TaxTMI Updates e-Newsletter
Jun 03,2020

Charitable purpose without discrimination on basis of caste, creed or religion - renewal of exemption under Section 80G(5)(iii) - construction and effect of memorandum clause stating "primarily for the benefit of Catholics" - appreciation of factual evidence by the Tribunal

Charitable purpose without discrimination on basis of caste, creed or religion - renewal of exemption under Section 80G(5)(iii) - construction and effect of memorandum clause stating "primarily for the benefit of Catholics" - appreciation of factual evidence by the Tribunal - Respondent is performing charitable work without discrimination on the basis of caste, creed or religion and is entitled to renewal of exemption under Section 80G(5)(iii). - HELD THAT: - The Tribunal's conclusion that the Society renders services without discriminatory exclusion is supported by documentary statistics and past administrative recognition. The memorandum clause describing the object as "primarily for the benefit of Catholics" was examined in context: despite that language, the Tribunal found on evidence that the hospital treated overwhelmingly non-Christian patients (noted figures for financial years 2008-09 and 2009-10), the medical college admitted students from Hindu, Muslim and other communities, and staff were drawn from various communities. The Society had enjoyed exemption from the commencement of its activities and renewals were previously granted, and Revenue offered no explanation for those prior grants. On the basis of this factual appreciation, the Tribunal's finding that the proviso in Section 80G(5)(iii) is not attracted was held to be a permissible conclusion of fact not warranting interference. [Paras 10, 11]

Tribunal's factual findings upheld; respondent entitled to renewal of exemption under Section 80G(5)(iii) from the year 2009 and Revenue's appeal dismissed.

Final Conclusion: The appeal is dismissed. The Tribunal's grant of renewal of exemption under Section 80G(5)(iii) to the respondent is upheld and the respondent is held entitled to renewal from the year 2009.

Exemption under Section 54F - Procedural requirement under Section 54(2) - Time limit for investment and construction under Section 54F - Verification and remand for satisfaction by Assessing Officer

Exemption under Section 54F - Procedural requirement under Section 54(2) - Whether non compliance with a procedural requirement in Section 54(2) precludes grant of exemption under Section 54F where the substantive conditions of Section 54(1) are otherwise satisfied within the prescribed time. - HELD THAT: - The Tribunal held that mere non compliance with a procedural requirement under Section 54(2) cannot by itself bar an assessee from receiving the benefit of Section 54F, provided the assessee is otherwise able to satisfy the mandatory substantive requirement under Section 54(1) within the time limit prescribed. The determinative legal principle is that procedural lapses do not defeat substantive compliance where the latter is established within the statutory timeframe. The Tribunal relied on the assessee's factual position that the investment/construction was completed within the period stipulated under Section 54F, and found that this substantive compliance is decisive for the grant of exemption. [Paras 5]

Non compliance with the procedural requirement under Section 54(2) will not by itself deny the exemption under Section 54F if the substantive conditions of Section 54(1) are satisfied within time.

Time limit for investment and construction under Section 54F - Verification and remand for satisfaction by Assessing Officer - Whether the Assessing Officer must be directed to allow the full claimed investment under Section 54F after satisfying himself that the impugned investment was utilized for construction within the statutory time limit. - HELD THAT: - The Tribunal directed that the Assessing Officer should permit the total investments claimed under Section 54F, subject to the AO being satisfied on verification that the challenged investment was applied to construction of the house within the time limit specified by Section 54F. Thus, while affirming the assessee's entitlement in principle, the Tribunal remitted the matter for factual verification by the AO of timeliness and applicability of the investment to the specified residential construction. [Paras 5, 6]

Matter remitted to the Assessing Officer to allow the total investment under Section 54F after verifying utilization for construction within the time prescribed.

Final Conclusion: The appeal is treated as allowed for statistical purposes: the Tribunal held that procedural non compliance under Section 54(2) does not by itself deny exemption under Section 54F where substantive requirements are met, and remitted the matter to the Assessing Officer to verify and allow the claimed investments if they were indeed utilized for construction within the statutory time limit.

Mandatory requirement to issue draft assessment order under Section 144C in remand proceedings - Final assessment passed with demand and penalty notices constitutes a final order despite being titled as draft - Non-compliance with statutory procedure renders assessment void-ab-initio

Mandatory requirement to issue draft assessment order under Section 144C in remand proceedings - Final assessment passed with demand and penalty notices constitutes a final order despite being titled as draft - Non-compliance with statutory procedure renders assessment void-ab-initio - Assessment orders passed in the remand proceedings without first forwarding a draft assessment order under Section 144C were valid or void - HELD THAT: - The Tribunal examined whether the Assessing Officer complied with the mandatory procedure under Section 144C when the matter was remanded for fresh determination. The assessee showed that the Assessing Officer, although captioning the order as a draft assessment order, issued demand and penalty notices and thereby in effect passed a final assessment without forwarding a draft for objections as required by the statutory scheme. The Tribunal considered binding decisions of higher fora, including dismissals of SLPs upholding the view that passing a final order (with demand/penalty) in remand proceedings without the required draft contravenes Section 144C and renders the proceedings void. No contrary authority was placed before the Tribunal. In consequence, the Tribunal held that the orders passed in the remand proceedings did not follow the mandatory sequence under Section 144C and are therefore null and void; the consequential merits issues (including transfer pricing adjustments relating to AMP expenditure) were not adjudicated because the assessment was quashed on procedural grounds. [Paras 9, 10]

Assessment orders in remand proceedings that were issued in the guise of a draft but accompanied by demand and penalty notices, thereby bypassing the statutory draft stage under Section 144C, are void-ab-initio; appeals allowed and assessments quashed for both AY 2012-13 and AY 2015-16.

Final Conclusion: Both appeals were allowed: the assessment orders passed in remand proceedings, although titled as draft assessment orders, were treated as final by issuance of demand and penalty notices in contravention of Section 144C and are quashed for A.Y. 2012-13 and A.Y. 2015-16; consequential substantive transfer-pricing issues were not decided.

Apportionment of composite contract - taxability of offshore supply of goods - fees for technical services (FTS) - exclusion for mining or like project - royalty - 'make available' test under DTAA - attribution of receipts to Permanent Establishment (PE)

Apportionment of composite contract - taxability of offshore supply of goods - Revenue from offshore supply of products under the ONGC contract is not taxable in India despite the contract being composite. - HELD THAT: - The Tribunal, following a coordinate bench decision in the assessee's earlier proceedings, accepted the principle that different severable parts of a composite contract performed in different places may be apportioned for taxability. Applying the reasoning of the coordinate bench (which relied on Ishikawajima-Harima and Hyundai precedents), the activities under the ONGC contract were held to be separate, divisible and independent; offshore supplies involved transfer of property outside India with no functions performed in India by the assessee or its PE that effectuated the sale. On that basis the receipts from offshore sale were held not taxable in India and the CIT(A)'s conclusion in favour of the assessee was upheld. [Paras 3, 4]

The addition treating offshore supplies as taxable is deleted; the CIT(A)'s order that offshore supply receipts are not taxable in India is upheld.

Fees for technical services (FTS) - exclusion for mining or like project - royalty - 'make available' test under DTAA - attribution of receipts to Permanent Establishment (PE) - Receipts from repair work (and related activities) carried out at the assessee's overseas workstations are neither taxable as FTS nor as royalty in India, nor attributable to the assessee's Indian PE. - HELD THAT: - The Tribunal agreed with the CIT(A) that the repair services, carried out outside India at overseas workstations to service ONGC-owned equipment, fall within the exclusion in Explanation 2 to Section 9(1)(vii) as services in connection with supplying plant and machinery used in extraction of mineral oils, and therefore are outside the scope of FTS. With respect to royalty under the India-Australia DTAA, the Tribunal applied the 'make available' test in Article XII(3)(g) and accepted the CIT(A)'s finding that mere performance of repair work abroad did not transfer technical knowledge, skill or know how to ONGC; no right to use was transferred as ONGC owned the equipment. Consequently the receipts could not be characterised as royalty. Finally, because the repair works were undertaken abroad, attribution to the Indian PE did not arise. The Tribunal found no infirmity in the CIT(A)'s conclusions and dismissed the revenue's challenge. [Paras 3, 4]

The additions treating repair and related receipts as FTS, royalty or attributable to PE are deleted; the CIT(A)'s order in favour of the assessee is upheld.

Final Conclusion: Following the coordinate-bench reasoning and the conclusions of the learned CIT(A), the Tribunal dismisses the revenue's appeal and upholds the CIT(A)'s findings that (i) offshore supplies under the ONGC contract are not taxable in India, and (ii) receipts from repair activities performed outside India are neither FTS nor royalty nor attributable to the Indian PE; the Assessing Officer is directed to recompute income accordingly.

State under Article 12 of the Constitution - instrumentality or agency of the Government - degree of control and superintendence by the State - immunity from taxation - exemption under clause (46) of section 10 - reopening of assessment and notice under section 148

State under Article 12 of the Constitution - instrumentality or agency of the Government - degree of control and superintendence by the State - Whether the Maharashtra State Board of Technical Education is a "State" for constitutional purposes and hence not amenable to taxation under the Income-tax Act. - HELD THAT: - The Tribunal followed a coordinate-bench decision which examined the statutory scheme constituting the Board, the composition of its Governing Council and Board, and statutory provisions vesting powers of control, supervision and direction in the State Government. Applying the established tests for ''instrumentality or agency''-including pervasive state control, functions of public importance closely related to governmental functions and financial and administrative dependence-the co ordinate bench concluded that the Board is an instrumentality of the State and falls within the definition of "the State" under Article 12. The present Bench, respectfully following that view, held that the Board is completely subject to State superintendence and control and therefore qualifies as State for constitutional purposes.

The appellant is a "State" under Article 12 and, on that basis, not subject to taxation under the Income tax Act for the assessment year in question.

Exemption under clause (46) of section 10 - immunity from taxation - Whether the income of the Board is exempt from tax under clause (46) of section 10 as applied in the CBDT notification and whether that exemption supports immunity from the assessment. - HELD THAT: - The Tribunal noted that the Board had applied under clause (46) of section 10 and that CBDT had issued a notification dated 29.03.2016 granting exemption to specified receipts of the Board for the financial years 2015 16 to 2018 19. While the assessment year under appeal predates that notification, the coordinate bench reasoning that the Board is an instrumentality of the State supports immunity from taxation; the Tribunal observed that the statutory control and public purpose of the Board indicate it is not carrying on trade or business and that its receipts are of a nature falling within the exemption as recognised by CBDT.

The Board's receipts are of the character contemplated by clause (46) and, together with its status as State, support immunity from income tax in the present proceedings.

Reopening of assessment and notice under section 148 - immunity from taxation - Whether the assessment and any notice issued for reopening could stand once the Board is held to be State and immune from income tax. - HELD THAT: - Although the memorandum of appeal challenged the validity of the notice under section 148, the Tribunal resolved the controversy by determining that the appellant is a State and thus not amenable to assessment under the Income tax Act. On that basis the reassessment founded on the reopening becomes unsustainable. The Tribunal relied on the coordinate bench findings and accordingly did not proceed to uphold the reopening or any consequent assessment.

Reopening and consequent assessment cannot be sustained in view of the appellant's status as State and entitlement to immunity.

Final Conclusion: Appeal allowed: following a coordinate bench decision, the Maharashtra State Board of Technical Education is held to be a "State" for Article 12 purposes and entitled to immunity from income tax; the reassessment for AY 2011 12 is set aside.

Penalty under section 271(1)(c) of the Income-tax Act - deeming provision in Explanation 1 to section 271(1)(c) - concealment of income - furnishing inaccurate particulars of income - bona fide belief - taxability of arbitration award under India-Netherlands Tax Treaty (Article 5 & Article 7) - pronouncement of orders under Rule 34(5) of the Appellate Tribunal Rules - exclusion of lockdown period for computation of limitation

Penalty under section 271(1)(c) of the Income-tax Act - concealment of income - furnishing inaccurate particulars of income - deeming provision in Explanation 1 to section 271(1)(c) - bona fide belief - taxability of arbitration award under India-Netherlands Tax Treaty (Article 5 & Article 7) - Validity of imposition of penalty under section 271(1)(c) for not including the arbitration award in taxable income - HELD THAT: - The Tribunal examined whether the omission to include the arbitration award amounted to concealment or furnishing of inaccurate particulars so as to justify penalty under section 271(1)(c), including the operation of Explanation 1. The assessee had disclosed the arbitration award in Note 7 to the return and advanced a legal position-based on Article 5 read with Article 7 of the India-Netherlands Treaty-that the award was not taxable in India for the year in question because no PE existed in that year. The tribunal recapitulated the legal meaning of 'concealment' and 'inaccurate particulars' and observed that factual disclosure of the award and an arguable legal position cannot be equated to concealment or furnishing inaccurate factual particulars. Even under the deeming fiction of Explanation 1, penalty can be levied only if (a) no explanation is furnished, (b) the explanation is found to be false, or (c) the assessee fails to substantiate a bona fide explanation; none of these conditions were satisfied on the record. The assessee's explanation was supported by the return, the annexed note, consistent factual material and a bona fide view on treaty interpretation; there were no apparent inconsistencies or falsehoods. Reliance on the fact that another recovery (bad debt) was offered to tax did not convert the bona fide treaty-based position on the arbitration award into a willful omission. Consequently the conditions for imposing penalty were not met and the impugned penalty had to be deleted. [Paras 6]

Impugned penalty under section 271(1)(c) deleted and appeal allowed on this ground.

Pronouncement of orders under Rule 34(5) of the Appellate Tribunal Rules - exclusion of lockdown period for computation of limitation - Whether pronouncement of the order beyond 90 days after conclusion of hearing was permissible in view of Covid-19 lockdown - HELD THAT: - The Tribunal considered Rule 34(5), which ordinarily requires pronouncement within 90 days, and examined the effect of the Covid-19 lockdown and attendant judicial and governmental orders extending or suspending limitation. Observing that the rule itself contemplates exceptions by use of the word 'ordinarily' and noting Supreme Court and High Court orders extending limitation and recognizing the pandemic as a disaster, the Tribunal held it permissible to exclude the lockdown period when computing the 90-day limit. The Tribunal followed the coordinate bench's reasoning that exceptional and extraordinary circumstances justify fixing a later date for pronouncement and that exclusion of the lockdown period is a pragmatic interpretation consonant with the rule and supervisory orders. [Paras 8, 9]

Order pronounced after excluding the lockdown period from computation of the 90-day limit under Rule 34(5); pronouncement held to be within permissible time.

Final Conclusion: Assessee's appeal is allowed: the penalty imposed under section 271(1)(c) for A.Y. 2001-02 is deleted as the omission to include the arbitration award did not amount to concealment or furnishing inaccurate particulars and the assessee had a bona fide treaty-based explanation; the Tribunal also held the delayed pronouncement permissible by excluding the Covid-19 lockdown period under Rule 34(5).

Transfer Pricing Adjustment - Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price (CUP) - Most Appropriate Method - Arm's Length Price - Corporate guarantee - guarantee commission on gross amount - Weighted deduction under section 35(2AB) - Approval by DSIR for in house R&D facility - Rule 34(5) pronouncement of orders - exclusion of lockdown period

Transfer Pricing Adjustment - Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price (CUP) - Most Appropriate Method - Arm's Length Price - Deletion of transfer pricing addition relating to export of finished goods where TNMM was applied by the assessee. - HELD THAT: - The Tribunal found that the assessee had consistently applied TNMM in preceding years and that there was no cogent change in facts or law to justify departing from the consistently applied method. The coordinate bench's earlier decision for AYs 2012-13 and 2013-14 had held that TNMM was correctly applied and that the TPO/DRP did not provide sufficient reasons to reject TNMM in favour of CUP. On facts of the year under appeal the assessee's margins in the AE segment exceeded those in the non-AE segment and no infirmity was shown in the assessee's methodology; therefore TNMM was held to be the most appropriate method and no TP adjustment was warranted. [Paras 3]

Transfer pricing adjustment of Rs.1120.79 Lacs relating to export of finished goods deleted.

Corporate guarantee - guarantee commission on gross amount - Transfer Pricing Adjustment - Arm's Length Price - Validity of applying the guarantee commission rate on the gross amount of corporate guarantee as against applying it only on the actual loan utilized by the AE. - HELD THAT: - The Tribunal examined the facts that the assessee had given a corporate guarantee which was varied and that the TPO applied the benchmarked rate of 1.25% on the gross guarantee amount as held in prior coordinate bench decisions. The DRP had confirmed the TPO's approach in line with earlier Tribunal precedent (Laqshya Media Pvt. Ltd.). The facts of the year under appeal did not distinguish the earlier decisions relied upon by the revenue and no infirmity was found in applying the rate on the gross amount of guarantee. [Paras 4]

Addition relating to corporate guarantee upheld; guarantee commission applied on the gross guarantee amount.

Weighted deduction under section 35(2AB) - Approval by DSIR for in house R&D facility - Allowability of weighted deduction under section 35(2AB) where the in house R&D facility has been approved by DSIR and requisite certificates have been furnished. - HELD THAT: - The Tribunal distinguished the facts from the earlier year where the certificate in Form No.3CL was not on record. For AY 2014 15 the assessee had furnished the requisite DSIR approvals. Relying on coordinate decisions (including the Pune Tribunal in Cummins and the reasoning that approval of the facility by the prescribed authority is the essential prerequisite), the Tribunal held that once DSIR has approved the facility the Assessing Officer must allow the weighted deduction for expenditure incurred on the approved in house R&D facility. The pre amendment position does not permit curtailment of deduction merely because quantification in Form No.3CL was not separately specified for each year, and the assessee's claim was sustained. [Paras 5]

Disallowance of the weighted deduction of Rs.10.54 Lacs deleted and deduction allowed.

Rule 34(5) pronouncement of orders - exclusion of lockdown period - Whether the delay in pronouncement of the Tribunal's order beyond the 90 day period under Rule 34(5) is excusable by excluding the national lockdown period. - HELD THAT: - The Tribunal observed that the hearing concluded on 07/02/2020 but the order could not be pronounced within 90 days because of the unprecedented disruption caused by the COVID 19 lockdown. Relying on the coordinate decision in DCIT v. JSW Limited and subsequent judicial and executive measures treating the lockdown period as exceptional (including Supreme Court and High Court directions extending limitation), the Tribunal held that the lockdown period should be excluded while computing the 90 day limit under Rule 34(5). The bench emphasised pragmatic interpretation of the rule in light of the national emergency and that the exception for extraordinary circumstances applies. [Paras 6]

Delay in pronouncement excused by excluding the lockdown period; order pronounced accordingly.

Final Conclusion: The appeal is partly allowed: the transfer pricing adjustment on export of goods is deleted (TNMM accepted), the addition relating to corporate guarantee is sustained (rate applied on gross guarantee), the weighted deduction under section 35(2AB) is allowed after DSIR approval, and the delay in pronouncement is excused by excluding the COVID 19 lockdown period under Rule 34(5).

Disallowance of interest under section 36(1)(iii) - Remand for de-novo adjudication - Rule of consistency - Reappreciation of claim and requirement to substantiate - Computation of time for pronouncement under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules - Exclusion of lockdown period as an extraordinary circumstance for limitation

Disallowance of interest under section 36(1)(iii) - Remand for de-novo adjudication - Reappreciation of claim and requirement to substantiate - Rule of consistency - Assessee's claim for deduction of interest and the correctness of disallowance made under section 36(1)(iii) were not finally adjudicated and were remitted for fresh consideration by the assessing officer. - HELD THAT: - The Tribunal found conflicting factual positions in the record and divergent stands taken by the assessee before the assessing officer and before the Commissioner (Appeals), so that the correct factual matrix could not be appreciated by the lower authorities. Material issues include whether the interest related to business expediency or funded exempt/interest-free investments in group concerns, and the character of misc. expenditure (amortisation of debenture issue costs) versus interest disallowance. In view of these uncertainties the Tribunal set aside the impugned order and directed the assessing officer to reappreciate the assessee's claim afresh, applying the observations recorded by the Tribunal and permitting the assessee to substantiate its claim. All issues in relation to the interest disallowance were kept open for adjudication de-novo by the assessing officer. [Paras 3, 4, 6]

Order set aside and the matter remitted to the assessing officer for de-novo adjudication; assessee to substantiate its claim; all issues kept open.

Computation of time for pronouncement under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules - Exclusion of lockdown period as an extraordinary circumstance for limitation - Delay in pronouncement of the Tribunal's order beyond 90 days was justified by the extraordinary circumstances of the Covid-19 lockdown and the lockdown period is to be excluded while computing the limitation under Rule 34(5). - HELD THAT: - The Tribunal recorded that hearing concluded on 07/02/2020 but pronouncement was delayed due to the nationwide Covid-19 lockdown and its extensions which caused unprecedented disruption to judicial functioning. Relying on co-ordinate bench reasoning in a recent decision and on contemporaneous orders of higher courts and government notifications characterising the pandemic as an extraordinary situation/disaster, the Tribunal held that the lockdown period should be excluded in computing the 90-day period under Rule 34(5). The Tribunal therefore treated the delay as falling within the exception for "exceptional and extraordinary circumstances" and proceeded to pronounce the order after excluding the lockdown period. [Paras 7, 10]

Delay in pronouncement excused; lockdown period excluded for computation under Rule 34(5) and the order pronounced accordingly.

Final Conclusion: The impugned order confirming disallowance of interest under section 36(1)(iii) is set aside and the issue remitted to the assessing officer for fresh adjudication with directions to reappreciate the claim and for the assessee to substantiate it; the Tribunal also held that delay in pronouncement was justified by the Covid-19 lockdown and excluded the lockdown period when computing the time under Rule 34(5).

Demerger and carry forward of accumulated losses and unabsorbed depreciation under section 72A(4) - revised return under section 139(5) and effect of intimation under section 143(1) - inapplicability of section 139(3) to losses transferred by demerger - disallowance of expenditure in relation to exempt income under section 14A and computation under Rule 8D - presumption of investment out of own funds for purposes of Rule 8D(2)(ii) - recomputation/remand to Assessing Officer under Rule 8D(2)(iii) - disallowance under section 40(a)(ia) for failure to deduct TDS

Demerger and carry forward of accumulated losses and unabsorbed depreciation under section 72A(4) - revised return under section 139(5) and effect of intimation under section 143(1) - inapplicability of section 139(3) to losses transferred by demerger - Entitlement of the resulting company to set off/adjustment and carry forward of accumulated losses and unabsorbed depreciation of the demerged company and validity of the revised return filed after intimation under section 143(1). - HELD THAT: - The Tribunal found that the scheme of demerger was sanctioned by the High Courts with appointed date 01-03-2010 and that the conditions of section 2(19AA) and section 72A(4) were satisfied; the High Court order expressly recorded that losses of the demerged undertaking are available to the resulting company. Section 139(3) - which requires timely filing of a return of loss for carry forward under certain heads - was held not to apply to losses/transfers arising by virtue of section 72A(4) on demerger, because the losses did not arise in the hands of the assessee in the relevant previous year and were transferred pursuant to the court sanctioned scheme after the original return was filed. The Tribunal further held that intimation under section 143(1) does not amount to completion of assessment and does not preclude filing a revised return under section 139(5); the assessee filed the revised return within the statutory period and after sanction of the demerger, and therefore the Assessing Officer was bound to accept and consider it. The Assessing Officer's factual contention that the audited accounts did not report the pending demerger was held factually incorrect on record. Consequently, the Assessing Officer erred in rejecting the revised return and denying carry forward/set off under section 72A(4). [Paras 12, 13, 14, 15, 30]

Grounds 1 and 2 dismissed; the assessee entitled to set off and carry forward losses and unabsorbed depreciation of the demerged undertaking and the revised return filed under section 139(5) was validly filed and receivable.

Disallowance of expenditure in relation to exempt income under section 14A and computation under Rule 8D - presumption of investment out of own funds for purposes of Rule 8D(2)(ii) - recomputation/remand to Assessing Officer under Rule 8D(2)(iii) - Correctness and quantum of disallowance under section 14A read with Rule 8D and whether the Assessing Officer's computation required interference. - HELD THAT: - The Tribunal disagreed with the CIT(A)'s acceptance of the assessee's 'dominant object' or strategic investment argument to the extent of excluding an investment from section 14A consideration, noting Supreme Court authority rejecting a dominant purpose test and endorsing apportionment. However, on the facts the Tribunal agreed with the CIT(A) that Rule 8D(2)(ii) could not be invoked because the assessee had sufficient own funds (a presumption that the investments were made out of own funds), relying on appellate authority to that effect. The Tribunal rejected the AO's gross computation and set aside the CIT(A)'s relief only for the limited purpose of requiring the AO to recompute the disallowance under Rule 8D(2)(iii) by taking into account only those investments that gave rise to the exempt income, in line with the authorities and the principle of apportionment. The matter was therefore remanded to the AO for recomputation consistent with the directions given. [Paras 31, 34]

Partly allowed; CIT(A)'s order set aside insofar as recomputation under Rule 8D(2)(iii) is required and the assessment is restored to the file of the AO for recomputation in accordance with the Tribunal's directions.

Disallowance under section 40(a)(ia) for failure to deduct TDS - Validity of disallowance of rent payments made by the assessee and correctness of CIT(A)'s restriction of addition to the amount disallowable under section 40(a)(ia). - HELD THAT: - The Tribunal noted that the CIT(A) made an explicit factual finding that copies of rental agreements and evidence of payment were available and that the AO had not controverted the genuineness or business character of the rent payments. The revenue's grounds did not challenge this factual finding. On this uncontested factual basis the Tribunal held that the Assessing Officer could not substitute his view on business expediency; only two payments (totaling the amount disallowed by CIT(A) under section 40(a)(ia) for TDS defaults) were rightly disallowed. Because the department did not impugn the factual findings of the CIT(A), those findings crystallized and the CIT(A)'s reduction of the addition was sustained. [Paras 35, 36, 37, 38]

Ground 4 dismissed; the disallowance restricted to the amount reflecting TDS non deduction and the balance rent allowed.

Final Conclusion: The revenue's appeal is partly allowed for statistical purposes: the Tribunal upheld the assessee's entitlement to carry forward and set off losses and unabsorbed depreciation transferred by the demerger and upheld the validity of the revised return; directed recomputation by the Assessing Officer of the section 14A disallowance limited to Rule 8D(2)(iii) considerations; and confirmed the CIT(A)'s restriction of rent disallowance to the amount attracted by section 40(a)(ia).

Deductibility of liquidated damages - prior period expenses crystallisation - maintenance expenses of young tea bushes as revenue expenditure - allowability of provision for gratuity under section 40A(7) - recapitalisation expenses treated as revenue expenditure - remand for fresh adjudication - condonation of delay

Deductibility of liquidated damages - Assessee's claim of deduction for amounts debited as liquidated damages was allowable. - HELD THAT: - The Assessing Officer had disallowed the liquidated damages for lack of supporting documentary evidence. The Tribunal noted that the issue for the year under consideration is factually and legally similar to earlier assessment years where the Tribunal had examined contracts and supporting vouchers and held that amounts deducted by customers pursuant to an inbuilt liquidated damages clause constitute deductible business expenditure. The Coordinate Bench's order for AYs 2008-09 to 2011-12 (para 11 of that order) was relied upon and followed, as the material facts are the same. In view of the consistent contractual basis for deduction and the prior favorable appellate findings, the disallowance was reversed. [Paras 5]

Impugned disallowance on account of liquidated damages is deleted; Revenue's ground dismissed.

Prior period expenses crystallisation - Expenses relating to earlier periods which crystallised in the year under consideration were allowable as deduction. - HELD THAT: - The Assessing Officer treated liabilities relating to earlier years as not allowable in the current year. The Tribunal observed, following the Coordinate Bench's treatment for AYs 2008-09 to 2011-12, that certain liabilities (e.g., sales tax, gratuity, bonus, interest) may crystallise in the assessment year due to changes in law, finalisation of cases, settlements or receipt of final bills after cut-off dates. Where such expenses have in fact crystallised in the year under consideration, they qualify as allowable deductions. The CIT(A)'s detailed per-item examination (as reflected in Form 3CD annexure) was accepted and the prior Bench's order was followed. [Paras 8]

Disallowance of prior period expenses deleted; Revenue's ground dismissed.

Remand for fresh adjudication - Disallowance of cold weather expenses was not finally adjudicated and is remanded to the Assessing Officer for fresh decision with directions. - HELD THAT: - Although the CIT(A) had deleted the disallowance following his earlier appellate orders for prior years, the Tribunal recorded that appeals against those appellate orders had led to restoration of the issue to the AO for fresh decision with directions. The parties agreed that the identical issue for the year under consideration should similarly be sent back for fresh adjudication. Consequently, the Tribunal set aside the CIT(A)'s order on this issue and restored the matter to the file of the Assessing Officer to be decided afresh in conformity with the directions given in respect of the earlier assessment years. [Paras 10]

Impugned order on cold weather expenses set aside and matter remanded to Assessing Officer for fresh decision; treated as allowed for statistical purposes.

Maintenance expenses of young tea bushes as revenue expenditure - Expenses incurred on maintenance of young tea bushes were held to be revenue in nature and allowable. - HELD THAT: - The Assessing Officer treated the maintenance expenses as capital. The Tribunal followed its earlier decisions in the assessee's own case and relevant High Court authority, holding that expenses for maintenance of immature tea bushes in an existing garden do not create an enduring benefit and are allowable as revenue expenditure under the applicable rules. The CIT(A)'s reliance on Tribunal precedent and High Court authority was accepted, and no change in facts or law was found to justify interference. [Paras 13]

Disallowance on account of maintenance of young tea bushes is deleted; Revenue's ground dismissed.

Allowability of provision for gratuity under section 40A(7) - Provision for gratuity based on actuarial valuation was allowable despite not being paid in the year, and section 43B did not preclude deduction where clause (b) of sub section (7) of section 40A applied. - HELD THAT: - The AO invoked section 43B to deny the deduction since the gratuity provision was unpaid. The Tribunal noted that the CIT(A)'s favorable order for an earlier year had not been appealed by the Department and that clause (b) of sub section (7) of section 40A allows deduction for provisions made for contribution towards an approved gratuity fund. The Explanation to section 40A(7) prevents a second deduction on payment, but does not negate the allowability of the provision itself. With the assessee's submissions unrebutted, the Tribunal found no infirmity in deleting the disallowance. [Paras 16]

Disallowance of gratuity provision deleted; Revenue's ground dismissed.

Recapitalisation expenses treated as revenue expenditure - Fees paid to Registrar of Companies for recapitalisation of depleted net worth were revenue in nature and allowable. - HELD THAT: - The AO held the ROC fees to be capital since they related to enhancement of share capital. The Tribunal distinguished the Supreme Court authority relied upon by Revenue on the facts: in the present case recapitalisation was effected to meet urgent liabilities (e.g., employees' dues) and not to create an enduring advantage or enlarge productive capacity by acquisition of fixed assets. There was no increase in issued and subscribed capital despite authorised capital change. Reliance was placed on High Court authority supporting revenue characterization in similar facts, and the CIT(A)'s order treating the expenditure as revenue was upheld. [Paras 19]

Disallowance of ROC fees for recapitalisation deleted; Revenue's ground dismissed.

Condonation of delay - Delay of 137 days in filing the appeal by the Revenue was condoned. - HELD THAT: - An application for condonation of delay was considered and the Tribunal, on perusal of the reasons and in absence of objection from the assessee, held that sufficient cause existed to condone the delay of 137 days in preferring the appeal to the Tribunal. [Paras 2]

Delay condoned; appeal admitted for adjudication on merits.

Final Conclusion: The Tribunal condoned the delay and, on merits, dismissed the Revenue's grounds challenging the CIT(A)'s deletions in respect of liquidated damages, prior period expenses, maintenance of young tea bushes, gratuity provision and ROC fees, while setting aside the CIT(A)'s order on cold weather expenses and remanding that issue to the Assessing Officer for fresh consideration; the appeal is treated as partly allowed for statistical purposes.

Unexplained cash credits and unexplained cash deposits - addition under section 68 relating to unexplained cash credits - genuineness and creditworthiness of creditors - telescoping benefit for cash availability - right to reasonable opportunity of hearing / natural justice - restoration for de novo adjudication

Unexplained cash credits and unexplained cash deposits - addition under section 68 relating to unexplained cash credits - Whether additions made by the assessing officer for unexplained cash credits and unexplained cash deposits should be sustained or remanded for fresh adjudication - HELD THAT: - The Tribunal examined records and submissions showing the assessee had taken numerous unsecured loans and had advanced funds to a partner concern, with corresponding cash deposits in the relevant years. The Tribunal observed that lower authorities disbelieved the explanations and confirmed large additions under the assessing provisions, but also noted overlapping / potentially double taxation (additions for cash credits and for subsequent cash deposits) and that confirmations, bank statements and some creditor statements were on record. In view of these factual issues - including the claimed source of deposits, the asserted advances to third parties, the availability of bank evidence, the question of telescoping (crediting and re-depositing the same amounts) and the genuineness/creditworthiness of creditors - and given that the assessee contended that he was not afforded adequate opportunity to produce witnesses and evidence, the Tribunal concluded that the matters require fresh, judicially fair enquiry. The Tribunal therefore directed restoration to the assessing officer to accept and examine all material evidence, to afford the assessee proper opportunity to produce creditors, to examine genuineness of transactions (including loans to the partner concern) and, if satisfied, to grant appropriate relief including telescoping benefit, in accordance with the Act. [Paras 14, 15]

Matters remanded to the assessing officer for de novo adjudication with directions to consider the evidence, afford proper opportunity of hearing, examine genuineness and creditworthiness, and grant relief if justified; appeals allowed for statistical purposes.

Final Conclusion: Both appeals for Assessment Year 2007-08 and 2008-09 are disposed by restoring the matters to the assessing officer for fresh adjudication on the points of unexplained cash credits/deposits, genuineness of loans and creditors, telescoping benefit and ensuring proper opportunity of hearing; appeals allowed for statistical purposes.

Allowability of prepaid expenses - characterisation of training expenditure as revenue or capital - allowability of depreciation on assets placed at employees' residences - incurred wholly and exclusively for business purpose - classification of repair and maintenance as revenue expenditure - estimation of disallowance for unverifiable travelling and sales promotion expenses

Allowability of prepaid expenses - Prepaid expenses shown in balance sheet could not be disallowed as expenditure of the relevant year. - HELD THAT: - The assessee had shown the amount as prepaid expenses in the balance sheet and submitted that it would be transferred to the relevant expense account in subsequent years when consumed. The Tribunal found that such items are balance-sheet items and not routed through the profit and loss account for the assessment year under consideration; consequently the addition made by the AO and confirmed by the CIT(A) was unsustainable. [Paras 2]

Addition disallowing prepaid expenses deleted.

Characterisation of training expenditure as revenue or capital - Training expenditure incurred to enable employees to operate new products was revenue in nature and allowable. - HELD THAT: - The expenditure related to training of the assessee's personnel by product specialists in connection with the assessee's mining division and its after-sales/maintenance obligations. The AO treated the outlay as capital and allowed only one-fifth while the CIT(A) confirmed that treatment. The Tribunal held there was no enduring benefit of a capital nature; the expenditure was for imparting operational skill and therefore a revenue expenditure deductible in the year of incurrence. [Paras 2]

Training expenditure treated as revenue expense and allowed.

Allowability of depreciation on assets placed at employees' residences - Depreciation could not be disallowed merely because assets were placed at employees' residences. - HELD THAT: - Although certain office equipment was installed at the residences of employees, the assets were purchased by the assessee and formed part of the block of assets. The Tribunal held that mere placement at employees' residences did not convert the assets into personal assets of employees so as to deny depreciation to the assessee. [Paras 2]

Disallowance of depreciation on such assets deleted.

Incurred wholly and exclusively for business purpose - Expenditure on gifts and associated import/clearing charges was not shown to be wholly and exclusively for business and was therefore disallowed. - HELD THAT: - The assessee claimed costs of gift items and related charges (including gifts sent abroad on an employee's marriage) and contended that a company could not incur personal expenditure. The Tribunal rejected that contention, holding that claimants must satisfy the requirement of being incurred wholly and exclusively for business; the assessee failed to substantiate that requirement and the addition was thus sustained. [Paras 2]

Addition disallowing the gifts and related charges confirmed.

Classification of repair and maintenance as revenue expenditure - Expenditure on networking, cabling, electrical and related works for server room and routine furniture/blinds were revenue in nature and not capital. - HELD THAT: - The AO had capitalised certain repair and maintenance items and allowed depreciation; the CIT(A) confirmed. On examining the nature of works (networking & cable work in server room, electrical work for server room, networking cabling, furniture works and blinds), the Tribunal concluded these were routine repair and maintenance expenditures and could not be treated as capital expenditure yielding an enduring benefit. [Paras 2]

Adjustment treating these items as capital expenditure reversed.

Estimation of disallowance for unverifiable travelling and sales promotion expenses - Ad hoc disallowance in respect of travelling and sales promotion expenses was substantially reduced; travelling disallowance fixed at 10% and sales promotion at 5% where estimation was made for want of documentary evidence. - HELD THAT: - For AY 2010-11 the AO made an ad hoc disallowance of 40% of travelling expenses for lack of vouchers; the CIT(A) reduced it to 30%. Relying on a coordinate Tribunal decision in AY 2009-10 which reduced a similar estimation to 10%, the Tribunal fixed the travelling disallowance at 10% for 2010-11 and applied the same reduction mutatis mutandis to AYs 2013-14 and 2014-15. For AY 2011-12 the AO had made a 40% travelling disallowance and a 10% ad hoc disallowance on sales promotion expenses; the Tribunal reduced travelling to 10% and, after assessing the nature of sales promotion outlays, reduced the sales promotion disallowance to 5%. [Paras 2, 4, 5, 6]

Travelling expense disallowance restricted to 10% (applied to 2010-11, 2013-14 and 2014-15); sales promotion disallowance for 2011-12 reduced to 5%.

Final Conclusion: The Tribunal allowed the appeals in part: deletions were directed in respect of the disallowance of prepaid expenses, training expenditure, depreciation on assets placed at employees' residences and capitalisation of routine repairs; the disallowance of gifts was sustained; ad hoc disallowances for travelling and sales promotion expenses were substantially reduced (travelling fixed at 10%, sales promotion at 5%) across the assessment years as indicated.

Disallowance of stock trading loss - claim of bogus transaction - set-off of stock loss against long term capital gains - burden of proof on assessing officer to demonstrate falsity - claim cannot be rejected on suspicion, surmise or conjecture - delivery taken by agent construed as actual delivery - speculative transaction

Disallowance of stock trading loss - claim of bogus transaction - burden of proof on assessing officer to demonstrate falsity - claim cannot be rejected on suspicion, surmise or conjecture - delivery taken by agent construed as actual delivery - speculative transaction - set-off of stock loss against long term capital gains - Allowability of the assessee's declared loss from commodity stock trading of Rs. 2,06,39,101/- and its set-off against long term capital gains for assessment year 2015-16. - HELD THAT: - The Assessing Officer rejected the claimed stock loss as bogus and treated the transactions as speculative, principally on the basis of suspicion and circumstantial factors without conducting independent enquiries from the named traders or agents. The assessee produced detailed documentary evidence - ledger accounts, consignment purchase and sale documents, confirmed ledgers and particulars of payments - substantiating purchase and sale transactions. Applying the principle that an assessing authority must prove that an apparent transaction is not real, the tribunal found that suspicion alone, however strong, was insufficient to displace the assessee's case where no concrete evidence or verification was carried out by revenue. The tribunal further held that delivery taken by the specified arhtias in their capacity as agents for the assessee amounted to actual delivery and therefore the transactions could not be treated as speculative. On identical facts and reasoning adopted in a recently decided co ordinate ITAT order, the tribunal concluded that the revenue failed to rebut the assessee's evidence and the claimed loss was allowable and capable of being set off against long term capital gains.

The assessee's claim of loss from commodity stock transactions of Rs. 2,06,39,101/- is accepted and the loss is to be allowed/set off against long term capital gains for AY 2015-16.

Final Conclusion: The appeal is allowed; the tribunal directs that the stock loss claimed by the assessee for assessment year 2015-16 be accepted and given effect to, the revenue having failed to prove the transactions bogus or speculative.

Reclassification of income between 'Business Income' and 'Income from Other Sources' - precedence in set-off under section 72(2): brought forward business losses vis-a -vis carry forward of unabsorbed depreciation - transfer pricing adjustment in respect of advertising, marketing and promotion (AMP) expenditure and international transaction test - taxability and grossing-up of royalty payments where conditions of section 10(6A) are satisfied - computation of interest under section 234B after set-off of MAT credit - computation of interest under section 234C on returned income - prematurity of penalty initiation under section 271(1)(c)

Reclassification of income between 'Business Income' and 'Income from Other Sources' - Reclassification of interest income declared as business income to income from other sources - HELD THAT: - The Tribunal noted that identical controversy arose and was litigated in earlier assessment years of the assessee, where the matter was remitted to the Assessing Officer for factual re-examination. Applying the same reasoning to the assessment years under appeal, the Tribunal declined to decide the head of income on merits and restored the issue to the file of the Assessing Officer for de novo examination and verification of the factual nature of the receipts. [Paras 8, 21]

Issue remanded to the Assessing Officer for de novo factual verification (allowed for statistical purpose).

Precedence in set-off under section 72(2): brought forward business losses vis-a -vis carry forward of unabsorbed depreciation - Order in which brought forward business losses and carry forward unabsorbed depreciation are to be set off - HELD THAT: - The Tribunal examined subsection (2) of section 72 and held that it mandates that effect be first given to the provisions of section 72 (i.e., set off of brought forward business losses against profits) before giving effect to carry forward of unabsorbed depreciation under section 32(2). Applying this statutory precedence, the Tribunal found merit in the assessee's contention that the Assessing Officer erred in setting off unabsorbed depreciation against current year income prior to exhausting brought forward business losses. [Paras 9]

Assessing Officer directed to first set off brought forward business losses before setting off unabsorbed depreciation (assessee succeeds on this ground).

Transfer pricing adjustment in respect of advertising, marketing and promotion (AMP) expenditure and international transaction test - Whether AMP expenditure incurred by the assessee in India constitutes an international transaction attracting transfer pricing adjustment - HELD THAT: - Following the Coordinate Bench decisions in the assessee's own earlier years, the Tribunal held that where there is no agreement or arrangement between the assessee and the associated enterprise obliging the assessee to incur AMP expenditure for promoting the AE's brand, such payments made to third parties in India do not fall within the definition of international transaction under the transfer pricing provisions. The Tribunal also noted the illegitimacy of applying BLT for AMP in absence of statutory prescription and observed that the Transfer Pricing Officer failed to demonstrate any factual basis for an arrangement with the AE. [Paras 14, 20]

Adjustment deleted; Revenue's appeal dismissed and DRP/Assessing Officer's deletion of AMP adjustment upheld (assessee succeeds on these grounds).

Taxability and grossing-up of royalty payments where conditions of section 10(6A) are satisfied - Disallowance/grossing-up of royalty payments where assessee contends exemption under section 10(6A) - HELD THAT: - Relying on earlier Tribunal decisions in the assessee's own cases, the Tribunal found that where the assessee satisfies the conditions of section 10(6A), the royalty is not taxable and grossing-up under section 195A is not warranted. In the assessment year under appeal the Assessing Officer and DRP had verified compliance with the statutory conditions and deleted the addition; the Tribunal found no reason to interfere with that factual satisfaction. [Paras 15]

Deletion of disallowance of royalty upheld; Revenue's challenge dismissed.

Carry forward and set off of unabsorbed depreciation without time limit under amended section 32(2) - Allowability of set off of long standing brought forward unabsorbed depreciation - HELD THAT: - Having regard to the amended position of law and supportive High Court precedents cited by the assessee, the Tribunal held that unabsorbed depreciation can be carried forward and set off without any temporal limitation. The Tribunal found merit in the assessee's contention and directed the Assessing Officer to allow set off of the brought forward unabsorbed depreciation pertaining to the earlier year against current year's profits. [Paras 22]

Assessing Officer directed to allow set off of brought forward unabsorbed depreciation (assessee succeeds on this ground).

Computation of interest under section 234B after set-off of MAT credit - Whether interest under section 234B should be computed after adjusting MAT credit under section 115JAA - HELD THAT: - The Tribunal applied the settled position that interest under section 234B is to be computed after setting off the available MAT credit under section 115JAA against the tax payable on total income. Reliance on the binding precedent was accepted and the assessee's challenge to computation ignoring MAT credit was allowed. [Paras 24]

Interest under section 234B to be recomputed after set-off of MAT credit (ground allowed).

Computation of interest under section 234C on returned income - Basis for computation of interest under section 234C - HELD THAT: - Examining the statutory scheme, the Tribunal held that interest under section 234C is to be computed on the returned income and not the assessed income. The Assessing Officer was directed to recompute interest under section 234C accordingly. [Paras 25]

Assessing Officer directed to recompute section 234C interest on the basis of returned income (ground allowed).

Prematurity of penalty initiation under section 271(1)(c) - Challenge to initiation of penalty proceedings as premature - HELD THAT: - The Tribunal repeatedly observed in respect of both assessment years that challenge to initiation of penalty proceedings was premature at the present adjudication stage and therefore not maintainable for determination in these appeals. [Paras 10, 26]

Grounds challenging initiation of penalty proceedings dismissed as premature.

Final Conclusion: The Tribunal partly allowed the assessee's appeals for A.Y.2011-12 and A.Y.2012-13 and dismissed the Revenue's appeal for A.Y.2011-12: AMP transfer pricing adjustments and royalty disallowance were rejected in favour of the assessee; the issue of head of income for interest receipts was remanded for factual re-examination; statutory precedence requires brought forward business losses to be set off before unabsorbed depreciation (and unabsorbed depreciation may be carried forward without temporal limitation); interest under section 234B must be computed after MAT credit set-off and section 234C interest must be computed on returned income; challenges to initiation of penalty proceedings were held premature.

Unexplained cash credit under section 68 - proof of identity and creditworthiness of creditors - rejection of books of account and estimation of income - estimation of income on net profit basis - income from other sources under section 56(2)(vii)(b) - clubbing of income under section 64(1A)

Unexplained cash credit under section 68 - proof of identity and creditworthiness of creditors - rejection of books of account and estimation of income - estimation of income on net profit basis - Whether the addition of Rs. 2,24,79,975/- treated as unexplained cash credit could be sustained or whether only the profit embedded in the disputed purchases should be assessed by estimating income. - HELD THAT: - The Assessing Officer treated the entire purchases from sundry creditors as bogus because many summons and letters under section 133(6)/131 returned unserved and depositions of some suppliers disclosed discrepancies between the assessee's records and suppliers' statements. The CIT(A) examined the quantitative records, accepted that sales were not doubted and noted that the assessee maintained quantitative tally linking purchases to sales. Given the rural suppliers' informal record-keeping and the acceptance of turnover by the AO, the CIT(A) rejected treating the entire purchase amount as bogus and, exercising the power to reject books, estimated income by applying a net profit rate of 1% on the admitted turnover, treating that amount as sufficient to reflect the profit embedded in the transactions. The Tribunal found the approach justified: where sales are admitted and turnover is verifiable but suppliers' confirmations are deficient for reasons attributable to informal rural trade, the more circumspect course is to estimate taxable profit rather than treat entire purchases as unexplained credits; the CIT(A)'s reliance on past net profit rates and fixation of 1% was held to be reasonable and accordingly approved. [Paras 7, 10]

Confirm the CIT(A)'s direction to assess net profit at 1% of turnover (as determined by CIT(A)) and delete the remainder of the addition made by the AO.

Income from other sources under section 56(2)(vii)(b) - clubbing of income under section 64(1A) - Whether the difference between stamp valuation and consideration for a flat purchased by the grandfather in the name of his minor grandson is taxable under section 56(2)(vii)(b) in the hands of the minor and clubbable to the guardian under section 64(1A). - HELD THAT: - The AO added the difference between stamp value and consideration as income under section 56(2)(vii)(b) in the hands of the minor and sought to club it in the guardian's hands under section 64(1A). The CIT(A) accepted the declaration and evidence that the grandfather purchased the property from his own funds and observed that the gift from a grandfather to a grandson falls within the definition of "relative" and the exceptions in section 56(2)(vii)(b). Consequently, the transaction did not attract the provision and there was no basis for clubbing the amount in the hands of the guardian. The Tribunal agreed with this legal conclusion and upheld deletion of the addition. [Paras 13, 15]

Uphold the CIT(A)'s deletion of the addition under section 56(2)(vii)(b) and reject the clubbing of that amount under section 64(1A).

Final Conclusion: The Tribunal affirms the CIT(A)'s orders: (i) in the assessment year 2014-15 the addition on account of disputed purchases is to be restricted to estimated net profit at 1% of admitted turnover with the balance deleted, and (ii) the addition based on stamp value excess in respect of the flat gifted by the grandfather to the grandson is deleted and not clubbable to the guardian; the Revenue's appeal is dismissed.

Duty Free Credit Entitlement Scheme - Third-party exports - Status Holder - Special Strategic Package for Status Holders - clarificatory notification - prospective and retrospective operation of notifications - vested right - paper exports / fraudulent export practices - investigation and evidentiary basis for denial of benefits

Duty Free Credit Entitlement Scheme - vested right - paper exports / fraudulent export practices - clarificatory notification - Entitlement of the petitioner to benefits under the DFCE Scheme in light of the Supreme Court's judgment dated 27.10.2015 and the dismissal of the petitioner's review. - HELD THAT: - The High Court held that the Supreme Court had specifically considered the petitioner's case and recorded findings of blatant misuse and paper transactions in respect of certain exporters, including the petitioner. The Supreme Court concluded that where exports are not genuine and are contrived to claim the DFCE benefit, no vested right to the benefit accrues; the Notifications and amendments were sustained as necessary to prevent misuse. The petitioner had sought review of that judgment, which was dismissed. Having thus been denied relief by the Supreme Court (including dismissal of the review petition), the petitioner could not re-agitate entitlement by filing a revised application seeking DFCE benefit. The High Court found that the respondent's rejection dated 28.12.2017 was in line with the Supreme Court's findings and therefore sustainable. [Paras 32, 33, 34, 35, 36]

Petitioner is not entitled to DFCE benefits as claimed; the Impugned Order rejecting the application is upheld.

Investigation and evidentiary basis for denial of benefits - Trade Notice - prospective and retrospective operation of notifications - Whether the respondents were obliged to conduct a fresh investigation under the Trade Notice dated 08.05.2017 before denying the petitioner the DFCE benefit. - HELD THAT: - The Court observed that the Trade Notice contemplated investigation by Zonal Committees for exporters other than those against whom material had already been placed before the Supreme Court. The Supreme Court and the Union had already considered contemporaneous material and counter-affidavits addressing the petitioner's export growth and alleged modus operandi. Given those prior findings and the dismissal of the petitioner's review, the Trade Notice did not entitle the petitioner to a new investigatory process to reopen matters already adjudicated by the Supreme Court. Consequently, absence of a fresh investigation did not render the respondents' action impermissible in this case. [Paras 37]

No obligation to conduct a fresh investigation under the Trade Notice where material concerning the petitioner had already been considered and adjudicated by the Supreme Court.

Equality of treatment / Article 14 - paper exports / fraudulent export practices - Whether alleged disparate treatment vis-a -vis another exporter (M/s Adani Exports Ltd.) entitled the petitioner to DFCE benefits. - HELD THAT: - The Court rejected the contention that any inaction or recovery omission against another exporter could entitle the petitioner to relief. Equality does not permit obtaining relief by showing that others may have been treated differently in violation of law; there is no right under Article 14 to commit or benefit from illegality. The petitioner could not derive entitlement simply because similar enforcement measures were not taken against another party. [Paras 38]

Petitioner cannot claim entitlement on the basis of alleged disparate treatment of another exporter.

Final Conclusion: The writ petition is dismissed. The High Court upheld the rejection of the petitioner's application for DFCE benefits as consistent with the Supreme Court's findings of misuse and paper exports, declined to direct a fresh investigation in respect of a case already adjudicated by the Supreme Court, and rejected any parity claim; cost of Rs. 1 lakh directed to be paid to the PM CARES Fund.

Adjudication of confiscation and penalties - Authority competent to adjudicate under Section 122 - Definition of Commissioner to include Additional Commissioner - Admissibility of statement recorded under Section 108 of the Customs Act - Non-requirement of safeguards under Section 164 Cr.P.C. for statements recorded by Customs officers - Reliance on corroborative electronic communications for establishing involvement

Adjudication of confiscation and penalties - Authority competent to adjudicate under Section 122 - Definition of Commissioner to include Additional Commissioner - Validity of order passed by the Additional Commissioner of Customs adjudicating confiscation and levy of penalty under Chapter XIV of the Customs Act. - HELD THAT: - The court examined Section 122 (adjudication of confiscation and penalties) which contemplates adjudication by the Principal Commissioner/Commissioner or a Joint Commissioner without limit, with lower thresholds for Assistant/Deputy Commissioners or other Gazetted Officers where value limits apply. The seized gold's appraisal value exceeded the statutory lower thresholds. The court further relied on the definitional provision which includes Additional Commissioner within the expression 'Principal Commissioner of Customs or Commissioner of Customs' for purposes of the Act (except Chapter XV), and held that, for adjudication under Chapter XIV in the facts of this case, the Additional Commissioner is a competent authority to pass the adjudicating order. The challenge to the competence of the authority was therefore rejected. [Paras 7, 8, 9]

Order dated 04.08.2017 passed by the Additional Commissioner of Customs is intra vires and cannot be faulted on the ground of lack of competence.

Admissibility of statement recorded under Section 108 of the Customs Act - Non-requirement of safeguards under Section 164 Cr.P.C. for statements recorded by Customs officers - Reliance on corroborative electronic communications for establishing involvement - Whether the appellant's statement recorded under Section 108 could be relied upon for adjudication and imposition of penalty, notwithstanding absence of Section 164 Cr.P.C. safeguards and absence of cross-examination. - HELD THAT: - The court observed that statements recorded under Section 108 by Customs officers need not follow the safeguards of Section 164 Cr.P.C. The adjudicatory and appellate authorities examined the appellant's statement, noting that he had admitted involvement in smuggling in his Section 108 statement and had not retracted it prior to issuance of show cause notice; the appellant did not allege that the statement was obtained by threat or coercion at any time. The authorities also relied on contemporaneous WhatsApp communications which corroborated the narrative in the recorded statement. In light of these factors the court found no infirmity in relying upon the Section 108 statement and corroborative electronic material to uphold confiscation and penalty. [Paras 10, 11]

Appellate and original authorities rightly relied on the Section 108 statement and corroborative WhatsApp communications; the penalty and confiscation were properly sustained.

Final Conclusion: The appeal is dismissed and the CESTAT order dated 06.08.2019 in Final Order No.20619/2019 is affirmed; no substantial question of law is found to have been made out and no order as to costs.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - declaration under SVLDRS-1 - curable mistake - incurable mistake - relief under the Scheme - reasoned speaking order

Declaration under SVLDRS-1 - curable mistake - incurable mistake - relief under the Scheme - Whether omission to disclose an earlier penalty in Form SVLDRS-1 disentitles the assessee to benefits under the Sabka Vishwas Scheme or is a curable inadvertent mistake. - HELD THAT: - The Court examined whether the petitioner's entry of 'zero' in the penalty column of Form SVLDRS-1 was a deliberate misrepresentation that would bar relief under the Scheme or an inadvertent/curable error. The Scheme contains no provision which excludes a person from relief merely because a penalty had been imposed; indeed, declaring the penalty could, if anything, increase entitlement. Where the mistake does not operate to procure an undue or unlawful advantage to which the claimant is not otherwise entitled, and is of inadvertent or callous character, it is curable. The omission in this case did not amount to a deliberate attempt to secure benefit not lawfully due and therefore cannot be treated as an incurable disqualification from relief under the Scheme. The Court therefore held that the petitioner's incorrect entry was curable and did not automatically disentitle them from Scheme benefits. [Paras 7, 8]

The omission to mention the penalty in SVLDRS-1 is a curable inadvertent mistake and does not, by itself, disentitle the petitioner from claiming benefits under the Scheme.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - declaration under SVLDRS-1 - reasoned speaking order - Remedial process to be followed upon discovery of the incorrect entry in SVLDRS-1 and the direction to the authorities on reconsideration. - HELD THAT: - The parties agreed that the petitioner may apply to the appropriate authority for correction of the information in SVLDRS-1 regarding the earlier penalty. The Court directed that the petitioner shall submit such application within 15 days of obtaining the certified copy of this order. On receipt of the application the respondent authority is required to consider the corrected claim and pass a reasoned, speaking order exercising its discretion under the Scheme within two months of receipt. The Court further clarified that its earlier observations on entitlement under Section 124(1)(a)(ii) do not restrict the petitioner from claiming any other relief available under the Scheme. [Paras 9, 10, 11]

Petitioner permitted to apply for correction; authorities to decide the corrected claim by a reasoned speaking order within two months of receipt; petitioner to file application within 15 days of certified copy; petitioner not limited to the specific relief mentioned in earlier observations.

Final Conclusion: Writ petition disposed of: petitioner may submit an application for correction to SVLDRS-1 within 15 days of certified copy, and the respondent authority shall pass a reasoned speaking order on the corrected claim within two months; the incorrect entry was held to be a curable inadvertent mistake and does not by itself bar relief under the Scheme.

Liability for previous electricity dues - as is where is sale - statutory dues - statutory nature of electricity dues under Section 56 of the Electricity Act, 2003 - terms and conditions of supply - reconnection versus fresh connection - SARFAESI auction notice clauses - indemnity confined to defects in title

Liability for previous electricity dues - as is where is sale - SARFAESI auction notice clauses - terms and conditions of supply - statutory nature of electricity dues under Section 56 of the Electricity Act, 2003 - indemnity confined to defects in title - Whether an auction-purchaser under a SARFAESI sale can be saddled with the previous owner's electricity dues where the auction notice and sale documents indicate sale on an "as is where is, whatever there is and without recourse" basis and identify statutory dues including electricity arrears. - HELD THAT: - The Court held that electricity dues are statutory in character when they arise under the Electricity Act and under the terms and conditions of supply, and thus are not merely contractual liabilities. The auction notice in the present case expressly described the sale as "as is where is, whatever there is and without recourse basis", specifically identified outstanding local government/statutory dues including quantified electricity dues, and contained clauses (including an express disclaimer by the Authorised Officer) putting prospective bidders on notice that statutory dues such as electricity arrears were not covered by the secured creditor's discharge. The sale deed's indemnity was limited to defects in title and did not extend to statutory liabilities like electricity dues. Prior decisions distinguishing reconnection and fresh connection were considered, but the Court observed that where the auction notice and the terms and conditions of supply (including clause 8.4) cover both continuance of service and sanction of connection, the transferee who seeks to enjoy supply must clear outstanding statutory dues. Applying these principles to the facts, the Court concluded that the respondent, having bid and purchased with such notice, could be held liable for the electricity arrears of the previous owner. [Paras 3, 4, 9, 15, 16]

The impugned orders quashing the demands were set aside and the electricity distribution company is entitled to demand the arrears of the last owner from the auction-purchaser.

Final Conclusion: The appeal is allowed; the High Court orders quashing the demand were set aside and the electricity distributor is entitled to recover the previous owner's electricity arrears from the auction-purchaser; parties to bear their own costs.