, 10]

The delayed deposit is regularised; the Tribunal shall treat the appeal as restored in terms of the judgment dated 3-10-2013 and proceed to dispose of it on merits.

Final Conclusion: Application allowed. The delayed deposit is treated as regularised; the Tribunal is directed to proceed with the restored appeal on merits in accordance with the Court's earlier order.

Dismissal of Special Leave Petition - Direction to trial court to decide pending applications expeditiously - Liberty to parties to raise all points before trial court

Dismissal of Special Leave Petition - Special Leave Petition dismissed - HELD THAT: - The Supreme Court considered the Special Leave Petition and dismissed it. No substantive legal principle was articulated beyond the dismissal; the order records the final disposal of the petition without reserving any substantive relief in this Court.

SLP dismissed.

Direction to trial court to decide pending applications expeditiously - Trial Court directed to take up and decide pending applications expeditiously - HELD THAT: - Although the petition is dismissed, the Court requested that the Trial Court take up the applications pending before it and decide them as expeditiously as possible. This is a judicial exhortation to ensure timely adjudication of matters pending at the lower forum and does not constitute an order staying or altering the Trial Court's jurisdiction.

Trial Court requested to decide pending applications expeditiously.

Liberty to parties to raise all points before trial court - Petitioners granted liberty to raise all points before the Trial Court at the hearing of the applications - HELD THAT: - The Court expressly permitted the petitioners to take all points before the Trial Court when the pending applications are heard, thereby preserving their right to contest matters and present arguments at the lower forum. This grant of liberty confirms that the adjudicatory process at trial remains open to the parties.

Petitioners at liberty to raise all points before the Trial Court.

Final Conclusion: The Special Leave Petition is dismissed; the Trial Court is requested to decide the pending applications expeditiously, and the petitioners are granted liberty to raise all points before the Trial Court.

Writ of Mandamus - Exemption from Entertainment Tax - Processing of application within a reasonable time - Decision on merits in accordance with law - Approval of the Election Commission of India for tax exemption

Writ of Mandamus - Processing of application within a reasonable time - Decision on merits in accordance with law - Direction to respondents to process and decide the petitioner's application for exemption of Entertainment Tax for the film and to pass orders on merits and in accordance with law by a specified date - HELD THAT: - The Court, without expressing any opinion on the merits of the claim for exemption, granted the limited relief sought by the petitioner and directed the respondents to process the application dated 06.04.2016 and to pass orders on merits and in accordance with law on or before 13.04.2016. The direction was founded on the limited nature of the prayer and the imminent release date of the film; the Court did not adjudicate entitlement to the exemption itself but required the administrative decision to be taken within the stipulated time-frame. [Paras 6]

Respondents directed to process the application and pass orders on merits and in accordance with law by 13.04.2016.

Exemption from Entertainment Tax - Approval of the Election Commission of India for tax exemption - Permissibility of obtaining Election Commission approval before granting Entertainment Tax exemption - HELD THAT: - The Court observed that if the respondents are satisfied that the film is entitled to exemption, they may seek approval from the Election Commission of India for granting the exemption. This observation was recorded as procedural guidance and did not decide the substantive entitlement; it leaves to the respondents the administration of any requirement to obtain the Election Commission's concurrence prior to granting the exemption. [Paras 6]

Respondents may obtain Election Commission of India approval, if satisfied on entitlement, before granting the exemption.

Final Conclusion: Writ petition disposed by directing the respondents to process the exemption application dated 06.04.2016 and to pass a reasoned order on merits and in accordance with law by 13.04.2016; respondents are at liberty to obtain Election Commission approval before granting the exemption.

Seizure of goods and detention of vehicle - transit pass under section 69 of the GVAT Act - penalty under section 69(1A) of the GVAT Act - power of seizure and detention under section 68(4) of the GVAT Act - release of seized goods and vehicle under section 68(5) of the GVAT Act - colourable exercise of statutory power

Seizure of goods and detention of vehicle - Whether the court should resolve the disputed factual question as to whether the truck was stopped at a notified check-post or at a mobile location on the highway - HELD THAT: - The petitioner pleaded that the truck was stopped on Vadodara-Halol highway whereas the respondents assert it was stopped at Makarpura check-post. The factual conflict as to the precise place of stoppage is disputed and not amenable to resolution in writ jurisdiction under Article 226 on the materials before the court. The court therefore refrained from deciding the factual controversy and did not prefer one version over the other. [Paras 9]

The court declined to adjudicate the disputed question of fact regarding the location where the truck was stopped.

Transit pass under section 69 of the GVAT Act - penalty under section 69(1A) of the GVAT Act - power of seizure and detention under section 68(4) of the GVAT Act - release of seized goods and vehicle under section 68(5) of the GVAT Act - colourable exercise of statutory power - Whether seizure of the goods and continued detention of the truck for alleged breach of section 69 was authorised by law and whether respondents could invoke section 68(4) for that purpose - HELD THAT: - Section 69 requires a transit pass and prescribes a penalty for failure to carry it; nothing in section 69 authorises seizure of goods or permanent detention of the vehicle. Sub-section (4) of section 68 authorises seizure of goods and detention of the vehicle only where its conditions are satisfied; detention of the vehicle is ancillary and for facilitating seizure of goods and is not a power to permanently confiscate the vehicle. The respondents relied on section 68(4) to seize the truck and goods for an alleged breach of section 69, which amounted to a colourable exercise of power because section 69 itself prescribes penalty proceedings against the driver or person-in-charge and does not permit seizure of goods or continued detention of the vehicle. The respondents have also failed to release the vehicle after detaining it, contrary to the permissible scope of detention under section 68. For these reasons the seizure memorandum cannot be sustained. [Paras 10, 11, 12]

The seizure of goods and continued detention of the truck for breach of section 69 was without authority of law; the seizure memorandum is quashed and the vehicle and goods must be released forthwith.

Final Conclusion: Writ petition allowed; impugned seizure memorandum quashed and set aside; respondents directed to immediately release the truck and the goods; costs awarded to the petitioner.