TaxTMI Updates e-Newsletter
Jun 05,2020

Release of seized goods under Section 67 of the Central Goods and Services Tax Act, 2017 - Provisional release mechanism and Rule 141 procedure - Requirement of a reasoned and speaking order after affording personal hearing - Supreme Court precedent limiting High Court interim orders in seizure cases

Release of seized goods under Section 67 of the Central Goods and Services Tax Act, 2017 - Provisional release mechanism and Rule 141 procedure - Requirement of a reasoned and speaking order after affording personal hearing - Petition for release of documents, assets and other material seized during search operations disposed directing petitioners to invoke statutory remedy and authority to decide the representation expeditiously. - HELD THAT: - The court confined its consideration to prayer (b) seeking release of seized material and, without expressing any opinion on the merits, directed the petitioners to file an appropriate application/representation before the concerned authority under the Act, 2017, enclosing a certified copy of this order and the writ petition with annexures. The court observed that the Central Goods and Services Tax Act, 2017 provides the mechanism for release of seized goods (Section 67 read with the relevant rules, including Rule 141) and noted the Supreme Court's guidance that authorities must process claims strictly in accordance with the statutory scheme. On receipt of the petitioners' application, the concerned authority is directed to consider and decide the same by a reasoned and speaking order after affording opportunity of personal hearing, and to endeavor to do so expeditiously, preferably within two weeks from receipt. The court did not decide whether the seized material (mentha oil) is perishable or whether release on any specific terms is appropriate, leaving those questions to the statutory adjudicatory process.

Writ petition disposed of by directing petitioners to approach the competent authority under the Act and directing the authority to consider and decide the representation by a reasoned, speaking order after personal hearing, preferably within two weeks.

Final Conclusion: The petition is disposed of by directing the petitioners to make an application under the statutory provisions for release of seized material and directing the concerned authority to consider and decide the representation expeditiously by a reasoned order after affording personal hearing; no decision was recorded on the merits.

Grant of bail pending trial - completed investigation / charge-sheet filed - no further investigation or recovery required - risk of tampering with witnesses - compoundable offence - stringent bail conditions including surrender of passport and surety

Grant of bail pending trial - completed investigation / charge-sheet filed - no further investigation or recovery required - stringent bail conditions including surrender of passport and surety - Petitioners entitled to bail subject to conditions - HELD THAT: - The Court found that the complaint with complete details has been filed and the trial before the Chief Metropolitan Magistrate (Economic Offences), Jaipur has commenced; no further documents are required for investigation and the petitioners are not necessary for further investigation or recovery for the criminal proceedings. Taking into account that the petitioners have been in custody for a prolonged period (about 450 days) and applying the principles in Sanjay Chandra, the Court concluded that bail should be granted pending trial on conditions to allay prosecution's apprehensions. The Court framed conditions modelled on those applied by the Apex Court, adapted to the present case, and directed execution of bail bond with one surety of like amount and other specified conditions including attendance at court and surrender of passport or affidavit where applicable. [Paras 11, 15, 16]

Petitioners enlarged on bail on furnishing a bail bond of Rs.1,00,000 with one like surety and subject to enumerated conditions.

Risk of tampering with witnesses - Apprehension of tendency to interfere with witnesses not established - HELD THAT: - The Court examined the Revenue's contention that the petitioners might interfere with witnesses or the ongoing investigation and noted the absence of any material on record that a witness has been threatened. In the absence of such evidence, the Court rejected the submission that the petitioners' release would pose a real risk of tampering, and thus did not treat that apprehension as a bar to bail. [Paras 13]

Prosecution's apprehension of witness tampering not made out; it did not preclude grant of bail.

Compoundable offence - Offence is compoundable but no compounding proceedings have been initiated - HELD THAT: - The Court observed that the offence alleged under the CGST Act is compoundable. It noted that neither party has undertaken compounding proceedings, and recorded that the petitioners' incarceration has impeded any compounding steps. This factual position was taken into account as a factor favouring release, but the Court did not adjudicate or permit compounding itself; it only noted compoundability as relevant context. [Paras 14]

Recognition that the offence is compoundable; absence of compounding proceedings did not prevent grant of bail.

Final Conclusion: Bail granted to the petitioners on execution of a bail bond of Rs.1,00,000 with one similar surety and subject to conditions including non-interference with witnesses, attendance at court, not disputing identity, and surrender of passport or affidavit; liberty reserved to the prosecution to move for modification or recall if conditions are violated.

Interim bail under Section 439 of the Code of Criminal Procedure, 1973 - economic offences under the Central Goods and Services Tax Act, 2017 - medical grounds for grant of bail

Interim bail under Section 439 of the Code of Criminal Procedure, 1973 - medical grounds for grant of bail - Third interim bail application filed by the petitioner under Section 439 Cr.P.C. was dismissed. - HELD THAT: - Petitioner sought third interim bail on the ground that his father suffers from several ailments and requires hospital treatment. The Union of India opposed the application, submitting that the available reports do not indicate that the petitioner's father requires treatment warranting interim bail. The High Court considered the submissions of both parties and noted the absence in the records of any material supporting the claimed necessity for hospital treatment. On that basis, the court was not inclined to grant the third interim bail and refused the application. [Paras 8, 9]

Third interim bail application under Section 439 Cr.P.C. dismissed.

Final Conclusion: The High Court, after hearing parties and noting lack of supporting material for the claimed medical necessity, declined to grant the petitioner's third interim bail and dismissed the application.

Power to levy service tax under omitted provisions - continuance of levy despite omission - exemption under Notification No.25/2012-Service Tax Clause 29(h) and Clause 13 - production of original records for adjudication - virtual court proceedings

Power to levy service tax under omitted provisions - continuance of levy despite omission - Judgment in Laxmi Narayan Sahu and Others vs. Union of India and Others (WP(C) 7729/2017) covers the question whether the department has power to proceed for levy of service tax under Chapter V of the Finance Act, 1994 despite omission by Section 173 of the CGST Act, 2017. - HELD THAT: - The Court recorded the submission of learned counsel for the petitioner that the earlier decision in Laxmi Narayan Sahu and Others (decided 12.10.2018) has been furnished and 'covers the first limb of issues' raised in the present petition. The Court accepted that submission and treated the question of the departmental power to proceed with levy under the omitted provisions as being addressed by that earlier judgment. No fresh adjudication on that specific question was undertaken in the present order.

The question of departmental power to levy service tax under the omitted provisions is treated as covered by the cited earlier judgment.

Exemption under Notification No.25/2012-Service Tax Clause 29(h) and Clause 13 - production of original records for adjudication - Claim of exemption by the petitioner under Notification No.25/2012-Service Tax (Clause 29(h) read with Clause 13) was not decided on merits and requires consideration after production of records. - HELD THAT: - Learned counsel for the respondent stated that the affidavit on record deals with the departmental power and not the merits of the exemption claim. The Court directed the respondent to produce connected records in original before the Court on the next date fixed so that the merits of the petitioner's claim of exemption under the specified notification can be addressed. The order therefore postpones adjudication of the exemption contention pending production and examination of the original records.

Petitioner's claim of exemption under Notification No.25/2012 was not adjudicated; respondents to produce original records and the matter is adjourned for further hearing.

Final Conclusion: The Court recorded that the earlier judgment in Laxmi Narayan Sahu covers the departmental power to levy under the omitted provisions; the petitioner's claim of exemption under Notification No.25/2012 is left undecided and the respondents are directed to produce the connected original records on the next date fixed (12.06.2020) for further consideration.

Passage of benefit of tax rate reduction under Section 171 - Commensurate reduction in price - Computation of profiteered amount - Deposit in Consumer Welfare Fund - Imposition of penalty under Section 171(3A) - Monitoring and recovery under Rule 136 and Rule 133

Passage of benefit of tax rate reduction under Section 171 - Commensurate reduction in price - Whether the GST rate on the product was reduced w.e.f. 15.11.2017 and whether the supplier M/s. Vini Cosmetics Pvt. Ltd. passed on the benefit by commensurately reducing prices. - HELD THAT: - The Authority accepted as a fact, uncontested by parties, that the GST rate on the impugned product was reduced from 28% to 18% w.e.f. 15.11.2017. Documentary evidence in the form of pre and post change invoices and price lists produced by M/s. Vini Cosmetics Pvt. Ltd. established that it revised the MRP of the product downward (from Rs. 299 to Rs. 275) and communicated price reductions and supplied revised MRP stickers to super stockists. On that basis the Authority concluded that M/s. Vini Cosmetics Pvt. Ltd. had commensurately reduced prices and passed on the tax benefit to its recipients to the extent reflected in its records, while noting that verification of ultimate passing on by downstream stockists was outside the scope of the present investigation. [Paras 9, 10, 11, 12, 21]

The GST rate reduction w.e.f. 15.11.2017 is accepted and M/s. Vini Cosmetics Pvt. Ltd. is held to have commensurately reduced MRP and passed on the benefit to its immediate recipients.

Computation of profiteered amount - Commensurate reduction in price - Whether the Respondent (super stockist/distributor) passed on the benefit of the rate reduction and, if not, the quantum of profiteering. - HELD THAT: - The DGAP compared the average base prices in the pre rate revision period with actual invoice wise base prices after the rate reduction and found instances where the Respondent increased base prices despite the reduced GST rate. The Respondent initially contested computations but subsequently accepted that he had profiteered and did not contest the DGAP's computed figure. On this basis the Authority adopted the DGAP's methodology and computation as reflected in Annexure 25 of the DGAP Report to determine the net higher sales realization attributable to non passing of benefit. [Paras 16, 18, 19, 20, 21]

The Respondent did not pass on the benefit and has profiteered; the profiteered amount is determined as Rs. 8,50,442/- (inclusive of GST) for the period under investigation.

Deposit in Consumer Welfare Fund - Monitoring and recovery under Rule 136 and Rule 133 - The relief and compliance directions to be imposed upon the Respondent for the determined profiteered amount. - HELD THAT: - As recipients are not identifiable, the Authority directed reduction of prices commensurately and ordered deposit of the determined profiteered amount into the Consumer Welfare Funds of the Central and the Delhi State Governments under the procedure prescribed by the Rules. The deposit is to be made within three months along with interest at 18% from the dates when the amounts were realised till deposit; failure to comply will invite recovery by the concerned Commissioners. The Authority further directed Commissioners of CGST/SGST to monitor compliance under the supervision of the DGAP and to report within four months. [Paras 22, 24]

The Respondent is directed to reduce prices commensurately and deposit Rs. 8,50,442/- (inclusive of GST) with 18% interest into the Central and Delhi State Consumer Welfare Funds within three months; compliance to be monitored and reported by the Commissioners CGST/SGST.

Imposition of penalty under Section 171(3A) - Whether the Respondent is liable to be proceeded against for penalty under Section 171(3A). - HELD THAT: - Having found that the Respondent denied the benefit of tax reduction to customers in contravention of Section 171(1) and the Explanation thereto, the Authority held that the Respondent is apparently liable to penalty under Section 171(3A). Consequently, the Authority directed issuance of a show cause notice to afford the Respondent an opportunity to explain why penalty should not be imposed. [Paras 23]

A show cause notice is to be issued to the Respondent to explain why penalty under Section 171(3A) should not be imposed.

Final Conclusion: The Authority held that the GST rate on the impugned product was reduced w.e.f. 15.11.2017 and that M/s. Vini Cosmetics Pvt. Ltd. had reduced MRP and passed on benefit to its recipients, whereas the Respondent failed to pass on the benefit and thereby profiteered. The profiteered amount is fixed at Rs. 8,50,442/- (inclusive of GST); the Respondent is directed to reduce prices commensurately, deposit the amount with 18% interest into the Central and Delhi State Consumer Welfare Funds within three months, and has been issued a show cause notice for penalty; Commissioners are directed to monitor compliance.

Bail under Section 439 Cr.P.C. - triability by Magistrate - judicial custody and charge-sheet filed - conditions of bail - risk of influencing witnesses - temporary relaxation of surety requirement due to COVID-19 lockdown

Bail under Section 439 Cr.P.C. - judicial custody and charge-sheet filed - triability by Magistrate - Grant of bail to the petitioner in FIR No.146/2018 - HELD THAT: - Court noted that the petitioner had been in custody since 30 October 2019 and that investigation was complete with a charge-sheet filed. The offences alleged relate to creating bogus firms and obtaining fraudulent GST refunds, but the charge-sheeted offences are triable by a Magistrate. Having regard to the totality of the facts and circumstances, and without expressing any opinion on merits, the Court exercised its discretion under Section 439 Cr.P.C. to enlarge the petitioner on bail. The Court recorded objections of the prosecution and complainant about alleged large-scale misappropriation and risk of influencing witnesses but found grounds sufficient to grant bail subject to conditions.

Second bail application allowed; petitioner to be released on bail upon compliance with conditions.

Conditions of bail - temporary relaxation of surety requirement due to COVID-19 lockdown - risk of influencing witnesses - Terms on which bail is to be granted and consequences of non-compliance - HELD THAT: - The Court directed release on bail on execution of a personal bond and specified sureties, but recognised practical difficulties and risks posed by the COVID-19 lockdown. Consequently, the Court permitted immediate release upon furnishing the personal bond, with an extension until 30 May 2020 to furnish the requisite sureties to the satisfaction of the trial court. Conditions imposed included attendance on all dates of hearing, availability to investigating authorities (including GST Department), prohibition on leaving the country without prior permission of this Court, and warning that failure to furnish surety bonds by the stipulated date would automatically terminate the order. The Court left open recourse to the State and GST Department to move for cancellation of bail if conditions are breached.

Bail granted on conditions; personal bond accepted immediately, sureties to be furnished by specified date; conditions of appearance, availability and prior permission for foreign travel imposed; breach may invite cancellation.

Final Conclusion: Bail application allowed under Section 439 Cr.P.C.; petitioner released on execution of a personal bond with directions to furnish specified sureties by the stipulated date, to attend proceedings and remain available to investigating authorities, and not to leave the country without prior permission; failure to comply or to abide by conditions may lead to cancellation of bail.

Condonation of delay - Delay in filing of the appeal is of 1744 days - Delay in filing of appeal is in reference to the Manager, who said to be ill - as per HC [2019 (11) TMI 1193 - ALLAHABAD HIGH COURT] no ground to condone the delay - application for condonation of delay is dismissed - HELD THAT:- No reason to interfere. The Special Leave Petition is dismissed.

Tax deduction at source on salary arrears and pension fund contributions - Certificate for deduction at lower or nil rate under Section 197 - Administrative remedy of filing representation for nil/lower TDS - Interim injunction restraining deduction pending consideration

Tax deduction at source on salary arrears and pension fund contributions - Certificate for deduction at lower or nil rate under Section 197 - Interim injunction restraining deduction pending consideration - Petitioner's entitlement to seek nil/lower deduction of income-tax on salary revision arrears (from which amounts were appropriated to pension fund corpus) and the continuance of interim restraint pending administrative consideration. - HELD THAT: - The Court followed its earlier decision in a similar petition and declined to adjudicate the substantive plea for nil deduction on merits, observing that the Income-tax Act provides a statutory mechanism for consideration of such requests by way of a certificate under Section 197. The petitioner was directed to file a representation seeking nil/lower deduction within four weeks; the appropriate authorities were directed to afford personal hearing and decide the representation on merits and in accordance with law within four weeks of conclusion of the personal hearing. In view of the pending administrative route and consistent with past orders, the interim injunction previously granted restraining deduction was extended until the authorities dispose of the representation or until the stipulated date. The Court noted no substantial opposition from respondents to granting the same relief as in the earlier disposed petition and therefore confined itself to directing the prescribed procedural remedy rather than determining the taxability issue itself.

Petitioner to submit representation for nil/lower TDS within four weeks; authorities to decide after personal hearing on merits within four weeks; existing interim injunction extended until such decision or the specified date.

Final Conclusion: Writ petition disposed by directing the petitioner to seek statutory relief under the mechanism for nil/lower deduction, directing expeditious adjudication by the authorities after personal hearing, and extending the interim injunction restraining tax deduction until disposal of the representation (no costs).

Summary order. Exemption applications allowed. Notice issued in the writ petition seeking refund; respondents directed to examine the matter personally and file a status report within two weeks; rejoinder, if any, permitted; matter listed for further hearing on 24 June 2020.

Maintainability of Public Interest Litigation - locus standi and bonafides of petitioner in PIL - misuse of PIL / publicity interest litigation - judicial restraint and non-encroachment on executive/legislative domain - validity of executive rule-making under Article 309 of the Constitution - continuation of Provident Fund account by retired employees

Maintainability of Public Interest Litigation - locus standi and bonafides of petitioner in PIL - misuse of PIL / publicity interest litigation - judicial restraint and non-encroachment on executive/legislative domain - Whether the petition filed as a Public Interest Litigation is maintainable and whether the petitioner has sufficient interest and bona fides to invoke public interest jurisdiction. - HELD THAT: - The Court found that the petitioner is not a retired government servant and has not demonstrated sufficient personal interest or bona fides to support a PIL. Applying the principles recorded in the earlier Division Bench order (paras 20-21) the Court emphasised that a PIL must show credible credentials, trustworthy and definite information, and gravity of public wrong; courts must guard against petitions that amount to publicity or are motivated by private or oblique interests. The Court concluded that the present petition more closely resembles a 'publicity interest litigation' and that exercising jurisdiction under Article 226 would amount to unwarranted encroachment into the executive sphere in the absence of proper PIL credentials.

The PIL is not maintainable for want of locus and bona fides and is dismissed on that ground.

Validity of executive rule-making under Article 309 of the Constitution - continuation of Provident Fund account by retired employees - Whether the amendment dated 28.06.2012 to the Rules of 1997 (permitting retired employees to continue Provident Fund accounts and deposit pensionary benefits) is invalid or contrary to the Rules of 1951 and Article 309. - HELD THAT: - After scrutiny of the material, the Court recorded that the petitioner failed to establish that the impugned amendment is invalid or contrary to the Rules. The Bench observed that the amendment was made by the State Government under the delegated power and was intended to allow retired employees the option to continue their Provident Fund accounts for depositing pensionary benefits. No substantive illegality or invalid exercise of power was shown that would warrant interference in proceedings which in any event were held not to be maintainable as a PIL.

The challenge to the amendment dated 28.06.2012 is rejected; the amendment is not held invalid.

Final Conclusion: The public interest petition is dismissed as not maintainable for want of locus and bona fides; no illegality in the impugned amendment dated 28.06.2012 is found.

Penalty under section 271(1)(c) for additions based on estimate - Deletion of addition made on estimate basis - Computation of 90-day pronouncement period under Rule 34(5) - Exclusion of lockdown period as extraordinary circumstance for time limits

Penalty under section 271(1)(c) for additions based on estimate - Deletion of addition made on estimate basis - Whether penalty under section 271(1)(c) can be sustained where the assessing officer made addition to income on an estimate basis. - HELD THAT: - The Tribunal held that where the assessing officer's addition is made purely on estimate without any positive findings or supporting base, imposition of penalty under section 271(1)(c) is not justified. The Bench relied on the settled principle that a penal consequence under section 271(1)(c) cannot be sustained when the addition itself is founded on an estimate; the AO had estimated net profit at 1.5% and no contemporaneous findings justified treating the return as inaccurate. In view of this determinative reasoning, the penalty was quashed and the addition deleted. [Paras 4, 5]

Penalty under section 271(1)(c) quashed and the addition made on estimate deleted.

Computation of 90-day pronouncement period under Rule 34(5) - Exclusion of lockdown period as extraordinary circumstance for time limits - Whether the period of national lockdown due to Covid-19 is to be excluded while computing the 90-day period for pronouncement of Tribunal orders under Rule 34(5). - HELD THAT: - The Tribunal observed that Rule 34(5) ordinarily requires pronouncement within 90 days from conclusion of hearing but contains the qualifier "ordinarily" and an exception for exceptional and extraordinary circumstances. Having considered the unprecedented disruption caused by the Covid-19 pandemic, relevant notifications treating the situation as a disaster, and judicial directions extending limitation, the Bench held that the lockdown period is to be excluded for computation of the 90-day period. The Tribunal therefore concluded that pronouncing the order after the expiry of 90 days in the present circumstances was permissible and within Rule 34(5). [Paras 6, 7, 8]

Lockdown period excluded in computing the 90-day pronouncement period under Rule 34(5); pronouncement after that period was permissible on the facts.

Final Conclusion: The appeal is allowed: the addition made on estimate was deleted and the penalty under section 271(1)(c) quashed; additionally, the Tribunal held that the Covid-19 lockdown period is excluded in computing the 90-day pronouncement period under Rule 34(5), validating the delayed pronouncement.

Allowability of bad debts under section 36(1)(vii) - interaction between Rule 9B of the Income tax Rules and general provisions for bad debts - remand for verification and de novo consideration of additional evidence - disallowance of expenditure for lack of pucca bills and reasonableness of ad hoc disallowance

Allowability of bad debts under section 36(1)(vii) - interaction between Rule 9B of the Income tax Rules and general provisions for bad debts - remand for verification and de novo consideration of additional evidence - Whether the loss claimed by the assessee on advances in respect of distribution rights of films, treated as bad debts, can be allowed in the assessment year under consideration despite Rule 9B and whether the additional ledger evidence should be examined afresh by the Assessing Officer. - HELD THAT: - The Tribunal noted that the assessee did not claim expenditure on acquisition of films but claimed loss due to non recovery of advances, i.e., debts written off in the relevant year. Rule 9B prescribes a method of computing deduction for cost of acquisition of distribution rights but does not by its terms preclude a claim for loss on distribution arising from unrecovered advances. Reliance was placed on authorities holding that bona fide bad debts or business losses may be written off and that Rule 9B does not operate to deny a claim where the nature of the claim is a bad debt or trading loss. However, the Tribunal found that the additional ledger accounts filed to support the write offs required verification. Consequently the Tribunal set aside the matter to the file of the AO for de novo consideration of the claim and verification of the additional evidence, treating the assessee's grounds on this point as allowed for statistical purposes. [Paras 11]

Issue remanded to the Assessing Officer for fresh consideration and verification of the ledger/accounts supporting the claimed loss; grounds on this issue treated as allowed for statistical purposes.

Disallowance of expenditure for lack of pucca bills - reasonableness of ad hoc disallowance - Whether the ad hoc disallowance made by the Assessing Officer of one fifth (claimed as 20% by the assessee) of certain expenditures on account of self made/unverifiable vouchers was justified. - HELD THAT: - The Tribunal observed that the Assessing Officer in fact disallowed 5% of the expenditure (not 20% as alleged by the assessee). The assessee failed to demonstrate why the 5% disallowance was unreasonable or arbitrary, and did not identify specific amounts found to be not genuine. The Tribunal therefore declined to interfere with the ad hoc disallowance made by the AO and confirmed the rejection of the assessee's grounds on this point. [Paras 12]

Grounds challenging the 5% disallowance are rejected and the disallowance is sustained.

Final Conclusion: The appeal is treated as partly allowed for statistical purposes: the claim for loss on advances written off is remanded to the Assessing Officer for fresh verification and consideration of the ledger evidence, while the 5% disallowance for unverifiable vouchers is upheld.

Disallowance for expenditure in relation to exempt income and application of Rule 8D - deemed dividend under section 2(22)(e) and distinction between business/client transactions and loans/advances - computation of written down value of block of assets and applicability of section 50C

Disallowance for expenditure in relation to exempt income and application of Rule 8D - Deletion of disallowance computed under Rule 8D/read with section 14A where no exempt income was earned in the year. - HELD THAT: - The Assessing Officer applied Rule 8D to compute a disallowance though it was recorded on facts that the assessee did not earn any exempt income during the year. The Tribunal followed the decision of the Delhi High Court in Cheminvest Ltd. holding that section 14A requires actual receipt of exempt income in the relevant previous year before any disallowance can be made. On that basis the CIT(A)'s deletion of the disallowance was upheld and the Revenue's ground against deletion was dismissed. [Paras 7]

Deletion of the section 14A disallowance upheld; Revenue's appeal on this ground dismissed.

Deemed dividend under section 2(22)(e) and distinction between business/client transactions and loans/advances - Whether payments between the assessee and broker companies were to be treated as deemed dividend under section 2(22)(e) or as ordinary trading/client transactions. - HELD THAT: - The Assessing Officer recast client ledgers and treated certain payments as advances/loans attracting section 2(22)(e). The CIT(A) analysed the ledger as a running client account comprising frequent purchase/sale and settlement entries relating to share/currency/derivatives/commodities trading, and concluded these were business transactions not loans/advances. The Tribunal followed a coordinate bench and relied on the ratio that where payments form part of trading/client transactions entered in the ordinary course of business, they do not fall within section 2(22)(e). The factual finding that the transactions were trading in nature was not controverted; accordingly the addition was deleted and the Revenue's appeal on this ground dismissed. [Paras 8, 10, 11]

Addition under section 2(22)(e) deleted; Revenue's appeal on this ground dismissed.

Computation of written down value of block of assets and applicability of section 50C - Method of reducing the WDV of the block of buildings on sale - whether reduction must be by stamp-duty value or by the actual sale consideration received. - HELD THAT: - The Assessing Officer reduced the block by the stamp-duty value under his view and disallowed excess depreciation accordingly. The Tribunal examined the facts that the assessee received the actual sale consideration prior to execution of the sale deed and held that section 50C operates only to substitute 'full value of consideration' for the purposes of computing capital gains (section 48) and does not govern the computation of the WDV of a block under section 43(6). Therefore the WDV must be reduced by the actual sales proceeds received (Rs. 2 crores) and not by the stamp-duty value. Applying that reduction, the Tribunal recalculated allowable depreciation and held that excess depreciation disallowance is to be reduced correspondingly - resulting in a confirmed excess disallowance smaller than that assessed by the AO. [Paras 17]

WDV to be reduced by actual consideration received (not stamp-duty value); assessee's claim partly allowed and excess depreciation disallowance reduced accordingly.

Final Conclusion: The Tribunal dismissed the Revenue's appeal against deletion of the section 14A disallowance and against deletion of the deemed-dividend addition under section 2(22)(e). The assessee's appeal on excess depreciation was partly allowed: the WDV of the building block must be reduced by the actual sale consideration received (not by stamp-duty value), leading to a reduced confirmed disallowance; overall the assessee's appeal is partly allowed and the Revenue's appeal is dismissed.

Disallowance of expenditure attributable to exempt income under Rule 8D - attribution of interest expense under Rule 8D(2)(ii) and deemed expenditure under Rule 8D(2)(iii) - deductibility of interest - business purpose test under section 36(1)(iii) - fair market value of shares for section 56(2)(viiib) - option to substantiate higher value

Disallowance of expenditure attributable to exempt income under Rule 8D - attribution of interest expense under Rule 8D(2)(ii) and deemed expenditure under Rule 8D(2)(iii) - Whether disallowance under Rule 8D of expenditure attributable to exempt dividend income was correctly computed and sustained. - HELD THAT: - The Tribunal examined the investment made during the year, the interest paid on borrowings and the fact that most investments were from earlier years while only Rs. 22,00,000 was invested in the year under consideration. Applying Rule 8D(2)(ii), the proportionate interest attributable to the investment was computed as interest paid multiplied by investment during the year divided by average total assets, yielding Rs. 67,821. In addition, the deeming provision under Rule 8D(2)(iii) (half percent of average value of investments) was applied to arrive at the additional disallowance of Rs. 2,97,725. The Tribunal found no misapplication of the rule or error in the CIT(A)'s computation, noting absence of any material to show that interest-bearing borrowings were used for the specific acquisitions of investments in the year. On that basis the CIT(A)'s confirmation of the disallowance was sustained. [Paras 7]

Disallowance under Rule 8D as computed by the CIT(A) is sustained; ground dismissed.

Deductibility of interest - business purpose test under section 36(1)(iii) - Whether interest and related charges on funds borrowed (and subsequently lent as interest-free advances for equity infusion in associate concerns) were deductible as wholly and exclusively for business under section 36(1)(iii). - HELD THAT: - The Tribunal reviewed the purpose clause of the loan and factual matrix showing that borrowed funds were advanced to sister/associate concerns for equity infusion. Unlike precedents where advances were held to be business expedient, the loan in this case was specifically taken for infusion of equity into associates and the Assessing Officer concluded that the funds were not used for the assessee's business operations. The Tribunal held that, on these facts, the interest and related expenditure were not incurred wholly and exclusively for the assessee's business and therefore correctly disallowed by the authorities. The Tribunal distinguished the facts from the cited authority relied upon by the assessee. [Paras 10]

Addition under section 36(1)(iii) confirmed; ground dismissed.

Fair market value of shares for section 56(2)(viiib) - option to substantiate higher value - Whether the assessee could substantiate a higher fair market value of its shares (by incorporating market value of listed holdings) for the purposes of section 56(2)(viiib) and thereby avoid addition on premium received. - HELD THAT: - Section 56(2) permits use of the value determined under prescribed rules or a value substantiated to the satisfaction of the Assessing Officer based on assets as on the date of issue, whichever is higher. The Tribunal accepted in principle that the assessee may substitute market (traded) value for the book value of listed investments to demonstrate a higher fair market value of its own shares, provided the assessee satisfactorily substantiates that value to the Assessing Officer. Noting that the lower authorities had disbelieved the assessee for lack of supporting material but that the assessee produced evidence before the Tribunal (quotation of the listed share price), the Tribunal set aside the matter and remitted it to the Assessing Officer to examine, on merits, the assessee's substantiation and to determine the fair market value of the shares on the date of issue in accordance with law. [Paras 15]

Ground allowed in part; issue remitted to the Assessing Officer for fresh examination of substantiated fair market value.

Final Conclusion: The Tribunal partly allowed the appeal: (i) confirmed the Rule 8D disallowance as computed by the CIT(A); (ii) confirmed the disallowance of interest under section 36(1)(iii); and (iii) set aside the addition under section 56(2)(viiib) for reconsideration, remanding the matter to the Assessing Officer to determine the fair market value of shares after considering the assessee's substantiation.

Arm's Length Price - Comparability under Resale Price Method - Transactional Net Margin Method as Most Appropriate Method - Comparability adjustments - Disallowance of Modicare Ltd as Comparable - Direction to Transfer Pricing Officer to apply TNMM

Disallowance of Modicare Ltd as Comparable - Comparability under Resale Price Method - Comparability adjustments - Modicare Ltd cannot be treated as a sole comparable for determining arm's length price under the Resale Price Method. - HELD THAT: - The Tribunal followed the coordinate bench reasoning which examined product mix, functional differences, divergent accounting treatments (notably treatment of discounts/incentives) and the absence of segmental data for Modicare Ltd. Those factors rendered reliable comparability adjustments infeasible. The coordinate bench had held that mere similarity of a direct selling model was insufficient where detailed segmental and functional data were lacking, and that Modicare's significant AMP and other operating expenses, varied product portfolio and differing accounting treatment for incentives vitiate RPM comparability. On identical facts and no change in circumstances, the Tribunal concluded Modicare Ltd should be excluded as a comparable. [Paras 10, 11]

Modicare Ltd rejected as a comparable company; RPM with Modicare as sole comparable cannot be sustained.

Transactional Net Margin Method as Most Appropriate Method - Direction to Transfer Pricing Officer to apply TNMM - Arm's Length Price - TNMM is the most appropriate method and the TPO is directed to apply TNMM on the comparables selected by the assessee with suitable working capital adjustment. - HELD THAT: - Following the exclusion of Modicare Ltd as a comparable, the Tribunal (respecting the coordinate bench and High Court directions) held that TNMM should be adopted because net profit indicators are more tolerant of functional differences and permit reasonably accurate analysis where gross margins vary on account of differing operating expenses and accounting treatments. The TPO was directed to examine international transactions afresh using TNMM on the comparables originally selected by the assessee and to make appropriate working capital adjustments as necessary. [Paras 10, 11]

TPO directed to re examine the international transactions using TNMM on the assessee's comparables with suitable working capital adjustment; the transfer pricing addition based on RPM/Modicare disallowed.

Arm's Length Price - Various grounds challenging the validity of the assessment order and related procedural/contentions (grounds 1-3, 12 and 13) were dismissed. - HELD THAT: - The Tribunal dealt with the substantive transfer pricing controversy by directing re computation under TNMM and, insofar as grounds 1-3, 12 and 13 were general in nature and not sustainable on the facts or law as presented, those grounds were rejected. The order records that grounds 4-11 succeed while the listed general grounds fail. [Paras 12]

Grounds 1-3, 12 and 13 dismissed; appeal otherwise partly allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal disallowed Modicare Ltd as a comparable and directed the TPO to apply TNMM on the comparables selected by the assessee with suitable working capital adjustment for AY 2013 14; general grounds 1-3, 12 and 13 are dismissed.

Characterisation of government subsidy as capital or revenue receipt - interpretation of incentive scheme for determining nature of subsidy - application of Explanation 10 to Section 43(1) - reduction of cost of assets by subsidy - precedential weight of tribunal and High Court decisions in revenue characterisation

Characterisation of government subsidy as capital or revenue receipt - interpretation of incentive scheme for determining nature of subsidy - precedential weight of tribunal and High Court decisions in revenue characterisation - Industrial Promotion Assistance (IPA) received under West Bengal Incentive Scheme, 2000 is a capital receipt. - HELD THAT: - The Tribunal examined the WBIS-2000 scheme, the eligibility certificate and the package approved for the assessee as a Mega Project in Bankura (Group C). The scheme was framed to promote setting up of new units or expansion projects, with IPA granted to qualifying units as an incentive linked to investment and continued production; certain conditions (eligibility certificate, requirement to remain in production, recovery provisions on default) demonstrate that the assistance was granted to enable capital formation rather than to supplement trade receipts. The form or mechanism of payment (adjustment against sales tax or linkage to sales tax paid) was held irrelevant to characterisation; what matters is the object of the subsidy. The Tribunal therefore followed its earlier decisions under WBIS-2000 and the ratio of the Calcutta High Court in Rasoi Ltd., and distinguished authorities where facts showed operation/recurring assistance. Applying these principles to the facts for AY 2010-11, the Tribunal held that the IPA was capital in nature and upheld the CIT(A)'s deletion of the addition made by the AO. [Paras 7, 10, 11, 12, 13]

The IPA under WBIS-2000 of Rs. 1,96,77,000/- is capital receipt; the CIT(A) order deleting the addition is upheld.

Application of Explanation 10 to Section 43(1) - reduction of cost of assets by subsidy - Industrial Promotion Assistance need not be reduced from the actual cost of assets under Explanation 10 to Section 43(1) where the subsidy was not shown to have been directly or indirectly used to acquire specific assets. - HELD THAT: - The Tribunal reviewed the Explanation and proviso to Section 43(1) and the settled law that only asset-specific subsidy that is directly or indirectly used to meet part of the cost of an asset can be excluded from actual cost. The WBIS-2000 assistance, though quantified by reference to sales tax or expressed as a percentage of investment for determining quantum, was not shown to have been applied to acquire particular assets; consequently the proviso could not be invoked to reduce the cost/WDV of assets. The Tribunal followed earlier pronouncements (including its own precedents and the Supreme Court approach) that distinguish between asset-specific subsidies and incentive schemes whose measure is related to investment but which are intended as promotion/encouragement. [Paras 10]

Explanation 10 to Section 43(1) does not require reduction of asset cost by the IPA in the absence of a finding that the subsidy directly or indirectly met asset acquisition cost.

Final Conclusion: Revenue's appeal is dismissed; the CIT(A)'s order treating the IPA under WBIS-2000 as a capital receipt is upheld and the addition made by the Assessing Officer is deleted.

Permanent Establishment - Fees for Technical Services - Business profits attributable to a PE - Article 5(2)(k) of India Spain DTAA - Article 13(4) of India Spain DTAA

Permanent Establishment - Fees for Technical Services - Article 13(4) of India Spain DTAA - Business profits attributable to a PE - Article 5(2)(k) of India Spain DTAA - Whether receipts received by the non-resident assessee from NATRIP for DPIR and engineering services during the relevant year were taxable as business profits attributable to a Permanent Establishment in India or as Fees for Technical Services taxable under the DTAA - HELD THAT: - The Tribunal examined the scope of the consultancy agreement, the chronology of services and payments, and the factual material on record including date of submission of DPIR, dates of payments and the date of establishment of the project office. The Assessing Officer's conclusion of a PE rested on inferences from the contract's terms and assumed on site activity, without any finding of actual fixed place of business or sustained on site supervisory work performed in India prior to formation of the project office. There was no material showing that employees of the assessee carried out project/site planning or supervisory activities in India for the threshold period prescribed by Article 5(2)(k) (six months in any twelve month period), nor any evidence that services were performed through a fixed place of business in India before the project office was established on 01.09.2006. The Tribunal held that mere contractual scope or hypothesised primary research does not establish a PE where the record does not show actual activities or receipts linked to a PE. Having found absence of a PE for the activities giving rise to the receipts in the year under appeal, the Tribunal held the receipts to be in the nature of Fees for Technical Services and taxable accordingly under Article 13(4) of the India Spain DTAA

There was no Permanent Establishment in India for the DPIR and engineering services in Assessment Year 2007-08; the receipts are in the nature of Fees for Technical Services chargeable under Article 13(4) of the India Spain DTAA and the appeal is allowed on this issue.

Final Conclusion: The Tribunal allowed the assessee's appeal on the determinative issue, holding that for Assessment Year 2007-08 the receipts from DPIR and engineering services were not attributable to a Permanent Establishment in India and are taxable as Fees for Technical Services under Article 13(4) of the India Spain DTAA; other grounds were not adjudicated.

Allowance of depreciation on assets given on finance lease - ownership status for finance lease assets - written down value of block of assets and opening WDV - transfer pricing adjustment for import/purchase of equipment from associated enterprise - determination of arm's length price and choice of Most Appropriate Method (CUP vs TNMM) - proportionate limitation of TP adjustment to quantum of international transaction - remand to Assessing Officer for fresh adjudication in accordance with law

Allowance of depreciation on assets given on finance lease - ownership status for finance lease assets - written down value of block of assets and opening WDV - remand to Assessing Officer for fresh adjudication in accordance with law - Whether the claim for depreciation in respect of assets leased out under finance lease (including depreciation on opening WDV of the block) should be adjudicated afresh by the Assessing Officer with production and examination of lease agreements and in the light of the Supreme Court decision referred to. - HELD THAT: - The Tribunal noted that identical contentions were considered in the assessee's earlier proceedings and that the earlier Tribunal order directed production of further lease agreements and remitted the matter to the AO for fresh examination against the benchmark of the terms and conditions considered by the Apex Court in ICDS Ltd. v. CIT. The Bench observed that the assessee had not pointed to any factual difference in the present year which would warrant a departure from the approach adopted earlier. Consequently, the issue of depreciation (including on opening WDV of the block) is set aside to the file of the AO for fresh adjudication; the AO is to call for and examine the lease agreements and, if their terms and conditions are similar to those considered by the Supreme Court and no material variations exist, grant depreciation as claimed. [Paras 8, 9]

Issue remitted to the Assessing Officer for fresh adjudication in accordance with law; grounds 1 and 2 allowed for statistical purposes.

Transfer pricing adjustment for import/purchase of equipment from associated enterprise - determination of arm's length price and choice of Most Appropriate Method (CUP vs TNMM) - proportionate limitation of TP adjustment to quantum of international transaction - remand to Assessing Officer for fresh adjudication in accordance with law - Whether the transfer pricing adjustments relating to purchase/import of equipment from the Associated Enterprise (including choice of MAM and whether adjustment must be restricted proportionately to the international transaction) should be re-examined by the Assessing Officer. - HELD THAT: - Relying on the Tribunal's earlier reasoning in the assessee's own case, the Bench accepted that (i) where an internal comparable (CUP) is available it is the more direct method for determining ALP than computing entity-level ROCE under TNMM, and (ii) any adjustment should be capable of being restricted to the quantum of the international transaction with the AE rather than applied on the entire entity-level base. The Tribunal directed that the AO must independently decide the MAM for determination of ALP for the international transaction of purchase of equipment for finance lease from the AE, consider all arguments of the assessee without being influenced by the methodology adopted in the assessee's TP study, and give specific conclusions on those arguments. Following the earlier order and noting no factual distinction in the present year, the matter was set aside for fresh adjudication by the AO. [Paras 10, 11]

Transfer pricing issues remitted to the Assessing Officer for fresh adjudication in accordance with law; appeal on TP matters allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the assessment issues relating to depreciation on finance-leased assets and the transfer pricing adjustments to the file of the Assessing Officer for fresh adjudication in accordance with law, directing examination of lease agreements and independent determination of the Most Appropriate Method and proportionality of any TP adjustment; the assessee's appeal is allowed for statistical purposes.

Deduction under Section 80P(2) - interest income from scheduled banks - application of precedent in Totgars Co-operative Sale Society Ltd. and Tumkur Merchants Souharda decisions - remand to Assessing Officer for fresh examination

Deduction under Section 80P(2) - interest income from scheduled banks - application of precedent in Totgars Co-operative Sale Society Ltd. and Tumkur Merchants Souharda decisions - Whether the addition of interest earned from scheduled banks should be sustained or requires fresh adjudication in the light of binding and persuasive precedents. - HELD THAT: - The Tribunal examined the conflicting authorities relied upon by the parties and the coordinate-bench decision dealing with identical issues. It found that the question of entitlement to deduction under Section 80P(2) in respect of interest earned from scheduled banks depends on factual matters (including source of funds and the factual matrix considered by precedents) which require fresh examination in the light of the Supreme Court decision in The Totgars Co-operative Sale Society Ltd. and subsequent High Court rulings. The Tribunal therefore did not decide the entitlement on merits but held that the impugned order of the CIT(A) confirming the addition could not stand and the matter should be sent back to the Assessing Officer for a fresh decision after examining the facts in accordance with the cited authorities.

Order of the CIT(A) is set aside and the issue is remitted to the Assessing Officer for fresh adjudication in accordance with the discussed precedents.

Remand to Assessing Officer for fresh examination - Disposition of the appeal following remand. - HELD THAT: - Having set aside the CIT(A)'s confirmation of the addition and remitted the matter for fresh consideration, the Tribunal allowed the assessee's appeal for statistical purposes. The Tribunal directed the Assessing Officer to decide the disputed issues afresh applying the relevant judicial decisions and examining the factual matrix.

Assessee's appeal allowed for statistical purposes and matter remitted to the file of the Assessing Officer with directions for fresh adjudication.

Final Conclusion: The Tribunal set aside the CIT(A)'s order insofar as it confirmed the addition of interest from scheduled banks, remitted the matter to the Assessing Officer for fresh consideration in light of the discussed precedents, and allowed the appeal for statistical purposes.