TaxTMI Updates e-Newsletter
Jun 27,2023

Bogus purchases - Consequent bogus sales -HC [2018 (11) TMI 1940 - CHHATTISGARH HIGH COURT] as confirming ITAT and CIT(A) order addition is without any basis - Also as purchases made are not bogus purchases, the sales made out of such purchases cannot be treated as bogus sales - Disallowance of interest paid to Hawala operators be deleted as when the loan was received had not disallowed same as not genuine, having not disallowed the principal as not genuine, there is no justification for making any disallowance of interest paid to the above parties.

HELD THAT:- We are not inclined to interfere with the impugned judgment and order passed by the High Court. The special leave petition(s) stand(s) dismissed accordingly.

Validity of assessment order - Jurisdiction to AO to adjudicate the assessment u/s 143(3) - While quashing the notice, High Court [2019 (3) TMI 1996 - ORISSA HIGH COURT] has granted the liberty to the department to initiate proceedings afresh as per law - Revenue contended that assessee is precluded from challenging the jurisdiction beyond the period of 30 days of the receipt of notice u/s 142(1) - HELD THAT:- As records also reveals that the assessee had participated pursuant to the notice issued u/s 142 (1) and had not questioned the jurisdiction of the assessing officer. Section 124(3)(a) of the Income Tax Act precludes the assessee from questioning the jurisdiction of the assessing officer, if he does not do so within 30 days of receipt of notice u/s 142 (1).

In the present case, the facts did not warrant the order made by the High Court. At the same time, this Court notices that the High Court had granted liberty to the concerned authority to issue appropriate notice.

AO is free to complete the assessment (in case the assessment order has not been issued) within the next 60 days. In such event, the question of limitation shall not be raised by the assessee.

Benami Property Transactions - Retrospective application of law enacted in the year 2016 - HELD THAT:- The issues raised in these petitions is squarely covered by the judgment of this Court in Union of India & Anr. Vs. Ganpati Dealcom Pvt. Ltd. (2022 (8) TMI 1047 - SUPREME COURT]

As petitioner(s) contends that review of the said judgment is pending. Since as of now the issue stands covered by the judgment in the case of Ganpati Dealcom Pvt. Ltd. case (supra), we dismiss these special leave petitions for the same reasons and ground.

Income deemed to accrue or arise in India - Taxability of amount received - PE in India - HELD THAT:- The issue raised by the Revenue in the present special leave petitions is covered against them vide judgment “Engineering Analysis Centre of Excellence Private Limited [2021 (3) TMI 138 - SUPREME COURT]

Ld' Additional Solicitor General states that a Review Petition has been filed against this judgment, which is currently pending and the right of the Revenue to revive the present special leave petitions may be reserved, in case the Review Petition is allowed.

Special leave petition is dismissed, as the same is covered by the said decision of this Court.

Rectification under Section 154 of the Income Tax Act, 1961 - Intimation under Section 143(1) - Statutory appeal before the first appellate authority - Exhaustion of statutory remedies - Prohibition on multiplicity of proceedings - Tax credit / TDS credit mismatch correction

Rectification under Section 154 of the Income Tax Act, 1961 - Statutory appeal before the first appellate authority - Prohibition on multiplicity of proceedings - Tax credit / TDS credit mismatch correction - Maintainability of the writ petition in presence of a pending statutory appeal against the Section 154 order for Assessment Year 2020-21. - HELD THAT: - The petitioner challenged an order passed under Section 154 for Assessment Year 2020-21 but has already availed available statutory remedies: an initial rectification (filed 08.12.2021 and disposed 09.12.2021), a second rectification (filed 05.07.2022) and a statutory appeal against the impugned Section 154 order which remains pending before the first appellate authority. The High Court held that where adequate statutory remedies are available and have been invoked, judicial review by writ is misconceived while the statutory appeal remains pending. The court observed that the petitioner cannot pursue multiple fora for the same cause of action and directed that the statutory appeal be pursued; the appellate authority is to consider the full TDS credit available to the petitioner at the relevant time.

Writ petition dismissed; petitioner directed to pursue the statutory appeal and the appellate authority to consider the full TDS credit.

Final Conclusion: The writ petition challenging the Section 154 order for Assessment Year 2020-21 is dismissed as misconceived since the petitioner has invoked and has a pending statutory appeal; the petitioner is directed to pursue that appeal, with the appellate authority to consider the full TDS credit.

Best judgment assessment - assessment under section 147 read with section 144 and 144B - opportunity to file return - abdication of adjudicatory role by assessing officer - discovery of high value transaction

Assessment under section 147 read with section 144 and 144B - best judgment assessment - abdication of adjudicatory role by assessing officer - opportunity to file return - Validity of the ex parte assessment made under section 147 read with section 144 and 144B where notices went unanswered and the assessing officer made a best judgment computation without allowing enquiry or permitting filing of a return. - HELD THAT: - The assessment was initiated following discovery of a high value property transaction. The assessing officer invoked the power to assess escaped income and adopted a best judgment assessment. However, the order shows absence of any meaningful enquiry into the claimed position of the assessee and a failure to afford the assessee a proper opportunity to file a return and participate in the assessment process. The court found that the assessing officer, in making the computation, had effectively abdicated his adjudicatory role by proceeding ex parte without the mandated enquiries and without giving the assessee the chance to furnish her position. In these circumstances the assessment could not be sustained and required setting aside to permit the assessee to file a return and have the matter considered afresh by the assessing authority.

Impugned assessment order set aside and quashed; petitioner permitted to submit a return within two weeks for assessment.

Final Conclusion: The High Court quashed the ex parte assessment made after discovery of a high value transaction, on the ground that the assessing officer failed to conduct requisite enquiry and denied the assessee an opportunity to file a return; the petitioner is directed to file a return within two weeks for fresh assessment consideration.

Section 148A - conducting inquiry and opportunity before issue of notice under Section 148 - natural justice - supply of information relied upon by assessing officer - prematurity of writ against notice issued under Section 148 - prior approval of specified authority - proviso to Section 148 and clause (d) of Section 148A - condition precedent for issuance of notice under Section 148

Section 148A - conducting inquiry and opportunity before issue of notice under Section 148 - natural justice - supply of information relied upon by assessing officer - prematurity of writ against notice issued under Section 148 - Whether the writ petition attacking the order under Section 148A(d) and the consequent notice under Section 148 is maintainable at this stage on the ground of non-supply of statements/list of beneficiaries relied upon by the Investigation Wing. - HELD THAT: - Court examined the four-step procedure in Section 148A and held that the Assessing Officer was required at the Section 148A(d) stage to decide whether, on the material available including the assessee's reply, it was a fit case to issue notice under Section 148; this does not amount to a conclusive finding that income has escaped assessment. The report of the Investigation Wing in the form of 'note on J.M. Balanced Fund-Annual Dividend Option beneficiaries' was supplied to the assessee on 08.08.2022 and was not alleged to be wholly irrelevant. The court found that the Assessing Officer had applied his mind to the material and considered the assessee's replies; the deficiency complained of (non-supply of full statements of third parties) did not render the impugned order a nullity or amount to total non-application of mind. Consequently, the points raised by the assessee regarding factual sufficiency of material and non-supply of certain statements could be agitated in response to the notice under Section 148 and did not justify interference under Article 226 at this premature stage. The court distinguished authorities where no material had been supplied or the material relied upon was not provided, holding those decisions inapplicable on the facts. The petitioner was left at liberty to raise all contentions in the reassessment proceedings triggered by the Section 148 notice. [Paras 15, 16, 17, 18, 19]

Writ petition is not maintainable at this stage on the ground of non-supply of certain statements; no interference with the Section 148A(d) order or the issuance of notice under Section 148, and the assessee may raise all objections in response to the Section 148 notice.

Prior approval of specified authority - proviso to Section 148 and clause (d) of Section 148A - condition precedent - issuance of notice under Section 148 - Whether the prior approval of the specified authority required by the proviso to Section 148 is distinct from, and separate of, the approval under Section 148A(d), and whether absence of a separately recorded approval under Section 148A(d) vitiates the proceedings. - HELD THAT: - On comparative reading of Sections 148 and 148A, the court held that Section 148A prescribes the procedural conditions to be satisfied before issuance of a Section 148 notice and that the proviso to Section 148 requiring prior approval of the specified authority is satisfied once such approval is granted under clause (d) of Section 148A. In the facts of the case the approval communicated on 19.08.2022 was treated as the required prior approval, and there was no failure of the statutory condition precedent that would warrant interference. The court therefore found no breach of the mandatory requirements of Section 148A relating to prior approval. [Paras 20, 21, 22]

Approval granted under Section 148A(d) satisfies the proviso to Section 148; there is no lack of the statutory prior approval that would invalidate issuance of the notice.

Final Conclusion: Writ petition dismissed; court declines to interfere with the order under Section 148A(d) and the notice under Section 148 issued for Assessment Year 2018-19, observing that the Assessing Officer applied his mind, the procedural prerequisites under Section 148A and the proviso to Section 148 were satisfied, and the assessee remains free to raise all contentions in the reassessment proceedings.

Condonation of delay for preferring appeal - interest under section 28 of the Land Acquisition Act as part of compensation - exemption of compensation for compulsory acquisition of agricultural land under section 10(37) - taxability of interest on enhanced compensation as income from other sources - precedential value of coordinate Bench decisions

Condonation of delay for preferring appeal - Application for condonation of delay of 161 days in filing appeal before the Tribunal - HELD THAT: - The assessee explained that the dismissal of his first appeal by the CIT(A)-NFAC on 30.05.2022 came to his notice only in December 2022 because he is uneducated and has limited knowledge of computers; the appeal before the Tribunal was filed immediately thereafter. There is no counter-affidavit from the Assessing Officer and no material to demonstrate any willful or deliberate default by the assessee. The Tribunal accepted the explanation as bona fide and sufficient, applying the principle that bona fide cause warrants condonation of delay as recognised in Paras Rice Mills v. CIT. Accordingly, the delay of 161 days in filing the appeal was condoned and the appeal admitted for hearing. [Paras 3]

Delay of 161 days condoned and appeal admitted for hearing.

Interest under section 28 of the Land Acquisition Act as part of compensation - exemption of compensation for compulsory acquisition of agricultural land under section 10(37) - taxability of interest on enhanced compensation as income from other sources - precedential value of coordinate Bench decisions - Whether interest received under section 28 of the Land Acquisition Act on enhanced compensation is part of compensation and exempt under section 10(37) when agricultural land is compulsorily acquired - HELD THAT: - The authorities below had treated the interest on enhanced compensation as income from other sources and denied exemption under section 10(37). The Tribunal examined the coordinate Bench decision in Ram Kishan, which considered Supreme Court and High Court authorities and concluded that interest awarded under section 28 on enhanced compensation is part and parcel of compensation and, in the case of compulsory acquisition of agricultural land by an individual or HUF, is exempt under section 10(37). Applying and respectfully following that coordinate Bench reasoning, and noting the similarity of facts, the Tribunal held that the interest on enhanced compensation falls within the exempted compensation and therefore the addition confirmed by the CIT(A) must be deleted. [Paras 4, 7, 8, 9]

Addition of interest on enhanced compensation deleted; appeal allowed on this ground.

Final Conclusion: The application for condonation of delay of 161 days is allowed; on merits the Tribunal, following a coordinate Bench, holds that interest received under section 28 on enhanced compensation for compulsory acquisition of agricultural land is part of compensation and exempt under section 10(37), accordingly the addition is deleted and the assessee's appeal is allowed.

Penalty under section 271B of the Income Tax Act - delay in filing tax audit report under section 44AB of the Income Tax Act - reasonable cause / venial technical breach without mala fide intention - tax audit report made available before completion of assessment under section 143(3) - reopening notice under section 148 of the Income Tax Act

Penalty under section 271B of the Income Tax Act - delay in filing tax audit report under section 44AB of the Income Tax Act - reasonable cause / venial technical breach without mala fide intention - tax audit report made available before completion of assessment under section 143(3) - Whether penalty under section 271B can be sustained for delayed filing of tax audit report when the tax audit report was furnished before completion of assessment proceedings. - HELD THAT: - The Tribunal found that although the assessee filed the tax audit reports beyond the due date prescribed under section 139(1), the audit reports were made available to the Assessing Officer during the course of assessment and before completion of assessment under section 143(3). In such circumstances the delay was treated as a venial technical breach occurring without any mala fide intention. The Tribunal relied on and followed coordinate-bench decisions holding that when the tax audit report is furnished to the AO before completion of assessment, reasonable cause exists and penalty under section 271B should not be levied. Applying that principle to the facts of the present appeals, the Tribunal concluded that levy of penalty was not warranted and directed deletion of the penalty for the assessment years under consideration. [Paras 6, 7]

Penalty imposed under section 271B deleted as the tax audit reports were furnished before completion of assessment and the delay amounted to a venial technical breach without mala fide intention.

Final Conclusion: The Tribunal allowed the appeals and deleted the penalties imposed under section 271B for assessment years 2013-14, 2014-15, 2015-16 and 2016-17, holding that the delayed tax audit reports were furnished before completion of assessment and constituted a venial technical breach for which penalty could not be levied.

Registration under section 12AB - provisional registration - genuineness of activities - power to call for documents under section 12AB(1)(b)(i) - requirement to specify non fulfillment of conditions for denial - approval under section 80G

Registration under section 12AB - provisional registration - genuineness of activities - power to call for documents under section 12AB(1)(b)(i) - requirement to specify non fulfillment of conditions for denial - Whether denial of final registration under section 12AB was justified - HELD THAT: - The Tribunal found that the CIT(E) had issued notices calling for documents and information and the assessee furnished the Trust Deed, a note of activities carried out since provisional registration and supporting photographs. The CIT(E) thereafter rejected the application by observing inability to draw a satisfactory conclusion about genuineness of activities, but did not identify any adverse material or specify which requisite condition under section 12AB(1)(b)(i) remained unfulfilled. Where the authority has the power to call for documents or make inquiries to satisfy himself about genuineness and compliance, denial of registration requires specific findings showing non fulfillment of conditions or adverse facts; absent such specification, rejection is not sustainable. Applying these principles to the material on record, the Tribunal concluded that the CIT(E) had no adequate basis to refuse final registration and therefore set aside the denial and directed grant of registration under section 12AB. [Paras 3]

Impugned order refusing final registration is overturned and registration under section 12AB is directed to be granted.

Approval under section 80G - genuineness of activities - requirement to specify non fulfillment of conditions for denial - Whether denial of approval under section 80G(5) was justified - HELD THAT: - The Tribunal noted that the reasons given by the CIT(E) for denying approval under section 80G(5) were identical to those relied upon for rejecting registration under section 12AB. Having found the rejection of registration unsustainable because no adverse material or specific non compliance was identified, the Tribunal applied the same reasoning to the 80G approval. In the absence of specified deficiencies in the material furnished by the assessee, the denial of approval could not stand. [Paras 4]

Impugned order refusing approval under section 80G is overturned and approval under section 80G is directed to be granted.

Final Conclusion: Both appeals are allowed: the orders denying final registration under section 12AB and denying approval under section 80G(5) are set aside and directed to be granted.

Carry forward of capital loss - revised return under Section 139(5) - discovery of omission or wrong statement - statutory embargo on carry forward of losses (non obstante provision in Section 80) - requirement to file loss return within time allowed under Section 139(1) (Section 139(3)) - nexus between expenditure and income for deduction under Section 57(iii)

Carry forward of capital loss - revised return under Section 139(5) - discovery of omission or wrong statement - statutory embargo on carry forward of losses (non obstante provision in Section 80) - requirement to file loss return within time allowed under Section 139(1) (Section 139(3)) - Entitlement to claim and carry forward a long term capital loss first reported in a revised return filed under Section 139(5) after the due date under Section 139(1). - HELD THAT: - The Tribunal held that the statutory scheme requires a return claiming losses for carry forward under Sections 72-74A to be filed within the time prescribed under Section 139(1), as reinforced by the non obstante clause in Section 80 read with Section 139(3). A revised return under Section 139(5) is permissible only where the assessee "discovers any omission or any wrong statement" in the original return. In the present facts the capital loss of substantial magnitude was not disclosed in the original return or the audited profit & loss account and was claimed for the first time by a revised return filed after the Section 139(1) due date. The assessee failed to demonstrate that the omission was inadvertent or to place accounting or transactional particulars showing how the loss was reflected in the books; the claim was uncorroborated and prima facie suggestive of a deliberate omission. Reliance on decisions which did not consider the embargo in Section 80 was held inapposite. For these reasons the claim did not satisfy the requirements of Section 139(5) and, being a new claim made after the Section 139(1) time limit, could not be admitted for carry forward under the Act. [Paras 11, 13, 14, 16]

Claim of long term capital loss first made in the revised return is not admissible for carry forward; ground dismissed.

Nexus between expenditure and income for deduction under Section 57(iii) - deduction limited by nature and purpose of expenditure - Allowability of interest/financial charges as deduction against interest income earned on fixed deposits. - HELD THAT: - The Tribunal recorded the factual finding that interest expenditure was incurred on funds borrowed and used to acquire investments (shares), whereas the interest income arose independently from fixed deposits created from sale proceeds of investments. The assessee did not discharge the onus of establishing a direct and exclusive nexus between the interest expenditure and the interest income so as to qualify under the narrower test of Section 57(iii). In view of the absence of a live nexus and on the basis of the factual appreciation made by the Assessing Officer and affirmed by the first appellant, the disallowance of the interest expenditure was held to be justified. [Paras 17, 19, 20]

Interest/financial charges disallowed for want of requisite nexus with interest income; grounds dismissed.

Final Conclusion: The Tribunal dismissed the appeal. The long term capital loss claimed for the first time in the revised return could not be admitted for carry forward as it was filed after the Section 139(1) due date and did not meet the conditions of Section 139(5); separately, interest expenditure was rightly disallowed for lack of nexus with the interest income under Section 57(iii).

Reopening of assessment - reason to believe - change of opinion - tangible material - full and true disclosure - quashing reassessment for lack of jurisdiction - infructuous appeal

Reopening of assessment - reason to believe - change of opinion - full and true disclosure - Validity of reopening assessment under Sections 147/148 where original scrutiny proceedings had raised and been answered on the same issue and reassessment was initiated on the basis of an investigation report without any whisper of non disclosure. - HELD THAT: - The Tribunal held that reopening beyond four years could not be sustained where the original assessment under section 143(3) had specifically queried share application money, the assessee had replied and furnished documents in response to the query, and no allegation of failure to make a full and true disclosure appeared in the reasons recorded for reopening. Reliance was placed on settled principles that reassessment cannot be based on mere change of opinion and that there must be "tangible material" forming a live link with formation of the belief that income has escaped assessment. Where the Assessing Officer re-opened the assessment relying on an Investigating Wing report without indicating any failure of disclosure by the assessee and where survey and scrutiny had not revealed incriminating material, the reassessment was held to be a review in disguise and without jurisdiction. Applying these principles, the Tribunal found merit in the assessee's contention and quashed the reassessment proceedings. [Paras 16, 17, 18, 19, 20]

Reassessment initiated under Sections 147/148 was quashed for being based on mere change of opinion and lacking requisite basis that the assessee failed to make full and true disclosure.

Quashing reassessment for lack of jurisdiction - infructuous appeal - Consequences for the Revenue's appeal against deletion of addition under section 68 where reassessment has been quashed. - HELD THAT: - Having quashed the reassessment proceedings and set aside the assessment order and the order of the Commissioner (Appeals), the Tribunal held that the Revenue's appeal challenging deletion of the addition became infructuous. Since the foundational reassessment was invalidated, there remained no subsisting order sustaining the addition; accordingly, the appeal by the Department could not be adjudicated on merit and was dismissed as having become infructuous. [Paras 20, 21, 22]

Revenue's appeal dismissed as infructuous because the reassessment and consequential addition were quashed.

Final Conclusion: The Tribunal allowed the assessee's cross objection, quashed the reassessment proceedings under Sections 147/148 as being based on mere change of opinion and without any finding of failure to make full and true disclosure, and consequently dismissed the Revenue's appeal as infructuous.

Capitalisation of repairs vs revenue expenditure - allowability of hedging losses on foreign exchange derivatives - percentage completion method and revenue recognition for turnkey projects - disallowance under section 14A read with Rule 8D restricted to amount of exempt income - non-addition of section 14A disallowance to book profit under section 115JB - remission or cessation of liability under section 41(1) - disallowance under section 40(a)(i) for failure to deduct TDS where payments are reimbursements or services rendered outside India - transfer pricing benchmarking of interest at LIBOR plus mark-up - non-applicability of section 43B non-obstante clause to employees' contribution held in trust

Capitalisation of repairs vs revenue expenditure - Allowability of expenditure on machinery repairs, consumption of spares and payment to NUOVO PIGNONE as revenue expenditure rather than capitalisation. - HELD THAT: - The Assessing Officer treated the entire repairs and maintenance outlay as capitalisation on the ground of enduring benefit and disallowed the full claim. The CIT(A) allowed the amount attributable to consumption of spares and payment to NUOVO PIGNONE as revenue expenditure but sustained a portion as capital. The Tribunal examined the remand report and contemporaneous records, observed absence of specific findings demonstrating enduring benefit from items shown as 'stores', noted that many individual expenses were small in amount and that machine repairs as a percentage of the gross block had declined compared with prior years. The payment to NUOVO PIGNONE was found to be annual maintenance charges. In view of these findings and lack of cogent evidence for capitalisation, the Tribunal held the entire impugned expenditure qualifying as revenue expenditure. [Paras 5, 6, 7, 8, 9]

Expenditure of Rs. 37.50 crores (including spares and payment to NUOVO PIGNONE) is allowable as revenue expenditure; Department's appeal dismissed and assessee's ground allowed.

Allowability of hedging losses on foreign exchange derivatives - Deletion of addition in respect of notional market-to-market loss on outstanding foreign exchange derivative contracts in the impugned year. - HELD THAT: - The Assessing Officer disallowed notional losses on outstanding forex derivative contracts as contingent/notional citing CBDT instruction. The CIT(A) deleted the addition following coordinate ITAT decisions in the assessee's own case and other Ahmedabad Bench rulings. The Tribunal noted that the same issue had been decided in favour of the assessee in its own subsequent assessment years by the Ahmedabad ITAT and, respectfully following those decisions, confirmed that the notional market-to-market loss on outstanding contracts is not exigible for the impugned year. [Paras 10, 11, 12, 13, 14]

Deletion of disallowance in respect of foreign exchange derivative losses affirmed; Department's appeal dismissed.

Percentage completion method and revenue recognition for turnkey projects - Allowability of expenses claimed on turnkey projects computed under percentage completion method as revenue expenditure. - HELD THAT: - The Assessing Officer contended that project expenditures should be capitalised as completion was spread over years, while the assessee followed the percentage completion method and offered corresponding income which was accepted. The CIT(A) accepted that the assessee consistently followed the method, the Assessing Officer did not doubt the veracity of the expenditure and income was taxed on that basis. The Tribunal found no infirmity in these findings and held that the project-related expenses are allowable as revenue expenditure. [Paras 15, 16, 17, 18]

Disallowance deleted; Ground of Department's appeal dismissed.

Disallowance under section 14A read with Rule 8D restricted to amount of exempt income - Restriction of Section 14A disallowance computed under Rule 8D to the amount of exempt dividend income received in the year. - HELD THAT: - The Assessing Officer applied Rule 8D to compute a large disallowance though the assessee had earned exempt dividend of a modest amount and had made a suo moto small disallowance in return. The CIT(A) restricted the disallowance to the amount of exempt income, applying precedent that disallowance under Section 14A/read with Rule 8D cannot exceed exempt income. The Tribunal reviewed Supreme Court and High Court authorities and coordinate ITAT decisions supporting the principle that if exempt income is absent or limited, the Section 14A disallowance must be restricted accordingly, and found no error in CIT(A)'s approach. [Paras 19, 20, 21, 22, 23]

Disallowance under Section 14A restricted to exempt dividend of Rs. 16,86,651/-; Department's appeal and assessee's cross-ground dismissed.

Non-addition of section 14A disallowance to book profit under section 115JB - Amounts disallowed under Section 14A/read with Rule 8D cannot be added to book profit for computation under Section 115JB. - HELD THAT: - The Assessing Officer had reduced book profit by reference to the Section 14A disallowance. The Tribunal observed settled law, including recent Supreme Court and High Court decisions and coordinate ITAT precedents, that disallowances under Section 14A/read with Rule 8D are not to be added back for computation of book profits under Section 115JB. On that consistent jurisprudence and the facts that book profit was a loss as per return, the Tribunal dismissed the Department's contention. [Paras 24, 25]

Department's appeal on inclusion of Section 14A disallowance in Section 115JB computation dismissed.

Remission or cessation of liability under section 41(1) - Deletion of addition under Section 41(1) in respect of sundry creditors outstanding over three years where liabilities continued to be shown in books and some amounts were subsequently settled. - HELD THAT: - The Assessing Officer invoked Section 41(1) treating old sundry creditors as ceased liabilities and added them to income. The CIT(A) deleted the addition relying on Gujarat High Court authority that mere antiquity of liabilities does not establish cessation, particularly where liabilities continue to appear in books and there was no evidence of remission during the year. The Tribunal noted that some debts were repaid in subsequent years and that identical issues in the assessee's own case had been decided in its favour by the Ahmedabad ITAT, and accordingly found no infirmity in deletion. [Paras 26, 27, 28, 29]

Addition under Section 41(1) deleted; Department's appeal dismissed.

Disallowance under section 40(a)(i) for failure to deduct TDS where payments are reimbursements or services rendered outside India - Deletion of disallowance under Section 40(a)(i) for recruitment reimbursements and for commission payments to agents for services rendered outside India. - HELD THAT: - The Assessing Officer disallowed sales commission and recruitment expense payments for non-deduction of TDS. The CIT(A) found recruitment payments were reimbursements of travel expenses (not subject to TDS) and that commission payments concerned services performed outside India to non-resident agents, falling within exceptions and not chargeable to TDS. The Tribunal followed prior Ahmedabad ITAT rulings in the assessee's own case and observed absence of contrary material from Revenue, upholding the CIT(A)'s deletions. [Paras 30, 31, 32, 33, 34]

Disallowance under Section 40(a)(i) deleted; Department's appeal dismissed.

Transfer pricing benchmarking of interest at LIBOR plus mark-up - ALP in respect of interest on loans to associated enterprises fixed at LIBOR plus 2.5% (7.69%) in favour of the assessee; TPO/TPO/CIT(A) upward adjustment disallowed. - HELD THAT: - The TPO increased the assessee's LIBOR+2.5% benchmark by adding a substantial risk mark-up arriving at a higher ALP; CIT(A) confirmed that adjustment. The assessee relied on multiple judicial decisions where LIBOR plus a modest mark-up (around 2%) was accepted as appropriate benchmark for foreign currency loans. The Tribunal found the TPO's additional risk mark-up disproportionate (about 72% of LIBOR) and observed that judicial precedents support benchmarking at LIBOR plus c.2%. Given the assessee had adopted LIBOR+2.5% with supporting rationale and absence of adequate comparable evidence for the TPO's larger uplift, the Tribunal allowed the assessee's ground and directed adoption of LIBOR+2.5%. [Paras 38, 39, 40, 41, 42]

Transfer pricing adjustment deleted to the extent that ALP is fixed at LIBOR plus 2.5%; assessee's appeal allowed on this ground.

Non-applicability of section 43B non-obstante clause to employees' contribution held in trust - Assessee's appeal against disallowance for late deposit of employees' provident fund and ESI contributions dismissed; deduction not allowable for assessment years prior to AY 2021-22. - HELD THAT: - The assessee challenged disallowance for late payment of employees' contributions. The Tribunal relied on Supreme Court precedent (Checkmate Services and Harrisons Malayalam) and relevant High Court authority establishing that for assessment years prior to AY 2021-22 the non-obstante clause in Section 43B does not validate deduction where employee contributions (held in trust under section 2(24)(x)) were not deposited by the due date. Applying this settled law, the Tribunal upheld the disallowance. [Paras 43, 44]

Ground of assessee's appeal dismissed; deduction for late deposit of employees' contributions denied in accordance with precedent.

Final Conclusion: The Tribunal dismissed the Revenue's appeal in its entirety and allowed the assessee's appeal in part - key findings include holding the repairs and related expenses as revenue expenditure, deleting notional forex derivative losses, allowing turnkey project expenses, restricting Section 14A disallowance to exempt income (and excluding such disallowance from Section 115JB computation), deleting additions under Sections 41(1) and 40(a)(i) on the facts, allowing the assessee's transfer pricing benchmark at LIBOR+2.5%, and dismissing the assessee's ground on late deposit of employees' contributions consistent with binding precedent.

Club membership fee as business expenditure - nexus / wholly and exclusively for the purpose of business - corporate membership versus individual membership - condonation of delay on grounds of COVID-19 and failure of earlier authorised representative - benefit inuring to the company through director/partner's membership - allowability of club subscription in light of judicial precedents

Condonation of delay on grounds of COVID-19 and failure of earlier authorised representative - Application for condonation of delay in filing the appeal - HELD THAT: - The Tribunal examined the explanation for the delay in filing the appeal against the order dated 29.10.2019. It found that the assessee's earlier authorised representative did not promptly inform the assessee of the impugned order and that the Covid-19 pandemic period contributed to further delay. Excluding the period attributable to the pandemic, the remaining delay was not deliberate and amounted to approximately ninety days. In these circumstances the Tribunal exercised its discretion to condone the delay and admit the appeal for adjudication on merits. [Paras 2]

Delay in filing the appeal is condoned.

Club membership fee as business expenditure - corporate membership versus individual membership - nexus / wholly and exclusively for the purpose of business - benefit inuring to the company through director/partner's membership - allowability of club subscription in light of judicial precedents - Allowability of the deduction of subscription/entrance fee paid for Cricket Club of India membership - HELD THAT: - The Tribunal considered whether the entrance fee of Rs.22,60,000 paid on 08.04.2013 for membership of the Cricket Club of India, taken in the name of the assessee's director (category 'Member's Son'), was a personal expense or an expenditure incurred wholly and exclusively for the purpose of business. The Tribunal noted that the company was operational up to 08.04.2013 and thereafter converted into an LLP whose partners (including the director who obtained membership) would continue the business. The assessee could not obtain corporate membership because it did not meet the club's eligibility criteria; accordingly corporate membership was not a feasible alternative. The Tribunal relied on authoritative decisions holding that club membership expenses may qualify as business expenditure where there is a nexus with business activities and the membership facilitates meetings and contacts beneficial to the enterprise. Applying those principles to the facts - including that the director/partner is a key person who would use the membership to further business interests and that the membership was the practical means available to secure such advantages - the Tribunal concluded the expenditure was incurred for the purpose of business and not a personal disallowable expense. Consequently the addition was deleted. [Paras 5, 9, 10]

Addition of the subscription/entrance fee of Rs.22,60,000 is deleted and the expenditure is allowed as business deduction.

Final Conclusion: The Tribunal condoned the delay in filing the appeal and allowed the appeal on merits by deleting the addition of the club subscription/entrance fee, holding that the payment for the director/partner's membership in the circumstances inured to the business and was deductible.

Arm's length price - transfer pricing - CUP method - transfer pricing - other method (ad hoc nil determination) - disallowance under section 14A - computation under Rule 8D - ESOP expenditure - deduction under section 37(1) - interest computation under sections 234B and 234D

Arm's length price - transfer pricing - CUP method - transfer pricing - other method (ad hoc nil determination) - Deletion of transfer pricing adjustment made in respect of payment for central services. - HELD THAT: - The Tribunal found that the assessee had benchmarked the intra group central services payment using the external CUP method and had produced documentary evidence demonstrating rendition of services and commensurate benefit. The TPO had determined ALP at nil by applying an ad hoc "other method" without identifying uncontrolled comparable transactions and on cryptic, non speaking reasoning. The coordinate bench's earlier decisions in the assessee's own case for preceding years, which accepted similar CUP benchmarking and deleted identical additions, were held to be squarely applicable. Having considered the submissions and documentary material, the Tribunal concluded that the assessee discharged its onus and, following the coordinate precedents, directed deletion of the inter group services adjustment. [Paras 14, 15]

Transfer pricing adjustment in respect of central services deleted for both assessment years.

Disallowance under section 14A - computation under Rule 8D - Deletion of disallowance made under section 14A read with Rule 8D. - HELD THAT: - The AO applied Rule 8D without recording satisfaction or properly examining the nature of the investments and whether they yielded exempt income, and computed the average on an incorrect basis. The Tribunal relied on its coordinate bench decisions in the assessee's own case for earlier years, which held that certain growth mutual fund investments yielding taxable capital gains should be excluded from the Rule 8D computation and that a mechanical application of Rule 8D without requisite satisfaction is impermissible. On that basis and on the material furnished by the assessee, the Tribunal deleted the disallowance. [Paras 16]

Disallowance under section 14A/Rule 8D deleted for the year under consideration.

ESOP expenditure - deduction under section 37(1) - Deletion of addition disallowing ESOP expenditure. - HELD THAT: - The Tribunal followed the ratio of the coordinate bench and relevant precedents which recognise that discount on issue of ESOPs, where a definite liability crystallises over the vesting period and is accounted for in accordance with applicable accounting standards/SEBI guidelines, constitutes an expenditure allowable under section 37(1). As the facts for the years under appeal were identical to the earlier determinations in the assessee's favour, the Tribunal directed deletion of the addition. [Paras 17]

Addition disallowing ESOP expenditure deleted for both assessment years.

Interest computation under sections 234B and 234D - Remand for recomputation of interest under sections 234B and 234D. - HELD THAT: - The Tribunal did not adjudicate the interest quantum on the merits but observed errors in the AO's computation. It directed the AO to consider facts afresh, rectify calculation errors in interest under sections 234B and 234D and to give the assessee a reasonable opportunity of being heard before finalising the computation. [Paras 18, 23]

Computation of interest under sections 234B and 234D remanded to the assessing officer for fresh consideration and rectification.

Final Conclusion: The Tribunal allowed the appeals for AY 2017 18 and AY 2018 19: the transfer pricing adjustment in respect of central services and the disallowances under section 14A and in respect of ESOP expenditure were deleted; computations of interest under sections 234B and 234D were remitted to the assessing officer for fresh calculation; the procedural contention regarding issuance of assessment order without DIN was rendered academic and left open.

Duty-free import for export production - job work permission and monitoring - liability of principal for misuse of duty-free goods - misdeclaration and penal consequences - confiscation and redemption fine - remand for verification of receipt of processed goods

Remand for verification of receipt of processed goods - confiscation and redemption fine - misdeclaration and penal consequences - Order in original confirming duty, redemption fine and penalties was set aside insofar as it did not enquire whether the duty free raw materials sent to the declared job worker were received back after processing, and the matter was remanded for fresh adjudication on that aspect. - HELD THAT: - The Tribunal noted that the adjudicating authority confirmed duty, imposed redemption fine and penalties but the impugned order is silent on whether the material sent to the declared job worker that allegedly did not exist at the declared address was returned to the 100% EOU after processing. The obligation to establish non receipt is central to sustaining recovery, confiscation or penalties arising from alleged diversion or misuse of duty free goods. Although the Tribunal recorded carelessness on the part of the manufacturer in failing to verify the existence of the declared job worker and noted misdeclaration by the job worker, it held that adjudication on duty, redemption fine and penalties can be confirmed only after the factual question whether the processed goods were received back by the appellant is determined. For these reasons the matter was remanded to the Adjudicating Authority for re adjudication limited to verification of receipt of processed goods and consequential quantification or reassessment of duty, redemption fine and penalties, taking into account any explanatory material and compliance with monitoring requirements.

Appeals allowed by remanding the matter to the Adjudicating Authority for fresh adjudication limited to verifying whether the duty free raw materials sent for job work were received back and for reassessment of duty, redemption fine and penalties accordingly.

Final Conclusion: The Tribunal remitted the matter for fresh adjudication because the impugned orders failed to determine whether the duty free goods sent to the declared job worker were returned after processing; consequential confirmation of duty, confiscation/redemption fine and penalties was therefore not sustained without that verification.

Principle of unjust enrichment - presumption under Section 28D of the Customs Act, 1962 - burden of proof on claimant to show duty not passed on - refund of customs duty - sanction of refund - remand for fresh evidence and speaking order

Principle of unjust enrichment - presumption under Section 28D of the Customs Act, 1962 - burden of proof on claimant to show duty not passed on - remand for fresh evidence and speaking order - Whether the question of unjust enrichment was correctly applied and whether the Appellants had discharged the burden of proof to show that the incidence of duty was not passed on, and what remedial course should follow. - HELD THAT: - The Tribunal found that the Original Authority had granted the refund without examining the matter from the angle of unjust enrichment as required by law, while the Commissioner (Appeals) set aside that grant on the ground that the Appellants had not rebutted the presumption under Section 28D. The Appellants produced a CA certificate and book entries showing the amount as recoverable tax; the Tribunal observed that the CA certificate on its face deals with duty and not fine or penalty, but that a CA certificate alone may not be decisive if the sanctioning authority remains unconvinced. In the interest of justice and in view of the lack of opportunity before the Original Authority to examine and decide the issue on evidence, the Tribunal directed that the matter be referred back for fresh consideration. The Original Authority is to examine the documents already furnished and may call for additional evidence, give the Appellants a personal hearing, and pass a speaking order applying the legal test of unjust enrichment and the statutory presumption under Section 28D, assessing whether the Appellants have discharged the burden of proof that the duty incidence was not passed on. [Paras 10, 11]

Matter remanded to the Original Authority to decide afresh, after allowing production of relevant documents and a personal hearing, and to pass a speaking order within three months; the Commissioner (Appeals) order is set aside.

Final Conclusion: The Appeal is allowed by way of remand: the Commissioner (Appeals) order is set aside and the matter is remanded to the Original Authority to examine the question of unjust enrichment and whether the Appellants have rebutted the presumption under Section 28D, permitting further evidence and a personal hearing and directing a speaking order within three months.

Exemption under notification with non availment of input credit condition - refund of excess Additional Duty of Customs (CVD) consequent to reassessment of Bills of Entry - finality of adjudication where Revenue does not prefer appeal - doctrine of unjust enrichment and burden of proof on the assessee - credit to Consumer Welfare Fund being the rule and direct refund to assessee an exception under proviso to Section 27(2)

Refund of excess Additional Duty of Customs (CVD) consequent to reassessment of Bills of Entry - finality of adjudication where Revenue does not prefer appeal - Refund claims filed pursuant to reassessed Bills of Entry are maintainable and the sanctioning orders granting refunds, which were not challenged by Revenue, have attained finality so as to preclude recovery under Section 28. - HELD THAT: - The Tribunal held that the reassessment of the Bills of Entry by the department pursuant to amendments under Sections 149 and 154 was in conformity with law and that refund claims filed pursuant to those reassessed B/Es are permissible. The record shows that Revenue did not challenge two of the sanctioning orders and the third sanctioning order, which was earlier set aside by the Commissioner (Appeals), was reinstated in favour of the appellants by the Tribunal. In these circumstances, the Department cannot subsequently treat the sanctioned refunds as erroneous and initiate recovery proceedings under Section 28. Consequently, the demands and penalty confirmed in the impugned order could not be sustained and were set aside. [Paras 5]

Demands and penalty confirmed in the adjudication order dated 30.03.2021 are set aside insofar as they seek recovery of refunds that were validly sanctioned following reassessment and where Revenue did not successfully overturn those sanctions.

Doctrine of unjust enrichment and burden of proof on the assessee - credit to Consumer Welfare Fund being the rule and direct refund to assessee an exception under proviso to Section 27(2) - Whether the sanctioned refund should be credited to the Consumer Welfare Fund or paid to the appellants requires reconsideration in the light of the doctrine of unjust enrichment and accounting entries, and is remanded for de novo adjudication. - HELD THAT: - The Tribunal examined Section 27(2) and observed that crediting refunds to the Consumer Welfare Fund is the statutory rule while direct payment to the assessee is an exception dependent on the assessee disproving the presumption of passing on the incidence of duty. The burden lies heavily on the assessee to demonstrate, by documentary evidence and accounting records, that the excess duty was borne by it and not passed on. The adjudicating authority's findings (notably at paragraphs 77(i) and 77(iii)) indicate conflicting account entries and statements on whether the amounts were treated as P&L expenses or as receivables. Given these contradictions and the need for detailed scrutiny of ledger entries, timing of contra entries, and balance sheets for the disputed period, the Tribunal remanded the matter to the Original authority for a limited de novo adjudication on unjust enrichment, directing focused examination of the books and a reasonable opportunity to the appellants. [Paras 6, 7]

Matter remanded to the Original authority for de novo examination limited to the applicability of the doctrine of unjust enrichment and whether the sanctioned refund should be paid to the appellants or credited to the Consumer Welfare Fund; original authority to afford opportunity and conclude proceedings preferably within three months.

Final Conclusion: The appeal is allowed: the adjudicated demands and penalty seeking recovery of the sanctioned refunds are set aside; the question whether the refunds should be paid to the appellants or credited to the Consumer Welfare Fund is remanded to the Original authority for limited de novo adjudication on unjust enrichment, to be completed preferably within three months with reasonable opportunity to the appellants.

Maintainability of writ under Article 226(2) - Territorial jurisdiction - cause of action arising partly within High Court jurisdiction - Constructive res judicata - Investigation by SFIO under section 212 of the Companies Act, 2013 - absence of fixed time frame for submission of report - Legitimate expectation and equitable requirement for completion of investigation within a reasonable time - Preservation and video recording of evidence/CCTV in compliance with Supreme Court directions

Maintainability of writ under Article 226(2) - Territorial jurisdiction - cause of action arising partly within High Court jurisdiction - The writ petition before the Calcutta High Court is maintainable as part of the cause of action arose within its territorial jurisdiction and the petition in this Court pre-dates the petition filed in the Gujarat High Court. - HELD THAT: - The Court examined Article 226(2) and the pleadings, finding that part of the cause of action arose within the jurisdiction of this Court, including the SFIO team's visit to the petitioners' office in Kolkata and correspondence received within the State, thereby establishing territorial nexus. It was also noted and relied upon that the writ petition before the Calcutta High Court was filed prior to the petition in the Gujarat High Court; these facts, taken together with authorities on cause of action, support maintainability of the present petition in this Court. [Paras 5, 6, 10]

Maintainable.

Constructive res judicata - The plea of constructive res judicata raised by the SFIO does not bar the present writ petition. - HELD THAT: - The Court analysed the doctrine of constructive res judicata and Explanation IV to section 11 CPC, observing that the doctrine presupposes identity of parties and that matters which might and ought to have been raised in a former suit are deemed to have been so. Here, differences in the array of parties, the fact that the Calcutta petition pre-dates the Gujarat petition, and that petitioner no. 2 has challenged the Gujarat Division Bench order by filing a Special Leave Petition in the Supreme Court, mean that the earlier decision has not attained finality in a manner that would invoke constructive res judicata. The Court further distinguished precedents cited for res judicata on the ground that those involved decisions which had reached finality and had not been challenged. [Paras 3, 7, 8, 9, 10]

Constructive res judicata not applicable to bar the present petition.

Investigation by SFIO under section 212 of the Companies Act, 2013 - absence of fixed time frame for submission of report - Legitimate expectation and equitable requirement for completion of investigation within a reasonable time - A direction to stay the SFIO investigation or to mandate a statutory outer time limit could not be granted; however, the SFIO must act in terms of the petitioners' legitimate expectation and indicate and strive to complete the investigation within a reasonable time while complying with statutory safeguards. - HELD THAT: - The Court construed section 212 and followed the Supreme Court's decision in Serious Fraud Investigation Office v. Rahul Modi to hold that section 212 does not prescribe a fixed outer limit for completion of the SFIO investigation or submission of its report. Section 212(11) is directory in its proviso nature and section 212(12)/(13) do not import a mandatory outer time-frame. Given these statutory and precedential constraints, the Court declined to grant a stay of investigation or to impose a strict time limit. Simultaneously, the Court emphasised equitable and natural justice considerations: although no statutory outer limit exists, after the considerable delay evidenced in this matter the petitioners are entitled to a reasonable expectation that the investigation will be completed within a reasonable time. The SFIO was reminded of its statutory obligations under section 212 to file reports and of the need to avoid harassment through unnecessary physical appearances. [Paras 16, 17, 19, 20, 25]

No stay or fixed time limit directed; SFIO to act in accordance with legitimate expectation and statutory safeguards to complete investigation within a reasonable time.

Preservation and video recording of evidence/CCTV in compliance with Supreme Court directions - The SFIO must ensure compliance with the directions of the Supreme Court regarding installation/recording and preservation of CCTV recordings and preservation of petitioners' evidence; the prayers outside the scope of section 212 cannot be granted but preservation must be ensured. - HELD THAT: - While the Court held that certain prayers beyond the statutory scope of section 212 could not be granted, it directed that the SFIO shall ensure compliance with the Supreme Court's directions in Paramvir Singh Saini regarding installation and recording equipment in specified offices and the preservation of evidence, including CCTV recordings. The Court noted the petitioners' specific applications seeking preservation and recording and ordered preservation of such recordings and evidence, notwithstanding the limited remit of section 212. [Paras 11, 24]

SFIO directed to ensure preservation of CCTV recordings and compliance with Supreme Court directions; other extraneous prayers refused.

Final Conclusion: The writ petition in the Calcutta High Court is maintainable; constructive res judicata does not bar hearing; petitioners' prayers for stay or statutory time limits on the SFIO investigation are declined because section 212 does not prescribe a fixed outer time frame, but the SFIO is directed to act in accordance with the petitioners' legitimate expectation to complete the investigation within a reasonable period, to comply with statutory safeguards under section 212, and to preserve CCTV recordings and petitioners' evidence in line with the Supreme Court's directions.

Vicarious liability under Section 68 of the Foreign Exchange Regulation Act, 1973 - prosecution under Section 56 read with Section 68 of the Foreign Exchange Regulation Act, 1973 - effect of departmental adjudicatory exoneration on parallel criminal proceedings - quashing of criminal proceedings as abuse of process

Effect of departmental adjudicatory exoneration on parallel criminal proceedings - quashing of criminal proceedings as abuse of process - Whether the criminal proceedings in Case No. C-2481/2002 pending under Sections 56 and 68 of the FERA, 1973 should be quashed in respect of all accused persons in view of the Enforcement Directorate's adjudicatory order dropping proceedings and the High Court's earlier quashing in respect of the company. - HELD THAT: - The Special Director, Enforcement Directorate adjudicated the SCN and dropped proceedings against the company and consequentially against the individual noticees, holding that charges against individuals under Section 68 could be sustained only if the charge against the company were proved. This Court took judicial notice of that adjudicatory order and of its own earlier quashing of the complaint insofar as the company was the petitioner in CRR 1891/2004. Given that the complainant had itself dropped proceedings against all accused persons and that the foundational charge against the company was found not proved on material evidence, continuation of the criminal complaint against the individuals amounted to an abuse of the process of law. In that factual and legal matrix, the revisional jurisdiction is exercised to quash the pending criminal proceedings against all accused persons to secure the ends of justice and prevent vexatious continuation of the prosecution. [Paras 31, 32, 33]

Proceedings in Case No. C-2481/2002 are quashed in respect of all the accused persons including the petitioner.

Vicarious liability under Section 68 of the Foreign Exchange Regulation Act, 1973 - discharge of accused following departmental exoneration - Whether individuals arraigned solely under Section 68 can be prosecuted after the company has been exonerated in departmental adjudication and the company-related criminal complaint has been quashed. - HELD THAT: - Section 68 subjects individuals to liability only by virtue of contravention attributed to the company; therefore, proof of the company's contravention is a condition precedent for sustaining proceedings against individuals under that provision. The Special Director's order found that charges against ITC Ltd. were not proved and explicitly held that charges against individual noticees charged under Section 68 'fail automatically' when the main charge against the company is not established. The High Court's prior quashing of the complaint against the company and the ED's dropping of the SCN accordingly precluded maintenance of criminal proceedings against persons arrayed solely on the basis of vicarious liability under Section 68, and their continued prosecution would be oppressive and an abuse of process. [Paras 10, 11, 16, 26]

Individuals arraigned solely under Section 68 had to be discharged once the company was adjudged not to have contravened the Act; continuation of proceedings against them is impermissible.

Final Conclusion: The revisional application is allowed; the criminal proceedings in Case No. C-2481/2002 under Sections 56 and 68 of the FERA, 1973 are quashed in respect of all accused persons, including the petitioner, and connected applications are disposed of.

Time barred show cause notice - extended period of limitation - penalty under section 78 not sustainable without demand under section 73(1) - requirement of suppression, fraud or wilful default to invoke extended limitation

Time barred show cause notice - extended period of limitation - requirement of suppression, fraud or wilful default to invoke extended limitation - The show cause notice issued for recovery of interest and imposition of penalties was time barred and invocation of the extended period was not justified. - HELD THAT: - The Tribunal found that the show cause notice for recovery of interest and imposition of penalties was issued after the normal period of limitation and that there was no allegation or evidence of mala fide intention or of suppression, fraud or wilful default by the appellant (a Government of India trust) which could justify invocation of the extended period. Relying on the principle that the proviso permitting reopening within five years applies only where suppression, fraud or wilful default is shown, the Tribunal held that the extended period could not be invoked and therefore the show cause notice was time barred. The Tribunal took support from the reasoning in Pushpam Pharmaceuticals Company v. CCE [quoted in the order] which construes 'suppression' strictly and requires deliberate nondisclosure to escape liability. [Paras 4]

Show cause notice is time barred; invocation of the extended period is not legal or proper and the demand based on it cannot be sustained.

Penalty under section 78 not sustainable without demand under section 73(1) - Penalty under section 78 could not be sustained because no demand of service tax was raised under section 73(1) in the show cause notice. - HELD THAT: - The Tribunal observed that the show cause notice did not raise any demand for service tax under section 73(1) - the notice concerned only interest and penalties - and that the appellant had admittedly paid the service tax without protest. Since imposition of penalty under section 78 presupposes that a demand under section 73(1) has been raised, the absence of such a demand rendered the penalty under section 78 unsustainable. For these reasons the penalty was set aside. [Paras 4]

Penalty under section 78 is not sustainable in the absence of a demand under section 73(1).

Final Conclusion: The impugned order confirming interest and imposing penalties is set aside because the show cause notice was time barred and the penalty under section 78 is unsustainable absent a demand under section 73(1); the question of taxability of the leasing was not decided and is left open.

Declared service under Section 66E(e) - agreeing to refrain, tolerate or to do an act - Penal/liquidated damages not consideration for rendition of service - Reversal of credit under Rule 6 - proportional reversal for common input services - Reimbursements on cost sharing between group companies not taxable as service - Imposition of penalty requires finding of fraud, collusion or suppression; Section 73(3) - notice avoidable where tax and interest paid before notice

Declared service under Section 66E(e) - agreeing to refrain, tolerate or to do an act - Penal/liquidated damages not consideration for rendition of service - Late Payment Charges collected by the appellant are not exigible to service tax as a declared service under Section 66E(e). - HELD THAT: - The Tribunal applied the principle that amounts levied as penalty or liquidated damages for non performance of contractual obligations do not constitute consideration for tolerating or refraining from an act and therefore are not taxable as a declared service under Section 66E(e). Reliance on the Tribunal decision in South Eastern Coalfields Ltd (as accepted by the Board) supports that penal charges imposed to deter delayed payment cannot be treated as payment for rendition of a toleration service. The adjudicating authority's characterization of late payment charges as a declared service was therefore reversed.

Demand on Late Payment Charges set aside as not sustainable.

Reversal of credit under Rule 6 - proportional reversal for common input services - Imposition of penalty requires finding of fraud, collusion or suppression; Section 73(3) - notice avoidable where tax and interest paid before notice - Demand arising from trading of scrips on own account and the consequent credit reversal under Rule 6 was to be limited to the proportionate credit attributable to common input services; penalty for this issue is not imposable where there is no finding of suppression and proportional reversal along with interest was deposited. - HELD THAT: - The Tribunal held that where common input services are used for both taxable and exempt services, Rule 6 offers options for reversal but does not empower authorities to select an option arbitrarily to raise a higher demand. Citing the Telangana High Court view in Tiara Advertising, the appellant is entitled to reverse only the proportionate credit attributable to the exempted activity; the appellant had calculated and deposited the proportional reversal with interest. As there is no finding of fraud, collusion or suppression in the impugned order, penalty equivalent to the amount paid cannot be imposed. Further, since tax and interest were paid before issuance of notice, invocation of extended period and imposition of penalty was improper under the scheme of Section 73(3).

Demand recalculated to accept proportional reversal already paid; penalties in respect of this demand set aside.

Reimbursements on cost sharing between group companies not taxable as service - Reimbursements claimed from group companies on cost sharing basis do not constitute provision of taxable service and the demand on such reimbursements is unsustainable. - HELD THAT: - The Tribunal accepted the appellant's submissions and precedents that cost sharing reimbursements (not representing services rendered) cannot be treated as consideration for a taxable service. The adjudicating authority had not given any contrary finding addressing these decisions. Major reimbursements such as electricity charges were held to be not connected with provision of any taxable service; therefore the demand on reimbursement receipts was invalid.

Demand on reimbursements as cost sharing set aside as not sustainable.

Imposition of penalty requires finding of fraud, collusion or suppression; Section 73(3) - notice avoidable where tax and interest paid before notice - Penalties imposed in the impugned order are not sustainable in the absence of findings of fraud, collusion or suppression and where tax and interest were paid before issuance of the show cause notice. - HELD THAT: - The Tribunal noted the absence of any adjudicatory finding of willful suppression or fraud in the impugned order. Where the tax and interest admitted or paid by the assessee precede the issue of the show cause notice, issuance of the notice under extended period and levy of penalty is impermissible under the statutory scheme. Reliance was placed on relevant precedents and reasoning to hold penalties unsustainable.

Penalties imposed in the impugned order set aside.

Final Conclusion: The appeal is allowed in part: demands in respect of late payment charges, trading related credit adjustments (to the extent beyond proportional reversal) and reimbursements on cost sharing are set aside; the admitted tax and interest for non reversal under Rule 6 remain confirmed but associated penalties are quashed; overall penalties in the impugned order are not sustainable. The order is modified accordingly and the appeal disposed of.

Cenvat credit of Education Cess and Secondary and Higher Education Cess - refund of unutilized Cenvat credit on account of transition to GST - entitlement to cash refund where accumulated cess cannot be migrated to GST - admissibility of Cenvat credit under Rule 3 of Cenvat Credit Rules, 2004 - precedential value of co ordinate bench decisions

Cenvat credit of Education Cess and Secondary and Higher Education Cess - refund of unutilized Cenvat credit on account of transition to GST - entitlement to cash refund where accumulated cess cannot be migrated to GST - admissibility of Cenvat credit under Rule 3 of Cenvat Credit Rules, 2004 - Appellants entitled to cash refund of unutilized Cenvat credit of Education Cess and Secondary and Higher Education Cess arising from inability to migrate accumulated cess on introduction of GST. - HELD THAT: - The Tribunal accepted that appellants possessed unutilized accumulated cess because, at the relevant time, there was no provision to migrate such cess into the GST regime. The decision applies the permissive scope of Cenvat credit under Rule 3 of the Cenvat Credit Rules, 2004, which expressly allows credit of Education Cess and Secondary and Higher Education Cess, and follows co ordinate Bench and other decisions cited by the appellant (including the CESTAT Ahmedabad and CESTAT New Delhi authorities referenced in the record) which held that refund cannot be denied where the assessee is unable to utilize such cess due to the introduction of GST. Having regard to those precedents and the statutory framework for admissibility of the cess as Cenvat credit, the Tribunal found the issue no longer res integra and concluded that cash refund is allowable to the appellants.

Appeal allowed; appellants entitled to cash refund of the unutilized Cenvat credit of Education Cess and Secondary and Higher Education Cess.

Final Conclusion: The Tribunal allowed the appeal and directed that the appellants are entitled to cash refund of their unutilized Cenvat credit of Education Cess and Secondary and Higher Education Cess, the decision being guided by Rule 3 of the Cenvat Credit Rules, 2004 and the cited co ordinate Bench precedents.