TaxTMI Updates e-Newsletter
Jun 09,2020

Classification of goods - General Rules for the interpretation of the Customs Tariff - Rule 3(c) of the General Rules of Interpretation - heading 2106 - Preparations not elsewhere specified or included - heading 1905 - Bread, pastry, cakes, biscuits and other bakers' wares - residual (residuary) entry - entry No.99A ("Khakhra, plain chapatti or roti") and applicability of 5% GST

Classification of goods - heading 1905 - Bread, pastry, cakes, biscuits and other bakers' wares - heading 2106 - Preparations not elsewhere specified or included - General Rules for the interpretation of the Customs Tariff - Rule 3(c) of the General Rules of Interpretation - The correct tariff classification of the products described as 'whole-wheat parota' and 'Malabar parota'. - HELD THAT: - The Authority found the products to be made of whole wheat flour or refined flour with water, oil, salt and fat and acknowledged they are not ready-to-eat but require heating before consumption (8.3). Chapter 19 (heading 1905) covers fully cooked baker's wares which are ready for consumption; since the impugned products require further processing they do not merit classification under heading 1905 (8.8). Heading 2106 covers food preparations not elsewhere specified and includes preparations requiring processing (such as cooking) for consumption; the parota products are not otherwise covered and thus fall within heading 2106 (8.9). Applying the General Rules of Interpretation, Rule 1 and Rule 2 did not yield a specific competing heading; where two headings (1905 and 2106) were considered, Rule 3(c) was applied and, because 2106 occurs later in numerical order, heading 2106 was held to be the appropriate classification (8.10). [Paras 8]

The products 'whole-wheat parota' and 'Malabar parota' are classifiable under Chapter Heading 2106 (food preparations not elsewhere specified) and not under heading 1905.

Entry No.99A ("Khakhra, plain chapatti or roti") and applicability of 5% GST - ready-to-eat food - classification of goods - Whether the products qualify for the benefit of entry No.99A (description 'Khakhra, plain chapatti or roti') attracting GST at 5%. - HELD THAT: - The notification confers the 5% rate only on goods that (i) are classifiable under heading 1905 or 2106 and (ii) are the specific described products 'khakhra, plain chapatti or roti'. Although the impugned products are classifiable under heading 2106 (fulfilling condition (i)), they are described and marketed as 'parota' and are not khakhra, plain chapatti or roti. Crucially, khakhra/plain chapatti/roti are fully cooked, ready-to-eat preparations whereas the impugned parota require further heating; thus they do not meet the descriptive condition in entry No.99A (8.11-8.12). Accordingly the concessional rate under entry No.99A is not applicable. [Paras 8]

The products do not qualify as 'khakhra, plain chapatti or roti' for the purpose of entry No.99A and are therefore not eligible for the 5% GST concessional rate.

Final Conclusion: The Advance Ruling holds that the products described as 'parota' are classifiable under Chapter Heading 2106 (food preparations not elsewhere specified) and, being distinct from and not falling within the description 'khakhra, plain chapatti or roti', are not entitled to the concessional 5% GST under entry No.99A of the cited notification.

Online Information and Database Access or Retrieval Services (OIDAR) - minimal human intervention - Composite supply and principal supply - exemption under Notification No. 09/2017 IGST (Rate) Sl. No. 10 - reverse charge liability under Notification No. 10/2017 IGST (Rate) Sl. No. 1

Online Information and Database Access or Retrieval Services (OIDAR) - minimal human intervention - Composite supply and principal supply - Service provided for Type 2 tests classifies as OIDAR services. - HELD THAT: - The Authority examined the nature of Type 2 tests - electronic delivery of tests at designated test centres where administrators verify identity, assign computers, monitor candidates and provide unofficial score reports, while final scoring for multiple choice items is automated. Applying the OIDAR definition elements, the Authority held that the overall activity is a bundled supply in the ordinary course of business and constitutes a composite supply whose principal element is the electronically supplied test. Human activity at the centres was regarded as focusing on the environment of supply rather than tailoring the service to individual recipients so as to exceed the threshold of 'more than minimal human intervention'. Consequently, the principal supply remains an electronically delivered, essentially automated OIDAR service. [Paras 14, 15]

Type 2 tests are OIDAR services.

Online Information and Database Access or Retrieval Services (OIDAR) - minimal human intervention - Service provided for Type 3 tests does not classify as OIDAR services. - HELD THAT: - Type 3 tests include an essay/analytical writing component that, after initial computer marking, are sent to human evaluators (and in some cases to expert evaluators) for final assessment and scoring. The Authority found that the involvement of human evaluators in the final scoring process means the scoring is not fully automated; such human intervention is integral to completing the service. Given that the final result depends on human evaluation, Type 3 falls outside the definition of OIDAR which requires essentially automated delivery involving minimal human intervention. [Paras 14, 15]

Type 3 tests are not OIDAR services.

Exemption under Notification No. 09/2017 IGST (Rate) Sl. No. 10 - reverse charge liability under Notification No. 10/2017 IGST (Rate) Sl. No. 1 - Tax consequence in India for the supplies: no IGST liability on supplier for Type 2; Type 3 supplies to individuals are exempt under Sl. No. 10 of Notification No. 09/2017 IGST (Rate). - HELD THAT: - The Authority explained that Notification Sl. No. 1 of Notification No. 10/2017 shifts the liability to pay IGST to the recipient only where there is a tax liability; it does not create taxability where none exists. Since Type 2 supplies qualify as OIDAR, the usual supplier-location rules apply but the Authority recorded that no separate tax on the supplier arises by virtue of the notifications. For Type 3 supplies, being non OIDAR services supplied by a provider located outside India to an individual for non business purposes, Sl. No. 10 of Notification No. 09/2017 affords exemption; therefore the transaction is exempt in the hands of both supplier and recipient. [Paras 14, 15]

No IGST payable by supplier under the notifications; Type 3 supplies to individuals are exempt under Sl. No. 10 of Notification No. 09/2017 IGST (Rate).

Final Conclusion: Advance ruling: Type 2 tests qualify as OIDAR services; Type 3 tests do not qualify as OIDAR services; accordingly, no IGST liability arises on the supplier under the notifications discussed and Type 3 supplies to individuals are exempt under Sl. No. 10 of Notification No. 09/2017 IGST (Rate).

Power to search premises under the Customs Act - Relevance of documents or things to proceedings under the Customs Act - Jurisdiction of revenue intelligence officers to search supplier's premises - Panchnama: accuracy, disputed factual record and evidentiary value - Provision of copies of seized records and mootness of relief for return

Power to search premises under the Customs Act - Jurisdiction of revenue intelligence officers to search supplier's premises - Relevance of documents or things to proceedings under the Customs Act - Validity of the search conducted by DRI at the petitioner's factory premises - HELD THAT: - The Court held that the statutory power to search is widely worded and is exercisable where the authorised officer has reason to believe that documents or things useful or relevant to proceedings under the Customs Act are secreted at any place. The provision does not confine searches to importers or exporters alone; third parties or suppliers to alleged exporters may be searched if records at their premises are relevant to the investigation. The petitioner, being a supplier to the Ludhiana dealers under investigation for alleged ineligible drawback and accumulated ITC obtained by procuring fake purchase bills, fell within the ambit of premises that could lawfully be searched. The challenge to jurisdiction was therefore not sustainable.

Search by DRI at the petitioner's premises was not illegal for lack of jurisdiction; challenge to validity of search dismissed.

Panchnama: accuracy, disputed factual record and evidentiary value - Whether the panchnama should be quashed on account of alleged mistakes or disputed entries - HELD THAT: - The Court treated the contention that certain contents of the panchnama were wrongly recorded as a disputed question of fact. It observed that alleged errors in recording cannot be examined in writ jurisdiction at the stage of challenge to the panchnama, and that the petitioner may raise questions as to the evidentiary value or accuracy of the entries at the appropriate forum or stage of proceedings. A request for rectification made by the petitioner does not warrant quashing the panchnama or declaring the search illegal.

Challenge to the panchnama on grounds of mistaken or added entries rejected; factual disputes to be raised at appropriate stage.

Provision of copies of seized records and mootness of relief for return - Claim for return of seized documents and records - HELD THAT: - The Court noted that copies of the seized documents and records had been handed over to the petitioner and that the grievance regarding non-provision of material no longer survived. The respondents had also arranged for forensic examination and supply of electronic record copies in a specified timeframe. In view of the documents having been made available to the petitioner, there remained no subsisting ground in writ jurisdiction to order return of records at this stage.

Petition for return of seized documents dismissed as academic/moot since copies were provided.

Final Conclusion: Writ petition dismissed; searches held to be within statutory power, disputed factual complaints regarding panchnama left open for appropriate proceedings, and claim for return of records rendered academic as copies were supplied.

Condonation of delay - extension of time to deposit amounts pursuant to undertaking to Court - continuation of immunity granted by earlier court order - withdrawal of attachment of properties - withdrawal of prosecution - imposition of costs as condition for condonation

Condonation of delay - extension of time to deposit amounts pursuant to undertaking to Court - imposition of costs as condition for condonation - Whether the delay in deposit of the balance amount under the undertaking was to be condoned and on what terms. - HELD THAT: - The petitioner had undertaken to deposit the balance amount by specified dates and deposited the first instalment in time but was late in paying the second instalment. The petitioner attributed the delay to various factors including the COVID-19 pandemic and thereafter deposited the outstanding amount on 29th May, 2020. Having considered the reasons for delay and the peculiar facts and circumstances, the Court exercised its discretion to condone the delay. Condonation was made subject to the petitioner paying a specified cost to a charitable institution; the Court directed payment of the cost within one week and filing of the receipt with the Registry within a further week, and warned that the Registry would list the matter for directions in the event of non-payment. [Paras 5, 6, 7]

Delay in depositing the balance amount is condoned subject to payment of the directed cost and compliance with the timeline for filing the receipt.

Continuation of immunity granted by earlier court order - withdrawal of attachment of properties - withdrawal of prosecution - Obligations of the Income Tax Department consequent to the deposit and the continued operation of immunity previously granted by the Court. - HELD THAT: - The Court recorded that the petitioner had deposited the outstanding amount and directed the Income Tax Department to take all appropriate actions required by the earlier order dated 06th September, 2019. The Department was required to act within four weeks and to intimate the petitioner. In view of the condonation, the immunity previously granted to the petitioner in paras 4 and 5 of the order dated 06th September, 2019 was held to continue to operate. The Court thereby required withdrawal of attachment of properties and of prosecution to the extent mandated by the earlier order, subject to the Department completing the necessary actions within the specified time. [Paras 5, 8, 9]

Income Tax Department to complete actions called for by the earlier order within four weeks and the immunity granted earlier shall continue to operate; withdrawal of attachment and prosecution to follow in accordance with that order.

Final Conclusion: The petitioner's delay in depositing the balance amount is condoned on payment of the directed cost; the Income Tax Department is directed to take appropriate actions under the earlier order within four weeks, with the previously granted immunity continuing to operate; non-compliance with the cost direction will invite further listing.

Depreciation on leasehold land as an intangible asset - interpretation of any other business or commercial rights of similar nature under Section 32(1)(ii) - valuation of closing stock and treatment of overburden removal adjustment - change in method of accounting / uniform accounting policy and applicability of section 145A - allowability of CMPDIL professional/service charges as business expenditure - disallowance under Section 14A and the pre condition of AO's objective satisfaction before applying Rule 8D - taxability of interest on income tax refund in year of receipt - verification of entitlement to TDS credit by Assessing Officer - time for pronouncement of ITAT orders under Rule 34(5) and exclusion of lockdown period as extraordinary circumstance

Depreciation on leasehold land as an intangible asset - interpretation of any other business or commercial rights of similar nature under Section 32(1)(ii) - Claim for depreciation on leasehold land was disallowed. - HELD THAT: - The Tribunal applied its earlier decisions in the assessee's own case and held that leasehold rights asserted by the assessee are not eligible for depreciation under Section 32(1)(ii). The Bench noted reliance on coordinate bench precedents which treated similar leasehold/mining rights as not falling within the category of intangible assets allowable for depreciation in the factual matrix of the assessee's case. Respectful adherence to those earlier Tribunal findings led to dismissal of the assessee's claim, despite the assessee's reliance on authorities and alternative pleas under other sections. [Paras 15]

Ground dismissed; depreciation on leasehold land disallowed following Tribunal precedent.

Valuation of closing stock and treatment of overburden removal adjustment - change in method of accounting / uniform accounting policy and applicability of section 145A - Addition for excluding assessee's method of excluding OBR from closing stock was not finally decided and the matter was remitted to the Assessing Officer for fresh adjudication. - HELD THAT: - The Tribunal noted that the change in valuation arose from a uniform accounting policy adopted by the holding company and that the issue is interconnected with mine wise stock valuation. Following its prior order in the assessee's own case, the Tribunal found it appropriate to remit the matter to the AO for fresh adjudication on facts, directing the AO to examine valuation mine wise and to re determine the stock value in accordance with section 145A and accepted accounting principles, after affording the assessee opportunity to be heard. [Paras 16]

Issue remitted to AO for fresh adjudication; ground allowed for statistical purposes.

CMPDIL professional/service charges as business expenditure - allowability under Section 37 of the Act - Addition disallowing CMPDIL expenses was deleted and the AO was directed to allow the claim. - HELD THAT: - The Tribunal followed its earlier coordinated bench precedent in the assessee's own case and other benches holding that CMPDIL provides ongoing technical and operational services to mining operations and such charges relate to revenue operations. The appellate bench observed that similar additions in prior years were deleted where services were found to be rendered under MOU and related to revenue mining activity; accordingly the AO was directed to delete the addition. [Paras 18]

Ground allowed; CMPDIL expenses to be deleted from additions.

Disallowance under Section 14A and the pre condition of AO's objective satisfaction before applying Rule 8D - application of Rule 8D only after AO records dissatisfaction having regard to accounts - Disallowance under Section 14A was not finally sustained and the matter was remitted to the AO for re examination and verification. - HELD THAT: - The Tribunal observed that subsection (2) of Section 14A requires the AO to be objectively 'not satisfied' with the assessee's claim, having regard to the accounts, before applying Rule 8D; that procedural safeguards require recording of reasons and opportunity. Citing coordinate bench precedents, the Tribunal restored the issue to the AO to verify source of funds (borrowings or reserves), apply Section 14A/Rule 8D correctly and re compute after giving the assessee an opportunity. [Paras 19]

Issue remitted to AO for fresh adjudication; ground allowed for statistical purposes.

Taxability of interest on income tax refund in year of receipt - Addition of interest on income tax refund was upheld and confirmed as taxable in the relevant year. - HELD THAT: - The CIT(A)'s finding that interest on income tax refund amounts to revenue income taxable in the year of receipt was accepted. The Tribunal saw no reason to interfere with the appellate authority's conclusion that the assessee did not offer a reasonable explanation for non inclusion and that interest received should be included under 'Other Income'. [Paras 21]

Addition confirmed; interest on income tax refund taxable and upheld.

Verification of entitlement to TDS credit by Assessing Officer - Claim for short credit of TDS was remitted to the AO for verification. - HELD THAT: - The Tribunal directed the AO to verify entitlement to TDS credit; if the assessee is found eligible after verification, credit should be given, otherwise the AO may pass appropriate order. The matter was restored for factual examination. [Paras 22]

Issue remitted to AO for verification; ground allowed for statistical purposes.

Time for pronouncement of ITAT orders under Rule 34(5) - exclusion of lockdown period as extraordinary circumstance - Delay in pronouncement beyond 90 days was justified by extraordinary circumstances and lockdown period is to be excluded when computing the 90 day limit. - HELD THAT: - The Tribunal considered Rule 34(5)'s 'ordinarily' 90 day pronouncement requirement and followed a coordinate bench reasoning: the nationwide COVID 19 lockdown and related judicial extensions constituted extraordinary circumstances. The bench held that the lockdown period should be excluded for computing the 90 day limit and therefore the delayed pronouncement did not breach the rule in the circumstances. [Paras 24, 25, 26]

Pronouncement delay excused; lockdown period excluded for Rule 34(5) computation.

Final Conclusion: The appeal is partly allowed. Depreciation on leasehold land disallowed following Tribunal precedent; valuation of closing stock (OBR adjustment) and Section 14A disallowance remitted to the Assessing Officer for fresh adjudication; CMPDIL expenses allowed (deletion of addition); interest on income tax refund addition upheld; short credit of TDS remitted to AO for verification; delay in pronouncement excused by exclusion of lockdown period. Matters remitted are to be re examined after giving the assessee opportunity of hearing.

Defective notice under section 274 failing to specify whether charge is concealment of income or furnishing inaccurate particulars - Penalty under section 271(1)(c) invalid for non-specific charge - Choice between conflicting judicial views to be resolved in favour of the assessee

Defective notice under section 274 failing to specify whether charge is concealment of income or furnishing inaccurate particulars - Penalty under section 271(1)(c) invalid for non-specific charge - Imposition of penalty sustained by AO and confirmed by CIT(A) where the show cause notice did not specify whether proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal examined the impugned penalty order and the show cause notice and found that the notice, in printed proforma, did not strike out inapplicable portions and thus failed to specify the precise charge (concealment or furnishing inaccurate particulars). Following the coordinate bench decision in Jeetmal Choraria (which adopts the view of the Hon'ble Karnataka High Court in Manjunatha Cotton & Ginning Factory), and having regard to conflicting views in different jurisdictions, the Tribunal held that where two judicial views exist the view favourable to the assessee must be followed. On that basis the Tribunal concluded that initiation and imposition of penalty could not be sustained because the defective notice under section 274 did not inform the assessee of the particular charge he had to meet, rendering the penalty proceedings invalid. [Paras 5, 6, 7]

Penalty imposed under section 271(1)(c) deleted as the show cause notice under section 274 failed to specify whether the proceedings were for concealment of income or for furnishing inaccurate particulars.

Final Conclusion: The appeal is allowed and the penalty imposed under section 271(1)(c) for AY 2014-15 is deleted because the show cause notice did not specify the charge, rendering the penalty proceedings unsustainable.

Deduction of tax at source on discount to prepaid distributors - Deduction of tax at source on roaming charges - Principal-to-principal sale of right to prepaid service - Fee for technical services and human intervention - Assessee-in-default and interest under section 201(1) and 201(1A)

Deduction of tax at source on discount to prepaid distributors - Principal-to-principal sale of right to prepaid service - Whether the discount extended to prepaid distributors attracts deduction of tax at source under section 194H. - HELD THAT: - The Tribunal examined the commercial reality of the prepaid distribution chain and found that the arrangement is a sale of the right to prepaid service on a principal-to-principal basis. At each distribution level the distributor acquires a right to resell the service and retains a margin for the risk and effort involved; the telecom operator remains the service-provider. On this factual foundation and following authoritative High Court decisions (including Bharti Airtel and Vodafone pronouncements), the Tribunal held that the discount is in the nature of a margin on sale of right to service and does not constitute income payable by the assessee to the distributor in the sense required by section 194H. The Tribunal noted that where the assessee accounts the transaction on net basis (i.e., does not show a separate payment/credit representing commission), section 194H is not attracted and the payer has no vicarious obligation to deduct TDS. [Paras 14, 22]

Discounts to prepaid distributors do not attract TDS under section 194H; the assessee is not in default under section 201(1) on this score.

Deduction of tax at source on roaming charges - Fee for technical services and human intervention - Whether roaming charges paid to other telecom operators attract deduction of tax at source under section 194J as fees for technical services. - HELD THAT: - The Tribunal found that roaming arrangements involve standardised, automated connectivity services enabling subscribers to use another operator's network; such services do not involve managerial, technical or consultancy services requiring human intervention that would characterise fees for technical services. Applying the reasoning of the Delhi High Court and earlier decisions, the Tribunal concluded that roaming charges are not payment for technical services within the meaning of section 194J and therefore do not attract TDS under that provision. [Paras 15, 23]

Roaming charges are not taxable as fees for technical services under section 194J; the assessee is not in default under section 201(1) on this score.

Assessee-in-default and interest under section 201(1) and 201(1A) - Whether, having been held not liable to deduct TDS under sections 194H and 194J, the assessee is liable as an assessee-in-default and for interest under section 201(1A). - HELD THAT: - The Tribunal recorded that the Assessing Officer had initially treated the assessee as a defaulter and levied tax and interest. However, having held that neither section 194H (discounts) nor section 194J (roaming charges) applies, there is no primary obligation on the assessee to deduct tax. Consequently, the vicarious liability under section 201(1) does not arise and the compensatory interest under section 201(1A), which presupposes a default in deposit of deducted tax, is not chargeable. The Tribunal therefore allowed the grounds of appeal and set aside the demand and interest. [Paras 16, 23, 24]

No liability as assessee-in-default under section 201(1); interest under section 201(1A) is not payable.

Final Conclusion: All four appeals are allowed: TDS is not attracted on discounts to prepaid distributors under section 194H nor on roaming charges under section 194J; consequently, the assessee is not an assessee-in-default under section 201(1) and interest under section 201(1A) is not leviable for the assessment years in issue.

Disallowance under section 14A read with Rule 8D - Restriction of section 14A disallowance to the amount of exempt income - Application of Rule 8D(2)(iii) - consideration of only investments yielding exempt income - Precedential effect of State Bank of Patiala (Supreme Court affirming Punjab & Haryana High Court)

Disallowance under section 14A read with Rule 8D - Restriction of section 14A disallowance to the amount of exempt income - Application of Rule 8D(2)(iii) - consideration of only investments yielding exempt income - Validity of the addition made by AO under section 14A read with Rule 8D and whether the disallowance can exceed the exempt dividend income - HELD THAT: - The AO computed disallowance by applying Rule 8D to the assessee's entire investments as on the relevant dates, resulting in a disallowance in excess of the exempt dividend income actually earned. The assessee had computed disallowance only in respect of shares that yielded dividend income claimed as exempt. The Commissioner (Appeals) restricted the disallowance to the amount of exempt income on the basis of coordinate decisions, including the view that only investments which actually yield exempt income are relevant for Rule 8D(2)(iii), and by following the Punjab & Haryana High Court decision in State Bank of Patiala, which was upheld by the Supreme Court. The Tribunal found the revenue could not dispute those precedents and concurred with the view that disallowance under section 14A read with Rule 8D cannot exceed the tax-free income earned during the year; therefore the excess addition made by the AO was not justified and the CIT(A)'s order was affirmed. [Paras 7]

The disallowance under section 14A read with Rule 8D is to be restricted to the amount of exempt income actually earned; the order of the CIT(A) deleting the excess addition is confirmed and the revenue's appeal is dismissed.

Final Conclusion: Revenue's appeal challenging deletion of the excess section 14A/Rule 8D disallowance is dismissed; disallowance cannot exceed the exempt dividend income actually earned and the CIT(A)'s order is affirmed.

Penalty under section 271(1)(c) - Defective show cause notice under section 274 - Requirement to specify charge: concealment of income or furnishing inaccurate particulars - Principles of natural justice in penalty proceedings - Precedent choice where conflicting authorities: view favourable to the assessee

Penalty under section 271(1)(c) - Defective show cause notice under section 274 - Requirement to specify charge: concealment of income or furnishing inaccurate particulars - Precedent choice where conflicting authorities: view favourable to the assessee - Imposition of penalty under section 271(1)(c) could not be sustained because the show cause notice under section 274 failed to specify whether the proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income. - HELD THAT: - The Assessing Officer's notice under section 274 did not strike out or otherwise specify the relevant charge and thus remained vague as to whether the penalty was proposed for concealment of income or for furnishing inaccurate particulars. The Tribunal, following its coordinate bench decision in Jeetmal Choraria which applied the view of the Hon'ble Karnataka High Court, held that a show cause notice that does not specify the charge contravenes the requirement of informing the assessee of the precise allegation and vitiates the penalty proceedings. Where divergent judicial views exist on the adequacy of such notice, the bench applied the settled approach of preferring the view favourable to the assessee and accordingly found the penalty unsustainable. On that basis the penalty imposed by the AO and confirmed by the CIT(A) was quashed. [Paras 2, 4, 5]

Penalty under section 271(1)(c) deleted as the show cause notice under section 274 did not specify whether the allegation was concealment or furnishing inaccurate particulars; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal for AY 2013-14 and deleted the penalty imposed under section 271(1)(c) on the ground that the show cause notice under section 274 was defective for failing to specify whether the proceedings were for concealment of income or for furnishing inaccurate particulars.

Classification of interest as business income v. income from other sources - deduction under section 80P(2)(d) - set off of carried forward business loss against interest income - deduction condition under section 36(1)(va) - credit to employees' accounts on or before the due date under the relevant enactment - disallowance under section 43B for delayed deposit of statutory contributions - upholding adhoc disallowance for lack of documentary evidence - Rule 34(5) pronouncement period and exclusion of lockdown period for computation of 90-day limit

Classification of interest as business income v. income from other sources - deduction under section 80P(2)(d) - set off of carried forward business loss against interest income - Whether interest earned on fixed deposits constituted business income eligible for deduction under section 80P(2)(d) and whether carried forward business loss could be set off against such interest. - HELD THAT: - The Tribunal found that the record before it did not sufficiently establish the source and nature of the deposits (i.e., how much constituted surplus funds and how much represented funds earmarked for distribution or grants). In view of this factual lacuna, the Tribunal directed that the Assessing Officer determine whether the fixed deposits were made out of surplus funds or from funds held for specific business purposes; if the deposits were not from surplus funds but formed part of funds kept for business purposes the assessee would be entitled to deduction under section 80P(2)(d). The assessee is to be given reasonable opportunity of hearing and must cooperate with the AO. The Tribunal therefore did not decide the classification on merits but remitted the question to the AO for factual determination and consequential treatment of set off of carried forward losses. [Paras 12, 16]

Remitted to the file of the Assessing Officer for determination whether fixed deposits were from surplus funds; if not, allow deduction under section 80P(2)(d) and permit consequential set off of carried forward business loss.

Deduction condition under section 36(1)(va) - credit to employees' accounts on or before the due date under the relevant enactment - disallowance under section 43B for delayed deposit of statutory contributions - Whether contributions to EPF and ESI, not deposited within the due date prescribed under the respective enactments, qualified for deduction in the relevant assessment years. - HELD THAT: - The Tribunal observed that section 36(1)(va) conditions deduction on crediting sums to employees' accounts by the due date prescribed in the relevant statute, and that the 'due date' in the Explanation to section 36(1)(va) refers to the due date under the relevant enactment rather than the date for filing the return. Given deficiencies in the record as to actual dates of deposit, and having regard to a coordinate Bench decision directing verification of deposit dates, the Tribunal restored the issue to the Assessing Officer to examine the actual dates when contributions were made and to grant relief where deposits complied with the statutory timeline. [Paras 13]

Issue restored to the Assessing Officer for verification of actual deposit dates and grant of relief where statutory conditions for deduction are satisfied.

Upholding adhoc disallowance for lack of documentary evidence - Whether the adhoc disallowance of 10% of certain operating expenses was justified where the assessee failed to produce supporting documentary evidence. - HELD THAT: - The Tribunal agreed with the Assessing Officer and the Commissioner (Appeals) that the assessee, having failed to furnish documentary proof in support of claimed expenditures (packing material, miscellaneous expenses, printing and stationery), could not sustain full deduction. The assessee had an opportunity before the CIT(A) to produce evidence but did not do so. In these circumstances the adhoc 10% disallowance was held to be a reasonable exercise of the Assessing Officer's powers and was upheld by the Tribunal. [Paras 17]

Adhoc disallowance of 10% of the claimed expenses upheld; ground of appeal dismissed.

Upholding addition made on presumptive basis for expenditure not relatable to business under section 37(1) - Whether certain expenditures debited to profit and loss account but regarded by the Assessing Officer as not allowable under section 37(1) were rightly added back on a presumptive basis. - HELD THAT: - The Assessing Officer disallowed the expenditure on the view that it did not relate to the business of the assessee as actionable under section 37(1) and was not incidental to the income-earning activities. The Commissioner (Appeals) confirmed the assessment and the Tribunal found no reason to interfere with that conclusion on the material before it. The Tribunal thus sustained the addition made on presumptive grounds. [Paras 18]

Addition on presumptive basis under section 37(1) upheld; ground of appeal dismissed.

Rule 34(5) pronouncement period and exclusion of lockdown period for computation of 90-day limit - Whether the Tribunal's pronouncement beyond 90 days from conclusion of hearing was vitiated where the delay encompassed the COVID-19 lockdown period. - HELD THAT: - The Tribunal noted Rule 34(5) envisages pronouncement ordinarily within 90 days but recognises exceptions where extraordinary circumstances exist. Applying and following judicial guidance and coordinate Bench reasoning, the Tribunal held that the lockdown period arising from the COVID-19 pandemic is to be excluded when computing the 90-day limit for pronouncement. The delay in pronouncement in the present case was therefore not treated as impermissible. [Paras 20, 21, 22]

Delay in pronouncement was excused by excluding the lockdown period for computing the 90-day limit; no infirmity in the timing of the order.

Final Conclusion: For AY 2014-2015 and AY 2015-2016 the Tribunal remitted the question of classification of interest and entitlement to deduction under section 80P(2)(d) to the Assessing Officer for factual determination; restored for verification the issue of EPF/ESI deposit dates to the AO; upheld the adhoc 10% disallowance for lack of documentary evidence and the addition under section 37(1); and held that the delay in pronouncement was excused by excluding the COVID-19 lockdown period. Appeals were allowed partly or for statistical purposes in accordance with these directions.

Burden of proof under section 68 - cash credits-capital introduced by partners - prima facie discharge of onus by production of confirmations, PAN and ITRs - AO's power to make additions where supporting bills/vouchers are not produced - reasonable adhoc disallowance where vouchers are not furnished - remand for fresh verification and opportunity of hearing - exclusion of lockdown period for computation of Rule 34(5) time-limit

Burden of proof under section 68 - cash credits-capital introduced by partners - prima facie discharge of onus by production of confirmations, PAN and ITRs - Deletion of addition of Rs. 60,00,000 made under section 68 in respect of cash capital introduced by partners. - HELD THAT: - The Tribunal found that the assessee discharged the preliminary onus under section 68 by producing confirmation letters from partners, their PANs and copies of their income-tax returns showing declaration of the amounts. The Assessing Officer did not challenge the correctness of those evidences. Following the decision in Metachem Industries, where a firm's obligation is satisfied once it produces the person who deposited the amount and satisfactory explanation, the credit entries cannot be treated as income of the firm. The AO may pursue the individual contributor under appropriate provisions, but no addition could be made in the hands of the firm when the firm has satisfactorily explained the entries. [Paras 7, 8]

Addition of Rs. 60,00,000 under section 68 deleted; ground allowed.

AO's power to make additions where supporting bills/vouchers are not produced - reasonable adhoc disallowance where vouchers are not furnished - Reduction of adhoc disallowance made on account of unproduced bills and vouchers from 20% to 10% of the claimed expenses. - HELD THAT: - The assessee claimed various business expenses but could not produce original bills and vouchers, furnishing only ledger copies. The Tribunal reiterated that the onus to prove genuineness lies on the assessee and that the AO may make a reasonable disallowance in absence of supporting documents. Considering the nature of the hotel and textile business and that a 20% disallowance was excessive, the Tribunal exercised its discretion to moderate the addition and restricted the disallowance to 10% of the total expenses claimed. [Paras 12]

Adhoc disallowance reduced and restricted to 10% of the claimed expenses; ground partly allowed.

Remand for fresh verification and opportunity of hearing - Issue concerning disallowance of interest of Rs. 3,50,935/- restored to the Assessing Officer for fresh examination and verification after affording the assessee an opportunity of hearing. - HELD THAT: - The Tribunal observed absence of clear nexus between interest-bearing loans and loans advanced interest-free and noted that the assessee had not been given adequate opportunity below to explain and establish that interest-bearing funds were not used for interest-free advances. By agreement of the parties, the Tribunal restored the matter to the file of the AO for fresh consideration with due opportunity to the assessee to explain and produce supporting evidence. [Paras 14]

Interest disallowance remanded to AO for fresh examination; ground allowed for statistical purposes.

Final Conclusion: The appeal is partly allowed: the addition under section 68 of Rs. 60,00,000 is deleted; adhoc disallowance is reduced to 10% of the claimed expenses; the interest disallowance is remanded to the Assessing Officer for fresh verification. The Tribunal also held that the lockdown period should be excluded for computing the 90-day pronouncement period under Rule 34(5).

Disallowance under section 14A for expenditure attributable to exempt income - Application of Rule 8D(2) for computation of disallowance - Requirement of AO's satisfaction before invoking section 14A disallowance - Pronouncement of orders within 90 days under Rule 34(5) of the ITAT Rules and scope of 'ordinarily' - Exclusion of lockdown period for computation of time-limits due to COVID-19 as an extraordinary circumstance

Disallowance under section 14A for expenditure attributable to exempt income - Application of Rule 8D(2) for computation of disallowance - Requirement of AO's satisfaction before invoking section 14A disallowance - Deletion of the disallowance made u/s.14A by applying Rule 8D(2) where no exempt income was claimed and AO did not record satisfaction of expenditure incurred for earning exempt income. - HELD THAT: - The Tribunal found that the Assessing Officer applied the formula in sub rule (2) of Rule 8D to compute a disallowance without recording any satisfaction that the assessee had incurred expenditure for earning dividend income. The return showed that dividend income was not claimed as exempt income. Rule 8D's formula computes a notional disallowance and does not substitute for a finding on actual expenditure attributable to exempt income. Where no exempt income is claimed and the AO has not arrived at the requisite satisfaction regarding expenditure incurred for earning exempt income, an automatic computation under Rule 8D(2) cannot override the need to consider actual expenditure and make a reasoned finding. Reliance on precedent supporting deletion of disallowance where genuineness of expenditure is not in doubt was noted. Applying these principles, the Tribunal set aside the orders of the authorities below and deleted the disallowance of Rs. 10,81,553 made under section 14A by applying Rule 8D(2). [Paras 3, 7]

Disallowance made by AO under section 14A by applying Rule 8D(2) is deleted for AY 2010-2011 as AO did not record satisfaction of expenditure attributable to exempt income and the assessee had not claimed the dividend as exempt income.

Pronouncement of orders within 90 days under Rule 34(5) of the ITAT Rules and scope of 'ordinarily' - Exclusion of lockdown period for computation of time-limits due to COVID-19 as an extraordinary circumstance - Delay in pronouncement beyond 90 days was justified by exclusion of the lockdown period caused by COVID 19; Tribunal follows coordinate bench reasoning to exclude lockdown period when computing the 90 day limit under Rule 34(5). - HELD THAT: - The Tribunal examined Rule 34(5) which ordinarily requires pronouncement within 90 days of conclusion of hearing but permits exclusion on grounds of exceptional and extraordinary circumstances. Having considered a coordinate Bench decision addressing nationwide lockdown and judicial extensions during COVID 19, the Tribunal agreed that the lockdown period is an extraordinary circumstance and should be excluded when computing the 90 day limit. Consequently, the delay in pronouncement of the order beyond 90 days was not treated as a breach of Rule 34(5). [Paras 8, 10, 11]

The delay in pronouncement is justified by excluding the lockdown period for the purpose of the 90 day limit under Rule 34(5); no prejudice arises from the delayed order.

Final Conclusion: The appeal is allowed: the disallowance made under section 14A by applying Rule 8D(2) for AY 2010-2011 is deleted, and the delay in pronouncement beyond 90 days is held to be justified by excluding the COVID 19 lockdown period under Rule 34(5).

Deduction under Section 80P - Rectification under section 154 - Assessing Officer's duty to verify activities of the society - Registration certificate not conclusive for entitlement - Each assessment year a separate unit

Rectification under section 154 - Deduction under Section 80P - Validity of the Commissioner (Appeals) invoking section 154 to recall his earlier order granting deduction under Section 80P. - HELD THAT: - The Tribunal examined whether the CIT(A) could rectify his earlier order in view of the subsequent Larger Bench/Full Bench decision of the jurisdictional High Court which reversed the earlier Division Bench precedent relied upon by the CIT(A). Relying on authority that a decision taken on the basis of a High Court judgment subsequently reversed can constitute a rectifiable mistake under section 154, and having regard to the Larger Bench conclusion that the Assessing Officer must examine the factual activities of the society (and that registration certificate is not conclusive), the Tribunal held that the CIT(A) was entitled to recall the earlier order. The assessee's contention that the matter was sub judice before the Supreme Court did not render the rectification impermissible in these circumstances. [Paras 7]

The grounds challenging the CIT(A)'s order under section 154 are dismissed and the rectification is held valid.

Assessing Officer's duty to verify activities of the society - Registration certificate not conclusive for entitlement - Each assessment year a separate unit - Deduction under Section 80P - Entitlement to deduction under Section 80P(2) for the assessment year and whether the claim should be finally denied without factual inquiry. - HELD THAT: - The Tribunal held that, in light of the Larger Bench of the jurisdictional High Court, entitlement to deduction under Section 80P cannot be determined solely on the basis of the registration certificate classifying the assessee as a cooperative society. The Assessing Officer must conduct an enquiry into the factual activities of the society for the relevant assessment year and verify loan records and other particulars to determine whether the society's principal activity falls within the scope of Section 80P(2). The Tribunal observed that the AO's preliminary finding that a certain percentage of loans were for agricultural purposes is not conclusive without examination of individual loan applications and ledgers. Accordingly, the question of eligibility was not decided on merits but remitted for fresh verification and decision by the Assessing Officer for the assessment year in question. [Paras 7, 8]

Issue of deduction under Section 80P(2) is restored to the Assessing Officer for fresh inquiry and determination for the assessment year 2014-2015.

Final Conclusion: Appeal allowed for statistical purposes; CIT(A)'s rectification under section 154 upheld, and the question of entitlement to deduction under Section 80P(2) for AY 2014-2015 is remitted to the Assessing Officer for fresh factual inquiry and decision.

Computation of total turnover for deduction under section 10A - non-realisation of export proceeds and effect of RBI/authorized dealer approvals - treatment of expenses incurred in foreign currency for computing export turnover - eligibility of profit from trading/third-party software with value-addition for deduction under section 10A - liability to deduct tax at source under section 195 in respect of commission payments to non-residents - remand for fresh factual examination in light of binding precedent - uniformity of adjudication across assessment years

Computation of total turnover for deduction under section 10A - treatment of expenses incurred in foreign currency for computing export turnover - Whether the CIT(A) was justified in directing the AO to exclude expenses incurred in foreign currency outside India from total turnover for computing deduction under section 10A. - HELD THAT: - The Tribunal declined to interfere with the CIT(A)'s direction to exclude expenses incurred in foreign currency outside India from total turnover while computing deduction under section 10A, observing that this approach accords with the decision of the Hon'ble Karnataka High Court (as applied in the cited authorities) that total turnover is the sum of domestic and export turnover and a reduction from export turnover correspondingly reduces total turnover. The Tribunal therefore upheld the CIT(A)'s direction and dismissed the Revenue's appeal on this point. [Paras 3, 4]

Direction of CIT(A) to exclude such expenses from total turnover is sustained; Revenue appeal dismissed on this issue.

Non-realisation of export proceeds and effect of RBI/authorized dealer approvals - computation of deduction under section 10A - Whether amounts excluded from export turnover on the ground of non-realisation should be included for computing deduction under section 10A in the facts of AY 2008-09. - HELD THAT: - The Tribunal examined the facts and found a categorical admission in the record that certain export proceeds were not realised within the prescribed time and were not brought into India; consequently the facts differed from precedents relied upon by the assessee where remittances were ultimately received or where bank applications had not been rejected. On that factual basis the Tribunal declined to apply those precedents and did not interfere with the exclusion of the non-realised amounts from export turnover for computation of section 10A benefit. [Paras 8]

Assessee's challenge to exclusion on non-realisation grounds rejected; exclusion upheld for AY 2008-09.

Treatment of expenses incurred in foreign currency for computing export turnover - Whether expenditure incurred in foreign currency ought to be excluded from export turnover where not included in export invoices or part of export sales. - HELD THAT: - Following the Tribunal's earlier conclusion in the assessee's own case for subsequent years, where the Tribunal had examined the details and found the claim inadequately supported, the present Tribunal respectfully followed that precedent and held the contention academic or not established on the record. Consequently, the claim that such expenditures should not be reduced from export turnover was rejected on the facts of the year under consideration. [Paras 11]

Claim that foreign-currency expenditures were not part of export sales rejected; exclusion from export turnover sustained.

Eligibility of profit from trading/third-party software with value-addition for deduction under section 10A - remand for fresh factual examination in light of binding precedent - Whether profit attributable to trading of third-party software (after alleged value-addition) is eligible for deduction under section 10A. - HELD THAT: - The Tribunal noted that the precedents relied upon (favouring eligibility) related to cases of 100% EOUs and that the factual matrix of the present case (including whether the assessee is a 100% EOU and the nature of value-addition) was not clearly on record. In view of the factual uncertainty and the relevance of the cited Karnataka High Court authority, the Tribunal remanded the matter to the CIT(A) for fresh consideration of facts and law, directing that both parties be given adequate opportunity to be heard and the decision be rendered in the light of the precedent. [Paras 14]

Matter remitted to CIT(A) for fresh decision after factual examination and hearing.

Liability to deduct tax at source under section 195 in respect of commission payments to non-residents - uniformity of adjudication across assessment years - Whether the disallowance for non-deduction of tax in respect of export commission was sustainable where earlier tribunal findings in the assessee's own case held the services to be rendered outside India and not chargeable in India. - HELD THAT: - The Tribunal considered the CIT(A)'s adoption of findings from A.Y. 2009-10 and the Tribunal's earlier detailed finding in the assessee's own case for later years that services were provided outside India and commission payments to non-residents did not give rise to income deemed to accrue or arise in India. No material distinction of facts was pointed out by Revenue. Respectfully following the Tribunal's earlier order, the Tribunal held that the provisions requiring deduction under section 195 were not applicable on the facts and allowed the assessee's ground on this point. [Paras 16]

Disallowance on account of non-deduction of tax in respect of export commission set aside; matter decided in favour of the assessee.

Consistency of decisions across assessment years - Whether the grounds in Assessment Year 2009-10 should be decided differently from AY 2008-09 where facts and issues are similar. - HELD THAT: - The parties agreed that facts and issues were similar for AY 2008-09 and AY 2009-10. The Tribunal accordingly decided the AY 2009-10 appeal on the same lines as AY 2008-09, applying the same conclusions, including the remand on the trading-software issue and allowance of the TDS-related ground, resulting in part allowance for statistical purposes. [Paras 20, 21]

Assessee's appeal for AY 2009-10 partly allowed for statistical purposes, decided on similar lines as AY 2008-09.

Procedural maintainability of additional grounds - Whether certain grounds (deduction on returned vs assessed income; levy of interest under section 234B) could be entertained where they did not arise out of the CIT(A)'s order. - HELD THAT: - The Tribunal accepted Revenue's contention that the two grounds were not arising out of the CIT(A)'s order and noted that the assessee failed to demonstrate that they did so. Consequently, those grounds were not admitted for consideration and were dismissed. [Paras 17]

Grounds dismissed as not arising out of the CIT(A)'s order.

Final Conclusion: The Revenue's appeal for Assessment Year 2008-09 is dismissed. The assessee's appeals for Assessment Years 2008-09 and 2009-10 are partly allowed: (i) the CIT(A)'s treatment of foreign-currency expenses in computing total turnover for section 10A is upheld, (ii) exclusions for non-realised export proceeds and certain foreign-currency expenditures are sustained on the facts of the year, (iii) the question of trading profits from third-party software versus value-addition is remitted to the CIT(A) for fresh decision, (iv) disallowance for alleged non-deduction of tax on export commission is set aside following earlier tribunal findings, and (v) two pleaded grounds were rejected as not arising out of the CIT(A)'s order.

Taxability of capital gains under DTAA - Article 14(4) of India-Cyprus DTAA - tax residency and entitlement to treaty benefits - withholding obligation under section 195 - representative assessee and section 163(1)-(2)

Taxability of capital gains under DTAA - Article 14(4) of India-Cyprus DTAA - tax residency and entitlement to treaty benefits - Whether capital gains arising to the Cyprus resident on sale of shares of an Indian company (whose principal asset was immovable property) were taxable in India or only in Cyprus under the relevant DTAA in force at the time. - HELD THAT: - The Tribunal found that the applicable India-Cyprus DTAA in force for AY 2010-11 must be applied. Under that DTAA Article 14(1)-(3) cover gains from alienation of immovable property, business movable property of a PE, and ships/aircraft; Article 14(4) provides that gains from alienation of any other property are taxable only in the State of residence of the alienator. The impugned transfer was of shares in an Indian company and did not constitute the alienation of immovable property as contemplated by Article 14(1) nor did the seller have a permanent establishment in India. Therefore Article 14(4) applied and the capital gain was chargeable only in the contracting State of which the alienator (the Cyprus company) was resident. The Tribunal rejected the Revenue's contention that the transaction should be taxed in India on the basis that the share value derived from Indian immovable property, observing that the subsequent DTAA amendment (introducing a provision taxing gains on shares whose property consists principally of immovable property) post dated the transaction and was not applicable. [Paras 15, 16, 18, 19]

Capital gain arising to the Cyprus resident on the sale of the shares was not taxable in India under the DTAA applicable for AY 2010 11 and was chargeable only in Cyprus.

Withholding obligation under section 195 - taxability of capital gains under DTAA - Whether the assessee was obliged to deduct tax at source under section 195 while making payment of sale consideration to the Cyprus resident. - HELD THAT: - Having held that the capital gain of the Cyprus resident was not chargeable to tax in India under the DTAA applicable at the time, the Tribunal concluded there was no income accruing or arising to the non resident that was taxable in India. Consequently, there was no obligation on the Indian payer to withhold tax under section 195 in respect of the payment of the sale consideration. [Paras 19]

No tax was required to be withheld by the assessee under section 195 in respect of the payment to the Cyprus seller.

Representative assessee and section 163(1)-(2) - withholding obligation under section 195 - Whether the assessor's action in treating the assessee as a representative assessee under section 163 without a prior order under section 163(2) vitiated the assessment or required separate adjudication. - HELD THAT: - The Tribunal observed that, because it had determined the Cyprus seller's income was not taxable in India under the DTAA, the question of declaring and assessing the payer as a representative assessee under section 163 became academic. On that basis the Tribunal dismissed the Revenue's contention and did not require a separate section 163(2) order to sustain the assessment, since no tax was ultimately found chargeable in India. [Paras 20]

The issue of treating the assessee as representative assessee under section 163 is rendered academic and is dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletion of the addition: the capital gain on sale of the shares was chargeable only in Cyprus under the DTAA applicable to AY 2010 11, no withholding under section 195 was required, and the representative assessee contention under section 163 was academic and dismissed.

Deduction under Section 10B - computation of profits of eligible undertaking independently - set-off of brought forward depreciation - priority of brought forward business losses over unabsorbed depreciation - application of the principle in CIT v. Yokogawa India Ltd.

Deduction under Section 10B - computation of profits of eligible undertaking independently - set-off of brought forward depreciation - application of the principle in CIT v. Yokogawa India Ltd. - Whether brought forward unabsorbed depreciation must be set off against business income of the assessee before computing the deduction under section 10B for the eligible undertaking for AY 2010-11 - HELD THAT: - The Tribunal affirmed the view in CIT v. Yokogawa India Ltd. that the deduction under Sections 10A/10B is to be determined qua the eligible undertaking and must be computed at the stage of determining the gross total income of that undertaking under Chapter IV, i.e., independently and prior to application of Chapter VI set-off and carry forward provisions. Applying that principle, the Assessing Officer was not justified in adjusting brought forward unabsorbed depreciation against the undertaking's profits before working out the eligible profit for Section 10B. The Tribunal noted the settled position that brought forward business losses have precedence over brought forward depreciation but found that this did not alter the conclusion that the eligible profit for section 10B must be computed before giving effect to brought forward depreciation in the facts of the case. Consequently, the Commissioner (Appeals) correctly allowed the assessee the deduction under section 10B prior to adjusting earlier years' unabsorbed depreciation. [Paras 4]

The claim for deduction under section 10B is to be allowed on the profit of the eligible undertaking computed independently before setting off brought forward unabsorbed depreciation; accordingly, the Commissioner (Appeals) order allowing the deduction is upheld.

Final Conclusion: The Revenue's appeal is dismissed; the assessee is entitled to deduction under section 10B for AY 2010-11 computed prior to giving effect to brought forward unabsorbed depreciation.

Extension of time to deposit undertaking - permission to deposit on terms - withholding of coercive action - without prejudice to rights and contentions

Extension of time to deposit undertaking - permission to deposit on terms - without prejudice to rights and contentions - Application for extension of time to deposit the amount in terms of the undertaking given to the Court. - HELD THAT: - The Court took the view that the application for extension should be considered only after the amount is deposited. However, without prejudicing the parties' rights and contentions, the Court permitted the petitioner to deposit the amount with the Income Tax Department by 31st May, 2020. The permission is conditional and preserves the parties' substantive positions for subsequent hearing. [Paras 2, 3]

Petitioner permitted to deposit the amount with the Income Tax Department by 31st May, 2020, without prejudice to the rights and contentions of the parties.

Withholding of coercive action - Respondent's coercive action against the petitioner pending compliance and further hearing. - HELD THAT: - The Court directed that, pending the next date of hearing, the respondent shall withhold any further coercive action against the petitioner. This restraint is temporally limited to the period until the matter next comes up for hearing and is linked to the petitioner being permitted to make the deposit. [Paras 4]

Respondent directed to withhold further coercive action against the petitioner until the next date of hearing.

Final Conclusion: The Court granted conditional permission to the petitioner to deposit the amount by 31st May, 2020 and restrained the respondent from taking further coercive action until the next listing on 04th June, 2020, while leaving the parties' substantive rights and contentions unaffected.

Discharge under section 239 Cr.P.C. - sufficient ground to proceed - inherent improbability - criminal conspiracy - abated or quashed proceedings - 100% Export Oriented Unit (EOU) exemption - joint and several liability in customs - delay and lack of progress

Discharge under section 239 Cr.P.C. - sufficient ground to proceed - inherent improbability - Whether the petitioners (A6 to A8) should be discharged on account of absence of sufficient ground to proceed and inherent improbability in the prosecution case. - HELD THAT: - The Court examined the materials and subsequent developments and found that the chain of conspiracy alleged had been effectively broken: the principal conspirator(s) were dead or the proceedings against several accused had been quashed or abated. Collateral authoritative findings - notably the Income Tax Department's order dropping proceedings against the 2nd petitioner and the CESTAT's conclusions treating the financing institutions as importers/owners - showed that the impugned transactions and control of funds were handled by the banks and financing institutions rather than by the petitioners. Evidence indicated the capital goods were of Indian origin and that the petitioners did not derive the claimed benefits or operate the foreign exchange transactions. In view of these developments, the Court held it had become inherently improbable that a just conclusion could be reached against the petitioners on the merits. The Court also took into account the long pendency of the case since 2004 and the absence of progress sufficient to justify continuing the prosecution. [Paras 15, 16, 19, 20]

The trial Court's order dismissing the discharge petition is set aside and the petitioners A6 to A8 are discharged; the criminal revision is allowed.

Final Conclusion: Having found that the conspiracy link and principal culpable actors have been abated or quashed, and that authoritative proceedings and appellate findings favour the conclusion that the petitioners did not control the transactions or benefit from the alleged scheme, the High Court set aside the trial Court's order and discharged the petitioners, allowing the criminal revision.

Reimbursement of sales tax under contractual clause - works contract - deemed sale and taxable turnover - legal fiction of deemed sale introduced by the Forty sixth Amendment (Article 366(29 A)) - value addition concept for determination of taxable turnover - interaction of contractual stipulations (rates inclusive of taxes) with express reimbursement clause - administrative circulars - non determinative of contractual and statutory rights

Reimbursement of sales tax under contractual clause - works contract - deemed sale and taxable turnover - value addition concept for determination of taxable turnover - Claim of the contractor for reimbursement of sales tax levied and paid in respect of works contracts is maintainable under Clause 45.2 of the General Conditions of Contract where tax was assessed on the taxable turnover. - HELD THAT: - The Court held that after the Forty sixth Amendment and corresponding amendments to the Orissa Sales Tax Act, sales tax in relation to a works contract is leviable as a deemed sale only on the value of goods/materials involved, determined by deducting labour and service charges (the value addition concept). The respondent's running bills had deductions of sales tax which were deposited with the Sales Tax Department and the assessments taxed the taxable turnover arrived at after such deductions. Clause 45.2 expressly provided for reimbursement of any Central or State sales tax and other taxes on completed items of work paid by the contractor on proof of payment and production of assessment certificate; the second part of Clause 45.2 anticipated deductions at source from running bills and was in fact acted upon. Reading Clause 45.2 as inapplicable to works contracts because a 'completed item of work' becomes immovable would render the clause otiose and would be inconsistent with the application of its second part; accordingly the contractor is entitled to reimbursement of the sales tax actually levied on taxable turnover and paid by it. [Paras 10, 12, 13, 14, 16]

The contractor is entitled to reimbursement of sales tax levied on the taxable turnover of the works contracts in accordance with Clause 45.2 of GCC.

Interaction of contractual stipulations (rates inclusive of taxes) with express reimbursement clause - administrative circulars - non determinative of contractual and statutory rights - Clauses making the contractor's rates 'inclusive of taxes' (Clause 13.3 of ITB and Clause 45.1 of GCC) do not negate an express contractual entitlement to reimbursement under Clause 45.2; State circulars taking a contrary view cannot override the contract or statutory scheme. - HELD THAT: - The Court observed that contractual terms must be given effect to and that Clauses 13.3 and 45.1 required contractors to include duties and taxes in their bid prices insofar as materials are concerned, thereby precluding separate claims for taxes on materials in bills. However, those clauses do not extinguish an express, standalone promise in Clause 45.2 to reimburse sales tax actually levied and paid by the contractor on completed items of work. To hold otherwise would render Clause 45.2 meaningless. Further, the State's Circulars (including the impugned Circular dated 07.11.2001) reflected administrative views that fluctuated over time; such vacillating administrative understandings are not decisive and cannot nullify contractual rights or the statutory scheme, and therefore the Court declined to treat the circulars as determinative of the parties' contractual or statutory obligations. [Paras 11, 15, 17]

Clauses rendering bid prices 'inclusive of taxes' do not defeat an express reimbursement entitlement under Clause 45.2, and the contrary administrative circulars are not determinative of the contractual or statutory rights.

Administrative circulars - non determinative of contractual and statutory rights - The impugned Government Circular dated 07.11.2001 is disapproved insofar as it purports to deny reimbursement under Clause 45.2 and to direct recovery of amounts already reimbursed. - HELD THAT: - The Court noted that the State had earlier issued a Circular (04.11.1986) accepting reimbursement under existing contracts that contained such clauses and later issued contrary directions by the Circular dated 07.11.2001. Such vacillating administrative positions cannot determine contractual obligations or override statutory provisions; accordingly, the later clarificatory circular which sought to deny reimbursement and order recoveries was held to be inconsistent with the contractual clause and statutory scheme and was disapproved. [Paras 11, 17]

The 07.11.2001 Circular is disapproved to the extent it denies reimbursement and directs recovery.

Final Conclusion: The Special Leave Petition is dismissed; the High Court decree allowing reimbursement under Clause 45.2 is upheld, and the State's contrary clarification is disapproved; no order as to costs.

Disciplinary action - recovery from Death-cum-Retirement Gratuity - cut in pension as punishment - duty of a commercial tax officer to verify turnover and transit sales - reliance on enquiry officer's findings - judicial interference with administrative/disciplinary orders

Reliance on enquiry officer's findings - duty of a commercial tax officer to verify turnover and transit sales - Whether charge Nos.3 to 5 were proved against the petitioner and whether those findings justify departmental action. - HELD THAT: - The enquiry officer, after detailed enquiry, found charge Nos.3 to 5 proved against the petitioner, recording that the dealer Tvl. Uco Agency had filed returns showing exempt or nil taxable turnover for 2000-01 while evidence (including Form 'C' issued to other dealers and annual returns) established substantial turnover and issuance of Form 'C' to the tune indicated in the enquiry. The petitioner, while finalizing assessment as '0' case, failed to verify corresponding taxable/ transit sales and did not maintain or refer to Form VIII extracts; consequently the successor assessed the dealer to a substantial taxable turnover, preserving Government revenue. The Court accepted these factual findings and held that the petitioner, as a Commercial Tax Officer, derelicted his duty by not conducting requisite verification, thereby permitting turnover to escape assessment. The Court therefore treated the enquiry findings as a valid basis for departmental proceedings. [Paras 10, 11, 12]

Charge Nos.3 to 5 are held to be proved on the basis of the enquiry record and the petitioner's failure to verify corresponding sales/ transit sales.

Disciplinary action - recovery from Death-cum-Retirement Gratuity - cut in pension as punishment - judicial interference with administrative/disciplinary orders - Whether the impugned order imposing recovery from gratuity and cut in pension is liable to be quashed by the Court. - HELD THAT: - The first respondent, acting on the enquiry officer's findings and after due process including revocation of suspension and consideration of representations, imposed recovery of a portion of the revenue loss from the petitioner's Death-cum-Retirement Gratuity and a cut in pension for a limited period. The Court reviewed the enquiry findings and material showing that revenue would have escaped absent the successor's assessment, and found no illegality or reason to interfere with the administrative action. The Court noted that the measures imposed were within the disciplinary framework and that the petitioner had failed to discharge his statutory duty, so the order could be sustained. The Court also recorded delay in passing a final order but did not find that such delay vitiated the order requiring interference. [Paras 3, 13]

The impugned order dated 23.01.2012 imposing recovery and cut in pension is not interfered with; the writ petition is dismissed.

Final Conclusion: On the enquiry record and findings that the petitioner failed in his duty to verify corresponding sales/ transit sales, charge Nos.3 to 5 were held proved and the departmental order imposing recovery from gratuity and a limited cut in pension was sustained; the writ petition is dismissed.