TaxTMI Updates e-Newsletter
Jun 15,2019

Remand for fresh consideration - constitutional validity of Section 174 of the Kerala State Goods and Services Tax Act - limitation for initiation of proceedings under Section 25(1) of the KVAT Act - revival of interim order

Remand for fresh consideration - constitutional validity of Section 174 of the Kerala State Goods and Services Tax Act - limitation for initiation of proceedings under Section 25(1) of the KVAT Act - Writ petition restored for fresh consideration of grounds other than the validity of Section 174 of the KGST Act and impugned judgment set aside. - HELD THAT: - The Single Judge had dismissed the writ petition relying on this Court's earlier decision in W.P.(C) 11335/2018 and connected matters, which the petitioner contended addressed only the validity of Section 174. The Division Bench observed that the earlier judgment does not resolve the other contentions raised in the petition, including a challenge that the refixation notices were time-barred under Section 25(1) of the KVAT Act and that identical proceedings for earlier years were under challenge. Given that the question of the validity of Section 174 is before a Division Bench and multiple related writ appeals remain pending, the appropriate course is to remit the petition for fresh consideration of all issues except the constitutional validity of Section 174, so that those questions may be adjudicated independently by the Single Judge dealing with the subject matter as per roster. Accordingly, the impugned judgment is set aside and the petition restored for fresh adjudication on the specified points. [Paras 5, 6, 7]

Writ appeal allowed; impugned judgment of the Single Judge set aside and the writ petition restored for fresh consideration and disposal on grounds other than the validity of Section 174.

Revival of interim order - Interim order in force on the date of dismissal is revived and shall continue in force. - HELD THAT: - The Court directed that the interim order which was in force as on the date when the writ petition was dismissed shall stand revived and continue to operate pending fresh consideration of the petition. This preserves the status quo that existed immediately prior to the dismissal while the Single Judge re-examines the remitted issues. [Paras 8]

The interim order in force at the time of dismissal is revived and shall continue in force.

Final Conclusion: The writ appeal is allowed; the Single Judge's order dismissing the writ petition is set aside, the petition is restored for fresh consideration of issues other than the constitutional validity of Section 174 of the KGST Act, and the interim order which was in force at the time of dismissal is revived and shall continue.

Special Leave Petition - alternative remedy - interim protection against coercive steps

Special Leave Petition - alternative remedy - interim protection against coercive steps - Dismissal of the Special Leave Petition with limited interim protection to enable the petitioner to invoke an alternative remedy. - HELD THAT: - The Court dismissed the Special Leave Petition filed by the petitioner. Recognising that the petitioner has an alternative remedy available, the Court directed that no coercive steps shall be taken for a period of four weeks from the date of the order so as to permit the petitioner to avail that remedy. The order is one of final dismissal of the SLP subject to the limited, time-bound protection expressly granted to facilitate pursuit of the alternative remedy.

SLP dismissed; coercive steps stayed for four weeks to enable petitioner to pursue the alternative remedy.

Final Conclusion: The Special Leave Petition is dismissed, but the Court granted a four-week moratorium on coercive steps to allow the petitioner to avail the alternative remedy.

Impermissibility of converting seized/attached assets into cash - maintenance of amounts realised from attached assets in interest bearing fixed deposit - investigation statements recorded under Section 132 read with Section 131 - invocation of Settlement Commission under Section 245 C

Impermissibility of converting seized/attached assets into cash - maintenance of amounts realised from attached assets in interest bearing fixed deposit - Validity of respondents encashing petitioners' fixed deposits and transferring the proceeds to the PD Account of the Commissioner - HELD THAT: - The Court applied the principle that assets attached or seized in the course of income tax investigation should not be converted into cash and impounded. Following the reasoning in the authoritative precedent relied upon, the Court held that the amounts realised from the petitioners' fixed deposits and transferred to the PD Account ought to be preserved in an interest bearing fixed deposit in a nationalized bank so that, if the petitioners ultimately succeed, they remain entitled to interest as provided by law. The Court directed the respondents to invest the realised amount in a fixed deposit in the name of the concerned respondent for an initial period of one year, not to be encashed without leave of the Court, and further directed periodic renewal only upon further orders of the Court. [Paras 10, 11, 12]

Encashment and impounding of the FDs was not to result in loss of interest; the amounts realised must be invested by the respondents in an interest bearing fixed deposit of a nationalized bank in the name of the concerned respondent and shall not be encashed without leave of the Court.

Investigation statements recorded under Section 132 read with Section 131 - Evidentiary effect of statements recorded from the petitioner during investigation - HELD THAT: - The Court noted that the petitioner had made certain statements during the investigation but held that the evidentiary value of such statements is a matter to be considered by the revenue authorities at the appropriate stage of proceedings under the relevant provisions. The Court did not decide the substantive weight or effect of those statements for assessment but left that exercise to the authorities in accordance with law. [Paras 11]

The evidentiary value of the petitioner's statements made during investigation is to be considered by the respondents at the appropriate stage and was not finally adjudicated by the Court.

Invocation of Settlement Commission under Section 245 C - Effect of petitioners' proposal to invoke settlement proceedings and rights if amounts realised exceed tax liability - HELD THAT: - The Court accepted the petitioners' intention to invoke settlement proceedings after initiation of assessment proceedings and clarified that if the amounts encashed from the fixed deposits exceed the petitioners' tax liability, the petitioners' rights shall be governed by the statutory provisions, including those concerning refund or adjustment. The Court also directed procedural safeguards: the realised amount must be transferred into a fixed deposit within two weeks of communication of the order and held in the name of the concerned respondent pending further orders. [Paras 12]

Petitioners may invoke settlement proceedings; if amounts realised exceed tax liability, their rights shall follow statutory provisions; respondents to invest the realised amount in a fixed deposit within two weeks and not encash it without the Court's leave.

Final Conclusion: Writ petition disposed of by directing the respondents to invest the amounts realised from the petitioners' fixed deposits in an interest bearing fixed deposit of a nationalized bank in the name of the concerned respondent (not to be encashed without the Court's leave), leaving the evidentiary weight of investigation statements to the respondents to decide at the appropriate stage and preserving the petitioners' statutory rights including invocation of settlement proceedings; no order as to costs.

Review - error apparent on the face of the record - condonation of delay - power to review an order passed under section 260A - addition under section 68 - addition under section 40A(3)

Condonation of delay - review - Application for condonation of delay and grant of review was allowed. - HELD THAT: - The Court considered the assessee's application for condonation of 14 days' delay and the substantive review plea that the earlier order dated 8th May, 2014 contained an error apparent on its face. Having examined the grounds and the Tribunal's earlier order, the Court was satisfied that an error apparent had been demonstrated and that the delay explanation merited condonation. Consequently, the petition for review was entertained and the delay was condoned.

Delay of 14 days condoned and review application allowed.

Error apparent on the face of the record - addition under section 68 - addition under section 40A(3) - Whether the order dated 8th May, 2014 contained an error apparent because it stated that the Tribunal had not answered a question which was in fact dealt with by the Tribunal. - HELD THAT: - The assessee demonstrated from the Tribunal's order dated 30th April, 2010 that the addition under section 68 (assailed as ground no.4 before the Tribunal) was substantially deleted by the Tribunal. The order under review had stated that the Tribunal had not answered the question extracted therein, which the Court found to be contrary to the Tribunal's express findings. That contradiction amounted to an error apparent on the face of the record justifying recall of the earlier order.

The order dated 8th May, 2014 is recalled on review for containing an error apparent.

Power to review an order passed under section 260A - finality of order passed under section 260A - Whether a review may be entertained in respect of an order passed under section 260A which the respondent contended had attained finality. - HELD THAT: - The respondent argued that the impugned order under section 260A had attained finality and could not be modified in review. The Court, however, relying on the principles cited by the appellant and precedent noted in submissions, found that where an error apparent on the face of the record is shown, review jurisdiction can be exercised even in relation to an order passed under section 260A. On that basis the Court exercised review powers and recalled the earlier order.

Review entertained and order under section 260A recalled despite contention of finality, insofar as an error apparent was demonstrated.

Final Conclusion: The application for review is allowed and the delay of 14 days is condoned; the order dated 8th May, 2014 is recalled on the ground of an error apparent on the face of the record and the matter is listed before the regular Bench in the usual course.

Concealment of income - furnishing inaccurate particulars of income - notice under section 271(1)(c) read with section 274 - requirement of specific and unambiguous show cause/penalty notice - principles of natural justice and right to fair opportunity to meet the charge - quashing of penalty for ambiguity in charge

Notice under section 271(1)(c) read with section 274 - concealment of income - furnishing inaccurate particulars of income - requirement of specific and unambiguous show cause/penalty notice - quashing of penalty for ambiguity in charge - Whether the penalty notice and consequent penalty under section 271(1)(c) are invalid where the notice failed to specify whether the charge was for concealment of income or for furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal examined the penalty notice and the assessment record and found that the Assessing Officer issued the proforma penalty notice without striking out the inapplicable column, thereby creating ambiguity as to whether the penalty was being initiated for concealment of income or for furnishing inaccurate particulars. The Tribunal held that section 271(1)(c) penalties are penal in nature and the assessee must be informed clearly which specific charge is being pressed so as to have a fair opportunity to meet the case. Where a notice ambiguously clubs both offences or fails to specify the precise allegation, principles of natural justice are offended and the notice is vitiated. Applying these principles and following the reasoning of the higher court authorities relied upon in the record, the Tribunal concluded that the defective/ambiguous notice rendered the penalty order unsustainable and warranted quashing of the notice and cancellation of the consequential penalty orders. The Tribunal further observed that, having quashed the notice and the consequential orders, it was unnecessary to adjudicate other grounds. [Paras 7, 8]

The penalty notice under section 271(1)(c) read with section 274 was held invalid for ambiguity; the notice is quashed and the consequent penalty orders are cancelled, and the assessee's appeal is allowed.

Final Conclusion: The Tribunal quashed the penalty notice issued under section 271(1)(c) read with section 274 for A.Y.2004-05 as it was ambiguous in failing to specify whether the charge was for concealment of income or for furnishing inaccurate particulars; consequent penalty orders were set aside and the appeal allowed.

Penalty under section 271D for contravention of the restrictions on acceptance of cash loans under section 269SS - Application of mind and formation of satisfaction by the penalty levying authority - Reasonable cause defence under section 273B - Invalidation of penalty founded on incorrect assumptions or surmises

Penalty under section 271D for contravention of the restrictions on acceptance of cash loans under section 269SS - Application of mind and formation of satisfaction by the penalty levying authority - Reasonable cause defence under section 273B - Validity of imposition of penalty under section 271D for acceptance of cash loans of Rs. 6,90,000/- - HELD THAT: - The Tribunal found that the JCIT issued the show cause and levied penalty without applying his mind to, or properly appreciating, the explanation and material placed on record. The penalty order contained an incorrect factual assertion that the assessee had voluntarily paid the penalty and produced challans; that assertion was not correct. The assessee had explained that the amounts were advances from relatives (through spouses who were partners), supported by confirmations and tax return particulars, and contended that entries arose from inadvertent accounting treatment as loans instead of capital contribution. The JCIT did not examine or verify these explanations and reached satisfaction on the basis of assumptions and surmises. In consequence, the precondition for imposing penalty - a considered satisfaction by the authority that no reasonable cause existed - was lacking. Section 273B provides that penalty is not leviable if reasonable cause is shown; that statutory protection requires the levying authority to confront and decide the explanation. Because the JCIT failed to form a valid satisfaction after applying mind to the facts and materials, the levy of penalty was unsustainable. The Tribunal therefore set aside the orders below and cancelled the penalty.

Penalty under section 271D cancelled and the appeals allowed because the JCIT did not apply his mind or reach a valid satisfaction before imposing the penalty.

Final Conclusion: The Tribunal allowed the assessee's appeal for Assessment Year2013-14, set aside the CIT(A)'s confirmation, and cancelled the penalty imposed under section 271D on the ground that the JCIT had not applied his mind and had levied penalty on incorrect assumptions without properly considering the assessee's explanation and material.

Rectification of order - rectification of clerical/typographical errors under section 254(2) - correction of assessment year - correction of date of hearing and pronouncement - correction of year in signatures

Rectification of order - rectification of clerical/typographical errors under section 254(2) - correction of assessment year - correction of date of hearing and pronouncement - correction of year in signatures - Application under section 254(2) for rectification of typographical errors in the Tribunal's earlier order was allowed and specified corrections were directed. - HELD THAT: - The authorised representative for the assessee submitted that the Tribunal's order in ITA No. 479/VIZ/2018 contained typographical mistakes. The Departmental Representative did not dispute these submissions. The Tribunal examined the order and identified specific clerical errors: the assessment year recorded as "A.Y. 2007-09" was to be read as "Asst. Year : 2007-08"; the year shown against the date of hearing and date of pronouncement recorded as 2018 was to be read as 2019; and the year beneath the Members' signatures recorded as 2018 was to be read as 2019. Having found these to be typographical errors, the Tribunal directed the stated corrections and allowed the miscellaneous application under section 254(2).

Miscellaneous application under section 254(2) allowed; the stated typographical corrections to the earlier order are directed.

Final Conclusion: The Tribunal allowed the rectification application and ordered specified corrections to the earlier order, substituting the correct assessment year and correcting the years mentioned for hearing, pronouncement and signatures.

Penalty under section 271(1)(c) of the Act - disallowance of expenditure on estimated basis - furnishing inaccurate particulars of income - estimation under section 145 of the Act

Penalty under section 271(1)(c) of the Act - disallowance of expenditure on estimated basis - furnishing inaccurate particulars of income - Validity of imposition of penalty under section 271(1)(c) where additions arise from ad hoc disallowance of expenditure estimated at 4% of turnover. - HELD THAT: - The Assessing Officer made an addition by disallowing expenditure on an estimated basis (applying 4% of turnover) and thereafter initiated and imposed penalty under section 271(1)(c) for furnishing inaccurate particulars. The CIT(A) found that the AO gave no reasons for adopting the 4% benchmark and that the disallowance was ad hoc; the assessee had also not produced books, a circumstance in which the AO could have invoked section 145 to estimate profits on a comparable basis. Applying the principle in the decision cited by the CIT(A) (Reliance Petro Products), the Tribunal concurs that mere disallowance of a claim as unsustainable in law, particularly when made on an estimated/ad hoc basis, does not establish that particulars furnished in the return were inaccurate, erroneous or false so as to attract section 271(1)(c). In these circumstances, imposition of penalty on an addition founded on ad hoc estimation is not justified and is to be cancelled.

Penalty imposed under section 271(1)(c) set aside; penalty deletion upheld.

Final Conclusion: The appeal of the Revenue is dismissed and the order of the CIT(A) deleting the penalty imposed under section 271(1)(c) (which was levied on additions made by ad hoc estimated disallowance of expenditure) is upheld.

Disallowance under section 14A read with Rule 8D - Applicability of section 14A where no exempt income is received - Requirement of actual receipt of exempt income for invoking section 14A

Disallowance under section 14A read with Rule 8D - Applicability of section 14A where no exempt income is received - Requirement of actual receipt of exempt income for invoking section 14A - No disallowance under section 14A read with Rule 8D is called for in a year in which the assessee has not received any exempt (dividend) income. - HELD THAT: - The Assessing Officer made an addition under section 14A read with Rule 8D on the basis that investments held by the assessee could yield exempt income. The CIT(A) deleted the addition following the decision of the Hon'ble Delhi High Court in Cheminvest Ltd., which held that the phrase "does not form part of the total income" in section 14A envisages an actual receipt of exempt income in the relevant previous year and that section 14A will not apply if no exempt income is received or receivable during that year. The Tribunal noted earlier consistent findings in the assessee's case and observed that the factual finding that no dividend income was earned in the year was not controverted by the Revenue. Applying the cited precedent and the undisputed factual position that no exempt income was received, the Tribunal upheld the CIT(A)'s deletion of the disallowance. [Paras 6, 7]

The addition made by the AO under section 14A read with Rule 8D is deleted as no exempt (dividend) income was received in A. Y. 2012-13; the CIT(A) order is upheld and the revenue's appeal is dismissed.

Final Conclusion: The Tribunal, following the decision of the Hon'ble Delhi High Court in Cheminvest Ltd. and on the undisputed factual finding that no dividend (exempt) income was received in the relevant year, upheld the deletion of the section 14A/Rule 8D disallowance and dismissed the revenue's appeal for A. Y. 2012-13.

Allowance of depreciation while computing income of a charitable trust under section 11 - prohibition against double deduction where cost of asset was earlier allowed as application of income - carry forward and set-off of excess application/deficit of a charitable trust against income of subsequent years under section 11 - prospective operation of section 11(6) prohibiting depreciation where asset acquisition was claimed as application of income

Allowance of depreciation while computing income of a charitable trust under section 11 - prohibition against double deduction where cost of asset was earlier allowed as application of income - prospective operation of section 11(6) prohibiting depreciation where asset acquisition was claimed as application of income - Depreciation on assets whose cost had earlier been allowed as application of income is allowable while computing income of the charitable trust for section 11 purposes. - HELD THAT: - The Tribunal upheld the CIT(A)'s allowance of depreciation, rejecting Revenue's contention that permitting depreciation would amount to a double deduction where the cost of acquisition had been allowed earlier as application of income. The Tribunal relied upon and followed binding and persuasive decisions of the jurisdictional High Court and coordinate benches which held that income under section 11(1) is to be computed in a normal commercial manner and depreciation debited in the books is deductible for that purpose. The Tribunal distinguished the Apex Court decision relied upon by Revenue as dealing with different statutory deductions and noted subsequent High Court and Tribunal precedents that a trust's claim for depreciation does not amount to impermissible double benefit. The Tribunal further observed that the statutory amendment by insertion of section 11(6) operates prospectively w.e.f. 1.4.2015 (applicable from AY 2015-16) and therefore does not affect the concluded assessment year. Applying these authorities and reasoning, the Tribunal sustained the CIT(A)'s order allowing depreciation. [Paras 4]

Assessee's claim for depreciation is allowed; Revenue's ground challenging allowance is dismissed.

Carry forward and set-off of excess application/deficit of a charitable trust against income of subsequent years under section 11 - application of income in a subsequent year by adjustment of earlier years' expenditures - Excess application of income (current year deficit) and brought forward deficits of earlier years are admissible for carry forward and set-off against income of subsequent assessment years for the charitable trust. - HELD THAT: - The Tribunal upheld the CIT(A)'s direction to allow carry forward and set-off of excess application/deficit to subsequent years. Relying on coordinate-bench decisions, the Tribunal accepted that section 11(1)(a) contains no temporal limitation restricting application to the year in which income arose and that adjustment of earlier years' charitable expenditures against income of a later year constitutes application of that later year's income for charitable purposes. The Tribunal referred to a line of authorities holding that such adjustments are permissible and that the special scheme for computation under sections 11-13 does not prohibit the carry forward of excess application where the expenditure relates to charitable purposes. Applying these precedents, the Tribunal found no infirmity in the CIT(A)'s order and dismissed Revenue's challenge. [Paras 5]

Assessee's claim to carry forward and set off current and earlier years' deficits against future income is upheld; Revenue's ground is dismissed.

Final Conclusion: Revenue's appeal for Assessment Year 2010-11 is dismissed; the CIT(A)'s allowance of depreciation and direction permitting carry forward and set-off of deficits to subsequent years is upheld.

Levy of fee under section 234E - Validity of intimation under section 200A - Prospective effect of statutory amendment - Enforceability mechanism via section 271H and proviso to section 272A - Limitation for levy of fee

Levy of fee under section 234E - Validity of intimation under section 200A - Prospective effect of statutory amendment - Intimation issued under section 200A/154 demanding fee under section 234E for periods prior to 1-6-2015 is without authority of law and liable to be set aside. - HELD THAT: - The Tribunal followed the view of the Hon'ble Karnataka High Court in Fatheraj Singhvi (supra) and its own coordinate decisions that although section 234E (fee) came into force earlier, the machinery for computation and demand of fee under section 200A was amended only w.e.f. 1-6-2015. In that factual and statutory backdrop the amendment to section 200A conferring the power to compute/intimate fees under section 234E must be given prospective effect. The Tribunal accepted the reasoning that Parliament simultaneously enacted provisions (including section 271H and the proviso to section 272A) creating the interoperable enforcement regime and that the mode of enforcement under the later amendment to section 200A does not operate retrospectively to validate intimations issued for periods prior to 1-6-2015. The Tribunal further noted that where no independent order under section 234E was validly passed within the applicable limitation period, reliance on a post-facto section 200A intimation for earlier periods is invalid. Applying those principles to the facts (assessment year 2013-14 and statements processed prior to 1-6-2015), the intimations levying fee under section 234E by invoking section 200A were held to be without authority and therefore quashed.

Intimations issued under section 200A/154 demanding fee under section 234E for periods prior to 1-6-2015 are quashed as without authority of law; appeals allowed on this ground.

Final Conclusion: The Tribunal allowed the appeals: intimations under section 200A levying fee under section 234E for the period prior to 1-6-2015 (including AY 2013-14 facts before the amendment) were held invalid and set aside; the appeals are allowed.

Related Party Transactions filter in transfer pricing comparability - Functional comparability despite intermittent losses - Capacity utilisation adjustment to comparable margins under Rule 10B(1)(e)(iii) - Application of TNMM (Transactional Net Margin Method) for benchmarking

Related Party Transactions filter in transfer pricing comparability - Application of RPT percentage threshold for excluding comparables - Exclusion of Honda Siel, Hyundai Motors and Maruti Udyog from the final comparable set by applying an RPT filter. - HELD THAT: - The Tribunal affirmed that an RPT (Related Party Transactions) filter is a valid and necessary filter when selecting comparables under the TNMM. The Assessing Officer had not applied any RPT filter whereas the CIT(A) applied a 15% RPT filter and excluded the three companies. The Revenue's contention that these companies should be included because their related party transactions were below 25% was rejected. The Tribunal accepted the application of the RPT filter on the facts and held that companies failing the RPT filter cannot be included in the final list of comparables; reference was made to earlier Tribunal authority endorsing RPT filtering in benchmarking. [Paras 13]

RPT filter to be applied; the three companies excluded by the CIT(A) properly omitted from the final comparables list.

Functional comparability despite intermittent losses - Inclusion of loss incurring entity where not persistently loss making - Inclusion of Hindustan Motors as a comparable despite having incurred losses in the relevant year. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that Hindustan Motors could be included as functionally comparable because it was not a persistent loss making concern; the company had an operative profit of 0.11% for the financial year ending 31 03 2003, and exclusion solely on the ground of loss in the year under consideration was unwarranted on the facts. Accordingly, Hindustan Motors was properly retained in the final set of comparables. [Paras 14]

Hindustan Motors is a valid comparable and its inclusion is sustained.

Capacity utilisation adjustment to comparable margins under Rule 10B(1)(e)(iii) - Procedure for computing capacity adjustment under TNMM - Direction to allow adjustment for under utilisation of capacity and to apply the procedure laid down by the Tribunal for computing such adjustment. - HELD THAT: - The Tribunal held that where there is a material difference between the assessee's level of capacity utilisation and that of comparables, an adjustment to the comparables' margins is required under Rule 10B(1)(e)(iii). Reliance was placed on precedents including the Bombay High Court and Tribunal decisions recognising capacity utilisation adjustments. The Tribunal directed the AO/TPO to apply the method prescribed by the Delhi Bench in DCIT v. Class India (P) Ltd. for computing the adjustment under the TNMM. As the assessee was in its second year of operation with significantly lower utilisation than comparables, the direction to make the capacity adjustment was sustained. Grounds challenging this direction were dismissed; related grounds on economic adjustment for additional import duty were rendered academic by the outcome. [Paras 20, 21]

AO/TPO to allow capacity utilisation adjustment and compute it by applying the procedure laid down by the Tribunal under Rule 10B(1)(e)(iii).

Final Conclusion: The Revenue's appeal and the assessee's cross objection are dismissed: the CIT(A)'s exclusions under the RPT filter and inclusion of Hindustan Motors are upheld, and the AO/TPO is directed to give a capacity utilisation adjustment computed by the Tribunal prescribed method; related economic duty grounds were rendered academic.

Capital loss versus revenue (business) loss - enduring benefit test for capital expenditure - allowability of loss as incidental to carrying on business - disallowance under Section 36(1)(iii) for diversion of borrowed funds - business nexus of expenditure on employee/beneficiary education

Capital loss versus revenue (business) loss - enduring benefit test for capital expenditure - allowability of loss as incidental to carrying on business - Treatment of Rs. 30 lakhs written off on cancellation of lease - whether a capital loss or an allowable business loss. - HELD THAT: - The Tribunal found the facts distinguishable from Hasimara Industries Ltd. where the deposit secured acquisition of a profit-making asset; here the assessee paid a lease deposit in the ordinary course to secure a showroom and did not obtain possession because the landlord failed to procure electricity connection. The lease was terminated by mutual compromise under which half the deposit was refunded and Rs. 30 lakhs written off. There was no enduring benefit or creation of a new asset for the assessee, and the payment was made as part of carrying on its retail business. Applying the tests in Mysore Sugar Co. Ltd. and the approach in Tamilnadu Magnesite Ltd. , the Tribunal held that the expenditure was revenue in nature and incidental to the assessee's business; consequently the loss on cancellation of the lease is allowable as a business loss under principles governing business income. [Paras 8]

Rs. 30 lakhs written off on cancellation of lease is to be treated as an allowable business loss.

Disallowance under Section 36(1)(iii) for diversion of borrowed funds - business nexus of expenditure on employee/beneficiary education - Validity of proportionate disallowance of interest (Rs. 12,98,006) under Section 36(1)(iii) on account of alleged diversion of borrowed funds for payment of higher education fees. - HELD THAT: - The Assessing Officer treated deposits made as payment of higher education fees for a beneficiary as diversion of borrowed funds and disallowed proportionate interest. The Tribunal examined the assessee's books and personnel history and found that the beneficiary was an existing employee/beneficiary who pursued higher studies and subsequently returned to work for the assessee, materially benefiting the business. The Tribunal noted that borrowings exceeded own funds but emphasised that one of the essential prerequisites for disallowance under Section 36(1)(iii) is that borrowed funds were actually used for non-business purposes. On the facts, the Tribunal concluded there was sufficient business nexus and commercial expediency in financing the beneficiary's education for the assessee's business purposes, and therefore the requirement for proportionate disallowance was not satisfied. [Paras 12, 13]

Proportionate interest disallowance under Section 36(1)(iii) is not warranted; the disallowance of Rs. 12,98,006 is to be deleted.

Final Conclusion: The appeal is allowed: the Rs. 30 lakhs written off on cancellation of lease is treated as an allowable business loss, and the proportionate disallowance of interest under Section 36(1)(iii) is deleted.

Allowability of business expenditure under section 37(1) - applicability of CBDT Circular No.5/2012 to pharmaceutical companies and retrospective effect - role of revenue and propriety versus nexus test in assessing business expenditure - deduction under Chapter VI-A (computation of section 80IC on profits enhanced by disallowances) - disallowance under section 14A and application of Rule 8D - computation of book profits under section 115JB and clause (f) of the Explanation

Allowability of business expenditure under section 37(1) - applicability of CBDT Circular No.5/2012 to pharmaceutical companies and retrospective effect - role of revenue and propriety versus nexus test in assessing business expenditure - Disallowance of sales promotion, advertisement and publicity expenses was not justified and such expenses are allowable under section 37(1) for AY 2012-13. - HELD THAT: - The Tribunal found that the expenditures were incurred in the ordinary course of the assessee's pharmaceutical manufacturing business and their genuineness was not doubted. Revenue's objection rested on the propriety of incurring the expenses and on CBDT Circular No.5/2012; however the revenue cannot substitute its commercial judgment for that of the assessee where business nexus, genuineness and purpose are established. Further, the payments in dispute were made to the assessee's distributor and not distributed to medical practitioners; accordingly the CBDT Circular which purported to extend the Medical Council regulations to pharmaceutical companies could not be used to deny the expenditure. The Tribunal held that a CBDT circular cannot enlarge the scope of a regulation made under a different statute so as to impose liability on a class of assessees not covered by that regulation. Finally, Circular No.5/2012 was held to be effective only from 01.08.2012 (therefore prospective), and hence not applicable to AY 2012-13; accordingly the disallowance based on that Circular was rejected and the expenses were directed to be allowed under section 37(1).

Sales promotion, advertisement and publicity expenses are allowable under section 37(1) for AY 2012-13; CBDT Circular No.5/2012 does not apply retrospectively nor to the assessee on the facts.

Deduction under Chapter VI-A (computation of section 80IC on profits enhanced by disallowances) - Deduction under section 80IC is to be computed on profits as increased by disallowances under section 37(1). - HELD THAT: - The Tribunal admitted and adjudicated the legal ground raised by the assessee that disallowances under section 37(1) which enhance business profits must be reflected in the computation of profits for chapter VI-A deductions. The Tribunal relied on judicial precedent and the CBDT clarification that Chapter VI-A deductions are admissible on profits enhanced by disallowances of specified sections, holding that the AO must not double-disallow by first disallowing the expenditure under section 37(1) and then reducing the section 80IC claim by the same amount.

Deduction under section 80IC shall be computed on profits including enhancements caused by disallowances under section 37(1); AO to rectify double disallowance.

Disallowance under section 14A and application of Rule 8D - restriction of disallowance to quantum of exempt income - Disallowance under section 14A is to be restricted to the extent of exempt income earned by the assessee under the normal provisions of the Act. - HELD THAT: - The assessee had declared a suo moto disallowance and the AO computed a higher disallowance using the second and third limbs of Rule 8D(2). Applying the ratio approved by the Supreme Court in Maxopp Investments, the Tribunal directed that the disallowance under section 14A be restricted to the amount of exempt income earned, thereby accepting the assessee's additional ground to put the dispute to rest. The Tribunal therefore instructed the AO to limit the disallowance under the normal provisions to the quantum of exempt income.

Disallowance under section 14A to be restricted to the exempt income amount; AO directed to give effect accordingly.

Computation of book profits under section 115JB and clause (f) of the Explanation - disallowance under section 14A and application of Rule 8D - For computation of book profits under section 115JB, disallowance under clause (f) of the Explanation is to be based on actual expenditure incurred for earning exempt income and not by importing the Rule 8D(2) mechanism. - HELD THAT: - Relying on the Special Bench decision referred to in the order, the Tribunal held that the mechanical computation method of Rule 8D(2) cannot be imported into clause (f) of the Explanation to section 115JB(2). Where actual expenditure for earning exempt income is ascertainable, that actual expenditure is to be disallowed under clause (f) for computing book profits. The assessee had itself made a specific disallowance on an actual basis in the return, and the Tribunal directed the AO to consider that amount for disallowance under clause (f).

Disallowance for computing book profits under section 115JB(2) (clause (f)) to be made on the basis of actual expenditure incurred for earning exempt income; Rule 8D computational mechanism not to be imported into clause (f).

Final Conclusion: The assessee's appeal is allowed insofar as the disputed sales promotion, advertisement and publicity expenses are held allowable for AY 2012-13 and the section 80IC deduction is to be computed on profits including such disallowances; section 14A disallowance is restricted to the exempt income and the AO is directed to treat the assessee's actual disallowance for computation of book profits under section 115JB(2)(f). The assessee's cross-objection is dismissed as withdrawn; the revenue's appeal is partly allowed.

Allowability of depreciation on financial lease - arm's length price - most appropriate method - Transactional Net Margin Method (TNMM) - Return on Capital Employed (ROCE) as Profit Level Indicator - internal comparable uncontrolled price (CUP) - comparability and selection of comparables - remand for fresh adjudication

Allowability of depreciation on financial lease - remand for fresh adjudication - Claim for depreciation on assets given on financial lease is not finally adjudicated and is set aside to the Assessing Officer for fresh examination and verification of lease agreements. - HELD THAT: - The AO's conclusion was found to be contrary to the binding ratio of the Supreme Court in ICDS Ltd. v. CIT and reliance on an earlier unrelated Supreme Court decision was held to be misplaced. The Tribunal directed that the assessee must produce the financial lease agreements called for by the AO, who shall examine whether the terms and conditions are similar to those considered in ICDS Ltd.; if there are no material variations, depreciation is to be allowed. The matter is therefore remanded for fresh adjudication in accordance with law with specific direction to verify agreements and apply the Supreme Court decision. [Paras 6, 8, 12]

Issue set aside to AO for fresh adjudication; depreciation to be granted if lease terms match those in ICDS Ltd.

Comparability and selection of comparables - arm's length price - remand for fresh adjudication - Transfer pricing adjustment in respect of payments for administrative support services (AY 2011-12) is remanded to the Transfer Pricing Officer for fresh adjudication in accordance with directions given by the Tribunal in earlier assessment years. - HELD THAT: - The Tribunal noted that the identical issue had been examined in the assessee's earlier assessment years (AY 2008-09 to AY 2010-11) and the Tribunal had given directions in those orders. Consistent with that precedent, the matter is restored to the file of the TPO for disposal in accordance with the earlier directions, thereby requiring fresh consideration rather than final adjudication at this stage. [Paras 10, 11]

Matter restored to TPO for fresh adjudication in accordance with the Tribunal's earlier directions.

Arm's length price - Transactional Net Margin Method (TNMM) - Return on Capital Employed (ROCE) as Profit Level Indicator - internal comparable uncontrolled price (CUP) - comparability and selection of comparables - remand for fresh adjudication - Determination of ALP for purchase of equipment from an Associate Enterprise: the Tribunal held that computing entity-level ROCE under TNMM is not an appropriate method to determine the purchase price of equipment; internal CUP is a more direct MAM where available, and the matter is remanded to the AO to determine the MAM and adjudicate all contentions afresh. - HELD THAT: - The Tribunal accepted the assessee's submission that the purchase price of equipment cannot correctly be inferred from an entity-level ROCE computed under TNMM and that when internal comparable uncontrolled prices exist they constitute a more direct and appropriate method. The Tribunal also noted that the TP adjustment made was not limited to the quantum of international transactions with the AE and that only that proportionate adjustment is permissible. Given these defects and disputed methodological and accounting issues (including treatment of non-operating items, provisions, and capital employed), the Tribunal remanded the matter to the AO to independently decide the Most Appropriate Method, consider the assessee's detailed submissions, and restrict any adjustment appropriately. [Paras 13, 24, 25, 27]

ALP determination remanded to AO for fresh adjudication; TNMM/ROCE rejected as appropriate means to determine purchase price where CUP is available; AO to decide MAM and consider all arguments.

Final Conclusion: Both appeals are allowed for statistical purposes. The issues concerning depreciation on assets given on financial lease and transfer pricing adjustments (administrative services and purchase of equipment from AE) are set aside to the Assessing Officer/Transfer Pricing Officer for fresh adjudication in accordance with law and the directions recorded by the Tribunal, including application of the Supreme Court's decision in ICDS Ltd. where relevant.

Deemed concealment under Explanation 5A to section 271(1)(c) - requirement of finding owner of income based on entries/documents/transactions found during search - strict construction of deeming provisions in penalty provisions - undisclosed income must be by way of entry in books/documents and not mere capital expenditure/advances - substitution of uncertain charge at initiation by conclusive finding in penalty order

Deemed concealment under Explanation 5A to section 271(1)(c) - requirement of finding owner of income based on entries/documents/transactions found during search - strict construction of deeming provisions in penalty provisions - undisclosed income must be by way of entry in books/documents and not mere capital expenditure/advances - Whether Explanation 5A to section 271(1)(c) is attracted and justifies levy of penalty on the assessee - HELD THAT: - The Tribunal examined the three cumulative conditions in Explanation 5A and held that all must be satisfied before a penalty under section 271(1)(c) can be sustained. The Bench accepted that the search was within the temporal scope of the explanation (paras 31-32), but emphasised that the alternate limb relevant here requires (i) a finding during search that the assessee is owner of income by reference to any entry in books of account or other documents or transactions, and (ii) an admission by the assessee that such entry/documents/transactions represent his income for a previous year ending before the date of search (paras 32(2A), 35). Deeming provisions must be strictly construed and cannot be invoked merely because the assessee admitted income in a statement or thereafter included it in a post-search return; the Revenue must demonstrate that the admission is supported by tangible incriminating material in the form of entries/documents/transactions establishing ownership of income (paras 36, 38-41). Applying these principles, the Tribunal found that the documents seized related to expenditures and land purchases of the group companies/firms and not to income in the hands of the assessee; the companies/firms, not the assessee individually, were shown by seized material to be the owners of the undisclosed receipts/expenditure (paras 43-46). The Tribunal further held that capital expenditure or advances discovered in search do not, without more, represent 'income' of the assessee for the purposes of the Explanation; the logic in earlier decisions (considering sectionally similar definitions) was applied to conclude that such outflows cannot be equated with inflows of income for deeming Explanation 5A (paras 47-48). Because the first limb (ownership of income based on entries/documents) was not established, Explanation 5A could not be invoked and the penalty could not be sustained (paras 34-36, 45-49). [Paras 45, 46, 47, 48, 49]

Explanation 5A to section 271(1)(c) is not attracted because the seized documents and entries related to company/firm expenditures and land transactions and did not establish that the assessee was the owner of income by way of entries/documents; penalty under section 271(1)(c) cannot be levied on that basis.

Substitution of uncertain charge at initiation by conclusive finding in penalty order - Whether the penalty is vitiated by a non specific initiation notice when the penalty order subsequently records a clear, specific finding of deemed concealment - HELD THAT: - The Tribunal considered whether an initiation notice that did not specify whether the penalty was for 'concealment of particulars of income' or 'furnishing inaccurate particulars' fatally undermines the penalty. It noted that the assessment order recorded satisfaction qua the undisclosed income admitted in the search and that the penalty order expressly held the case to be one of deemed concealment under Explanation 5A (paras 29-31). Relying on the principle that an uncertain charge at initiation may be cured if the penalty order substitutes it with a specific and correct finding (as recognised in the cited Third Member authority), the Tribunal held there was no infirmity in initiation where the penalty order ultimately records a clear finding of concealment supported by the assessment-recorded satisfaction (paras 30-31). However, this conclusion did not save the penalty on merits because Explanation 5A's substantive conditions were not satisfied (paras 30-31, 49). [Paras 29, 30, 31]

Initiation by a non specific notice did not vitiate the penalty where the penalty order conclusively and correctly specified the charge; nonetheless, the penalty failed on merits because the statutory conditions for deeming under Explanation 5A were not met.

Final Conclusion: Both appeals by the Revenue are dismissed; the order of the Commissioner (Appeals) deleting the penalty under section 271(1)(c) for AY 2014-15 is upheld because Explanation 5A's conditions were not satisfied on the material and the seized documents established ownership of the relevant transactions by group companies/firms and not by the assessee individually.

Entitlement to higher All Industry Rate drawback where manufacturer availed Cenvat credit - application of Clause 13 of Notification No.103/2008-Cus (NT) - avoidance of double benefit by deducting Cenvat credit from drawback - distinction between merchant exporters purchasing from open market and purchases directly from manufacturer

Entitlement to higher All Industry Rate drawback where manufacturer availed Cenvat credit - application of Clause 13 of Notification No.103/2008-Cus (NT) - avoidance of double benefit by deducting Cenvat credit from drawback - Whether the exporter was entitled to the higher All Industry Rate drawback including excise component where the bags were procured directly from a manufacturer who had availed Cenvat credit. - HELD THAT: - The Court upheld the Tribunal's finding that where the manufacturer of the exported goods has availed Cenvat credit, the exporter who purchased directly from that manufacturer is not entitled to the excise component of the higher AIR drawback. Clause 13 of Notification No.103/2008-Cus (NT) requires the exporter to satisfy the authority that no Cenvat facility has been availed for inputs or input services used in manufacture; absent such proof, the excise portion must be excluded to avoid a double benefit. The Board circular relied upon by the appellants applies to merchant exporters purchasing from the open market (deemed duty paid) and is distinguishable on facts. The Tribunal's interpretation and reduction of drawback accordingly was held to be in consonance with the notification and free from error. [Paras 2, 7, 8]

Tribunal's decision sustaining reduction of drawback (excluding excise component where manufacturer availed Cenvat credit) is affirmed.

Distinction between merchant exporters purchasing from open market and purchases directly from manufacturer - remand for determination of drawback quantification and penalty - Whether issues left undecided by the Tribunal (quantification of allowable drawback and penalties imposed) were to be finally disposed of by this Court. - HELD THAT: - The Court held that the appellants' reliance on the circular applicable to merchant exporters purchasing from the open market did not assist them on the admitted facts of direct purchase from a manufacturer who availed Cenvat credit. However, to the extent the Tribunal did not decide certain issues (including exact computation of drawback payable and penalties), the Court declined to decide those matters and granted liberty to the appellants to approach the Tribunal by suitable application or review petition, expecting the Tribunal to decide those outstanding issues on merits and in accordance with law. [Paras 9]

Outstanding issues not decided by the Tribunal are left open for fresh consideration by the Tribunal; appellants given liberty to approach the Tribunal.

Final Conclusion: The Tribunal's order excluding the excise component of AIR drawback where the manufacturer availed Cenvat credit is affirmed; issues left undecided below (including precise quantification of drawback and any penalties) are remitted to the Tribunal for fresh consideration upon application by the appellants.

Conditional release of imported goods - applicability of interim order based on bill of lading date - customs duty liability on imported peas - protective measure of bank guarantee pending adjudication - perishability and public interest in release of food consignments

Applicability of interim order based on bill of lading date - conditional release of imported goods - Entitlement to release of the consignment of dun peas imported under Bill of Lading dated 06.10.2018 in view of earlier orders permitting release of consignments covered by bills of lading drawn between 01.10.2018 and 31.12.2018. - HELD THAT: - The Court applied the principle recorded in its earlier orders that release directions in respect of imported peas are confined to consignments covered by Bills of Lading drawn during the period 01.10.2018 to 31.12.2018 and that consignments under Bills of Lading drawn on or after 01.01.2019 are not covered. The petitioner proved a contract and advance payment antecedent to the impugned notification and produced a Bill of Lading dated 06.10.2018, which falls within the period for conditional release recognised in the prior orders. The Court also noted the perishable nature of the goods and the risk of waste if release were refused, and balanced these considerations against the existing stay/vacation history of the notifications relied upon by the parties. On that basis the Court found the petitioner entitled to release of the shipment subject to protective and procedural safeguards. [Paras 4, 5, 12, 13, 14]

The consignment imported under Bill of Lading dated 06.10.2018 is to be released conditionally in terms of the Court's earlier orders applicable to bills drawn between 01.10.2018 and 31.12.2018.

Customs duty liability on imported peas - protective measure of bank guarantee pending adjudication - Conditions to be satisfied before release and preservation of respondent authorities' rights to adjudicate the transactions. - HELD THAT: - The Court mandated protective measures to safeguard revenue and allow for later adjudication. It directed the petitioner to remit the applicable duty component (as indicated in the earlier order delineating duty liability for various types of peas) and to furnish a bank guarantee for 10% of the invoice value where duty is leviable; where duty impact is neutral, a bank guarantee for 10% of the invoice value is to be furnished. The Court expressly preserved the respondents' right to initiate proceedings in respect of the transactions; if proceedings are instituted, the petitioner must appear and file submissions, and the authorities shall pass orders in accordance with law. The Court also refused any waiver of demurrage charges and left those charges intact. [Paras 14, 15]

Release is ordered only upon payment of the duty component where leviable and/or furnishing of a bank guarantee for 10% of invoice value; authorities may proceed to adjudicate and no waiver of demurrage is granted.

Final Conclusion: The writ petition is allowed: the shipment covered by Bill of Lading dated 06.10.2018 is directed to be released subject to payment of duties and/or furnishing of a 10% bank guarantee and other conditions; respondents retain the right to initiate and decide proceedings in accordance with law; no waiver of demurrage is granted and connected miscellaneous petition is closed.

Classification under Customs Tariff Heading 1301.90 - exemption based on certificate of supplier/Government agency - acceptance of supplier's declaration for extraction without use of power - binding effect of departmental circular recognising supplier certificates - availability of alternative remedy and futility

Classification under Customs Tariff Heading 1301.90 - exemption based on certificate of supplier/Government agency - acceptance of supplier's declaration for extraction without use of power - binding effect of departmental circular recognising supplier certificates - Validity of the Order-in-Original finalising provisional assessment and levying additional customs duty despite production of a certificate from the supplying country's Government evidencing manual extraction. - HELD THAT: - The Court examined the departmental position reflected in circular No.26/2004-Cus dated 31.03.2004 and earlier final appellate decisions which accepted that a declaration or certificate from the supplier or the supplying country's Government agency that the product was produced/extracted without the use of power suffices to attract the classification/exemption under the relevant tariff heading. The petitioner produced a certificate dated 11.02.2003 from the Forest Department of Sri Lanka stating that the product was extracted manually. The second respondent did not accept or question the validity of that certificate in the impugned order. In view of the settled appellate precedent and the departmental circular accepting such certificates/declarations as adequate evidence of manual extraction, there was no justification for rejecting the certificate and levying the additional customs duty. The Court therefore concluded that the impugned order was contrary to the applicable administrative position and appellate view and was liable to be quashed. [Paras 7, 9, 10, 13]

The Order-in-Original finalising the provisional assessment and levying additional customs duty was quashed insofar as it rejected the supplier/government certificate and imposed duty.

Availability of alternative remedy and futility - Whether the writ petition is maintainable notwithstanding the existence of an appellate remedy against the impugned Order-in-Original. - HELD THAT: - The respondents contended that Section 128 of the Customs Act provides an alternate remedy of appeal and that the writ should be dismissed for non-availment of that remedy. The Court considered that, although an appeal remedy exists in theory, directing the petitioner to pursue it would serve no useful purpose in view of the departmental circular and the settled appellate position accepting supplier/government certificates. The Court held that insisting on exercise of the alternative remedy would be futile and therefore did not bar exercise of writ jurisdiction in the present circumstances. [Paras 5, 11]

The existence of an appellate remedy did not preclude maintenance of the writ petition because directing the petitioner to avail that remedy would be futile.

Final Conclusion: The impugned Order-in-Original No.546/03 dated 06.05.2003 is quashed and the writ petition is allowed; the certificate produced by the petitioner is sufficient for exemption under the relevant tariff heading and no useful purpose would be served by relegating the petitioner to the appellate remedy.

Shortage of imported inputs and demand of customs duty - permissible wastage/processing loss in manufacturing for export - treatment of gold recovered from dust, findings and mountings as stock - compliance with conditions of import notification for export processing zone - requirement of satisfaction of the Development Commissioner on utilisation - absence of evidence of illicit removal from Export Processing Zone

Permissible wastage/processing loss in manufacturing for export - treatment of gold recovered from dust, findings and mountings as stock - Whether the confirmed demand of customs duty could be sustained merely on the basis of the shortage found at stock-taking after allowance for wastage and inclusion of recovered gold. - HELD THAT: - The Tribunal examined the adjudicating authority's findings (paras 20-22) that wastage up to the prescribed limits had been taken into account in computing exports and that gold recovered from dust, findings and mountings had been added to stock. The authority's calculations showed the wastage allowance and inclusion of recovered metal in arriving at the stock position. In those circumstances the Tribunal held that a mere numerical shortage, after accounting for permissible wastage and recovered gold, does not by itself justify a demand of duty unless there is evidence of diversion or illicit removal. The Tribunal applied the principle that where the entire imported gold has been used for manufacture of export goods and recoveries are properly accounted for, duty cannot be levied on the quantum not contained in the final product. [Paras 20, 21, 22]

Demand could not be sustained solely on the shortage once permissible wastage and recoveries were accounted for; shortage alone did not establish liability.

Compliance with conditions of import notification for export processing zone - requirement of satisfaction of the Development Commissioner on utilisation - absence of evidence of illicit removal from Export Processing Zone - Whether the adjudication was sustainable in the absence of any record showing satisfaction of the Development Commissioner or evidence of removal of goods from the Export Processing Zone in breach of the notification. - HELD THAT: - The notification imposes conditions including prohibition on bringing manufactured gems and jewellery into the Domestic Tariff Area and prescribes procedures for handling scrap, dust and recoveries, with the Development Commissioner's satisfaction as to utilisation being material. The Tribunal observed that there was no record showing that the Development Commissioner had been satisfied about proper utilisation, and no evidence was produced to show any illicit removal from the SEEPZ or diversion to third parties. In the absence of such evidence, the statutory conditions for sustaining levy of duty and penalties were not met. Accordingly, the Tribunal found that the impugned demand and penalty could not be sustained. [Paras 5, 6, 7]

In absence of Development Commissioner's satisfaction and any evidence of removal or diversion, levy of duty and imposition of penalty were unsustainable; impugned order set aside.

Final Conclusion: The appeal is allowed: the demand of customs duty and penalty premised on the alleged shortage are set aside because wastage allowances and recovered gold were accounted for and there is no record of the Development Commissioner's satisfaction or evidence of illicit removal from the Export Processing Zone to sustain duty or penalty.

Jurisdiction under proviso to Section 129A of the Customs Act - goods imported as baggage - Baggage Rules, 2016 applicability - maintainability of appeal to the Appellate Tribunal

Jurisdiction under proviso to Section 129A of the Customs Act - goods imported as baggage - Baggage Rules, 2016 applicability - maintainability of appeal to the Appellate Tribunal - Whether the Appellate Tribunal has jurisdiction to hear the appeal where the order under challenge relates to goods imported as baggage. - HELD THAT: - The Tribunal examined the proviso to Section 129A which bars the Appellate Tribunal from deciding any appeal in respect of an order if such order relates to goods imported or exported as baggage. The facts show the appellant was intercepted on arrival from Riyadh carrying gold bars on his person; the Baggage Rules, 2016 apply to such carriage of goods by a passenger. Given that the impugned order relates to goods imported as baggage, the proviso deprives this Tribunal of jurisdiction to entertain the appeal. Consequently the appeal is not maintainable before this Tribunal and must be returned so that the appellant may seek any remedy available before the appropriate forum, subject to applicable laws and limitation. [Paras 5]

The appeal is not maintainable before the Appellate Tribunal under the proviso to Section 129A as it relates to goods imported as baggage; the appeal is returned to the appellant to pursue remedy before the appropriate forum.

Final Conclusion: Appeal returned to the appellant for pursuit of remedy before the appropriate forum; appeal disposed of by the Tribunal for want of jurisdiction under the proviso to Section 129A.

Authorization of import under licensing control - registration of contracts with Central Bureau of Narcotics - rectification of export/phyto sanitary certificates by foreign authority - confiscation and penalty under the Customs Act, 1962

Authorization of import under licensing control - registration of contracts with Central Bureau of Narcotics - rectification of export/phyto sanitary certificates by foreign authority - confiscation and penalty under the Customs Act, 1962 - Whether the import of 340 MT of White Poppy Seeds was authorized and, consequently, whether the order directing confiscation and imposing penalties was sustainable. - HELD THAT: - The Tribunal found that import of White Poppy Seeds from China was subject to licensing control and that the appellant had obtained CBN registrations for two contracts, Nos. TTHK 09027 and TTHK 09028, both registered by CBN. Contract No. TTHK 09027 and its registration were subsequently surrendered/cancelled, while Contract No. TTHK 09028 retained CBN Registration No.217/CBN/Poppy Seeds/2009-10. The Commissioner simultaneously recorded that the appellant had valid registrations and could have used either contract but nevertheless concluded the imports were unauthorized by treating the consignments as imported against the cancelled contract. That conclusion was inconsistent with the record. The appellant explained the presence of an incorrect booking/reference number in certain import documents and produced corrected documentation and a letter dated 11.11.2010 from the Chinese authorities certifying that the four consignments were supplied under Contract No.TTHK 09028; this explanation and documentary rectification were not controverted by the department. In light of the valid registration for TTHK 09028 and the uncontested corrections by the foreign issuing authority, the Tribunal held the Commissioner's finding that the imports were against the cancelled contract to be incorrect and that the consignments were imported under the valid Contract No.TTHK 09028 and Registration No.217/CBN/Poppy Seeds/2009-10. The consequence is that the confiscation and penalties premised on unauthorized importation could not be sustained. [Paras 6, 7, 8]

Imports were authorized under Contract No.TTHK 09028 with valid CBN registration; the finding of unauthorized importation was incorrect and the confiscation and penalties cannot be sustained.

Final Conclusion: The impugned order is set aside; the appeal is allowed and the directions for confiscation and penalties are quashed with consequential relief as per law.

Oppression and mismanagement - Foss v Harbottle principle - majority rule in company management - validity of meetings and resolutions - proof of service of notice - minor technical infirmities not vitiating corporate acts - no inherent right of director to continue - non-disclosure of contractual document not amounting to oppression

Oppression and mismanagement - Foss v Harbottle principle - majority rule in company management - Whether the appellant proved oppression and mismanagement under Sections 241-244 so as to warrant interference with the company's management - HELD THAT: - The Tribunal held that the appellant, a minority shareholder holding 13% shares, failed to establish the ingredients of oppression and mismanagement. Relying on the settled principle that courts normally do not interfere in internal administration where directors act within their powers and are supported by the majority (the Foss v Harbottle principle and majority rule doctrine), the impugned findings that the petitioner's shareholding was not materially affected and that intervention was premature were upheld. The appellant's allegations of conspiracy and fabrication were not supported by material evidence before the Tribunal. The appellate court observed that in a closely held family company, actions taken by the majority/Chairperson, if within corporate powers, do not by themselves constitute oppression. The Tribunal's conclusion that the petitioner failed to make out a case under Sections 241-244 was affirmed. [Paras 23, 29]

Appellant did not prove oppression and mismanagement; petition dismissed.

Validity of meetings and resolutions - proof of service of notice - minor technical infirmities not vitiating corporate acts - Whether the EGM dated 02.11.2016 and consequent appointments were invalid for want of notice or were forged/fabricated - HELD THAT: - The Tribunal found, and the Appellate Tribunal agreed, that the appellant failed to produce evidence that no notice was given or that he was unaware of the meeting; his email denying passing any resolution does not assert non service of notice or non attendance. The extract of resolution bore the signature of the Chairperson (who was a director), and the presence of another company's seal on the document did not, without more, render the extract forged. Minor technical infirmities were held insufficient to vitiate the corporate action in the absence of prima facie proof of fabrication. Given the shareholding pattern and the respondents' assertions, the contention that notice was not served was rejected as unsubstantial. [Paras 23, 26, 29]

EGM and appointments held on 02.11.2016 were not shown to be invalid or forged; challenge rejected.

No inherent right of director to continue - Whether the appellant had an inherent right to continue as Managing Director/Director irrespective of majority decision - HELD THAT: - The Tribunal's finding that the appellant had no inherent right to continue as Managing Director or Director absent the support of majority shareholders was affirmed. The appellate court noted the appellant had served as MD for over six years but that continuity in office depends on maintaining majority support; removal in accordance with law and company procedures does not by itself amount to illegality or oppression. [Paras 29]

Appellant has no inherent right to continue as MD/Director; removal not ipso facto illegal.

Non-disclosure of contractual document not amounting to oppression - Whether the respondents' refusal or failure to provide a copy of the Power Purchase Agreement (PPA) amounted to oppression or mismanagement - HELD THAT: - The Tribunal found that non provision of the PPA pertains to the operational management of the company and does not, by itself, constitute oppression and mismanagement. The appellate court concurred, holding that the request for the contractual document related to corporate operations and insufficient to establish grounds for relief under the oppression provisions. [Paras 32]

Non provision of the PPA is not a ground for relief under oppression and mismanagement; claim rejected.

Final Conclusion: The appeal is dismissed and the NCLT order dated 12.12.2017 (dismissing the company petition alleging oppression and mismanagement) is affirmed; no order as to costs.

Revival petition by a member under Section 252(3) of the Companies Act, 2013 - restoration of name in the register of companies - burden of proof to establish existence of assets, liabilities and continuity for restoration - evidentiary sufficiency of statutory filings, balance sheets and tax records for revival

Revival petition by a member under Section 252(3) of the Companies Act, 2013 - Entitlement of a shareholder to file a petition for restoration of a company struck off the register. - HELD THAT: - The Appellate Tribunal observed that Section 252(3) of the Companies Act, 2013 permits a company or a creditor or a workman or a member to file a revival petition. The appellant No.2 is identified as a shareholder of the company and therefore had standing to file the company petition seeking restoration. The Court accepted the appellant's locus to institute the revival proceeding. [Paras 11]

Appellant No.2, as a shareholder, is entitled to file the company petition for revival under Section 252(3) of the Companies Act, 2013.

Restoration of name in the register of companies - burden of proof to establish existence of assets, liabilities and continuity for restoration - evidentiary sufficiency of statutory filings, balance sheets and tax records for revival - Whether the appellants established a case for restoration of the company's name on merits. - HELD THAT: - The Tribunal reviewed the material placed before it and found the evidentiary foundation for restoration lacking. The tax bills produced were in a third party's name and payments were shown from unrelated bank accounts; no proof was furnished that taxes were paid from the company's account or that the bills related to the company. The only balance sheet on record dated 31.3.1999 and earlier sale deeds did not demonstrate the current status of assets, existence of charges or continuity of liabilities. No post-1999 balance sheets, profit-and-loss statements, proof of rental income, income-tax filings or documentary evidence of continuance of secured charges were produced to satisfy the burden of establishing assets/liabilities and the company's present position. In view of these lacunae, the Tribunal found that appellants had not made out a case to interfere with the NCLT's dismissal of the restoration petition. [Paras 12, 14, 15, 16]

On the merits, appellants failed to establish sufficient evidence to warrant restoration; the appeal is dismissed.

Final Conclusion: The Tribunal held that the shareholder had locus to file a revival petition under Section 252(3) of the Companies Act, 2013, but on the merits the appellants failed to furnish sufficient evidence of the company's present assets, liabilities and statutory filings to justify restoration; accordingly the appeal was dismissed.

Ad-interim orders - interim injunction versus final mandatory relief - principles of natural justice / opportunity to be heard - stay on giving effect to corporate resolutions - power of tribunal to grant interim relief subject to confirmation

Interim injunction versus final mandatory relief - ad-interim orders - Whether the portions of the NCLT order directing deletion of the resolution from the MCA portal and cancellation of DIR-12 were valid. - HELD THAT: - The Tribunal found that the NCLT exceeded appropriate interim relief by directing mandatory steps (removal/deletion from MCA portal and cancellation of DIR-12) without affording the opposite party an opportunity of hearing and without indicating that such directions were interim subject to confirmation. The Appellate Tribunal held that such mandatory steps went beyond what was justified at the interim stage and therefore those portions of the impugned order were set aside. The Court emphasised that while urgent interim relief may be granted on prima facie grounds of urgency, mandatory operative directions that effectively decide the rights of parties cannot be sustained when passed without hearing the other side or without being framed as interim subject to confirmation. [Paras 11, 12]

Portions of the impugned order directing removal/deletion from the MCA portal and cancellation of DIR-12 are set aside.

Ad-interim orders - principles of natural justice / opportunity to be heard - power of tribunal to grant interim relief subject to confirmation - stay on giving effect to corporate resolutions - Whether the NCLT direction restraining alteration of shareholding and not giving effect to any resolution removing the petitioner as director should continue and, if so, on what terms. - HELD THAT: - The Appellate Tribunal concluded that the restraint on altering shareholding and on giving effect to any resolution removing the petitioner could be maintained as interim relief but must be confined to an ad-interim direction and cannot carry the open-ended suffix "until further orders" without hearing the appellants. The Tribunal therefore removed the open-ended continuation, declared the remaining direction to be ad-interim, and directed that the appellants be given an opportunity to be heard before confirmation of such ad-interim orders. The Tribunal noted that where the High Court had earlier issued a limited interim direction in related proceedings, NCLT could have adopted a similar limited stay; broad mandatory directions without hearing were improper. The matter was directed back to the NCLT for prompt hearing of the interim question and the Company Petition. [Paras 11, 12, 14]

The restraint on altering shareholding and on giving effect to any resolution removing the petitioner is retained only as ad-interim relief (words "until further orders" deleted) and the NCLT is directed to hear the appellants promptly before confirming or varying that ad-interim order.

Power of tribunal to grant interim relief subject to confirmation - principles of natural justice / opportunity to be heard - Procedure to be followed by the NCLT after modification of its impugned order. - HELD THAT: - The Appellate Tribunal directed procedural steps to ensure both parties are heard and the interim relief is properly adjudicated. It directed that the appellants file replies to the Company Petition and to the ad-interim relief within the time to be specified by the NCLT, listed the matter for a specified date before the NCLT, and authorised the NCLT to deal firmly with any party that protracts proceedings. The Court emphasised that interim measures must be confirmed or vacated after hearing both sides, and that the NCLT retains power to pass appropriate orders upon hearing the parties. [Paras 14]

The matter is remanded to the NCLT for expeditious hearing; parties to appear and file pleadings as directed so that the ad-interim relief may be confirmed, modified or vacated after hearing both sides.

Final Conclusion: The Appellate Tribunal partially set aside the impugned NCLT order: mandatory directions to delete the resolution from the MCA portal and to cancel DIR-12 were quashed, while the restraint on altering shareholding and on giving effect to any resolution removing the petitioner was retained only as ad-interim relief (with the words "until further orders" deleted). The matter is remitted to the NCLT for prompt hearing and determination of the interim relief after affording opportunity to the appellants to be heard.

Failure to make disclosures under PIT Regulations and SAST Regulations - verification of signatures by comparison with specimen signatures kept by the company - forgery allegation and evidentiary burden - transferability of pre-split share certificates under the Companies Act - proportionality of penalty and relevance of factors under Section 15J - remand for re-determination of penalty quantum

Failure to make disclosures under PIT Regulations and SAST Regulations - The appellant violated Regulations 13(3), 13(4A) and 13(5) of the PIT Regulations and Regulations 29(2), 29(3), 30(2) and 30(3) of the SAST Regulations by not making required disclosures after the sale of shares. - HELD THAT: - The appellant sold 52,30,000 shares which reduced his shareholding beyond the statutory thresholds for disclosure. Regulation 13(4A) and Regulation 13(3) of the PIT Regulations and Regulations 29(2) and 29(3) of the SAST Regulations require disclosures within two days of such change. The Tribunal found the sales had occurred and that requisite disclosures were not made, constituting violations of the cited provisions. This finding of regulatory breach is affirmed. [Paras 13, 17]

The finding that the appellant breached the PIT and SAST disclosure obligations is upheld.

Verification of signatures by comparison with specimen signatures kept by the company - forgery allegation and evidentiary burden - The appellant's plea that signatures on the share transfer forms were forged was disbelieved; the AO rightly relied on comparison with specimen signatures held by the company. - HELD THAT: - The Registrar and Transfer Agent produced share transfer forms and original certificates showing signatures that matched specimen signatures maintained by the company. The appellant did not seek or undertake comparison with the company's specimen signatures during AO proceedings and raised forgery for the first time late in submissions. The AO considered the appellant's expert opinion but found it unnecessary in view of the primary evidence from the company. The Tribunal agreed that when specimen signatures are available with the company, they constitute the primary basis for verification and that the appellant's late contentions and expert opinion did not undermine the AO's finding. [Paras 5, 6, 9, 12]

The finding that the signatures on the transfer forms were those of the appellant is sustained and the forgery claim rejected.

Transferability of pre-split share certificates under the Companies Act - The contention that pre-split (Rs.10) share certificates could not lawfully be transferred prior to issuance of split (Re.1) certificates is untenable. - HELD THAT: - The Tribunal held that the Companies Act does not prohibit transfer of pre-split share certificates pending issuance or exchange for split certificates. The appellant's argument that transfers were illegal for this reason was therefore rejected as without merit. [Paras 11]

The objection to transferability of pre-split shares is dismissed.

Proportionality of penalty and relevance of factors under Section 15J - remand for re-determination of penalty quantum - The quantum of penalty imposed by the AO was set aside and the matter remitted to the AO for re-determination of penalty after considering mitigating factors under Section 15J; the AO's imposition of the maximum penalty without applying Section 15J was found unsustainable. - HELD THAT: - The AO had imposed the maximum penalty relying on a precedent which precluded consideration of Section 15J factors. The Tribunal noted that a later larger bench decision of the Supreme Court corrected that position and held Section 15J factors are relevant in quantifying penalty. The Tribunal also observed disproportionality when compared to penalty imposed in a near identical case involving another promoter of the same company. Accordingly, while the violation is affirmed, the Tribunal set aside the Rs. 4 crore penalty and remitted only the question of quantum to the AO to re-decide after giving the appellant an opportunity of hearing and applying Section 15J considerations. [Paras 14, 15, 16, 17]

Penalty of Rs. 4 crores quashed; matter remitted to AO for fresh determination of penalty quantum in light of Section 15J and after hearing the appellant.

Final Conclusion: The Tribunal affirms that the appellant breached the PIT and SAST disclosure obligations and that the signatures on the transfer forms belonged to the appellant, rejects the appellant's transfer-illegality and forgery contentions, but sets aside the Rs. 4 crore penalty as disproportionate and remits the sole issue of penalty quantum to the Adjudicating Officer for fresh adjudication applying Section 15J factors after affording the appellant an opportunity of hearing.