TaxTMI Updates e-Newsletter
Jun 13,2015

Deduction under Chapter VI-A - profit-linked incentives - computation of profits for section 80-IA - deeming fiction of single source of income - preclusion of reopening set-off of earlier losses

Computation of profits for section 80-IA - deeming fiction of single source of income - preclusion of reopening set-off of earlier losses - Whether an assessee is entitled to claim deduction under section 80-IA where losses of years prior to the initial assessment year have already been set off against other income. - HELD THAT: - The Court followed its earlier decision in Velayudhaswamy Spinning Mills and the Supreme Court's exposition in Liberty India that Chapter VI-A provides profit-linked incentives and that sections such as section 80-IA form a self-contained code for computation of eligible profits. Sub-section (5) of section 80-IA is a non obstante, deeming provision which treats the eligible business as if it were the only source of income for the purpose of determining the quantum of deduction for the initial and subsequent assessment years, and thus contemplates a forward-looking computation from the initial assessment year. The fiction created is limited in scope and does not permit the Revenue to notionally reopen earlier years to bring forward losses or deductions that have already been absorbed against other income. Reliance was placed on the reasoning in CIT v. Mewar Oil and General Mills Ltd., which held that losses or other deductions already set off in earlier years need not be reopened while computing deduction under the corresponding provision, and that recomputation is unnecessary where there are no carry forward losses of the eligible undertaking. The Court noted that the Revenue pointed to the legislative memorandum but no applicable authority or material was shown to displace the principle that the deeming fiction in sub-section (5) does not authorise retrospective or notional revival of previously set off losses.

Assessee entitled to the deduction under section 80-IA; losses already set off against other income in earlier years cannot be notionally brought forward to deny the deduction.

Final Conclusion: The appeal is dismissed; the Tribunal's order is confirmed and the questions of law are answered in favour of the assessee and against the Revenue.

Penalty under section 271(1)(c) - Explanation 3 to section 271(1)(c) - Deeming provision - Concealment of income - Reasonable cause / paucity of funds - Explanation 1 to section 271(1)(c) - Late filing in response to notice under section 148 - Application of section 50C for valuation

Explanation 3 to section 271(1)(c) - Deeming provision - Late filing in response to notice under section 148 - Concealment of income - Whether penalty under section 271(1)(c) is leviable by treating non furnishing of return as concealment by invoking Explanation 3. - HELD THAT: - The Tribunal examined whether the cumulative conditions for invoking Explanation 3 to section 271(1)(c) were satisfied. It applied the legal principle from Chhaganlal Suteriya that Explanation 3 is a deeming provision whose conditions are cumulative, including that no notice under section 142(1) or section 148 must have been issued before the expiry of the two year period under section 153(1). In the present case notice under section 148 was issued within the two year period, so the third condition for Explanation 3 was not satisfied. Consequently non furnishing of return could not be treated as concealment under Explanation 3, and penalty could not be sustained on that basis. [Paras 21, 23, 25]

Explanation 3 to section 271(1)(c) is not attracted and penalty cannot be sustained on the basis of deemed concealment.

Reasonable cause / paucity of funds - Explanation 1 to section 271(1)(c) - Penalty under section 271(1)(c) - Whether the assessee's explanation that it was prevented by reasonable cause (paucity of funds, delayed audit, liquidation process and subsequent sale in public auction) justifies cancellation of penalty under section 271(1)(c). - HELD THAT: - The Tribunal considered the factual matrix - the assessee's financial distress, delay in cooperative audit, efforts to raise self assessment tax and eventual sale proceeds used to pay tax - and relevant precedents including a co ordinate Bench decision concerning an APMC under analogous facts. Giving weight to these circumstances and to the view that Explanation 1 may establish bonafides where non filing was for sufficient cause, the Tribunal found the assessee's explanation to be plausible and bona fide. On that basis, and having held Explanation 3 inapplicable, the Tribunal concluded that penalty should not be levied. [Paras 6, 7, 8, 24, 25]

Assessee's explanation of reasonable and sufficient cause is accepted and penalty under section 271(1)(c) is not leviable.

Final Conclusion: The Tribunal allowed the appeal, set aside the CIT(A)'s order upholding the penalty and directed the Assessing Officer to cancel the penalty under section 271(1)(c) for Assessment Year 2008-09.

Revision under Section 263 of the Income-tax Act - Erroneous and prejudicial to the interest of Revenue - Duty of the Assessing Officer as investigator and duty to make enquiries - Distinction between lack of enquiry and inadequate enquiry - Revision power not to be used for roving or fishing enquiries

Revision under Section 263 of the Income-tax Act - Duty of the Assessing Officer as investigator and duty to make enquiries - Distinction between lack of enquiry and inadequate enquiry - Revision power not to be used for roving or fishing enquiries - Whether the order passed by the CIT under Section 263 setting aside the reassessment dated 15-03-2014 for A.Y. 2006-07 was sustainable. - HELD THAT: - The Tribunal found from the record that the assessee had filed the return and furnished requisite documents during reassessment proceedings, that the Assessing Officer issued statutory enquiries including letters under Section 133(6) and received confirmations, and that the AO's assessment order, though concise, recorded enquiries and reached a considered conclusion accepting the returned long term capital gains. The CIT's order set aside the assessment on the basis that more or different enquiries ought to have been made and expressed a different view as to the sufficiency of inquiries. The Tribunal held that a mere difference of opinion or perception about the extent or manner of enquiry by the CIT does not render the AO's order "erroneous and prejudicial to the interest of Revenue" under Section 263. The determinative principle applied is that Section 263 can be invoked where there is a lack of enquiry by the AO so that the order is demonstrably erroneous and prejudicial; it cannot be used to initiate fresh, roving or fishing enquiries or to substitute the CIT's appraisal for a reasoned conclusion of the AO where relevant enquiries have been made and recorded. Applying this standard to the materials, the Tribunal concluded that the AO had conducted reasonable enquiries and verification and therefore the CIT's revision was not sustainable. [Paras 2, 3]

Impugned order under Section 263 setting aside the reassessment for A.Y. 2006-07 quashed and the assessee's appeal allowed.

Final Conclusion: The Tribunal quashed the CIT's revision order under Section 263, holding that the Assessing Officer had made reasonable enquiries and that mere difference of opinion about the extent of inquiry does not render the assessment order erroneous and prejudicial to the revenue; the assessee's appeal is allowed.

Ad-hoc addition without comparative analysis - rectification of mistake apparent on record in computation - allowability of unpaid liability add-backs under Section 43B as a rectification - additional depreciation under Section 32(1)(iia) - fresh claim before Assessing Officer vis-a -vis revision of return

Ad-hoc addition without comparative analysis - Deletion of addition of Rs. 5,00,000 made by the Assessing Officer on account of electricity consumption - HELD THAT: - The Assessing Officer made an ad-hoc disallowance on account of variation in electricity consumption per unit of production. The First Appellate Authority deleted the addition after noting that the Assessing Officer did not make any comparative analysis either with identical cases or with the assessee's own consumption in earlier years and therefore had no basis for an ad-hoc addition. The Tribunal finds the First Appellate Authority's reasoning logical and concludes that the addition was made without lawful basis and is not sustainable. [Paras 7]

Addition of Rs. 5,00,000 on account of electricity consumption deleted; Revenue's ground on this issue rejected.

Rectification of mistake apparent on record in computation - allowability of unpaid liability add-backs under Section 43B as a rectification - Deletion of additions of Rs. 18,28,034 (gratuity) and Rs. 8,38,283 (leave encashment) made by the Assessing Officer under Section 43B - HELD THAT: - The assessee had shown larger add-backs for gratuity and leave encashment in the computation and during assessment proceedings sought adoption of correct figures, explaining that mistakes were made in the calculation. The First Appellate Authority held that these were mistakes apparent on the record and the assessee merely sought rectification rather than lodging a fresh claim. The Tribunal concurs with the appellate authority's view that the Assessing Officer should have corrected the computation and that deletion of the additions is warranted. [Paras 8]

Additions made under Section 43B for gratuity and leave encashment deleted; Revenue's challenge dismissed.

Additional depreciation under Section 32(1)(iia) - fresh claim before Assessing Officer vis-a -vis revision of return - Claim for additional depreciation of Rs. 6,29,28,039 made during assessment proceedings and disallowed as a 'fresh claim' (whether admissible) - HELD THAT: - The Assessing Officer disallowed the claim on the ground that it amounted to a fresh claim which should have been made by filing a revised return by the statutory date. The First Appellate Authority sustained the disallowance. The Tribunal, however, observes that the assessee made the claim during assessment proceedings and that additional depreciation is a statutory allowance subject to conditions in Section 32. The Tribunal refrains from adjudicating the substantive merits and sets aside the issue to the Assessing Officer with a direction to allow the additional depreciation claimed in the assessee's reply dated 29.11.2011 if the assessee fulfills the conditions under Section 32. [Paras 11, 12]

Issue remanded to the Assessing Officer to consider and allow the additional depreciation claim if conditions of Section 32 are satisfied; assessee's appeal allowed for statistical purposes.

Final Conclusion: The Tribunal dismisses the Revenue's appeal and upholds deletion of the ad-hoc electricity addition and the additions under Section 43B for gratuity and leave encashment; the assessee's claim for additional depreciation under Section 32(1)(iia) is set aside to the Assessing Officer for consideration and allowance if statutory conditions are met, and the assessee's appeal is disposed of for statistical purposes.

Disallowance of expenditure for cash payments exceeding prescribed limit under Section 40A(3) - addition for unexplained cash deposits as unexplained money under Section 69 - requirement of cash-flow statement to establish source and application of cash - remand for fresh adjudication and speaking order by the Assessing Officer

Disallowance of expenditure for cash payments exceeding prescribed limit under Section 40A(3) - remand for fresh adjudication and speaking order by the Assessing Officer - Whether the disallowance made by the AO under Section 40A(3) in respect of cash payments totalling (as recorded) was sustainable or required fresh adjudication. - HELD THAT: - The Tribunal found that material and factual aspects relied on by the CIT(A) - including the corrected aggregate of cash payments advanced by the assessee and factual findings about the nature of payments (bayana, timing outside banking hours, and the land purchase particulars) - were not confronted to the Assessing Officer in the assessment order. The Tribunal held that these untested factual findings could not be the basis for allowing the claim without affording the AO an opportunity to examine and decide the matter afresh. Reliance on a sister concern decision without examining the specific records of the present case was considered inappropriate. Accordingly the matter was set aside to the file of the AO for fresh decision by way of a speaking order after giving the assessee a reasonable opportunity of being heard. [Paras 8]

Impugned deletion of the disallowance set aside and the issue restored to the Assessing Officer for fresh consideration and speaking order.

Addition for unexplained cash deposits as unexplained money under Section 69 - requirement of cash-flow statement to establish source and application of cash - remand for fresh adjudication and speaking order by the Assessing Officer - Whether the addition made by the AO of unexplained cash deposits could be sustained or required fresh enquiry and verification by the AO. - HELD THAT: - The Tribunal held that the AO had recorded specific findings regarding cash deposits in the assessee's bank account and had observed absence of documentary linkage showing that cash withdrawals were actually routed and applied for the deposits in question. The Tribunal agreed that the linkage could properly be established by evidence such as a cash flow statement and particulars showing contemporaneous withdrawals and deposits tied to specific payments; such evidence was not before the AO or adequately considered by the CIT(A). In the absence of the requisite factual and documentary verification, the Tribunal set aside the CIT(A)'s deletion and restored the issue to the AO for reconsideration after affording the assessee a reasonable opportunity of being heard and requiring appropriate evidentiary material as necessary. [Paras 14]

Deletion of the addition is set aside and the matter is remanded to the Assessing Officer for fresh adjudication with opportunity to the assessee to produce supporting evidence (including cash flow linkage) and for the AO to pass a speaking order in accordance with law.

Final Conclusion: The Revenue's appeal is allowed for statistical purposes; both contested issues (disallowance under Section 40A(3) and addition for unexplained cash deposits) are set aside and restored to the file of the Assessing Officer for fresh consideration and speaking orders, after giving the assessee a reasonable opportunity of being heard (Assessment Year 2007-08).

Rejection of books of account under Section 145(3) of the Income tax Act - maintenance/production of stock register not a standalone ground to reject book results - acceptance of additional evidence under rule 46A(1) of the Income tax Rules - estimation of income by applying an alternative gross profit rate - scope of assessment under Section 153A where no incriminating material is found

Rejection of books of account under Section 145(3) of the Income tax Act - maintenance/production of stock register not a standalone ground to reject book results - Validity of rejecting the assessee's book results under Section 145(3) where books were not produced before the Assessing Officer and no defect in books was pointed out - HELD THAT: - The Tribunal found that during assessment no incriminating material or defects in the books of account were identified by the Assessing Officer; the business was subject to statutory record keeping under other laws (Drug Control Act); non production of the stock register alone is not a sufficient ground to reject the book results. Reliance of lower authorities on mere non production of stock register to apply Section 145(3) therefore did not justify rejecting the books. The Tribunal noted precedent authority and statutory definition of "books of account" to observe that absence of a stock register, without other adverse material, does not warrant rejection of the accounts. [Paras 6]

Rejection of books of account under Section 145(3) was not justified and the addition confirmed on that basis is deleted.

Estimation of income by applying an alternative gross profit rate - Sustenance of the trading addition computed by the Assessing Officer by applying a 60% gross profit rate as against the assessee's declared GP and the reduction to 48% by the CIT(A) - HELD THAT: - The Tribunal examined past years' declared gross profit rates and the material on record and concluded that neither lower authority had pointed out any defect in the books to justify the Assessing Officer's application of a higher GP rate. The CIT(A) had reduced the GP rate to 48% and thereby reduced the addition; the Tribunal accepted the view that the assessee's trading results, supported by verified purchase and sale entries and audited accounts, did not warrant the higher estimate. Accordingly, the addition made on the basis of the 60% GP rate was held not sustainable. [Paras 6]

The trading addition based on the 60% GP rate is not justified and is accordingly deleted (CIT(A)'s reduction upheld).

Acceptance of additional evidence under rule 46A(1) of the Income tax Rules - Admissibility of additional evidence (books of account) produced before the Commissioner (Appeals) and acceptance thereof - HELD THAT: - The CIT(A) examined the factual dispute between directors over possession of the books and found the assessee prevented by sufficient cause from producing the records at assessment stage; consequently, the additional evidence was admitted under clause (b) of rule 46A(1). The Tribunal noted these findings and accepted the CIT(A)'s exercise of discretion in admitting the evidence in view of corroborative circumstantial facts and precedents. [Paras 3]

Additional evidence filed before the CIT(A) was rightly accepted under rule 46A(1) and taken into account.

Final Conclusion: Assessee's appeal allowed and Revenue's appeal dismissed: the Tribunal set aside the additions premised on rejection of books and application of an inflated gross profit rate, upheld admission of additional evidence, and declined to express an opinion on Section 153A issues not pressed before it.

Allowability of employee contributions to PF and ESIC paid before due date of filing return - remand to assessing officer for verification of prior taxation to avoid double taxation - restoration to Transfer Pricing Officer for de novo consideration and requirement of a reasoned and speaking order - application of Cost Plus method vis-a -vis internal comparable margin (internal CUP) in transfer pricing assessment

Allowability of employee contributions to PF and ESIC paid before due date of filing return - Deletion of disallowance in respect of employees' contribution to PF and ESIC where payments were made before the due date of filing the return. - HELD THAT: - Following the decision of the Hon'ble Bombay High Court in CIT v. Ghatge Patil Transports Ltd., the Tribunal held that payments of employees' contribution to PF and ESIC made before the due date of filing the return are allowable and the disallowance sustained by the lower authority is deleted. The Tribunal accepted the assessee's submission that all such payments were made before the statutory due date and accordingly set aside the disallowance. [Paras 3]

Disallowance in respect of employees' contribution to PF and ESIC is deleted.

Remand to assessing officer for verification of prior taxation to avoid double taxation - Remand of addition under section 41(1) (interest amount) to the Assessing Officer for verification whether the impugned amount was already offered to tax in earlier assessment years. - HELD THAT: - The Tribunal noted the assessee's contention and contemporaneous submissions that the amount treated as income under section 41(1) had been offered to tax in earlier years (2004-05 and 2005-06), and that the assessment officer and DRP did not properly consider or verify these records. As there was no objection from the Department, the Tribunal remanded the issue to the AO with a direction to verify the assessee's claim; if the AO finds the amount already offered to tax in the earlier years, no addition should be made, and if not, the AO may proceed after giving the assessee a reasonable opportunity of hearing. The remand was ordered to prevent possible double taxation and for proper verification of facts. [Paras 6]

Addition of Rs. 48,72,000 under section 41(1) is restored to the file of the AO for verification and appropriate action consistent with findings; allowed for statistical purposes.

Restoration to Transfer Pricing Officer for de novo consideration and requirement of a reasoned and speaking order - application of Cost Plus method vis-a -vis internal comparable margin (internal CUP) in transfer pricing assessment - Transfer pricing adjustment sustained by the TPO/DRP was set aside and the matter restored to the TPO for fresh consideration and a reasoned, speaking order after affording opportunity of hearing. - HELD THAT: - The Tribunal examined the TPO's adoption of a 35.18% margin for non-AE sales and the application of that margin to AE transactions; it observed that the basis for arriving at 35.18% was not shown in the TPO's order and that DRP's reduction to 30% was made without reasons. The Tribunal also noted the assessee's explanation about geographical differences, bulk orders and lower costs on AE sales, and the historical practice in earlier years where no TP adjustment was made. Given these deficiencies and the apparent use of an internal CUP approach by the TPO while the assessee had relied on Cost Plus, the Tribunal considered it appropriate to restore the issue to the TPO for de novo consideration and directed the TPO to pass a reasoned and speaking order after giving the assessee a reasonable opportunity to be heard. [Paras 9]

TP adjustment is restored to the file of the TPO for de novo adjudication and a reasoned, speaking order; issue treated as allowed for statistical purposes.

Final Conclusion: The appeal is allowed for statistical purposes: the disallowance of employees' PF/ESIC contributions is deleted; the addition under section 41(1) is remanded to the AO for verification whether the amount was previously offered to tax (with directions accordingly); and the transfer pricing adjustment is restored to the TPO for fresh, reasoned consideration after affording the assessee an opportunity of hearing.

Administrative order must be speaking - principles of natural justice - remand for fresh decision after affording opportunity of hearing - order passed ex parte on non-prosecution - appellate authority's duty to correct errors and pass appropriate directions

Administrative order must be speaking - principles of natural justice - appellate authority's duty to correct errors and pass appropriate directions - Ld. Commissioner of Income Tax (Appeals) confirmed the AO's assessment by a non-speaking order without dealing with issues on merits. - HELD THAT: - The Tribunal found that the CIT(A) merely recorded that the assessee did not attend hearings and proceeded to confirm the assessments, without discussing material facts or adjudicating the grounds of appeal on merits. Such routine confirmation, lacking reasons, does not satisfy the obligation to pass a speaking order consistent with the principles of natural justice. Reliance is placed on authorities stressing that administrative and appellate orders must be speaking, and that the appellate authority has the duty and jurisdiction to correct errors and issue appropriate directions or decide the matter afresh unless statute forbids. In view of the absence of reasoned consideration, the Tribunal concluded that the matters require fresh adjudication by the CIT(A). [Paras 5, 6, 7]

Quantum issues decided by the AO and affirmed by the CIT(A) are set aside and remitted to the file of the Ld. CIT(A) for fresh consideration and passing of a speaking order after affording the assessee adequate opportunity of hearing.

Order passed ex parte on non-prosecution - remand for fresh decision after affording opportunity of hearing - Whether the Tribunal should grant adjournment or proceed ex parte where the assessee failed to appear and earlier remained non-cooperative. - HELD THAT: - The record shows repeated non-attendance and lack of cooperation by the assessee before the AO, CIT(A) and the Tribunal despite multiple notices and adjournments. The assessee's late application for adjournment on the day fixed was rejected; no one appeared in support of the request. Given the history of non-cooperation and absence at the hearing, the Tribunal declined to grant further adjournment and proceeded to decide the appeals ex parte as to the assessee, after hearing the Departmental Representative. However, because the CIT(A)'s earlier confirmation was non-speaking, the Tribunal has remitted the substantive issues to the CIT(A) for fresh, reasoned adjudication with opportunity to the assessee. [Paras 2, 3]

Application for adjournment rejected; appeals were dealt with ex parte qua the assessee, but substantive issues remitted to the CIT(A) for fresh, speaking consideration after affording hearing.

Remand for fresh decision after affording opportunity of hearing - Validity of penalty order sustained by the CIT(A) where the underlying additions were set aside for fresh consideration. - HELD THAT: - The penalty had been levied based on the additions which the Tribunal has remitted to the CIT(A) for fresh adjudication by a speaking order. As the quantum itself is being reopened, the Tribunal held that the penalty confirmation by the CIT(A) must also be set aside and decided afresh by the CIT(A) after providing the assessee adequate opportunity of hearing and after passing a reasoned order. [Paras 8]

Penalty order confirmed by the CIT(A) is set aside and remitted to the CIT(A) to decide afresh and to pass a speaking order after affording the assessee an opportunity of being heard.

Final Conclusion: The Tribunal allowed the appeals for statistical purposes by setting aside the CIT(A)'s non-speaking confirmations of the assessments and the penalty; the matters (quantum and penalty) are remitted to the Ld. CIT(A) for fresh, reasoned disposal after affording the assessee adequate opportunity of hearing, and the Tribunal rejected the immediate adjournment request and proceeded ex parte qua the assessee at the hearing.

Deduction under section 80IB(10) - completion of housing project by stipulated date - requirement of completion certificate - precedent of coordinate bench and persuasive High Court authority

Deduction under section 80IB(10) - completion of housing project by stipulated date - Entitlement of the assessee to claim deduction under section 80IB(10) for the housing project in question for the assessment years before the Tribunal. - HELD THAT: - The Tribunal, following the findings of the Commissioner (Appeals) and the Coordinate Bench decisions in the assessee's own cases for earlier assessment years, held that the housing project was completed by 31.03.2008. The coordinate decisions construed the pre-amendment provisions applicable to projects approved before 01.04.2004 and concluded that completion within the stipulated period (as applicable) is the relevant test for eligibility. Applying those precedents and the factual material (including GHMC certificate and other evidence considered by the CIT(A)), the Tribunal held that the assessee complied with the statutory requirements and was therefore eligible for deduction under section 80IB(10) for the years under appeal. [Paras 3, 5, 6]

The claim for deduction under section 80IB(10) is allowed and the assessments are to be adjusted accordingly.

Requirement of completion certificate - precedent of coordinate bench and persuasive High Court authority - Whether production of an official completion certificate is a prerequisite for allowance of deduction under section 80IB(10) in the facts and period applicable to this case. - HELD THAT: - Relying on the Coordinate Bench's reasoning and the decision of the Madras High Court cited therein, the Tribunal held that, as the statutory provision stood for the relevant period (pre-amendment position applicable to projects approved before 01.04.2004), there was no express requirement to read in production of a completion certificate as a condition for claiming the deduction. The existence of conflicting communications from GHMC did not alter the conclusion that the absence of a formal completion certificate was not fatal to the claim where other evidence established completion within the stipulated time. [Paras 5]

The absence of a formal completion certificate does not preclude allowance of the deduction under section 80IB(10) in the circumstances of this case; the Tribunal accepted the CIT(A)'s reliance on the GHMC certification and precedent.

Final Conclusion: Following the Coordinate Bench and the persuasive High Court authority, the Tribunal dismissed the revenue appeals and confirmed allowance of deduction under section 80IB(10) for A.Y. 2010-11 and A.Y. 2011-12.

Inclusion of excise duty in valuation of closing stock under section 145A - valuation of inventory in accordance with method of accounting and adjustment to include tax, duty or cess - allowability of expenditure under section 43B where actually paid on or before the due date for furnishing return - distinction between valuation under section 145A and allowability of deduction under section 43B

Allowability of expenditure under section 43B where actually paid on or before the due date for furnishing return - payment on or before due date - Allowability of employer's contribution to Provident Fund which was paid before the due date of filing the return. - HELD THAT: - The Assessing Officer disallowed the employer's contribution to Provident Fund invoking section 43B on the ground that payments were not made before the due date. The assessee filed documentary evidence (drafts/cheques) before the Commissioner (Appeals) showing payments were issued before the due date for filing the return. The CIT(A) examined the AO's reliance on the audit report and found no material evidence in the assessment order to rebut the assessee's claim; the payments evidenced by drafts/cheques dated before the due date satisfied the requirement that sums actually paid on or before the due date are not hit by section 43B. The Revenue did not point to any infirmity in the CIT(A)'s finding. The Tribunal finds the payment was established to be made on or before the due date and therefore allowable under section 43B. [Paras 2, 3]

The disallowance of Provident Fund employer's contribution is deleted and the order of the CIT(A) confirming allowance under section 43B is upheld.

Allowability of expenditure under section 43B where actually paid on or before the due date for furnishing return - payment on or before due date - Allowability of purchase tax disallowed by the AO for alleged late payment. - HELD THAT: - The AO disallowed purchase tax for want of proof of payment before the due date. On appeal, the assessee produced evidence that the purchase tax payments were made before the due date for filing the return. The CIT(A) accepted those documents and deleted the disallowance. The Department did not dispute the factual position before the Tribunal. Since the payments were proved to have been made before the due date, the expenditure is allowable under section 43B. [Paras 4]

The CIT(A)'s deletion of the addition for purchase tax is confirmed and the payment is allowed under section 43B.

Inclusion of excise duty in valuation of closing stock under section 145A - valuation of inventory in accordance with method of accounting and adjustment to include tax, duty or cess - distinction between valuation under section 145A and allowability of deduction under section 43B - Whether excise duty incurred must be included in valuation of closing stock under section 145A notwithstanding that the assessee did not claim the excise duty as expenditure in the profit and loss account in the relevant year. - HELD THAT: - The AO revalued closing stock to include excise duty pursuant to section 145A, observing that excise duty is incurred on manufacture and must be included in inventory valuation. The CIT(A) had deleted the addition relying on pre-145A judicial decisions and earlier orders, but those authorities did not examine the scope of section 145A (introduced w.e.f. 1.4.1999). Section 145A(a)(ii) mandates that valuation be adjusted to include any tax, duty, cess or fee actually paid or incurred to bring goods to their location and condition as on the valuation date; this makes inclusion of excise duty in closing stock obligatory irrespective of whether the excise duty was claimed as an expense in the profit and loss account for that year. Allowability of the excise duty as a deduction under section 43B is a separate question and does not affect the statutory requirement of valuation under section 145A. Applying section 145A, the Tribunal finds the AO correctly included excise duty in valuation of closing stock and that the CIT(A) did not adjudicate the issue in accordance with section 145A. [Paras 5, 6, 7, 10, 11]

The CIT(A)'s deletion is set aside; the AO's inclusion of excise duty in the valuation of closing stock under section 145A is restored.

Inclusion of excise duty in valuation of closing stock under section 145A - valuation of inventory in accordance with method of accounting and adjustment to include tax, duty or cess - Addition on account of valuation of free sugar (valuation of closing stock) which excluded excise duty. - HELD THAT: - The CIT(A) had deleted an addition relating to valuation of free sugar relying on his findings under the ground concerning excise duty in closing stock. Because the Tribunal has held that excise duty must be included in closing stock valuation under section 145A, the deletion on this related issue cannot stand. The component of excise duty forms part of the closing stock valuation and the AO's order restoring that component is correct. [Paras 12]

The CIT(A)'s deletion on valuation of free sugar is set aside and the AO's addition is restored.

Final Conclusion: The Revenue appeal is partly allowed: the Tribunal upholds the CIT(A)'s deletions in respect of Provident Fund contribution and purchase tax (payments proved to be made on or before the due date and therefore allowable under section 43B), but restores the Assessing Officer's additions relating to inclusion of excise duty in valuation of closing stock (and the related free sugar valuation) under section 145A.

Reopening for change of opinion - tax deduction at source (TDS) under section 194J - disallowance under section 40(a)(ia) - proviso to section 40(a)(ia) deeming deduction where deductee files return and pays tax - royalty versus rent / locational advantage - remand for verification of deductee's return and tax payment

Reopening for change of opinion - Validity of reopening of assessment on account of change of opinion - HELD THAT: - The Tribunal noted that the assessee did not pursue arguments on this ground on hearing. The ld. CIT(A) had examined whether the royalty was considered during the original assessment and concluded it was not; on that basis the reassessment proceedings were held to be rightly initiated. The Tribunal, without further challenge from the assessee, accepted the reasoning of the ld. CIT(A) and upheld the assumption of jurisdiction by the Assessing Officer. [Paras 2]

Reopening of assessment was valid; ground of appeal rejecting reopening is dismissed.

Tax deduction at source (TDS) under section 194J - royalty versus rent / locational advantage - Whether the payments to the Trust constituted royalty attracting TDS under section 194J or were merely locational advantage / rent - HELD THAT: - On examination of the royalty agreement the Tribunal found that the assessee was granted an exclusive licence to run the medical shop for seven years, the drug licence was to be obtained by the Trust, no other person could open a medical shop on the campus, and a stipulated monthly payment of Rs.3.90 lakhs was payable in addition to a separately paid rent. These contractual features indicated that the payment was for facilities and exclusivity granted to the assessee and, read with Explanation 2 to clause (vi) of sub-section (1) of section 9, fell within the definition of 'royalty'. The Tribunal therefore held that the payer was obliged to deduct tax under section 194J. [Paras 8]

Payment held to be royalty; TDS under section 194J was attracted.

Disallowance under section 40(a)(ia) - proviso to section 40(a)(ia) deeming deduction where deductee files return and pays tax - remand for verification of deductee's return and tax payment - Whether disallowance under section 40(a)(ia) can be sustained where the deductee has credited receipts and filed return and whether matter requires remand for verification - HELD THAT: - The Tribunal reviewed earlier decisions and concluded that after introduction of the proviso to section 40(a)(ia) a disallowance cannot be sustained if it is established that the deductee has taken the receipts into account and has paid tax and filed return under section 139(1). Noting that the assessee asserted that the Trust had credited the receipts and filed its return but had not produced documentary proof, the Tribunal held that once those facts are established the proviso operates to deem the tax as deducted on the date of filing the deductee's return. Consequently the Tribunal set aside the orders below and remitted the matter to the Assessing Officer to verify whether SRMS credited the royalty to its accounts and paid tax / filed return; if so, no disallowance under section 40(a)(ia) is to be made. [Paras 9, 10]

Matter remanded to the Assessing Officer for verification; if deductee has accounted for receipts and paid tax and filed return, disallowance under section 40(a)(ia) shall not be made.

Final Conclusion: The reopening was upheld; the payments were held to be royalty attracting TDS under section 194J, but the Tribunal set aside the disallowance under section 40(a)(ia) and remanded the matter to the Assessing Officer to verify whether the recipient Trust credited the receipts and paid tax and filed returns, in which event no disallowance is to be made; appeal partly allowed.

Reliance on Departmental Valuation Officer report - addition as unexplained investment in construction - books of account not rejected - validity of reference to valuer where records are intact - use of valuation report for assessment/reassessment

Reliance on Departmental Valuation Officer report - books of account not rejected - addition as unexplained investment in construction - use of valuation report for assessment/reassessment - Whether additions to the assessee's income for unexplained investment in construction, made by adopting the DVO's higher valuation, were sustainable where the Assessing Officer had not rejected the books of account or pointed out material discrepancies - HELD THAT: - The Tribunal found that the assessee had maintained books of account reflecting construction expenditure for the relevant years and had produced vouchers which the Assessing Officer did not discredit or reject. The Assessing Officer nevertheless referred the matter to the Departmental Valuation Officer (DVO) and, relying solely on the DVO's estimate, treated the difference between the DVO's valuation and the books as unexplained investment and made year-wise additions. The Tribunal, applying the ratio of coordinate decisions and the Supreme Court authority cited by the CIT(A), held that reference to and reliance upon a DVO's valuation is not permissible to displace books of account unless the books are found to be unreliable or specifically rejected; absent any adverse material or demonstrated defects in the accounts discovered during survey or assessment, the DVO report could not serve as a basis for additions. In these circumstances the Tribunal agreed with the CIT(A)'s deletion of the additions for the assessment years under appeal. [Paras 5, 6]

Additions based on the DVO report set aside and deleted; appeals dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletion of additions made on account of unexplained investment in the college building for AYs 2007-08 and 2010-11, holding that the Assessing Officer could not rely on the DVO's valuation to make additions where the books of account were not rejected and no adverse material was found.

Validity of notice under section 148 of the Income tax Act - reopening assessment under section 147 of the Income tax Act - service of notice by affixture and by speed post - limitation for issuance of notice for reassessment - issuance and service of notice as condition precedent to reassessment

Validity of notice under section 148 of the Income tax Act - issuance and service of notice as condition precedent to reassessment - service of notice by affixture and by speed post - limitation for issuance of notice for reassessment - Assessment proceedings under sections 147/148 were not sustainable because the notice under section 148 for AY 2003 04 was not shown to have been validly served on the assessee before the expiry of the limitation period. - HELD THAT: - The First Appellate Authority found on the material before it, including the affidavit of the assessee's director and the AO's inability to produce relevant assessment records, that the AO failed to substantiate service of the section 148 notice on the assessee prior to completion of assessment. The assessee consistently filed returns from and received communications at the Multani Dhanda address, denied any business at the Model Town address for FY 2009 10, and denied receipt of notices said to be served on a person not shown to exist in the assessee's family. The CIT(A) also noted that affixture is only an alternative mode of service where postal service has been refused or hindered; no such circumstances were established. Records called for from the AO were not traceable, and on that basis the CIT(A) held that initiation and framing of reassessment could not be sustained. The Tribunal, on perusal of the CIT(A)'s reasoning and records, found no infirmity in that conclusion and upheld the cancellation of proceedings under sections 147/148. [Paras 3, 4]

Proceedings under sections 147/148 quashed for want of proof of valid service of the notice; CIT(A) order upheld.

Final Conclusion: The Revenue's appeal is dismissed and the order of the Commissioner of Income tax (Appeals) holding the reassessment proceedings under sections 147/148 not sustainable is upheld.

Reopening of assessment under section 147/148 - reasons to believe and duty to supply reasons - primary onus under section 68 to prove identity and genuineness of third party credits - obligation of Assessing Officer to verify evidence and issue summons under section 131(2)

Reopening of assessment under section 147/148 - reasons to believe and duty to supply reasons - Validity of reopening assessment by issuing notice under section 148 and whether the Assessing Officer was obliged to supply recorded reasons to the assessee without a request - HELD THAT: - The Tribunal found that the Assessing Officer recorded the requisite reasons before issuing notice under section 148 and there was no procedural or legal infirmity in issuance of the notice. Citing GKN Drive Shafts (India) Ltd. and Delhi High Court precedents, the Tribunal held that the law does not mandate the Assessing Officer to suo motu supply the reasons to believe to the assessee; the duty to supply arises when the assessee files objections or requests such reasons, whereupon the Assessing Officer must dispose of objections by a speaking order. The assessee did not request the reasons, participated in reassessment proceedings, and thereafter challenged the reopening before the Commissioner (Appeals); accordingly the reopening was held to be valid and regular. [Paras 3]

Reopening under section 147/148 upheld as valid; no obligation to supply reasons to the assessee in absence of request and no procedural infirmity in notices 143(1)/143(2).

Primary onus under section 68 to prove identity and genuineness of third party credits - obligation of Assessing Officer to verify evidence and issue summons under section 131(2) - Whether the assessee discharged the primary onus in respect of gifts and whether the Assessing Officer was justified in rejecting the evidence without verification or issuing summons to donors - HELD THAT: - The assessee produced confirmations/affidavits, gift deeds, ration cards containing donor particulars, income tax returns of donors, bank statements and cheques/drafts. The Tribunal held that these documents satisfied the primary onus to establish identity and genuineness of the gifts. Reliance was placed on authority holding that once identity of an independent third party is established and prima facie evidence is placed, the burden shifts to the department to produce sufficient material to displace that evidence. The Assessing Officer did not verify the veracity of documents, did not issue summons under section 131(2) to secure donor attendance, and failed to carry the investigation to a logical end before rejecting the evidence. In those circumstances the rejection of the evidences was not justified and the addition could not be sustained. [Paras 4]

Primary onus discharged by the assessee; Assessing Officer's rejection of the gifts was not justified for want of verification or summons, and the addition is not sustainable on merits.

Final Conclusion: The Tribunal upheld the validity of the reassessment notice under section 148 but allowed the appeal on merits by holding that the assessee discharged the primary onus in respect of the gifts and that the Assessing Officer erred in rejecting the evidence without necessary verification or issuing summons; appeal partly allowed for Assessment Year 2000-01.

Bad debts/irrecoverable advances deductible as business loss when written off - penalty for breach of law not deductible - distinction between compensatory payment and punitive penalty - expenditure wholly and exclusively for purpose of business - capital versus revenue expenditure - part-replacement test - remand for verification of nature of advances and deposits

Bad debts/irrecoverable advances deductible as business loss when written off - remand for verification of nature of advances and deposits - Allowability of claimed business loss in respect of advances/deposits written off and need for verification whether amounts were revenue advances or capital deposits - HELD THAT: - The Tribunal found that the amounts in question were written off as irrecoverable in the assessee's books and Revenue produced no material to show recovery or non-irrecoverability. Applying the principle in CIT v. Mysore Sugar Co. Ltd., losses on advances given in the course of business on revenue account are business losses deductible when actually written off. However, the AO recorded that the disallowed sum comprised both advances to parties and deposits with Government departments, and party-wise bifurcation was not on record; consequently it was unclear whether any portion was capital in nature. The Tribunal therefore held that revenue advances are allowable while capital deposits are not, and remitted the matter to the AO for fresh adjudication and verification of the nature of each advance/deposit, with opportunity of hearing. [Paras 6, 7, 8]

Set aside and remitted to the AO for fresh adjudication to verify the nature of the advances/deposits and allow revenue losses if established; ground allowed for statistical purposes.

Penalty for breach of law not deductible - distinction between compensatory payment and punitive penalty - Deductibility of sales-tax penalty paid by the assessee under section 37 as a business expense - HELD THAT: - The Tribunal noted that the assessee paid a sales-tax penalty and produced no material showing the payment was compensatory rather than punitive. Reliance was placed on precedent that payments in the nature of penalty for breach of law are not allowable deductions, whereas payments that are compensatory may be deductible. In absence of evidence that the payment was by way of compensation for delay, the Tribunal found no reason to interfere with the authorities' conclusion that the amount represented a penalty disallowable under the Act. [Paras 11, 16]

CIT(A)'s confirmation of the disallowance upheld; ground dismissed.

Expenditure wholly and exclusively for purpose of business - Allowability of export-promotion and sales-promotion expenses claimed by the assessee - HELD THAT: - The AO disallowed specified amounts because the assessee failed to furnish details (purpose of visit, tour report, or business nexus) supporting that the expenditures were incurred wholly and exclusively for business. The CIT(A) confirmed the disallowances for lack of supporting material. The assessee's general submission about increased turnover was held insufficient to establish the requisite business purpose, and the Tribunal found no error in the lower authorities' conclusions. [Paras 21, 23]

Disallowances confirmed; grounds dismissed.

Capital versus revenue expenditure - part-replacement test - remand for verification of nature of advances and deposits - Characterisation of renovation/repair expenditure as revenue (repair) or capital (capitalized renovation) and consequent disallowance - HELD THAT: - The AO and CIT(A) treated renovation expenses as capital, disallowing the claimed repairs. The Tribunal observed that no details of the expenditure were placed on record, and that the correct test is whether the replaced part is merely a part of the machine (revenue) or itself a separate and independent machine (capital). Finding that the lower authorities had not considered the issue on this test and that adjudication cannot be complete without particulars, the Tribunal directed restoration to the AO for fresh adjudication with proper verification and a speaking order, after giving the assessee an opportunity of hearing. [Paras 30, 31, 32]

Set aside and remitted to the AO for fresh adjudication on the capital/revenue character of the expenditure; ground allowed for statistical purposes.

Final Conclusion: The appeal is partly allowed for statistical purposes: disallowances in respect of export and sales promotion expenses and the sales-tax penalty are sustained, while the matters relating to written-off advances/deposits and renovation/repair expenditure are remitted to the AO for fresh adjudication to verify their revenue or capital character, after affording the assessee proper opportunity of hearing.

Neglect to pay debt - prima facie establishment of debt - bonafide dispute - winding up under section 433(e) of the Companies Act, 1956 - statutory notice under section 434 of the Companies Act, 1956 - failure to reject or seek diminution under the Sale of Goods Act, 1948

Prima facie establishment of debt - neglect to pay debt - statutory notice under section 434 of the Companies Act, 1956 - The petitioner prima facie proved the existence of a debt and that the respondent neglected to pay despite service of the statutory notice. - HELD THAT: - The petition and supporting documents, including the respondent's reply to the notice, show that goods were supplied, received and consumed and that only part payment was made. The petitioner served a notice under section 434 calling for payment which was not complied with. Applying the accepted test for company winding up petitions, the Court found that the debt claimed was prima facie made out and that the respondent had neglected to pay the debt without a justification arising from the record.

Debt prima facie established and neglect to pay proved; this element for winding up is satisfied.

Bonafide dispute - failure to reject or seek diminution under the Sale of Goods Act, 1948 - The defence of defective quality of goods is not a bonafide dispute and therefore does not bar the winding up petition. - HELD THAT: - The alleged defect was first asserted more than two years after supply and after the goods had been consumed. No contemporaneous steps under the Sale of Goods Act, 1948 to reject the goods or claim diminution of price were taken. The reply to the statutory notice was belated and vague. On these facts the Court concluded that the dispute was not bona fide or substantial and could not defeat the petition.

The defence of sub standard goods is not bonafide or substantial and does not prevent admission of the winding up petition.

Winding up under section 433(e) of the Companies Act, 1956 - publication of petition - The company petition is admitted and an order for publication is directed, but operation of the winding up order is kept in abeyance for a specified period to enable payment. - HELD THAT: - Having found that the debt is prima facie due and that no bona fide defence exists, the Court admitted the company petition and directed publication in the Official Gazette and specified newspapers in terms of the Companies (Court) Rules, 1959. The Court exercised its discretion to keep the order in abeyance for eight weeks to allow the respondent an opportunity to pay the debt with interest; failure to pay within that period will render the order operational.

Petition admitted; publication ordered; order kept in abeyance for eight weeks to enable payment, failing which it will be made operational.

Final Conclusion: The High Court admitted the company petition under section 433(e) of the Companies Act, 1956, holding that the debt was prima facie established and the defence of defective goods was not bona fide; publication was directed and the order was stayed for eight weeks to permit payment, after which it will take effect if payment is not made.

Outdoor catering service - definition of caterer and outdoor caterer - service tax liability - abatement in computation of service tax - pre-deposit as condition for stay of recovery - incidental element of service versus sale of goods - precedential effect of High Court decision in the light of Supreme Court authority

Outdoor catering service - definition of caterer and outdoor caterer - incidental element of service versus sale of goods - precedential effect of High Court decision in the light of Supreme Court authority - Whether the appellants' activity of preparing food at their premises and supplying it in tiffin boxes to a college hostel qualifies as outdoor catering service liable to service tax. - HELD THAT: - The Tribunal, applying the statutory definitions, found that a person who prepares food at his premises and supplies it at a place other than his own falls within the definition of outdoor caterer. The Commissioner (Appeals) correctly relied on the definition of caterer and outdoor caterer to determine coverage. The appellants' reliance on a Delhi High Court decision treating such transactions as sale of goods with only incidental service was examined and prima facie found not to be persuasive in view of subsequent Supreme Court authority (L & T Ltd.). The Tribunal also noted that the appellants had been given the benefit of abatement while computing the impugned service tax liability. On the totality of these considerations, the appellants did not demonstrate a prima facie case warranting suspension of recovery without conditions.

Appellants prima facie covered under outdoor catering service; reliance on the cited High Court decision not accepted in view of later Supreme Court authority; no prima facie case for grant of stay without conditions.

Pre-deposit as condition for stay of recovery - service tax liability - abatement in computation of service tax - Whether stay of recovery should be granted pending appeal and on what terms. - HELD THAT: - The Tribunal observed that the appellants had been allowed the benefit of abatement in determining the adjudicated liability, but nevertheless were unable to establish a prima facie case in their favour. In exercise of its powers to regulate interim relief in appeals, the Tribunal directed conditional relief by staying recovery of the remaining adjudicated liabilities subject to compliance with pre-deposit. The order prescribes deposit of the entire adjudicated service tax liability along with proportionate interest within a specified period, failing which the appeal would stand dismissed for non-compliance. Upon compliance, recovery of the balance adjudicated amounts is stayed during the pendency of the appeal.

Stay of recovery granted only upon pre-deposit of the entire adjudicated service tax liability with proportionate interest within the stipulated time; default to result in dismissal of the appeal.

Final Conclusion: The Tribunal held that the appellants are prima facie covered by the outdoor catering service definition and, rejecting the persuasiveness of the cited High Court authority in view of subsequent Supreme Court precedent, directed conditional interim relief: pre-deposit of the adjudicated service tax liability with proportionate interest within the prescribed period, upon which recovery of the remaining liabilities is stayed during the appeal; failure to comply will result in dismissal of the appeal.

Commercial or industrial construction service - abatement under Notification No. 1/2006-S.T. - value of free supplies by service recipient - disclosure of value as part of gross consideration - service tax demand, interest and penalties for non-disclosure - binding precedent of a Larger Bench - quashing of adjudication order

Value of free supplies by service recipient - disclosure of value as part of gross consideration - abatement under Notification No. 1/2006-S.T. - commercial or industrial construction service - Whether the value of goods freely supplied by the service recipient must be disclosed as part of the gross consideration for rendition of commercial or industrial construction service in order to avail the abatement under Notification No. 1/2006-S.T. - HELD THAT: - The Tribunal recorded that the question whether the value of free supplies made by the recipient of commercial or industrial construction service must be included in gross consideration for claiming the abatement under Notification No. 1/2006-S.T. is no longer res integra and has been finally dealt with by a Larger Bench of the Tribunal in Bhayana Builders (P) Ltd. v. CST. Having regard to that binding Larger Bench decision, the adjudication order which proceeded on the premise that such value required disclosure and formed the basis for the service tax demand, interest and penalties could not be sustained. The Tribunal therefore quashed the impugned order and allowed the appeal in favour of the assessee. [Paras 5, 6]

Impugned adjudication order quashed and appeal allowed on the basis that the Larger Bench decision settles the requirement regarding disclosure of value of free supplies for claiming the abatement under Notification No. 1/2006-S.T.

Final Conclusion: The appeal is allowed and the adjudication order confirming service tax demand, appropriation, interest and penalties is quashed in view of the binding Larger Bench decision; no costs awarded.

Refund of Cenvat credit - treatment of clearances to 100% EOU as export - nexus of input services to manufacture

Refund of Cenvat credit - treatment of clearances to 100% EOU as export - Clearances to a 100% EOU are to be treated as export for purposes of allowing refund of Cenvat credit. - HELD THAT: - The Tribunal examined the denial of refund on the ground that clearances to a 100% EOU could not be considered as export and held that such credit is admissible and refund is allowable. The appellate forum relied on its earlier interim consideration (Interim Order No. 79 to 151/2014, dated 18-9-2014, para 6.8) which supported the view that credit and refund in respect of clearances to a 100% EOU are permissible. On that basis the denial of refund solely because supplies were to a 100% EOU was rejected and the claim upheld.

Denial of refund on the ground that clearances to 100% EOU are not exports is set aside; refund of Cenvat credit is allowed.

Nexus of input services to manufacture - refund of Cenvat credit - Cenvat credit and refund claimed on rent a cab service, air travel service and rent for office premises are admissible as each service has requisite nexus to the appellant's manufacturing/business activity. - HELD THAT: - The Tribunal considered the denial of credit/refund in respect of three services. It found that the rent a cab service was used to provide transportation facilities to customers, air travel was used for travel of partners and employees for business purposes, and rent was paid for office premises. Each of these services was held to be directly connected to the business of manufacture, thereby satisfying the nexus requirement for input services and entitling the appellant to the claimed Cenvat credit/refund. Accordingly, the refusals in respect of these specific services were reversed.

Denial of Cenvat credit/refund in respect of rent a cab, air travel and office rent is set aside; the appellant is entitled to refund.

Final Conclusion: Appeals allowed; the Tribunal set aside the denials and granted consequential relief by holding that clearances to a 100% EOU qualify for refund of Cenvat credit and that the specified input services have sufficient nexus to the manufacturing/business activity to merit credit/refund.

Refund under Rule 5 of CENVAT Credit Rules, 2004 - Application of limitation under Section 11B of the Central Excise Act, 1944 - Notification No. 5/2006-CE(NT) - para 6 prescribing filing before expiry of period specified in Section 11B - Refund of credit of duty paid on excisable goods used as inputs

Refund under Rule 5 of CENVAT Credit Rules, 2004 - Application of limitation under Section 11B of the Central Excise Act, 1944 - Notification No. 5/2006-CE(NT) - para 6 prescribing filing before expiry of period specified in Section 11B - Refund of credit of duty paid on excisable goods used as inputs - Whether the one year limitation prescribed under Section 11B applies to a refund claim made under Rule 5 read with Notification No. 5/2006-CE(NT), and whether the appellant's refund claim was time barred. - HELD THAT: - Paragraph 6 of Notification No. 5/2006-CE(NT) requires that an application in Form A for refund under Rule 5, with prescribed enclosures and relevant extracts of records, be filed "before the expiry of the period specified in Section 11B of the Central Excise Act, 1944." Section 11B(1) prescribes that an application for refund of duty shall be made before the expiry of one year from the relevant date. The Explanation to Section 11B includes, for the purposes of refund, rebate of duty on excisable materials used in manufacture of exported goods and, by clause (c) of the first proviso to sub section (2), expressly covers refund of credit of duty paid on excisable goods used as inputs in accordance with rules or notifications under the Act. Reading Rule 5 together with Notification No. 5/2006 CE(NT) and Section 11B, the relevant date for a Rule 5 refund claim is the date of export and the filing must occur within one year of that date. The appellant's claim for the quarter ending June, 2007 was filed on 04.07.2008, beyond the one year period; therefore the claim is barred by limitation. The tribunal considered and followed the reasoning in the Madras High Court decision in GTN Engineering (I) Ltd. distinguishing earlier authorities to the contrary, and held the one year limitation applicable to Rule 5 refunds. [Paras 6, 18]

The one year limitation under Section 11B applies to refund claims under Rule 5 read with Notification No. 5/2006 CE(NT); the appellant's refund claim filed after the one year period is time barred and the appeal is dismissed.

Final Conclusion: The Tribunal upheld the adjudicating and appellate authorities' orders, holding that Notification No. 5/2006 CE(NT) imports the one year limitation of Section 11B to Rule 5 refund claims; the refund for the quarter ending June, 2007 filed on 04.07.2008 is time barred and the appeal is dismissed.

Product of printing industry - Classification as printed forms under Chapter 49 versus printed stationery under Chapter 48 - Printing not merely incidental where it imparts substantial character to the article - Marketability as an essential ingredient of excisable goods - Burden on the Revenue to prove marketability

Product of printing industry - Classification as printed forms under Chapter 49 versus printed stationery under Chapter 48 - Printing not merely incidental where it imparts substantial character to the article - The disputed printed forms are products of the printing industry and are classifiable under Chapter 49, not under Chapter 48. - HELD THAT: - The Tribunal examined samples of the forms actually produced by the appellant and found them to be essentially printed matter containing pre-printed information with only limited blank fields for later insertion. Applying the established ratio that where printing brings a product into existence or imparts a substantial character such that the article is essentially printed matter, it falls within the 'product of printing industry' category, the Tribunal held the goods to be classifiable under Chapter 49 (notably under heading 4901). The Tribunal relied on precedents which recognise that printed forms, tickets and similar articles intended for completion in manuscript or typescript remain in Chapter 49 provided they are essentially printed matter, and that printing which imparts identity and primary use is not merely incidental. On the facts, the authorities' description in the show cause notices (registers, books, pads under Chapter 48) did not correspond to the actual goods produced, and the correct classification is under Chapter 49.

Classification of the disputed printed forms is under Chapter 49 (products of the printing industry) and not under Chapter 48.

Marketability as an essential ingredient of excisable goods - Burden on the Revenue to prove marketability - The disputed printed forms are not marketable goods and, as the Revenue failed to discharge the burden of proving marketability, the products are not exigible to excise duty. - HELD THAT: - The Tribunal applied settled law that marketability - the ability to be bought and sold as commodities known to commerce - is an essential ingredient for excisability. On the evidence the printed forms were created for and usable only by Central Railway (bearing the Railway's name/details) and were not capable of being bought and sold to others. The Revenue produced no evidence to establish that these specific printed articles were commercially known or capable of being marketed. Relying on binding authority, the Tribunal held that where the Department fails to prove marketability, the claim that the goods are not marketable must be accepted. Consequently, even if classification were in issue, the lack of marketability precludes levy of excise duty.

The goods are not marketable; the Revenue has not discharged its burden of proving marketability, and therefore the products are not exigible to excise duty.

Final Conclusion: The appeals are allowed; the impugned orders are set aside. The disputed printed forms are products of the printing industry classifiable under Chapter 49 and, being non marketable (the Revenue having failed to prove marketability), are not liable to excise duty; consequential relief to follow in accordance with law.

Clandestine removal - unaccounted receipt of raw material as evidence of unaccounted manufacture - determination of production by electricity consumption norm - admissibility and evidentiary value of statements recorded during search - penalty proportional to confirmed duty demand

Clandestine removal - admissibility and evidentiary value of statements recorded during search - Whether the despatch entries recorded as Saria II in the daily receipt and despatch sheets recovered from the factory represent clandestine removal of TMT bars and support the demand based on Charts A to D. - HELD THAT: - The Tribunal found that the documents seized from the factory (delivery orders, daily receipt/despatch sheets, Nakal Bahi/Roz Nama and private ledger) were prepared/signed by the company's director, general manager and clerk, and that both Shri Ghasi Lal Sharma and Shri Murari Lal Sharma in statements recorded on the date of search and in subsequent statements (not retracted) accepted that the seized documents pertain to goods manufactured and cleared from the factory. The appellants' late plea that the Saria II entries represented trading sales of CTD bars by a related trading concern was not raised during investigation, was first advanced long after the show cause notice, and was unsupported by contemporaneous statements or intimation to excise authorities about receipt and sale of duty-paid goods for trading. The Tribunal also relied on the similarity of price between Saria I and Saria II and the higher price of TMT bars vis-a -vis CTD bars to conclude that the Saria II entries could not plausibly be CTD trading sales. Having considered the seized records, the admissions in the recorded statements and the absence of corroborative material for the trading plea, the Tribunal upheld the departmental conclusion that the Saria II despatches recorded in Charts A-D represented clandestine removals and sustained the duty demand based on those charts. [Paras 6]

Demand based on clandestine removals reflected in Charts A to D is upheld and corresponding duty confirmed.

Unaccounted receipt of raw material as evidence of unaccounted manufacture - Whether the receipt of MS Ingots from Nirmal Inductomelts Pvt. Ltd. without invoices for the period 10/09/05 to 01/10/05 establishes duty liability for manufacture and clandestine removal. - HELD THAT: - The Tribunal noted that inquiry with the supplier M/s Nirmal Inductomelts yielded an acceptance of sale to the appellant without accounting, and that the supplier had admitted duty liability before the Settlement Commission in relation to clandestine clearances to several rolling mills. On that basis, and after applying the declared burning loss, the Tribunal held that the unaccounted receipt of MS Ingots during 10/09/05 to 01/10/05 had been used for manufacture of TMT bars, and that the departmental demand arising from that unaccounted receipt was sustainable. [Paras 7]

Duty demand based on unaccounted receipt from Nirmal Inductomelts for 10/09/05 to 01/10/05 is upheld.

Determination of production by electricity consumption norm - Whether the departmental determination of production for April 2002 to March 2005 by applying a power-consumption norm of 102.09 units per MT (derived from July-August 2005 data) is valid to sustain the large duty demand for that period. - HELD THAT: - The Tribunal examined the method used by the Department: adding recorded production for July-August 2005 to alleged unaccounted sales in those months to arrive at a total production figure, and dividing the actual electricity consumption for the two months by that combined production to derive a per MT power consumption norm of 102.09 units. The Tribunal held this methodology to be flawed because the goods sold in July-August could have been produced earlier and it is impermissible to assume that sales within a month equate to production in that same month for the purpose of fixing a consumption norm. Further, the Department produced no corroborative technical data, supplier literature, or experimental verification to substantiate the 102.09 units/MT norm. In the absence of an experimentally or technically established norm or other corroboration, the Tribunal held that a large duty demand based solely on such an assumed power-consumption norm could not be sustained. [Paras 8]

Demand based on the electricity consumption norm for April 2002 to March 2005 is set aside.

Final Conclusion: Partly allowed: the Tribunal upholds the duty demands based on clandestine removals for 01/04/2005 to 08/09/2005 (including the component based on unaccounted receipts from Nirmal Inductomelts for 10/09/05-01/10/05) and reduces penalties proportionately, but sets aside the large duty demand founded on the electricity consumption norm for April 2002 to March 2005.

Penalty under Rule 13(1) of the CENVAT Credit Rules, 2002 - mens rea - requirement of deliberate deception or fraud for fiscal penalty - imposition of penalty in absence of fraud, suppression or misstatement is impermissible

Penalty under Rule 13(1) of the CENVAT Credit Rules, 2002 - mens rea - imposition of penalty in absence of fraud, suppression or misstatement - Whether penalty under Rule 13(1) could be imposed where no mens rea, fraud, suppression or misstatement was alleged against the assessee. - HELD THAT: - The Court held that the question is governed by the binding decision of the Supreme Court in Commissioner of Central Excise, Chandigarh v. Pepsi Foods Ltd., which establishes that where an offence or penalty contemplates deliberate attempt to evade duty by fraud, misrepresentation or suppression, mens rea is a necessary constituent. Absent any allegation of fraud, suppression or misstatement in the show-cause notice, imposition of a penal consequence under the fiscal provision is impermissible. The reasoning emphasises the settled principle that an accused cannot be visited with penal consequences without proof of requisite criminal intent unless the statute clearly dispenses with mens rea, which is not the case here.

Appeal allowed to the extent that penalty under Rule 13(1) cannot be imposed in the absence of mens rea or allegations of fraud, suppression or misstatement; matter disposed accordingly.

Final Conclusion: The appeal was disposed in accordance with the Supreme Court precedent in Pepsi Foods Ltd., holding that penalty under Rule 13(1) of the CENVAT Credit Rules, 2002 cannot be sustained where no mens rea, fraud, suppression or misstatement is alleged.

Clandestine removal - confessional statement as corroborative evidence - voluntary deposit as evidence of admission - imposition of penalty under Section 11AC - confiscation of seized cash and goods - tribunal's obligation to record reasons when setting aside penalties

Confessional statement as corroborative evidence - voluntary deposit as evidence of admission - clandestine removal - Whether the Tribunal erred in ignoring the assessee's statements and voluntary pre-deposit while setting aside demands and confiscation related to clandestine removal - HELD THAT: - The High Court held that the Adjudicating Officer had correctly appreciated material evidence, including admissions in the statements of the authorised signatory and partner that shortages could not be explained and that a voluntary pre-deposit of excise duty had been made. The Court found that those statements have material bearing on clandestine removal and that the Tribunal erred in disregarding this material evidence without recording reasons. The Court therefore concluded that the Tribunal's interference with findings based on those admissions was not justified. [Paras 11, 12]

Tribunal's setting aside of findings based on the assessee's statements and pre-deposit was erroneous.

Tribunal's obligation to record reasons when setting aside penalties - imposition of penalty under Section 11AC - remand for fresh consideration of penalties and duties - Whether the Tribunal's order setting aside penalties without recording reasons should be interfered with and the matter remitted - HELD THAT: - The Court observed that no reasons were recorded by the Tribunal for setting aside the penalties imposed by the Adjudicating Officer. After finding that the Tribunal had ignored material evidence and failed to give reasons, the High Court set aside the Tribunal's order insofar as it had set aside penalties and directed that the matter be remitted to the Tribunal for fresh consideration of penalties and duties, permitting reconsideration in the light of the material and admissions on record. [Paras 12, 13]

Tribunal's order setting aside penalties is set aside and the matter is remitted to the Tribunal to reconsider penalties and duties afresh.

Final Conclusion: The Revenue's appeal is allowed in part: the High Court finds the Tribunal erred in ignoring the assessee's admissions and voluntary pre-deposit and in setting aside penalties without reasons; the Tribunal's order on penalties is set aside and the matter remitted to the Tribunal for fresh consideration of penalties and duties. No order as to costs.

Show cause notice - pre-determined mind - prima facie findings - disclosure of materials collected during investigation - opportunity to explain / audi alteram partem - quashing a show cause notice - writ against a show cause notice not ordinarily maintainable

Show cause notice - pre-determined mind - prima facie findings - disclosure of materials collected during investigation - opportunity to explain / audi alteram partem - Whether the show cause notice dated 29 November, 2013 was issued with a pre-determined mind and therefore liable to be quashed as a mere formality - HELD THAT: - The Court examined whether the particulars and illustrations set out in the notice and the statements in the counter-affidavit amounted to a final adjudication against the petitioner or merely disclosed prima facie materials collected during investigation to enable an effective reply. The Court observed that an assessee must know the charges and the basis for action to file an effective response and that disclosure of incriminating materials in a show cause notice does not, by itself, convert tentative findings into a concluded decision. The Court rejected the contention that furnishing detailed materials and illustrations in the notice or reiteration of the case in the counter-affidavit establishes a pre-determined mind; instead, such disclosure was held to be consistent with giving the petitioner an opportunity to explain. Reliance was placed on the principle that ordinarily a writ will not lie to quash a show cause notice since a show cause notice is not a final adverse order. The Court distinguished authorities where liability had already been finally determined and only quantification remained, finding that no such final determination had been made here. On the combined facts and reasoning, the Court concluded that the findings in the show cause notice were tentative and the statutory authority had not closed its mind to consideration on merits. [Paras 23, 24, 25, 26, 27]

The writ petition seeking quashing of the show cause notice on the ground of pre-determination is dismissed; the statutory proceedings may continue and the petitioner must pursue its remedies through the adjudicatory process.

Final Conclusion: The petition challenging the show cause notice as issued with a pre-determined mind is dismissed; the Court held the notices to contain prima facie materials disclosed for the petitioner's response and observed that ordinarily a writ will not lie to quash a show cause notice. No costs.

Reassessment under section 40 of the Assam Value Added Tax Act, 2003 - escape of assessment based on information subsequent to assessment - statutory declaration in form 65A as subsequent material - availability of alternative remedy by way of appeal and maintainability of writ under Article 227 - false return and dishonest intention attracting penal consequences

Reassessment under section 40 of the Assam Value Added Tax Act, 2003 - escape of assessment based on information subsequent to assessment - statutory declaration in form 65A as subsequent material - Validity of reassessment initiated under section 40 on the basis of information contained in statutory form 65A found after completion of assessment. - HELD THAT: - The Court held that reassessment under section 40 is permissible where the assessing authority is satisfied that turnover chargeable to tax has escaped assessment on the basis of information received subsequent to the assessment order. The declaration furnished by the petitioner in the statutory form 65A at the check-post constituted subsequent material disclosing quantity and value greater than those disclosed in the return assessed in 2007. In these circumstances the reassessment order was founded on valid subsequent material and could not be set aside on the ground that there was no new information. [Paras 8]

Reassessment upheld as based on information found subsequent to the assessment in form 65A.

Availability of alternative remedy by way of appeal and maintainability of writ under Article 227 - Whether the petitioner could bypass statutory appellate remedies and invoke writ jurisdiction under Article 227. - HELD THAT: - The Court observed that the reassessment order is an appealable order and the petitioner had resorted to a writ petition, thus taking a shortcut by bypassing the provisions of appeal and other remedies. The Court indicated that such remedy by way of writ was inappropriate where statutory appellate remedies are available. [Paras 8]

Writ jurisdiction declined as inappropriate; petitioner should have availed the statutory appellate remedies.

False return and dishonest intention attracting penal consequences - Whether the conduct of filing a return inconsistent with statutory form 65A disclosed subsequent to assessment amounted to a false return warranting prosecution. - HELD THAT: - The Court found from the material that the petitioner had filed a false return, contradicting the statutory form 65A discovered at the check-post, and that this indicated dishonest intention causing loss to State revenue. The Court held that such conduct may amount to offences under the penal law and recommended that the authorities not only reassess but also take effective steps to prosecute, including filing complaints and seeking condonation of delay under criminal procedure law where necessary, to deter filing of false returns. [Paras 8]

Finding of false return and dishonest intention; direction that department may proceed with prosecution in addition to reassessment.

Final Conclusion: Petition dismissed: the reassessment was validly founded on subsequent material (form 65A), the writ was not the appropriate remedy in the face of an appealable order, and the department was entitled to initiate penal proceedings for filing of a false return.

Violation of the principles of natural justice - opportunity to meet material - consideration of evidence or report produced after hearing - quashing and remittal for fresh decision

Violation of the principles of natural justice - opportunity to meet material - consideration of evidence or report produced after hearing - Whether the impugned order was vitiated for breach of natural justice because the Settlement Commissioner considered the Revenue's report filed after the petitioner had been heard, without supplying the report or giving the petitioner an opportunity to meet it. - HELD THAT: - The Court found that on 18.2.2014 the petitioner was heard by the learned Settlement Commissioner and at that time neither the report of the Commissioner of Customs (Respondent No.2) was on record nor was a Revenue representative present. The Revenue's report was filed subsequently on 11.3.2014, and the impugned order was passed on 20.5.2014 after taking that report into consideration. The Settlement Commissioner thus relied upon material which had not been supplied to the petitioner and on which the petitioner had not been given an opportunity to make submissions. The Court held that taking such material into account after hearing the petitioner, without furnishing the material to the petitioner or affording an opportunity to meet it, amounted to an utter violation of the principles of natural justice.

The impugned order is quashed and set aside on grounds of breach of natural justice; the matter is remitted to the Settlement Commissioner for fresh adjudication on merits with all contentions open to the parties.

Final Conclusion: The petition is allowed: the order dated 20.5.2014 is quashed for breach of natural justice and the matter is remitted to the Settlement Commissioner for fresh decision on merits; no costs ordered.