TaxTMI Updates e-Newsletter
May 11,2020

Applicability of notification granting concessional GST rate - classification of goods as "for injection" - scope of supply under the CGST Act - concessional rate applicable only to goods ready for administration by injection - distinction between bulk drug/raw material and finished formulation

Classification of goods as "for injection" - concessional rate applicable only to goods ready for administration by injection - distinction between bulk drug/raw material and finished formulation - Whether the sale of Micafungin sodium by the DTA unit is covered under Serial No.114 of Entry No.180 of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017 and thereby leviable to GST at 5% - HELD THAT: - The Authority examined whether the bulk drug supplied by the applicant qualifies as "Micafungin Sodium for Injection" so as to attract the concessional rate. It was found that the applicant supplies Micafungin Sodium as a bulk drug which cannot be directly administered by injection and therefore functions as raw material for the purchaser who manufactures the injectable formulation. The phrase "Micafungin Sodium for Injection" in the notification denotes the product in a form ready for administration by injection. GST is leviable on each supply that amounts to "supply" under the CGST Act, and the supply by the applicant is a distinct transaction of providing bulk drug/raw material. The concessional entry would have referred to the bulk drug expressly if the intention was to extend the reduced rate to raw materials; absence of such wording and the express specification "for Injection" confines the benefit to finished/ready-for-injection goods. Reliance on precedents concerning the meaning of the preposition "for" was noted but distinguished, since the present question concerns classification of the specific transaction and the physical form/ready-to-administer character of the goods. Accordingly the bulk drug sold by the applicant does not fall within Serial No.114 of Entry No.180 and is not eligible for the 5% concessional rate. [Paras 8, 9]

Sale of Micafungin sodium by the applicant's DTA unit is not covered under Serial No.114 of Entry No.180 of Notification No.01/2017-CT (R) dated 28.06.2017 and is not entitled to the concessional GST rate of 5%.

Final Conclusion: Advance Ruling: the supply of Micafungin Sodium by the DTA unit is a supply of bulk drug/raw material and does not qualify as "Micafungin Sodium for Injection" under the concessional entry; therefore the 5% concessional GST rate is not available on such sales.

Aggregate Turnover - Supply in terms of Section 7(1)(a) - Exempt supplies included in aggregate turnover - Services by way of extending deposits, loans or advances - exemption under Notification No.12/2017 (Entry 27(a)) - Renting of immovable property - commercial and residential - Remuneration of director - employee services excluded; non executive director services taxable under reverse charge - Securities excluded from GST - Maturity proceeds of life insurance policies not relevant to aggregate turnover

Services by way of extending deposits, loans or advances - exemption under Notification No.12/2017 (Entry 27(a)) - Aggregate Turnover - Whether interest and related amounts arising from deposits, loans or advances made by the applicant are to be included in aggregate turnover for registration. - HELD THAT: - The services of extending deposits, loans or advances, where consideration is represented by interest or discount, are exempt under the specified entry of Notification No.12/2017 and fall under SAC 9971. The value of the underlying amounts (deposits/loans/advances) constitutes the value of that exempt service. Aggregate Turnover, as defined, includes the value of exempt supplies. Accordingly interest-related receipts arising from the applicant's deposits/loans/advances are connected to transactions that amount to supply (albeit exempt) and their values are includable in aggregate turnover for registration. [Paras 7]

Interest and amounts extended as deposits/loans/advances (out of which interest is received) are includable in aggregate turnover.

Supply in terms of Section 7(1)(a) - Aggregate Turnover - Whether amounts received as partner's salary or share of profit from a partnership firm are includable in aggregate turnover. - HELD THAT: - If the amount paid to a partner is remuneration for services as a working partner (i.e., an employee-like service), Schedule III excludes such services from supply and they are not includable. Further, share of profit of a partner is an application of money and not a supply under GST; therefore it is excluded from aggregate turnover. The applicant did not furnish documentary evidence to determine whether receipts were salary for services or share of profit; however, the legal positions are stated and applied hypothetically. [Paras 7]

Remuneration received as a working partner (employee-like service) and share of profit are not includable in aggregate turnover; factual determination as to nature of the payment requires documentary verification.

Remuneration of director - employee services excluded; non executive director services taxable under reverse charge - Aggregate Turnover - Whether salary/remuneration received as a director of a private limited company is includable in aggregate turnover. - HELD THAT: - Two legal positions apply: where the director is an Executive Director (an employee), services of an employee to the employer are not supplies under Schedule III and the remuneration is not includable. Where the director is a Non Executive Director providing services, that remuneration constitutes a taxable supply and the company is liable to discharge tax under reverse charge (section 9(3) and the cited notification); the value of such taxable services is includable in the individual's aggregate turnover even though tax is paid by the company. The applicant did not provide documents to determine which category applies; therefore the legal positions are explained but the factual classification remains undetermined for these proceedings. [Paras 7]

Remuneration as an Executive Director (employee) is not includable; remuneration as a Non Executive Director is includable in aggregate turnover (tax payable under reverse charge). Factual classification to be verified from documents.

Renting of immovable property - commercial and residential - Supply in terms of Section 7(1)(a) - Exempt supplies included in aggregate turnover - Whether rental income from commercial and residential properties is includable in aggregate turnover. - HELD THAT: - Rental/lease of immovable property amounts to a supply in terms of Section 7(1)(a) where it is made for consideration in the course or furtherance of business. Renting of commercial property is a taxable supply (SAC 997212) and its value is includable in aggregate turnover. Renting of residential dwelling (SAC 997211) is specifically exempt under the cited notification (entry 12), but aggregate turnover includes the value of exempt supplies. Therefore both commercial rent (taxable) and residential rent (exempt) are to be included in aggregate turnover for registration purposes. [Paras 7]

Income from renting commercial property is includable (taxable supply); income from renting residential property is an exempt supply but is nonetheless includable in aggregate turnover.

Securities excluded from GST - Aggregate Turnover - Whether dividend on shares and capital gains/losses on sale of shares are includable in aggregate turnover. - HELD THAT: - The term 'securities' as defined (and having the meaning in the Securities Contracts (Regulation) Act) includes shares and similar instruments. Such securities are explicitly excluded from the definitions of 'goods' and 'services' and thus from GST. Income arising from shares - dividends and capital gains/losses - is an application of money in relation to securities and does not constitute a supply under GST; consequently these receipts are not relevant to aggregate turnover and are not includable. [Paras 7]

Dividend and capital gain/loss on sale of shares (securities) are not includable in aggregate turnover.

Maturity proceeds of life insurance policies not relevant to aggregate turnover - Aggregate Turnover - Whether amounts received on maturity/closure of life insurance policies are includable in aggregate turnover. - HELD THAT: - Insurance premium is consideration for services supplied by insurance companies and is taxable. On maturity or closure of the insurance contract there is no ongoing service between policyholder and insurer; the maturity proceeds represent extinguishment of the contract rather than fresh supply. Therefore amounts received on maturity of life insurance policies are not relevant to aggregate turnover and are not includable. [Paras 7]

Maturity proceeds of life insurance policies are not includable in aggregate turnover.

Final Conclusion: The Authority rules that (i) amounts extended as deposits/loans/advances (out of which interest is received), (ii) remuneration as a Non Executive Director, (iii) rent from commercial property and (iv) rent from residential property are includable in aggregate turnover (residential rent being an exempt supply but nevertheless included). Dividends and capital gains on shares and maturity proceeds of life insurance policies are not includable. Remuneration paid as an Executive Director or payment characterised as share of profit/working partner remuneration (not a supply) are not includable; factual classification where documentary evidence is lacking must be verified.

Scope of supply - consideration - services by way of conduct of religious ceremony (exemption) - exemption for declared tariff of accommodation below Rs.1,000 per day - exemption for renting of precincts of religious place (thresholds for rooms/shops/kalyanamandapam) - transfer of right to provide services (supply of service) - sale of prasadam (goods exemption) - service of access to premises (vehicle entry fee) liable as taxable service

Scope of supply - consideration - services by way of conduct of religious ceremony (exemption) - Seva charges and special darshan charges collected for religious ceremonies are not supplies and are not taxable under GST; alternatively, they are exempt as services by way of conduct of religious ceremony. - HELD THAT: - The Authority's seva transactions are services in the form of religious ceremonies and poojas. Applying the definition of supply, such seva services are not made in the course or furtherance of business and therefore do not fall within the scope of supply; monies received are not consideration for supply. Independently, entry no.13 of Notification No.12/2017 exempts services by way of conduct of any religious ceremony. On either basis - not being a supply and being covered by the exemption - the seva charges and special darshan charges are not liable to GST. [Paras 7]

Seva charges and special darshan charges are not taxable under CGST/KGST.

Exemption for declared tariff of accommodation below Rs.1,000 per day - scope of supply - Accommodation services provided where declared tariff per unit is below Rs.1,000 per day are exempt from GST. - HELD THAT: - Accommodation services provided to pilgrims constitute supplies in the course of business. However, Notification No.12/2017 exempts services by hotels/guest houses having declared tariff of a unit of accommodation below Rs.1,000 per day. The applicant has declared tariffs below Rs.1,000 per day per unit; consequently those accommodation services fall within the exemption and are not subject to GST. [Paras 8]

Accommodation services with declared tariff below Rs.1,000 per day are exempt from CGST/KGST.

Sale of prasadam (goods exemption) - Edible prasadam supplied by the religious place is exempt from GST; non-prasadam goods sold are taxable at applicable rates. - HELD THAT: - Notification No.2/2017 exempts prasadam supplied by religious places. The items sold as prasadam therefore attract exemption. Items not constituting prasadam (for example non-edible articles like cloth bags) do not fall within that exemption and are taxable at the appropriate rates for those goods. [Paras 9]

Prasadam sales are exempt; other goods sold are taxable at applicable rates.

Transfer of right to provide services (supply of service) - service of access to premises (vehicle entry fee) liable as taxable service - Transfer (by auction/tender) of the right to collect fees for vehicle entry, tonsuring, vahana pooja, and similar services is a supply of services (SAC 9997) and is taxable at 9% CGST/KGST. - HELD THAT: - Where the Authority transfers the right to provide certain services to third parties by auction or tender, it is transferring the right to perform services for consideration. Such transfers constitute supply of services under SAC 9997 and are covered by entry no.35 of Notification No.11/2017, attracting CGST/KGST at 9%. Specifically, vehicle entry fee collection by transfer of right is a taxable service when characterized as access to premises rather than an exempt toll-like access. [Paras 10, 14]

Transfer of rights by auction/tender to collect specified fees is taxable at 9% under CGST/KGST.

Exemption for renting of precincts of religious place (thresholds for rooms/shops/kalyanamandapam) - Leasing of commercial shops and renting of kalyanamandapams are exempt when rents fall below statutory thresholds; otherwise taxable. - HELD THAT: - Notification No.12/2017 exempts renting of precincts of a religious place by an entity registered under section 12AA, subject to specified monetary thresholds. Renting of shops is exempt if rent is below Rs.10,000 per month per shop; renting of kalyanamandapams is exempt if charges are below Rs.10,000 per day. If the rent/charge exceeds the respective thresholds, the activity becomes taxable (e.g., shops above Rs.10,000 per month taxed under SAC 9972 at 9%). The applicant, being registered under section 12AA, falls within the exemption when thresholds are respected. [Paras 11, 12]

Rentals of shops and kalyanamandapams are exempt if below the statutory thresholds; otherwise taxable at 9%.

Service of access to premises (vehicle entry fee) liable as taxable service - Collection of vehicle entry fee for access to temple premises is not covered by the toll/road access exemption and is taxable at 9% CGST/KGST. - HELD THAT: - Entry no.23 of Notification No.12/2017 exempts service by way of access to a road or bridge on payment of toll; the vehicle entry fee here provides access to the temple premises and not to a road or bridge, and it is not covered by the renting-of-precincts exemption. The activity falls under SAC 9967 and entry 11(H) of Notification No.11/2017 which renders it taxable at 9% CGST (and correspondingly under KGST). [Paras 13]

Vehicle entry fees for access to temple premises are taxable at 9% under CGST/KGST.

Transfer of right to provide services (supply of service) - Future tendering/auctioning of rights to collect charges or provide services will be treated as supply of services and taxable at 9%. - HELD THAT: - The Authority's proposal to float future tenders for transferring rights to collect charges or provide services is the transfer of the right to perform services for consideration. Such transfers are supplies under SAC 9997 and fall within entry no.35 of Notification No.11/2017, attracting CGST/KGST at 9%. The jurisdiction's treatment is prospective for similar transactions. [Paras 14]

Future tendered transfers of rights to collect charges or provide services are taxable at 9% under CGST/KGST.

Final Conclusion: The Authority's seva and special darshan charges are not taxable (not supplies and/or exempt as religious ceremonies); prasadam sales are exempt while other goods sold are taxable; accommodation with declared tariff below Rs.1,000 per day and rentals below specified thresholds are exempt; transfer by auction/tender of rights to collect fees or provide services (including vehicle entry fee, tonsuring, vahana pooja, kalyana services when above thresholds) are supplies taxable at 9% CGST/KGST; vehicle entry fees as access to temple premises are taxable at 9%.

Definition of "e-books" under the Notification No.13/2018-C.T.(Rate) - composite supply - classification of optical media loaded with software under CTH 85238020 - access to online database as on-line text based information (SAC 998431) - scope of advance ruling under Section 97(2)

Definition of "e-books" under the Notification No.13/2018-C.T.(Rate) - composite supply - classification of optical media loaded with software under CTH 85238020 - access to online database as on-line text based information (SAC 998431) - Whether supply of DVDs/CDs with proprietary executable software and dongle, and supply of access to the on line database, qualify as 'e book' for the purpose of Notification No.13/2018-C.T.(Rate) dated 26.07.2018. - HELD THAT: - The Advance Ruling Authority examined the nature of the goods and services supplied. The DVD/CD supplied by the applicant contains an executable setup file which installs a proprietary application on the user's machine and requires a dongle and an end user licence; it does not consist of machine readable files such as .doc, .txt or .pdf which are electronic versions of printed books. The initial supply of the DVD/CD and dongle loaded with the software constitutes a composite supply in which the storage device (optical media/dongle) containing the software is the principal supply of goods and the licence to use the software for a limited subscription period is a service. The optical media loaded with the software is classifiable as information technology software recorded in machine readable form and falls under CTH 85238020. Separately, access to the applicant's online database is a supply of on line text based information (SAC 998431) and is not an 'e book' as defined in the notification. Since the notification's Explanation limits 'e books' to electronic versions of printed books supplied online and readable as such, the DVDs/CDs with executable software and the on line access do not satisfy that definition and therefore the entry at SI No.22 of the Notification is not applicable to these supplies. [Paras 6, 7]

The supply of DVDs/CDs with the proprietary executable software and dongle, and the supply of access to the on line database, are not eligible for the benefit of SI.No.22 of Notification No.13/2018-C.T.(Rate) dated 26.07.2018.

Scope of advance ruling under Section 97(2) - admissibility of input tax credit - Whether questions on adjustment/utilisation and reversal of input tax credit (as raised in Questions 2, 3 and 4) fall within the jurisdiction of the Advance Ruling Authority under Section 97(2). - HELD THAT: - Section 97(2) enumerates the categories of questions on which an advance ruling may be sought, including classification, applicability of notifications, time and value of supply, admissibility of input tax credit, determination of liability, registration and whether an activity amounts to supply. The Authority examined the applicant's questions and concluded that the specific queries on utilisation/adjustment of credit against liability and reversal of credit at filing (Questions 2, 3 and 4) do not fall within the matters the Authority is empowered to decide in the present application. Consequently, the Authority declined to answer those questions in this ruling. [Paras 5, 7]

Questions 2, 3 and 4 are not answered as they are not within the ambit of the Advance Ruling Authority under Section 97(2).

Final Conclusion: The Authority ruled that the DVDs/CDs with proprietary executable software and dongle, and access to the applicant's online database, do not qualify as 'e books' under Notification No.13/2018-C.T.(Rate) and therefore are not eligible for the reduced rate at SI.No.22; questions on adjustment and reversal of input tax credit were not answered as they are outside the Authority's ambit under Section 97(2).

Advance Ruling - Admissibility of application - Pending proceedings bar to admission under Section 98(2)

Admissibility of application - Pending proceedings bar to admission under Section 98(2) - Advance Ruling - Whether the Advance Ruling application filed by the society could be admitted when proceedings on the same questions were already pending before the jurisdictional authorities. - HELD THAT: - The Authority examined the applicant's submissions and the communications from the Central Jurisdictional Authority which showed that proceedings and investigations on the very issues raised in the ARA application were initiated and pending at the time the application was filed. Section 98(2) of the CGST/TNGST Act provides that the Authority shall not admit an application where the question raised is already pending or decided in any proceedings in the case of the applicant under the Act. The applicant conceded during personal hearing that proceedings were pending. In view of the first proviso to Section 98(2), the Authority declined to consider the merits of the questions and proceeded to reject the application for admission. [Paras 5, 6]

Application not admitted and rejected under the first proviso to Section 98(2) of the CGST/TNGST Act 2017 because the questions raised were already the subject of pending proceedings.

Final Conclusion: The Advance Ruling application is rejected as not admitted under the first proviso to Section 98(2) since the questions raised were already pending before the appropriate authority; therefore the Authority did not decide the substantive merits.

Advance Ruling - Application for advance ruling not to be admitted where identical question is pending in proceedings initiated under the GST Act (first proviso to Section 98(2)) - Maintainability of advance ruling during ongoing investigation/proceedings

Advance Ruling - Application for advance ruling not to be admitted where identical question is pending in proceedings initiated under the GST Act (first proviso to Section 98(2)) - Maintainability of advance ruling during ongoing investigation/proceedings - Application for advance ruling rejected because the questions raised were already the subject matter of pending proceedings initiated under the GST Act at the time of filing. - HELD THAT: - The Authority examined the applicant's submissions and the jurisdictional officers' comments and found that proceedings had been initiated by Central Tax authorities and were pending when the ARA application was filed. The applicant conceded during personal hearing that proceedings were pending. Applying the first proviso to the provision governing admission/rejection of advance ruling applications, the Authority held that an application shall not be admitted where the question raised is already pending in any proceedings in the case of the applicant under the Act. In view of this bar, the Authority declined to go into the merits of the substantive questions (relating to auction transactions, reverse charge liability, and taxability of commission, godown rent, interest), and rejected the application without admission. [Paras 5, 6]

Application not admitted and rejected under the first proviso to the provision regulating admission of advance ruling applications as the issues were pending in ongoing proceedings.

Final Conclusion: The Authority rejected the applicant's advance ruling application under the proviso to the admission provision because identical questions were pending in proceedings initiated under the GST Act; the substantive issues were not decided on merits.

Advance Ruling admissibility - Prohibition on admission of advance ruling where question is pending in other proceedings under the Act - Authority's power to admit or reject applications under Section 98(2) of the CGST/TNGST Act, 2017 - Rejection of application on account of pendency of proceedings

Advance Ruling admissibility - Prohibition on admission of advance ruling where question is pending in other proceedings under the Act - Rejection of application on account of pendency of proceedings - Application for advance ruling not admitted and rejected because the questions raised were already the subject of pending proceedings against the applicant under the GST Act. - HELD THAT: - The Authority examined the application and the records and noted that investigations/proceedings in respect of the precise issues raised in the ARA application had already been initiated by the Central Tax authorities and statements had been recorded prior to filing of the application (paras 5.2 and 5.3). Under the statutory scheme governing advance rulings, the Authority shall not admit an application where the question raised is already pending or decided in any proceedings in the case of the applicant under the Act. Having given the applicant an opportunity of personal hearing, the Authority applied the first proviso to Section 98(2) and concluded that admission was barred by the pendency of proceedings; accordingly the application was rejected without adjudicating the merits of the substantive questions (para 5.3 and Ruling). [Paras 5, 6]

Application for advance ruling not admitted and rejected under the first proviso to Section 98(2) of the CGST/TNGST Act, 2017 because the questions were already pending in proceedings against the applicant.

Final Conclusion: The Authority rejected the applicant's request for an advance ruling on the ground that the issues raised were already the subject of pending proceedings under the GST Act; the merits of the substantive questions were not decided.

Summary order. The application for advance ruling filed by M/s. Latest Developers Advisory Limited is disposed of as withdrawn.

Classification of goods under Heading 2202 versus Chapter 04 - HSN Explanatory Notes and exclusions to Chapter 04 - Application of General Rules for Interpretation of the First Schedule (Rule 1) - Essential character test for composite or mixture goods (Rule 3) - Application of Customs Tariff interpretation for GST rate notification

Classification of goods under Heading 2202 versus Chapter 04 - HSN Explanatory Notes and exclusions to Chapter 04 - Application of General Rules for Interpretation of the First Schedule (Rule 1) - Essential character test for composite or mixture goods (Rule 3) - Classification of UHT Sterilized Flavoured Milk marketed as 'Britannia Winkin' Cow Thick Shake'. - HELD THAT: - The product consists predominantly of standardised/toned milk (about 87-89%) with added sugar (~10-11%), stabilizers, flavours and minor additives, processed by UHT sterilisation and supplied ready for consumption in tetra packs. The Explanatory Notes to HSN for Chapter 04 expressly exclude "beverages consisting of milk flavoured with cocoa or other substances (heading 22.02)" from CTH 0402. Chapter 0404 relates to whey and products consisting of milk constituents which do not have the same composition as natural milk; the product in question does not fall within that description because it retains the natural milk constituents rather than lacking them or being derived from whey. Under the statutory scheme made applicable to GST rate notifications, the tariff headings and HSN explanatory notes govern classification (Rule 1 applies); where a good is specifically covered by a heading, there is no need to resort to other rules. Given that flavoured milk ready for consumption is specifically covered by CTH 2202 as a non alcoholic beverage with a basis of milk (CTH 2202.99.30), the product is not classifiable under CTH 0402 or 0404. The Authority also noted the Fitment Committee and GST Council consideration recognising flavoured milk under 2202 and rejected reliance on FSSAI classification for resolving an unambiguous tariff fitment under HSN. [Paras 6, 7]

UHT Sterilized Flavoured Milk (Britannia Winkin' Cow Thick Shake) is not classifiable under CTH 0402/0404 and is classifiable under CTH 2202 99 30 as a beverage containing milk.

Final Conclusion: Advance Ruling: The product (UHT Sterilized Flavoured Milk marketed as Britannia Winkin' Cow Thick Shake) is to be classified under CTH 2202 99 30 (beverages containing milk) and not under Chapter 04 (0402/0404).

Concurrent findings of fact - evidentiary value of statements recorded during search proceedings (s.132(4)) - post-search admissions recorded under s.131 - retraction after considerable lapse of time - recall/rectification under the power under section 254(2) of the Income-tax Act

Concurrent findings of fact - evidentiary value of statements recorded during search proceedings (s.132(4)) - post-search admissions recorded under s.131 - retraction after considerable lapse of time - recall/rectification under the power under section 254(2) of the Income-tax Act - Miscellaneous applications under section 254(2) seeking recall/rectification of the Tribunal's order are not maintainable where the Tribunal's factual findings have been recorded after appreciation of material and have been affirmed by the High Court as concurrent findings of fact. - HELD THAT: - The Tribunal recorded that the assessee had admitted investments in the mines in a statement recorded under s.132(4), that a post-search statement of the co-accused under s.131 confirmed the surrender, and that an original agreement (Ikarnama) found during search corroborated the involvement of the assessee and his brother. The Tribunal treated the later retraction as an afterthought made after a considerable lapse of time and found no justification to overturn the Assessing Officer's and CIT(A)'s conclusions (para 10). The High Court upheld these conclusions, noting that the AO and lower authorities based their decision on appreciation of facts and documents, that documents and admissions were recovered during search, and that the assessee failed to dislodge the initial burden of showing the earlier statements or documents to be wholly incorrect. In view of these concurrent findings of primary fact by the Tribunal and their affirmation by the High Court, the Tribunal correctly held there was no basis to entertain a rectification/recall application under s.254(2). The Miscellaneous Applications therefore warranted dismissal. [Paras 10]

Both Miscellaneous Applications under s.254(2) are dismissed.

Final Conclusion: The Tribunal refused to recall or rectify its order because it had recorded and reasoned concurrent factual findings-based on search statements, post-search admissions and documents-which were affirmed by the High Court; the miscellaneous applications under section 254(2) are dismissed.

Deduction under Section 80P - Eligibility of cooperative society for 80P deduction - Core activity versus non-core activity income - Requirement of segment-wise details and evidentiary support for claiming deduction - Interest from deposits with cooperative banks vis-a -vis scheduled/non-cooperative banks - Remand for verification of records

Deduction under Section 80P - Requirement of segment-wise details and evidentiary support for claiming deduction - Core activity versus non-core activity income - Interest from deposits with cooperative banks vis-a -vis scheduled/non-cooperative banks - Remand for verification of records - Whether the assessee is entitled to deduction under Section 80P for the amounts claimed and the consequence of absence of segment-wise/details in support of the claim. - HELD THAT: - The Tribunal found that the assessee, a registered cooperative society, had claimed deduction under Section 80P for its entire income but had not produced segment-wise details distinguishing income from core cooperative activities and income from other non-core activities. The profit & loss and trading accounts on record showed receipts and expenditures but did not furnish the bifurcation required to ascertain which receipts related to the society's core activities (credit to members, supply of agricultural inputs, interest from deposits with other cooperative banks) eligible for Section 80P and which related to non-core activities (sale of commodities under the State Public Distribution Scheme) that are not eligible. The Tribunal accepted that interest from deposits with other cooperative banks would be within the ambit of Section 80P, whereas interest from savings accounts with scheduled/non-cooperative banks raised a contentious question as to eligibility. In view of the absence of required segmental evidence and the specific queries by the Assessing Officer that were not satisfactorily answered, the Tribunal did not adjudicate the claim on merits but remanded the matter to the Assessing Officer for verification of segment-wise details and for allowing the deduction to the extent of income shown to arise from core activities upon proper verification. The Tribunal thereupon allowed the appeal for statistical purposes.

The disallowance is set aside and the matter is remitted to the Assessing Officer to verify segment-wise details of income and to allow deduction under Section 80P in respect of income proved to arise from the assessee's core cooperative activities; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal remitted the claim of deduction under Section 80P to the Assessing Officer for verification of segment-wise income; deduction to be allowed only to the extent of income attributable to core cooperative activities after verification; appeal allowed for statistical purposes.

Transfer pricing - arm's length price - comparability analysis - selection and rejection of comparables for FAR comparability - transactional net margin method (TNMM) - admission of additional comparable under Rule 11 - remand for verification to Assessing Officer/Transfer Pricing Officer

Selection and rejection of comparables for FAR comparability - comparability analysis - Exclusion of Larsen & Toubro Infotech Ltd. from final list of comparables - HELD THAT: - The Tribunal found that L&T Infotech, although a software development service provider, owns and exploits significant intangibles and undertakes the full life-cycle of software development, whereas the assessee performed limited R&D and support services under directions of its associated enterprise. The functional profile and contribution of the assessee were materially narrower than that of L&T Infotech, producing functional dissimilarity that precludes comparability. On this basis the Tribunal directed the AO/TPO to exclude L&T Infotech from the final comparable set. [Paras 22, 23, 24, 25, 26]

Larsen & Toubro Infotech Ltd. excluded from final list of comparables; AO/TPO directed to omit it.

Selection and rejection of comparables for FAR comparability - comparability analysis - Exclusion of Persistent Systems Ltd. from final list of comparables - HELD THAT: - The Tribunal recorded that Persistent Systems undertakes product development, earns royalty income and has significant R&D and intangible assets, and provides services across the entire software development life-cycle. These attributes render it functionally dissimilar to the assessee, which operated as a limited contract service provider. Consequently, the comparable was held unsuitable and ordered excluded. [Paras 27, 28, 29]

Persistent Systems Ltd. excluded from final list of comparables; AO/TPO directed to omit it.

Selection and rejection of comparables for FAR comparability - Exclusion of Akshay Software Technologies Ltd. from final list of comparables - HELD THAT: - The Tribunal examined the material and noted absence of clear segmental or functional information establishing that Akshay Software is functionally similar to the assessee. Reliance on previous Tribunal authority excluding comparables where the nature of services was doubtful supported exclusion. The assessee did not satisfactorily establish the requisite functional similarity or segmental details; therefore the Tribunal upheld exclusion. [Paras 30, 31, 32, 33]

Akshay Software Technologies Ltd. excluded from final list of comparables.

Selection and rejection of comparables for FAR comparability - comparability analysis - Inclusion of IDBI Intech Ltd. in final list of comparables - HELD THAT: - The Tribunal found that IDBI Intech met the forex (export revenue) filter - its annual report showed export receipts constituting more than 75% of total revenue - and no functional dissimilarity was pointed out by the TPO. Absent any other disqualifying factor, the Tribunal directed the AO/TPO to include IDBI Intech in the final comparable set. [Paras 34, 35, 36, 37, 38]

IDBI Intech Ltd. to be included in the final list of comparables; AO/TPO directed accordingly.

Remand for verification to Assessing Officer/Transfer Pricing Officer - selection and rejection of comparables for FAR comparability - Spry Resources India Pvt. Ltd. remanded to AO/TPO for verification - HELD THAT: - Spry Resources had been excluded by the TPO due to an apparent mismatch between trade receivables and prior year turnover. The Tribunal observed that the issue had not been raised before the DRP and that no material was placed before the DRP; the CIT-DR did not object to reconsideration. In the interests of justice the Tribunal directed the AO/TPO to verify the export income and other relevant facts afresh rather than deciding exclusion at the Tribunal stage. [Paras 39, 40, 41, 42, 43]

Comparability of Spry Resources India Pvt. Ltd. remanded to AO/TPO for due verification.

Admission of additional comparable under Rule 11 - selection and rejection of comparables for FAR comparability - Admission of CG-VAK Software & Exports Ltd. as an additional ground/comparable - HELD THAT: - Although CG-VAK was not raised before the DRP, the Tribunal, exercising its discretion and relying on precedent, admitted the assessee's application under Rule 11 to consider CG-VAK for exclusion. However, after reconstituting the comparable set (following exclusions and inclusions), the Tribunal observed that the comparable margin fell within the accepted +/ 5% range, rendering adjudication of CG-VAK's comparability academic; the additional ground was therefore dismissed as academic. [Paras 12, 13, 14, 44, 45]

Application under Rule 11 to admit CG-VAK Software & Exports Ltd. allowed; however, further adjudication on its comparability dismissed as academic.

Final Conclusion: The Tribunal partly allowed the appeal. It directed exclusion of Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., and Akshay Software Technologies Ltd. from the comparable set; directed inclusion of IDBI Intech Ltd.; remanded Spry Resources India Pvt. Ltd. to the AO/TPO for verification; admitted CG VAK Software & Exports Ltd. under Rule 11 but declined further adjudication of that comparable as academic. The appeal was accordingly partly allowed.

Prospective operation of statutory amendment - Levy of fee under section 234E - Processing of TDS statements under section 200A - Cleavage of opinion between High Courts-follow view favoring the assessee - Principle against retrospective operation of taxing provision

Levy of fee under section 234E - Processing of TDS statements under section 200A - Prospective operation of statutory amendment - Cleavage of opinion between High Courts-follow view favoring the assessee - Validity of levy of late fee under section 234E in intimations prepared by processing TDS statements under section 200A prior to 01.06.2015 - HELD THAT: - The Tribunal examined whether demands of late fee under section 234E raised in intimations issued on processing TDS statements under section 200A could be sustained where the enabling amendments to section 200A (clauses allowing computation/adjustment for fee under section 234E) were inserted w.e.f. 01.06.2015. The Tribunal followed earlier coordinate-bench decisions and relevant High Court and Supreme Court principles, holding that, in the absence of an enabling provision in section 200A prior to 01.06.2015, the machinery provision could not be exercised to raise demands for a substantive charging provision retrospectively. Where there is a cleavage of opinion between High Courts, the view favourable to the assessee is to be followed; accordingly the Tribunal applied the view in Fatehraj Singhvi (Karnataka High Court) and related coordinate-bench precedents which treated the 2015 amendment as prospective. Reliance was also placed on the general principle that taxing provisions are presumed prospective unless a contrary intention is expressed. Applying these principles, the Tribunal concluded that levies of fee under section 234E made by processing statements under section 200A for periods prior to 01.06.2015 lacked authority and were to be deleted. [Paras 10, 12, 13, 14, 15]

Levy of late fee under section 234E in intimations generated by processing TDS statements under section 200A prior to 01.06.2015 is not sustainable; findings of the CIT(A) confirming such levies are set aside and the fee is deleted.

Final Conclusion: Following coordinate-bench precedent and the principle that amendments to impose charges operate prospectively, the Tribunal allowed the appeals and directed deletion of late fee levied under section 234E in statements processed under section 200A before 01.06.2015.

Revisional jurisdiction under section 263 of the Income tax Act - Condition precedent for exercise of revisional jurisdiction - Erroneous order prejudicial to the interest of revenue - Section 68 - unexplained cash credits - Onus to prove identity, creditworthiness and genuineness of shareholders - Plausible view / two views doctrine - Malabar Industries principle on twin conditions for section 263

Revisional jurisdiction under section 263 of the Income tax Act - Condition precedent for exercise of revisional jurisdiction - Erroneous order prejudicial to the interest of revenue - Malabar Industries principle on twin conditions for section 263 - Validity of the Principal CIT's second exercise of revisional jurisdiction under section 263 against the AO's reassessment order dated 25-11-2016. - HELD THAT: - The Tribunal applied the twin condition test from Malabar Industries - (i) that the AO's order must be erroneous (by reason of incorrect facts or law, failure to apply mind, violation of natural justice, or lack of investigation) and (ii) that such erroneous order must be prejudicial to the revenue. The Tribunal found on the record that the AO had conducted the reassessment pursuant to the first revisional order dated 10-06-2016, issued summons, examined bank statements, recorded statements of the individual shareholders and directors, and considered voluminous documentary material placed in three paper volumes. The Principal CIT's show cause did not specify which specific directions in the first revisional order were not complied with; nor did he identify any factual or legal misdirection in the AO's inquiry. Given that the AO's acceptance of the identity, creditworthiness and genuineness of the share capital/premium was a plausible view on the material before him, the Tribunal held that the condition precedent for assuming a second revisional jurisdiction under section 263 was lacking. Consequently the Principal CIT's second revisional order was held to be without jurisdiction and was quashed. [Paras 14, 15, 16, 26, 27]

Second revisional order dated 12-03-2019 quashed for lack of jurisdiction; appeal allowed.

Section 68 - unexplained cash credits - Onus to prove identity, creditworthiness and genuineness of shareholders - Plausible view / two views doctrine - Whether the AO, in reassessment dated 25-11-2016, legitimately accepted the identity, creditworthiness and genuineness of share capital and share premium under section 68. - HELD THAT: - The Tribunal examined the facts and documentary material: share application forms and allotment advice, bank statements showing payments by account payee cheques, income tax returns and audited financial statements of the share applicants, summons and recorded statements of shareholders and directors, and other books of account. The Tribunal noted precedents establishing that once an assessee discharges the initial onus by producing particulars of shareholders and documentary evidence, it is for the Department to show that those particulars are false or unsustainable; further the creditworthiness of investors who are themselves income tax assesses is generally for their own assessing officer to contest. On this record the AO's conclusion accepting the shareholders' identity, creditworthiness and genuineness was a plausible view and not unsustainable in law or fact; hence no addition under section 68 could be sustained. The Tribunal therefore held that the AO's reassessment could not be characterized as erroneous or prejudicial to revenue on this ground. [Paras 13, 15, 16, 23, 25]

AO's acceptance of the share capital and premium under section 68 upheld as a plausible view; no addition sustainable.

Final Conclusion: The Principal CIT's second revisional order dated 12-03-2019 under section 263 was without jurisdiction and is quashed because the AO's reassessment dated 25-11-2016 (made pursuant to the first revisional order) represented a plausible view based on adequate inquiry and documentary evidence regarding identity, creditworthiness and genuineness of share capital/premium; the assessee's appeal is allowed.

Depreciation on assets let out on hire - classification as a mineral oil concern for higher depreciation - section 14A and Rule 8D - disallowance in absence of exempt income - addition on account of unverified sundry creditors - section 43B(f) - treatment of provision for leave encashment

Depreciation on assets let out on hire - classification as a mineral oil concern for higher depreciation - Entitlement to depreciation at higher block rate claimed on oil rigs let out on hire - HELD THAT: - The Tribunal accepted that the oil rigs were wholly owned by the assessee and used in the business of giving the assets on lease; they are large structures equipped for removal of oil. The Tribunal followed the coordinate-bench decisions in the assessee's own earlier years and the decision of the Hon'ble Delhi High Court in CIT v. HLS India Ltd, noting that the Supreme Court has dismissed the SLP, and accordingly held that the assessee is entitled to claim depreciation at the higher rate (60%) on the rigs. The AO was directed to allow depreciation accordingly. [Paras 10]

Depreciation allowed at the higher rate claimed by the assessee; AO directed to grant 60% depreciation.

Section 14A and Rule 8D - disallowance in absence of exempt income - Validity of disallowance under section 14A read with Rule 8D where no exempt income was received during the year - HELD THAT: - The Tribunal agreed with the CIT(A) that the AO had not recorded any satisfaction contradicting the assessee's claim of not incurring expenditure to earn exempt income. Further, relying on judicial authority that section 14A does not apply in the absence of actual receipt of exempt income, and noting that the assessee received no exempt income in the relevant year, the Tribunal confirmed deletion of the disallowance under section 14A read with Rule 8D. [Paras 13]

Disallowance under section 14A/Rule 8D deleted; AO directed to delete the disallowance.

Addition on account of unverified sundry creditors - Sustainability of addition representing sundry creditors where assessee furnished confirmations, PANs, ledgers and subsequent payments - HELD THAT: - The Tribunal found that the assessee produced detailed explanations, confirmations from creditors, PAN details, ledger extracts and bank evidence of payments in subsequent periods; some amounts were written back and offered to tax. The evidence was not controverted by the Revenue and showed neither cessation of liability nor non-existence of creditors. On that basis the Tribunal found no infirmity in the CIT(A)'s deletion of the addition. [Paras 17]

Addition deleted; CIT(A)'s order deleting the addition upheld.

Section 43B(f) - treatment of provision for leave encashment - Disallowance under section 43B(f) of provision for unpaid leave encashment - HELD THAT: - Although the Supreme Court in the Exide proceedings had directed payment of tax as if section 43B(f) were on the statute, the Tribunal observed that the binding force of the Kolkata High Court decision in favour of the assessee continues. Respectfully following that High Court decision and the coordinate-bench view in the assessee's earlier year, the Tribunal held that the provision for leave encashment should not be disallowed under section 43B(f) and directed deletion of the disallowance. [Paras 22]

Disallowance under section 43B(f) deleted; cross-objection of the assessee allowed.

Final Conclusion: The appeal filed by the AO is dismissed; the cross-objection of the assessee is allowed. The AO is directed to allow depreciation at the higher rate, delete the section 14A disallowance, delete the addition for sundry creditors and delete the disallowance under section 43B(f) for leave encashment.

Capital gain versus business income - Adventure in the nature of trade - Long-term capital gains exemption under section 54F - Allowability of expenditure in computation of capital gains - Scope of limited scrutiny assessments

Capital gain versus business income - Adventure in the nature of trade - Long-term capital gains exemption under section 54F - Whether gains on sale of the specified immovable properties are to be taxed as business income or as long-term capital gains and whether exemption under section 54F is available. - HELD THAT: - The Tribunal examined the factual matrix including date of acquisition, treatment in the assessee's balance sheet, continuous holding (around 20 years in respect of Fateh Royal Residency and acquisition in 2010-11 for Fateh Hills), agricultural use and declaration of agricultural income, family ownership pattern, and the assessee's purpose for sale (requirement of funds to acquire residential house). The authorities below had divergent views: the Assessing Officer treated the sales as business income and the CIT(A) treated the plotting as an 'adventure in the nature of trade' primarily because of conversion of agricultural land to non agricultural land. The Tribunal found those conclusions factually unsustainable on the record: purchase was shown and treated as capital investment over the years, agricultural operations were carried on and declared, there was no evidence of an intention to trade in real estate or of regularity sufficient to characterise the transactions as stock in trade, and mere conversion of agricultural land into non agricultural land did not, by itself, convert the nature of the asset into stock in trade. Applying the established principle that the characterisation depends on the totality of facts and circumstances, the Tribunal concluded the transfers were disposals of long term capital assets and not an adventure in the nature of trade, and therefore the assessee was entitled to claim exemption under section 54F on investment in residential property. [Paras 11, 12, 13, 14, 16]

Transfers treated as long term capital gains; exemption under section 54F directed to be allowed.

Allowability of expenditure in computation of capital gains - Whether the expenditure claimed toward construction/development can be allowed in full against the capital gains instead of the partial/ad hoc allowances made by the revenue authorities. - HELD THAT: - The Assessing Officer disallowed 50% of the claimed construction/development expenditure on the stated ground of non production of supporting bills. The CIT(A) overturned the AO's factual finding that documents were not produced, observed that supporting documents and a detailed chart of payments were submitted and test checked, but nonetheless allowed only 60% of the expenditure (i.e. disallowed 40%) on an ad hoc basis. On review of the record and the findings of the CIT(A) that the AO's non production finding was erroneous and that documentary evidence had been placed on record and verified on test check, the Tribunal found no justification for sustaining any disallowance. Consequently, the Tribunal directed that the entire expenditure claimed be allowed for computation of capital gains. [Paras 17, 18, 19]

Full expenditure claimed to be allowed; disallowances by AO and CIT(A) set aside.

Final Conclusion: The assessee's appeal is allowed: the transfers are held to be long term capital gains and exemption under section 54F is to be given; the entire claimed construction/development expenditure is to be allowed in computing capital gains for A.Y. 2015 16.

Exemption under section 54B for capital gain on transfer of agricultural land - Deposit and utilisation requirement under section 54B(2) - Presumption of correctness of public documents issued by revenue authorities - Admissibility of additional evidence under Rule 46A of the Income tax Rules

Exemption under section 54B for capital gain on transfer of agricultural land - Deposit and utilisation requirement under section 54B(2) - Presumption of correctness of public documents issued by revenue authorities - Admissibility of additional evidence under Rule 46A of the Income tax Rules - Claim for exemption under section 54B was allowed on the facts; conditions (use for agriculture in the two years preceding transfer and utilisation/deposit of capital gain) were held satisfied. - HELD THAT: - The Tribunal examined the statutory conditions of section 54B and found that clauses (i) and (iii) were not disputed and that the principal controversy related to clauses (ii) (use of the land for agricultural purposes during the two years preceding transfer) and (iv) (deposit/utilisation requirement under section 54B(2)). The assessee produced an agricultural income certificate issued by the Revenue Department, Government of Telangana, and relied on corroborative entries in revenue records and the sale deed describing the land as agricultural. The Assessing Officer objected to the certificate on grounds of timing, format and a disclaimer, and criticized the ledger entries as self serving; however, the revenue did not produce evidence to rebut the government issued certificate. The Tribunal accepted that a public document issued by the State carries a presumption of correctness and that the AO had not discharged the burden of controverting that public document. The Tribunal also noted that the new agricultural land was purchased within two years of the sale and before the due date for filing the return, satisfying the deposit/utilisation requirements of section 54B(2). Reliance was placed on a coordinate tribunal decision and the Supreme Court's approach to determining agricultural character from revenue records. Having considered the additional evidence admitted under Rule 46A and the remand report, the Tribunal concluded that the conditions of section 54B were fulfilled and directed the Assessing Officer to allow the exemption. [Paras 11, 13, 14]

The disallowance under section 54B is set aside and exemption under section 54B is directed to be allowed; consequential grounds are rendered infructuous.

Final Conclusion: Appeal allowed in part: exemption under section 54B granted for AY 2016-17; related consequential grounds held infructuous and the Assessing Officer directed to give effect to the order.

Exception to monetary limits for filing departmental appeals - Special order under CBDT for filing appeals on merits in bogus LTCG/STCL through penny stocks - Retrospective application of administrative circulars and special orders - Rectification under section 254(2) of the Income-tax Act

Exception to monetary limits for filing departmental appeals - Special order under CBDT for filing appeals on merits in bogus LTCG/STCL through penny stocks - Retrospective application of administrative circulars and special orders - Whether CBDT Circular No.23 of 2019 and the CBDT special order communicated vide Office Memorandum dated 16.09.2019 apply to an appeal filed by the Revenue before those instruments were issued. - HELD THAT: - The Tribunal examined Circular No.23/2019 and the subsequent special order communicated by the CBDT on 16.09.2019 and observed that Circular No.23 only contemplates that appeals in cases of organised tax evasion through bogus LTCG/STCL on penny stocks may be excluded from monetary limits by virtue of a specific special order of the Board. The special order communicated on 16.09.2019 expressly operates by exempting such cases from the monetary limits and directs that appeals in those cases shall be filed on merits. The special order therefore authorises filing of appeals on or after the date of that order and does not purport to make the exception applicable to appeals already filed or already finally disposed of prior to issuance of the special order. The Tribunal further noted the distinction between circulation of general low tax effect limits (which courts have sometimes applied to pending appeals) and a carved out exception that requires a Board special order; the latter cannot be read backwards to cover appeals filed before the special order. Applying these principles to the facts, the Revenue's appeal was filed on 22.05.2019, before issuance of Circular No.23 and the special order, and thus the exceptions announced by those instruments do not apply to that appeal. [Paras 6, 7, 8, 9]

Circular No.23/2019 and the CBDT special order dated 16.09.2019 do not apply to the Revenue's appeal filed on 22.05.2019 and therefore the appeal does not fall within the exception to the monetary limits.

Rectification under section 254(2) of the Income-tax Act - Retrospective application of administrative circulars and special orders - Whether non consideration of Circular No.23/2019 and the CBDT special order dated 16.09.2019 by the Tribunal constitutes a 'mistake apparent from the record' warranting rectification under section 254(2) of the Act. - HELD THAT: - Section 254(2) permits correction of a mistake apparent from the record within narrow limits. The Tribunal held that both Circular No.23 and the CBDT special order were issued after the hearing and after the order dismissing the Revenue's appeal on 21.08.2019, and were therefore not part of the record at the time. More importantly, the special order creates an exception that applies only to appeals filed pursuant to that order; it does not retrospectively render an appeal filed earlier to have been filed pursuant to the special order. Given these facts, the non consideration of those instruments is not a clerical or apparent mistake amendable under section 254(2) but rather a substantive question of applicability which cannot be the subject of rectification under the narrow compass of that provision. [Paras 9, 10]

Non consideration of Circular No.23/2019 and the CBDT special order dated 16.09.2019 is not a mistake apparent from the record and does not justify rectification under section 254(2); the miscellaneous application is therefore dismissed.

Final Conclusion: The miscellaneous application is dismissed: the CBDT Circular No.23/2019 and the CBDT special order dated 16.09.2019 do not apply to the Revenue's appeal filed on 22.05.2019, and non consideration of those instruments does not constitute a mistake apparent from the record warranting rectification under section 254(2) of the Income tax Act.

Condonation of delay - Principles of natural justice (failure to confront / opportunity to rebut) - Deduction under section 80IC and operation of section 80IA(10) (estimation of more than ordinary profits) - Related party pricing / estimation of excess profits on sales to sister concern - Application of consistency of treatment in successive assessment years

Condonation of delay - Application for condonation of one day delay in filing the appeal - HELD THAT: - The assessee explained that the appeal memo and challan were prepared in time but the person entrusted to file it was on unexpected leave causing one day's delay. The Revenue did not oppose the application. The Tribunal applied a liberal and pragmatic approach to condonation of delay and, in view of the facts and the lack of opposition, condoned the delay and admitted the appeal. [Paras 3]

Delay of one day in filing the appeal condoned and appeal admitted.

Deduction under section 80IC and operation of section 80IA(10) (estimation of more than ordinary profits) - Application of consistency of treatment in successive assessment years - Validity of A.O.'s disallowance of deduction under section 80IC by estimating 2% of sales as ineligible profits on account of presumed use of related concern's technical know how/market base - HELD THAT: - The A.O. invoked section 80IA(10) to estimate that 2% of sales represented more than ordinary profits attributable to use of technical know how/market base of a related concern. The assessee explained that no outside technical assistance was taken, one partner provided the technical support, and the higher net profit was explained by reduced interest and depreciation. The Tribunal found the A.O.'s disallowance to be based on presumption without adequate rebuttal of the assessee's factual explanation and noted that similar adjustments were not made in preceding and subsequent assessment years. Considering the totality of facts and the explanation given, the Tribunal held the disallowance unjustified and deleted it. [Paras 13]

Disallowance under section 80IC by applying 2% of sales deleted.

Related party pricing / estimation of excess profits on sales to sister concern - Principles of natural justice (failure to confront / opportunity to rebut) - Sustenance of addition on account of alleged excess charging to sister/related concern - HELD THAT: - The A.O. made an addition on the basis that the assessee sold to the related concern at higher average rates, arriving at an alleged excess of 0.64%. The assessee explained that rates varied over time and contended that specific transactions were selectively taken without confrontation. The Tribunal observed that the A.O. relied on average rates without pointing to specific differing transactions or confronting the assessee, and that the small variation was negligible. In absence of specific demonstration and proper confrontation, the addition was not justified and was therefore deleted. [Paras 20]

Addition on account of alleged excess charging to sister/related concern deleted.

Final Conclusion: The one day delay in filing the appeal was condoned. On merits, the Tribunal deleted the disallowance made under section 80IC (estimate of 2% of sales) and also deleted the addition claimed on account of alleged excess pricing to the sister concern; the assessee's appeal is allowed.

Application of section 69 for unexplained investment - treatment of declared receipts as business income v. income from undisclosed sources - reliability of statements recorded under section 132(4) and requirement of corroboration - taxation under special rate provision section 115BBE versus regular business income - requirement of evidentiary basis before making additions in post-search assessments under section 153A - netting of interest expense against interest income in post-search return

Treatment of declared receipts as business income v. income from undisclosed sources - taxation under special rate provision section 115BBE versus regular business income - Classification and taxation of the sum of Rs. 4,75,000 (declared in return) - whether it could be treated as unexplained income/investment and taxed under special rate provision or must be treated as business income. - HELD THAT: - The Tribunal examined the nature and source of the Rs. 4,75,000 which was declared in the ITR and related to property transactions while the assessee is engaged in real estate business. The authorities had invoked provisions applicable to unexplained money/investment (section 69/69A) and the AO had applied the special rate provision, but the assessee had explained the nature and source in the return and produced books and profit & loss / balance sheet entries. The Court emphasised that sections 69/69A apply where transactions/investments are unrecorded or their nature/source is not explained; they are not attracted where the assessee has adequately explained and recorded the transaction. Statements recorded during search cannot substitute for documentary corroboration when the transaction is otherwise explained and declared. Applying these principles, the Tribunal found no justification to treat the declared amount as unexplained income or to tax it under the special rate provision and directed that the amount be treated as business income. [Paras 5, 6]

Rs. 4,75,000 to be treated as business income and not as unexplained income liable to special rate taxation.

Application of section 69 for unexplained investment - reliability of statements recorded under section 132(4) and requirement of corroboration - requirement of evidentiary basis before making additions in post-search assessments under section 153A - Sustenance of addition of Rs. 1,00,00,000 as unexplained investment in construction under section 69 made on basis of statement recorded during search and incomplete cash-book entries. - HELD THAT: - The Tribunal considered whether the AO and CIT(A) discharged the burden to establish (i) that an investment was made, (ii) that it was unrecorded, and (iii) that no source was shown. The impugned addition rested primarily on the assessee's statement under section 132(4) and on cash-shortage figures derived from incomplete computer/cash-book entries of group entities. The Tribunal held that statements recorded during search are important but not conclusive and require corroboration by independent documents or material discovered during search. Here no incriminating material or documentary corroboration of the alleged construction investment was found; the assessee produced books, reconciliations, bank records and explanations that cash withdrawals were from bank balances and used for construction and other declared sources. The AO had not rejected the books nor pointed to specific defects, nor procured valuation or other corroborative evidence. The Tribunal found the addition to be a product of inference from retracted/uncorroborated statements and incomplete records and therefore unsustainable. [Paras 29, 31, 32, 33, 34]

Addition of Rs. 1,00,00,000 under section 69 deleted for want of corroborative evidence; AO directed to delete the addition.

Netting of interest expense against interest income in post-search return - requirement of evidentiary basis before making additions in post-search assessments under section 153A - Whether in A.Y. 2012-13 the assessee's interest expense and bank charges claimed should be allowed/netted against interest income offered in the return filed under section 153A. - HELD THAT: - The Tribunal observed that the assessee had rectified a clerical error by offering interest income and simultaneously claiming interest expense and bank charges in the post-search return filed under section 153A. The AO accepted the additional interest income offered but rejected the interest expense claim without pointing to seized documents or other adverse material. The Tribunal held that the addition should be limited to the net effect of the mistake and modified the orders below to direct the AO to restrict addition to the difference between interest income offered and interest expense claimed, after considering the reconciliations and documentary evidence produced by the assessee. [Paras 37, 38, 39]

Addition to be restricted to the net difference between the interest income offered and the interest expense claimed; matter remitted to AO for adjustment accordingly.

Final Conclusion: For A.Y. 2017-18 the Tribunal directed that the declared amount of Rs. 4,75,000 be treated as business income (not unexplained income) and deleted the addition of Rs. 1,00,00,000 purportedly under section 69 for lack of corroborative evidence; the assessee's appeal was allowed. For A.Y. 2012-13 the Tribunal ordered that the addition be restricted to the net difference between interest income offered and interest expense claimed, allowing the appeal in part.

Transfer of shares - title to shares and appropriate forum for adjudication - misjoinder of parties - limitation as a bar to relief - rectification of Register of Members - declaration and indemnity bond as condition for transfer - appellate jurisdiction under Section 421 of the Companies Act, 2013

Title to shares and appropriate forum for adjudication - misjoinder of parties - limitation as a bar to relief - Correctness of the NCLT's dismissal of the petition on grounds that title to shares involves complicated questions of fact for Civil Court, and that there was misjoinder of parties and limitation bar. - HELD THAT: - The Tribunal examined the NCLT's reasoning that the dispute concerned ownership of shares and therefore was a matter for Civil Court, and that not all transferees were made parties resulting in misjoinder; it also noted that the NCLT had dismissed on limitation. The Appellate Tribunal observed that the core controversy related to transfer of shares and rejection of transfer by the company, matters within the competence of the Company Law Tribunal and its appellate forum. While the NCLT referred to misjoinder and limitation, the Appellate Tribunal found that those grounds did not preclude adjudication by the Tribunal in the present factual matrix, especially given the company's conduct in not responding to transfer requests and the history of related transfers in the husband's case. The Tribunal concluded that the NCLT's dismissal on the stated grounds was not an appropriate disposition of the petition and warranted direction to the company to proceed with transfer subject to compliance with prescribed documentation. [Paras 6, 7, 8]

NCLT's dismissal on the stated grounds was not sustained; the matter falls within the Tribunal's competence and does not preclude the Tribunal from directing transfer after compliance with conditions.

Transfer of shares - rectification of Register of Members - declaration and indemnity bond as condition for transfer - Relief appropriate to the Appellant for transfer of shares, issuance of share certificates and consequential corporate benefits. - HELD THAT: - Having examined the sequence of events - submission of share certificates for transfer, the company's inaction, prior communications and litigation history - the Appellate Tribunal directed Respondent No.1 to effect the transfer of 700 shares in favour of the Appellant. The Tribunal qualified the direction by permitting the company to take customary safeguards: obtain requisite declaration, indemnity bond and relevant papers from the Appellant. On compliance, the company was directed to issue original share certificates, rectify the Register of Members and give consequential benefits, including dividends, in accordance with law. The Tribunal emphasized the company should have responded in 1998 if shares were not received and that the Appellant had furnished certificate and folio details; accordingly the company must now process the transfer subject to the stated conditions. [Paras 8]

Respondent No.1 directed to transfer the 700 shares to the Appellant and issue share certificates, rectify the Register of Members and provide consequential benefits after obtaining declaration, indemnity bond and relevant documents.

Final Conclusion: The appeal succeeds in part: the Appellate Tribunal found the NCLT's dismissal on forum, misjoinder and limitation grounds inappropriate in the circumstances and directed the company to effect transfer of 700 shares to the Appellant, issue certificates, rectify the Register of Members and accord consequential benefits after receipt of requisite declaration, indemnity bond and documents; no other relief was granted and no order as to costs.

Interpretation of Section 30(2) of the Insolvency and Bankruptcy Code - Principle of maximization of value of the corporate debtor - Requirement of matching liquidation value for acceptance of a resolution plan - Application of Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Interpretation of Section 30(2) of the Insolvency and Bankruptcy Code - Requirement of matching liquidation value for acceptance of a resolution plan - Principle of maximization of value of the corporate debtor - Whether a resolution plan which offers less than the liquidation value can be rejected under Section 30(2) of the Insolvency and Bankruptcy Code on the ground of the principle of maximization of assets. - HELD THAT: - The Court set aside the NCLAT's remittal to the NCLT which rested on a finding that Section 30(2) read with the principle of maximization of assets mandates that a resolution plan must match the liquidation value. The judgment relies on this Court's recent decision in Maharashtra Seamless Limited (dated 22.01.2020), which held that there is no provision in the Code or the Regulations requiring that a resolution applicant's bid must match the liquidation value as computed under Clause 35 of the Insolvency Board Regulations. The earlier reasoning in Essar Steel was noted as dealing with the point. Applying that authority, the Court concluded that the NCLAT's conclusion - that a plan offering less than liquidation value cannot be accepted - was legally incorrect and unsupported by the Code or Regulations.

The NCLAT judgment remitting the matter to the NCLT on the ground that a resolution plan less than liquidation value cannot be accepted is set aside; the appellate order is allowed.

Final Conclusion: The appeal is allowed; the NCLAT judgment dated 13.11.2019 is set aside in view of this Court's decision in Maharashtra Seamless Limited , which holds that neither the Code nor the Regulations require a resolution plan to match liquidation value.

Limitation - Application under Section 9 of the Insolvency & Bankruptcy Code, 2016 - Execution of decree versus initiation of Corporate Insolvency Resolution Process - Reliance on decree as sole evidence of operational debt - Malicious prosecution under Section 65 of the IBC, 2016

Limitation - Application under Section 9 of the Insolvency & Bankruptcy Code, 2016 - The Section 9 petition is barred by limitation and liable to be dismissed. - HELD THAT: - The Operational Creditor relied solely on the decree passed by the High Court in C.S. No. 440 of 2011 dated 03-11-2015 as the basis for the claim, while the present petition under Section 9 was filed on 19-11-2018. The Tribunal found that the claim based on that decree was filed well beyond the three-year period and, therefore, the petition is time-barred. The Authority applied the established approach in precedents including B.K. Educational Services (P.) Ltd. v. Parag Gupta & Associates and relevant Tribunal decisions to hold that limitation precludes admission of the Section 9 application filed after the prescribed period. [Paras 12, 14, 15]

Petition dismissed as barred by limitation.

Execution of decree versus initiation of Corporate Insolvency Resolution Process - Reliance on decree as sole evidence of operational debt - Malicious prosecution under Section 65 of the IBC, 2016 - Filing a Section 9 application solely for execution of a court decree to initiate CIRP is improper and may attract consequences, but costs were not imposed in this case. - HELD THAT: - The Tribunal observed that the petition appeared to be instituted principally for executing the decree of the High Court rather than for initiating a bona fide insolvency resolution process. It referenced NCLAT authority indicating that invoking IBC proceedings merely to execute a decree may amount to misuse and could attract action under Section 65 of the IBC. Although the conduct warranted consideration of exemplary costs to deter similar filings, the Tribunal refrained from imposing costs in view of appellate authorities on the subject and the body of NCLAT decisions addressing analogous petitions. [Paras 11, 15]

Tribunal declined to entertain the petition and, notwithstanding observations on misuse, did not impose costs.

Final Conclusion: The Section 9 petition filed by the Operational Creditor is dismissed as barred by limitation; the Tribunal additionally recorded that initiating CIRP proceedings solely for execution of a decree is improper and may attract consequences under the IBC, but declined to impose costs in the circumstances of this case.

Admission of petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 - corporate insolvency resolution process and moratorium - appointment of interim resolution professional - limitation and running account/acknowledgement - pre-existing dispute and Mobilox principle

Limitation and running account/acknowledgement - date from which limitation begins to run - Whether the petition under Section 9 was barred by limitation - HELD THAT: - The Tribunal examined the ledger and related commercial dealings and accepted the Operational Creditor's contention that the account operated as a running account with subsequent entries and payments, such that limitation did not run from the earliest invoice date alone. The purchase orders and invoices provided a 60 day period for payment, and the Tribunal held that limitation begins after the expiry of that contractual payment period. The ledger entries (including alleged transactions and part payments) were relied upon to show continuing liability and activity sufficient to displace a conclusion that the claim was time barred. On this basis the Tribunal found the petition filed on 24 7 2019 to be within the period of limitation measured from the expiry of the contractual payment period and having regard to subsequent acknowledgements/transactions. [Paras 6, 7, 12, 13]

Petition not barred by limitation; within limitation as measured from expiry of contractual payment period and having regard to running account entries/acknowledgements.

Pre-existing dispute and Mobilox principle - genuineness of dispute - Whether a pre-existing dispute existed between the parties sufficient to defeat the Section 9 petition - HELD THAT: - The Corporate Debtor alleged defects in quality of supplied goods and asserted a pre existing dispute. The Tribunal observed that no contemporaneous communications or evidence were placed on record to show that the Corporate Debtor had raised quality complaints with the Operational Creditor prior to initiation of the insolvency proceedings. Applying the principle that a dispute must be genuine and not spurious, hypothetical or raised for the first time after service of the demand notice, the Tribunal found the asserted quality dispute to be unsubstantiated on the material before it. [Paras 10, 11]

No established pre existing dispute; the defence of dispute is rejected for want of supporting evidence.

Admission of petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 - corporate insolvency resolution process and moratorium - appointment of interim resolution professional - Whether the Section 9 petition should be admitted and appropriate interim reliefs granted - HELD THAT: - Having concluded that an operational debt and default were established and that the petition was not barred by limitation nor defeated by a pre existing dispute, the Tribunal admitted the petition under Section 9 of the IBC. It declared moratorium in terms of Section 14 and issued the standard prohibitions on institution or continuation of suits and transfer or disposal of assets, and directed the public announcement of the CIRP. As the Operational Creditor had not proposed an Interim Resolution Professional, the Tribunal appointed an IRP from the IBBI panel and directed that the IRP file requisite communications and papers. The Tribunal also directed a deposit by the Petitioner to meet IRP expenses, subject to adjustment by the committee of creditors. [Paras 14, 15]

Section 9 petition admitted; moratorium declared; IRP appointed and directed to act; public announcement to be made; limited interim payment by Petitioner ordered.

Final Conclusion: The Tribunal admitted the Section 9 petition, holding that the claim was within limitation and that no genuine pre existing dispute was proved; it declared moratorium, appointed an Interim Resolution Professional from the IBBI panel, and directed ancillary steps necessary for commencement of the Corporate Insolvency Resolution Process.

Pre-existing dispute - notice of dispute - application under section 9 of the Insolvency and Bankruptcy Code, 2016 - admission of petition for initiation of corporate insolvency resolution process - termination of contract prior to issuance of demand notice

Pre-existing dispute - termination of contract prior to issuance of demand notice - notice of dispute - There existed a pre-existing dispute between the parties prior to the filing of the Section 9 petition and the petition is therefore not maintainable. - HELD THAT: - The Tribunal found that the corporate debtor had served a termination notice dated April 19, 2018, effective from May 19, 2018, which pre-dated the demand notice of June 17, 2018. The termination notice expressly recorded dissatisfaction with the operational creditor's performance (project deliverables and supply of manpower). The corporate debtor also produced contemporaneous customer complaints and reviews evidencing dissatisfaction with services. Having regard to the requirement that an adjudicating authority must reject an application under Section 9 where a dispute truly exists in fact and is not spurious, hypothetical or illusory, the Tribunal held that the existence of the termination notice together with customer complaints established a prior dispute about the quality of services. The Tribunal therefore treated the dispute as pre-existing and not a belated or frivolous contention raised after issuance of the demand notice, and declined to examine the merits of competing factual contentions further at the admission stage. [Paras 12]

The Section 9 petition was rejected on the ground that a pre-existing dispute (including termination of the service agreement prior to the demand notice and customer complaints) existed and therefore the petition was not maintainable.

Final Conclusion: The petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 was dismissed for want of maintainability because a pre-existing dispute - evidenced by termination of the service agreement prior to the demand notice and customer complaints about the operational creditor's services - was established.

Club or Association Service - refund of service tax - taxability of members' clubs in incorporated form - continuity of pre-2012 scheme post 01.07.2012 - consequential relief

Club or Association Service - refund of service tax - taxability of members' clubs in incorporated form - Entitlement of the appellant to refund of service tax paid on Club or Association Service for January, 2013 to July, 2014. - HELD THAT: - The Tribunal examined whether service tax was leviable on the appellant's Club or Association Service for the stated period. The Commissioner (Appeals) had treated the post-01.07.2012 definition as creating a different regime and refused refund. The Tribunal, however, placed reliance on the Hon'ble Supreme Court's decision in State of West Bengal v. Calcutta Club Ltd., which questioned whether the levy changed from 01.07.2012 and expressly observed that it may be assumed the Legislature continued the pre-2012 scheme of not taxing members' clubs when they are in the incorporated form (para 82) and stated that from 2005 onwards the Finance Act, 1994 does not purport to levy service tax on members' clubs in the incorporated form (para 84). Applying that ratio, the Tribunal held there was no substantive difference in levy before and after 01.07.2012 for incorporated members' clubs and consequently the appellant was entitled to the refund claimed for the period January, 2013 to July, 2014.

Impugned order set aside; appeal allowed and the appellant entitled to the claimed refund with consequential relief as per law.

Final Conclusion: The Tribunal allowed the appeal, holding that incorporated members' clubs were not taxable under the Service Tax regime as interpreted by the Hon'ble Supreme Court and directing grant of the refund claimed for January, 2013 to July, 2014 with consequential relief as provided by law.

Taxability of captive-generated by-product - marketability test for excise chargeability - purification requirement for marketability - distinction between in-house generated impure gas and purchased marketable gas - precedential effect of tribunal decision

Taxability of captive-generated by-product - marketability test for excise chargeability - purification requirement for marketability - distinction between in-house generated impure gas and purchased marketable gas - Whether carbon dioxide generated during fermentation and captively used for carbonation of beer is liable to central excise duty. - HELD THAT: - The Tribunal held that carbon dioxide arising as a by-product of fermentation is impure and would require a separate purification plant to be rendered marketable. There was no allegation that the appellant possessed such a purification plant. The fact that the appellant purchased commercially supplied, purified carbon dioxide does not establish that the in-house generated gas was of comparable, marketable quality. The marketability of goods in the form cleared for captive use must be proved, and that proof was absent. Applying the earlier Division Bench decision in the appellant's own case, which found the same absence of marketability and dismissed Revenue's claim, the Tribunal concluded that the in-house generated carbon dioxide was not dutiable.

The carbon dioxide generated in the course of fermentation and captively used by the appellant is not liable to central excise duty; the departmental demand is unsustainable.

Final Conclusion: Appeal allowed following the Tribunal's precedent; impugned order set aside and the appellant granted consequential relief.

Confiscation of vehicle under Section 72(2) of the U.P. Excise Act - option to pay fine in lieu of confiscation - requirement of finding that owner knew or had reason to believe vehicle would be used for transporting illicit material - release of seized property pending trial - condonation of taxes on release of vehicle

Confiscation of vehicle under Section 72(2) of the U.P. Excise Act - option to pay fine in lieu of confiscation - requirement of finding that owner knew or had reason to believe vehicle would be used for transporting illicit material - Whether the confiscation of the petitioner's vehicle complied with the requirements of Section 72(2) of the U.P. Excise Act and whether the impugned orders of confiscation and dismissal of appeal could be sustained. - HELD THAT: - The Court found on the record that the authorities did not afford the petitioner the option contemplated by the proviso to Section 72(2) of the U.P. Excise Act to pay a fine in lieu of confiscation. The record likewise contains no finding that the owner knew, or that there was reason to believe the owner knew, that the vehicle would be used for transporting illicit adulterated liquor. The Standing Counsel was unable to show compliance with the statutory requirement when called upon. In absence of the statutory procedure being followed and of any determinative finding about the owner's knowledge or culpability, the exercise of the confiscation power could not be sustained. The Court also noted the public-interest and practical consideration that prolonged retention of the vehicle in police custody would serve no useful purpose, consistent with the approach in Sunderbhai Ambalal Desai v. State of Gujarat as applied by the Court.

Impugned orders of confiscation and the appellate dismissal are quashed; the confiscation did not comply with Section 72(2) and is set aside.

Release of seized property pending trial - condonation of taxes on release of vehicle - Whether the vehicle should be released and on what conditions pending the criminal trial. - HELD THAT: - Having quashed the confiscation, the Court directed immediate release of the vehicle to the petitioner. The Court ordered that any delay in payment of road tax, insurance or other taxes be condoned; the petitioner is to deposit taxes at current rates and shall not be required to pay arrears for the period the vehicle was unused. The vehicle must be produced if required in the criminal proceedings and shall not be sold during the pendency of the trial.

Vehicle to be released subject to deposit of current taxes, obligation to produce it if required in criminal proceedings, and prohibition on sale during trial; tax arrears for the period of non-use shall not be demanded.

Final Conclusion: The writ petition is allowed: the orders of confiscation and the appellate dismissal are quashed, the vehicle is directed to be released on the stated conditions (deposit of current taxes, production if needed in criminal proceedings, and prohibition on sale during trial), and any delay in payment of taxes is condoned without demand for arrears for the period of non use.