TaxTMI Updates e-Newsletter
May 22,2020

Constitutional validity of Section 96(2) of the Rajasthan Goods and Service Tax Act, 2017 and Section 96 of the Central Goods and Service Tax Act, 2017 - interim stay of operation of notice/annexure - tagging of connected record

Constitutional validity of Section 96(2) of the Rajasthan Goods and Service Tax Act, 2017 and Section 96 of the Central Goods and Service Tax Act, 2017 - interim stay of operation of notice/annexure - Interim relief granted in respect of Annexure-10 dated 06.05.2020 - HELD THAT: - Petitioner challenged the constitutional validity of the provisions identified in the petition and relied upon a recent decision of this Court in Chambal Fertilisers and Chemicals Limited where a similar challenge had been entertained and notice issued with a direction against coercive steps. Having regard to the similarity of the challenge and the pending proceedings in the cited case, the Court found it appropriate to preserve the status quo by restraining the operation of the impugned Annexure-10 until the next listed date. The order reflects an interlocutory exercise of judicial discretion to maintain existing positions while the constitutional challenge is adjudicated further, without resolving the merits of the challenge itself.

Interim stay of operation of Annexure-10 dated 06.05.2020 granted until the next date.

Tagging of connected record - service of petition on respondent through counsel - Procedural directions for service, joinder and listing; calling and tagging of related record - HELD THAT: - The Court directed the petitioner to serve a copy of the writ petition and annexures on the Additional Solicitor General for the Union of India by e mail, noting that service had not been effected. The Court also ordered that the record of the Chambal Fertilisers and Chemicals Limited matter be called for and tagged to the present file in view of the common question raised, and directed issuance of notice to respondent No.2 returnable on the listed date. Counsel appearances were recorded for the cause list. These directions are administrative and interlocutory to enable adjudication on the merits at the next hearing.

Petitioner to serve the petition on the Additional Solicitor General by e mail; record of the Chambal case to be called for and tagged; notice issued to respondent No.2 returnable on 08.06.2020; matter listed on 08.06.2020.

Final Conclusion: Interim protection granted: operation of Annexure-10 dated 06.05.2020 stayed until the next hearing; procedural directions issued for service, tagging of the connected Chambal record and issuance of notice with listing on 08.06.2020.

Consequential demand notices - stay on recovery proceedings - moratorium on recoveries under CBDT Notification No.35 of 2020 dated 03.04.2020 - disposal without adjudication on merits

Consequential demand notices - moratorium on recoveries under CBDT Notification No.35 of 2020 dated 03.04.2020 - disposal without adjudication on merits - Petitions challenging the demand notices were disposed of by recording the respondent's statement that recovery proceedings would not be initiated in view of the CBDT notification, without deciding the merits of the assessment orders. - HELD THAT: - The Court accepted the statement of the learned Government Advocate that the Central Board of Indirect Taxes and Customs had issued Notification No.35 of 2020 dated 03.04.2020 directing that recovery proceedings shall not be initiated until 29.06.2020. Given that the writ petitions were filed only against the consequential demand notices and the petitioners' apprehension of immediate recovery, the Court recorded the respondent's assurance based on the notification and disposed of the petitions accordingly. The Court expressly refrained from expressing any view on the merits of the underlying assessment orders or the correctness of the demands, leaving those questions open for adjudication in the proceedings already initiated by the petitioner. [Paras 4, 6]

Writ petitions disposed of by recording that no recovery will be initiated until 29.06.2020 as per the CBDT notification; merits of the demand and assessment orders not decided.

Final Conclusion: The writ petitions challenging the consequential demand notices were disposed of by recording the respondent's undertaking and the effect of CBDT Notification No.35 of 2020 (no recoveries till 29.06.2020); the Court did not adjudicate the merits of the assessments.

Exemption under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 - Taxability of compensation on compulsory acquisition and by agreement - Interaction between compensation exemption under RFCTLARR Act and provisions of the Income-tax Act, 1961 - Circular No.36/2016 clarification issued by the Central Board of Direct Taxes - Validity of assessment order and notice of demand

Exemption under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 - Interaction between compensation exemption under RFCTLARR Act and provisions of the Income-tax Act, 1961 - Circular No.36/2016 clarification issued by the Central Board of Direct Taxes - Compensation received pursuant to acquisition or agreement falling within Section 96 of the RFCTLARR Act is not taxable under the Income-tax Act, 1961 - HELD THAT: - The Court examined the language of Section 96 of the RFCTLARR Act and the CBDT clarification in Circular No.36/2016. It observed that Section 96 provides exemption for compensation received on acquisition or by agreement, and that the Board's clarification expressly stated that such compensation exempt under Section 96 shall not be taxable under the Income-tax Act even where the Income-tax Act contains no specific exemption provision. The Court found this clarification to be consistent with the statutory scope of Section 96 and contrary to the approach adopted by the Assessing Officer in the impugned assessment.

Compensation falling within Section 96 of the RFCTLARR Act is not taxable under the Income-tax Act; the CBDT clarification supports this position.

Taxability of compensation on compulsory acquisition and by agreement - Validity of assessment order and notice of demand - Sustainability of the impugned assessment order and demand notice issued by the Assessing Officer in respect of the compensation received by the petitioner - HELD THAT: - Applying the legal position that compensation exempt under Section 96 of the RFCTLARR Act is not taxable under the Income-tax Act, the Court found that the Assessing Officer's assessment and demand were inconsistent with that exemption and the CBDT clarification. Although factual aspects such as the timing of construction and occupancy certificate were raised by the Revenue, the Court concluded that, on the legal question of taxability of the compensation received pursuant to the acquisition/agreement, the assessment and demand could not be sustained.

The impugned assessment order and demand notice are quashed.

Final Conclusion: The writ petition is allowed; the Court holds that compensation covered by Section 96 of the RFCTLARR Act is not taxable under the Income-tax Act and, accordingly, quashes the assessment and notice of demand impugned in the petition.

Reopening of assessment under Section 147 - Validity of notice under Section 148 - Intimation under Section 143(1) not amounting to assessment / change of opinion - Existence of tangible material / reasons to believe for reopening - Revisionary jurisdiction under Section 263 - Non compete fee as capital receipt - Application of income versus diversion by overriding title - Clubbing of minor's income under Sections 60 64

Reopening of assessment under Section 147 - Validity of notice under Section 148 - Intimation under Section 143(1) not amounting to assessment / change of opinion - Existence of tangible material / reasons to believe for reopening - Whether reopening of the concluded assessment for ay: 2001-02 by issuance of notice u/s 148 and proceeding u/s 147 was valid - HELD THAT: - The Tribunal held that the notice under Section 148 and reopening under Section 147 were valid. The return had been processed under Section 143(1) (manual intimation) and no scrutiny assessment under Section 143(3) had been framed; accordingly intimation under Section 143(1) did not amount to an assessment and could not give rise to a change of opinion. The AO had tangible material and sufficient live link to form a reason to believe that income had escaped assessment because the assessee claimed large exemptions and disclosures were incomplete or suspect; the Tribunal found that the primary onus of full and true disclosure by the assessee was not discharged. Relying on the legal position that reopening is permissible where the statutory ingredients of Section 147 are satisfied even if no earlier scrutiny assessment was framed, the Tribunal upheld the reopening within four years from the end of the assessment year.

Reopening of the concluded assessment by invoking Section 147 read with notice under Section 148 is upheld.

Non compete fee as capital receipt - Whether the amount received as non compete fee was exigible to tax for ay: 2001-02 - HELD THAT: - On the facts the Tribunal accepted that the assessee, a recognised figure in cricket, entered into arm's length non compete agreements for six years and received consideration. For the assessment year under consideration (prior to the Finance Act, 2002 amendment), the Tribunal followed the settled principle that non compete receipts relating to the loss of an income earning apparatus are of capital nature. The Tribunal found no cogent material from Revenue to dislodge the negotiated contractual valuation and held that the non compete receipts for the relevant year constituted capital receipts and were not taxable for ay: 2001 02.

The non compete fee is held to be a capital receipt and not chargeable to tax for ay: 2001 02.

Application of income versus diversion by overriding title - Whether the payment of the amount to Indian Bank constituted diversion of income by overriding title (deductible / not taxable) or was merely application of income - HELD THAT: - The Tribunal found that the payments to Indian Bank arose from a compromise to settle loans of Aditya Leather Exports Pvt. Ltd., for which the assessee was a guarantor/director, and that there was no specific charge or encumbrance over the shares sold. The Bank's intervention by way of an application and subsequent out of court settlement did not create an overriding title that prevented the amount from ever reaching the assessee; the monies were received and then applied. On the facts and having regard to guardianship principles (minor shareholders), the Tribunal held the payment was an application of income and not a diversion by overriding title and therefore not deductible as an expenditure in computing capital gains.

The payment to Indian Bank is an application of income, not a diversion by overriding title; no deduction on that ground is allowed.

Clubbing of minor's income under Sections 60 64 - Whether sale consideration attributable to shares held by the assessee's minor sons is assessable in the hands of the assessee - HELD THAT: - The Tribunal noted that the vast majority of shares (about 99%) were held in the names of the minor sons and that the assessee, as their natural guardian, effected the sale. Applying the clubbing provisions, the Tribunal held that the sale consideration for the shares realised by the minors is to be brought to tax in the hands of the assessee. The Tribunal also emphasised that no court permission for diverting minors' proceeds was shown and that the guardian's duty to protect minors' interest militated against permitting an arrangement that effectively diverted minors' sale proceeds to discharge third party liabilities.

Sale consideration ascribed to shares held by the minor sons is taxable in the hands of the assessee by operation of the clubbing provisions.

Revisionary jurisdiction under Section 263 - Whether the Commissioner exercised revisionary powers under Section 263 correctly in directing recomputation (taking total sale consideration as per agreement) and consequential assessment - HELD THAT: - The Tribunal examined the revision under Section 263 that directed recomputation by adopting the total contractual consideration. It found that the Assessing Officer had adopted Rs. 12 crores instead of the contractual Rs. 15 crores when computing per share value, which the Commissioner considered to be a mistake prejudicial to Revenue. Given the agreements showed a right to receive Rs. 15 crores and no evidence was produced to show that the amount was disputed at year end, the Tribunal upheld the Commissioner's view that the mistake was prejudicial and that recomputation adopting the contractual consideration was justified. Separately, the Tribunal recorded that the deduction under Section 54F was properly left to be verified; the consequential assessment allowed the higher Section 54F claim.

Revision under Section 263 directing adoption of the contractual sale consideration and consequential recomputation is upheld.

Final Conclusion: All four appeals are partly allowed: the reopening under Section 147/notice under Section 148 is sustained; the non compete receipts for ay: 2001 02 are held to be capital receipts not chargeable to tax; the payment to Indian Bank is treated as an application of income (not diversion by overriding title) and is not allowable as a deduction against capital gains; sale proceeds attributable to minors are brought to tax in the hands of the assessee under the clubbing provisions; and the revision under Section 263 directing recomputation adopting the contractual consideration is upheld.

Extension of interim stay - stay against recovery of demand - automatic extension of interim orders due to COVID-19 - judicial comity with High Court interim orders

Extension of interim stay - stay against recovery of demand - automatic extension of interim orders due to COVID-19 - Extension of the Tribunal's earlier interim stay against recovery of the outstanding demand till the date of hearing. - HELD THAT: - The Tribunal noted that an interim stay was earlier granted by the Tribunal vide order dated 15.11.2019 and that the Hon'ble Delhi High Court, by suo-moto orders in W.P. Urgent 2/2020 and W.P.(C) 3037/2020, had ordered automatic extension of interim orders in matters subsisting during the COVID-19 period (initially extended and thereafter continued until 15.06.2020 unless otherwise ordered). Having regard to those High Court orders and the fact that the appeal was listed for hearing on 11.06.2020, the Tribunal held there was no necessity to examine the merits of the stay application and extended the protection already granted by the Tribunal till the date of hearing, 11.06.2020. The extension was therefore granted by way of applying the High Court's continuance of interim orders to the present stay. [Paras 4, 5]

Stay against recovery of the outstanding demand is extended till 11.06.2020 and the stay application is allowed.

Final Conclusion: The Tribunal, applying the Hon'ble Delhi High Court's orders extending interim protections in view of COVID-19, extended the Tribunal's prior stay against recovery until the date of hearing (11.06.2020) and allowed the stay application.

Penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars - addition as perquisites based on disallowance in third party's hands - requirement of employer-employee relationship for taxation of perquisites - validity of show cause notice - requirement to specify which limb of Section 271(1)(c) is invoked

Addition as perquisites based on disallowance in third party's hands - requirement of employer-employee relationship for taxation of perquisites - penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars - Whether levy of penalty under section 271(1)(c) was justified where additions in the assessee's hands arose from credit card expenses claimed by a related company and the assessee had disclosed those expenditures - HELD THAT: - The Tribunal found that the credit card expenditures were disclosed by the assessee as having been incurred by the assessee and claimed as expenditure by the related company; substantial part of those expenses was ultimately held allowable to the company on appeal. The assessing officer did not establish that the expenses were liabilities of the assessee discharged by the company, nor did he establish an employer-employee relationship required to characterise the addition as perquisites. In these circumstances, the Tribunal held that mere confirmation of disallowance in the hands of the third party (company) - without a finding that the assessee concealed particulars or furnished inaccurate particulars - does not sustain penal liability under section 271(1)(c). The assessee had disclosed the nature of the transactions and supporting statements by company directors corroborated the disclosure; accordingly, penalty could not be sustained on merits. [Paras 9, 11]

Penalty under section 271(1)(c) deleted on merits; assessee's appeals allowed.

Validity of show cause notice - requirement to specify which limb of Section 271(1)(c) is invoked - penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars - Whether the penalty proceedings and order are vitiated where the show cause notice did not specify which limb of section 271(1)(c) (concealment or furnishing inaccurate particulars) was invoked and the assessing officer subsequently levied penalty on one limb without specific prior charge - HELD THAT: - The Tribunal observed that the assessing officer had issued multiple notices without specifically confronting the assessee with the precise charge and that the penalty order ultimately proceeded on the charge of concealment. The purpose of a show cause notice is to put the assessee on notice of the specific charge to enable effective response. Reliance was placed on the view that a notice is bad in law if it fails to specify which limb of section 271(1)(c) the proceedings are initiated under. Given absence of specific charge at the assessment stage and in the notices, the levy of penalty on one limb alone could not be upheld. [Paras 10]

Penalty set aside for invalid notice; penalty cannot be sustained for failure to specify the limb of section 271(1)(c).

Final Conclusion: Both appeals allowed: penalty under section 271(1)(c) was deleted - once on merits because no concealment or furnishing of inaccurate particulars was established and the addition arose from third party disallowance without requisite employer-employee relationship, and also because the show cause notice failed to specify which limb of section 271(1)(c) was invoked.

Characterisation of income as business income versus long term capital gain - allowability of bad debt under section 36(1)(vii) read with section 36(2) - Manmohan Das principle - earlier assessment does not bind characterization in subsequent year - obligation to refer disputed stamp duty valuation to the DVO under section 50C regime - scope of disallowance under section 14A and computation under Rule 8D - limited to average value of investments yielding exempt income

Characterisation of income as business income versus long term capital gain - allowability of bad debt under section 36(1)(vii) read with section 36(2) - Manmohan Das principle - earlier assessment does not bind characterization in subsequent year - Allowability of the amount written off of Rs. 77,98,88,400/- as business loss / bad debt in Assessment Year 2013-14 rather than as a capital loss. - HELD THAT: - The Tribunal held that the substance of the transaction must govern its character: the sale of shares was inseparable from the assessee's core real estate business because the underlying asset and the substantial element of the consideration related to obtaining CLU and other development clearances as part of the assessee's business. Applying the principle in Manmohan Das and subsequent authoritative decisions, the Tribunal reaffirmed that an assessment or declaration in an earlier year characterising income as capital does not estop the assessee or bind the revenue in a subsequent year where the true nature of the transaction must be determined afresh. The Tribunal also relied on authority holding that for claiming a deduction as bad debt it is sufficient that the debt is written off in the assessee's books and there is no statutory requirement that the debt must have arisen under the same head in an earlier year. On the facts - failure to obtain CLU, government acquisition reducing the asset, buyer's refusal to pay and the write off in books in the relevant year - the Tribunal concluded that the loss was a business loss / bad debt allowable in the revenue account for the relevant year. [Paras 22]

The claim of Rs. 77,98,88,400/- written off is allowable as business loss / bad debt in Assessment Year 2013-14 and not as a capital loss.

Obligation to refer disputed stamp duty valuation to the DVO under section 50C regime - section 50C valuation dispute - remit for independent valuation - Correctness of addition under section 50C in respect of sale of property - whether the stamp duty valuation should be treated as sale consideration or referred to the DVO for determination of fair market value. - HELD THAT: - The Tribunal noted that the assessee specifically disputed the stamp duty valuation on factual grounds (proximity to a cremation ground and other market considerations) and requested reference to the DVO. Where an assessee challenges the stamp valuation, the income tax authority is obliged to refer the matter to the DVO to ascertain fair market value before making an addition under section 50C. In view of the assessee's specific factual contentions and its request, the Tribunal found that the appellate authority should have directed reference to the DVO and therefore remitted the matter to the Assessing Officer with directions to obtain DVO valuation and consider the assessee's submissions. [Paras 28]

Addition under section 50C is remanded to the Assessing Officer for referral to the DVO and fresh consideration; ground is partly allowed for statistical purpose.

Scope of disallowance under section 14A and computation under Rule 8D - limited to average value of investments yielding exempt income - Validity and quantum of disallowance under section 14A challenged by Revenue. - HELD THAT: - The Tribunal accepted that the only dividend yielding investments in the year related to a small amount and that the assessee had made a suo motu disallowance in the return equal to the proportionate amount. Applying the view in the assessee's own earlier order and ITAT precedent, the Tribunal held that for computing disallowance under section 14A (and Rule 8D) the relevant base is the average value of investments which actually yielded exempt income in the year; consequently no addition beyond the amount corresponding to exempt income could be sustained. On this basis the Tribunal upheld the CIT(A)'s deletion of the AO's larger disallowance and dismissed the Revenue's ground. [Paras 34]

Revenue's appeal against deletion of section 14A disallowance is dismissed; no disallowance beyond the amount corresponding to the average value of investments yielding exempt income is sustained.

Final Conclusion: The assessee's appeal is partly allowed: the Tribunal allows the claim of Rs. 77,98,88,400/- as a business loss / bad debt in Assessment Year 2013 14; the addition under section 50C is remanded to the Assessing Officer for DVO valuation and fresh consideration; the Revenue's challenge to deletion of section 14A disallowance is dismissed.

Penalty under section 271(1)(b) - Notice under section 142(1) - Scope of inquiry in assessments arising from search and seizure - limitation to incriminating material/seized documents - Obligation to sign consent/waiver to obtain foreign bank statements - Reasonable cause and waiver of penalty under section 273B

Penalty under section 271(1)(b) - Notice under section 142(1) - Scope of inquiry in assessments arising from search and seizure - limitation to incriminating material/seized documents - Obligation to sign consent/waiver to obtain foreign bank statements - Validity of levy of penalty for alleged non-compliance with the notice issued under section 142(1) requiring production of alleged HSBC Geneva account documents or signing of a consent/waiver. - HELD THAT: - The Tribunal held that the sole basis for penalty was alleged non-compliance with the single notice dated 18.07.2013 requiring production of HSBC Geneva account documents or signing a consent letter. The record showed that (a) the departmental information scanned in the assessment file did not specifically mention an HSBC Geneva account in the assessee's name; (b) no incriminating material or seized document linking the assessee to such an account was found or confronted during the search or subsequent proceedings; and (c) the assessee consistently denied having any such foreign account and furnished a written reply to the notice. Applying the principle that the scope of inquiry in proceedings under section 153A is circumscribed by incriminating material found during the search, the Tribunal held that absent seized material or specific information linking the assessee to the alleged HSBC Geneva account, the Assessing Officer could not validly treat refusal to sign a consent/waiver as non-compliance warranting penalty. Further, section 142(1) requires production of documents in the assessee's possession or control and does not impose an obligation to create or sign documents when the assessee denies their existence. On these grounds the Tribunal found no failure to comply with the notice and held the levy of penalty unsustainable. [Paras 12, 13, 14, 16]

Penalty under section 271(1)(b) cannot be sustained for alleged non-compliance with the section 142(1) notice in the absence of specific incriminating material linking the assessee to the foreign bank account and where the assessee had replied denying any such account.

Reasonable cause and waiver of penalty under section 273B - Obligation to sign consent/waiver to obtain foreign bank statements - Whether the assessee had reasonable and bona fide cause for not signing the consent/waiver and whether that precluded levy of penalty under section 271(1)(b). - HELD THAT: - The Tribunal accepted the assessee's contention that he consistently and bona fide denied having any overseas bank account, that no incriminating or seized material ever implicated him in holding an HSBC Geneva account, and that he therefore had a reasonable cause for refusing to sign a consent/waiver addressed to the bank. Given these factual findings and the legal position that penalty under section 271(1)(b) is leviable only on proven failure to comply, the Tribunal concluded that non-signing of the consent/waiver constituted a bona fide and reasonable cause under section 273B, disentitling the revenue from imposing the penalty. [Paras 15, 16]

Assessee's refusal to sign the consent/waiver was a bona fide reasonable cause; accordingly penalty was to be deleted under section 273B.

Final Conclusion: All appeals allowed; penalties imposed under section 271(1)(b) for the Assessment Years 2006-07 to 2012-13 deleted on the stated grounds.

Comparability in transfer pricing - service income filter - arm's length price - functional comparability - TNMM method - verification of comparable data

Service income filter - comparability in transfer pricing - verification of comparable data - Inclusion of U B Engineering Ltd., Tata Projects Ltd. and L&T Sargent & Lundy Ltd. as comparables for benchmarking the assessee's Engineering Design Services international transactions - HELD THAT: - The TPO had rejected these three companies solely on the basis that they failed the service-income threshold of 75% applied to ensure selection of entities with a functional profile similar to the assessee (paras 11-12). The assessee produced extracts from the annual reports showing that each of the three companies exceeded the 75% service-income threshold (para 14). The Tribunal also noted prior acceptance of U B Engineering Ltd. as a comparable in the assessee's own earlier years and that the TPO had included it in later years without any change in the assessee's business model (paras 15, 17). Because the TPO's rejection was on the service-income filter and not on a finding of functional dissimilarity, the DRP's direction to include these comparables was upheld. The Tribunal directed the TPO to verify the service-income data from the annual reports before retaining these companies as comparables (para 17). [Paras 11, 12, 14, 15, 17]

The DRP's direction to include U B Engineering Ltd., Tata Projects Ltd. and L&T Sargent & Lundy Ltd. as comparables is sustained subject to verification of the annual-report data by the TPO.

Functional comparability - TNMM method - comparability in transfer pricing - Exclusion of NTPC Electricity Supply Company Ltd. (NTPCESL) as a comparable for benchmarking the assessee's international transactions - HELD THAT: - The Tribunal examined NTPCESL's activities and organisational context and found it to be functionally dissimilar to the assessee (paras 19-22). NTPCESL is a wholly government owned subsidiary performing advisory/consultancy work largely awarded by government entities and benefiting from support from its holding company; it undertakes projects under government schemes and is not commercially comparable to the assessee which provides 100% export-related engineering support to associated enterprises (paras 19, 21-22). The Tribunal also relied on a prior finding in the assessee's own case where NTPCESL was held not to be comparable (para 23). On this basis the DRP's exclusion of NTPCESL was held to be correct (paras 24-25). [Paras 19, 21, 23, 24, 25]

The DRP rightly excluded NTPCESL as a comparable on the ground of functional dissimilarity.

Final Conclusion: Both appeals filed by the Revenue are dismissed; the DRP's directions to include the three specified comparables are upheld subject to verification of the annual report data by the TPO, and the DRP's exclusion of NTPCESL as a comparable on functional dissimilarity is affirmed.

Transfer pricing comparability - exclusion of a dominant branded entity from comparable set - treatment of foreign exchange fluctuation as an operating item - bench marking percentiles (35th and 65th) in TNMM - remand for verification of computations and factual linkage - application of Most Favoured Nation / Protocol of DTAA - distinction between fees for technical services and managerial services - obligation to deduct tax at source under section 195 and disallowance under section 40(a)(i) - payment for software licenses as transfer of copyrighted article not royalty - section 144C as a self contained code not governed by time limits under section 153

Section 144C as a self contained code not governed by time limits under section 153 - Validity of the assessment completed under section 144C being barred by limitation. - HELD THAT: - The Tribunal declined the assessee's limitation challenge, following the binding coordinate bench precedent which held that the scheme under section 144C is self contained and cannot be subjected to the time limits prescribed under section 153. The assessee conceded applicability of that precedent and the ground was dismissed accordingly. [Paras 5]

Ground alleging bar by limitation dismissed by following the coordinate bench precedent.

Transfer pricing comparability - exclusion of a dominant branded entity from comparable set - Whether Infosys BPO Ltd. is a comparable for the assessee for the ITES segment. - HELD THAT: - Having examined the functional profile, annual reports and cited judicial authorities, the Tribunal held that Infosys BPO Ltd., being part of a large branded group with significant brand value, synergies and scale, is functionally dissimilar and must be excluded from the final set of comparables. The Tribunal relied on precedents recognising that significant brand presence and economies of scale remove an entity from the pool of comparables under TNMM. [Paras 5]

Infosys BPO Ltd. directed to be excluded from the final comparable set.

Treatment of foreign exchange fluctuation as an operating item - remand for verification of computations and factual linkage - Whether foreign exchange fluctuations should be treated as operating item for computing operating margins in ITES (and whether such fluctuations relate to trading with AEs). - HELD THAT: - Relying on High Court authorities, the Tribunal accepted the legal proposition that forex gains/losses are operating items where they relate to trading items emanating from international transactions. The Tribunal did not decide on factual applicability; instead it restored the issue to the Assessing Officer/TPO for verification of whether the assessee's forex fluctuations relate to trading with associated enterprises, and directed that if so found, forex be treated as operating item for margin computation. [Paras 5]

Issue restored to AO/TPO for limited verification; if forex is linked to trading with AEs it shall be treated as operating item.

Bench marking percentiles (35th and 65th) in TNMM - remand for verification of computations and factual linkage - Whether the assessee's margin in the Software Development segment falls within the arm's length inter percentile range after treating forex as operating and on verification of percentile computations. - HELD THAT: - The assessee contended that on treating forex as operating, its margin would fall between the 35th and 65th percentiles of the comparable set, negating any adjustment. The Tribunal did not finally adjudicate the percentile computation but directed the AO/TPO to verify the correctness of the 35th and 65th percentile calculations and whether the forex fluctuations relate to trading with AEs. If verifications are positive, no TP adjustment would be warranted. [Paras 5]

Issue remanded to AO/TPO for verification of percentile computations and factual linkage of forex; if confirmed, no TP adjustment.

Distinction between fees for technical services and managerial services - application of Most Favoured Nation / Protocol of DTAA - obligation to deduct tax at source under section 195 and disallowance under section 40(a)(i) - Sustainability of disallowance under section 40(a)(i) in respect of management services fees paid to Steria France for failure to deduct tax under section 195. - HELD THAT: - The Tribunal applied the earlier favorable rulings of the Delhi High Court in the assessee's own litigation, which held that (i) the Protocol to the India France DTAA operates to import most favoured nation benefits and need not be separately notified, and (ii) the services rendered by Steria France were managerial and not Fees for Technical Services within the DTAA. Consequently, payments were not taxable in India in the recipient's hands and no withholding under section 195 was required. Following those precedents, the Tribunal set aside the disallowance. [Paras 5]

Disallowance under section 40(a)(i) in respect of management services fees deleted.

Payment for software licenses as transfer of copyrighted article not royalty - obligation to deduct tax at source under section 195 and disallowance under section 40(a)(i) - Whether payments to Steria France for purchase of software licenses constitute royalty (taxable) requiring deduction under section 195 and disallowance under section 40(a)(i). - HELD THAT: - The Tribunal examined the contractual terms and applicable law and followed the Delhi High Court decision in DIT v. Infrasoft Ltd., holding that payments for standardized, non exclusive, non transferable software licences amount to transfer of a copyrighted article (right to use the article) and not transfer of copyright or right in copyright. The India France DTAA's narrower definition of royalty was also considered. Given the intra group supplier agreement showing resale without markup and no transfer of copyright, the Tribunal held that the payments were not royalties and directed deletion of the disallowance. [Paras 5]

Disallowance under section 40(a)(i) in respect of software license payments deleted.

Remand for verification of computations and factual linkage - Levy of interest under section 234B as consequential to other adjustments. - HELD THAT: - The Tribunal treated the challenge to interest under section 234B as consequential to the primary tax/adjustment issues. No independent adjudication was required as the interest consequence would follow from the outcome on substantive grounds. [Paras 5]

Interest liability under section 234B held to be consequential; no separate adjudication.

Final Conclusion: The appeal is partly allowed: the Tribunal (a) dismissed the limitation plea following coordinate bench precedent; (b) directed exclusion of Infosys BPO Ltd. from the ITES comparable set; (c) remanded the questions whether forex fluctuations are operating items and the correctness of 35th/65th percentile computations to the AO/TPO for verification (with directions that, if verified, no TP adjustments be made); (d) deleted disallowances under section 40(a)(i) in respect of management services fees and software licence payments following binding High Court precedent; and (e) held the interest claim to be consequential.

Penalty under section 271D for contravention of section 269SS - cash advance against sale v. loan/deposit for purpose of section 269SS - requirement of satisfaction to initiate penalty proceedings and authority competent to record satisfaction

Requirement of satisfaction to initiate penalty proceedings and authority competent to record satisfaction - Validity of initiation of penalty proceedings by Addl. CIT based on proposal forwarded by Assessing Officer who lacked jurisdiction to levy penalty. - HELD THAT: - The Assessing Officer (ITO) who completed assessment did not have jurisdiction to levy the penalty and therefore forwarded a proposal to the Addl. CIT, Range-1, Kota. The Addl. CIT reviewed the material and issued the show-cause notice and thereafter imposed the penalty. The Tribunal held that satisfaction for initiating penalty proceedings must reside with the authority competent to levy the penalty; where the Assessing Officer transmits the material and the competent authority (Addl. CIT) reviews and forms satisfaction, initiation by the competent authority is valid. The cited Supreme Court and coordinate-bench decisions were distinguishable since in those cases the same assessing authority had both completed assessment and subsequently levied penalty without separate discernible satisfaction. The assessee did not dispute the show-cause issued by the Addl. CIT and the facts showed the Addl. CIT acted on review of material transmitted by the ITO, therefore initiation was proper. [Paras 8]

Initiation of penalty proceedings by the Addl. CIT on the basis of material forwarded by the ITO was valid and the requirement of satisfaction was properly met by the Addl. CIT.

Cash advance against sale v. loan/deposit for purpose of section 269SS - penalty under section 271D for contravention of section 269SS - Whether the cash receipts of Rs. 1,00,000 were deposits/loans in contravention of section 269SS or cash advances against sale not falling within section 269SS, and consequent liability to penalty under section 271D. - HELD THAT: - Undisputed facts show the assessee received cash of Rs. 1,00,000 in the last quarter of the impugned financial year and subsequently supplied electrical goods to the same party by issue of sale bill on 24.05.2012, after which the advance was adjusted and the balance was received through banking channels. The Tribunal found that the amount received constituted a cash advance against the supply of goods rather than a loan or deposit or a specified sum connected with transfer of immovable property. As such, the receipts did not fall within the ambit of section 269SS and there was no contravention attracting penalty under section 271D. Accordingly, the penalty levied was not sustainable and was deleted. [Paras 9]

The cash receipts were advances against sale and not loans/deposits within section 269SS; the penalty under section 271D was deleted.

Final Conclusion: The Tribunal allowed the appeal: it upheld validity of initiation of penalty proceedings by the Addl. CIT on review of material forwarded by the ITO, but on merits held the cash receipts were advances for sale (not contraventions of section 269SS) and deleted the penalty under section 271D.

Penalty under section 271C - Reasonable cause under section 273B - Reliance on Form 15G/15H as bona fide cause for non-deduction - Section 197A(1C) - no deduction for senior citizen on production of Form 15H - Rectification under section 154 superseding original assessment order - Arbitrariness and non-application of mind in differential treatment by the same authority

Rectification under section 154 superseding original assessment order - Penalty under section 271C - Validity of penalty levied by Addl.CIT(TDS) and confirmed by CIT(A) where a subsequent order under section 154 reduced the demand - HELD THAT: - The assessee's AO had passed an original order creating demand which was subsequently revised by a rectification order under section 154. The assessee contended that the penalty was levied on the basis of the original order and without regard to the revised demand. The Tribunal observed that a section 154 rectification replaces the original order for the matters rectified and that imposition of penalty in ignorance of such rectification is impermissible. Where the authority levied penalty without applying its mind to the rectified position, that approach reflected arbitrariness. The Assessing Officer's reduction of demand by way of rectification must inform the penalty proceedings. [Paras 4, 16]

Penalty confirmed on the basis of the original order but ignoring the rectification was unsustainable; penalty deleted.

Arbitrariness and non-application of mind in differential treatment by the same authority - Penalty under section 271C - Whether the Addl.CIT(TDS) could justifiably impose penalty in respect of one branch when, under identical facts, penalty proceedings were dropped for another branch of the same bank by the same authority - HELD THAT: - The Tribunal acknowledged that the discretion to levy or drop penalty vests with the appropriate authority. However, where the same authority adopts different treatment for branches of the same entity on identical facts without any distinguishing circumstances, such differential treatment amounts to arbitrariness and non-application of mind. The existence of an order dropping penalty in respect of another branch was a relevant consideration; absence of any record of distinguishing factors rendered the impugned levy unreasonable. [Paras 6, 16]

Differential imposition of penalty in the absence of distinguishing facts was arbitrary; penalty deleted.

Reliance on Form 15G/15H as bona fide cause for non-deduction - Reasonable cause under section 273B - Section 197A(1C) - no deduction for senior citizen on production of Form 15H - Penalty under section 271C - Whether the assessee bank had reasonable cause for non-deduction of TDS by relying on declarations in Form 15G/15H and whether such reliance precludes levy of penalty under section 271C - HELD THAT: - The Tribunal examined statutory provisions and precedents establishing that penalty under section 271C is avoidable where the person proves reasonable cause under section 273B. For payments to a person over sixty years of age who furnished Form 15H, section 197A(1C) provides that no deduction is required, and therefore non-deduction in those cases constituted reasonable cause. For other payees (Form 15G), the bank relied on the customer's self-declaration; while the bank was required to perform basic verification, mere reliance without mala fide intent and with bona fide belief did not demonstrate an absence of reasonable cause. The Tribunal found no evidence of mala fide conduct by the bank and accepted that reliance on customer declarations, coupled with expected basic checks, amounted to reasonable cause for non-deduction. [Paras 8, 9, 13, 14, 15]

Non-deduction of TDS in respect of the senior citizen who furnished Form 15H and in respect of other cases where the bank relied in good faith on Form 15G/15H amounted to reasonable cause; penalty deleted.

Final Conclusion: All four appeals are allowed; the penalty levied under section 271C for A.Ys 2010-11, 2011-12, 2012-13 and 2013-14 is deleted on the grounds of reasonable cause (including compliance with section 197A(1C) for the senior citizen) and arbitrariness in differential treatment by the revenue.

Remand for verification - tax collection at source (TCS) liability - interest under section 206C(7) - proviso to section 206C(6A) - Form 27BA/27C compliance - section 206C(1A) - declarations for manufacturing/processing use - admission of additional evidence under Rule 29 - comparability of TDS and TCS regimes - jurisdictional challenge to assessment order

Jurisdictional challenge to assessment order - Whether the ITO, TDS-3 Jaipur had jurisdiction to pass the orders under section 206C(6)/206C(7) for the assessment year in question. - HELD THAT: - The assessee had raised a ground before the CIT(A) contesting jurisdiction of the ITO who passed the impugned order. The Tribunal found that the jurisdictional ground was taken before the CIT(A) but was not adjudicated because the CIT(A) mistakenly treated it as not pressed. Given that the ground was not decided on merits by the CIT(A), the proper course is to restore the issue to the file of the CIT(A) for adjudication after providing the assessee a reasonable opportunity. [Paras 11, 12]

Matter set aside to the file of the ld. CIT(A) for adjudication of the jurisdictional ground after affording opportunity to the assessee.

Limitation - Validity of the assessing officer's order on the ground of limitation as raised by the assessee. - HELD THAT: - The assessee did not press the limitation ground before the Tribunal (it was not pressed at the hearing) and accordingly the Tribunal dismissed the ground as not pressed. [Paras 13]

Ground dismissed as not pressed.

Tax collection at source (TCS) liability - Whether the demand confirmed by the CIT(A) for the transaction(s) aggregating Rs. 1,77,360/- represented TCS demand or the gross sale amount and what relief is appropriate. - HELD THAT: - The Tribunal observed the CIT(A) appears to have treated the sale amount as the demand, whereas the TCS liability is a percentage of the sale. The Tribunal accepted the assessee's contention that Rs. 1,77,360/- was the sale amount on which TCS would be computed and not the TCS itself. The matter therefore requires verification by the Assessing Officer to compute the correct quantum of TCS and consequential interest. [Paras 16, 18]

Matter set aside to the Assessing Officer for verification and determination of the quantum of TCS and consequential interest; ground allowed for statistical purposes.

Interest under section 206C(7) - Whether interest under section 206C(7) is chargeable and, if so, the period from which interest is leviable. - HELD THAT: - The Tribunal examined the proviso to section 206C(7) (inserted w.e.f. 1.7.2012) and held that interest is payable from the date on which such tax was collectible to the date of furnishing of return of income by the respective buyers where the person is not deemed an assessee in default under the first proviso to section 206C(6A). The Tribunal further held that interest for the period prior to 1.7.2012 is not leviable. Decisions relied upon by the assessee that pre date the statutory proviso are distinguishable. [Paras 24, 25, 28]

Findings of the CIT(A) on interest are confirmed subject to modification that no interest shall be leviable for the period prior to 1.7.2012; ground partly allowed.

Proviso to section 206C(6A) - Form 27BA/27C compliance - admission of additional evidence under Rule 29 - Whether declarations/certificates (Form 27C/27BA) filed belatedly can be admitted and whether the assessee is entitled to relief under the proviso to section 206C(6A). - HELD THAT: - The Tribunal summarized judicial authority holding that sub section (1A) of section 206C does not prescribe a mandatory time limit for the buyer's declaration and Rule 37C's timelines relate to procedural filing with the Commissioner. The Tribunal found that the assessee produced Form 27C declarations for certain buyers for the first time before the Tribunal, established prima facie genuineness and co-relation with sales, and explained the delay (reliance on professional advice and difficulty in obtaining declarations). In the interests of substantial justice the Tribunal held the delay to be non culpable and admitted the declarations but directed verification by the Assessing Officer. Accordingly the question whether the transactions fall under section 206C(1A) is to be re-examined by the AO after verification. [Paras 45, 46, 48]

Additional declarations admitted; matter set aside to the Assessing Officer to verify the Form 27C declarations and to decide the claim under section 206C(1A)/Rule 37C afresh in accordance with law.

Admission of additional evidence under Rule 29 - Whether the CIT(A) erred in allowing relief on the basis of evidence without obtaining a remand report under Rule 46A / section 250(4). - HELD THAT: - The Tribunal found that the certificates/declarations had been filed before the Assessing Officer during assessment and were considered by both AO and CIT(A). The Revenue did not point to any material that was newly filed before the CIT(A) that would have required a remand report. A corrigendum by the CIT(A) clarified an inadvertent reference to a 'remand report'. In these circumstances the Revenue's ground failed. [Paras 50, 53, 54]

Ground of Revenue dismissed; no infirmity in CIT(A)'s admission/consideration of the material.

Requirement to deposit interest before filing Form 27BA - Whether payment of interest under section 206C(7) and furnishing of challan details is a precondition to avail the proviso benefit by filing Form 27BA. - HELD THAT: - The Tribunal examined the proviso to section 206C(6A) and Form 27BA and concluded that the statute does not mandate prior payment of interest or submission of challan details as a precondition to the CA's certification under the proviso. Form 27BA contains fields for indicating interest payment if any, but absence of such particulars does not vitiate the certificate where there is substantial compliance with the mandatory certification requirements. [Paras 55, 58]

Revenue's ground dismissed; no mandatory requirement to deposit interest or supply challan details to render Form 27BA invalid where substantive certification requirements are met.

Comparability of TDS and TCS regimes - Whether the ratio in Hindustan Coca Cola (relating to TDS) is applicable to TCS and whether there is any material difference between TDS and TCS provisions for purposes of the present dispute. - HELD THAT: - The Tribunal endorsed the CIT(A)'s reasoning that the object and structure of TDS and TCS provisions are analogous and that the first proviso to sub section (6A) of section 206C reflects the legislative acceptance of the principle in Hindustan Coca Cola. The Tribunal saw no infirmity in applying the ratio to TCS defaults and upheld the CIT(A)'s conclusion that there is no substantive difference in the context at hand. [Paras 5, 67]

Revenue's challenge dismissed; ratio of Hindustan Coca Cola applies and no material difference found between TDS and TCS for present purposes.

Final Conclusion: The cross appeals are disposed as follows: the jurisdictional challenge is remitted to the CIT(A) for decision after opportunity; the purported TCS demand of Rs. 1,77,360 (being gross sale) is remitted to the AO to compute the correct TCS and interest; declarations in Form 27C/27BA filed belatedly are admitted in the interest of substantial justice and the AO is directed to verify them and decide the claim under section 206C(1A) afresh; interest under section 206C(7) is payable from the date tax was collectible to the date of filing of the buyers' returns (but not for period prior to 1.7.2012); Revenue's challenges to admission of evidence, Form 27BA technicalities and non applicability of Hindustan Coca Cola are dismissed; identical directions apply mutatis mutandis to A.Y. 2014 15 and A.Y. 2015 16.

Applicability of presumptive taxation scheme and its rate - requirement of audited accounts and applicability of tax audit - reassessment proceedings initiated under reassessment provisions - rejection of books of account for lack of satisfaction as to correctness or completeness

Applicability of presumptive taxation scheme and its rate - rejection of books of account for lack of satisfaction as to correctness or completeness - requirement of audited accounts and applicability of tax audit - Whether the Assessing Officer correctly applied the presumptive taxation scheme and assessed income at 8% of total receipts for A.Y. 2010-11, thereby disallowing the loss returned by the assessee. - HELD THAT: - The Tribunal noted that the Assessing Officer invoked the presumptive taxation regime and computed income at 8% of the assessee's total receipts for the year. The Commissioner (Appeals) upheld that invocation and the application of the 8% rate. The assessee's contention that a lower rate (3%) should apply was not supported by the books of account or by any provision relied upon in the proceedings. Although the assessee filed audited financial statements during assessment proceedings, the Assessing Officer had expressed dissatisfaction about the correctness or completeness of the accounts and proceeded on the basis of total receipts as taken in the profit and loss account. The Tribunal observed that there was no substantiation before the authorities to warrant departure from the presumptive computation adopted by the Assessing Officer and sustained by the CIT(A).

The application of the presumptive taxation scheme at 8% on total receipts and the consequent disallowance of the returned loss for A.Y. 2010-11 was sustained; the appeal is dismissed.

Final Conclusion: The Tribunal dismissed the assessee's appeal against the assessment for A.Y. 2010-11, upholding the invocation of the presumptive taxation regime and the computation of income at 8% of total receipts as confirmed by the CIT(A).

Proportionate disallowance of interest under Section 36(1)(iii) of the Income-tax Act, 1961 - finality of assessment treatment in earlier years / consistency of revenue's stand - utilisation of borrowed (interest-bearing) funds for non-business advances and capitalization of interest - precedent of the immediately preceding assessment year in the assessee's own case

Proportionate disallowance of interest under Section 36(1)(iii) of the Income-tax Act, 1961 - finality of assessment treatment in earlier years / consistency of revenue's stand - precedent of the immediately preceding assessment year in the assessee's own case - Deletion of proportionate disallowance of interest claimed by the assessee for AY 2011-12 - HELD THAT: - The Tribunal accepted the assessee's contention that borrowings and their utilisation in earlier years had been treated as for business purposes and no disallowance of interest was made in those earlier years; revenue did not reopen those earlier years. Relying on the Tribunal's decision in the immediately preceding year (AY 2010-11) and on the principle that the nature and status of amounts standing on the opening day follow from their treatment in the prior year, the Tribunal held it would be inequitable for the revenue to take a different stand without reopening earlier assessments. The Tribunal also found that for the year under consideration the assessee had sufficient own funds (current year profits before depreciation) and had available interest free receipts (share application money) exceeding the interest free advances made; accordingly the assumption that interest bearing funds financed those advances was not sustained. In view of these facts and the immediately preceding-year precedent, the proportionate disallowance of interest was deleted.

Proportionate disallowance of interest of Rs. 94,23,665/- deleted and the assessee's appeal allowed.

Final Conclusion: The Tribunal allowed the appeal for AY 2011-12, set aside the proportionate disallowance of interest confirmed by the CIT(A), and directed deletion of the disallowance having regard to earlier years' treatment, the immediately preceding-year precedent in the assessee's own case, and the assessee's available own and interest free funds.

Disallowance of expenditure relatable to exempt income - Section 14A - Rule 8D(2)(iii) - only investments yielding dividend income - book profit under Section 115JB - computation under Clause (f) of Explanation 1 to section 115JB(2) - non-application of Section 14A/Rule 8D for computing book profit

Disallowance of expenditure relatable to exempt income - Section 14A - Rule 8D(2)(iii) - only investments yielding dividend income - Recomputation of disallowance under Section 14A read with Rule 8D(2)(iii) to be made by considering only those investments which yielded dividend income during the year. - HELD THAT: - The Tribunal, following the Special Bench decision in ACIT v. Vireet Investment (P.) Ltd. and its own coordinate bench decision in the assessee's earlier appeal, accepted the assessee's submission (and the respondent's concession on this point) that for computing the disallowance under Rule 8D(2)(iii) r.w.s. 14A only investments that actually yielded dividend (exempt) income in the year should be taken into account. On that basis the matter is restored to the file of the Assessing Officer with a direction to recompute the disallowance by excluding investments which did not yield exempt dividend income during the year. The Tribunal directed this recomputation and allowed the ground for statistical purposes. [Paras 3, 4, 5]

Issue restored to the Assessing Officer for recomputation of the Section 14A/Rule 8D(2)(iii) disallowance considering only investments which yielded dividend income during the year; ground allowed for statistical purposes.

Book profit under Section 115JB - computation under Clause (f) of Explanation 1 to section 115JB(2) - non-application of Section 14A/Rule 8D for computing book profit - Disallowance under Section 14A/Rule 8D cannot be made while computing book profit under Section 115JB; the Assessing Officer must compute book profit without applying Section 14A/Rule 8D as per the Special Bench direction. - HELD THAT: - The Tribunal relied on its coordinate-bench reasoning in the assessee's own earlier appeal and the Special Bench decision in ACIT v. Vireet Investments Pvt. Ltd., holding that computation under Clause (f) of Explanation 1 to section 115JB(2) is to be made without resort to the computation contemplated under Section 14A read with Rule 8D. Applying that principle to the facts of this assessment year, the Tribunal directed deletion of the disallowance made while computing book profit and instructed the Assessing Officer to compute book profits in accordance with the Special Bench directions. [Paras 6, 7]

Disallowance under Section 14A/Rule 8D deleted for the purpose of computing book profit under Section 115JB; Assessing Officer directed to compute book profit accordingly.

Final Conclusion: The appeal is partly allowed: the Section 14A/Rule 8D disallowance is remanded for recomputation limited to investments yielding dividend income, and any disallowance for the purpose of computing book profit under Section 115JB is deleted; the directions are given to the Assessing Officer and the matter is disposed of for statistical purposes.

Reopening of assessment - treatment of shares as stock-in-trade versus capital asset - change of opinion - prima facie material for reopening - speculation loss - condonation of delay

Condonation of delay - Whether the delay in filing the cross-objection by the assessee should be condoned. - HELD THAT: - Assessee filed an affidavit explaining a 214-day delay in filing the cross-objection and submitted that the need to file became apparent during hearing. The revenue objected, relying on established tests for condonation of delay. The Tribunal examined the explanation and, noting that the assessee furnished reasons and that the necessity to file arose during appellate proceedings, found the cause to be reasonable and exercised its discretion to condone the delay. [Paras 6]

Delay in filing the cross-objection is condoned.

Reopening of assessment - treatment of shares as stock-in-trade versus capital asset - prima facie material for reopening - change of opinion - speculation loss - Validity of reassessment proceedings initiated under section 147 where AO reopened assessment on alleged escapement of income arising from conversion of investments into stock-in-trade and subsequent sale. - HELD THAT: - The Tribunal examined the record and the CIT(A)'s finding that the assessee had furnished details (including board resolution and workings) of conversion of investments into stock-in-trade during the original assessment and had offered long-term capital gain on conversion. The AO, in reopening, later characterised the subsequent loss as a speculation/business loss and contended that reassessment was justified by excessive relief. The Tribunal accepted the CIT(A)'s conclusion that the AO had the relevant material in the original assessment and that the reassessment was effectively a change of opinion by the AO rather than founded on fresh material justifying reopening. Consequently the grounds raised by the revenue challenging the CIT(A)'s order were dismissed. [Paras 17, 18]

Reopening of assessment is invalid as it amounts to change of opinion; revenue's grounds are dismissed.

Reopening of assessment - Effect of the Tribunal's decision on the cross-objection filed by the assessee. - HELD THAT: - Having adjudicated the validity of reassessment in favour of the assessee, the Tribunal observed that the grounds advanced in the assessee's cross-objection became infructuous. [Paras 19]

Assessee's cross-objection is dismissed as infructuous.

Final Conclusion: The Tribunal condoned the delay in filing the cross-objection, upheld the CIT(A)'s conclusion that reassessment was invalid being a change of opinion (therefore dismissing the revenue's appeal), and held the assessee's cross-objection to be infructuous; appeal and cross-objection dismissed.

Action in rem - maritime lien - statutory right in rem - moratorium under Section 14 of the IBC - harmonious construction of statutes - priority of maritime claims under the Admiralty Act - realisation of secured interest under Section 52 of the IBC - non obstante clause and overriding effect - leave under Section 446(1) of the Companies Act, 1956 - exclusive admiralty jurisdiction of specified High Courts

Action in rem - moratorium under Section 14 of the IBC - realisation of secured interest under Section 52 of the IBC - priority of maritime claims under the Admiralty Act - harmonious construction of statutes - Whether and to what extent proceedings in rem under the Admiralty Act are affected by the moratorium and other provisions of the Insolvency and Bankruptcy Code, 2016 and how conflicts, if any, between the two statutes are to be resolved. - HELD THAT: - The Court held that actions in rem under the Admiralty Act are proceedings against the res (the ship) as an independent juridical entity and are not proceedings against the corporate debtor as defined in the IBC. Consequently an action in rem by itself is not an action 'against the corporate debtor' for the purposes of Sections 13-14 or Section 33(5) of the IBC. The Court directed that the two statutes must be harmoniously construed so as to give effect to both the IBC's objective of a time bound corporate insolvency resolution and the Admiralty Act's protection of valuable rights in rem. Applying that approach the Court decided the following determinative principles: (a) arrest of a ship perfects or crystallizes a maritime lien/statutory right in rem and, from the date of arrest, the maritime claimant becomes a secured creditor qua that res; (b) if security for release of the vessel was furnished before the declaration of moratorium, the plaintiff is treated as a secured creditor and the security is exclusively for that claimant; continuation of proceedings in personam against the owner will be subject to the IBC moratorium; (c) if no security was furnished before the moratorium, the Admiralty Court will not proceed with the action in rem during the CIRP (the vessel may remain under arrest), so as not to defeat the CIRP; (d) where liquidation is ordered, actions in rem may proceed, the Admiralty Court may sell the vessel by judicial (admiralty) sale and the sale proceeds stand in place of the res; determination of priorities in respect of sale proceeds (including maritime liens and inter se priorities) is governed by the Admiralty Act (Sections 9 and 10) and Section 53 of the IBC will not apply to those sale proceeds; (e) Section 52(4) of the IBC permits a secured creditor to realise its security in accordance with the law applicable to that security interest, which in the case of maritime claimants will be the Admiralty Act; (f) limited exceptions were recognised (e.g., Admiralty Court may sell during moratorium in exigent circumstances to preserve value; expenses for preservation/maintenance during arrest are to be treated as sheriff's expenses or insolvency resolution costs). The Court concluded that these rules achieve a workable, harmonious result preserving maritime claimants' rights in rem while protecting the CIRP under the IBC. [Paras 49, 51, 52, 53, 56]

An action in rem may be filed and a ship arrested despite insolvency proceedings, but continuation after arrest is regulated so as to protect the CIRP; maritime claimants who have perfected their lien are secured creditors qua the res and may realise security under Admiralty law (subject to IBC processes), and priorities in relation to sale proceeds of the ship are determined under the Admiralty Act.

Leave under Section 446(1) of the Companies Act, 1956 - exclusive admiralty jurisdiction of specified High Courts - special statute versus general statute - harmonious construction of statutes - Whether leave of the Company Court under Section 446(1) of the Companies Act, 1956 is required to commence or continue an Admiralty action in rem where a winding up order has been made or the Official Liquidator is provisional liquidator of the company that owned the ship. - HELD THAT: - The Court analysed the Companies Act as a general enactment relating to companies and contrasted it with the Admiralty Act, a later special and consolidating code vesting exclusive admiralty jurisdiction in specified High Courts. Applying established principles (special law prevailing over general law; however attempting harmonious construction first), the Court concluded that an Admiralty action in rem is not a suit against the company within the meaning of Section 446(1) because it proceeds against the ship as an independent juridical entity. Further, because the Admiralty Act confers exclusive jurisdiction on designated High Courts, the winding up Court is not the appropriate forum to withdraw and decide in rem admiralty proceedings. Accordingly Section 446(1) leave is not required for commencing or continuing an Admiralty suit in rem even where a winding up order has been made or the Official Liquidator is provisional liquidator. The Court added that notice should be given to the Official Liquidator prior to any admiralty sale (unless the Liquidator has already appeared), and that where an owner enters appearance and furnishes security the suit becomes in personam and will be governed by the IBC/Companies Act consequences. [Paras 66, 68, 86, 100, 106]

No leave under Section 446(1) is required to commence or continue an Admiralty action in rem against a ship despite a winding up order or appointment of a provisional/official liquidator; such in rem suits fall within the exclusive admiralty jurisdiction and are not suits 'against the company' for Section 446 purposes.

Final Conclusion: The Court resolved both questions by holding that Admiralty actions in rem are proceedings against the ship (the res) and not suits against the corporate debtor; therefore (i) Admiralty in rem proceedings and the IBC must be harmoniously construed: perfected maritime claimants become secured creditors qua the res, Admiralty sales and priorities (Sections 9 and 10) govern distribution of proceeds and Section 52(4) permits realization under Admiralty law, while continuation of in rem proceedings during CIRP is regulated to protect the insolvency process; and (ii) no leave under Section 446(1) of the Companies Act, 1956 is required to commence or continue Admiralty suits in rem where a winding up order has been made or an Official Liquidator is appointed.

Relevant date for export of services - realisation of foreign exchange - refund of CENVAT credit for export of services - Section 11B - limitation for refund claims - harmonious construction of Export of Services Rules and Section 11B - administrative clarification by Notification No. 14/2016-CE(NT)

Relevant date for export of services - realisation of foreign exchange - Section 11B - limitation for refund claims - The relevant date for limitation under Section 11B for refund claims in respect of export of services is the date of realisation of foreign exchange. - HELD THAT: - Section 11B prescribes a one year limitation from the relevant date for claiming refunds but does not itself specify the relevant date for export of services. Under the Export of Services Rules, export of service is not complete until foreign exchange is realised. Treating the residuary category in Section 11B (date of payment of duty) as applicable would produce absurdity because no duty is paid in respect of exempt exports, and would render the limitation period meaningless. The Tribunal's view - that the date of realisation of foreign exchange is the relevant date - harmonises Section 11B with the Export of Services Rules and avoids an absurd result. This view was subsequently reflected in the administrative amendment by Notification No. 14/2016 CE(NT), 01.03.2016, which expressly prescribed the date of receipt of payment in convertible foreign exchange or the invoice circumstances as the starting point for service providers. [Paras 5, 10, 12]

Adopted the Tribunal's approach: the date of realisation of foreign exchange is the relevant date for export of services for purposes of limitation under Section 11B.

Refund of CENVAT credit for export of services - administrative clarification by Notification No. 14/2016-CE(NT) - Refund claims filed by the respondent in respect of services exported during July 2012 to March 2013 were not time barred where reckoned from date of realisation of foreign exchange, and the Commissioner (Appeals) correctly allowed the claims following Tribunal precedent. - HELD THAT: - The respondent filed refund claims for exports in the period July 2012 to March 2013. The original authority rejected part of the claims as barred by limitation when using the invoice date; the Commissioner (Appeals) allowed the appeal by applying the Tribunal's established position that realisation of foreign exchange is the relevant date. Given that the exports were completed only upon realisation and that Notification No. 14/2016 CE(NT) later embodied the same rule, the appellate authority's conclusion that the claims were within time was legally correct. [Paras 7, 10]

The Commissioner (Appeals) rightly held the refund claims not time barred when measured from date of realisation of foreign exchange and allowed the appeal.

Section 11B - limitation for refund claims - harmonious construction of Export of Services Rules and Section 11B - The Revenue's contention that the date of issue of invoice should be treated as the relevant date for export of services (for periods prior to the 2016 notification) is unsustainable; the appeal was frivolous and dismissed. - HELD THAT: - There is no provision in Section 11B mandating the invoice date as the relevant date for export of services. Accepting the Department's submission would lead to the limitation never properly commencing or allowing refund claims at any time, an untenable outcome. The Commissioner (Appeals) followed binding Tribunal precedent and subsequent CBEC clarification; the Revenue did not distinguish the relied authorities. In view of these factors the appeal was found to lack merit. [Paras 8, 11, 12]

The Revenue's invoice date argument was rejected; the appeal was dismissed as frivolous.

Final Conclusion: The appeal is dismissed. The Court affirmed that for export of services the relevant date for limitation under Section 11B is the date of realisation of foreign exchange; refund claims for exports during July 2012 to March 2013 were therefore not time barred and the Commissioner (Appeals) correctly allowed the respondent's claims, a position subsequently reflected in Notification No. 14/2016 CE(NT).

Exemption under Notification No.06/2006-CE - re-quantification of duty liability - remand to the original adjudicating authority - impleadment of necessary parties - liberty to approach the adjudicating authority for re-quantification

Exemption under Notification No.06/2006-CE - re-quantification of duty liability - Remand for re-quantification of duty in light of exemption available under Notification No.06/2006-CE - HELD THAT: - The Tribunal accepted that the appellant, being a fabricator who completed bodies on chassis supplied by Tata Motors and cleared the finished buses to DMRC, is entitled to the same exemption which had been held available to Tata Motors under Notification No.06/2006-CE. In view of the High Court and Supreme Court directions recognising the availability of the exemption, the Tribunal modified its earlier final order and remanded the matter to the original adjudicating authority for re-quantification of the duty payable, to take into account the exemption now held to be available. The remand is for re-quantification in the light of the exemption and to give effect to the directions of the higher courts.

Final order dated 27.09.2016 modified and matter remanded to the original adjudicating authority for re-quantification of duty liability considering the exemption under Notification No.06/2006-CE; appeal allowed by way of remand.

Impleadment of necessary parties - liberty to approach the adjudicating authority for re-quantification - Permission to amend memorandum of appeal and implead necessary parties; directions for registry to add respondents and grant of liberty to approach authority - HELD THAT: - The Tribunal allowed miscellaneous applications filed by the appellant for early hearing, impleadment of necessary parties (including Tata Motors Ltd., Commissioner of Central Excise, Lucknow and Delhi Metro Rail Corporation) and for re-determination of duty liability. Counsel was directed to make the required changes in the memo of appeal forthwith and the registry was directed to add the named respondents. The Tribunal also recorded that the appellant is granted liberty to approach the concerned adjudicating authority for re-quantification pursuant to the remand.

Miscellaneous applications allowed; counsel directed to amend memo of appeal and registry directed to implead parties; liberty given to appellant to approach the adjudicating authority for re-quantification.

Final Conclusion: Miscellaneous applications allowed; the Tribunal modified its earlier final order and remanded the matter to the original adjudicating authority for re-quantification of duty liability in light of the exemption under Notification No.06/2006-CE, with liberty to the appellant to pursue re-quantification and with impleadment of necessary parties directed.

Discretion to refrain from adjudicating merits where alternative statutory remedy is available - Consideration of application under Section 84 of the Tamil Nadu Value Added Tax Act, 2006 - Right to personal hearing before adjudication of statutory review/rectification application - Interim protection from coercive action pending disposal of statutory remedy

Discretion to refrain from adjudicating merits where alternative statutory remedy is available - Petition challenging assessment order is not to be entertained on merits where an application under the statutory remedy claimed to have been filed is available and pending. - HELD THAT: - The Court recorded that the petitioner had filed an application under Section 84 of the TNVAT Act, 2006 on 20.03.2020 and, in view of that available statutory remedy, declined to enter into merits of the assessment order at the admission stage. Rather than decide the substantive challenge to the assessment for 2012-2013, the Court exercised judicial restraint and directed that the statutory application be considered by the respondent. This course was taken to protect the interests of both parties without adjudicating the assessment on merits. [Paras 5, 7]

Writ petition will not be entertained on merits; respondent to consider the said Section 84 application instead.

Consideration of application under Section 84 of the Tamil Nadu Value Added Tax Act, 2006 - Respondent directed to consider the petitioner's application under Section 84, if filed on 20.03.2020 and pending, and to pass an order thereon within a specified timeframe. - HELD THAT: - The Court ordered that if the application under Section 84 claimed to have been filed on 20.03.2020 is pending, the respondent shall consider it on its own merits and pass a reasoned order in accordance with law. A limited temporal mandate was imposed to ensure expeditious disposal, with the court specifying an 8-week period for the respondent to pass final orders from receipt of a copy of this order. [Paras 5, 8]

Respondent to consider and decide the Section 84 application on merits within eight weeks from receipt of a copy of the order, if such application is pending.

Right to personal hearing before adjudication of statutory review/rectification application - Interim protection from coercive action pending disposal of statutory remedy - Petitioner entitled to personal hearing and interim protection from coercive action until the respondent passes an order on the Section 84 application; directions vacated automatically if no such application is filed or pending. - HELD THAT: - The Court directed that the respondent must afford the petitioner an opportunity of personal hearing prior to passing any order under Section 84. Further, the Court restrained the respondent from initiating or continuing any coercive action against the petitioner until the Section 84 application is disposed of as directed. The Court clarified that these directions are conditional and will stand vacated automatically if no such application is actually filed or pending before the respondent. [Paras 8]

Personal hearing to be given; no coercive action till disposal of the Section 84 application; directions automatically vacated if no such application exists or is pending.

Final Conclusion: The writ petition challenging the assessment for 2012-2013 is disposed of without adjudication on merits; the respondent is directed to consider and decide the petitioner's claimed Section 84 application filed on 20.03.2020 within eight weeks, after granting personal hearing, and no coercive steps shall be taken until such disposal; the directions lapse if no such application is filed or pending.

Presumption under Section 139 of the Negotiable Instruments Act - Burden to rebut statutory presumption - Financial capacity of complainant when challenged - Proof of execution and delivery of cheque - Revisional jurisdiction and scope of interference - Direction to pay compensation in lieu of fine

Proof of execution and delivery of cheque - Presumption under Section 139 of the Negotiable Instruments Act - Execution and delivery of Ext.P1 cheque by the accused were proved and statutory presumption under Section 139 was attracted. - HELD THAT: - The complainant's oral evidence described the settlement and handover of Ext.P1 cheque and the accused did not deny the signature on the cheque. There was no evidence from the accused to support her assertion that she had given signed blank cheques to the complainant. On broad probabilities and in absence of contrary proof, execution and delivery of the cheque stood proved. Once execution was established, the mandatory presumption under Section 139 arose, shifting the burden to the accused to rebut it by adducing acceptable evidence showing a true contrary explanation rather than a merely probable one. [Paras 14, 15]

Execution and delivery of the cheque were proved and the presumption under Section 139 applied, placing the onus on the accused to rebut it.

Financial capacity of complainant when challenged - Burden to rebut statutory presumption - Where the accused challenged the complainant's financial capacity to have advanced the loan, the complainant was required to and did adduce evidence of the source of funds, which was accepted by the courts below and held sufficient to rebut the challenge. - HELD THAT: - The accused specifically challenged the complainant's ability to lend Rs. 4,50,000. The complainant explained sources of funds including loans from a third person, remittances from a son abroad and assistance from relatives; the third person (DW1) corroborated part of this account and was not cross-examined, rendering that evidence binding. The appellate court's reasoning that the accused herself admitted earlier borrowings from the complainant supported the conclusion that the complainant had been capable of advancing substantial sums. Applying precedents, while a complainant need not initially prove financial capacity, once challenged the onus shifts to him/her to prove source, and here that burden was met. [Paras 19, 20, 22, 27, 28]

The complainant's evidence on source of funds was accepted and the challenge to her financial capacity was rejected.

Revisional jurisdiction and scope of interference - Concurrent findings of guilt recorded by the trial and appellate courts were not shown to be perverse, and the High Court, in revisional jurisdiction, declined to interfere with those findings. - HELD THAT: - The High Court reviewed the evidence to ensure there was material to support the concurrent findings and found proper appreciation of evidence by the courts below. Absent perversity, gross illegality, or material non-consideration, the revisional court will not supplant conclusions reached by trial and appellate courts. The factual findings as to issuance of the cheque and failure of the accused to rebut the statutory presumption fell within this principle. [Paras 29, 30, 31]

Conviction under Section 138 was confirmed and revisional interference was refused.

Direction to pay compensation in lieu of fine - The appellate court's order directing payment of compensation equivalent to the cheque amount and the modified sentence were proper and were confirmed; the High Court granted six months' time to pay by reason of the pandemic. - HELD THAT: - The courts below did not impose a 'fine' but directed restitution/compensation equal to the cheque amount, a practice recognised by Supreme Court precedents which sustain directions for compensation (including reasonable interest) in Section 138 cases. The appellate court reduced substantive imprisonment and fixed default imprisonment for failure to pay compensation; the High Court held that sentence and compensation order were reasonable. Considering the Covid-19 related financial hardship, the High Court extended time by six months for payment and compliance with the trial court's satisfaction regarding such payment. [Paras 32, 33, 34, 35]

The appellate court's sentence and compensation direction were upheld; payment period extended by six months.

Final Conclusion: The High Court dismissed the revision petition, confirmed conviction under Section 138 of the Negotiable Instruments Act and the appellate court's sentence and direction to pay compensation equivalent to the cheque amount, and granted the accused six months from the date of the order to pay the compensation in view of the Covid-19 pandemic.

Modified Assured Career Progression Scheme (MACP) - 3rd financial upgradation - non-functional grade pay - pay fixation in pay band-III with grade pay of Rs. 6600/- - judicial restraint in interference with government pay policy - remand for individual consideration by the Tribunal

Modified Assured Career Progression Scheme (MACP) - 3rd financial upgradation - non-functional grade pay - judicial restraint in interference with government pay policy - Validity of the clarificatory interpretation that non functional grade pay granted to superintendents in pay band II counts for the purposes of MACP and whether judicial interference with the MACP implementation was warranted. - HELD THAT: - The Court noted that the Apex Court in Union of India v. M.V. Mohanan Nair (decided 05.03.2020) endorsed the view that the clarificatory communication (as reflected in the Delhi High Court decision) correctly interprets the MACP scheme and that courts should not lightly interfere with a government policy implementing the Pay Commission's recommendations. The Apex Court held that the MACP is a matter of government policy, that interference could impact the public exchequer, and that there was no basis to declare the scheme arbitrary or unjust; it further observed anomalies which the Joint Committee and DOP&T may consider. In consequence, the conflicting High Court precedents favouring employees were set aside to the extent they interfered with policy. The High Court therefore recognised that the core legal issue on interpretation of MACP stands covered by the Apex Court's decision and that the departmental clarification is to be treated as authoritative subject to the directions given by the Apex Court. [Paras 10, 14]

The legal issue concerning the interpretation and validity of the departmental clarifications on grant of 3rd MACP is treated as covered by the Apex Court's decision upholding the departmental interpretation and declining to interfere with the government's MACP policy.

Remand for individual consideration by the Tribunal - scope of adjudication after pronouncement of binding authority - Whether the Original Applications should be entertained and adjudicated on merits in individual cases notwithstanding that the legal issue is now covered by the Apex Court decision. - HELD THAT: - Although the overarching legal question has been resolved by the Apex Court, the Tribunal had not examined individual OA merits earlier because of pendency before the Supreme Court. The High Court held that denying individual adjudication may jeopardise petitioners' right to be considered, especially in light of directions in the Apex Court's judgment which the Union must implement. Consequently, all matters are remanded to the Central Administrative Tribunal for fresh consideration on merits, to apply the legal position as declared by the Apex Court and to give effect to any directions issued therein. The Tribunal is directed to decide each petition on merits expeditiously and within the limited scope left open by the Apex Court and this order. [Paras 15]

All matters remanded to the Central Administrative Tribunal for fresh merit consideration, to be decided expeditiously and not later than six months from receipt of this order.

Final Conclusion: The Court held that the Apex Court's decision in Union of India v. M.V. Mohanan Nair governs the interpretative question regarding grant of 3rd MACP and declines further judicial interference with the government's MACP policy; however, since individual applications were not earlier considered on merits, all matters are remanded to the Central Administrative Tribunal for fresh adjudication within six months, applying the Apex Court's directions.