TaxTMI Updates e-Newsletter
May 10,2022

Revision under section 264 of the Income Tax Act - speculative transaction vs business income under Section 43(5)(d) - Form No.10-DB as evidence of nature of derivative transactions - power of the Commissioner to rectify over-assessment - obligation to grant personal hearing and disclose relied authorities

Revision under section 264 of the Income Tax Act - Form No.10-DB as evidence of nature of derivative transactions - speculative transaction vs business income under Section 43(5)(d) - power of the Commissioner to rectify over-assessment - Whether the order dismissing the revision petition dated 29.9.2014 should be set aside and the matter remanded to the Commissioner for fresh consideration of whether losses from derivatives traded on a recognised stock exchange are speculative or business losses for assessment year 2008-09. - HELD THAT: - The Court found that the Commissioner did not consider the Form No.10-DB filed by the petitioner and failed to address the determinative question whether transactions in derivatives on a recognised stock exchange fall within the proviso to Section 43(5)(d) and thus should be treated as business loss or as speculative loss. The Court observed that where an assessee demonstrates a mistake that results in over-assessment or excess tax paid, the revisional power under Section 264(1) can be exercised to correct the error. A summary dismissal on the ground that additions were voluntarily agreed was, in the circumstances, insufficient because the Commissioner was required to apply independent mind to the legal characterisation of the derivative transactions and the supporting material. Consequently the Court set aside the impugned order and remanded the revision for de novo consideration, directing the Commissioner to consider all documents and submissions, determine independently the nature of the loss (speculative or non-speculative) notwithstanding the assessee's earlier stand, afford personal hearing, and furnish in advance any judicial or tribunal orders he proposes to rely upon so the petitioner may meet them. [Paras 7, 8]

Impugned order dated 29.09.2014 set aside; matter remanded to the Commissioner of Income Tax for de novo consideration of the revision under Section 264 for AY 2008-09 with directions to grant personal hearing, disclose relied authorities, and decide afresh whether the derivative loss is speculative or business loss.

Final Conclusion: Order dated 29.09.2014 set aside; revision petition remitted to the Commissioner of Income Tax for fresh adjudication on merits in respect of AY 2008-09 and to be disposed of by 15.07.2022 after personal hearing and disclosure of authorities to the petitioner.

Eligible transaction in respect of trading in derivatives on a recognized stock exchange not a speculative transaction - definition of speculative transaction in Section 43(5) read with proviso (d) - set-off of business losses under Section 70 - non applicability of Section 73 to exchange traded derivatives losses - deeming fiction and prospective operation of legislative amendment

Definition of speculative transaction in Section 43(5) read with proviso (d) - eligible transaction in respect of trading in derivatives on a recognized stock exchange not a speculative transaction - deeming fiction and prospective operation of legislative amendment - Whether transactions in derivatives carried out on a recognized stock exchange are to be treated as speculative transactions for the assessment year in question. - HELD THAT: - The court held that proviso (d) to Section 43(5), inserted by the Finance Act, 2005 with effect from 01.04.2006, creates a deeming exclusion: eligible transactions in exchange traded derivatives carried out on a recognized stock exchange are not speculative transactions. The authorities below failed to consider this proviso. The Supreme Court's decision in Snowtex and this Court's earlier reasoning in Bharat R. Ruia (HUF) establish that the amendment operates prospectively from 01.04.2006 and removes qualifying exchange traded derivative transactions from the scope of Section 43(5). Applied to the facts (transactions in FY 2008-09/AY 2009-10), the derivative trades fall outside the definition of speculative transaction. [Paras 31, 32, 36, 39, 43]

Derivatives transactions carried out on a recognized stock exchange are not speculative transactions for the assessment year 2009-10.

Set-off of business losses under Section 70 - non applicability of Section 73 to exchange traded derivatives losses - Whether the loss on exchange traded derivatives could be set off against the assessee's infrastructure business income. - HELD THAT: - Because the derivative transactions are not speculative transactions under Section 43(5)(d), Section 73 (which restricts set off of losses of a speculation business) does not apply to those losses. Consequently, the loss from the exchange traded derivative business constitutes a business loss under the head 'Profits and gains of business or profession' and is eligible to be set off against income from another business source under Section 70. The Tribunal and the CIT(A) erred in treating the derivative loss as speculative and denying set off. [Paras 36, 43, 44, 45]

The appellant is entitled to set off the loss from exchange traded derivatives against its infrastructure business income.

Final Conclusion: The appeal is allowed: exchange traded derivative transactions (as defined by proviso (d) to Section 43(5)) are not speculative for AY 2009-10, and the loss from those transactions may be set off against the assessee's infrastructure business income under Section 70.

Faceless Assessment Scheme - Section 144B of the Income Tax Act procedure for faceless assessment - Requirement of draft assessment / show-cause notice before proposed adverse variation - Retrospective omission of statutory provision - Availability of efficacious alternative statutory remedy by appeal

Section 144B of the Income Tax Act procedure for faceless assessment - Requirement of draft assessment / show-cause notice before proposed adverse variation - Retrospective omission of statutory provision - Availability of efficacious alternative statutory remedy by appeal - Validity of the assessment order passed without serving a draft assessment / show-cause notice under the Faceless Assessment Scheme and maintainability of writ petition challenging the same. - HELD THAT: - The petitioner challenged the assessment order on the ground that the procedure mandated by Section 144B (including issuance of a draft assessment or show-cause notice before making an adverse variation) was not followed and that non compliance would render the proceedings non est. The Court observed that sub section (9) of Section 144B, which provided consequences for non compliance, was omitted by a Gazette Notification dated 30.3.2022 with effect from 1.4.2021. In view of the retrospective omission, the specific ground that non compliance renders proceedings non est was no longer available. The Court further noted that the petitioner had an efficacious statutory remedy by way of appeal against the assessment order, which could agitate the grievances raised. Applying these conclusions, the Court declined to entertain the writ petition and directed that the petitioner may approach the appellate authority; if an appeal is filed within thirty days, the appellate authority shall consider it on merits in accordance with law. [Paras 6, 7]

Writ petition dismissed as not maintainable; petitioner directed to agitate grievances before the appellate authority, which shall consider any appeal filed within thirty days on its merits.

Final Conclusion: The challenge to the assessment order was declined: the statutory provision relied upon (Section 144B(9)) had been omitted with retrospective effect and the petitioner has an efficacious alternative remedy by appeal; the writ petition is dismissed and the petitioner may prefer an appeal within thirty days, to be decided on merits by the appellate authority.

Reason to believe - reassessment under Section 147/148 of the Income-tax Act, 1961 - change of opinion - tangible material and live link nexus - jurisdictional notice

Reason to believe - tangible material and live link nexus - jurisdictional notice - Validity of the notice issued under Section 148 of the Income-tax Act, 1961 in light of the assessing authority's recorded 'reason to believe'. - HELD THAT: - The Court examined whether the material on which the assessing authority relied amounted to a bona fide 'reason to believe' that income had escaped assessment. Applying settled principles, the Court held that the 'reason to believe' must be based on tangible material having a direct nexus or live link with the formation of the belief and must meet the standard of an honest and prudent person acting on reasonable grounds. The impugned reasons were found to be unfounded, arbitrary and lacking the required rational connection to the alleged escapement; consequently the notice issued under Section 148 was held to be without jurisdiction. The Court noted that mere change of opinion on the same material is not a permissible basis for reopening assessment. [Paras 16]

The notice dated 31.03.2021 under Section 148 was quashed as issued without jurisdiction.

Reassessment under Section 147/148 of the Income-tax Act, 1961 - change of opinion - Sustainability of the subsequent reassessment order and demand notice issued pursuant to the quashed Section 148 notice for Assessment Year 2013-14. - HELD THAT: - Having held that the initiating notice was without jurisdiction for lack of a valid 'reason to believe', the Court proceeded to consider the consequences for subsequent proceedings. The Court applied the principle that if the foundational notice is invalid, any consequent re-assessment and demand cannot be sustained. The reassessment order dated 31.03.2022 under Section 147 and the demand notice dated 31.03.2022 were therefore vitiated by the jurisdictional defect in the initiating notice and liable to be set aside. [Paras 17]

The reassessment order dated 31.03.2022 under Section 147 and the demand notice dated 31.03.2022 were quashed.

Final Conclusion: Writ petition allowed: the Section 148 notice, the order rejecting the petitioner's objection, the reassessment order for Assessment Year 2013-14 and the demand notice were quashed; respondents directed to pay costs to the High Court Legal Services Committee.

Sanction for initiation of disciplinary proceedings against officers whose appointing and disciplinary authority is the President of India - jurisdiction to issue charge memo for Group A officers - validity of disciplinary proceedings in absence of prescribed sanction - administrative allocation of work between Finance Minister and Minister of State

Jurisdiction to issue charge memo for Group A officers - administrative allocation of work between Finance Minister and Minister of State - Whether the Charge Memo issued to the petitioner was validly authorised given the rule that matters concerning officers whose appointing and disciplinary authority is the President of India must be placed before the Finance Minister. - HELD THAT: - The Court examined the Charge Memo dated 26.06.2018 and the administrative Office Orders of the Ministry of Finance which allocate matters relating to establishment and vigilance. The Office Orders show that matters concerning officers whose appointing and disciplinary authority is the President of India are to be submitted to the Finance Minister (paras 5-7). The petitioner is a Group A officer in the rank of Joint Commissioner whose appointing and disciplinary authority is the President of India; accordingly, jurisdiction to authorise initiation of disciplinary proceedings or issuance of a Charge Memo vests with the Finance Minister and not with the Minister of State (para 8). The respondent's RTI reply and the record indicate that sanction by the Union Finance Minister was not granted and that approval was, instead, given by the Chairman, CBDT (para 4). On this basis the Court held that the Charge Memo was issued without the prescribed sanction and therefore lacked validity. [Paras 4, 5, 6, 7, 8]

Charge Memo issued without due sanction is invalid and cannot be sustained.

Validity of disciplinary proceedings in absence of prescribed sanction - Whether the absence of sanction from the Finance Minister renders the proceedings non est and requires setting aside of the Charge Memo. - HELD THAT: - Applying the administrative allocation and the admitted absence of sanction by the Finance Minister, the Court concluded that initiation of proceedings by an authority other than the Finance Minister (here, approval by Chairman, CBDT) is contrary to the prescribed rule and renders the proceedings a nullity. The Court noted the respondent's own clarification and relied on the Office Orders to conclude that only the Finance Minister could authorise such action in respect of officers whose appointing and disciplinary authority is the President of India (paras 4-9). [Paras 4, 8, 9]

Impugned Charge Memo set aside as being without due sanction and non est.

Final Conclusion: The petition is allowed: the Charge Memo issued to the petitioner is set aside as having been issued without the requisite sanction of the Finance Minister and is therefore invalid; the petition and pending application are disposed of accordingly.

Attachment of property - title and possession - quashing of attachment - direction for fresh administrative consideration - role of Principal Commissioner - instruction to Tax Recovery Officer

Attachment of property - title and possession - role of Principal Commissioner - Principal Commissioner to examine documents on record and decide appropriateness of the attachment of the land - HELD THAT: - The High Court directed the Principal Commissioner of Income Tax to look into all documents produced by the writ applicants and to ascertain title and possession in relation to the Non-Agricultural parcel of land bearing Survey No.177/2, and to take an appropriate decision on the attachment. The court observed that the respondents should clarify on what basis ownership was asserted in the name of a third person and noted that the said third person is deceased, limiting the required exercise to documentary verification. The Principal Commissioner was given a fixed time of two weeks from receipt of the writ to complete the exercise and pass appropriate orders after considering the records. The court recorded the assurance given by the Principal Commissioner and the Revenue's senior counsel that the matter would be examined and that the Principal Commissioner may instruct the Tax Recovery Officer to undertake necessary action if required. [Paras 3, 5, 6, 9]

Principal Commissioner directed to examine the records and decide on the attachment within two weeks, with liberty to instruct the Tax Recovery Officer as necessary.

Direction for fresh administrative consideration - instruction to Tax Recovery Officer - Writ disposed after directing administrative reconsideration and leaving liberty to approach the Court in case of difficulty - HELD THAT: - Rather than adjudicating the dispute on merits, the High Court disposed of the writ petition by directing the concerned revenue authority to undertake fresh consideration of the attachment matter in light of the documents on record and the fact that the third party allegedly shown as owner is deceased. The court recorded that the Principal Commissioner will look into the matter and complete the exercise within the stipulated period. The court also left the writ applicants free to return to the court if further difficulty arises, thereby not finally determining title but mandating administrative action and oversight. [Paras 6, 7, 8]

Writ disposed of on the basis of directed administrative reconsideration; liberty granted to the applicants to approach the court again if required.

Final Conclusion: Writ petition disposed by directing the Principal Commissioner to examine the documents and decide on the propriety of the attachment of the specified land within two weeks, with power to involve the Tax Recovery Officer; petitioners granted liberty to return to Court if further difficulty arises.

Penalty under Section 271(1)(c) - voluntary disclosure of income - surrender of income during assessment - penalty for concealment and intention to evade tax - genuine transaction versus sham transaction - benefit of IDS scheme - limited scrutiny and its effect on voluntary disclosure

Penalty under Section 271(1)(c) - voluntary disclosure of income - surrender of income during assessment - limited scrutiny and its effect on voluntary disclosure - Levy of penalty under Section 271(1)(c) for alleged concealment where assessee voluntarily surrendered long term capital gain during assessment and paid tax with interest. - HELD THAT: - The Tribunal found that the assessee filed a revised computation during assessment admitting long term capital gain and paid the tax with interest; the Assessing Officer accepted the revised computation and no show cause notice on the long term capital gain was issued prior to assessment. The assessee explained that the transaction related to sale of shares later declared sham, the receipts were routed through banking channels and STT was paid, and she sought to avail the IDS scheme but could not as the return was selected for scrutiny. Relying on the legal principle that mere subsequent declaration of higher income to buy peace of mind and avoid litigation does not, by itself, attract penalty where no concealment is otherwise established, the Tribunal observed that penalty cannot be imposed merely because the return was later revised to show higher income (following the approach in decisions such as CIT v Suraj Bhan and the Supreme Court's decision in CIT v Suresh Chandra Mittal as applied by the High Court). Since the Assessing Officer had accepted the revised computation, no concealment was detected in the assessment proceedings, and the surrender was made during limited scrutiny, the requisite mens rea of deliberate and intentional concealment for invoking Section 271(1)(c) was not established. On these facts, imposition of penalty was held unjustified and was set aside. [Paras 7, 8]

Penalty under Section 271(1)(c) deleted and the appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the penalty imposed under Section 271(1)(c) having held that voluntary surrender of the long term capital gain during assessment and payment of tax with interest in the course of limited scrutiny did not establish concealment or intention to evade tax.

Non-allowability of deduction under section 80P for interest from nationalised banks - Deduction under section 80P(2)(d) for interest from cooperative banks - Taxation of net interest as income from other sources - Allocation between cooperative and nationalised bank deposits for taxation

Non-allowability of deduction under section 80P for interest from nationalised banks - Taxation of net interest as income from other sources - Interest earned on deposits with nationalised banks is not deductible under section 80P and is taxable as income from other sources, subject to deduction of administrative and other proportionate expenses. - HELD THAT: - Following the decision of the Gujarat High Court in SBI Employees Cooperative Credit and Supply Society v. CIT, the Tribunal held that interest earned by a co operative society on deposits with nationalised banks does not qualify for deduction under section 80P. Such interest is not attributable to the core business of providing credit to members and therefore falls within income from other sources. Consistent authorities (including Totgars and subsequent decisions) support taxation of such interest as income from other sources; however, the Tribunal clarified that only the net interest-after allowing administrative and other proportionate expenses incurred in earning that interest-is chargeable to tax. [Paras 6]

Deduction under section 80P is not allowable for interest from nationalised banks; such interest is taxable under income from other sources after deduction of related administrative expenses.

Deduction under section 80P(2)(d) for interest from cooperative banks - Interest earned on deposits with cooperative banks is eligible for deduction under section 80P(2)(d). - HELD THAT: - Respectfully following the Gujarat High Court (and Totgars to the extent applicable), the Tribunal held that interest derived by a co operative society from investments with another co operative society (co operative bank) falls within clause (2)(d) of section 80P and is eligible for deduction. The Tribunal distinguished the position as to nationalised banks and accepted that interest on deposits with cooperative banks qualifies for the statutory exemption under section 80P(2)(d). [Paras 6]

Interest on deposits with cooperative banks is deductible under section 80P(2)(d).

Allocation between cooperative and nationalised bank deposits for taxation - Whether portions of the assessed interest relate to cooperative bank deposits or nationalised bank deposits was not determined by the Tribunal and is remanded to the Assessing Officer for factual ascertainment and consequent taxation. - HELD THAT: - The Tribunal observed absence of clarity in the record as to how much interest was earned from cooperative bank deposits and how much from nationalised bank deposits. Having decided the legal treatment for each category (deductible under section 80P for cooperative bank interest; taxable as net interest for nationalised bank deposits), the Tribunal restored the file to the Assessing Officer to segregate the interest receipts, allow proportionate administrative expenses where applicable, and compute tax in accordance with the legal conclusions recorded. [Paras 6]

File restored to the Assessing Officer to ascertain and allocate interest between cooperative and nationalised bank deposits and to tax accordingly.

Final Conclusion: The appeal is partly allowed: interest on deposits with cooperative banks is deductible under section 80P(2)(d); interest on deposits with nationalised banks is not deductible and is taxable as net income from other sources after allowable expenses; the matter is remitted to the Assessing Officer to allocate the interest between the two categories and compute tax accordingly.

Deduction under Section 80IA - requirement of separate books of accounts - ascertainability of profit and loss from regular books of accounts - audit report in Form 10CCB - remand for fresh adjudication - subject to outcome of SLP in Alembic Limited

Deduction under Section 80IA - requirement of separate books of accounts - ascertainability of profit and loss from regular books of accounts - audit report in Form 10CCB - subject to outcome of SLP in Alembic Limited - Assessee's entitlement to deduction under Section 80IA in respect of its captive power plant. - HELD THAT: - The Tribunal found that Section 80IA does not mandate maintenance of separate sets of books of accounts for the eligible business; what is required is that the profit or loss attributable to the power plant be ascertainable from the regular books. On the facts the assessee filed a revised statement bifurcating income and expenditure between sponge iron operations and the power plant and furnished the requisite audit report in Form 10CCB. The Assessing Officer did not dislodge that bifurcation and the audit report was on record. Consequently the factual objections raised by the AO for denying the deduction stood met and the assessee was held entitled to the deduction claimed. The Tribunal qualified its decision to be subject to the directions of the Hon'ble Jurisdictional High Court and to the outcome of the SLP pending before the Hon'ble Supreme Court in Alembic Limited. [Paras 7]

Assessee entitled to deduction under Section 80IA for the captive power plant, subject to the High Court's directions and the pending SLP outcome.

Remand for fresh adjudication - Whether grounds Nos.4 to 8 required adjudication by the Tribunal. - HELD THAT: - The Tribunal recorded that Grounds Nos.4 to 8 were not placed before it for adjudication in view of the Hon'ble Jurisdictional High Court's order dated 31.07.2019 which remitted the matter for fresh consideration on the factual and legal matrix. Consequently those grounds were not adjudicated by the Tribunal and do not require decision by it at this stage. [Paras 8]

Grounds Nos.4 to 8 not adjudicated by the Tribunal and left for fresh adjudication as directed by the High Court.

Final Conclusion: Partly allowed: deduction under Section 80IA for the captive power plant granted to the assessee on the recorded facts and audit certification, subject to the High Court's directions and the result of the SLP in Alembic Limited; other specified grounds remitted for fresh consideration.

Deduction under Chapter VI C (Section 80IB(10)) - Mandatory claim in return as precondition for Chapter VI deduction - Appellate authority's power to entertain fresh claims vis a vis statutory preconditions - Characterisation of receipts as business income versus capital gains

Deduction under Chapter VI C (Section 80IB(10)) - Mandatory claim in return as precondition for Chapter VI deduction - Whether the assessee was entitled to claim deduction under Section 80IB(10) when no claim was made in the return filed within the due date. - HELD THAT: - The Tribunal held that Section 80A(5) read with the provisions governing returns makes it mandatory that a claim for deduction under Chapter VI C must be made in the return filed on or before the due date specified under the return provisions. The statutory use of 'shall' imposes a mandatory condition; consequently, a deduction under Section 80IB(10) cannot be allowed where the assessee failed to raise the claim in the original return filed within the due date. The appellate power to entertain fresh or additional grounds does not override this statutory embargo; therefore the lower authorities were correct in disallowing the deduction in principle. [Paras 3, 4]

Deduction under Section 80IB(10) disallowed because the claim was not made in the return filed within the due date; appellate proceedings cannot cure the statutory requirement.

Characterisation of receipts as business income versus capital gains - Whether the receipts from the joint venture should be assessed as capital gains with nil cost of acquisition instead of business income. - HELD THAT: - The Tribunal rejected the assessee's alternative plea that the income should be assessed as capital gains with nil cost of acquisition. The assessee had consistently treated the transaction as business income, alleging developer status and having borne project risk; the additional claim to treat the same receipts as capital gains was inconsistent and therefore not acceptable. The additional evidence and grounds seeking recharacterisation were held irrelevant to the issue of assessment of the declared business income and accordingly were rejected. [Paras 5]

Claim that the receipts are capital gains with nil cost of acquisition rejected; receipts upheld as business income as assessed.

Final Conclusion: Appeal dismissed: Section 80IB(10) deduction denied for want of a timely claim in the return; alternative contention that receipts are capital gains instead of business income rejected.

Rectification under section 154 - mistake apparent on the face of the record - limited scrutiny assessment under section 143(3) - power of Assessing Officer to review or revise an assessment - allowability of interest expenditure as deduction - claim not made in the original return and Assessing Officer's adjudicatory competence

Rectification under section 154 - mistake apparent on the face of the record - claim not made in the original return and Assessing Officer's adjudicatory competence - Whether the Assessing Officer was justified in rejecting the assessee's application under section 154 to rectify the assessment for not admitting interest expenditure not claimed in the original return. - HELD THAT: - The Tribunal upheld the concurrent findings that an application under section 154 is confined to correcting a mistake apparent from the record and does not empower the Assessing Officer to review or revise an assessment. The Assessing Officer, having conducted limited scrutiny and completed assessment under section 143(3), did not allow the subsequently asserted claim for proportionate interest because the claim was not made in the original return and its determination required analysis, bifurcation and adjudication rather than a ministerial correction. The CIT(A) correctly observed that the proposed amendment involved examination beyond a prima facie clerical error and that the statutory remedy for contesting such omitted claims lay in appealing the assessment order under section 143(3). On these grounds the rejection of the section 154 petition was affirmed as legally sustainable. [Paras 2, 3, 4]

Rejection of the section 154 application was proper and is confirmed; the Assessing Officer could not be required to admit and adjudicate an interest claim not filed in the original return by way of a section 154 rectification.

Final Conclusion: The appeal is dismissed; the Tribunal affirms the Assessing Officer's and CIT(A)'s refusal to rectify the assessment under section 154 to admit an interest deduction not claimed in the original return, since the matter required adjudication and was not a mistake apparent from the record.

Deduction under section 80P(2)(d) - interest from deposits with co-operative banks - characterisation of interest on surplus funds - income from other sources versus operational business income

Deduction under section 80P(2)(d) - interest from deposits with co-operative banks - characterisation of interest on surplus funds - Whether interest earned by the assessee on fixed deposits with a co-operative bank is eligible for deduction under section 80P(2)(d) of the Income Tax Act for assessment year 2017-18. - HELD THAT: - The Tribunal examined conflicting decisions and followed the authoritative views of the Gujarat High Court and other High Courts and Tribunals which hold that interest income earned by a co-operative society on deposits with a co-operative bank is eligible for deduction under section 80P(2)(d). While earlier orders and some ITAT decisions treated interest on surplus funds (including deposits with co-operative banks) as not attributable to the society's operational business and therefore taxable under "income from other sources," the Tribunal respectfully followed the Gujarat High Court decisions (and supporting precedents) which treat interest from co-operative bank deposits as falling within the scope of clause (d) of section 80P(2). Applying those precedents to the facts, the Tribunal held that interest of the assessee on surplus funds deposited with the Bhavnagar District Co-operative Bank qualifies for deduction under section 80P(2)(d). [Paras 6, 7]

Interest earned on FDRs with the co-operative bank is eligible for deduction under section 80P(2)(d); the assessee's appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that interest earned by the assessee from deposits with a co-operative bank is deductible under section 80P(2)(d) for AY 2017-18, and set aside the finding that such interest was taxable as income from other sources.

Unexplained cash credit under section 68 - Onus to prove identity, creditworthiness and genuineness of share applicants - Taxability of share premium under section 56(2)(viib) and valuation under Rule 11UA - Protective addition - Mandatory application of statutory procedure for valuation

Unexplained cash credit under section 68 - Onus to prove identity, creditworthiness and genuineness of share applicants - Validity of addition of Rs.46,00,000 as unexplained cash credit under section 68 - HELD THAT: - The Tribunal examined whether the assessee discharged the initial onus of proving the identity, creditworthiness and genuineness of the four corporate investors who subscribed to equity shares at a premium. The assessee had furnished returns, audited financials, bank statements, confirmations, ROC records, share certificates and valuation details. The Assessing Officer and the CIT(A) doubted the genuineness on the basis of perceived lack of business activity and low reported income of investor companies, and treated the receipts as unexplained credits. The Tribunal found that the assessee produced documentary evidence substantiating the investors' identity and their capacity to invest and that the transactions were routed through banking channels. The AO did not bring material to negativate or rebut the documents filed nor carried the suspicion to a logical conclusion by further investigation. Applying precedents where mere filing of records was accepted if not disproved by AO, and noting that nothing on record impeached the evidences submitted, the Tribunal held the addition under section 68 unsustainable and deleted it. [Paras 6, 7]

Addition of Rs.46,00,000 under section 68 set aside and deleted.

Taxability of share premium under section 56(2)(viib) and valuation under Rule 11UA - Protective addition - Mandatory application of statutory procedure for valuation - Validity of protective enhancement of income by treating excess share premium as income under section 56(2)(viib) - HELD THAT: - The Tribunal considered whether the share premium in excess of face value could be treated as income under section 56(2)(viib) and whether valuation must be determined in accordance with Rule 11UA. The assessee had computed fair market value per Rule 11UA(a) and produced a valuation certificate which yielded a value materially higher than face value. The AO and CIT(A) rejected the valuation on factual grounds (lack of business worth) without applying the Rule 11UA formula. The Tribunal held that where statute prescribes a particular mode of valuation (Rule 11UA clauses (a) or (b) at assessee's option), the authorities must apply that procedure; rejection based on presumptions without applying the statutory method was improper. Following a coordinate Bench decision on identical facts, the Tribunal set aside the protective addition under section 56(2)(viib). [Paras 6, 16]

Protective addition of share premium under section 56(2)(viib) deleted for failure of authorities to apply Rule 11UA as prescribed.

Final Conclusion: The appeal is allowed: the addition of Rs.46,00,000 treated as unexplained cash credit under section 68 is deleted, and the protective enhancement under section 56(2)(viib) based on rejected valuation is set aside; the Assessing Officer is directed to give effect accordingly.

Exemption under section 54 of the Income-tax Act - long-term capital gain on sale of immovable property - purchase of new property in the name of spouse and entitlement to exemption - binding precedent of the jurisdictional High Court - conflict of High Court decisions and rule of following jurisdictional High Court - extension of limitation on account of COVID-19

Extension of limitation on account of COVID-19 - condonation of delay - Delay in filing the appeal before the Tribunal was condoned and the appeal was admitted for disposal on merits. - HELD THAT: - The Tribunal noted a delay of 161 days in filing the appeal. Relying on the suo motu cognizance taken by the Hon'ble Supreme Court in relation to difficulties arising from the COVID-19 pandemic, the Tribunal exercised its power to condone the delay and admitted the appeal for consideration on merits. The order records the application of those Supreme Court directions to extend time limits affected by the pandemic and proceeds to determine the appeal notwithstanding the initial delay. [Paras 2]

Delay condoned and appeal admitted for disposal on merits.

Exemption under section 54 of the Income-tax Act - purchase of new property in the name of spouse and entitlement to exemption - binding precedent of the jurisdictional High Court - conflict of High Court decisions and rule of following jurisdictional High Court - Exemption under section 54 claimed by the assessee was correctly denied because the new property was purchased in the name of the assessee's wife; the Tribunal followed the binding view of the jurisdictional High Court. - HELD THAT: - The Tribunal found it admitted that the assessee transferred property resulting in capital gain and claimed exemption under section 54 by investing in a new flat purchased in the name of his wife. The authorities denied the exemption on that ground and the CIT(A) affirmed. The Tribunal examined conflicting High Court decisions: some High Courts have allowed exemption where the new property was purchased jointly or in another's name, while the jurisdictional High Court (Prakash v. ITO) disallowed exemption where the new property was not in the name of the transferor. Observing that a High Court's decision is binding on all subordinate authorities within its territorial jurisdiction, the Tribunal held itself bound to follow the jurisdictional High Court's view despite divergent decisions elsewhere. Applying that binding precedent, the Tribunal upheld denial of the section 54 exemption. [Paras 6, 9, 10]

Denial of exemption under section 54 upheld; appeal dismissed on merits.

Final Conclusion: The Tribunal condoned the delay in filing the appeal under the Supreme Court's COVID-19 extension directions, admitted the appeal, and on merits dismissed it by upholding the denial of exemption under section 54 because the new property was purchased in the name of the assessee's wife, following the binding view of the jurisdictional High Court.

Reopening of assessment under section 147 - scope of assessment after reopening - formation of belief that income has escaped assessment - onus on assessee to furnish evidence to controvert AO's finding - service of notice and opportunity to respond before assessment

Reopening of assessment under section 147 - scope of assessment after reopening - formation of belief that income has escaped assessment - Validity of reopening the assessment and whether the Assessing Officer was confined to making additions only in respect of the specific transaction mentioned in the reasons for reopening. - HELD THAT: - The Tribunal noted that the assessment was reopened because of cash deposits in the assessee's bank account and that no return had been filed or explanation offered at that time. The Assessing Officer's formation of belief that income chargeable to tax had escaped assessment on the basis of those cash deposits was held to be sufficient to justify reopening. The Tribunal rejected the contention that the AO was confined to making additions only in respect of the item mentioned in the reopening reasons, observing there is no legal prohibition preventing the AO from making assessment in respect of other issues after reopening where the material justifies it. The ground challenging reopening and the scope of assessment were therefore dismissed. [Paras 6, 8]

Reopening of assessment was valid and AO was not required to confine assessment to the specific transaction mentioned in the reasons for reopening; grounds 1 and 2 dismissed.

Onus on assessee to furnish evidence to controvert AO's finding - Sustainability of the addition determined by the Assessing Officer in respect of net profit where the assessee claimed that bank deposits were from cash withdrawals. - HELD THAT: - The Tribunal recorded that the assessee failed to furnish any evidence to substantiate its explanation that the cash deposits originated from cash withdrawals. The Assessing Officer had treated a specified portion as net profit from gross receipts, a finding which the assessee did not controvert by evidence. In absence of any material to rebut the AO's conclusion, the Tribunal found no reason to interfere with the addition upheld by the authorities below. [Paras 9, 10]

Addition sustained; ground against the addition dismissed.

Service of notice and opportunity to respond before assessment - Whether the addition was made without giving notice to the assessee. - HELD THAT: - The record showed that a notice dated 22.12.2018 had been issued by the Assessing Officer and that no one attended the proceedings in response. The Tribunal held that non-attendance could not be equated with non-issuance of notice and therefore the contention that additions were made without notice was without merit. [Paras 11]

Ground alleging addition without notice rejected.

Final Conclusion: Assessee's appeal for Assessment Year 2011-12 dismissed: reopening under section 147 sustained, the addition upheld for lack of evidentiary rebuttal, and the complaint of non-issuance of notice rejected.

Limitation under Section 7 of the Insolvency and Bankruptcy Code - Acknowledgement of debt under Section 18 of the Limitation Act, 1963 - One time settlement/Restructuring correspondence treated as acknowledgment - Balance sheets and financial statements as recognition of liability - Extension of limitation period by fresh three year period upon acknowledgment

Limitation under Section 7 of the Insolvency and Bankruptcy Code - Acknowledgement of debt under Section 18 of the Limitation Act, 1963 - Balance sheets and financial statements as recognition of liability - One time settlement/Restructuring correspondence treated as acknowledgment - Whether the Section 7 application filed by the Financial Creditor was barred by limitation. - HELD THAT: - The Tribunal examined the date of default (NPA) recorded as 30/09/2014 and noted that the Section 7 application was filed on 24/04/2018. The record contained an acknowledgment letter dated 19/12/2015 signed by the Corporate Debtor and the Corporate Debtor's financial statements for the year ending 31/03/2016 reflected the amounts due to the Financial Creditor. Applying the principle in Dena Bank (Supra), Sections 14 and 18 of the Limitation Act apply to proceedings under the IBC and an acknowledgment of debt made within three years of the date of default extends the limitation period by a further three years. The Tribunal held that offers of one time settlement and restructuring negotiations, together with an unrefuted written acknowledgment and entries in the balance sheet, constitute an acknowledgment within Section 18 and are sufficient to extend the period of limitation. Reliance was placed on the Supreme Court's observations that balance sheets and settlement proposals can amount to acknowledgement and that Section 18 should not be applied with pedantic rigidity in IBC proceedings. In the facts of the case the acknowledgment dated 19/12/2015 and the financial statements warranted treating the Section 7 application as within the extended limitation period. [Paras 5, 6, 8, 9, 11]

The Section 7 application is not barred by limitation and is within time by reason of the acknowledgment dated 19/12/2015 and the entries in the financial statements extending the limitation period.

Final Conclusion: Appeal dismissed; the Adjudicating Authority's admission of the Section 7 application is upheld as the application was within the extended period of limitation owing to the Corporate Debtor's acknowledgment and financial statements reflecting the liability. No order as to costs.

User test - entitlement to CENVAT credit - capital goods - integral part - definition of input - consequential relief on demand and penalty

User test - entitlement to CENVAT credit - capital goods - integral part - definition of input - Entitlement to CENVAT credit on iron and steel items used in erection, foundation and support structures of the plant - HELD THAT: - The Tribunal considered binding principles as laid down by the Hon'ble Supreme Court in CCE v. Rajasthan Spinning & Weaving Mills Ltd. endorsing the user test, and subsequent High Court authority applying that test to hold that iron and steel items and cement used for erection of foundations and support structures qualify as input or capital goods where they are an integral part of the plant and machinery. The Appellant had produced utilisation statements showing that the steel items were used in setting up the iron ore concentrates plant and thus formed part of the manufacturing set-up. The Tribunal noted that the Larger Bench decision relied upon by the lower authorities was set aside by the Hon'ble Chhattisgarh High Court and that the principle of user test requires consideration. Applying that principle to the facts, the Tribunal held that the steel items qualify for CENVAT credit as they are integral to the plant and satisfy the user test. [Paras 6, 7, 8]

Credit on the steel items is admissible; the appeal is allowed on this ground.

Consequential relief on demand and penalty - Consequences for the confirmed demand and penalty following allowance of credit - HELD THAT: - The Tribunal observed that, having held the Appellant entitled to CENVAT credit on the steel items, the demand and penalty confirmed by the lower authorities consequent to disallowance cannot be sustained. The order therefore grants relief consequential to the acceptance of the credit claim. The Tribunal did not engage in a separate detailed enquiry into wilfulness or limitation beyond recording that consequential relief would follow the primary finding on credit entitlement. [Paras 8]

Demand and penalty are liable to be set aside or adjusted as a consequence of allowing the credit; appeal is allowed with consequential relief, if any.

Final Conclusion: The appeal is allowed: the Appellant is entitled to avail CENVAT credit on the iron and steel items used in the plant for the period 2012-13 to 2014-15 under the user test, and the confirmed demand and penalty stand reversed or will be adjusted consequentially.

Cenvat credit - outward transportation service - place of removal - FoR destination basis - input service (amended Rule 2(l)) - service tax on freight

Cenvat credit - place of removal - FoR destination basis - input service (amended Rule 2(l)) - Entitlement to cenvat credit of service tax on outward freight for the period 01.04.2008 to March, 2009. - HELD THAT: - The Tribunal found as a fact that the assessee sold goods on FoR destination basis, bore the freight cost and paid service tax on the same, and that property in the goods transferred at the buyer's premises so that the place of removal was the premises of the buyer. Applying the amended definition of input service as incorporated in Rule 2(l), the outward transportation was incurred up to the place of removal and therefore qualifies for cenvat credit. The Tribunal noted Board guidance to decide outward transportation on a case-to-case basis but based its conclusion on the factual finding of FoR destination sales and the amended rule's scope. [Paras 7]

The appellant is entitled to cenvat credit of service tax paid on outward freight for the period in dispute; the appeal is allowed and the impugned order is set aside.

Final Conclusion: On the facts that the sales were on FoR destination basis, the appellant bore and paid service tax on freight and the place of removal was the buyer's premises, the Tribunal allowed the appeal and directed grant of cenvat credit for the outward transportation for the period 01.04.2008 to March, 2009.

Cenvat credit on outward Goods Transport Agency services prior to 01.04.2008 - definition of input service construed as "from the place of removal" versus "up to the place of removal" - compliance with Board Circular No. 97/8/2007-ST as a condition precedent for credit - remand to adjudicating authority for documentary verification

Cenvat credit on outward Goods Transport Agency services prior to 01.04.2008 - definition of input service construed as "from the place of removal" versus "up to the place of removal" - Entitlement to cenvat credit on outward GTA services for the period prior to 01.04.2008 - HELD THAT: - The Tribunal observed that prior to 01.04.2008 the phrase in the definition of input service referred to services related to removal of inputs "from the place of removal", which, after amendment effective 01.04.2008, read as "up to the place of removal". On that linguistic and legal basis the Tribunal held that prima facie cenvat credit is available for outward transportation services availed from the place of removal to the customer for the period prior to 01.04.2008. However, the Tribunal recognised that the Board had prescribed specific conditions for allowing such credit in Board Circular No. 97/8/2007-ST dated 23.08.2007, and that the adjudicating authority had not verified whether those conditions had been complied with. Consequently, while the legal position favouring availability of credit before the amendment is accepted prima facie, the factual question of compliance with the Circular's conditions must be examined by the adjudicating authority. [Paras 4]

Prima facie entitlement to cenvat credit for outward GTA services prior to 01.04.2008 is recognised, subject to verification of compliance with Board Circular No. 97/8/2007-ST.

Compliance with Board Circular No. 97/8/2007-ST as a condition precedent for credit - remand to adjudicating authority for documentary verification - Whether the matter should be remanded for verification of compliance with the Board Circular before allowing credit - HELD THAT: - The Tribunal agreed with the Authorized Representative that the Board Circular prescribes criteria which must be satisfied to allow cenvat credit on outward GTA. Noting that the adjudicating authority did not verify whether the appellant had produced the documents or otherwise satisfied those criteria, the Tribunal concluded that the impugned order must be set aside and the matter remanded. The adjudicating authority is directed to examine the documentary evidence, apply the conditions of Board Circular No. 97/8/2007-ST, and consider the judicial decisions cited by both parties in reaching a fresh conclusion. [Paras 4, 5]

Impugned order set aside; appeal allowed by way of remand to the adjudicating authority to verify compliance with Board Circular No. 97/8/2007-ST and pass a fresh order.

Final Conclusion: The appeal is allowed by way of remand: while the Tribunal recognises prima facie entitlement to cenvat credit on outward GTA services for the period prior to 01.04.2008 (based on the pre amendment wording), the matter is remitted to the adjudicating authority to verify compliance with Board Circular No. 97/8/2007 ST and to pass a fresh order after considering the parties' authorities.