TaxTMI Updates e-Newsletter
Jun 16,2014

Characterisation of pay channel charges as 'royalty' - tax deduction at source under section 194J - disallowance under section 40(a)(ia) - clarificatory retrospective amendment to the definition of 'process' (Explanation 6 to section 9) - precedential effect of an earlier High Court decision despite subsequent clarificatory amendment

Characterisation of pay channel charges as 'royalty' - tax deduction at source under section 194J - disallowance under section 40(a)(ia) - clarificatory retrospective amendment to the definition of 'process' (Explanation 6 to section 9) - precedential effect of an earlier High Court decision despite subsequent clarificatory amendment - Whether amounts paid as pay channel charges are 'royalty' attracting TDS under section 194J and consequent disallowance under section 40(a)(ia). - HELD THAT: - For the purposes of section 194J, 'royalty' is to be understood with reference to Explanation 2 to clause (vi) of section 9(1), and clause (i) therein covers transfer of rights in respect of a 'process'. Explanation 6 (Finance Act, 2012) clarifies that 'process' includes transmission by satellite, cable or similar technology and is clarificatory in nature. However, the assessee's contention that pay channel charges do not constitute 'royalty' is supported by the decision of the Hon'ble Delhi High Court (Asia Satellite Telecommunications Co. Ltd.) and by several Tribunal decisions holding that a subsequent clarificatory amendment cannot be used to penalise the assessee for an earlier year. Applying that precedent, the Tribunal held that the assessee could not be made liable to deduct tax at source on the pay channel charges for AY 2009-10 and that the Assessing Officer was not justified in invoking section 40(a)(ia) to disallow the payment. [Paras 5, 7]

Impugned disallowance under section 40(a)(ia) for failure to deduct tax under section 194J is set aside and the pay channel charges are not disallowed for AY 2009-10.

Final Conclusion: The appeal is allowed: the Tribunal set aside the disallowance of pay channel charges under section 40(a)(ia) for AY 2009-10, holding that the assessee was not liable to deduct tax under section 194J in view of the binding precedent, notwithstanding the subsequent clarificatory amendment.

Disallowance under the doctrine of expenditure relatable to tax-exempt income (section 14A) - remand to Assessing Officer for apportionment and re-computation of disallowance - verifiability of deductions and burden of proof on assessee for supporting documents - appellate interference with factual findings

Disallowance under the doctrine of expenditure relatable to tax-exempt income (section 14A) - remand to Assessing Officer for apportionment and re-computation of disallowance - Validity of the Tribunal's restoration of proceedings to the Assessing Officer for quantification and apportionment of administrative expenses relating to tax-free income. - HELD THAT: - The Tribunal set aside part of the disallowance and restored the matter to the Assessing Officer to compute the quantum of disallowance attributable to tax-free income after apportioning administrative expenses. The Court noted that the Tribunal accepted that the disallowance linked to interest expenditure was unsustainable but directed re-computation of the balance on account of administrative expenses. The Tribunal placed the onus on the assessee to furnish details of the volume of transactions relating to dividend and other taxable activities so that apportionment can be made in accordance with the proportion of transactions. Because the Tribunal remanded the matter for factual computation and verification rather than deciding a pure question of law, the High Court held that no substantial question of law arises from the Tribunal's order.

Remand to the Assessing Officer for re-computation and apportionment was sustained; no substantial question of law arises.

Verifiability of deductions and burden of proof on assessee for supporting documents - appellate interference with factual findings - Sustainability of the Tribunal's disallowance of petty commission payments for lack of supporting details and confirmations. - HELD THAT: - The Tribunal upheld the Assessing Officer's disallowance of commission payments made to nine individuals on the ground that the assessee failed to produce details of services rendered or confirmations from the recipients, rendering the payments unverifiable. The Commissioner (Appeals) had reversed the disallowance, but the Tribunal found that the CIT(A) did not adequately counter the primary objection of non-production of details. The High Court endorsed the Tribunal's factual conclusion that, absent verifiable material, the Assessing Officer's view was justified and that the Tribunal was entitled to uphold the disallowance. Consequently, this factual determination did not raise a substantial question of law.

Tribunal's factual finding sustaining disallowance for lack of verifiable evidence was upheld; no substantial question of law arises.

Final Conclusion: The appeal under Section 260A is dismissed: the Tribunal's remand for apportionment of administrative expenses and its factual upholding of disallowance of unverifiable commission payments are sustained, and no substantial question of law is made out.

Condonation of delay - finality of judgment - acquisition under Chapter XXA / Section 269F(6) - order of acquisition - appeal to the Income Tax Appellate Tribunal - rebuttable presumption under Section 269C

Condonation of delay - finality of judgment - appeal to the Income Tax Appellate Tribunal - Application for condonation of delay to file appeal against the order passed under Section 269F(6) and consequent maintainability of the appeal - HELD THAT: - The Tribunal considered the long delay of about 36 years in preferring the appeal against the order of acquisition passed by the Inspecting Assistant Commissioner under Section 269F(6). The record showed that the order of acquisition had been challenged earlier in the Karnataka High Court and ultimately before the Supreme Court, which dismissed the petition, rendering the earlier proceedings final. The acquisition order itself explicitly informed the transferee of the remedy of appeal to the Income Tax Appellate Tribunal to be filed within the prescribed period. Having regard to the documentary evidence of prior litigation culminating in dismissal by the Supreme Court and the fact that remedies were exhausted, the Tribunal held there was no sufficient cause to condone the extensive delay and no basis to reopen or entertain the appeal on merits. The Tribunal therefore declined to exercise discretion to condone the delay and did not proceed to decide the substantive challenge to the acquisition order. [Paras 6, 7]

Application for condonation of delay dismissed; appeal against the order under Section 269F(6) dismissed.

Final Conclusion: The Tribunal refused to condone a 36-year delay in filing the appeal because the acquisition order had been previously litigated up to the Supreme Court and rendered final; accordingly the application for condonation and the appeal were dismissed.

Disallowance under Section 40A(3) - Computation of income by applying gross profit rate - Interest under Section 158BFA(1) for late filing of return - Exclusion of departmental delay in supplying seized documents for computation of filing delay

Disallowance under Section 40A(3) - Computation of income by applying gross profit rate - Deletion of the addition made on account of disallowances under Section 40A(3) was justified. - HELD THAT: - The Court held that where the income of the assessee has been computed by applying the gross profit rate, there is no need to invoke the provisions of Section 40A(3) because the gross profit rate already takes into account expenditures otherwise disallowed for want of payment by account payee cheque. The Division Bench decision in Commissioner of Income Tax v. Smt. Santosh Jain was applied against the revenue to support the conclusion that the Tribunal rightly deleted the addition made under Section 40A(3). [Paras 4]

Tribunal's deletion of the addition under Section 40A(3) is upheld.

Interest under Section 158BFA(1) for late filing of return - Exclusion of departmental delay in supplying seized documents for computation of filing delay - Deletion of interest charged under Section 158BFA(1) for late filing of the return was justified. - HELD THAT: - The Court agreed with the Tribunal's finding that the assessee had requested copies of seized documents and that the department delayed supply of those documents; consequently the period consumed by the department in furnishing the copies must be excluded when determining delay for filing the return. The assessee filed the return shortly after receiving the documents, and therefore there was no delay attributable to the assessee warranting levy of interest under Section 158BFA(1). The decision in CIT v. Mesco Airlines Limited was cited to the same effect and the Tribunal's deletion of interest was sustained. [Paras 5, 6, 7]

Tribunal's deletion of interest under Section 158BFA(1) is upheld.

Final Conclusion: The appeal by the revenue is dismissed and the Tribunal's order deleting the addition under Section 40A(3) and deleting interest under Section 158BFA(1) is affirmed for the block period 1.4.1988 to 22.9.1998.

Concealment of income - voluntary return filed in good faith - conclusiveness of adjudicatory authority's finding in subsequent criminal prosecution - abuse of process of court - quashing of criminal proceedings under inherent jurisdiction / Section 482 Cr.P.C. - protection of liberty under Article 21

Conclusiveness of adjudicatory authority's finding in subsequent criminal prosecution - concealment of income - voluntary return filed in good faith - Whether prosecution for concealment of income is maintainable after the Income Tax Appellate Tribunal held that the return was voluntary, filed in good faith and there was no concealment for the assessment year 1988-89. - HELD THAT: - The Court held that where the departmental adjudicatory authority (here the Income Tax Appellate Tribunal) has examined the material and recorded a finding of no concealment and that the return was voluntary and filed in good faith, that finding is conclusive for the purpose of considering maintainability of criminal prosecution for concealment. Reliance was placed on Supreme Court authorities establishing that a prosecution cannot be sustained when the Appellate Tribunal has negatived the essential charge of false return or concealment on appraisal of the record. Given the Tribunal's order setting aside the penalty and holding there was no concealment, continuation of criminal proceedings on the same allegation would amount to an abuse of the process of court and would unjustifiably curtail the petitioners' liberty.

Prosecution for concealment of income could not be sustained once the Appellate Tribunal had held there was no concealment and that the return was voluntary and bona fide.

Abuse of process of court - quashing of criminal proceedings under inherent jurisdiction / Section 482 Cr.P.C. - protection of liberty under Article 21 - Whether the criminal complaint and all proceedings based on the allegation of concealment should be quashed and the revisional court's order setting aside the trial court's dismissal should be set aside. - HELD THAT: - Applying the principle that continuation of criminal proceedings is abusive where the statutory adjudicatory authority has already held there is no concealment, the High Court concluded that no useful purpose would be served by further trial. The Court noted that subjecting accused to trial despite lack of foundation for the allegation violates the protection of personal liberty and is amenable to quashing under the Court's inherent jurisdiction and Articles 227/482 principles. Consequently, the High Court upheld the trial Court's order dismissing the complaint and set aside the revisional Court's order which had reopened the matter for trial.

The criminal complaint dated January 29, 1993 and all proceedings thereunder were quashed; the trial Court's order dismissing the complaint was upheld and the revisional Court's order was set aside.

Final Conclusion: The petition is allowed: the complaint and all proceedings for alleged concealment in assessment year 1988-89 are quashed, the trial Court's dismissal of the complaint is upheld, and the revisional Court's order setting aside that dismissal is set aside.

Validity of reassessment proceedings under the proviso to section 147 - change of opinion - failure to disclose material - no escapement of income - deemed dividend under section 2(22)(e) - classification of income as capital gains or business income - capital expenditure versus revenue expenditure

Deemed dividend under section 2(22)(e) - validity of reassessment proceedings under the proviso to section 147 - change of opinion - failure to disclose material - Reopening of assessment to invoke section 2(22)(e) was invalid as the material relied upon by the Assessing Officer was available on record and there was no failure to disclose or fresh tangible material to constitute escapement of income. - HELD THAT: - The Tribunal found that the information and documents relied upon by the Assessing Officer to invoke section 2(22)(e) originated from material furnished by the assessee (including Form 3CD) and had been available at the time of the original assessment under section 143(3). The Assessing Officer had examined the same issue during the regular assessment and had recorded an opinion against making any addition. No extraneous or new tangible material was gathered by the Assessing Officer that could operate as a live wire to justify reopening. The reassessment was therefore a reopening based on a mere change of opinion and could not be sustained under the proviso to section 147.

Reassessment insofar as it seeks to apply section 2(22)(e) is invalid and is set aside.

Classification of income as capital gains or business income - no escapement of income - Reassessment treating short-term capital gains as business income cannot be sustained because there was no concealment or tax impact warranting reopening. - HELD THAT: - The Tribunal noted the undisputed facts that the gains arose from sale of shares/units and were short-term capital gains as reported by the assessee. The Assessing Officer's note treating the amount as business income also stated there would be no impact on tax payable or computation of total income. In the absence of concealment or any tax-yielding escapement, the reassessment on this ground lacked justification. Consequently, the reassessment was dismissed on this account.

Reassessment insofar as it recharacterises the short-term capital gains as business income is dismissed for want of concealment.

Capital expenditure versus revenue expenditure - validity of reassessment proceedings under the proviso to section 147 - failure to disclose material - Reassessment on the ground that a payment was capital in nature is not sustainable because the details were disclosed and the matter was examined during the original assessment. - HELD THAT: - The Tribunal observed that the assessee had furnished details and annexures regarding the expenditure during the regular assessment and the Assessing Officer had the information before completing the assessment without making any addition. There was therefore no defect of disclosure nor any fresh tangible material to justify reopening under section 147. The proviso to section 147 was not attracted and the reassessment on this point was held invalid. The Revenue's reliance on an Allahabad High Court decision was found distinguishable as it did not concern section 147.

Reassessment insofar as it treats the payment as capital expenditure is quashed.

Final Conclusion: The reassessment proceedings are set aside in part: all three grounds on which reassessment was initiated (application of section 2(22)(e), recharacterisation of short-term capital gains, and capital nature of the professional payment) are held unsustainable and the appeal is partly allowed; remaining grounds are rendered academic.

Reopening of assessment - Approval under section 151(2) - Section 292BB - notice deemed served - Reasons to believe based on information from another Assessing Officer - Addition as income from undisclosed sources / unexplained credit - Onus of proof and documentary reconciliation

Reopening of assessment - Approval under section 151(2) - Validity of reopening where notice under section 148 was issued beyond four years without recorded satisfaction of the Joint Commissioner under section 151(2). - HELD THAT: - The Assessing Officer issued notices under section 148 after expiry of four years from the end of the relevant assessment years. The Revenue failed to demonstrate that the requirements of section 151(2) were complied with-i.e., there is no record that the Joint Commissioner was satisfied on the reasons recorded that it was a fit case for issuing the notice. Non-compliance with the statutory requirement is fatal to the reassessment. Consequently, the reopening is quashed as bad in law on this sole ground. Although the assessee also contended non-service of notice, the record shows participation in proceedings and section 292BB finds application; that contention was therefore not sustained. [Paras 7]

Reopening quashed for non-compliance with section 151(2); the notice-service objection held unsustainable in view of section 292BB and participation in proceedings.

Reasons to believe based on information from another Assessing Officer - Sufficiency of the reasons recorded for reopening where the Assessing Officer relied on information received from another Assessing Officer. - HELD THAT: - The reasons recorded stated that information was received from the ITO, Ward 1, Yavatmal and DCIT (Hq-II), Nagpur, specifying certain remittances from Komori Corporation to the assessee and noted that the assessment completed under section 143(1) had not brought these issues to tax. The Tribunal held that recording of a reason to believe based on information from another Assessing Officer did not constitute an infirmity; the court declined to go into the sufficiency of reasons at that stage. The Assessing Officer's recording of reasons grounded on such information was therefore not found to be vitiated for lack of application of mind. [Paras 8]

Reopening held valid on the basis of the recorded reasons and reliance on information from another Assessing Officer; the challenge to adequacy of reasons was dismissed.

Addition as income from undisclosed sources / unexplained credit - Onus of proof and documentary reconciliation - On the merits, whether the additions made as unexplained receipts were sustainable in view of documentary evidence and the Revenue's failure to identify specific unaccounted remittances. - HELD THAT: - The assessee produced confirmations from Komori Corporation, reconciliation statements, ledger accounts, sample invoices and foreign inward remittance certificates. The Revenue did not specifically identify which remittance alleged in the reasons to believe remained unaccounted in the books of the assessee and, despite repeated requests, failed to furnish further details. The Tribunal found that the assessee discharged the onus of explanation by furnishing documentary evidence and that the Revenue failed to discharge its burden of proving that any particular receipt remained unexplained. In consequence the additions made in both assessment years were deleted. [Paras 9, 10]

Additions as income from undisclosed sources deleted; assessee's documentary evidence accepted and Revenue's case not sustained.

Final Conclusion: The Tribunal allowed the appeals for Assessment Years 2004-05 and 2005-06: the reopenings were quashed for non-compliance with section 151(2), the challenge to the adequacy of recorded reasons was dismissed, and the additions as unexplained receipts were deleted on the merits as the assessee satisfactorily explained the receipts while the Revenue failed to identify unaccounted remittances.

Reopening of assessment - Reason to believe - Validity of reassessment notice - Application of mind in recording reasons - Nexus between reasons recorded and escapement of income - Change of opinion doctrine in reassessment

Reopening of assessment - Reason to believe - Application of mind in recording reasons - Nexus between reasons recorded and escapement of income - Reopening of assessment for Assessment Year 2007-08 was invalid and the reassessment proceedings were bad in law. - HELD THAT: - The Tribunal examined the reasons recorded for issuing notice under section 148/147 and found them to be mechanically identical to reasons relied upon in earlier proceedings. The material relied upon comprised an auditor's note about test-check of vouchers and a reference to a loan and construction not reflected in books; such matters were held to be standard auditing practices and did not furnish a live link showing that income for the year had escaped assessment. The Tribunal applied the requirement of a real "reason to believe" and emphasised the necessity of a nexus between the recorded reasons and the escapement of income together with an application of mind when recording reasons. Following its prior conclusions in the assessee's earlier assessment-year litigation, the Tribunal concluded that the reasons ceased to survive and thus the reopening was without jurisdiction and bad in law. As the reopening was set aside, the Tribunal declined to examine the remaining grounds.

Reopening of assessment for AY 2007-08 set aside; reassessment held invalid and appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that the reassessment proceedings for Assessment Year 2007-08 were invalid because the reasons recorded for reopening lacked the requisite nexus and application of mind; consequentially the Tribunal did not examine other grounds.

Registration under section 12A - deemed grant of registration - exemption under section 11 - remand for fresh adjudication - condonation of delay

Condonation of delay - Delay of ten days in filing the appeal was condoned and the appeal admitted for hearing. - HELD THAT: - The assessee filed an application, supported by an affidavit of its Member (Finance), explaining that the officer responsible for signing the appeal papers was occupied with other official responsibilities and therefore could not return the signed papers in time. The Appellate Tribunal examined the affidavit and application and found sufficient cause for the delay. Having found merit in the explanation, the Tribunal exercised its discretion to condone the delay and admit the appeal for hearing. [Paras 2, 3]

Delay of ten days condoned and appeal admitted.

Registration under section 12A - deemed grant of registration - exemption under section 11 - remand for fresh adjudication - Claim for exemption under section 11 could not be allowed immediately; matter remitted to the Assessing Officer to re-adjudicate the claim after receipt of the Commissioner's order under section 12A, with directions to afford the assessee an opportunity of being heard. - HELD THAT: - The Tribunal noted that it had earlier directed the Commissioner to re-adjudicate the application for registration under section 12A but that no consequential order had been passed thereafter. Citing the Tribunal's precedent in Harshit Foundation and the jurisdictional High Court's decision in Society for Promotion of Education, et al., the Tribunal observed that where the Commissioner fails to decide within the prescribed period the registration may be treated as deemed granted. Nevertheless, because registration had not actually been granted in the present case, the Tribunal held that benefit of exemption under section 11 could not at once be allowed. In the interest of justice the Tribunal set aside the order of the CIT(A) and restored the matter to the file of the Assessing Officer to re-adjudicate the assessee's entitlement to exemption under section 11 after receipt of the Commissioner's order under section 12A, directing that the assessee be heard and the provisions of law be examined. [Paras 4, 6, 7]

Order of the CIT(A) set aside; matter remitted to the Assessing Officer to re-adjudicate claim of exemption under section 11 after receipt of the Commissioner's order under section 12A, with opportunity of being heard.

Final Conclusion: Delay in filing the appeal was condoned and the appeal admitted; on merits the Tribunal recognised the principle of deemed grant of registration where the Commissioner fails to act but, since registration had not been granted, declined to allow exemption forthwith and remitted the matter to the Assessing Officer for fresh adjudication of the section 11 claim after receipt of the Commissioner's order under section 12A; appeal allowed for statistical purposes.

Unexplained bank credits and burden of proof under section 68 - peak credit method for determining unexplained income - treatment of negative cash balance as unaccounted income and as source - exclusion of withdrawals not re-deposited from peak credit computation - remand for verification of computations by assessing officer

Unexplained bank credits and burden of proof under section 68 - Deletion of assessment of opening bank balance relating to preceding year - HELD THAT: - The Tribunal accepted the Department's concession that the opening balance of Rs.4,73,438/- in the specified bank account pertains to the immediately preceding year and therefore cannot be assessed in the year under consideration. Consequently the assessing officer was directed to delete the assessment made in respect of that opening balance. [Paras 5]

Assessment of the opening bank balance of Rs.4,73,438/- deleted and AO directed to give effect.

Unexplained bank credits and burden of proof under section 68 - exclusion of withdrawals not re-deposited from peak credit computation - Sustenance of addition of amount corresponding to withdrawals not re-deposited (aggregate Rs.11,58,389/-) and direction to AO to verify workings - HELD THAT: - The assessee's primary explanation that deposits were from earlier withdrawals was negatived to the extent of withdrawals which were not re-deposited. The Tribunal held that the fact of non-redeposit (aggregate identified by the assessee) establishes that such amounts could not have been the source of subsequent deposits and therefore the assessee failed to satisfactorily explain those deposits. The Tribunal confirmed the addition in respect of that sum but observed that the AO had not examined the assessee's workings and therefore directed the AO to examine the computations furnished and make amendments, if any, after affording opportunity to the assessee. [Paras 6, 7]

Addition of Rs.11,58,389/- sustained; AO directed to examine the assessee's workings and amend after giving hearing.

Peak credit method for determining unexplained income - treatment of negative cash balance as unaccounted income and as source - remand for verification of computations by assessing officer - Methodology for computing peak credit balance and remand for fresh examination of remaining additions - HELD THAT: - The Tribunal set out the determinative methodology: negative cash balances on particular dates are to be treated as unaccounted income and inserted as a source on the same date (thereby neutralising the negative balance), withdrawals not re-deposited should be excluded from peak credit computation, and deposits and withdrawals must be arranged chronologically to ascertain the true peak balance for the year which is to be treated as income. The Tribunal found that the assessee's peak-credit computation was not prepared in the prescribed manner and that the AO had not verified the computations. Therefore the matter was restored to the file of the AO with directions to the assessee to work out the peak credit balance in accordance with the Tribunal's method, furnish it to the AO, and for the AO to examine and assess the peak credit balance, negative cash balances (if any) and amounts of withdrawals not re-deposited after affording opportunity of being heard. [Paras 10, 11, 12]

Matter remanded to AO for recomputation and verification of peak credit, assessment of negative cash balances and non-redeposited withdrawals in accordance with the Tribunal's methodology.

Final Conclusion: Appeal partly allowed for statistical purposes: assessment of the opening bank balance deleted; addition relating to withdrawals not re-deposited sustained subject to AO's verification of workings; remaining additions remitted to the AO for recomputation of peak credit and assessment of negative cash balances and unre-deposited withdrawals in terms of the Tribunal's directions.

Disallowance of interest expenditure - diversion of business funds to partners - Rule 46A - requirement to confront additional evidence - disallowance under tax deduction at source provisions (section 40(a)(ia)) - precedential value of obiter remarks - remand for fresh consideration

Disallowance of interest expenditure - diversion of business funds to partners - Rule 46A - requirement to confront additional evidence - remand for fresh consideration - Ld CIT(A) failed to comply with Rule 46A by deciding the interest disallowance issue on additional details furnished by the assessee without confronting the assessing officer; matter remanded to the assessing officer for fresh examination. - HELD THAT: - The assessing officer disallowed the entire interest claimed on the view that partners' current account debit balances indicated diversion of interest-bearing funds to partners. The assessee filed additional details before the CIT(A) to rebut diversion, but the CIT(A) accepted those details without confronting the AO, thereby admitting a violation of Rule 46A. The assessee's counsel conceded the procedural lapse. The Tribunal set aside the CIT(A)'s decision on this issue and restored the matter to the file of the AO with directions to examine the additional details filed before the CIT(A), consider any further information the assessee may furnish, and decide the issue afresh in accordance with law, giving the assessee a proper hearing. [Paras 3, 4, 5]

Set aside the CIT(A) order on the interest disallowance and restore the issue to the assessing officer for fresh consideration after complying with Rule 46A.

Disallowance under tax deduction at source provisions (section 40(a)(ia)) - precedential value of obiter remarks - applicability of TDS to specific payments - remand for fresh consideration - CIT(A)'s deletion based on Special Bench precedent was set aside; the Tribunal held that the observations of the Hon'ble Allahabad High Court in Vector Shipping Services were obiter and not binding on the issue, and remanded the matter to the assessing officer for fresh examination of the applicability of TDS provisions to each payment. - HELD THAT: - The AO disallowed payments aggregated as non-deduction of TDS. CIT(A) followed a Special Bench decision and deleted portions claimed to have been paid during the year while upholding the outstanding amount. Revenue relied on subsequent contrary decisions; assessee relied on an Allahabad High Court order that appeared to approve the Special Bench. The Tribunal examined the factual matrix of the Allahabad High Court decision and agreed with the coordinate Mumbai bench view in Rishti Stock and Shares that the High Court's observations on payable/paid were passing remarks (obiter) and not binding ratio. Given conflicting authority and that the AO had not examined applicability of TDS to each payment quantum, the Tribunal set aside the CIT(A) order and remitted the matter to the AO to re-examine, quantify and decide the applicability of section 40(a)(ia) to each payment after affording the assessee opportunity to be heard and to furnish information. [Paras 9, 10, 11, 12, 13]

Set aside the CIT(A) order on the 40(a)(ia) disallowance and remit the issue to the assessing officer for fresh examination of the applicability of TDS provisions to each payment, with opportunity to the assessee to be heard.

Final Conclusion: Both contested additions were set aside and remitted to the assessing officer for fresh examination - the interest disallowance for want of compliance with Rule 46A and the 40(a)(ia) disallowance for re examination of applicability to each payment; the revenue's appeal is treated as allowed for statistical purposes.

Adoption of sale consideration based on bank receipts versus sale deed - Reliance on purchaser's statement and bank extracts as evidence - Exemption under S.54F - requirement of completion within three years and commencement timing

Adoption of sale consideration based on bank receipts versus sale deed - Reliance on purchaser's statement and bank extracts as evidence - Sale consideration for computation of capital gains was to be taken at Rs.71,00,000 as held by the CIT(A) and not Rs.1,01,00,000 adopted by the Assessing Officer. - HELD THAT: - The Assessing Officer relied solely on the assessee's bank statement showing receipt of Rs.1.01 crores to adopt that amount as sale consideration. The assessee furnished a plausible explanation for the excess receipt of Rs.31 lakhs, which was corroborated by the purchaser, Shri G. Sudhakar Rao, in his statement (reply to question No.4 recorded on 15.10.2009) asserting that the consideration actually paid to the assessee for the land was Rs.71,00,000. The purchaser also produced details of payments and relevant bank extracts supporting his statement. In the absence of any material placed by the Revenue to contradict the purchaser's categorical statement and the supporting entries, the Tribunal found no justification to interfere with the finding of the CIT(A) that the correct sale consideration is Rs.71,00,000. [Paras 5, 8]

Ground of Revenue rejected; CIT(A)'s adoption of Rs.71,00,000 as sale consideration upheld.

Exemption under S.54F - requirement of completion within three years and commencement timing - Assessee is eligible for deduction under S.54F though acquisition/construction of the new residential house had commenced before the date of sale of the original asset, provided construction was completed within three years from the date of sale. - HELD THAT: - The Assessing Officer denied the S.54F deduction on the basis that acquisition/construction had commenced prior to the date of sale, treating commencement after sale as a precondition. A plain reading of S.54F imposes no requirement that construction must commence after sale; it requires completion within three years from the date of sale. The Tribunal agreed with the CIT(A) and the Karnataka High Court decision in J.R. Subrahmanya Bhat that commencement prior to sale does not disentitle the assessee where completion occurs within the statutory period. Applying that principle to the facts (construction completed within three years), the Tribunal found no reason to interfere with the CIT(A)'s allowance of the deduction. [Paras 10, 12]

Ground of Revenue rejected; deduction under S.54F allowed as held by the CIT(A).

Final Conclusion: Revenue's appeal dismissed; the CIT(A)'s order is upheld on both the sale consideration and S.54F deduction issues for AY 2009-10.

Bogus share transactions - disallowance of loss claimed as set-off against capital gains - admissibility of statement of a director recorded during investigation - requirement of delivery/transfer and payment for genuineness of share transactions - absence of STT and implication for genuineness of equity transactions - contract for unlawful activity void ab initio

Bogus share transactions - disallowance of loss claimed as set-off against capital gains - admissibility of statement of a director recorded during investigation - Validity of disallowing the short term capital loss claimed by the assessee on share transactions with M/s. Goldstar Finvest Pvt. Ltd. as bogus and not allowable as set off against short term capital gains - HELD THAT: - The Tribunal upheld the CIT(A)'s confirmation of the AO's disallowance on the basis that a director of the broking group had, on oath during an investigation, admitted that the companies issued bogus bills and fabricated capital gains/losses; the Investigation Wing identified the assessee as a recipient of such bogus bills. The assessee, a salaried individual, failed to take delivery of the purchased shares, did not pay for purchases, did not receive sale consideration, and the transactions were not subject to STT-facts inconsistent with genuine equity trading and indicative of simulated dealings. The Tribunal observed that when the counterparty (the broker) categorically denies the genuineness of the transactions and admits the modus operandi of issuing bogus bills, there remains no material to establish genuineness; a contract purporting to effectuate an unlawful or simulated scheme is void ab initio. The Tribunal found these facts distinguishable from authorities relied upon by the assessee and concluded there was no infirmity in the concurrent findings of the AO and CIT(A). [Paras 6, 9, 10]

The disallowance of the claimed short term capital loss of Rs.1,65,077/- was sustained and the appeal dismissed.

Final Conclusion: The Tribunal dismissed the appeal, upholding the AO and CIT(A) that the loss claimed from transactions with M/s. Goldstar Finvest Pvt. Ltd. was bogus and not allowable as set off against short term capital gains for A.Y. 2005 06.

Addition under section 68 of the Act - onus on assessee to explain bank deposits under general principles - explanation of bank deposits under section 69 - reliance on bank passbook as evidentiary material - estimation of savings from opening capital and past income

Addition under section 68 of the Act - onus on assessee to explain bank deposits under general principles - reliance on bank passbook as evidentiary material - estimation of savings from opening capital and past income - Whether the cash deposits of Rs.26,27,000/- shown in the bank passbook could be treated as assessee's income and whether any portion should be allowed as explained by reference to opening capital and past savings - HELD THAT: - The Tribunal held that where unexplained cash deposits appear in the bank passbook the onus lies on the assessee to explain the nature and source of those receipts; if no satisfactory explanation is furnished the amount may be treated as the assessee's income on general principles (the Tribunal noted the applicability of section 69 and related precedents). The Tribunal rejected the approach of wholly discarding the assessee's claim of savings from past income and opening capital; it observed that the first appellate authority had estimated possible savings at about Rs.2 lakhs but failed to grant any relief and had not taken into account the opening capital balance shown by the assessee. Applying these principles to the material on record, the Tribunal concluded that a part of the deposits could legitimately be attributed to accumulation from opening capital and past income; accordingly it quantified the portion to be allowed as explained and directed the assessing officer to grant relief to that extent. The Tribunal therefore modified the addition while upholding the legal proposition that unexplained bank deposits may be added unless satisfactorily explained by the assessee. [Paras 3, 4, 7, 8]

Addition confirmed in principle but reduced by allowing Rs.6,00,000/- as attributable to opening capital and past savings; assessing officer directed to grant relief accordingly.

Final Conclusion: Appeal partly allowed: addition made by AO under section 68 upheld in principle, but reduced by Rs.6,00,000/- as estimated savings from opening capital and past income; balance addition to stand for AY 2009-10.

Deduction under section 35(2AB) - Weighted deduction - Form 3CM/3CL approval by prescribed authority (DSIR) - Deduction under section 35(1)(ii) - Deduction under section 37(1) - Ad hoc disallowance

Deduction under section 35(2AB) - Weighted deduction - Form 3CM/3CL approval by prescribed authority (DSIR) - Deduction under section 37(1) - Allowability of R&D expenditure where Form 3CM (DSIR approval) was not produced and whether 100% or weighted deduction is permissible; alternative claim under section 37(1). - HELD THAT: - The Tribunal accepted that the assessee's in house R&D unit had DSIR recognition for the relevant period but had not furnished Form 3CM certifying the quantum eligible for weighted deduction. Following precedents in the assessee's own earlier orders and the Coordinate Bench decision in ECIL, the Tribunal held that in the absence of Form 3CM the assessing officer cannot allow the weighted (150%) deduction; however the assessee is entitled to immediate allowance of 100% of the expenditure as a deduction pending receipt of Form 3CM. On receipt of the prescribed authority's certificate in Form 3CM the AO is directed to allow the weighted deduction as and when produced. The Tribunal further held that the statutory limitation on claiming the same expenditure under other provisions (the prohibition in sub section (2) of section 35(2AB)) applies only where deduction is allowed under section 35(2AB); if not allowed under section 35(2AB) the AO may examine an alternative claim under section 37(1), and the assessee can therefore seek allowance under section 37(1) subject to the tests of that provision. Grounds on this issue were treated as allowed for statistical purposes. [Paras 9, 11, 12]

100% of the R&D expenditure is to be allowed immediately; weighted deduction at 150% to be allowed by the AO when Form 3CM is received; alternative claim under section 37(1) may be examined if section 35(2AB) relief is not available.

Deduction under section 35(1)(ii) - Deduction under section 37(1) - Allowability of amounts paid to universities/institutions for product development under section 35(1)(ii) and, alternatively, under section 37(1). - HELD THAT: - The Tribunal examined the material placed on record, including payments to universities/institutions and supporting test/control reports, and followed coordinate bench decisions in the assessee's own earlier years which held such expenditure to be scientific research. The Tribunal directed the AO to verify that the payee institutions meet the requisite approvals and, after satisfaction, to allow the deduction under section 35(1)(ii). The AO may also consider allowance under section 37(1) if section 35(1) is not found applicable, subject to the conditions of that provision. The grounds on this issue were treated as allowed for statistical purposes. [Paras 15]

Expenditure to universities/institutions for product development is allowable under section 35(1)(ii) after verification by the AO; alternatively the AO may consider section 37(1).

Ad hoc disallowance - Deduction under section 37(1) - Validity of the Assessing Officer's adhoc disallowance of business development expenditure (gifts) in A.Y. 2006-07 and proper quantum of such disallowance. - HELD THAT: - The Tribunal accepted that while the assessee contended the entire expenditure was for business purposes, certain items lacked verifiability. Having regard to the nature of the expenditure and the record, the Tribunal found a modest adhoc disallowance to be reasonable and affirmed the CIT(A)'s reduction of the disallowance to 5% of the amount involved. [Paras 16, 17]

The 5% adhoc disallowance of business development expenditure in A.Y. 2006 07 is affirmed.

Final Conclusion: Appeals concerning allowability of R&D and related expenditures for A.Y. 2005 06, 2006 07 and 2007 08 are disposed as follows: immediate allowance of 100% of the claimed R&D expenditure, with direction to the AO to grant the weighted (150%) deduction under section 35(2AB) upon production of Form 3CM; amounts paid to universities/institutions for product development to be allowed under section 35(1)(ii) after verification (or considered under section 37(1) if applicable); the 5% adhoc disallowance in A.Y. 2006 07 is upheld; consequential and statistical directions as recorded in the order are given effect to and the Revenue's cross appeal is dismissed.

Remission of customs and excise duty - benefit of conditional notifications - bond conditions (B-17) - insurance of goods in private bonded warehouse - requirement of comprehensive insurance policy in favour of Commissioner - pre-deposit and stay pending appeal

Remission of customs and excise duty - benefit of conditional notifications - bond conditions (B-17) - insurance of goods in private bonded warehouse - Entitlement to remission where goods imported duty-free under conditional notifications were destroyed by fire while in private bonded warehouse. - HELD THAT: - The applicants claimed remission under the notifications for goods destroyed by fire and relied on precedent where remission was allowed. The Tribunal examined the Customs Manual requirement that goods in private bonded warehouses be fully insured by a comprehensive policy drawn in favour of the Commissioner of Customs/Central Excise. The applicants had insured only the value of goods excluding the duty component and had not furnished insurance in favour of the Commissioner as required by the Manual. The Tribunal distinguished the reliance on the High Court decision in Sami Labs Ltd. on the ground that the Customs Manual insurance requirement was not placed before that court. In these circumstances the Tribunal held that the applicants had not made out a prima facie case for total waiver of the dues. [Paras 5]

Remission not allowed on the present facts because the mandatory form of insurance in favour of the Commissioner was not obtained; prima facie case for total waiver not made out.

Pre-deposit and stay pending appeal - Interim relief by way of pre-deposit and stay of recovery during pendency of appeals. - HELD THAT: - Although total waiver was not granted, having regard to the facts and circumstances the Tribunal directed a limited interim arrangement: the applicants were required to deposit a specified sum within a fixed period, and upon such deposit the pre-deposit of the remaining dues was waived and recovery stayed pending the appeals. This direction implements a temporary compromise between the parties while preserving the Tribunal's ability to adjudicate the appeals on merits. [Paras 5]

Applicants directed to deposit the specified amount within the time granted; on such deposit pre-deposit of remaining dues waived and recovery stayed during pendency of appeals.

Final Conclusion: Remission claim rejected on the ground of non-compliance with the Customs Manual insurance requirement; limited interim relief granted by directing a specified pre-deposit and staying recovery of the balance pending adjudication of the appeals.

Refund of Special Additional Duty (SAD) - notification no. 102/07-Cus - sale on payment of VAT/CST with endorsement that CENVAT credit of SAD is not admissible to the buyer - proof that SAD was not passed on to the buyer by Chartered Accountant's certificate and undertaking - nexus between importation and subsequent sale

Refund of Special Additional Duty (SAD) - notification no. 102/07-Cus - sale on payment of VAT/CST with endorsement that CENVAT credit of SAD is not admissible to the buyer - proof that SAD was not passed on to the buyer by Chartered Accountant's certificate and undertaking - nexus between importation and subsequent sale - Claim for refund of SAD under notification no. 102/07-Cus allowed where conditions of the notification are satisfied and SAD was not passed to the buyer. - HELD THAT: - The Commissioner (Appeals) erred in requiring a nexus between specific bills of entry and subsequent sales and in faulting the timing of ledger entries showing SAD as recoverable only after sale. The notification does not require proof of a direct nexus of each import to a particular sale; the conditions are that the goods be sold on payment of VAT/CST with an endorsement that CENVAT credit of SAD is not available to the buyer. The appellants produced a Chartered Accountant's certificate and an undertaking to show that the amount of SAD was not passed on to the buyer. The contention regarding ledger treatment and the timing of showing recoverability after sale is irrelevant to the entitlement under the notification. Having satisfied the conditions of notification no. 102/07-Cus and proved non-passing of SAD to buyers, the appellants are entitled to the refund claim.

Impugned orders denying refund are set aside; appeals allowed and appellants granted refund claim with consequential relief; adjudicating authority directed to implement the order within 30 days.

Final Conclusion: The Tribunal allowed the appeals, holding that compliance with notification no. 102/07-Cus and proof that SAD was not passed to buyers (by CA certificate and undertaking) entitled the appellants to refund of SAD; the earlier findings requiring nexus or faulting ledger timing were held incorrect, and the adjudicating authority was directed to implement the order within 30 days.

Condonation of delay - section 14 of the Limitation Act - exclusion of time spent prosecuting remedy before a wrong forum - sufficient cause - liberal approach in Katiji - mala fide prosecution and forum-shopping - appeal against order of Commissioner to CESTAT - proper forum

Condonation of delay - sufficient cause - liberal approach in Katiji - Whether the delay of 1236 days in filing the appeal should be condoned. - HELD THAT: - A majority of the Bench applied a justice oriented and liberal approach to the requirement of "sufficient cause" as expounded in Collector, Land Acquisition, Anantnag v. Katiji, observing that refusal to condone delay may oust a meritorious matter at the threshold. In the facts of the case the appellants filed a revision application before the Joint Secretary (Revision) within limitation, that order of dismissal was passed ex parte and was not received by the appellants until 2012, and the appellants thereafter approached the High Court and then the Tribunal. The majority held there was no evidence of mala fide or deliberate forum shopping and that the appellants had bona fide pursued a remedy before a wrong forum; accordingly the period spent prosecuting the revision and the subsequent non receipt of the revision order constituted sufficient cause for condonation. The minority view, recorded separately, disagreed and concluded that the delay was inordinate and not satisfactorily explained. The majority view prevailed and the delay was condoned. [Paras 38, 44]

Delay of 1236 days in filing the appeal is condoned and the condonation application is allowed.

Section 14 of the Limitation Act - exclusion of time spent prosecuting remedy before a wrong forum - Whether the period during which the revision application was pending before the Joint Secretary and the subsequent period during which the revision order was not received by the appellants must be excluded from the limitation period under section 14. - HELD THAT: - The Bench examined settled authority that time spent prosecuting diligently and in good faith before a wrong forum can be excluded under section 14. Having found that the revision applications were filed within limitation, provisionally accepted by the Joint Secretary's office, subsequently dismissed ex parte and the dismissal not conveyed to the appellants until 2012, the majority concluded that the period spent in pursuing the revision and the interval of non receipt of the dismissal were properly excluded from the limitation computation. The Bench distinguished Ketan V. Parekh (where mala fide forum selection and lack of bona fides were found) on its peculiar facts, noting absence of comparable evidence of deliberate forum shopping here. [Paras 31, 36, 37]

Time spent prosecuting the revision before the Joint Secretary and the subsequent period of non receipt of the revision order are excluded under section 14 and constitute sufficient cause for condoning the delay.

Mala fide prosecution and forum-shopping - Whether the appellants acted mala fide or indulged in forum shopping so as to disentitle them from relief under section 14. - HELD THAT: - The majority found no evidence on record to impute mala fide or deliberate forum shopping to the appellants. The Revenue's contentions of ill motive and knowledge of the proper forum were rejected on the basis that the revision order was passed ex parte and not communicated, and that the Customs department itself made inquiries of the Joint Secretary's office about the revision application's status. The Bench held that unlike the facts in Ketan V. Parekh, there was no indicia of conscious selection of a wrong forum to delay or to obtain advantage, and therefore the appellants should not be deprived of condonation on that ground. [Paras 32, 34, 35, 37]

No mala fide or deliberate forum shopping is proved; appellants are not disentitled from relief on that ground.

Final Conclusion: On the majority view the appellants' delay of 1236 days in filing the appeal is condoned: the period spent prosecuting a revision before the Joint Secretary (and the subsequent non receipt of the dismissal order) is excluded under section 14 as sufficient cause, there being no proved mala fides, and the appeal and stay applications proceed to be decided on merits.

Transaction value - related persons influencing price - contemporaneous imports as basis for valuation - rejection of declared value under customs valuation rules - natural justice - right to cross-examination - abatement of penalty on death

Abatement of penalty on death - Penalty imposed on late Shri R.S. Merchant stands abated on his death. - HELD THAT: - The appellant's counsel informed the Tribunal that Shri R.S. Merchant died during the pendency of the appeal and a penalty of Rs. 10 lakhs had been imposed on him. Following the Tribunal's precedent cited (Jiwraj Srinivas Rathi), the Tribunal held that the penalty cannot be recovered from the deceased and therefore stands abated. The appeal filed by the late Shri R.S. Merchant was disposed of accordingly. [Paras 2, 3]

Penalty on late Shri R.S. Merchant abated and appeal disposed of in those terms.

Transaction value - related persons influencing price - rejection of declared value under customs valuation rules - Declared transaction value by the importer is to be accepted; enhancement of value by the adjudicating authority is not sustainable as relationship did not influence price. - HELD THAT: - The Tribunal analysed the distributorship agreement, contemporaneous sales and imports, and the evidence relied upon by the Revenue. Although an exclusive distributorship agreement existed for a limited period, the supplier (KIWA) sold identical goods to other buyers at comparable prices, and the importer produced sales invoices showing the majority of domestic sales in the range substantially consistent with the import declaration. The Tribunal applied the principle that even where parties are related, transaction value must be accepted if the relationship did not influence the price (following the cited authority). Contemporaneous imports from S.N. Corporation and imports by other independent importers (Rajhans, Bansal) supported acceptance of the declared value. The adjudicating authority's reliance on a few high-priced sale invoices and the Japan Customs intelligence report (not supplied) was held inadequate to overturn the transaction value. Consequently, enhancement under the Valuation Rules was rejected and the transaction value accepted. [Paras 18, 19, 21, 27, 28]

Transaction value accepted; enhancement set aside.

Contemporaneous imports as basis for valuation - natural justice - right to cross-examination - Imports by M/s. Cosmic Manufacturing could not be used as a basis for enhancement; failure to allow cross-examination and non-disclosure of the Japan Customs report undermined the Revenue's case. - HELD THAT: - The Tribunal found no evidence that the goods imported by M/s. Cosmic Manufacturing were identical or of the same commercial quantity and grade as the appellant's imports; no technical comparison, market enquiry or sample comparison was undertaken. The single import by Cosmic was small in quantity and could represent a different grade. Further, the Japan Customs enquiry report relied upon earlier was not furnished to the importer and could not be used as evidence; requests for cross-examination of customs officers and witnesses (including Shri Naresh Kumar Jain) were either not allowed or could not be completed, impairing the appellant's ability to test the Revenue's case. These defects, together with available contemporaneous imports from other suppliers aligning with the declared import value, meant the Cosmic import and isolated high-priced invoices could not justify enhancement. [Paras 22, 23, 24, 25, 31]

Imports of M/s. Cosmic Manufacturing not relied upon for enhancement; procedural and evidentiary defects vitiate Revenue's case.

Final Conclusion: The Tribunal allowed the appeals: the penalty on the deceased appellant abated; the transaction value declared by the importer for imports during 2003 to 2005 was accepted and the adjudicated enhancement and consequential penalties were set aside; contemporaneous imports from S.N. Corporation and other independent importers supported acceptance of the declared value, while the Revenue's reliance on isolated invoices, Cosmic Manufacturing imports and undisclosed intelligence material was rejected.

Show cause notice - quashing of proceedings - consideration of objections/reply - application of Circular No.123/5/2010-TRU dated 24.05.2010 - judicial direction to decide proceedings in accordance with administrative circular

Show cause notice - quashing of proceedings - application of Circular No.123/5/2010-TRU dated 24.05.2010 - Whether the impugned show cause proceedings should be quashed or decided in the light of Circular No.123/5/2010-TRU dated 24.05.2010 - HELD THAT: - The Court held that the petitions are squarely covered by its earlier order dated 02.09.2010 and that the apprehension of the petitioners for quashing cannot be sustained. Instead of quashing the show cause notices, the Court directed that the proceedings be decided after bearing in mind the clarifications contained in Circular No.123/5/2010-TRU dated 24.05.2010. The petitioners are directed to submit their objections/reply within two weeks from receipt of this order, and the respondent (Joint Commissioner/Additional Commissioner) is directed to consider those objections in light of the Circular and pass final orders within six weeks from receipt of the objections. The Court declined to quash the impugned proceedings and mandated adjudication consistent with the Circular within prescribed timelines. [Paras 11, 12]

The show cause proceedings are not quashed; the respondents must consider the petitioners' objections/reply and decide the matters in accordance with Circular No.123/5/2010-TRU dated 24.05.2010, with the petitioners to file objections within two weeks and the respondents to pass final orders within six weeks thereafter.

Final Conclusion: Writ petitions disposed by directing adjudication of the impugned show cause proceedings in accordance with Circular No.123/5/2010-TRU dated 24.05.2010; petitioners to file objections within two weeks and respondents to pass final orders within six weeks; no costs.

Refund of tax paid erroneously - non-levy / tax not exigible following departmental clarification - limitation under section 11B of the Central Excise Act, 1944 - applicability of section 11B to refunds of amounts which are not service tax - conflict between Mafatlal principle and Shankar Ramchandra principle resolved by excluding section 11B where payment was not tax

Refund of tax paid erroneously - non-levy / tax not exigible following departmental clarification - limitation under section 11B of the Central Excise Act, 1944 - applicability of section 11B to refunds of amounts which are not service tax - Whether the refund claim filed by the appellant for amounts paid as service tax during June 2007 to July, 2008 is barred by limitation under section 11B of the Central Excise Act, 1944 - HELD THAT: - The appellant had paid amounts characterised as service tax on rent during the period June 2007 to July, 2008 but, following a CBEC clarification, the amounts were held not to be exigible as service tax. The Tribunal applied its earlier decision in Shankar Ramchandra Auctioneers that where a payment is not in fact a tax (i.e., not exigible as service tax), the limitation scheme under section 11B does not apply to the refund claim. The contrary rule in Mafatlal, which governs refunds generally under section 11B, was held not to be applicable to the facts because the present claim relates to amounts that were not service tax at all as per the departmental clarification. Applying these principles, the Tribunal concluded that the refund claim was filed within time and not time barred by section 11B. [Paras 6, 7]

Refund claim allowed as filed in time; provisions of section 11B are not applicable to the refund of amounts not exigible as service tax.

Final Conclusion: The impugned order rejecting the refund as time barred is set aside; the appellant's refund claim is allowed and the adjudicating authority is directed to implement the order within 30 days.

Effect of amendment to Section 78 of the Finance Act, 1994 on imposition of penalty under Section 76 - invocation of Section 78 and bar on levy of penalty under Section 76 - concurrent findings of lower authorities

Invocation of Section 78 and bar on levy of penalty under Section 76 - effect of amendment to Section 78 of the Finance Act, 1994 on imposition of penalty under Section 76 - Whether imposition of penalty under Section 76 is justified when proceedings under Section 78 were invoked and penalty under Section 78 was imposed after the amendment. - HELD THAT: - The show cause notice in this case was issued on 16.10.2009, i.e., after the amendment to Section 78. Both the adjudicating authority and the first appellate authority recorded that provisions of Section 78 had been invoked and penalty under Section 78 imposed, and accordingly did not impose penalty under Section 76. The Tribunal, applying the principle affirmed by the High Court of Punjab and Haryana in First Flight Courier Ltd., held that where Section 78 has been invoked and penalty imposed following the amendment, imposition of penalty under Section 76 is not justified. The Tribunal found the concurrent conclusion of the lower authorities correct and there was no reason to interfere.

Penalty under Section 76 not sustainable where Section 78 was invoked and penalty under Section 78 imposed after the amendment; concurrent findings upheld.

Final Conclusion: The impugned order is upheld; the revenue's appeal is dismissed.

Refund of service tax - input services to Special Economic Zone (SEZ) - apportionment of common services between SEZ and non SEZ - applicability of percentage ratio to disputed quantum - remand for recalculation

Apportionment of common services between SEZ and non SEZ - applicability of percentage ratio to disputed quantum - refund of service tax - The percentage ratio of 49.16% is to be applied to the disputed amount relating to common services, and not to the entire refund claim. - HELD THAT: - The Tribunal's earlier remand directed re calculation by adopting the value of services rendered inside and outside the SEZ. The lower authority, on de novo adjudication, applied the Chartered Accountant's ratio of 49.16% to the total refund claim and adjusted for the amount already sanctioned. However, the sum of Rs.43,656 was earlier sanctioned as refund for services exclusively supplied to the SEZ and was not in dispute before the Tribunal. The controversy before the Tribunal concerned only the balance amount attributable to common services. Consequently the determinative ratio (49.16%) must be applied to the disputed common services quantum alone, and not to the entire refund claim, and the matter requires recomputation on that basis.

Impugned order set aside and matter remanded to the original adjudicating authority for recalculation of the appellant's refund entitlement applying the 49.16% ratio to the disputed common services amount.

Final Conclusion: Appeal allowed by way of remand; original authority directed to recompute the refund by applying the certified percentage to the disputed common services quantum and grant any consequential relief.

Levy of Service Tax on Business Auxiliary Services received from abroad - Reverse charge mechanism - Application of Bombay High Court decision in Indian National Shipowners Association accepted by C.B.E.&C. - Non-application of mind by adjudicating authority to a pleaded defence - Remand for de novo adjudication - Vacating of confirmed demand and penalties for a settled period

Levy of Service Tax on Business Auxiliary Services received from abroad - Application of Bombay High Court decision in Indian National Shipowners Association accepted by C.B.E.&C. - Vacating of confirmed demand and penalties for a settled period - Validity of demand of Service Tax, education cesses and penalties for periods prior to 18-4-2006. - HELD THAT: - The Tribunal found that the issue of levy of Service Tax on taxable services received from abroad prior to 18-4-2006 was covered by the Hon'ble Bombay High Court's decision in Indian National Shipowners Association, which has been accepted by the C.B.E.&C. and reflected in the Board's circular. On that basis the Tribunal held there was a prima facie case in favour of the appellant for the period prior to 18-4-2006, set aside the demand confirmed by the adjudicating authority for that period and vacated the corresponding penalties, noting that the adjudicating authority had not applied its mind to the appellant's pleaded defence but that the law on the period prior to 18-4-2006 was settled in the appellant's favour. [Paras 4, 6]

Demand of Service Tax, education cesses, recovery of interest and penalties confirmed for the period prior to 18-4-2006 set aside and corresponding penalties vacated.

Levy of Service Tax on Business Auxiliary Services received from abroad - Reverse charge mechanism - Non-application of mind by adjudicating authority to a pleaded defence - Remand for de novo adjudication - Whether the amounts paid to foreign parties from 18-4-2006 (including transactions said to be discounts/adjustments rather than commission) are liable to Service Tax under the reverse charge mechanism, and related issues. - HELD THAT: - The Tribunal observed that the adjudicating authority did not consider the appellant's specific plea that certain transactions from April 2006 were pure sale-purchase arrangements or discounts and not commission liable to Service Tax, and that the Board's circular of 26-9-2011 was not taken into account. Given the absence of findings on these contentions and the presence of factual and legal questions about characterization of payments and applicability of reverse charge from 18-4-2006, the Tribunal remanded the matters to the adjudicating authority for fresh adjudication in accordance with law and principles of natural justice, directing that all contentions of the assessee be duly considered and appropriate findings recorded. [Paras 4, 5]

Matters concerning liability for Service Tax and related issues from 18-4-2006 are remanded to the adjudicating authority for de novo decision and fresh findings.

Final Conclusion: The appeal is allowed: the demand, interest recovery and penalties for periods prior to 18-4-2006 are set aside and penalties vacated; issues relating to liability from 18-4-2006 are remanded to the adjudicating authority for fresh adjudication in accordance with law and principles of natural justice. The stay application is disposed of.

Wrongful availment of CENVAT credit - penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 - bona fide belief - mitigation of penalty

Wrongful availment of CENVAT credit - penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 - bona fide belief - mitigation of penalty - Whether the penalty imposed for taking CENVAT credit erroneously should be upheld or reduced in view of the appellants' bona fide belief and subsequent payment of service tax. - HELD THAT: - The Tribunal found that the appellants provided both taxable services and sales from common premises and had, under a bona fide belief, taken credit of service tax on input services used for both activities. The availment was not found to involve fraud, collusion or willful wrongdoing. Applying Rule 15(1) of the CENVAT Credit Rules, 2004, which prescribes a maximum penalty of Rs. 2,000 for wrongful taking or utilization of CENVAT credit, the Tribunal held that the large penalty originally imposed was excessive. In light of the appellants' bona fide belief and subsequent payment of service tax, the penalty was reduced to the statutory maximum under Rule 15(1). [Paras 4]

Penalty reduced to Rs. 2,000 under Rule 15(1) of the CENVAT Credit Rules, 2004; appeal partly allowed.

Final Conclusion: The Tribunal concluded that the wrongful availment arose from a bona fide belief and, applying Rule 15(1) of the CENVAT Credit Rules, 2004, reduced the penalty to Rs. 2,000, allowing the appeal in part.

CENVAT credit admissibility for inputs/input services used in or in relation to manufacture of goods exported despite domestic exemption - exemption based on Retail Sale Price/Maximum Retail Price applies only to domestic retail sales and not to exports - extra territorial non application of the Standards of Weights and Measures Act, 1976 and the Packaged Commodities Rules to exported goods - Rule 6(6)(v) of the CENVAT Credit Rules, 2004 as permitting credit in respect of inputs/input services used for manufacture of exported goods

CENVAT credit admissibility for inputs/input services used in or in relation to manufacture of goods exported despite domestic exemption - exemption based on Retail Sale Price/Maximum Retail Price applies only to domestic retail sales and not to exports - extra territorial non application of the Standards of Weights and Measures Act, 1976 and the Packaged Commodities Rules to exported goods - Rule 6(6)(v) of the CENVAT Credit Rules, 2004 as permitting credit in respect of inputs/input services used for manufacture of exported goods - CENVAT credit can be availed on inputs and input services used in or in relation to manufacture of biscuits exported, notwithstanding that identical biscuits are exempt from excise duty when sold in the domestic market due to RSP conditions. - HELD THAT: - The Tribunal accepted the appellant's contention that the requirement to affix RSP/MRP under the Standards of Weights & Measures Act, 1976 and the Packaged Commodities Rules applies only to goods sold in India and therefore does not apply to goods meant for export. As a consequence, the exemption available domestically by reference to RSP (notification entry relied upon by the adjudicating authority) is inapposite to exported goods. The Tribunal noted that law made in India does not have extra territorial operation; exports are governed by valuation under the central excise law and exports effected under bond are not subject to domestic RSP linked exemption. The Tribunal relied on administrative clarification and judicial precedents (as cited in the judgment) which hold that exemption based on RSP/MRP does not apply to exported goods and that, under Rule 6(6)(v) of the CENVAT Credit Rules, 2004, credit is admissible on inputs/input services used in or in relation to manufacture of goods exported even if such goods are exempt when sold domestically. Applying these principles to the facts, the Tribunal found no bar to the appellant's availment of CENVAT credit on inputs and input services used in manufacture of the exported biscuits and disagreed with the adjudicating authority's demand and penalty. [Paras 5, 6]

Impugned order confirming duty demand and imposing penalty set aside; appeal allowed and CENVAT credit held admissible in respect of inputs/input services used for export manufacture.

Final Conclusion: The Tribunal allowed the appeal, setting aside the adjudicating authority's order; CENVAT credit on inputs and input services used in manufacture of exported biscuits is admissible despite a domestic exemption based on RSP, as the RSP/MRP requirement and the resulting domestic exemption do not apply to goods exported.

Penalty for issuance of invoices without actual supply under amended Rule 26(2) of the Central Excise Rules, 2002 - non-applicability of retrospectively imposing penalty where provision was inserted w.e.f. 1.3.2007 - penalty liability under Rule 25(1)(b) and Rule 13(2) - non-attraction where no manufacture or goods exist - analogy to Rule 209A - penalty not imposable for mere arrangement of modvatable documents without movement of goods

Penalty for issuance of invoices without actual supply under amended Rule 26(2) of the Central Excise Rules, 2002 - non-applicability of retrospectively imposing penalty where provision was inserted w.e.f. 1.3.2007 - analogy to Rule 209A - penalty not imposable for mere arrangement of modvatable documents without movement of goods - penalty liability under Rule 25(1)(b) and Rule 13(2) - non-attraction where no manufacture or goods exist - Whether penalties could be sustained against dealers who issued invoices without actual supply for acts committed prior to insertion of sub rule (2) to Rule 26 w.e.f. 1.3.2007, and whether alternative penal provisions applied. - HELD THAT: - The Court held that sub rule (2) of Rule 26, which specifically penalises issuance of invoices without actual supply, was inserted only w.e.f. 1.3.2007 and therefore could not be applied to acts alleged to have occurred prior to that date. Prior to amendment, the comparable regime (including Rule 209A) did not permit imposition of penalty merely for arranging modvatable documents without actual movement of goods. The Commissioner (Appeals) found and the Tribunal accepted that no excisable goods were manufactured, produced or moved in the present case, and therefore provisions like Rule 25(1)(b) and Rule 13(2) were not attracted. The Tribunal applied the reasoning of this Court in earlier decisions (Ashish Gupta and Vee Kay Enterprises) to conclude that where there is only paper/invoice transactions without goods, penalty under the earlier provisions could not be sustained. The appellate authorities' factual findings that there was no manufacture or goods liable for confiscation, and that the penal provision creating specific liability was effective only from 1.3.2007, were not shown to be illegal or perverse. [Paras 7, 8, 14, 15]

Penalties imposed upon dealers for issuance of invoices without actual supply prior to insertion of sub rule (2) to Rule 26 are not sustainable; alternative penal provisions do not apply where no goods were manufactured or moved.

Final Conclusion: The substantial question of law is answered against the revenue; the appeals are dismissed and the penalties deleted for acts alleged to have occurred prior to the insertion of sub rule (2) to Rule 26 w.e.f. 1.3.2007.

CENVAT credit of input services - input services as defined in Rule 2(l) of the CENVAT Credit Rules, 2002 - services availed at job-worker's premises - incidence of service tax borne by manufacturer - parity between services availed at job-worker's premises and factory premises - waiver of pre-deposit and stay of recovery

CENVAT credit of input services - services availed at job-worker's premises - input services as defined in Rule 2(l) of the CENVAT Credit Rules, 2002 - incidence of service tax borne by manufacturer - Entitlement of the appellant to CENVAT credit for service tax paid on input services availed at job-worker's premises for manufacture of intermediate excisable goods - HELD THAT: - The Tribunal found no dispute that the services were availed at the job-worker's premises in relation to manufacture of excisable intermediate goods and that the appellant had borne the incidence of the service tax. The scope of input services as defined in Rule 2(l) of the CENVAT Credit Rules, 2002 is wide and covers services used in or in relation to manufacture of dutiable final products, whether directly or indirectly, as recognised by the Hon'ble Bombay High Court in Coca Cola India Pvt. Ltd. The Tribunal further noted that identical services availed in the appellant's own factory premises were allowed CENVAT credit by the adjudicating authority; there is no rationale to deny credit merely because the services were rendered at a job-worker's premises. On this basis the Tribunal concluded that the appellant had made out a prima facie case for grant of relief pending appeal. [Paras 5]

Unconditional waiver of the pre-deposit was granted and recovery of the dues adjudged was stayed during the pendency of the appeal.

Final Conclusion: The Tribunal held that the appellant has a prima facie entitlement to CENVAT credit of service tax paid on input services availed at job worker's premises (services used in relation to manufacture and borne by the appellant), and accordingly waived the pre deposit and stayed recovery pending disposal of the appeal.

Waiver of pre-deposit under Rule 173Q - prima facie case - reconciliation of RG-1 production figures with balance sheet - captively consumed goods - absence of corroborative evidence for clandestine clearance - stay of recovery during pendency of appeal

Waiver of pre-deposit under Rule 173Q - prima facie case - reconciliation of RG-1 production figures with balance sheet - captively consumed goods - absence of corroborative evidence for clandestine clearance - stay of recovery during pendency of appeal - Application for waiver of pre-deposit of adjudged duty and penalty and for stay of recovery during pendency of appeal - HELD THAT: - The Tribunal found that the demand was founded solely on numerical differences between production figures in the RG-1 and figures shown in the balance sheet. The assessee consistently explained that the difference arose from clearances for captive consumption (and related entries such as sample issues and sub-contracted items), and the balance sheet itself contained notes indicating inclusion of captive consumption. The Department produced no independent corroborative evidence to show clandestine clearance. On this material the Tribunal concluded that the assessee had established a prima facie case reconciling the figures, warranting relief under the rule. Applying these findings, the Tribunal allowed total waiver of the pre-deposit and stayed recovery of the dues during the appeal. [Paras 4]

Total waiver of the pre-deposit of adjudged dues and penalty ordered and recovery stayed during the pendency of the appeal.

Final Conclusion: The Tribunal allowed the stay petition, held that a prima facie case was made out by the assessee on the basis of reconciliation between RG-1 and balance-sheet figures (including captive consumption) and absence of corroborative departmental evidence, and ordered waiver of the pre-deposit and stay of recovery during the appeal.

Extension of stay order - vacation of stay for delay - Section 35C(2A) of the Central Excise Act, 1944 - delay not attributable to the assessee - in terrorem principle - precedential effect of Supreme Court decision

Extension of stay order - Section 35C(2A) of the Central Excise Act, 1944 - delay not attributable to the assessee - in terrorem principle - precedential effect of Supreme Court decision - Whether the stay granted by Stay Order No. 1221/2006 could be extended where the appeal was not disposed within the period specified under Section 35C(2A), having regard to the Supreme Court's decision in Kumar Cotton Mills Pvt. Ltd. - HELD THAT: - The Tribunal applied the Supreme Court's reasoning that the sub section introduced 'in terrorem' must not be construed to punish assessees for delays beyond their control and that an extension of stay may be warranted where the delay in disposing of the appeal is not attributable to the assessee. The Finance Act, 2013 insertion of the third proviso to Section 35C(2A) permits the Appellate Tribunal to extend the period of stay on being satisfied that the delay is not attributable to the party, subject to an outer limit, but does not override the principle that an assessee should not be penalised for delays caused by factors beyond its control. In the present case the appeal was not disposed within the stipulated period and the Tribunal found vacating the stay would operate as punishment of the assessee contrary to the Supreme Court's admonition. Applying that precedent, the Tribunal allowed the application to extend the stay until disposal of the appeal. [Paras 4, 5]

Application for extension of Stay Order No. 1221/2006 allowed and the period of stay extended until disposal of the appeal.

Vacation of stay for delay - precedential effect of Supreme Court decision - Whether the Revenue's application to vacate the stay on the ground that 180 days had lapsed should be allowed in view of a Tribunal order in CCE, Chennai I v. SRF Ltd. - HELD THAT: - The Tribunal held that the earlier Misc. Order in CCE, Chennai I v. SRF Ltd. (Misc. Order No. 463/2012) was not applicable because the Supreme Court's decision in Kumar Cotton Mills Pvt. Ltd. was not placed before the Tribunal when that Misc. Order was passed. Given the Supreme Court's authoritative statement that sub section (2A) should not be applied so as to punish assessees for delays beyond their control, the Revenue's plea to vacate the stay solely because 180 days had lapsed was rejected. The Tribunal therefore refused to vacate the stay and dismissed the Revenue's application. [Paras 4, 5]

Revenue's application to vacate the stay rejected; the Tribunal declined to follow the earlier Misc. Order in SRF Ltd. to the extent it is inconsistent with the Supreme Court's decision.

Final Conclusion: The Tribunal, applying the Supreme Court's ruling in Kumar Cotton Mills Pvt. Ltd., rejected the Revenue's prayer to vacate the stay merely because the statutorily prescribed period had lapsed and extended the stay granted by Stay Order No. 1221/2006 until the appeal is finally disposed.

Prohibition on utilisation of Cenvat credit during default under Rule 8(3A) - payment of duty in cash when assessee is in default - interest liability for wrongful utilisation of Cenvat credit - clearances reported in returns are not clandestine removals - pre-deposit for admission of appeal and conditional stay

Prohibition on utilisation of Cenvat credit during default under Rule 8(3A) - payment of duty in cash when assessee is in default - interest liability for wrongful utilisation of Cenvat credit - Whether utilisation of Cenvat credit for payment of duty during the period the assessee was in default (Aug.'08 to Mar.'09) constituted a valid discharge of duty and the consequences thereof. - HELD THAT: - The Tribunal held that when an assessee is in default as contemplated by Rule 8(3A) of the Central Excise Rules, 2002, duty is required to be paid in cash and any payment by utilisation of Cenvat credit during the period of default cannot be treated as a proper discharge of duty. However, utilisation of credit after the default period has ceased would be acceptable. For utilizations made during the default period the appropriate consequence is interest liability: interest is to be calculated for each clearance where payment was made through Cenvat credit, from the date of clearance up to the end of the defaulting period (Mar.'09). The Tribunal therefore limited the liability to duty not properly discharged by Cenvat utilisation and interest thereon rather than treating the clearances as clandestine removals. [Paras 5]

Utilisation of Cenvat credit during Aug.'08 to Mar.'09 did not validly discharge duty; interest on such wrongful utilisation must be calculated for each clearance from date of clearance to end of default period and recovered.

Clearances reported in returns are not clandestine removals - Whether the clearances made and declared in returns by the appellant during the default period amounted to clandestine removals. - HELD THAT: - The Tribunal rejected the Revenue's characterisation of the clearances as clandestine removals, observing that the clearances were reported in the returns filed by the appellant. The improper element was the mode of discharge (use of Cenvat credit during the period of default), not concealment of removals. [Paras 5]

Clearances declared in returns are not clandestine removals; the defect is limited to improper discharge of duty by use of Cenvat during the default period.

Pre-deposit for admission of appeal and conditional stay - What interim financial compliance is required for admission of the appeal and whether stay on collection should be granted. - HELD THAT: - The Tribunal directed the appellant to compute the interest liability on clearances effected through Cenvat during the default period (calculated for each clearance from date of clearance to end of default period) and to deposit that amount as pre-deposit within six weeks for admission of the appeal. Upon such deposit, the Tribunal granted a stay on collection of the balance dues arising from the adjudicating order during the pendency of the appeal and listed the matter for reporting compliance. [Paras 5, 6]

Appellant to deposit the computed interest amount as pre-deposit within six weeks; subject to such deposit, stay on collection of the remaining dues during pendency of the appeal.

Final Conclusion: The Tribunal held that Cenvat credit could not lawfully discharge duty during the default period Aug.'08 to Mar.'09 and limited the recoverable consequence to duty not discharged and interest thereon; the clearances declared in returns were not clandestine, and the appellant was directed to deposit the computed interest as pre-deposit for admission of the appeal, on which condition a stay of balance recovery was granted.