TaxTMI Updates e-Newsletter
Jun 11,2020

Seizure under GST - Appeal under Section 112 of the C.G.S.T. Act, 2017 - Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 - Remedy of writ under Article 226 of the Constitution - Constitution of the Appellate Tribunal and tolling of limitation

Appeal under Section 112 of the C.G.S.T. Act, 2017 - Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 - Remedy of writ under Article 226 of the Constitution - Whether the petitioner may bypass the statutory appellate remedy and maintain a writ petition when the Appellate Tribunal has not been constituted, and what relief is available. - HELD THAT: - The Court recorded that the impugned seizure and consequential orders are appealable under Section 112 of the C.G.S.T. Act, 2017 and that the petitioner elected to approach the High Court under Article 226, bypassing the statutory appeal, on the ground that the Appellate Tribunal and its Benches had not been constituted. The Government's measure to meet that difficulty - the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 - was adverted to, which provides that, in situations where the Tribunal is not constituted, the three months' period for filing appeal shall be considered from the date on which the President or State President of the Appellate Tribunal enters office after constitution. The Court noted that the petitioner admitted the legal position and that the seized goods had already been released, so no immediate prejudice would be suffered. Applying these considerations, the Court declined to entertain the writ as an alternative to the statutory remedy and disposed of the petition by permitting the petitioner to invoke the appeal remedy before the Tribunal in terms of the Ninth Removal of Difficulties Order when the Tribunal is constituted.

Petition disposed of; petitioner directed to file appeal before the Appellate Tribunal in accordance with the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 when the Tribunal is constituted.

Final Conclusion: The High Court declined to bypass the statutory appellate remedy under Section 112 and disposed of the writ by directing the petitioner to avail the remedy of appeal before the Appellate Tribunal in terms of the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019; no immediate prejudice was found as the seized goods had been released.

Appealability under Section 112 of the C.G.S.T. Act, 2017 - maintainability of writ in presence of an alternative statutory remedy - extension of limitation for filing appeal due to non constitution of Tribunal - Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 - seizure and subsequent release of goods - Article 226 constitutional remedy versus statutory appeal

Appealability under Section 112 of the C.G.S.T. Act, 2017 - maintainability of writ in presence of an alternative statutory remedy - Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 - Whether the petitioner may bypass the statutory appellate remedy and proceed under Article 226 when the Appellate Tribunal has not been constituted and the petitioner has already deposited amounts and had goods released. - HELD THAT: - The Court recorded that the impugned orders are appealable under the statutory appeal mechanism and that the appellant must normally file an appeal within the prescribed period under the statute. Recognising the practical difficulty caused by non constitution of the Appellate Tribunal, the Government has issued the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 which treats the three months' limitation as commencing when the President or State President of the Tribunal enters office after constitution. Given this legislative accommodation and the fact that the seized goods have already been released, the petitioner was held not to require immediate recourse to extraordinary constitutional relief; instead the statutory remedy of appeal remains available and can be invoked once the Tribunal is constituted in terms of the Ninth Removal of Difficulties Order. The petition was therefore disposed of by directing the petitioner to avail the appellate remedy under that order rather than adjudicating the challenge under Article 226.

Petition disposed; petitioner permitted to invoke the statutory appeal remedy in terms of the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 when the Appellate Tribunal is constituted.

Final Conclusion: The writ petition is disposed of by directing the petitioner to pursue the statutory appeal under Section 112 in accordance with the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019; no immediate relief under Article 226 granted in view of the available extended appellate mechanism and release of goods.

Attachment order - jurisdiction - objections under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 - personal hearing - direction to decide objections within three working days - rights and contentions left open

Objections under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 - attachment order - personal hearing - direction to decide objections within three working days - Writ petition challenging the attachment order disposed with direction to respondent No.3 to decide the objections filed under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 within three working days. - HELD THAT: - The Court noted that the petitioner had filed objections under Rule 159(5) prior to initiating the writ petition and that a personal hearing notice had been issued and scheduled. Rather than adjudicating the merits of the challenge to jurisdiction, the Court directed respondent No.3 to decide the pending objections under Rule 159(5) within three working days. The Court left open the petitioner's remedy to challenge the decision if aggrieved and preserved the rights and contentions of all parties. The order was to be uploaded and forwarded to counsel.

Writ petition disposed by directing respondent No.3 to decide the objections under Rule 159(5) within three working days; remedies preserved and rights left open.

Final Conclusion: The petition challenging the attachment order was disposed of by directing the authority to decide the objections filed under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 within three working days; the petitioner's remedies against that decision and the rights of all parties were left open.

Exemption under section 54 - treatment of cost of land as investment for construction for claiming exemption - proviso to section 54 regarding taxation of unutilised capital gains on expiry of three years - taxability of unutilised long term capital gains in the year of expiry of the three year period

Exemption under section 54 - treatment of cost of land as investment for construction for claiming exemption - taxability of unutilised long term capital gains in the year of expiry of the three year period - proviso to section 54 regarding taxation of unutilised capital gains on expiry of three years - Whether the unutilised portion of long term capital gains is taxable in the year in which the gains arose or in the year in which the three year period for utilisation expires, and whether purchase of a residential plot qualifies as investment under section 54 to claim exemption for the assessment year 2013 14. - HELD THAT: - The Tribunal examined section 54 and its proviso and followed earlier Tribunal decisions holding that where the assessee has invested capital gains in purchase of land for construction but construction is not completed within three years, the exemption under section 54 is not automatically lost for the earlier year; instead the unutilised capital gains are to be charged to tax in the year in which the three year period for utilisation expires. The Bench accepted that the cost of land can form part of the investment for construction (as recognised in CBDT guidance), and relied on precedents where the Tribunal remitted the matter to the assessing officer to verify whether the assessee offered the unutilised long term capital gains to tax in the year in which the three year period expired. In absence of any contrary decision, the consistent view of the Tribunal was followed and the issue was set aside to the assessing officer for limited verification whether the assessee declared the long term capital gains in Assessment Year: 2016 17; if so, the exemption claimed for assessment year 2013 14 must be allowed. [Paras 6, 7, 9]

Followed Tribunal precedents; remitted to the assessing officer to verify whether the assessee offered the long term capital gains to tax in Assessment Year: 2016 17 and, if so, to allow the exemption under section 54 for assessment year 2013 14.

Final Conclusion: Appeal allowed; matter remitted to the assessing officer for verification whether the assessee offered the long term capital gains to tax in Assessment Year: 2016 17 and, if so, to grant the exemption under section 54 for assessment year 2013 14.

Reopening under section 147/148 - requirement of tangible material to form belief - Client code modification - contrived loss / bogus transaction - Burden on assessee to rebut allegations of contrived transactions with cogent evidence - Admissibility of investigation and survey reports as basis for forming belief - Interest consequential to assessment adjustments

Reopening under section 147/148 - requirement of tangible material to form belief - Admissibility of investigation and survey reports as basis for forming belief - Validity of reopening assessment by issuing notice under section 148 read with section 147 on the basis of information from investigation and survey reports - HELD THAT: - The Tribunal found that the Assessing Officer had tangible, concrete material - including a survey report, information received from the Investigation Directorate and findings of SEBI regarding client code modification - which, when compared with the return, supported a reasonable belief that income had escaped assessment. The bench distinguished authorities where reopening was quashed because in those cases the AO could not show that modifications were not genuine punching errors; here the AO recorded that complete client codes (not isolated keystrokes) were replaced repeatedly and identified the broker and common director links, which negated the likelihood of innocent typing mistakes. On these factual findings the Tribunal held there was no infirmity in the reasons recorded and in the reopening of the assessment. [Paras 10, 11, 12, 13]

Reopening of assessment under section 147/148 upheld

Client code modification - contrived loss / bogus transaction - Burden on assessee to rebut allegations of contrived transactions with cogent evidence - Sustenance of addition disallowing loss from futures and options on ground that losses were contrived due to client code modification - HELD THAT: - On merits the Tribunal accepted the Assessing Officer's conclusion that transactions were not genuine because client codes were systematically replaced (not mere punching errors), the assessee did not produce evidence of placing orders, margin deposits, or other transactional indicia, and contract notes alone were insufficient to rebut the allegation. The Tribunal noted the broker did not confirm genuine modification records and the assessee failed to call directors or broker to establish legitimacy. Given the unrefuted material compiled by the AO and absence of cogent contrary evidence from the assessee, the addition was held to be justified. [Paras 5, 8, 14]

Addition disallowing the claimed trading loss upheld

Interest consequential to assessment adjustments - Levy of interest consequential to the assessment adjustments - HELD THAT: - The Tribunal treated the challenge to interest as consequential to the upheld assessment adjustments and found no merit in contesting the levy of interest which flows from the admitted outcome of the assessment revision. [Paras 15]

Charge of interest dismissed only insofar as challenge has no merit; interest stands as consequential

Final Conclusion: The Tribunal dismissed the appeal: the reopening under section 147/148 was validly based on tangible investigation and survey material; the addition disallowing the claimed futures/options loss as a contrived client-code-modification loss was sustained for want of adequate rebuttal by the assessee; the consequential interest challenge was dismissed. The appeal is therefore dismissed.

Adventure in the nature of trade - business income versus capital gains - intention at the time of acquisition - period of holding - treatment in books of accounts - indexation of cost of improvement

Adventure in the nature of trade - business income versus capital gains - intention at the time of acquisition - period of holding - treatment in books of accounts - Whether the profit on sale of the property (Metro House) is taxable as business income (adventure in the nature of trade) or as income chargeable under the head capital gains. - HELD THAT: - The Tribunal noted certain undisputed facts: the assessee's primary business was trading of dyes; there was a single isolated sale of the property in the year under consideration; the property was shown in the books as a fixed asset; no depreciation had been claimed thereon; and the property was held for a long period. The Revenue based its conclusion that the transaction was an adventure in the nature of trade primarily on continuous expenditure incurred in developing the land, likening the assessee's activities to those of a developer. The Tribunal held that continuous expenditure alone does not establish that the assessee was carrying on an activity in the nature of trade. The determinative considerations include the assessee's intention at acquisition, the period of holding and the accounting treatment, none of which were demonstrated by the authorities below. The Tribunal observed that the assessee's assertion that the property was being developed for its own business was not challenged on the record and that the authorities had not brought out material to rebut those aspects. Having regard to the undisputed facts and on authority considered, the Tribunal concluded that the sale proceeds arose from realization of a capital asset and therefore the income is taxable under the head capital gains. The Tribunal set aside the findings of the CIT(A) and directed the Assessing Officer to treat the transaction as capital gain; other grounds were held to be consequential. [Paras 19, 20, 21, 22, 23]

The income from the sale of the property is taxable as capital gains; the findings that it was an adventure in the nature of trade and hence business income are set aside and the AO is directed to treat the transaction as capital gain.

Final Conclusion: The appeal is allowed in part: the Tribunal holds that the profit on sale of Metro House is chargeable under the head capital gains and directs the Assessing Officer to assess the transaction accordingly; other grounds raised by the assessee are consequential.

Peak credit theory - undisclosed income - search and seizure - bank statements as evidence - corroborative evidence requirement - accommodation entry

Peak credit theory - undisclosed income - search and seizure - bank statements as evidence - corroborative evidence requirement - Whether the entire cash deposits in the bank account found during search could be treated as undisclosed income or whether the assessee was entitled to benefit of peak credit. - HELD THAT: - The Tribunal found undisputed continuous cash deposits and withdrawals in the ICICI bank account in the name of the assessee's employee, which the assessee admitted owning. The bank statement seized during search was not a 'dumb document' because the assessee acknowledged ownership and the transactions. In absence of any other corroborative material establishing that the total deposits represented unaccounted profit, the Assessing Officer was not justified in treating the entire deposited sum as undisclosed income. The Tribunal distinguished authorities concerning admitted accommodation entry providers, noting that those cases require full disclosure of sources and destinations of funds before peak credit is allowed; the facts here were different because the deposits and withdrawals were regular and on behalf of the assessee. Recognising that the account was undisclosed, the Tribunal nevertheless held that the revenue cannot ignore deposits entirely and that the correct quantification in these circumstances is by applying the peak credit theory. The Tribunal accepted the peak amount (closing balance) as on 26.11.2014 and restricted the addition to that peak credit figure, thereby reducing the addition made by the AO and confirmed in appeal. [Paras 8, 9, 10, 11, 12]

The addition is restricted to the peak credit of Rs. 13,06,500 and the remainder of the addition made by the AO is deleted.

Final Conclusion: Appeal partly allowed; for AY 2015-16 the addition is restricted to the peak credit amount of Rs. 13,06,500 and the balance addition is deleted.

Deduction under Section 80P(2)(a)(i) of the Income tax Act - Assessing Officer's duty to inquire into activities of a society for eligibility under Section 80P(4) - Certificate of Registrar of Co operative Societies not conclusive of entitlement - Assessment year as separate unit for determining eligibility - Remand for factual verification of purpose of loan disbursements

Deduction under Section 80P(2)(a)(i) of the Income tax Act - Assessing Officer's duty to inquire into activities of a society for eligibility under Section 80P(4) - Certificate of Registrar of Co operative Societies not conclusive of entitlement - Remand for factual verification of purpose of loan disbursements - Whether the Assessing Officer was justified in denying deduction claimed under Section 80P(2)(a)(i) without detailed enquiry into the nature and purpose of loan disbursements, and whether the matter requires fresh examination. - HELD THAT: - The Tribunal examined the conflicting High Court precedents and followed the Full Bench decision in The Mavilayi Service Co operative Bank Ltd. v. CIT which held that after introduction of sub section (4) the Assessing Officer is not bound by the registration certificate and must inquire into the factual activities of the society for each assessment year. The Assessing Officer in the present case concluded from loan extract narration in the audit report that only a minuscule portion of advances were for agricultural purposes, but did not examine the purpose of individual disbursements. The Tribunal observed that loan narrations in the audit report are not conclusive to determine whether advances were for agricultural purposes (for example, gold loans may or may not be for agriculture) and therefore a detailed examination of the purpose of each loan was necessary. In view of the law that each assessment year is a separate unit and entitlement under Section 80P must be verified year wise, the Tribunal directed that the Assessing Officer should list and verify instances of non agricultural disbursements, apply the Full Bench dictum, and decide the claim afresh in accordance with law. The Tribunal did not decide the substantive question on merits but remanded the issue for fresh adjudication by the Assessing Officer following the prescribed legal tests. [Paras 6]

Remanded to the Assessing Officer for fresh examination and decision on eligibility for deduction under Section 80P(2)(a)(i) for assessment year 2014 2015, requiring detailed inquiry into the purpose of loan disbursements in accordance with the Full Bench ruling.

Final Conclusion: Appeal allowed for statistical purposes; the matter is remanded to the Assessing Officer to examine and decide, for assessment year 2014 2015, whether the assessee's activities qualify for deduction under Section 80P(2)(a)(i) after detailed verification of the purpose of loan disbursements, in accordance with the Full Bench of the Kerala High Court.

Capacity under-utilization adjustment - Arm's length price - Transactional Net Margin Method (TNMM) - Comparability adjustments under Rule 10B(1)(e) of the Rules - Adjustment on the tested party where comparable data is unavailable - Powers under section 133(6) to obtain information from comparables

Capacity under-utilization adjustment - Comparability adjustments under Rule 10B(1)(e) of the Rules - Adjustment on the tested party where comparable data is unavailable - Powers under section 133(6) to obtain information from comparables - Entitlement of the assessee to an adjustment for under utilised capacity while computing the profit level indicator (PLI) under TNMM and the appropriate course where capacity utilisation data of comparables is not publicly available. - HELD THAT: - The Tribunal held that differences in capacity utilisation that materially affect net margins must be addressed by comparability adjustments and that such adjustments may be made on the tested party where reliable data for comparables is not available, having regard to Rule 10B(1)(e)/10B(2)/10B(3) and international guidance. The Tribunal relied on coordinate-bench precedents which recognise that under utilisation increases per unit costs and reduces margins and that reasonably accurate adjustments are required to obtain a reliable ALP. Because the assessee had operated at significantly lower capacity and had allocated fixed costs to compute an under utilisation adjustment, it was entitled to such an adjustment; however, the assessee had computed the adjustment on the assumption that comparables operated at 100% capacity. Where comparables' capacity data is not in the public domain, the TPO/AO is directed to exercise powers under section 133(6) to obtain installed capacity, actual production, and cost break ups from the comparable companies, share the obtained particulars with the assessee, and recompute the capacity under utilisation adjustment accordingly. The Tribunal set aside the AO's order on this issue and remitted it to the AO/TPO with these directions. [Paras 8, 9, 10]

Assessee entitled to capacity under utilisation adjustment; matter remitted to AO/TPO to obtain capacity/utilisation data from comparables under section 133(6) and recompute the adjustment.

Final Conclusion: The appeal is allowed for statistical purposes: the assessee is held entitled to a capacity under utilisation adjustment but the computation is remitted to the AO/TPO with directions to obtain comparable companies' capacity and related data under section 133(6), share the information with the assessee and recompute the adjustment.

Ex parte order - opportunity of hearing - deduction under section 54F - non-filing of return - reassessment under section 147/148 - remand for fresh consideration

Ex parte order - opportunity of hearing - deduction under section 54F - non-filing of return - reassessment under section 147/148 - remand for fresh consideration - Whether the claim of deduction under section 54F, raised before the Commissioner (Appeals) but dismissed by an ex parte order for non-appearance, can be denied without verification and whether the matter should be remanded for fresh adjudication. - HELD THAT: - The Commissioner (Appeals) dismissed the appeal by an ex parte order after noting repeated notices and non-attendance by the assessee before both the AO and the CIT(A). The assessee, a senior citizen and farmer, had specifically claimed deduction under section 54F on the ground that sale proceeds were utilised for construction of a new residential house. Given that the AO had issued a notice under section 148 for reassessment under section 147 and the assessee had not filed a return, the Tribunal observed that the substantive claim for deduction could not be rejected solely on the basis of non-appearance without verification of the factual claim of utilisation of proceeds. In the interest of justice and having regard to the age and status of the assessee, the Tribunal held that the issue of deduction under section 54F requires fresh consideration and that the assessee must be afforded a due and reasonable opportunity to produce evidence and be heard. Consequently the Tribunal set aside the impugned order and remanded the matter to the AO for adjudication afresh after providing opportunity of hearing and verification of utilisation of sale proceeds for construction. [Paras 4]

Impugned ex parte dismissal set aside; matter remanded to the Assessing Officer for fresh adjudication on the claim of deduction under section 54F after giving the assessee a due and reasonable opportunity of hearing.

Final Conclusion: The appeal is allowed for statistical purposes; the Tribunal has set aside the ex parte order and directed remand to the Assessing Officer for fresh decision on the section 54F claim after affording the assessee a proper opportunity to be heard and to produce evidence.

Valuation of closing stock at lower of cost or net realizable value (Accounting Standard 2) - opening stock is the previous year s closing stock and cannot be disturbed without revisiting that year s closing valuation - onus on the assessee to substantiate stock figures and adjustments by documentary evidence - prohibition on taxing the same income twice across assessment years - treatment of sales returns in stock reconciliation - manufacturing loss/shortage allowable only if supported by evidence - extension of time for pronouncement of orders in view of COVID-19 lockdown

Valuation of closing stock at lower of cost or net realizable value (Accounting Standard 2) - opening stock is the previous year s closing stock and cannot be disturbed without revisiting that year s closing valuation - Deletion of addition of Rs. 70,45,751/- made on account of alleged overvaluation of opening and closing stock. - HELD THAT: - The AO s addition represented the difference between an alleged overvalued closing stock of the previous year and the current year s closing stock. The Tribunal noted that a closing stock of one year becomes the opening stock of the next, and the opening stock for the year under appeal cannot be disturbed unless the earlier year s closing stock is itself revised. The assessee produced a stock valuation report (placed on record and before the authorities below) showing valuation at market rate lower than cost as per AS-2, and no defect in that valuation report was pointed out by the authorities. In these circumstances, and since Revenue had not revised the earlier year s closing stock, the addition could not be sustained. [Paras 12, 13, 14, 15]

Addition deleted; ground allowed.

Valuation of closing stock at lower of cost or net realizable value (Accounting Standard 2) - opening stock is the previous year s closing stock and cannot be disturbed without revisiting that year s closing valuation - prohibition on taxing the same income twice across assessment years - onus on the assessee to substantiate stock figures and adjustments by documentary evidence - Deletion of addition of Rs. 73,62,762/- made on account of alleged undervaluation and quantity mismatch of closing stock of yarn. - HELD THAT: - The AO s computation comprised two components: an alleged undervaluation and a purported quantity mismatch. The Tribunal found that the AO failed to consider opening stock value in computing closing stock value as required by valuation rules under AS-2, and that the assessee maintained stock quantities in various categories (raw material, WIP, processed stock, etc.) which, on the material placed (page 103), matched the balance sheet. Further, even if a lesser closing stock were accepted, that value would carry into the opening stock of the subsequent year; absent any direction to revise the subsequent year s opening stock, taxing the amount in the current year would risk double taxation. On these bases the authorities findings were not sustained and the addition was deleted. [Paras 28, 29, 30, 31]

Addition deleted; ground allowed.

Treatment of sales returns in stock reconciliation - onus on the assessee to substantiate stock figures and adjustments by documentary evidence - Confirmation of addition of Rs. 26,38,836/- on account of understatement of closing stock or unrecorded sales relating to sales returns. - HELD THAT: - The assessee recorded sales returns in the sales account but did not reflect the returned quantities in its stock register. The AO invited explanation and, finding none, treated the amount as either understatement of stock or unrecorded sales; the CIT(A) upheld that view after remand, recording that the assessee failed to produce documentary evidence demonstrating that sales returns had been included in the stock register. At the Tribunal hearing the assessee s representative was again unable to produce documentary proof and the stock register did not show entries for the sales return. Given the concurrent findings and the assessee s failure to discharge the evidentiary onus, the addition was sustained. [Paras 36, 41, 42, 43, 44]

Addition upheld; ground dismissed.

Manufacturing loss/shortage allowable only if supported by evidence - onus on the assessee to substantiate stock figures and adjustments by documentary evidence - Confirmation of disallowance of Rs. 98,767/- claimed for shortage of finished goods (carpet). - HELD THAT: - The assessee claimed a minor shortage in finished goods arising from the manufacturing process, but failed to furnish documentary evidence or an acceptable explanation to the AO or on remand. The CIT(A) observed absence of supporting material and confirmed the addition. At the Tribunal hearing the assessee again failed to produce evidence to establish the claimed manufacturing loss. In absence of proof and in view of concurrent findings, the claimed shortage was held unsustainable. [Paras 47, 48, 52, 53, 54]

Addition upheld; ground dismissed.

Final Conclusion: The appeal is partly allowed: additions made for alleged overvaluation/undervaluation of stock (grounds 1 and 2) are deleted; additions relating to understatement/unrecorded sales for sales returns and shortage in production (grounds 3 and 4) are confirmed. The Tribunal pronounced the order beyond the 90-day period for reasons attributable to the COVID-19 lockdown.

Taxation of share premium under section 56(2)(viib) - Valuation by DCF method and limits on AO's choice of valuation method - Remand for fresh valuation and requirement to confront the assessee with valuer's determination - Treatment of unexplained cash credit and addition under section 68 vis-a -vis section 56(2)(viib) - Rectification of apparent mistake by AO under section 154

Taxation of share premium under section 56(2)(viib) - Valuation by DCF method and limits on AO's choice of valuation method - Remand for fresh valuation and requirement to confront the assessee with valuer's determination - Whether the addition made by the AO under section 56(2)(viib) in respect of share premium should be reopened and a fresh valuation undertaken by the AO in accordance with the DCF method, confronting the assessee. - HELD THAT: - Following the Tribunal's earlier reasoning in Innoviti Payment Solutions (P) Ltd. and the decision of the Hon'ble Bombay High Court in Vodafone M Pesa Ltd. v. Pr. CIT, the Tribunal held that where the assessee has adopted the DCF method, the AO may scrutinize the valuation report and determine a fresh valuation either himself or by obtaining a final determination from an independent valuer, but cannot change the valuation method chosen by the assessee. The AO must scrutinize the cash flow projections (the critical inputs in the DCF model) and require the assessee to establish that such projections are reliable and estimated with reasonable certainty on the date of valuation; the AO's fresh valuation must be confronted to the assessee. Accordingly, the CIT(A)'s order confirming taxation under section 56(2)(viib) was set aside and the matter restored to the file of the AO with directions to proceed as above. [Paras 7]

Order of CIT(A) on invoking section 56(2)(viib) set aside; matter remanded to AO for fresh valuation exercise following the DCF method and for confronting the assessee.

Treatment of unexplained cash credit and addition under section 68 vis-a -vis section 56(2)(viib) - Rectification of apparent mistake by AO under section 154 - Whether the apparent discrepancy between the AO treating the entire receipt as unexplained cash credit and making addition only under section 56(2)(viib) (leaving a residual amount unadded) should be addressed by the AO afresh. - HELD THAT: - The Tribunal noted that the AO's assessment order recorded that the full receipt was prima facie unexplained cash credit, yet the AO made an addition only to the extent of the valuation determined under section 56(2)(viib), leaving a residual amount unadded. The Tribunal observed this to be an apparent mistake in the assessment order and that the period for rectification under section 154 had not yet expired. In view of this, the Tribunal considered it proper that the AO decide afresh whether any further addition is to be made under section 68 or by rectification, permitting the AO to take necessary remedial action consistent with law. [Paras 10]

Ground rejected insofar as an appellate enhancement was sought; matter remitted to the AO to consider and, if necessary, rectify the apparent mistake and determine whether any addition under section 68 is warranted.

Final Conclusion: The appeal is partly allowed for statistical purposes: the confirmation of taxation under section 56(2)(viib) is set aside and remanded to the AO for fresh valuation under the DCF method with opportunity to the assessee to be confronted; the question of residual addition/arising apparent mistake is remitted to the AO for fresh consideration or rectification under section 154.

Deletion of additions for unexplained/unverified advances and cash credits - proof of identity, genuineness and creditworthiness of creditors - treatment of payments through Mandi/Chukara Khata in trading of agricultural produce - disallowance of expenses by making ad hoc percentage adjustments - admission of additional evidence under Rule 46A of the Income-tax Rules

Deletion of additions for unexplained/unverified advances and cash credits - proof of identity, genuineness and creditworthiness of creditors - Deletion of addition of Rs. 18,44,404/- made on account of alleged unverified commercial advance from M/s Sona Trading Co. was justified and upheld. - HELD THAT: - Ld. CIT(A) found that the advance related to regular trading transactions with M/s Sona Trading Company, sales were recorded and payments received through banking channels, and confirmation from the party was furnished and not questioned by AO. The Tribunal observed that revenue raised no challenge to the genuineness of the transactions and there was no inconsistency in the appellate finding; therefore the deletion was proper. [Paras 8, 9]

Appeal dismissed insofar as deletion of the addition of Rs. 18,44,404/- is concerned.

Deletion of additions for unexplained/unsecured loans and cash credit - proof of identity, genuineness and creditworthiness of creditors - Deletion of additions amounting to Rs. 32,40,040/-, Rs. 6,60,000/- and Rs. 14,56,506/- made as unexplained/unsecured loans/cash credit was justified and upheld. - HELD THAT: - Ld. CIT(A) accepted loan confirmations bearing names, addresses and PANs and noted repayments through banking channels; remand report contained no adverse comments by AO. The Tribunal noted that most accounts were squared up during the year, transactions passed through auditor's scrutiny under section 44AB, and there was no evidence that AO made enquiries using PAN or other details. On this record the appellate deletion was sustained as sufficient to establish identity, genuineness and creditworthiness. [Paras 10, 11, 12]

Appeal dismissed insofar as deletions of the unexplained/unsecured loan additions are concerned.

Treatment of payments through Mandi/Chukara Khata in trading of agricultural produce - deletion of addition on the basis of assumed use of undisclosed cash - Deletion of addition of Rs. 89,74,337/- made on account of alleged misuse of Chukara Khata was justified and upheld. - HELD THAT: - AO treated purchases for April as a peak and assumed payments to farmers were made from undisclosed cash because payments were not always made on the date of purchase. Ld. CIT(A) examined working methods at the Mandi, documentary slips maintained by Mandi employees, and found payments were made subsequently in ordinary course; AO brought no material to show payments derived from undisclosed sources. The Tribunal agreed that mere non-payment on same day, without evidence of undisclosed funds, did not justify addition and upheld deletion relying on established principle against arbitrary additions. [Paras 13, 14]

Appeal dismissed insofar as deletion of the Chukara Khata addition is concerned.

Disallowance of expenses by making ad hoc percentage adjustments - role of audited books and non-compliance with information requests - AO's disallowance of 20% of salary, wages and hammali expenses and 20% of freight was excessive; disallowance reduced to 10% for each head. - HELD THAT: - AO imposed a 20% disallowance after the assessee repeatedly failed to furnish requested supporting details during scrutiny, leaving AO limited options. Ld. CIT(A) had deleted the disallowance as ad hoc without reason. The Tribunal, balancing procedural non-compliance and the fact of audit under section 44AB and ledgers placed on record, found a middle path: confirm a disallowance but limit it to 10% of the relevant expense heads (resulting in quantified reductions), thereby partially allowing the Revenue's grounds. [Paras 15, 16, 17]

Revenue's appeal partly allowed by confirming disallowances of 10% of salary/wages/hammali and 10% of freight instead of 20%.

Admission of additional evidence under Rule 46A of the Income-tax Rules - adjudication on merits where additional evidence goes to root of issues - Ld. CIT(A) was justified in admitting additional evidence under Rule 46A, and the admission was upheld. - HELD THAT: - Additional evidence before the CIT(A) consisted of documents proving identity, genuineness and creditworthiness of creditors and went to the root of the additions made by AO. The Tribunal held that admission under Rule 46A to enable adjudication on merits was appropriate and did not amount to improper reception of evidence. [Paras 18]

Appeal dismissed insofar as challenge to admission of additional evidence under Rule 46A is concerned.

Final Conclusion: Revenue's appeal is partly allowed: deletions of additions relating to trading advance, unsecured loans and Chukara Khata are upheld; AO's 20% disallowances on salary/wages/hammali and freight are reduced to 10% each; admission of additional evidence by CIT(A) is sustained.

Summary order. Delay condoned; appeal admitted; notice issued on the application for stay, returnable within three weeks; notice waived for the sole respondent.

Mandamus - recovery proceedings - encashment of bank guarantee - abeyance of proceedings - jurisdictional remedy

Mandamus - recovery proceedings - encashment of bank guarantee - abeyance of proceedings - jurisdictional remedy - Whether the writ petition seeking a mandamus to forbear encashment of the bank guarantee could be entertained or whether recovery proceedings should be kept in abeyance and the petitioner directed to pursue remedy before the competent authorities in Karnataka. - HELD THAT: - The Court declined to adjudicate the merits of the petition and recorded the common concession of counsel that the appropriate remedy against the recovery proceedings lies before the competent jurisdictional authorities in the State of Karnataka. In view of those submissions, the Court exercised its discretion to dispose of the petition without going into merits by temporarily restraining action: recovery proceedings were ordered to be kept in abeyance for four weeks to enable the petitioner to approach the competent authorities in Karnataka for appropriate remedy. The Court made clear that if the petitioner failed to avail the opportunity within the stipulated time, the respondents would be at liberty to proceed in accordance with law.

Writ petition disposed by keeping recovery proceedings in abeyance for four weeks and directing the petitioner to approach the competent authorities in Karnataka for appropriate remedy; respondents may proceed if petitioner fails to act within the time granted.

Final Conclusion: The Court did not decide the merits; it granted a four week abeyance of recovery proceedings to enable the petitioner to seek remedy before the competent authorities in Karnataka, after which the respondents are permitted to proceed if the petitioner does not act.

Tender of pardon to accomplice - condition of full and true disclosure - examination of approver under Section 306(4) - certificate of the Public Prosecutor under Section 308(1) - revocation/forfeiture of pardon - approver-turned-accused and separate trial

Examination of approver under Section 306(4) - revocation/forfeiture of pardon - tender of pardon to accomplice - Maintainability of an application to revoke a tendered pardon prior to recording the approver's statement under Section 306(4) of the CrPC. - HELD THAT: - The court held that Sections 306 and 308 of the CrPC form a cohesive scheme in which tendering of pardon under Section 306(1) must be followed by the mandatory examination of the person accepting pardon as a witness under Section 306(4). That recorded evidence is the statutory vehicle by which compliance with the condition of a full and true disclosure is tested. Consequently an application seeking 'revocation' or forfeiture of pardon is premature and not maintainable before the approver's statement has been recorded under Section 306(4). The trial court's conclusion that the petition to revoke was premature and that liberty to renew the application at the appropriate stage should be preserved was endorsed. [Paras 41, 44, 45, 55, 56]

Application to revoke pardon filed before recording the approver's statement under Section 306(4) was premature and not maintainable; the Special Judge's order dismissing it as such is upheld and liberty to reapply at the appropriate stage is preserved.

Certificate of the Public Prosecutor under Section 308(1) - condition of full and true disclosure - approver-turned-accused and separate trial - Whether a certificate under Section 308(1) can legitimately be issued on the basis of non-cooperation or conduct during investigation rather than on evidence given before the Court. - HELD THAT: - The court held that issuance of a certificate under Section 308(1) is contingent on the approver having failed to comply with the condition on which pardon was tendered, namely making a full and true disclosure before the Court. Read conjunctively with Section 306(1) and (4), 'wilfully concealing anything essential' or 'giving false evidence' in Section 308(1) must relate to evidence before the Court (including the statement recorded under Section 306(4)) or to evidence given subsequently at trial. A certificate based solely on non-cooperation during investigation or on conduct outside court proceedings does not conform to the statutory scheme and is not a legitimate basis, by itself, for seeking forfeiture of pardon. [Paras 45, 47, 51, 52]

A Public Prosecutor's certificate under Section 308(1) must be predicated on concealment or falsehood in evidence before the Court (including the statement under Section 306(4)); conduct during investigation alone cannot, by itself, justify that certificate or immediate forfeiture of pardon.

Final Conclusion: The petition challenging the Special Judge's order dated 5th March 2020 is dismissed. The Special Judge correctly held that an application to forfeit or revoke a tendered pardon is premature until the approver's statement is recorded under Section 306(4); the Public Prosecutor's certificate under Section 308(1) must be founded on evidence before the Court. Liberty to move an appropriate application at the appropriate stage remains reserved.

Non-compliance with Rule 63(5) of the U.P. Value Added Tax Rules, 2008 - Summary disposal of appeals in absence of appellant - Right to have appeal decided on merits on compliance - Conditional restoration subject to deposit for revival - Remand for fresh adjudication

Non-compliance with Rule 63(5) of the U.P. Value Added Tax Rules, 2008 - Remand for fresh adjudication - Appellate judgments were set aside for failure to adhere to Rule 63(5) and the matter was remanded for fresh decision in accordance with that provision. - HELD THAT: - The High Court found that the First Appellate Court and the Second Appellate Court did not follow Rule 63(5) of the U.P. Value Added Tax Rules, 2008 in their judgments dated 31.8.2017 and 17.12.2019. In the interest of justice the Court set aside those judgments and orders, restored First Appeal No.2 of 2015 to its original number and directed that the appeal be heard and decided on merits in conformity with Rule 63(5). The remand requires the First Appellate Court to afford the applicant an opportunity to appear and argue the case and then decide the appeal on merits as mandated by the rule.

Judgments dated 31.8.2017 and 17.12.2019 set aside; First Appeal No.2 of 2015 restored and remitted for decision on merits in accordance with Rule 63(5).

Summary disposal of appeals in absence of appellant - Right to have appeal decided on merits on compliance - Conditional restoration subject to deposit for revival - Whether appellate fora may dispose of appeals where the appellant does not appear and the conditions imposed for restoration. - HELD THAT: - The Court observed that while the appellant's non-appearance was lamentable and appellate fora, when confronted with non-appearance, may proceed to decide matters summarily, such summary action did not justify non-observance of the procedural protections prescribed by Rule 63(5). Balancing the appellant's default and the interest of justice, the Court restored the appeal but made restoration conditional upon the applicant depositing a specified amount before the High Court Mediation and Conciliation Centre and producing proof of such deposit before the First Appellate Court. Only upon compliance will the order of restoration take effect and the appellant be entitled to have the appeal heard on merits.

Appeal restored conditionally; appeal to be fixed for hearing after proof of the prescribed deposit is produced, failing which the conditional restoration will not take effect.

Final Conclusion: Revision allowed: impugned appellate orders set aside; First Appeal No.2 of 2015 restored and remitted to the First Appellate Court to be decided on merits in accordance with Rule 63(5) of the U.P. Value Added Tax Rules, 2008, subject to the applicant complying with the court's conditional deposit requirement.