TaxTMI Updates e-Newsletter
Jun 18,2014

Registration under Section 12AA and satisfaction of the Commissioner as to genuineness of activities - exemption under Sections 11 and 12 - trust established for the benefit of a particular community or caste disentitling exemption under Section 13(1)(b) - onus on the assessee to prove objects and genuineness of activities - admissions made by counsel and their evidentiary effect

Registration under Section 12AA and satisfaction of the Commissioner as to genuineness of activities - trust established for the benefit of a particular community or caste disentitling exemption under Section 13(1)(b) - onus on the assessee to prove objects and genuineness of activities - admissions made by counsel and their evidentiary effect - Whether the Commissioner and the Tribunal were justified in refusing registration under Section 12AA on the ground that the trust's dominant object was to benefit only the Agrawal community and that no evidence of public utility activities was furnished. - HELD THAT: - The Court accepted the finding that the Commissioner, after calling for material, concluded the trust's activities in the year under consideration related only to the Agrawal community and that no documentary evidence was produced to show use of the dharamshala or other activities for the general public. The Tribunal recorded admissions by the assessee's counsel that no evidence was filed before the Commissioner or the Tribunal to contradict the material relied upon and that no list of occupants of the dharamshala or documentary proof of public utility activities was furnished. Under the statutory scheme, registration under the procedural provision requires the Commissioner to be satisfied as to the genuineness of objects and activities; the substantive bar in Section 13(1)(b) excludes trusts established for the benefit of a particular community from exemption. Because the assessee failed to discharge the burden of satisfying the Commissioner with relevant materials for Financial year 2011-12 and made the recorded admissions, the Tribunal was justified in confirming the refusal of registration.

Refusal of registration under Section 12AA confirmed; assessee failed to prove that the trust's activities were charitable/religious for the general public rather than for a particular community.

Exemption under Sections 11 and 12 - trust established for the benefit of a particular community or caste disentitling exemption under Section 13(1)(b) - Whether the appellant could rely on prior authority under the 1922 Act to claim exemption despite being a trust beneficial to a particular community. - HELD THAT: - The Court noted the distinction between the earlier statutory regime under the 1922 Act and the post 1961 law. The Supreme Court's interpretation of the 1961 Act makes registration and the substantive bars in Sections 11, 12 and 13 material to entitlement. A decision under the 1922 Act where trusts created before 1 April 1962 were treated differently does not assist the appellant under the 1961 Act. Consequently, the earlier precedent relied upon was not persuasive in the present statutory context.

The earlier decision under the 1922 Act does not assist the appellant under the 1961 Act; it does not negate the bar where a trust is for the benefit of a particular community.

Final Conclusion: On the material before the Commissioner and the Tribunal, including recorded admissions of the assessee, no substantial question of law arises to warrant interference; the refusal of registration for Financial year 2011-12 is upheld, while liberty is preserved for the society to file a fresh application which must be considered in accordance with law on the materials then produced.

Principle of natural justice - right to be heard - treatment of unexplained credits/introductions in partnership accounts - onus on the assessee to explain unexplained entries - concurrent findings of fact and the perversity test - limited scope of rectification under section 254(2) of the Income Tax Act

Principle of natural justice - right to be heard - limited scope of rectification under section 254(2) of the Income Tax Act - Whether the Tribunal and lower authorities denied the assessee a reasonable opportunity of being heard or improperly disposed of the miscellaneous application under section 254(2). - HELD THAT: - The Tribunal and the CIT(A) recorded that multiple opportunities were afforded to the assessee to produce partners, confirmations, books and supporting evidence; the assessee failed to furnish the requested material. The Tribunal considered the submissions and observed absence of any fresh evidence before it when declining the rectification application, noting that the mandate of section 254(2) is limited to correcting apparent mistakes on the record. On the record before the High Court, the plea of denial of hearing was found to be unsupported by the contemporaneous findings of the authorities that sufficient chances were given and no additional evidence was produced for adjudication. [Paras 11, 12]

Findings that adequate opportunities were afforded and the miscellaneous application under section 254(2) was not maintainable are upheld; there was no denial of the right to be heard.

Treatment of unexplained credits/introductions in partnership accounts - onus on the assessee to explain unexplained entries - concurrent findings of fact and the perversity test - Whether the addition of the alleged introductions of cash in the capital accounts as the firm's income was justified or perverse. - HELD THAT: - The Assessing Officer found prima facie evidence that the amounts introduced in the names of partners were actually income of the firm, relying on unreliable books, non-production of addresses and receipts of alleged tenants, absence of partner confirmations and non-availability of earlier years' books. The CIT(A) and the Tribunal independently recorded that multiple hearings were granted and that the assessee did not produce the partners or corroborative documents; the Tribunal held that the doctrine invoked by the assessee (that admitted deposits by partners cannot be taxed in the firm) was not applicable because partners had not confirmed such deposits. These concurrent findings of fact were neither shown to be perverse nor legally unsustainable; accordingly the addition in the hands of the firm was sustained. [Paras 9, 10, 11, 13]

Concurrent findings that the amounts were unaccounted income of the firm and that the addition was justified are upheld; no reversible error or perversity is made out.

Final Conclusion: The appeals are dismissed; concurrent factual findings sustaining the addition in the hands of the firm are upheld and no substantial question of law arises.

Speculative transaction - speculation business - deeming provision in the Explanation to Section 73 - set off of loss of speculation business

Speculative transaction - deeming provision in the Explanation to Section 73 - set off of loss of speculation business - Whether losses arising from dealings in derivatives and transactions not finally settled by actual delivery (day trading/non-delivery trades) for AY 2005-06 were speculative transactions and whether such losses could be set off against profits from actual purchase and sale of shares. - HELD THAT: - Prior to the insertion of clause (d) in Section 43(5) (effective 1-4-2006), a transaction in which a contract for purchase or sale of stocks or shares was periodically or ultimately settled otherwise than by actual delivery amounted to a speculative transaction. The Explanation to Section 73 provides a deeming rule that where part of a company's business consists in the purchase and sale of shares of other companies, the company shall, for the purposes of that section, be deemed to be carrying on a speculation business to the extent of such purchase and sale activity. The assessee, a share broker, carried on both actual delivery trades and transactions not intended to result in delivery (including dealings in derivatives and day trading) for AY 2005-06. Applying the statutory definition and the Explanation, the transactions not settled by delivery fell within the ambit of speculative transactions and, by virtue of the deeming provision, the assessee's purchase-and-sale activities in shares were to be treated as part of a speculation business to that extent. Consequently there was no legal bar to allow set off of losses from the speculative transactions (including derivatives/day trading) against profits arising from purchase and sale of shares in the facts of this case, and the Tribunal's conclusion permitting such set off was correct.

The losses from derivatives and non-delivery share transactions for AY 2005-06 were speculative and, under the Explanation to Section 73, could be set off against profits from the purchase and sale of shares; the Tribunal's order allowing the set off is upheld.

Final Conclusion: Revenue's appeal is dismissed; the Tribunal was correct in treating the relevant non-delivery and derivatives transactions as speculative for AY 2005-06 and in permitting the set off of those losses against profits from purchase and sale of shares.

Natural justice - onus of proof - mechanical/non-speaking order - speaking order requirement - remand for fresh adjudication

Remand for fresh adjudication - mechanical/non-speaking order - natural justice - speaking order requirement - onus of proof - Whether the assessment and the appellate order could be sustained in view of alleged non-consideration of the assessee's submissions and supporting evidence, or whether the matter must be remitted to the Assessing Officer for fresh adjudication. - HELD THAT: - The Tribunal found that the CIT(A) had called for a remand report from the AO and that the AO had filed a detailed report, while the assessee had also filed written submissions and produced bills, vouchers and TDS certificates. Those materials were not considered by either the AO or the CIT(A) and the appellate order was rendered in acryptic/mechanical terms. Given that the authorities below dismissed the assessee's claims without considering the remand report, the written submissions and supporting evidence, the principles of natural justice and the requirement to pass a speaking order were not complied with. The Tribunal observed that although the onus of proof lies on the assessee to establish claims, the authorities must nonetheless consider the evidence placed before them; failure to do so warranted remediation. In these circumstances the Tribunal concluded that the controversy could not be finally adjudicated on the record before it and directed that the entire matter be restored to the file of the AO for fresh decision after affording the assessee opportunity of hearing and without being prejudiced by observations in the impugned orders. [Paras 6, 7]

Orders of the AO and CIT(A) are set aside and the assessment for A. Y 2009-10 is remitted to the AO for fresh adjudication after hearing the assessee; the appeal is disposed of as allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the assessment and the appellate order for A. Y 2009-10 and remitted the entire matter to the Assessing Officer for fresh adjudication, directing that all submissions, remand report and supporting evidence be considered and that a speaking order be passed after affording the assessee an opportunity of hearing; appeal disposed as allowed for statistical purposes.

Mandatory notice under section 143(2) - reopening of assessment and scope of reason to believe under section 147 - change of opinion as not constituting reason to reopen - binding effect of an appellate direction in a third party appeal - lifting of corporate veil and applicability of deemed dividend under section 2(22)(e)

Mandatory notice under section 143(2) - reopening of assessment and scope of reason to believe under section 147 - Validity of reassessment where no notice under section 143(2) was issued or served - HELD THAT: - The Tribunal examined the assessment order and the proceeding sheets filed by the assessee and found no issuance or service of a notice under section 143(2). On the basis of that factual finding and following the decisions relied upon (including Alpine Electronics Asia Pte. Ltd. and V.R. Educational Trust), the Tribunal held that the mandatory notice under section 143(2) was not given and, therefore, the reassessment proceedings initiated under section 147 were invalid. The absence of the statutory notice rendered the assessment order a nullity and deprived the Assessing Officer of jurisdiction to complete reassessment.

Reassessment quashed for failure to serve mandatory notice under section 143(2).

Binding effect of an appellate direction in a third party appeal - reopening of assessment and scope of reason to believe under section 147 - Whether a direction issued by CIT(A) in an appeal of a third party can constitute binding material to reopen another assessee's assessment - HELD THAT: - The Tribunal held that a CIT(A) disposing of the appeal of one assessee cannot issue a binding direction that imputes liability on a different person without that person being heard. Such a direction, when made in the absence of an opportunity to the affected party, cannot furnish valid reasons to reopen the other party's assessment. Relying on authorities addressing 'borrowed satisfaction' and absence of application of mind, the Tribunal concluded that the CIT(A)'s direction in the third party appeal had no legal force to justify reopening the assessee's assessment and that there was no independent material before the Assessing Officer to form a reason to believe.

CIT(A)'s direction in a third party appeal is not a valid basis for reopening the assessee's assessment; reopening on that basis is untenable.

Change of opinion as not constituting reason to reopen - reopening of assessment and scope of reason to believe under section 147 - Whether the reassessment was based on a mere change of opinion - HELD THAT: - The Tribunal observed that the Assessing Officer and the Assessing Officer in the related company had earlier taken a view on the transactions and that the reassessment in the assessee's case represented a different conclusion on the same set of facts. Applying the principle that a mere change of opinion cannot by itself constitute 'reason to believe' for reopening (as laid down in Kelvinator and related authorities), the Tribunal concluded that the reassessment amounted to an impermissible change of opinion and therefore was invalid.

Reassessment quashed as being founded on a change of opinion, not on fresh tangible material.

Lifting of corporate veil and applicability of deemed dividend under section 2(22)(e) - Applicability of section 2(22)(e) (deemed dividend) to the assessee on the merits - HELD THAT: - The Tribunal expressly declined to decide the substantive question whether the impugned receipts amount to deemed dividend under section 2(22)(e). Having quashed the reassessment on procedural and jurisdictional grounds, the Tribunal stated there was no necessity to adjudicate the merits and did not express any final view on whether the advances were trade/commercial advances excluded from the deeming provision or whether the corporate veil could be lifted on the material available. The issue of applicability of section 2(22)(e) therefore remains unadjudicated in these proceedings.

Merits of the deemed dividend addition not decided; matter left without adjudication (reassessment quashed).

Final Conclusion: Reassessment for A.Y. 2006 07 is quashed: mandatory notice under section 143(2) was not served, the reopening rested on an untenable third party appellate direction and reflected a change of opinion; consequently the Tribunal allowed the assessee's appeal and did not decide the merits of the deemed dividend addition.

Recognition of revenue under Accounting Standard 9 (proportionate completion method) - treatment of advance receipts for future services and extended warranty as income on rendering of services - consistency of accounting policy as basis for acceptance of accounting treatment - absence of escapement of income where amount is offered to tax in subsequent years - application of Accounting Standard 29 for provisions

Recognition of revenue under Accounting Standard 9 (proportionate completion method) - treatment of advance receipts for future services and extended warranty as income on rendering of services - application of Accounting Standard 29 for provisions - Validity of disallowance of the provision of Rs.49,23,437 representing part of commission/consideration retained for installation, commissioning and three years warranty support - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that revenue recognition for transactions involving rendering of services must follow AS-9 and, where work is not completed in the year, the proportionate completion method is applicable. The assessee's agreement made installation and commissioning its responsibility and the commissioning work was not completed in the year under consideration; further part of the receipt related to extended warranty support for three years. Consequently, remuneration attributable to future services and warranty support could not be regarded as income of the year under consideration but only on accrual of the right to appropriate the amounts when services are rendered. The Tribunal also noted that the assessee consistently followed this accounting policy and that the treatment conformed with AS-9 and AS-29, providing no reason to interfere with the accounting method adopted. [Paras 4, 6]

The disallowance of Rs.49,23,437 was deleted; the assessee's recognition of part of the receipt as provision for future services/warranty was sustained.

Consistency of accounting policy as basis for acceptance of accounting treatment - absence of escapement of income where amount is offered to tax in subsequent years - Whether revenue had escaped assessment because part of the receipt was not taxed in the year under consideration - HELD THAT: - The Tribunal observed that the impugned amount was offered to tax in subsequent years and therefore revenue had not escaped assessment. Reliance was placed on the principle that where the same receipts are taxed in a later year and the tax effect is not materially different, pursuing the addition would be unproductive. The assessee's consistent accounting treatment in past years, not disputed by the Revenue, further weighed against treating the amount as escaping assessment in the year under appeal. [Paras 6]

There was no escapement of income; no interference with CIT(A)'s deletion of the addition on this ground.

Final Conclusion: The Revenue's appeal is dismissed; the assessing officer's addition of the provision for future services/warranty was set aside as the assessee's accounting treatment, consistent with AS-9 and AS-29 and with taxation of the amounts in subsequent years, was sustained.

Deemed dividend - application of section 2(22)(e) as deemed dividend in hands of borrower - distinction between lender and borrower for incidence of section 2(22)(e) - protective assessment - business advances versus non-business advances

Application of section 2(22)(e) as deemed dividend in hands of borrower - distinction between lender and borrower for incidence of section 2(22)(e) - protective assessment - Whether the Assessing Officer could treat advances given/received as deemed dividend under section 2(22)(e) in the hands of the assessee (lender) and make an addition on protective basis. - HELD THAT: - The Assessing Officer treated amounts advanced by the assessee to group concerns as deemed dividend and also assessed advances received by the assessee on a protective basis. The Tribunal found the AO's approach ambiguous and legally incorrect: section 2(22)(e) contemplates treatment of deemed dividend in the hands of the borrower/shareholder and does not authorise making additions in the hands of the lender. The AO had not established that the assessee was a registered shareholder of the companies from which advances were received; therefore the statutory precondition for invoking section 2(22)(e) in the assessee's hands was not made out. In these circumstances there was no basis for assessing the amount as deemed dividend in the hands of the assessee on protective or substantive basis, and the CIT(A)'s deletion of the addition was correct. Because the Tribunal concluded that the addition could not be made in the assessee's hands, it did not decide the separate factual/legal question whether loans given for business purposes fall within section 2(22)(e) (that question was treated as academic). [Paras 7]

Addition under section 2(22)(e) cannot be made in the hands of the assessee (lender); CIT(A)'s deletion of the addition upheld.

Final Conclusion: The Assessing Officer erred in making an addition under section 2(22)(e) in the hands of the lender; the Tribunal upholds the CIT(A)'s deletion of the addition and, accordingly, both the assessee's and the Revenue's appeals are dismissed.

Reopening of assessment under S.147 - mere change of opinion not a reason to reopen assessment - reliance on audit objection insufficient to constitute reason to believe - transfer includes relinquishment and extinguishment of rights - eligibility for exemption under S.54EC

Reopening of assessment under S.147 - mere change of opinion not a reason to reopen assessment - reliance on audit objection insufficient to constitute reason to believe - Validity of reopening the assessment under S.147 of the Income tax Act in respect of the amount of Rs.20 lakhs. - HELD THAT: - The Tribunal held that the assessment for AY 2006 07 had been completed under section 143(3) after exhaustive examination of the material, including the agreement, cancellation agreement and related documents, and the income returned by the assessee was accepted in the original assessment. The Receipt Audit Officer later raised an objection seeking to treat the Rs.20 lakhs as income from other sources, but the Assessing Officer had responded to the audit objection by affirming that the amount was correctly offered as long term capital gains and asked the audit party to drop the objection. The reopening was therefore founded only on the audit objection and amounted to a change of opinion; reliance on that audit objection without independent formation of belief by the Assessing Officer did not constitute a valid reason to believe escapement of income. Applying the principle that mere change of opinion cannot sustain reopening and that action under section 147 must flow from the Assessing Officer's own reason to believe, the Tribunal concluded the reopening was neither legal nor valid and that the Commissioner (Appeals) was correct in cancelling the reopening. [Paras 6]

Reopening under S.147 was invalid; the order of the CIT(A) cancelling the reopening is upheld, and the Revenue's grounds challenging validity of reopening are rejected.

Transfer includes relinquishment and extinguishment of rights - eligibility for exemption under S.54EC - Whether the Rs.20 lakhs received on cancellation/extinguishment of rights was taxable as capital gain and eligible for exemption under section 54EC. - HELD THAT: - The Tribunal accepted the Assessing Officer's original conclusion that the amount was consideration for relinquishment of the assessee's rights in the property. Relying on the statutory definition of 'transfer' as including sale, exchange, relinquishment and extinguishment of any right in a capital asset, the Tribunal held that the Rs.20 lakhs constituted capital gains. Consequently, the assessee was correctly assessed under the head 'Capital Gains' in the original assessment and was entitled to the benefit under section 54EC. The later attempt to treat the amount as 'income from other sources' was unsustainable in view of the earlier examination and acceptance in the assessment. [Paras 4, 6]

The amount of Rs.20 lakhs is capital gain arising from relinquishment/extinguishment of rights and the assessee's claim of exemption under S.54EC as allowed in the original assessment stands.

Final Conclusion: Revenue's appeal is dismissed; reopening of assessment was invalid and the addition made treating the Rs.20 lakhs as income from other sources is set aside, leaving the original treatment as capital gains with benefit under S.54EC intact.

Transfer pricing adjustment - arm's length price - advertisement, marketing and promotion (AMP) expenses - exclusion of dealer discounts from AMP - bright line test for AMP - selection and exclusion of comparables for bright line - markup on AMP expenditure for recovery from associated enterprise - allowability of employee scholarship expenditure - depreciation rate for computer peripherals

Transfer pricing adjustment - arm's length price - advertisement, marketing and promotion (AMP) expenses - exclusion of dealer discounts from AMP - bright line test for AMP - selection and exclusion of comparables for bright line - markup on AMP expenditure for recovery from associated enterprise - Deletion of the transfer pricing addition of Rs. 22,23,28,349/- made on account of alleged difference between arm's length price and reimbursement received for advertisement and publicity/AMP expenditure. - HELD THAT: - The Tribunal accepted the assessee's contention that amounts characterised as discounts and incentives passed on to dealers (Rs. 34,43,94,922/-) are not part of AMP and must be excluded from the AMP pool used for TP adjustment, following the reasoning in the Special Bench precedent relied upon by the assessee. It further found that certain dealer meet expenses are not advertisement expenses and that the comparable Scooters India Ltd. was incorrectly included for the bright line test (being a three wheeler manufacturer), while some two wheeler comparables excluded by the TPO ought not to have been excluded. After excluding dealer discounts and making the appropriate adjustments to the AMP pool and comparables, the computable AMP attributable to the parent company was less than or equal to the reimbursements actually received from the associated enterprise; consequently no TP adjustment was justified. On the question of applying a markup to derive recoverable expenditure, the Tribunal's recalculation after exclusions resulted in no residual addition, and therefore the TPO/DRP determination sustaining the addition was set aside.

Transfer pricing addition of Rs. 22,23,28,349/- deleted and grounds challenging TP adjustment allowed.

Allowability of employee scholarship expenditure - Allowability of deduction for scholarship expenditure incurred for employees' children (disallowance of Rs. 60,750/-). - HELD THAT: - The Tribunal accepted the assessee's reliance on its own earlier ITAT decision for AY 2001-02 and held that the scholarship expenditure was incurred wholly and exclusively for the purpose of business. No contrary material warranted departure from the earlier finding, and the disallowance made by the AO/DRP was reversed.

Addition of Rs. 60,750/- on account of scholarship expenses deleted; ground allowed.

Depreciation rate for computer peripherals - Allowability of depreciation at 60% on the projector classified as a computer peripheral (disallowance reducing rate to 15%). - HELD THAT: - The Tribunal followed the view taken by the Hon'ble Delhi High Court and a series of tribunal decisions that the projector, as a computer peripheral, is eligible for depreciation at 60%. Respectfully applying those authorities, the Tribunal held that the AO's restriction to 15% was not sustainable.

Addition of Rs. 22,618/- by restricting depreciation deleted; ground allowed.

Final Conclusion: The appeal is allowed: the transfer pricing adjustment sustained by lower authorities is deleted, the scholarship expenditure disallowance is reversed, and the depreciation restriction on the projector is set aside; the assessee's grounds succeed and the assessment is modified accordingly.

Allowability of bad debts under section 36(1)(vii) - business expenditure deduction under section 37(1) - treatment of liabilities and exclusions in slump sale for computation of capital gains - deposit of employees' contribution to PF/ESI within due date for deduction

Deposit of employees' contribution to PF/ESI within due date for deduction - Deductibility of employees' contribution to PF/ESI where deposited after statutory due dates but before the due date of filing return. - HELD THAT: - The assessing officer's disallowance under the provisions relating to employer/employee contributions was considered in light of the timing of deposit. The Tribunal accepted the concession recorded that the amounts were paid before the due date for filing the return, and therefore the statutory condition for allowing the deduction was satisfied. On that basis the assessing officer's addition was not sustained. [Paras 2]

Addition on account of employees' contribution to PF/ESI deleted; ground dismissed.

Allowability of bad debts under section 36(1)(vii) - business expenditure deduction under section 37(1) - Whether advances made to a subsidiary (Fashion Brands International Inc.) and subsequently written off as irrecoverable are allowable as bad debts or business loss of the assessee. - HELD THAT: - The assessee advanced funds to its wholly-owned subsidiary in the USA to promote its export business; the subsidiary suffered heavy losses and the advances were written off. The assessing officer disallowed the claim on the ground that the loss belonged to the separate legal entity. The Tribunal analysed the commercial purpose of the advances, the subsidiary's insolvency due to rejected shipments (not disputed by the department), and the fact of actual write-off in the assessee's books. Applying the legal principle that where advances are made in the course of the assessee's business and become irrecoverable they qualify as bad debts under section 36(1)(vii) (and alternatively as business expenditure under section 37(1)), the Tribunal found no infirmity in the CIT(A)'s allowance and upheld deletion of the addition. [Paras 6]

Addition on account of advances/bad debts to the subsidiary deleted; claim allowed under section 36(1)(vii) and alternatively under section 37(1).

Treatment of liabilities and exclusions in slump sale for computation of capital gains - Whether sundry creditors of the pharma division sold by slump sale formed part of the liabilities transferred under the slump sale or remained liabilities of the assessee and hence deductible. - HELD THAT: - The assessee sold its pharma division by slump sale and demonstrated, with the business transfer agreement and accounting entries, that specified sundry creditors had been transferred to the head office prior to execution of the agreement and were excluded from the accounts taken over by the purchaser; consideration was agreed after exclusion of those liabilities. The assessing officer's view that the liabilities were subsumed in the slump sale was found to be based on misconception. The CIT(A) examined the agreement and supporting records, accepted that the liabilities were incurred and settled by the assessee and were not transferred to the purchaser, and allowed the claim. The Tribunal found no reason to interfere with the factual and legal conclusion that these liabilities did not form part of the slump sale consideration for section 50B purposes. [Paras 10]

Addition relating to sundry creditors in respect of the pharma division deleted; claim allowed.

Final Conclusion: All three grounds raised by the revenue were dismissed; the CIT(A)'s deletions in respect of employees' contributions (paid before return filing due date), bad debts/advances to the subsidiary (allowed as bad debt or business loss), and sundry creditors excluded from the slump sale were upheld and the revenue's appeal is dismissed.

Deduction under section 80IC - valuation of plant and machinery for eligibility - accommodation entries - compliance with prescribed Form 10CCB - disallowance under section 14A read with Rule 8D - proportionate disallowance of interest relating to exempt income

Deduction under section 80IC - valuation of plant and machinery for eligibility - accommodation entries - compliance with prescribed Form 10CCB - Allowability of the assessee's claim of deduction under section 80IC for the year under appeal having regard to earlier findings on valuation and documentary compliance. - HELD THAT: - The Tribunal noted that an earlier Bench on identical facts for A.Y. 2006-07 to 2008-09 found that value of old machinery was not more than 20% and that the assessee had filed audited accounts and the prescribed report, thereby satisfying statutory requirements for claiming deduction under section 80IC. No change in facts or law was shown for the year under appeal. The Assessing Officer's reliance on earlier search/survey findings and characterization of purchases as accommodation entries did not persuade the Tribunal to depart from the earlier appellate conclusion. For consistency with the earlier appellate determination and because the assessee had complied with the documentary requirements, the Tribunal upheld the CIT(A)'s allowance of the deduction.

Deduction under section 80IC allowed; Revenue's ground seeking its disallowance rejected.

Disallowance under section 14A read with Rule 8D - proportionate disallowance of interest relating to exempt income - Validity and extent of the disallowance made by the Assessing Officer under section 14A/Rule 8D, in light of the assessee's own disallowance in the return and the CIT(A)'s computation. - HELD THAT: - The Tribunal recorded that the assessee had already made a disallowance in its return computed under section 14A. The Assessing Officer's total disallowance duplicated the amount already disallowed by the assessee. The CIT(A) excluded the duplicated component and computed a net disallowance after allocating interest and other components, sustaining the remainder where evidence did not support the assessee's claim that investments were funded from its own funds. The Revenue did not point out any infirmity in CIT(A)'s reasoning. In these circumstances the Tribunal found no reason to interfere with the CIT(A)'s adjustment and the quantum upheld by him.

Assessee's appeal not before Tribunal; CIT(A)'s reduction/adjustment of the section 14A disallowance upheld and Revenue's ground dismissed.

Final Conclusion: For the sake of consistency with earlier appellate findings and because no change in facts or law was demonstrated, the Tribunal upheld the CIT(A)'s allowance of the section 80IC deduction and upheld the CIT(A)'s adjustment of the section 14A/Rule 8D disallowance; Revenue's appeal dismissed.

Natural justice and right to be heard - assumption of jurisdiction by reopening assessment under notice u/s 148 and related notices - restoration to Assessing Officer for de novo consideration - compliance with GKN Driveshafts principles - ex parte assessment and appeal dismissed for non representation

Assumption of jurisdiction by reopening assessment under notice u/s 148 and related notices - natural justice and right to be heard - restoration to Assessing Officer for de novo consideration - compliance with GKN Driveshafts principles - Whether the appeals should be restored to the file of the Assessing Officer for de novo consideration of the assessee's objections regarding service of notices and the validity of reopening, after affording opportunity to be heard. - HELD THAT: - The Tribunal noted that the assessee was not represented before the Assessing Officer or before the CIT(A) and that the additional grounds challenged service of notices (including those under section 148, 143(2) and 142(1)) which go to the root of the jurisdiction to reopen assessments. Since these objections engage principles of natural justice and procedural compliance (including the mandate in GKN Driveshafts), the Tribunal exercised its discretion to set aside the appellate order and restore the matters to the Assessing Officer. The restoration is for de novo consideration of the assessee's objections after affording a reasonable opportunity of being heard, thereby enabling fresh adjudication on the validity of the notices, the reopening and any consequential additions or findings. [Paras 7, 8, 9]

The appeals are allowed for statistical purposes and the matters are restored to the file of the Assessing Officer for de novo consideration after giving the assessee a reasonable opportunity of hearing.

Final Conclusion: The Tribunal set aside the CIT(A)'s orders and restored the assessments for A.Y. 2006-07, 2007-08 and 2008-09 to the Assessing Officer for fresh consideration of the assessee's objections to service of notices and reopening, after affording a reasonable opportunity to be heard; appeals allowed for statistical purposes.

Enhancement of assessment - show cause notice under Section 251(2) - right to reasonable opportunity of hearing - power of Commissioner (CIT(A)) to enhance subject to limitation

Show cause notice under Section 251(2) - enhancement of assessment - right to reasonable opportunity of hearing - Validity of the Ld. CIT(A)'s enhancement of income where it is alleged that no show cause notice under Section 251(2) was served on the assessee. - HELD THAT: - The Tribunal held that the power of the Commissioner of Income Tax (Appeals) to enhance an assessment is subject to the limitation in Section 251(2) and that a proposed enhancement requires issuance and service of a show cause notice so as to afford the assessee a reasonable opportunity of being heard. Relying on the jurisdictional High Court decision cited by the appellant and the principle in the authorities noted, the Tribunal observed that while the first appellate order records issuance of a notice dated 20/1/2011, it does not reflect whether that notice was actually served on the assessee. Because the mandatory requirement of service and opportunity to be heard under Section 251(2) had not been shown to have been complied with on the record before it, the Tribunal directed that the matter be set aside to the file of the Ld. CIT(A) to verify service of the show cause notice, ensure the assessee is afforded an opportunity to be heard on the proposed enhancement, and thereafter decide the enhancement afresh. [Paras 4, 7, 8, 9]

Set aside to the file of the Ld. CIT(A) for fresh disposal after verifying service of the show cause notice under Section 251(2) and after affording the assessee an opportunity to be heard on the proposed enhancement.

Enhancement of assessment - consequential grounds - Treatment of other grounds of appeal which are consequential to the enhancement. - HELD THAT: - The Tribunal held that grounds which are consequential to the proposed enhancement could not be adjudicated properly without first ensuring compliance with Section 251(2). Accordingly, those grounds were set aside to the Ld. CIT(A) to be considered afresh after the assessee is afforded the requisite opportunity of being heard on the show cause notice and the enhancement is reconsidered. [Paras 11]

Other grounds are set aside to the file of the Ld. CIT(A) for fresh consideration after affording the assessee an opportunity to be heard; allowed for statistical purposes.

Final Conclusion: Application for additional grounds allowed; appeal set aside to the Ld. CIT(A) for fresh disposal on the question of proposed enhancement after verifying service of the show cause notice under Section 251(2) and after affording the assessee a reasonable opportunity of hearing; consequential grounds also remitted; appeal allowed for statistical purposes.

Admission of additional evidence on appeal - Requirement to confront additional evidence to the Assessing Officer under Rule 46A - Powers of the Commissioner (Appeals) to admit evidence subject to procedure - Remand to Assessing Officer for comments/remand report - Duty of the first appellate authority to afford opportunity to parties

Admission of additional evidence on appeal - Requirement to confront additional evidence to the Assessing Officer under Rule 46A - Remand to Assessing Officer for comments/remand report - Whether the Commissioner (Appeals) properly admitted and took into account additional evidence filed before him without confronting it to the Assessing Officer as required by Rule 46A, and the consequence of such admission. - HELD THAT: - The Tribunal found that the assessee did not place the confirmatory letter and other documents before the Assessing Officer but filed them for the first time before the Commissioner (Appeals). The appellate order contains no indication that the additional evidence was ever confronted to the Assessing Officer or that a remand report/comments were obtained. Rule 46A permits admission of additional evidence only in specified circumstances and mandates that no such evidence shall be taken into account unless the Assessing Officer is given a reasonable opportunity to examine or rebut it; the Commissioner (Appeals) must record reasons for admission. While the Commissioner (Appeals) has co-terminus powers with the Assessing Officer to enquire, Rule 46A nevertheless requires confrontation of additional evidence to the Assessing Officer and, where appropriate, obtaining his comments or remand report before taking the evidence into account. Admission and reliance on 73 pages of additional evidence without satisfying the procedural safeguards of Rule 46A amounted to a clear violation of the rule. In consequence, the appellate order which deleted the addition on the basis of that evidence is vitiated. [Paras 4, 5, 6, 7]

Order of the Commissioner (Appeals) set aside insofar as it relied on additional evidence not confronted to the Assessing Officer; matter remanded to the Commissioner (Appeals) to obtain comments/remand report from the Assessing Officer and to re-adjudicate the issue after affording both parties an opportunity of being heard.

Final Conclusion: The Revenue's appeal is allowed; the appellate order is set aside and the matter is restored to the file of the Commissioner (Appeals) with direction to obtain the Assessing Officer's comments/remand report on the additional evidence and to re-adjudicate the issue after affording both parties a hearing.

Deduction under section 40(a)(ia) in relation to non-deduction of TDS - Obligation to deduct tax at source under section 195 where payment is chargeable to tax in India - Taxability in India of commission paid to non-residents for services rendered abroad - Business connection and permanent establishment as determinants of chargeability - Deletion of disallowance where payment is not assessable in India

Taxability in India of commission paid to non-residents for services rendered abroad - Obligation to deduct tax at source under section 195 where payment is chargeable to tax in India - Deduction under section 40(a)(ia) in relation to non-deduction of TDS - Whether disallowance under section 40(a)(ia) on commission paid to non-resident agents for procuring export orders is justified where services were rendered outside India and agents had no business connection or PE in India. - HELD THAT: - The Tribunal held that where non-resident agents render services wholly outside India and have no business connection or permanent establishment in India, the commission payments do not accrue or arise in India and are not chargeable to tax here. Reliance was placed on the reasoning in GE India Technology Centre P. Ltd. that the obligation to deduct under section 195 arises only when the payment is chargeable to tax in India. Applying those principles and following coordinate-bench decisions addressing identical facts, the Tribunal sustained the CIT(A)'s finding that section 195 did not apply and consequently section 40(a)(ia) could not be invoked to disallow the commission payments. [Paras 6]

Disallowance under section 40(a)(ia) on commission paid to non-resident agents deleted.

Disallowance for lack of documentary evidence - Judicial moderation of ad-hoc additions - Whether the Commissioner (Appeals) erred in restricting the Assessing Officer's 15% ad-hoc disallowance on salary, wages, assortment expenses and staff welfare to fifty percent of that disallowance. - HELD THAT: - The Assessing Officer made a 15% ad-hoc disallowance for lack of proper vouchers. On appeal the CIT(A) noted that ledgers and vouchers were produced at appeal stage and, after a random test check, were largely found in order; however some claims were evidenced by self-vouchers. Balancing these factors, the CIT(A) curtailed the ad-hoc disallowance to fifty percent as being more reasonable. The Tribunal found no perversity or legal error in this exercise of discretion and declined to interfere. [Paras 9]

Restriction of the disallowance to fifty percent of the ad-hoc amount upheld; revenue's ground rejected.

Interest under sections 234B and 234C - recomputation and mandatory charging - Whether the Commissioner (Appeals) erred in deleting interest under sections 234B and 234C. - HELD THAT: - The Tribunal observed that the CIT(A) had not directed deletion of interest; instead the CIT(A) held that charging interest under sections 234A, 234B, 234C and 234D is mandatory and directed the Assessing Officer to recompute and charge correct interest under sections 234B and 234C. Since no deletion was directed by the CIT(A), the Revenue's challenge was without merit. [Paras 10, 11]

Revenue's challenge to the CIT(A)'s treatment of interest under sections 234B and 234C rejected; direction to recompute interest upheld.

Final Conclusion: Both appeals filed by the Revenue are dismissed; disallowances under section 40(a)(ia) on commission to non-resident agents deleted, the reduced ad-hoc disallowance upheld, and the CIT(A)'s direction to recompute interest under sections 234B and 234C sustained.

Confiscation of prohibited goods on attempted export - Pre-deposit for grant of stay in revenue matters - Prima facie satisfaction based on independent laboratory reports - Protection of public revenue and balance of convenience - Alleged denial of natural justice (cross examination/retesting) in export seizure cases

Confiscation of prohibited goods on attempted export - Prima facie satisfaction based on independent laboratory reports - Offending consignment was Muriate of Potash (MOP) and therefore liable to absolute confiscation as prohibited goods when attempted to be exported - HELD THAT: - Tribunal recorded that representative samples drawn from the containers were tested by two authorised laboratories (CRCL and SIIR) and those reports along with other material facts (seller being a fertilizer dealer, dispatch from seller's godown at subsidised government price, repacking and forwarding for export) established prima facie that the goods were MOP of fertilizer grade. MOP being notified as restricted/prohibited for export, an attempt to export the same attracts absolute confiscation. The Court accepted the uncontradicted laboratory findings and attendant circumstances as establishing a prima facie case that the goods were smuggled/exported in contravention of DGFT notification and Customs law. [Paras 9, 10]

Prima facie the goods were MOP and liable to absolute confiscation; the laboratory reports and surrounding material established a prima facie case against the appellant.

Pre-deposit for grant of stay in revenue matters - Protection of public revenue and balance of convenience - Pre-deposit of penalty was required for grant of interim relief and the appellant was directed to make a specified pre-deposit to obtain stay of realization of the balance - HELD THAT: - Applying the established principle that protection of public revenue and balance of convenience are paramount in fiscal matters, the Tribunal held that hardship alleged by the appellant is not a ground to deny pre-deposit where Revenue has a prima facie case. Reliance was placed on the Apex Court's approach cautioning against interim orders that jeopardise public revenue. Considering the gravity of the offence, strength of evidence gathered by investigation and applicable precedents, the Tribunal directed a quantified pre-deposit within a specified time and stayed realization of remaining penalty subject to compliance. [Paras 11, 12]

Appellant directed to deposit the specified pre-deposit within the stipulated time; stay of realisation of the balance granted only upon such compliance.

Alleged denial of natural justice (cross examination/retesting) in export seizure cases - Prima facie satisfaction based on independent laboratory reports - Allegations of denial of cross examination and refusal of retesting did not displace the prima facie case established by laboratory reports and material evidence - HELD THAT: - The appellant contended that denial of cross examination and refusal to permit retesting vitiated the proceedings. The Tribunal examined these contentions but observed that the laboratory reports remained uncontroverted and that the appellant did not produce evidence to show purchase or manufacture of the goods as OWC. In view of the unchallenged test reports and attendant facts, the plea of procedural infirmity was insufficient to negate the prima facie case or to obviate the requirement of pre deposit to protect Revenue. [Paras 5, 6, 10]

Contentions of denial of natural justice and of retesting were not accepted as sufficient to override the prima facie findings; they did not exempt the appellant from the pre deposit direction.

Final Conclusion: On the material on record and uncontroverted laboratory reports the Tribunal found a prima facie case that the goods were MOP and confiscable; balancing public interest and Revenue protection, the appellant was directed to make the specified pre deposit within the stipulated time for obtaining interim relief, and the plea of hardship or procedural infirmity did not warrant dispensing with the pre deposit.

Refund of redemption fine and penalty - Applicability of Section 27 of the Customs Act, 1962 - Time bar for refund claims - Distinction between refunds of duty/interest and refunds of fines/penalties - Consequential relief on successful refund claim

Refund of redemption fine and penalty - Applicability of Section 27 of the Customs Act, 1962 - Time bar for refund claims - Whether the limitation under Section 27 of the Customs Act, 1962 applies to refund claims of redemption fine and penalty paid at the time of import, and whether the refund claim was time barred. - HELD THAT: - The Tribunal examined the statutory scope of Section 27, which relates to refund of duty and interest. The provision does not refer to or govern refunds of redemption fines or penalties. Because Section 27 deals exclusively with duty and interest, its one year limitation cannot be mechanically applied to claims for refund of fines and penalties. The lower authorities' rejection of the refund claim as time barred was founded on the incorrect application of Section 27 to redemption fine and penalty. Consequently, the time bar defence under Section 27 does not sustain refusal of the appellant's refund claim for the excess redemption fine and penalty determined in the Tribunal's earlier order. [Paras 4]

Section 27 is inapplicable to refund of redemption fine and penalty; the orders rejecting the refund as time barred are unsustainable and the appeal is allowed with consequential relief, if any.

Final Conclusion: The appeal is allowed: the one year limitation under Section 27 of the Customs Act, 1962 does not apply to refunds of redemption fine and penalty, and the rejection of the appellant's refund claim as time barred is set aside with consequential relief as may be due.

Merchant Overtime charges - Customs (Fees for Rendering Services by the Customs Officers) Regulations, 1998 - appeal to Commissioner (Appeals) under Section 128 of the Customs Act - jurisdiction of Commissioner (Appeals) - maintainability of appeal - remand for decision on merits - precedent on charging MOT for services during office hours

Jurisdiction of Commissioner (Appeals) - appeal to Commissioner (Appeals) under Section 128 of the Customs Act - maintainability of appeal - Whether the Commissioner (Appeals) had jurisdiction to entertain the appeal against the Assistant Commissioner's demand of MOT charges. - HELD THAT: - The Tribunal held that disputes concerning recovery of Merchant Overtime charges framed under the Customs Regulations constitute decisions under the Customs Act by an officer lower in rank than the Commissioner and are therefore challengeable before the Commissioner (Appeals) in terms of Section 128. The Commissioner (Appeals)'s dismissal of the appeal for lack of jurisdiction based on the Rajasthan High Court judgment in Shree Pipes Ltd. was incorrect because that judgment dealt with a different controversy (recovery of establishment cost for posting staff at a bonded warehouse) and not with MOT charges under the Regulations. The Tribunal treated the Assistant Commissioner's order on MOT as a decision under the Customs Act and concluded that the Commissioner (Appeals) does have jurisdiction to decide the matter on merits. [Paras 5, 6]

The Commissioner (Appeals) has jurisdiction and the earlier dismissal for want of jurisdiction is set aside.

Merchant Overtime charges - Customs (Fees for Rendering Services by the Customs Officers) Regulations, 1998 - precedent on charging MOT for services during office hours - remand for decision on merits - Whether MOT charges are payable for supervision of sealing of export consignments during office hours and the consequent disposition of the appeal on merits. - HELD THAT: - The Tribunal did not decide the substantive question on the merits. Noting that the question is governed by the Board's MOT Regulations and that there exist binding precedents on the issue, the Tribunal remanded the matter to the Commissioner (Appeals) for a decision on merits in light of the Larger Bench Tribunal view and the decision of the Delhi High Court which address charging of MOT for services during office hours. The Tribunal also observed that maintainability being a legal issue may be raised at this stage and directed the Commissioner (Appeals) to consider and decide the merits afresh applying the indicated precedents. [Paras 6]

Matter remanded to the Commissioner (Appeals) for fresh adjudication on merits in accordance with the relevant precedents.

Final Conclusion: The Commissioner (Appeals)'s order dismissing the appeal for lack of jurisdiction is set aside; the question whether MOT is chargeable for supervision during office hours is remanded to the Commissioner (Appeals) for fresh decision on merits in light of the applicable precedents.

Business Auxiliary Service - production or processing of goods not amounting to manufacture - process of manufacture - interpretation of 'production' vis-a -vis 'manufacture' - chilling of milk

Business Auxiliary Service - production or processing of goods not amounting to manufacture - chilling of milk - interpretation of 'production' vis-a -vis 'manufacture' - Whether mere chilling of milk to a temperature below 5 C for facilitating long distance transportation amounts to 'production or processing of goods not amounting to manufacture' and thus falls within Business Auxiliary Service. - HELD THAT: - The Tribunal found no dispute as to the activity performed by the appellant being limited to chilling of milk to a temperature below 5 C and that no further processes such as pasteurization were undertaken. The Court held that mere lowering of temperature by chilling, which does not produce any permanent or temporary change in the milk other than preservation for transport, does not constitute production or processing. Reliance was placed on the principle that 'production', when used alongside 'manufacture', contemplates a process bringing about some change in raw material even if no distinct new commercial product emerges; where no such change occurs, the activity cannot be treated as production or processing. In view of that legal principle and earlier appellate findings on the same issue, the impugned orders treating chilling as Business Auxiliary Service were held unsustainable and set aside. [Paras 5]

Impugned orders confirming service tax demand, interest and penalties qua chilling of milk are set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that mere chilling of milk for transportation does not amount to production or processing of goods not amounting to manufacture and therefore is not taxable as Business Auxiliary Service; the impugned orders, stay application and application for early hearing are disposed of.

Manufacture versus Business Auxiliary Services (production of goods not amounting to manufacture) - eligibility for exemption as job-worker under notification no.214/86-CE based on undertaking by the principal manufacturer - eligibility for exemption under Notification No.8/2005-ST where job-work goods are returned to and used by the principal manufacturer - service tax demand on job-work transactions

Manufacture versus Business Auxiliary Services (production of goods not amounting to manufacture) - The processes carried out by the appellant on supplied rounds amounted to manufacture and were not business auxiliary services. - HELD THAT: - The appellant performed cutting, bending, threading and finishing processes (including heat treatment and shot blasting) on rounds supplied by the principal manufacturer, resulting in a distinct part (the 'handle') used in scaffolding. The record shows the department had itself accepted the appellant's activities as manufacture and the nature of the processes effected a transformation giving a new identifiable product. For these reasons the activity cannot be treated as "production of goods not amounting to manufacture".

Appellant's activity is held to be manufacture, not Business Auxiliary Services.

Eligibility for exemption under Notification No.8/2005-ST where job-work goods are returned to and used by the principal manufacturer - eligibility for exemption as job-worker under notification no.214/86-CE based on undertaking by the principal manufacturer - Even if treated as a taxable service, the exemption under Notification No.8/2005-ST could not be denied where job-work goods were returned to and used by the principal manufacturer and an undertaking under the job-work exemption was on record. - HELD THAT: - The appellant had informed the department about availment of the job-worker exemption and the principal manufacturer had given the requisite undertaking under notification no.214/86-CE to use the job-work goods in manufacture and clear the finished products on payment of duty. It was not disputed that the job-work goods were returned to the principal manufacturer and that the final products were cleared on payment of duty. On this factual matrix the exemption under Notification No.8/2005-ST could not be withheld on the ground of absence of evidence of use by the principal manufacturer.

Exemption under Notification No.8/2005-ST applies where the job-work goods were returned to and used by the principal manufacturer and the requisite undertaking was furnished.

Final Conclusion: The impugned demand and consequential findings are set aside; the appeal and stay application are allowed.

Taxability of international tour packages commencing and concluding in India - treatment of air ticket value in composite tour packages - abatement under Notification No. 1/2006-ST as amended - claim of exemption under Export of Services Rules - treatment of tour cancellation charges - extended period of limitation for recovery and wilful suppression/mis-declaration - pre-deposit waiver and conditional stay of proceedings

Taxability of international tour packages commencing and concluding in India - claim of exemption under Export of Services Rules - Prima facie liability to service tax in respect of international tour packages which commence and conclude in India and are paid for in Indian rupees. - HELD THAT: - The Tribunal prima facie accepted the adjudicating authority's conclusion that the appellant's international tour packages commenced in India and ended on return to India, with payments received in Indian rupees. Consequently the services could not be treated as exported or as support services to foreign service recipients disentitling them from tax under the Export of Services Rules. The appellant's contention that the Act has no operation for services rendered beyond territorial limits was rejected on the prima facie material since territorial nexus existed by commencement and conclusion of the tours in India and receipt of consideration in Indian rupees. This finding was applied for the limited purpose of the pre-deposit/stay application and not as a final adjudication on merits. [Paras 7, 8]

International tour packages that commence and conclude in India and are paid in Indian rupees are prima facie taxable; the question is retained for final adjudication but treated as a basis for interim relief.

Treatment of tour cancellation charges - precedent on non-levy of service tax on cancellation charges - Prima facie that amounts received as tour cancellation charges could not be treated as gross taxable value for levy of service tax. - HELD THAT: - Relying on the Tribunal's earlier decision in S.I.D.B.I. Vs. CCE, Chandigarh, the Bench observed that, prima facie, service tax could not be levied by treating cancellation charges as gross value of taxable services. This was accepted at the interim stage and militated against sustaining that component of the demand for the purposes of the stay application. [Paras 5]

Cancellation charges are prima facie not includible in the gross taxable value for service tax purposes.

Treatment of air ticket value in composite tour packages - abatement under Notification No. 1/2006-ST as amended - Prima facie correctness of treating the value of air tickets included in composite tour packages as part of the gross taxable value for domestic tour operator services. - HELD THAT: - Audit revealed that the appellant excluded the value of air tickets from the amounts disclosed and offered to tax for domestic tour packages while claiming the abatement. Under Section 67 read with the relevant notification, gross value received for taxable services is the taxable value. The Tribunal found the adjudicating authority's prima facie conclusion unassailable that amounts received towards air tickets, when part of composite consideration for services rendered in India, must be included in the taxable value. [Paras 6]

The adjudicating authority's prima facie finding that air ticket value must be included in gross taxable value for domestic tour packages is upheld for interim purposes.

Extended period of limitation for recovery and wilful suppression/mis-declaration - Invocation of the extended period of limitation under the proviso to Section 73(1) was not finally adjudicated and is to be considered at the final hearing; for interim purposes liability was confined to one year prior to the Show Cause Notice. - HELD THAT: - The adjudicating authority held that mis-declaration and withholding of values amounted to wilful suppression justifying invocation of the extended period. The Tribunal declined to undertake a detailed examination of that contention at the interim stage, observing that it involves detailed factual consideration more appropriate at final hearing. However, for the purposes of the stay application the Tribunal limited consideration of the appellant's liability in respect of international tour packages to the period of one year prior to the Show Cause Notice dated 18.4.2011. [Paras 9, 10]

Extended period invocation left open for final adjudication; interim limitation imposed to one year prior to the Show Cause Notice.

Pre-deposit waiver and conditional stay of proceedings - Grant of interim waiver of pre-deposit and stay of further proceedings on condition of depositing a specified sum, and direction for partial refund of amounts previously recovered. - HELD THAT: - Having examined the appellant's computed liabilities within the normal limitation period for domestic and international packages and in the interest of balance of convenience, the Tribunal directed conditional waiver of pre-deposit and stay of further proceedings subject to deposit of a specified amount to cover prima facie liability. The Tribunal further directed Revenue to refund a portion of amounts earlier recovered from the appellant in light of the interim assessment of liability and the Karnataka High Court's earlier order, and fixed a timeline for that refund. [Paras 11, 12, 13]

Stay application allowed on condition of deposit of the directed sum; Revenue directed to refund a portion of previously recovered amounts within the stipulated period.

Final Conclusion: Interim relief granted: stay of further proceedings subject to conditional pre-deposit to cover prima facie liability; prima facie findings upheld that international packages commencing and concluding in India and paid in Indian rupees are taxable, air-ticket values included in domestic composite packages must be taxed, and cancellation charges are prima facie not includible; invocation of the extended limitation period reserved for final adjudication and interim liability confined to one year prior to the Show Cause Notice; Revenue directed to make the limited refund as ordered.

Retrospective exemption under Section 75 of the Finance Act, 2011 - Exemption of tour operator services for point-to-point bus plying - Service tax not chargeable for exempt period - Waiver of pre-deposit requirement

Retrospective exemption under Section 75 of the Finance Act, 2011 - Exemption of tour operator services for point-to-point bus plying - Service tax not chargeable for exempt period - Whether the service tax demand for plying buses (inter-State and intra-State) between specified points for the period 1-4-2000 to 31-3-2004 survives in view of the retrospective exemption - HELD THAT: - The appellants pleaded that Notification No. 20/2009-S.T. granted exemption to the activity of tour operators plying buses point-to-point, and that Section 75 of the Finance Act, 2011 conferred retrospective effect to that exemption from 1-4-2000. The Tribunal accepted that the retrospective exemption applies to the activity and to the period in question (1-4-2000 to 31-3-2004), thereby removing the taxable character of the services for that period. In consequence, the impugned demand could not be sustained. The Tribunal also waived the pre-deposit requirement and proceeded to decide the appeal on merits, finding no subsisting liability for service tax for the stated period. [Paras 2, 3]

Impugned order set aside; appeal allowed and stay application disposed of, as no service tax is chargeable for the period 1-4-2000 to 31-3-2004 in view of the retrospective exemption.

Final Conclusion: The Tribunal allowed the appeal, holding that the retrospective exemption applies from 1-4-2000 to the tour-operator bus services in question; the impugned demand for the period 1-4-2000 to 31-3-2004 is set aside and the stay application disposed of, with pre-deposit waived.

Cenvat credit on input services - eligibility of courier services as input service - eligibility of rent-a-cab and tour and travel services as input services - architectural consultancy services and nexus to manufacture - pre-deposit and stay of recovery

Cenvat credit on input services - eligibility of courier services as input service - Cenvat credit on outward courier charges - HELD THAT: - The Tribunal found that the applicant has a strong prima facie case for entitlement to Cenvat credit on outward courier services. Reliance was placed upon an earlier decision of the Tribunal in favour of treating courier services used for placing orders, filing quotations, marketing and dispatching goods as input services. The applicant also placed on record that courier services were used not only for sending documents but also for dispatch of goods, supporting the connection with the business activity and input services eligibility. [Paras 5]

The claim for Cenvat credit on outward courier charges is prima facie sustainable and favours the applicant.

Cenvat credit on input services - eligibility of rent-a-cab and tour and travel services as input services - Cenvat credit on rent-a-cab services and tour and travel services - HELD THAT: - On the basis of authority of the Karnataka High Court favouring credit of rent-a-cab and tour and travel services as input services, the Tribunal concluded that the applicant has a strong prima facie case in respect of these services. The Tribunal accepted the contention that these services prima facie qualify as input services for the applicant's business, thereby supporting the applicant's entitlement to Cenvat credit. [Paras 5]

The claim for Cenvat credit on rent-a-cab and tour and travel services is prima facie sustainable and favours the applicant.

Cenvat credit on input services - architectural consultancy services and nexus to manufacture - Cenvat credit on architectural consultancy services used for guest houses and conference - HELD THAT: - The Tribunal examined whether architectural consultancy services for guest houses and conference halls are connected to manufacture of the final product. It found, on a prima facie view, that such services are not connected to the manufacture of the final product and therefore do not qualify as input services for the purposes of Cenvat credit. Consequently, the Tribunal did not accept the applicant's contention in respect of these services. [Paras 5]

The claim for Cenvat credit on architectural consultancy services for guest houses and conference is prima facie not connected to manufacture and does not favour the applicant.

Final Conclusion: Pre-deposit of Rs. 20,000 to be paid by the applicant within six weeks and reported on the specified date; on such compliance, stay of recovery of the balance amount (demand with interest and equal penalty) is granted until disposal of the appeal. The applicant has a strong prima facie case for Cenvat credit on outward courier, rent-a-cab and tour and travel services, whereas architectural consultancy services for guest houses and conference are prima facie not connected to manufacture.

Availability of Cenvat credit on invoices issued by a registered dealer - genuineness of inputs received and use in manufacture as primary requirement for credit - buyer not required to probe antecedent transactions of supplier - limitation bar to recovery of credit availed - penalty under Section 11AC in case of denial of credit

Availability of Cenvat credit on invoices issued by a registered dealer - genuineness of inputs received and use in manufacture as primary requirement for credit - buyer not required to probe antecedent transactions of supplier - Whether Cenvat credit taken by the appellant on the basis of cenvatable invoices issued by their registered dealer can be denied on account of alleged fraud by the manufacturer's supplier of that dealer - HELD THAT: - The Tribunal found no material to dispute that the appellant had received the inputs, had accounted for them in RG-23A, had paid for them by account payee cheque and had used them in manufacture with duty discharged on the final products. The appellate authority had relied predominantly upon investigative findings against the manufacturer-supplier M/s. Annapurna Impex and on the absconding status of the intermediary dealer, without addressing the appellant's specific evidentiary averments of receipt and use. Applying settled Tribunal precedents, the buyer who avails credit on the basis of a proper invoice issued by a registered dealer is not obliged to go behind the dealer's transactions to verify the supplier's antecedent compliance; payment by cheque and contemporaneous accounting entries support the appellant's case in absence of contrary direct evidence. By applying that ratio to the facts, denial of credit to the appellant was held unjustified. [Paras 7, 8, 9]

Credit availed by the appellant cannot be denied merely because the manufacturer-supplier is alleged to have committed fraud; the appellant's entitlement to Cenvat credit on invoices from a registered dealer is upheld.

Limitation bar to recovery of credit availed - Whether the demand for denial of credit raised by the Revenue is barred by limitation - HELD THAT: - The Tribunal noted that the credit was availed and reflected in Central Excise records in June 2004 while the show cause notice was issued on 15.05.2009. The appellant, having availed credit on the basis of a proper invoice from a registered dealer and having no duty to investigate the dealer's antecedent transactions, could not be attributed with suppression or misstatement. On these facts the Tribunal held the demand to be time-barred. [Paras 10]

The demand is barred by limitation.

Penalty under Section 11AC in case of denial of credit - availability of consequential relief when demand set aside - Whether the penalty imposed on the appellant consequent to denial of credit is sustainable where the demand is set aside - HELD THAT: - Since the Tribunal set aside the impugned order holding that the credit could not be denied and that the demand was time-barred, the concomitant penalty confirmed by the authorities had no sustaining foundation. The Tribunal therefore allowed the appeal and granted consequential relief to the appellants. [Paras 5, 11]

Penalty imposed along with the demand is set aside as consequential relief.

Final Conclusion: The Tribunal allowed the appeal, setting aside the adjudicating authority's order denying Cenvat credit and confirming penalty: the appellant was held entitled to the credit taken on the basis of invoices from a registered dealer, the demand was held time-barred, and consequential relief including discharge of the penalty was granted.

Cenvat credit lapse under transitional provisions - utilization of lapsed Cenvat credit for pre-option clearances - duty liability to be discharged in the month of clearance under Rule 8 - consequence of default and denial of Cenvat credit - requirement of conclusive malafide/knowledge for imposition of penalty

Cenvat credit lapse under transitional provisions - utilization of lapsed Cenvat credit for pre-option clearances - Whether Cenvat credit which lapsed on 1.4.08 could be utilized in June, 2008 for duty relating to clearances claimed to have been effected in March, 2008. - HELD THAT: - Rule 11(2) of the Central Excise Credit Rules requires reversal/cessation of the Cenvat credit attributable to inputs/in-process/final products on exercise of option for exemption and any balance in credit account as on the date of option lapses and is not available for payment of duty thereafter. Even if the appellants contend the liability arose in March, 2008, the credit had lapsed as on 1.4.08 and was therefore not available for utilization in June, 2008. The Tribunal also accepted that the assessee failed to discharge duty in the month of clearance as required and failed to explain why a new invoice series was used or why the ER-1 return did not reflect the claimed March clearances, lending support to the view that the credit could not be legitimately utilized after lapse. [Paras 3, 4, 7, 8, 9]

The lapsed Cenvat credit as on 1.4.08 could not be used in June, 2008 for payment of duty, even in respect of alleged clearances in March, 2008; the paper division must discharge the duty liability in cash with interest.

Duty liability to be discharged in the month of clearance under Rule 8 - consequence of default and denial of Cenvat credit - Whether failure to discharge duty within the period prescribed by Rule 8(3A) disentitles an assessee from utilizing Cenvat credit for that liability. - HELD THAT: - Rule 8(3A) requires duty on goods cleared in a month to be discharged in that month; default beyond the prescribed period results in debarment from utilizing Cenvat credit for that liability. The Tribunal relied on the settled position that where Rule 8 mandates cash payment and the assessee defaults, the consequence is denial of Cenvat credit for payment of the outstanding duty. The appellants admitted that duty liability arose in March, 2008 but was discharged beyond thirty days in June, 2008, invoking the consequence of denial of credit. [Paras 10]

Default in payment beyond the period under Rule 8(3A) debarred the appellant from utilizing Cenvat credit for the duty; the duty must be discharged in cash with interest.

Requirement of conclusive malafide/knowledge for imposition of penalty - Whether penalty imposed on the paper division and on the steel division was sustainable. - HELD THAT: - Although revenue expressed suspicion of back-dated invoicing and transfer of lapsed credit to the sister unit, the adjudicating authorities did not conclusively establish malafide intention or that clearances were actually effected in June, 2008. Penal consequences require a conclusive finding of wrongful intention or knowledge. In the absence of such conclusive finding against the paper division, the Tribunal exercised the benefit of doubt and set aside the penalty on the paper division. As to the steel division, there was no material to show it was aware that the paper division had utilized lapsed credit; accordingly, imposition of penalty on the steel division was also set aside. [Paras 11, 12]

Penalties on both the paper division and the steel division are set aside for want of conclusive proof of malafide or knowledge.

Utilization of credit by recipient unit after donor deposits duty in cash - Whether the steel division may retain or re-avail credit already taken if the paper division deposits duty in cash. - HELD THAT: - The Tribunal held that since utilization of the lapsed credit by the paper division was barred, the steel division is not presently entitled to the corresponding credit. However, the Tribunal left open the procedural consequence: if the paper division pays the duty in cash, the question of availment of credit by the steel division can be examined by the lower authorities on any claim made by the steel division. This directs fresh consideration by the authorities rather than deciding the entitlement finally in this appeal. [Paras 12]

The steel division is not entitled to retain the disputed credit as utilized; if the paper division deposits duty in cash, the steel division may claim and the lower authorities shall consider such claim afresh.

Final Conclusion: Appeals dismissed insofar as recovery of duty and interest from the paper division is concerned (duty to be paid in cash with interest); penalties on both divisions set aside for lack of conclusive proof of malafide or knowledge; denial of credit to the steel division upheld subject to reconsideration by lower authorities if the paper division deposits duty in cash.

Principles of natural justice - right to cross examination - remand for fresh consideration - opportunity of personal hearing - reasoned order

Principles of natural justice - right to cross examination - Whether the adjudicating authority's failure to deal with the appellant's specific request for cross examination of named third party witnesses amounted to violation of principles of natural justice. - HELD THAT: - The Tribunal examined the appellant's interim reply dated 15.09.2012 in which the appellant expressly sought cross examination of specified persons whose records were relied upon to raise demands. The adjudicating authority made a passing remark denying cross examination of the RTO, though the appellant had not sought cross examination of the RTO. The Tribunal found that the adjudicating authority did not deal with the appellant's prayer for cross examination in accordance with law and that there were no findings either granting or rejecting that plea. Applying the reasoning in Mahek Glazes Pvt. Ltd. (as relied upon by the appellant), the Tribunal held that the omission to decide the request amounted to a breach of principles of natural justice. [Paras 5, 6, 7]

Found violation of principles of natural justice in failing to decide the request for cross examination; the omission is set aside.

Remand for fresh consideration - opportunity of personal hearing - reasoned order - Relief to be granted in consequence of the breach and the manner in which the matter should be processed on remand. - HELD THAT: - The Tribunal, without expressing any opinion on the merits, set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration. The adjudicating authority is directed to grant cross examination of the persons specifically named in paragraph 4 of the Tribunal's order, allow four weeks thereafter for the appellant to file a detailed reply, and thereafter afford personal hearing and pass a reasoned order. All issues were kept open for fresh adjudication in accordance with these directions. [Paras 8, 9]

Impugned order set aside; matter remanded with directions to permit the named cross examinations, allow four weeks for detailed reply, grant personal hearing and pass a reasoned order.

Final Conclusion: The Tribunal allowed the appeals by setting aside the impugned order for failure to decide the appellant's request for cross examination, remanded the matter to the adjudicating authority with directions to permit cross examination of the named persons, grant four weeks for filing a detailed reply, afford personal hearing and pass a reasoned order, keeping all issues open.

Reliance on a precedent subsequently set aside - effect of higher court reversal on earlier tribunal judgment - quashing of an order founded solely on an overruled decision - remand for fresh consideration in light of changed legal position - clandestine removal and claim to concessional exemption

Quashing of an order founded solely on an overruled decision - reliance on a precedent subsequently set aside - Impugned order of the Commissioner (Appeals) could not be sustained because it was based solely on a Tribunal judgment which was subsequently set aside by the Supreme Court. - HELD THAT: - The appellate order under challenge rested exclusively on this Tribunal's earlier decision in appeals relating to M/s Euro Cotspin Ltd. and another. That Tribunal decision - the only foundation for the Commissioner (Appeals)'s conclusion - has been rendered inoperative by the Supreme Court's subsequent judgment setting it aside and remitting the matter. In these circumstances the impugned appellate order, having no independent basis of adjudication apart from the overruled precedent, cannot stand and must be quashed. The Court accepted that the changed legal position created by the higher court's reversal invalidated the legal foundation of the Commissioner (Appeals)'s decision.

Impugned order quashed as it was founded solely on a decision subsequently set aside by the Supreme Court.

Remand for fresh consideration in light of changed legal position - The matter was remanded to the Commissioner (Appeals), Central Excise, Jaipur II for fresh consideration in accordance with law. - HELD THAT: - Having quashed the appellate order, the Tribunal directed that the Commissioner (Appeals) must reconsider the appeal afresh, uninfluenced by the now inoperative Tribunal precedent. The remand requires expeditious disposal and application of the correct legal tests to the facts, including any questions concerning clandestine removal and entitlement to concessional exemption, as may be relevant on fresh appraisal.

Matter remanded to Commissioner (Appeals) for fresh consideration and disposal expeditiously and in accordance with law.

Final Conclusion: Revenue appeal allowed; the impugned Commissioner (Appeals) order is quashed because it rested solely on a Tribunal judgment subsequently set aside by the Supreme Court, and the matter is remitted for fresh appellate consideration by the Commissioner (Appeals), to be disposed of expeditiously and in accordance with law.

Exemption under Notification No. 3/2001-C.E., Sl. No. 254 read with List 5 - non-conventional energy devices/systems - exemption for parts - classification of supply as parts versus complete devices - interpretation of exemption notifications

Non-conventional energy devices/systems - exemption under Notification No. 3/2001-C.E., Sl. No. 254 read with List 5 - exemption for parts - Whether the appellant's supplies of Control Panels, Bus Ducts and Switch Boards are entitled to exemption under the Notification claimed. - HELD THAT: - The appellants supplied items described as Control Panels, Bus Ducts and Switch Boards to a power plant engaged in producing energy from agricultural mill and claimed exemption under the said Notification. The Tribunal examined the scope of Sl. No. 254 read with List 5 which confers exemption on non conventional energy devices/systems specified in List 5. The appellants did not contend that the supplies themselves constituted non conventional energy devices/systems; rather the materials supplied were parts. The Notification does not extend the exemption to parts used in non conventional energy producing devices. Applying the notification's scope to the facts, the supplies are parts and therefore not covered by the exemption; the departmental demand and rejection of the claim were properly sustained.

The claim of exemption is rejected and the appeal is dismissed; the rejection of the exemption claim is upheld.

Final Conclusion: The Tribunal holds that the supplies were parts and not non conventional energy devices/systems within the meaning of the Notification; consequently the exemption claim fails and the appeal is dismissed.

Waiver of pre-deposit - pre-deposit - prima facie case - differential Central Excise duty - excise duty leviable only on goods manufactured and cleared from registered premises - penalty and interest confirmed by adjudicating authority - absence of clandestine manufacture

Waiver of pre-deposit - prima facie case - differential Central Excise duty - absence of clandestine manufacture - excise duty leviable only on goods manufactured and cleared from registered premises - Whether the pre-deposit of the contested central excise duty, penalty and interest should be waived and recovery stayed pending disposal of the appeal where the demand arises from a discrepancy between sales as per ER-1 and the balance sheet. - HELD THAT: - The adjudicating authority confirmed demands with interest and imposed penalties on the ground that the appellant had not discharged differential central excise duty attributable to sales income shown in the balance sheet. The demand rests on the difference between sales reported in ER-1 and those shown in the balance sheet. There is no allegation or evidence of clandestine manufacture or sale. The appellant's explanation that excess sales were shown in the balance sheet to obtain additional bank overdraft is prima facie supported by a Chartered Accountant's certificate. The Tribunal noted the legal proposition that excise duty can be levied only on goods manufactured and cleared from the registered premises, which is not established in the present case for the differential duty. In view of these prima facie findings, the appellant has made out a case for complete waiver of the pre-deposit and for stay of recovery pending disposal of the appeal.

Application for waiver of pre-deposit is allowed and recovery of the amounts involved is stayed until disposal of the appeals.

Final Conclusion: The stay petition for waiver of the pre-deposit of the contested central excise duty, penalty and interest is allowed on prima facie grounds; recovery is stayed pending final disposal of the appeals.

Admissibility of Cenvat credit where inputs were cleared under an area based exemption with duty refunded from PLA (Rule 12, Cenvat Credit Rules, 2004) - pre deposit condition for grant of stay of appeal - VAT invoice endorsement cannot be relied upon by excise authorities to deny Cenvat credit

Admissibility of Cenvat credit where inputs were cleared under an area based exemption with duty refunded from PLA (Rule 12, Cenvat Credit Rules, 2004) - pre deposit condition for grant of stay of appeal - VAT invoice endorsement cannot be relied upon by excise authorities to deny Cenvat credit - Whether the Commissioner (Appeals) was justified in directing a pre deposit and dismissing the appeal for non compliance, having regard to admissibility of Cenvat credit where inputs supplied by a manufacturer who availed Notification No. 33/99 (duty refunded from PLA) and the presence of a VAT endorsement on invoices. - HELD THAT: - The Tribunal found that Rule 12 of the Cenvat Credit Rules, 2004 expressly provides that clearances made under Notification No. 33/99-C.E., which result in refund of duty paid out of PLA, are not to be treated as exempted goods and that Cenvat credit on such inputs is admissible. The Commissioner (Appeals) did not advert to this provision when directing a deposit as a condition of hearing. The endorsement on the invoices reading "this copy does not entitle the holder the tax credit" was held to pertain to VAT under the Assam Value Added Tax Rules, 2005 (Rule 32) and, as clarified by the Additional Commissioner by correspondence to the Commissioner, Guwahati, arises from VAT statutory requirements; such an endorsement cannot be adopted by excise authorities to deny excise Cenvat credit. On these foundations the Tribunal concluded that the appellants had a good prima facie case and that the pre deposit direction was inappropriate. Because the Commissioner (Appeals) had not decided the appeal on merits, the proper course was to set aside the impugned order and remit the matter to the Commissioner (Appeals) for fresh adjudication on merits without insisting on any pre deposit. [Paras 4]

Impugned order set aside; appeal remitted to Commissioner (Appeals) to decide on merits without requiring any pre deposit; stay petition disposed accordingly.

Final Conclusion: The Tribunal held that Cenvat credit was prima facie admissible despite the supplier's clearance under Notification No. 33/99 and that a VAT endorsement on invoices could not be used to deny excise credit; the pre deposit direction was improper, the order dismissed for non compliance was set aside, and the appeal was remitted for decision on merits without any pre deposit.

Cenvat credit - input credit availed on inputs purchased from a manufacturer - disallowance of credit as penalty where no evidence of revenue loss

Cenvat credit - disallowance of credit as penalty where no evidence of revenue loss - Whether Cenvat credit availed on inputs purchased from a manufacturer can be disallowed when there is no evidence that duty paid by the purchaser has not reached the treasury. - HELD THAT: - The Tribunal accepted the appellate authority's finding that there was no evidence demonstrating that the duty paid by the appellant had not reached the treasury. In those circumstances, denying Cenvat credit as a penal measure would be prejudicial to the interests of justice. Consequently, the appellate order allowing the Cenvat credit was upheld and no disallowance was warranted in the absence of proof of revenue loss.

Revenue's appeal dismissed; appellate order allowing the Cenvat credit upheld.

Final Conclusion: The appeal is dismissed and the Cenvat credit availed by the appellant is sustained because there is no evidence of non-payment of duty to the treasury and denial of credit would operate as an undue penalty.