TaxTMI Updates e-Newsletter
Jul 01,2022

Search and seizure procedure - Presence of person during search - De-sealing of premises after search - Accompanying advocate's non-interference - Filing of counter-affidavit and rejoinder

Presence of person during search - Search and seizure procedure - Arrangements for the petitioner to be present during search at the business premises. - HELD THAT: - The Court directed that the petitioner shall remain present at the business premises located at 2105, Ground Floor, Bawana Road, Narela, North Delhi on 06.06.2022 at 11:00 AM to enable the respondents to carry out the search. The direction follows the parties' agreement to a modality whereby presence of the petitioner is fixed in time and place to facilitate the search operation. [Paras 2]

Petitioner to be present at the stated business premises on 06.06.2022 at 11:00 AM for the conduct of the search.

Presence of person during search - Search and seizure procedure - Arrangements for the petitioner to be present during search at the godown premises. - HELD THAT: - The Court directed that the petitioner shall remain present at the godown located at Ground Floor, Plot No. 72/20, 21, Bawana Road, Gali No. 2, Prem Colony, Narela, Delhi on 07.06.2022 at 11:00 AM to permit the respondents to conduct the search. The direction mirrors the agreed modality for orderly search of the additional premises. [Paras 2]

Petitioner to be present at the specified godown on 07.06.2022 at 11:00 AM for the conduct of the search.

Accompanying advocate's non-interference - Search and seizure procedure - Permission for an advocate to be present during the searches and limitation on the advocate's role. - HELD THAT: - The Court allowed Ms Shweta Singh, Advocate, to remain present at the premises on the specified dates when searches are carried out, but expressly provided that she shall not intercede or interfere in the search proceedings. This balances the petitioner's entitlement to legal assistance with the respondents' authority to conduct the search uninterrupted. [Paras 2]

Ms Shweta Singh permitted to be present during searches but restrained from interceding or interfering in the proceedings.

De-sealing of premises after search - Search and seizure procedure - De-sealing of premises after completion of the search. - HELD THAT: - The respondents, through their counsel, stated they would de-seal both the business premises and the godown after conducting the search. The Court recorded this position as part of the agreed modality for the searches, thereby providing assurance that the premises will be de-sealed post-search. [Paras 1]

Respondents to de-seal the business premises and the godown after completion of the searches.

Filing of counter-affidavit and rejoinder - Timetable for filing of respondents' counter-affidavits and any rejoinders by the petitioner. - HELD THAT: - The Court directed that the respondents shall file their counter-affidavit(s) within five weeks and that the petitioner may file rejoinder(s), if any, before the next date of hearing. This provides a fixed procedural timeline for exchange of affidavits in the interim period. [Paras 4]

Respondents to file counter-affidavit(s) within five weeks; rejoinder(s), if any, to be filed before the next hearing.

Search and seizure procedure - Adjournment and listing for further hearing. - HELD THAT: - The Court listed the matter for further consideration on 27.09.2022, thereby fixing the next date for hearing after the completion of the directed searches and the filing of affidavits. [Paras 3]

Matter listed on 27.09.2022 for further hearing.

Final Conclusion: The Court approved an agreed modality for searches by directing the petitioner's presence at specified premises on specified dates, permitted an advocate to be present subject to a non-interference condition, recorded that the respondents will de-seal the premises post-search, fixed a timetable for filing counter-affidavit(s) and rejoinder(s), and listed the matter for hearing on 27.09.2022.

Pure agent - Value of supply exclusion under Rule 33 - Reimbursement not forming part of taxable value - Agent versus pure agent - Intermediary / conduit for payment

Pure agent - Value of supply exclusion under Rule 33 - Reimbursement not forming part of taxable value - Intermediary / conduit for payment - Whether the stipend amounts received by the applicant from industry partners and disbursed in full to trainees attract GST or are excluded from the taxable value as reimbursements by a pure agent. - HELD THAT: - The Authority found that the applicant is a NEEM facilitator who selects and supplies trainees to industry partners, charges an administrative fee (on which GST is accepted to be payable) and, pursuant to agreement terms, receives stipend amounts from industry partners and disburses them in full to the trainees without any mark up. Applying the explanation to Rule 33 of the CGST Rules the Authority concluded that the conditions for treatment as a pure agent are satisfied: the applicant acts on authorization of the recipient when making payments to third parties, the stipend payments are separately indicated in invoices, the supplies procured (stipend to trainees) are in addition to services supplied on the applicant's own account (administrative services), the applicant neither holds title to nor uses the stipend amounts for its own benefit and receives only the actual amount incurred. The stipend therefore falls within the expenditure excluded from the value of supply under Rule 33 and does not form part of the taxable value. The Authority further relied on its earlier rulings in similar NEEM facilitator matters and declined to depart from those conclusions. [Paras 5, 6]

The reimbursement of stipend amounts received by the applicant from industry partners and paid in full to trainees is not liable to GST and is excluded from the taxable value under Rule 33 as a pure agent reimbursement.

Final Conclusion: The Advance Ruling answers the question in the negative: stipend reimbursements routed through the applicant to trainees do not attract GST and are excluded from the value of supply under the pure agent treatment of Rule 33.

Benefit of input tax credit - profiteering - passing on the benefit by commensurate reduction in prices - Section 171 of the CGST Act - RERA escrow accounts and project-wise segregation - project-wise computation of profiteering - verification of refund with interest - investigation of other projects under same GST registration - Rule 133 of the CGST Rules

Benefit of input tax credit - passing on the benefit by commensurate reduction in prices - Section 171 of the CGST Act - profiteering - Determination whether the Respondent failed to pass on the benefit of ITC to homebuyers for project 'Celebrity Garden Block K' and whether such failure amounted to profiteering. - HELD THAT: - The Authority examined the DGAP's comparison of pre-GST and post-GST ratios of available ITC to turnover. The ITC-to-turnover ratio for the pre-GST period (April 2016 to June 2017) was found to be 0.31% and for the post-GST period (July 2017 to September 2019) 0.48%, resulting in an additional ITC benefit of 0.17% of turnover in the post-GST period. Applying the accepted methodology set out in the DGAP's report, the recalibrated base price and resultant commensurate demand produced an excess collection (profiteering) of Rs. 1,54,269/-. The Respondent did not dispute the methodology or the amount calculated and on record accepted liability for Block K and produced evidence of payments made to recipients. The Authority therefore treated the DGAP's computation as final for the Block K investigation and held that the Respondent had profiteered by the computed amount which must be returned to eligible recipients with interest as per the Rules.

The Authority finds that the Respondent has profiteered by Rs. 1,54,269/- for 'Celebrity Garden Block K' for the period 01.07.2017 to 30.09.2019 and directs reduction of prices/return of the profiteered amount to recipients together with interest as provided in the Rules.

RERA escrow accounts and project-wise segregation - project-wise computation of profiteering - Whether separate RERA-registered blocks should be treated as a single project for computation of profiteering where separate escrow/bank accounts are maintained. - HELD THAT: - The Authority considered the requirement under the RERA framework that project-wise escrow/bank accounts be maintained where separate registrations exist. On re-investigation the DGAP verified the Respondent's submission of separate bank account details for each block (J, K, N, P) and observed that the Respondent had maintained distinct accounts for each RERA-registered block. Consequently, the premise for treating all four blocks as a single project for profiteering computation did not hold. The DGAP therefore retained his calculations for Block K alone and did not aggregate turnover/ITC across other blocks for the Block K determination.

Since separate bank accounts were maintained for each RERA-registered block, the blocks could not be aggregated as a single project for the purpose of computing profiteering for Block K; the DGAP's Block K computation stands.

Verification of refund with interest - investigation of other projects under same GST registration - Rule 133 of the CGST Rules - Whether the returns/payments to recipients have been verified and whether the DGAP should investigate other projects under the same GST registration. - HELD THAT: - The DGAP's verification report showed that the Respondent provided contact details for 12 out of 40 buyers and that only 5 of those buyers confirmed receipt of payment. Given this limited verification, the Authority directed the concerned jurisdictional CGST/SGST Commissioner to ensure verification of return of the profiteered amount along with interest and to report compliance. The Authority also, noting that multiple projects operated under a single GST registration, directed the DGAP under the applicable rule to investigate other projects under that GST registration which had not yet been examined for compliance with Section 171 and to submit complete investigation reports for those projects.

The matter of actual disbursement and interest is remitted for verification and compliance reporting to the jurisdictional Commissioner; DGAP is directed to investigate other projects under the same GST registration and submit complete reports.

Final Conclusion: The Authority finds that the Respondent profiteered by Rs. 1,54,269/- in respect of 'Celebrity Garden Block K' for 01.07.2017 to 30.09.2019 by failing to pass on the additional ITC benefit; it directs return of the profiteered amount with interest, requires verification of compliance by the jurisdictional Commissioner, and orders further investigation of other projects under the same GST registration.

Time limit for notice under section 149 - Issuance of notice versus mere signing of notice - Mode of service under section 282 read with rule 127 - Doctrine of substantial compliance - Reopening assessment under section 147

Time limit for notice under section 149 - Issuance of notice versus mere signing of notice - Mode of service under section 282 read with rule 127 - Doctrine of substantial compliance - Reopening assessment under section 147 - Whether the notice dated 31.03.2018 under section 148 (reopening under section 147) was issued within the time limit prescribed by section 149, where the notice was signed on 31.03.2018 but served by e-mail on 18.04.2018. - HELD THAT: - The court examined section 149 and concluded that the statutory time limit for issuance of a notice under section 148 is subject to the mode of issuance envisaged by the Act and the Rules. Relying on the doctrine of substantial compliance and authoritative precedents, the court held that 'issuance' is not satisfied by mere signing; issuance is complete when the notice is put in the prescribed mode of service (section 282 read with rule 127) or otherwise handed over for service with bona fide intent. The Gujarat High Court decision in Kanubhai M. Patel (as discussed) establishes that the date of issue must reflect actual delivery to the proper officer for service and not merely the signing date. The revenue did not produce material to show despatch within the limitation period and the departmental record only showed that the notice was returned unserved on 06.04.2018 and later emailed on 18.04.2018. Thus the notice was not sent to the appellant within the statutory period ending 31.03.2018, and substantial compliance could not be invoked to validate issuance when the prescribed steps for service were not shown to have been completed within time. Consequently the reassessment proceedings launched by that notice are vitiated as time-barred. [Paras 9, 11, 12, 13, 14]

The notice dated 31.03.2018 was not validly issued within the time prescribed by section 149 because mere signing did not amount to issuance; service occurred on 18.04.2018 and the reassessment proceedings are vitiated as time-barred.

Final Conclusion: The order of the learned Judge dated 26.04.2021 and the notice dated 31.03.2018 are set aside; the writ appeal is allowed and the reassessment proceedings quashed.

Notices issued under un-amended Section 148 deemed to be show-cause notices under Section 148A(b) - One-time dispensation of prior approval requirement under Section 148A(a) - Obligation on assessing officer to furnish information and material and pass orders under Section 148A(d) before issuing reassessment notice - Preservation of rights and defences including those under Section 149 - Exercise of Article 142 to provide a PAN India remedy and modify High Court orders

Notices issued under un-amended Section 148 deemed to be show-cause notices under Section 148A(b) - Exercise of Article 142 to provide a PAN India remedy and modify High Court orders - Effect of the Apex Court's order on writ petitions challenging notices issued under un-amended Section 148 after 01.04.2021 - HELD THAT: - Having noted the Apex Court's judgment in Civil Appeal No. 3005/2022 dated 04.05.2022, this Court held that the operative directions contained therein - which deem impugned notices issued under the un-amended Section 148 (from 01.04.2021) to be show-cause notices under Section 148A(b) and modify/supersede the High Courts' orders by exercise of Article 142 - govern the writ petitions pending before this Court. The High Court therefore recognised that the Apex Court's pan-India modification of earlier High Court orders leaves no substantive question surviving in these petitions and that the challenged notices stand re-characterised and regulated as per the directions of the Apex Court.

Writ petitions challenging notices under un-amended Section 148 issued after 01.04.2021 are governed by the Apex Court's order and, accordingly, no relief survives in these petitions.

One-time dispensation of prior approval requirement under Section 148A(a) - Obligation on assessing officer to furnish information and material and pass orders under Section 148A(d) before issuing reassessment notice - Preservation of rights and defences including those under Section 149 - Consequences flowing from the Apex Court directions for further proceedings and interim relief previously granted by this Court - HELD THAT: - The Court recorded that the Apex Court has (i) dispensed, as a one-time measure, with the requirement of prior approval under Section 148A(a) for notices issued under un-amended Section 148 from 01.04.2021; (ii) directed assessing officers to provide information and material relied upon within thirty days so that assessees may reply within two weeks; and (iii) required assessing officers to pass orders under Section 148A(d) and thereafter follow the procedure before issuing reassessment notices under the substituted Section 148. The Apex Court also preserved all statutory defences available to assessees, including those under Section 149. In view of these directions and their applicability pan-India, this Court vacated the interim orders previously granted in these writ petitions, disposed of the petitions and the connected I.A., and directed that the Revenue proceed in accordance with the Apex Court's timetable and directions.

Interim orders are vacated, the petitions and connected applications are disposed of, and further proceedings shall follow the procedure and timelines laid down by the Apex Court while preserving assessees' statutory rights and defences.

Final Conclusion: The writ petitions challenging notices issued under the un-amended Section 148 after 01.04.2021 are governed by the Apex Court's order of 04.05.2022; consequently the interim orders are vacated, the petitions and connected applications are disposed of, and the Revenue and assessing officers are directed to proceed in accordance with the Apex Court's directions while preserving all statutory defences.

Writ jurisdiction under Article 226 - Alternate statutory remedy and rule of exhaustion - Notice under Section 148-A(b) and notice under Section 148 - Requirement of supply of reasons/materials before reassessment (GKN Driveshafts principle)

Writ jurisdiction under Article 226 - Alternate statutory remedy and rule of exhaustion - Notice under Section 148-A(b) and notice under Section 148 - Whether the High Court should exercise writ jurisdiction to quash notices under Section 148-A(b)/Section 148 at the stage when statutory remedies under the Income Tax Act are available and the assessee has not exhausted them. - HELD THAT: - The Court held that writ jurisdiction under Article 226 ought not to be exercised at the present interlocutory stage because the Income Tax Act provides an alternate and efficacious remedy against a final order of assessment. The petitioner's failure to respond to the reasons furnished with the notice under Section 148-A(b) and the availability of statutory appeal avenues weigh against entertaining the writ. The judgment applies established principles that where a statute creates rights and prescribes a special remedy, that remedy should ordinarily be exhausted before invoking writ jurisdiction, subject to limited exceptions (e.g., violation of natural justice, lack of jurisdiction, or challenge to vires). In the facts of this case none of those exceptions warranted exercise of writ jurisdiction; the petitioner may raise all contentions, including those in the petition, before the statutory fora and in the appeal against any final assessment order.

Writ petition refused to be entertained at this stage; petitioner directed to avail statutory remedies and may raise all objections before the tax authorities and on appeal.

Requirement of supply of reasons/materials before reassessment (GKN Driveshafts principle) - Failure to furnish or respond to reasons - Whether the impugned order passed under Clause (d) of Section 148-A without supplying the requested documents or information rendered the reassessment proceedings invalid. - HELD THAT: - The Court found that reasons accompanied the notice under Section 148-A(b) and that the information relied upon was annexed to that notice; the petitioner did not file a substantive reply to those reasons and did not seek specific relief in the petition for production of documents. The contention that reassessment was invalid for non-supply of documents was therefore without merit in the present proceedings. The Court further observed that any alleged deficiency in supply of documents or evidentiary disputes can be addressed in the statutory proceedings and on appeal against any eventual assessment order. Accordingly, the invocation of GKN Driveshafts was not accepted as a ground for immediate interference in writ jurisdiction on these facts.

Plea of invalidity of reassessment for non-supply of documents rejected; petitioner permitted to raise such contentions before the assessing authority and in appeal.

Final Conclusion: Writ petition not entertained; petitioner directed to pursue available statutory remedies against any final assessment under the Income Tax Act and may raise all contentions, including those regarding supply of documents, before the tax authorities and in the appellate process.

Deductibility of interest as business expenditure under section 36(1)(iii) - Taxability of interest received from a firm as business income under section 28(v) - Generalia specialibus non derogant - Proviso to section 36(1)(iii) - disallowance until asset is first put to use - Test of user of borrowed capital for business purpose - Remand for factual verification and opportunity of hearing

Taxability of interest received from a firm as business income under section 28(v) - Deductibility of interest as business expenditure under section 36(1)(iii) - Generalia specialibus non derogant - Whether interest paid by the assessee to the partnership firm can be allowed as a deduction by construing it as negative of interest income charged to tax under section 28(v). - HELD THAT: - The Tribunal rejected the contention that because interest received from a firm by a partner is chargeable to tax under section 28(v) the corresponding interest paid to the firm should ipso facto be allowable as a deduction under the same provision. Section 28(v) governs taxability of receipts; deductibility is governed by the specific provision in section 36(1)(iii). Applying the principle generalia specialibus non derogant, a special provision for deductibility (section 36(1)(iii)) overrides any attempt to treat the general provision on taxability (section 28(v)) as authorising deductions. Therefore the question of allowing interest as business expenditure must be tested under the mandate of section 36(1)(iii) and cannot be derived from section 28(v). [Paras 5]

Interest paid to the partnership firm cannot be allowed as a deduction by reading it into section 28(v); deductibility must be judged under section 36(1)(iii).

Deductibility of interest as business expenditure under section 36(1)(iii) - Test of user of borrowed capital for business purpose - Proviso to section 36(1)(iii) - disallowance until asset is first put to use - Remand for factual verification and opportunity of hearing - Whether the interest paid on debit balance (excess withdrawals) qualifies for deduction under section 36(1)(iii) in view of the assessee's claim that the withdrawn funds were used to acquire a share in a running hotel. - HELD THAT: - Section 36(1)(iii) permits deduction only where capital is borrowed and the borrowing is for the purpose of business; the user of funds for business purpose is the determinative test. The proviso to section 36(1)(iii) disallows interest only for the period until the acquired asset is first put to use; it does not mandate disallowance simply because the asset did not yield income. The CIT(A) applied an 'income criterion' (denying deduction because no income from the hotel was shown) which is not the correct test; the correct inquiry is whether the asset was put to use. The assessee failed to place concrete evidence before the authorities below to demonstrate that the acquired share was in a running hotel put to use in the relevant year. Given that the assessment was completed under section 144 and relevant material was not before the AO or CIT(A), the Tribunal found it appropriate to remit the matter to the AO for examination of deductibility on the touchstone of user/put-to-use, permitting the assessee a reasonable opportunity to lead evidence. [Paras 6, 8, 9]

Issue of deductibility under section 36(1)(iii) is remanded to the Assessing Officer for factual verification on whether the borrowed/withdrawn funds were used for business (and whether the asset was first put to use), with opportunity to the assessee to produce evidence.

Final Conclusion: The Tribunal held that deductibility of interest cannot be inferred from section 28(v) and must be determined under section 36(1)(iii); the CIT(A)'s reliance on absence of income from the acquired hotel was misplaced because the proviso disallows interest only until the asset is first put to use. The matter is remitted to the Assessing Officer for fresh factual examination of user/put-to-use, after affording the assessee a reasonable opportunity, and the appeal is allowed for statistical purposes.

Assessment framed in the name of a non-existent/amalgamating company is a nullity - substantive illegality versus curable procedural irregularity - non-curability of jurisdictional defect by participation of assessee (no estoppel against law) - inapplicability of section 292B to assessments in the name of non-existent entity

Assessment framed in the name of a non-existent/amalgamating company is a nullity - substantive illegality versus curable procedural irregularity - inapplicability of section 292B to assessments in the name of non-existent entity - Validity of assessment order framed in the name of M/s IFGL Refractories Ltd (amalgamating company) after its amalgamation with M/s IFGL Exports Ltd - HELD THAT: - The Tribunal found on the admitted facts that M/s IFGL Refractories Ltd had been amalgamated with M/s IFGL Exports Ltd by NCLT order dated 03.08.2017 and the AO had been informed of the amalgamation on 12.11.2017. Despite this, the AO framed assessment u/s 143(3) on 06.02.2018 in the name of the amalgamating company (with its old PAN), which by then had ceased to exist. Applying binding precedents including the Supreme Court's decision in PCIT v. Maruti Suzuki India Ltd. and allied authorities, the Tribunal held that an assessment in the name of a non-existent entity is a substantive jurisdictional defect and is void ab initio. Such a defect is not a merely procedural irregularity curable under section 292B, and the mere participation of the successor/assessee in the proceedings does not estop it from challenging the jurisdictional nullity. In view of these conclusions, the assessment was quashed and the first appellate order cancelling the assessment was upheld. [Paras 8]

Assessment framed in the name of the non-existent/amalgamating company is void ab initio; impugned assessment is quashed and the order of the CIT(A) is upheld.

Exclusion of COVID-19 period for limitation - Whether the revenue's appeal was filed within limitation - HELD THAT: - The Tribunal accepted that the Registry noted the appeal as time-barred but, applying the Supreme Court's decision in Miscellaneous Application No. 665 of 2021 in SMW(C) No. 3 of 2020, excluded the period of filing during the COVID-19 pandemic for computing limitation. Consequently, the appeal was treated as filed within the limitation period and admitted for adjudication. [Paras 2]

Appeal treated as within limitation by excluding the COVID-19 period; appeal admitted.

Final Conclusion: The Tribunal dismissed the revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s order quashing the assessment framed in the name of the non-existent amalgamating company for AY 2014-15; the appeal was admitted as within limitation after excluding the COVID-19 period.

Allowability of foreign exchange loss under section 37(1) of the Income-tax Act - revenue v. capital expenditure - principle of consistency in taxation - treatment of unrealised foreign exchange gain/loss under accounting standards and section 43AA read with ICDS-VI - loans to subsidiaries as business expediency

Allowability of foreign exchange loss under section 37(1) of the Income-tax Act - revenue v. capital expenditure - principle of consistency in taxation - treatment of unrealised foreign exchange gain/loss under accounting standards and section 43AA read with ICDS-VI - Whether foreign exchange loss on restatement/revaluation of loans given to a foreign subsidiary is allowable as deduction under section 37(1) as revenue expenditure for assessment year 2017-18. - HELD THAT: - The Tribunal found on the facts that the assessee had advanced loans to its foreign subsidiary for business purposes in the ordinary course of its real estate development business and had followed a consistent method of accounting (AS-11) to book unrealised foreign exchange gain/loss at year end. The Assessing Officer and the Commissioner (Appeals) treated the loss as capital in nature, but the AO had not specifically held that the transaction was not a business/trading transaction and had noted the loan as a current asset; the CIT(A) only doubted the trade/business character in appeal. The assessee had earlier offered and the Revenue had accepted foreign exchange gain in an earlier year on the same loan, which engaged the principle of consistency even though res judicata is not applicable in taxation. The Tribunal held that the contention that the loss was merely notional because the loan remained unsettled on the year end did not negate the accounting treatment under AS-11 or the provisions of section 43AA read with ICDS-VI. Applying the legal principle that where expenditure is incurred for the purpose of business and consistently accounted for it is allowable under section 37(1), and having regard to the assessee's consistent treatment and business purpose of the loan, the disallowance of the foreign exchange fluctuation loss was not sustainable. [Paras 2, 6, 7, 8, 9]

The foreign exchange fluctuation loss on the revaluation of the loan to the foreign subsidiary is allowable as a deduction under section 37(1) for assessment year 2017-18; the assessee's appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal and held that the foreign exchange loss on restatement/revaluation of loans to the foreign subsidiary is deductible under section 37(1) for AY 2017-18, directing that the disallowance made by the Assessing Officer/CIT(A) is not sustainable.

Section 43CA - treatment of consideration where stamp duty value exceeds reported sale consideration - application of ready reckoner (stamp duty) value as on date of initial allotment/booking - proviso expanding tolerance band to 10% and its retrospective application to valuation provisions - revision jurisdiction under Section 263 - erroneous and prejudicial to the interests of Revenue

Section 43CA - treatment of consideration where stamp duty value exceeds reported sale consideration - application of ready reckoner (stamp duty) value as on date of initial allotment/booking - proviso expanding tolerance band to 10% and its retrospective application to valuation provisions - Deletion of addition made under Section 43CA of the Act in respect of Flat No.405 for the difference between stamp duty value and reported sale consideration. - HELD THAT: - The Tribunal found that the assessee had booked/allotted Flat No.405 in February 2011 and received an advance by account payee cheque on 08/02/2011, facts which the AO himself recognised by using the stamp duty value prevailing in February 2011. The AO made an addition by treating the higher stamp duty value (as on initial allotment) over the registered sale consideration in February 2014 as income under Section 43CA. Applying the proviso (as inserted by the Finance Acts) which raised the tolerance band to 10% between stamp duty value and reported consideration, and following the coordinate-bench reasoning that the proviso operates retrospectively (as held in the cited Tribunal decision in the context of Section 50C), the Tribunal held that the differential fell within the 10% tolerance. Consequently, the addition of Rs.4,42,460 made under Section 43CA was not sustainable and was directed to be deleted. [Paras 3]

The addition under Section 43CA in respect of Flat No.405 is deleted as the difference falls within the 10% tolerance band and thus requires no addition.

Revision jurisdiction under Section 263 - erroneous and prejudicial to the interests of Revenue - application of ready reckoner (stamp duty) value as on date of initial allotment/booking - Validity of the Principal Commissioner of Income Tax's invocation of revisionary jurisdiction under Section 263 against the AO's assessment order. - HELD THAT: - The Tribunal examined the assessment record and found that the AO had made specific and adequate enquiries: requests under Section 142(1) for project-wise details, receipt of replies and tabulations from the assessee showing dates of initial booking/allotment and ready reckoner rates, and differential treatment of other flats where ready reckoner at booking was lower than reported consideration. The AO applied Section 43CA(3) and (4) and adopted the ready reckoner rate as on the date of initial allotment for Flat No.405. The PCIT's revision proceeded on the incorrect premise that the AO should have adopted ready reckoner rates as on the date of registration (sale deed) and thereby sought to substitute his view. The Tribunal held that the AO's order was neither erroneous nor prejudicial to Revenue and that invocation of Section 263 was unjustified. [Paras 5]

The revision order passed under Section 263 is quashed; the AO's assessment is sustained as not erroneous or prejudicial.

Final Conclusion: Both appeals by the assessee for A.Y.2014-15 are allowed: the addition under Section 43CA in respect of Flat No.405 is deleted applying the 10% tolerance proviso, and the revision under Section 263 is quashed as the AO's assessment was neither erroneous nor prejudicial to Revenue.

Limited scrutiny - conversion to complete scrutiny requires approval - scope of limited scrutiny - exemption on conversion under Section 47(xiiib) - security premium reserve - treatment of securities premium on conversion - income under Section 56(1) - application of securities premium under Companies Act, 2013 - disallowance of expenditure and evidentiary proof for allowance

Limited scrutiny - scope of limited scrutiny - conversion to complete scrutiny requires approval - Whether the Assessing Officer exceeded the scope of limited scrutiny by examining matters beyond the reasons for selection and, if so, whether approval of competent authority was required. - HELD THAT: - The Tribunal held that limited scrutiny is a computer-assisted, parameter-driven selection which identifies specific indicia for deeper examination; once selected, the Assessing Officer must probe the identified issues in depth. The assessee's case was selected on indicia of low income relative to high loans/advances/investments and high interest expenditure against new capital. In examining the low income vis-a -vis large loans and the source of investments, the AO inquired into share capital and security premium carried forward from the erstwhile company. The Tribunal found these enquiries to be within the parameters of the limited scrutiny reasons and not a conversion into complete scrutiny. The appellate authority's cited authorities and CBDT instructions would be relevant only if the AO had actually converted the exercise into a full scrutiny; that was not found on the facts. Consequently the contention that approval of competent authority was required was rejected and the legal ground in the assessee's cross-objection was dismissed. [Paras 11, 14, 16, 20]

Assessee's contention that the AO exceeded limited scrutiny and required prior approval is rejected; the AO acted within the scope of limited scrutiny.

Exemption on conversion under Section 47(xiiib) - security premium reserve - treatment of securities premium on conversion - income under Section 56(1) - application of securities premium under Companies Act, 2013 - Whether the security premium reserve transferred from the erstwhile private company on conversion to an LLP was rightly taxed as income of the LLP or was exempt under the conversion exemption. - HELD THAT: - The Tribunal analysed the proviso to Section 47(xiiib) and the character of security premium under the Companies Act, 2013 (which prescribes limited modes of application and does not make security premium distributable as shareholder income). On the facts the security premium stood in the company books as a reserve/ liability and, upon conversion, was shown in the LLP's books under "Reserve & Surplus"-a head in the LLP that could be available for distribution. Because the characteristic of the security premium in the LLP did not retain the same non-distributable character as in the company, the Tribunal held that the condition in proviso (a) to Section 47(xiiib) - that all assets and liabilities immediately before conversion become assets and liabilities of the LLP in the same character - was not satisfied. The Tribunal concluded that the correct treatment is to bring the security premium to tax in the year of conversion as income (by treating it as income under Section 56(1) of the Act and crediting it to profit and loss), after which the amount can be transferred to Reserve & Surplus in the LLP. On this basis the Tribunal reversed the CIT(A)'s deletion and confirmed the AO's addition. [Paras 26, 28, 29, 31]

Security premium reserve transferred on conversion is taxable in the year of conversion as income of the LLP; the CIT(A)'s deletion is reversed and the AO's addition is confirmed.

Disallowance of expenditure - proof for salary claims - Whether the disallowance of expenses (including rent and salary) by the AO was sustainable. - HELD THAT: - The Tribunal examined the disallowance of Rs.10,00,000 and found the rent component supported by details (rent paid to Munush Chand HUF in cash) to be within statutory thresholds and deleted. The remainder of the disallowance related to salary and other expenditures for which no particulars were furnished before the lower authorities. The Tribunal directed the assessee to submit necessary details to the AO; if satisfactory, the AO may allow the claim in accordance with law. Hence the ground was partly allowed for statistical purposes. [Paras 32]

Disallowance of rent deleted; balance disallowance relating to salary/other expenditures remitted to AO for verification on production of details.

Final Conclusion: The assessee's cross-objection alleging excess of limited scrutiny is dismissed; on merits the Tribunal allows Revenue's appeal on the securities premium issue by holding that security premium transferred on conversion is taxable in the year of conversion as income of the LLP, and partly allows the Revenue's challenge to disallowances by deleting rent disallowance and remitting the balance to the AO for verification.

Condonation of delay - Covid-19 pandemic - limitation and filing of appeal - best judgment assessment - income deemed under Section 69A - onus to prove genuineness and identity of creditors - restoration for fresh adjudication

Condonation of delay - Covid-19 pandemic - limitation and filing of appeal - Delay in filing the appeal was condoned and the appeal was admitted. - HELD THAT: - The assessee's appeal was filed 33 days beyond the statutory period. The assessee produced an affidavit attributing the delay to pandemic-related difficulties in Mumbai and asserted absence of mala fide intent. The Revenue did not controvert that the delay fell within the Covid-19 pandemic period. In view of the reasonable explanation and lack of opposition from the Department, the Tribunal exercised its discretion to condone the delay and admit the appeal for adjudication. [Paras 2, 3]

Delay condoned and appeal admitted.

Best judgment assessment - income deemed under Section 69A - onus to prove genuineness and identity of creditors - restoration for fresh adjudication - Additions made on account of cash deposits and interest were not finally adjudicated and the matter was restored to the assessing authority/ CITA for fresh consideration after affording opportunity to the parties. - HELD THAT: - The Assessing Officer completed assessment by way of best judgment and made additions treating cash deposits made during the demonetisation period and interest thereon as unexplained income under the provision now invoked as income deemed under Section 69A. The Assessing Officer and the CIT(A) recorded that the assessee had not filed returns nor produced evidence to discharge the onus of proving the genuineness, identity and creditworthiness of contributors. Before the Tribunal the assessee undertook to produce necessary evidence and cooperate. In the interest of substantial justice and because the explanation/evidence was absent at earlier stages due to non compliance (and the assessee now offers to submit material), the Tribunal remitted the matter to the file of the CIT(A) for fresh decision in accordance with law after providing adequate opportunity of hearing to both the assessee and the Assessing Officer. The grounds raised are allowed for statistical purposes. [Paras 7, 8]

Additions set aside for fresh adjudication by the CIT(A); matter restored and remitted for fresh decision after providing opportunity to parties.

Final Conclusion: The Tribunal condoned the delayed filing of the appeal and admitted it; on merits the Tribunal did not decide the additions but restored the matter to the CIT(A) for fresh consideration in accordance with law after affording opportunity to the assessee and the Assessing Officer.

Reopening of assessment beyond four years on account of failure to disclose material facts - reassessment jurisdiction and proviso to section 147 - requirement of failure to disclose - quashing reassessment where material facts were disclosed at original assessment - change of opinion

Reopening of assessment beyond four years on account of failure to disclose material facts - reassessment jurisdiction and proviso to section 147 - requirement of failure to disclose - quashing reassessment where material facts were disclosed at original assessment - Validity of reopening the assessments for AY 2011-12 and AY 2012-13 (reassessment under section 147) where original assessment u/s 143(3) had been completed and material facts were disclosed. - HELD THAT: - The Tribunal examined whether reassessment proceedings initiated beyond four years from the end of the relevant assessment year complied with the proviso to section 147 which permits reopening after four years only where income has escaped assessment 'by reason of the failure on the part of the assessee' to disclose material facts. The assessee had filed audited accounts and other documents in the original assessment which was completed u/s 143(3), and the AO had examined those entries. There was no specific finding or tangible material recorded by the AO showing any failure by the assessee to disclose material facts that led to escapement. Relying on precedents where reassessment was quashed because all material facts were disclosed at the time of original assessment, the Tribunal held that reopening in these facts was invalid and constituted impermissible change of opinion, and therefore the reassessments were quashed. [Paras 8]

Cross objections for AY 2011-12 and AY 2012-13 allowed; reassessment orders quashed and revenue appeals dismissed as infructuous.

Quashing reassessment where material facts were disclosed at original assessment - change of opinion - Effect of earlier quashing and related proceedings on appeal and cross-objection for AY 2013-14 arising from assessment framed u/s 143(3)/263. - HELD THAT: - For AY 2013-14 the assessee pointed out that a related order passed by the Principal CIT under section 263 had been quashed by the Tribunal (by a separate order dated 27.11.2019), and on that basis both the revenue appeal and the assessee's cross objection had become infructuous. The Revenue did not contest those factual submissions before the Bench. In view of the prior quashing, the Tribunal dismissed both the revenue appeal and the cross objection for AY 2013-14 as no live controversy survived. [Paras 12, 13]

Cross objection for AY 2013-14 dismissed; corresponding revenue appeal dismissed as infructuous.

Final Conclusion: The Tribunal quashed the reassessments for AY 2011-12 and AY 2012-13 on the ground that the proviso to section 147 was not satisfied as material facts had been disclosed in the original assessment; the revenue appeals for those years were dismissed. For AY 2013-14 both the revenue appeal and the cross objection were dismissed as infructuous in view of prior orders.

Computation of long term capital gain - fair market value as on 1.4.1981 and on date of sale - reference to the Director of Valuation Officer (DVO) for valuation - deemed consideration under Section 50C - deemed capital gain on retirement of partner in absence of statutory provision - prospective applicability of amendment providing deemed transfer on reconstitution/retirement

Computation of long term capital gain - fair market value as on 1.4.1981 and on date of sale - reference to the Director of Valuation Officer (DVO) for valuation - deemed consideration under Section 50C - Addition on account of long term capital gain on sale of plot (assessee's one fourth share) set aside for fresh valuation and computation. - HELD THAT: - The Assessing Officer computed the capital gain by adopting a stamp valuation figure as deemed consideration and by taking a notional fair market value as on 1.4.1981 without referring the valuation question to the DVO. The Tribunal found that the AO's computation was based on presumptions and assumptions and lacked a reasonable and cogent basis; the CIT(A) confirmed that computation by a cryptic order without reasoning. The assessee sought reference to the DVO to ascertain fair market value both as on 1.4.1981 and on the date of sale. In view of the absence of a proper valuation record and the AO's failure to refer the matter for valuation, the Tribunal remanded the matter to the AO with directions to obtain DVO report as to fair market value for the two relevant dates and thereafter to compute the long term capital gain, after affording the assessee a reasonable opportunity of being heard. [Paras 5]

Issue set aside to AO for referral to DVO to ascertain fair market values as on 1.4.1981 and on date of sale and for recomputation of long term capital gain; ground allowed for statistical purposes.

Computation of long term capital gain - fair market value as on 1.4.1981 and on date of sale - reference to the Director of Valuation Officer (DVO) for valuation - deemed consideration under Section 50C - Addition on account of long term capital gain on sale of another plot (assessee's proportionate share) set aside for fresh valuation and computation. - HELD THAT: - The facts and defects underlying this issue mirror the earlier remand: the AO estimated value on an assumed basis without referral to the DVO and the CIT(A)'s confirmation was nonspeaking. The Tribunal directed the AO to refer the matter to the DVO to determine fair market value as on 1.4.1981 and on the date of sale and thereafter recompute the assessee's share of long term capital gain, affording the assessee opportunity to be heard. [Paras 7]

Issue restored to AO for DVO reference and recomputation of long term capital gain; ground allowed for statistical purposes.

Deemed capital gain on retirement of partner in absence of statutory provision - prospective applicability of amendment providing deemed transfer on reconstitution/retirement - Addition of short term capital gain on account of retirement from partnership firm deleted as not sustainable for the year under consideration. - HELD THAT: - The AO treated the retiring partner's share as giving rise to deemed capital gain by applying a notional deemed consideration, and the CIT(A) confirmed by a nonspeaking order. The Tribunal examined whether tax law then in force authorised such deemed taxation on retirement. It held that no provision in the statute then applicable provided for computing deemed capital gain on retirement/reconstitution; the specific provision dealing with deemed transfer on reconstitution (inserted later by Finance Act, 2021, with effect from 1.4.2021) is prospective and not applicable to the assessment year before the Tribunal. Consequently, there was no statutory basis to sustain the addition made by the AO. [Paras 13]

Order of the CIT(A) set aside; AO directed to delete the addition made on account of short term capital gain upon retirement of partner; grounds allowed.

Final Conclusion: The appeal is allowed in part: additions relating to two plots' long term capital gain remanded to the AO for valuation by the DVO and recomputation; addition claimed on account of deemed short term capital gain on retirement from partnership is deleted as not chargeable for the year under consideration. The other grounds were dismissed as not pressed or consequential.

Jurisdiction under section 263 - Error prejudicial to the revenue - Incomplete enquiry by the Assessing Officer - Assessee's burden to substantiate higher rate of depreciation - Depreciation rate for electrical installation

Jurisdiction under section 263 - Error prejudicial to the revenue - Incomplete enquiry by the Assessing Officer - Assessee's burden to substantiate higher rate of depreciation - Depreciation rate for electrical installation - Validity of the Principal Commissioner's revisionary order under section 263 insofar as it directed reassessment on account of excess claim of depreciation on electrical installation. - HELD THAT: - The Tribunal examined whether the Assessing Officer had made a complete and satisfactory enquiry into the assessee's claim of depreciation at 15% on electrical installation (where Appendix to the Rules prescribes 10%) before the assessment order, and whether the PCIT was justified in invoking section 263. The record shows the AO had issued a specific query under section 142(1) asking the assessee to justify the higher rate with explanations and documentary evidence. The assessee's reply merely referred to the Tax Audit Report and did not furnish details demonstrating that the electrical installation formed part of plant & machinery attracting the higher rate. The Tribunal held that the enquiry therefore remained incomplete and that the AO ought not to have allowed the higher claim without proper verification. Because the requisite verification was absent, the PCIT's conclusion that the assessment order was erroneous and prejudicial to the revenue was sustained, and directions for fresh consideration were confirmed in respect of the depreciation issue. [Paras 12, 13, 14]

Findings of the PCIT under section 263 are confirmed and the challenge to the revision on the depreciation issue is dismissed.

Rectification of impugned order - Effect of the subsequent rectification by the Principal Commissioner on the allegation regarding interest income and related disallowance. - HELD THAT: - The Tribunal noted that the PCIT, by a rectification order dated 12-04-2022, deleted the paragraph in the impugned order that had alleged the assessee should have shown certain interest income without a specified deduction. As that part of the impugned order was removed, the related ground of appeal became infructuous. [Paras 8]

Ground challenging that portion (ground no. 6) is dismissed as infructuous.

Final Conclusion: The appeal is dismissed: the Tribunal upholds the PCIT's exercise of jurisdiction under section 263 in respect of the excess depreciation claim on electrical installation, while the contention relating to the deleted paragraph on interest income is rendered infructuous by rectification.

Deemed rental income from stock-in-trade - income from house property versus business income - prospective operation of amendment to section 23(5) - retrospective application of proviso providing safe-harbour to valuation provisions (analogous to section 50C/43CA) - book profits computation under section 115JB read with audit report and notes to accounts - carry forward of loss claimed during assessment proceedings

Deemed rental income from stock-in-trade - income from house property versus business income - prospective operation of amendment to section 23(5) - Deletion of addition on account of notional rent from unsold flats held as stock-in-trade for the assessment years in issue. - HELD THAT: - The Tribunal held that where flats are held as stock-in-trade by a builder the chargeability as 'income from house property' cannot be sustained for the years prior to the statutory amendment introduced w.e.f. A.Y.2018-19. Following coordinate decisions, the Tribunal found that the legislative insertion of sub-section (5) in Section 23 with effect from 01.04.2018 is prospective and that prior to that amendment unsold flats of a developer held as stock-in-trade are to be considered in the context of business activity; thus deemed rental additions could not be sustained up to A.Y.2017-18. Consequentially the notional rent addition was deleted both under normal provisions and in computation of book profits under section 115JB. [Paras 3]

Addition of notional rent of Rs.35,79,549/- in A.Y.2017-18 (and corresponding deletions in A.Y.2015-16) deleted; assessee's appeals allowed on this ground.

Retrospective application of proviso providing safe-harbour to valuation provisions (analogous to section 50C/43CA) - Whether the proviso to the valuation provision applicable to stock-in-trade (safe-harbour on variance between consideration and stamp duty value) applies to the assessment year in question. - HELD THAT: - Relying on precedent which treated the curative proviso to the valuation deeming provisions as retrospective in nature, the Tribunal applied the same reasoning by analogy to Section 43CA for assets held as stock-in-trade. The Tribunal accepted that the proviso creating a tolerance band should be given retrospective effect and, on the facts where the difference between stamp duty value and reported consideration was less than the tolerance, deleted the addition. The Tribunal also held that the amount did not fall within the Explanation to Section 115JB(2) and thus could not be added back to book profits. [Paras 4]

Addition of Rs.3,88,500/- under Section 43CA deleted for A.Y.2017-18; Revenue grounds in this regard dismissed.

Book profits computation under section 115JB read with audit report and notes to accounts - Whether deletions made under the normal heads (deemed rent and valuation addition) must be excluded from computation of book profits under section 115JB. - HELD THAT: - The Tribunal observed that where an item is not chargeable under normal provisions, it cannot be compulsorily included in book profits; further, both the notional rent and the 43CA addition were held not exigible under normal heads and moreover do not fall within Explanation 1 to Section 115JB(2). Accordingly the same items must be excluded while computing book profits under section 115JB. [Paras 5]

Deletions sustained; Revenue's challenge to inclusion in book profits dismissed.

Carry forward of loss claimed during assessment proceedings - Allowability of carry forward of long-term capital loss claimed for the first time during assessment proceedings. - HELD THAT: - The Tribunal noted that the genuineness of the loss was not doubted and that the assessee furnished agreements and valuation supporting the loss. Applying jurisdictional precedent, the Tribunal held that a loss not claimed in the return may nevertheless be allowed to be carried forward where substantiated and that the Assessing Officer must examine correctness of the computation; statutory obligations require the revenue to apply the law rather than deny relief on technical non-claim where the claim is genuine. [Paras 6]

Claim for carry forward of long-term capital loss allowed to be considered; Revenue's ground dismissed.

Book profits computation under section 115JB read with audit report and notes to accounts - Whether an audit qualification and notes to accounts can justify reduction in book profits under section 115JB. - HELD THAT: - Following Tribunal and High Court precedents, the Bench held that accounts prepared under the Companies Act must be read conjointly with notes and auditor's qualifications. Notes to accounts form part of the financial statements and, where the auditors qualify or require an adjustment that affects profit, such qualification must be considered in computing 'book profit' under section 115JB. On the facts the revised Form 29B reflecting the auditor's qualification and resultant adjustment was held to be admissible and the corresponding deduction was directed to be granted while computing book profits. [Paras 7]

Deduction of Rs.5,51,89,912/- allowed in computation of book profits for A.Y.2015-16; assessee's ground allowed.

Final Conclusion: Assessee's appeals for A.Y.2015-16 and A.Y.2017-18 allowed in the respects stated; Revenue's appeals for the same years dismissed; consequential deletions reflected in computation of book profits under section 115JB and other directions given in the order.

Taxability of arbitration award - Retirement from partnership versus relinquishment of rights - Income from other sources under section 56(1) - Inapplicability of 28(iv) where consideration is for relinquishment of rights - Alternative claim of capital gains

Taxability of arbitration award - Retirement from partnership versus relinquishment of rights - Income from other sources under section 56(1) - Inapplicability of 28(iv) where consideration is for relinquishment of rights - Alternative claim of capital gains - Whether the arbitration award received by the assessee is taxable as income from other sources or under section 28(iv)/as capital gains - HELD THAT: - The Tribunal examined the Consent Terms and surrounding facts and agreed with the Coordinate Bench decision reproduced in the order. The Consent Terms did not state that the payment represented consideration for retirement from the partnership; instead the award was for relinquishment of rights, withdrawal of suits and transfer of various assets (including assets not connected with the firm). There was no positive balance in the assessee's capital account and no working showing allotment of partnership share or computation of net partnership assets as would ordinarily attend a retirement. In these circumstances the Tribunal found that the receipt was not payment on account of retirement from the firm and hence 28(iv) could not be invoked. Applying the inclusive concept of income, the Tribunal held that the amount was chargeable as income under the head 'income from other sources' (section 56(1)) rather than being taxable under section 28(iv); the alternate contention of capital gains was considered but the determinative finding was that the consideration represented a composite relinquishment of rights and other benefits and not a retirement payout worked out as share in net partnership assets. The Tribunal followed and applied the reasoning of the Coordinate Bench decision in the assessee's own case and reached the same conclusion. [Paras 13, 16]

Appeal dismissed; order of the Ld. CIT(A) holding the arbitration award to be chargeable as income from other sources under section 56(1) (and not under section 28(iv)) is upheld.

Final Conclusion: The revenue's appeal is dismissed; the Tribunal, following the Coordinate Bench decision, upholds the Commissioner (Appeals) order that the arbitration award is not a retirement payment taxable under section 28(iv) but is chargeable as income from other sources.

Remuneration to partner is share of profits not an expenditure - applicability of section 40A(3) to remuneration of partners - priority of section 40(b) as special provision over general provision of section 40A - accounting treatment as appropriation of profits - requirement of payment by account-payee cheque to establish genuineness of expenditure

Remuneration to partner is share of profits not an expenditure - applicability of section 40A(3) to remuneration of partners - priority of section 40(b) as special provision over general provision of section 40A - accounting treatment as appropriation of profits - Whether remuneration paid to a working partner, declared as profit and within section 40(b) limits, is disallowable under section 40A(3) when paid in cash exceeding the monetary threshold - HELD THAT: - The Tribunal held that remuneration paid to a partner represents an appropriation or share of profits of the firm and is not an expenditure in the ordinary sense; consequently such payment does not fall within the ambit of deductions disallowable under section 40A(3). The court relied on the legal principle that a partner cannot be an employee of the firm and that remuneration to a partner retains the character of profit in his hands. The Tribunal noted that section 40(b) is a special provision governing payments to partners and, where its conditions are satisfied (which the Revenue did not dispute), it governs the allowability of such payments; a general provision like section 40A(3) cannot be invoked to override the special code. The Tribunal also relied on accounting treatment-debit to profit and loss appropriation account and credit to partners' accounts-to support that the payment is an appropriation of profits. The Tribunal observed that the objective of section 40A(3) is to regulate business transactions to curb unaccounted money and to enable verification of genuineness of expenditure, but where the transaction is genuine, the identity of payer and payee and source are not in dispute, invocation of section 40A(3) is not justified. Applying these principles to the present facts (remuneration to working partner declared under business income and not shown to be colourable or outside section 40(b)), the disallowance under section 40A(3) was held to be unwarranted. [Paras 12, 14, 16, 21, 22]

Disallowance made under section 40A(3) of the Act in respect of remuneration paid to the working partner is set aside and the deduction is allowed; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, holding that remuneration paid to a working partner (declared as business income and within section 40(b) limits) is an appropriation of profits and not an expenditure disallowable under section 40A(3); the disallowance by the Assessing Officer and the CIT(A) was set aside.

Maintainability of writ petition - cause of action - jurisdiction - revisional powers under Section 129DD of the Customs Act, 1962 - confiscation and re-export - Baggage Rules and customs declaration obligation - penalty under Section 112(a) of the Customs Act, 1962 - redemption fine and re-export procedure

Maintainability of writ petition - cause of action - jurisdiction - Maintainability of the writ petition before the Madurai Bench of Madras High Court - HELD THAT: - The Court applied the principle that an order of an appellate or revisional authority may constitute a part of the cause of action and therefore a writ may be maintainable where such order is challenged. Notwithstanding this principle, the Court found that no part of the cause of action in the present matter arose within the territorial jurisdiction of this Court. In consequence, the petition is not maintainable before the Madurai Bench and is liable to be dismissed on this ground. [Paras 21, 22]

Writ petition not maintainable before this Court and liable to be dismissed on territorial jurisdiction grounds.

Revisional powers under Section 129DD of the Customs Act, 1962 - confiscation and re-export - Baggage Rules and customs declaration obligation - penalty under Section 112(a) of the Customs Act, 1962 - redemption fine and re-export procedure - Validity of the revisional order upholding re-export subject to redemption fine and affirming the penalty for failure to declare and alleged concealment - HELD THAT: - On the merits the Court noted that the petitioner had re-exported the goods pursuant to the impugned order and had paid the redemption fine and penalty. The Court found that the petitioner was obliged to make declarations under the Baggage Rules, 2016 read with the Customs Baggage Declaration Regulations, 2013, and that gold in other forms exceeding the specified threshold could not be cleared duty free as bona fide baggage. The petitioner failed to make the required declaration and thus attempted to evade duty. Having regard to these findings, the Court found no infirmity in the revisional authority's order which affirmed the penalty and directed re-export subject to redemption fine, and declined to interfere. [Paras 22, 23, 24, 25]

Impugned revisional order sustained; no interference with the finding of violation of baggage/declaration rules or with the penalty and re-export direction.

Final Conclusion: The writ petition is dismissed for want of territorial jurisdiction; on merits the revisional order under Section 129DD is held to be free of infirmity for failure to declare and attempted evasion, and the petition is accordingly dismissed. No costs.

Setting aside of summons with modified terms of compliance - appearance by technical personnel accompanied by one director - communication of hearing schedule by e-mail to authorised counsel - interim protection against precipitate action

Setting aside of summons with modified terms of compliance - appearance by technical personnel accompanied by one director - Permissibility of dispensing with personal appearance of all directors and allowing appearance by technical employees together with one director in response to summons - HELD THAT: - The Court permitted the petitioner to comply with the summonses on modified terms: persons employed by the petitioner who possess the requisite technical knowledge will appear before the concerned officer along with one director of the petitioner company. The petitioner furnished the names of the authorised technical personnel and the director. The concerned officer is to indicate the date, time and venue to the petitioner via e-mail, and a copy of that e-mail is to be sent to the petitioner's counsel. On these terms the applications relating to the summonses were disposed of. [Paras 2, 3, 4]

Summonses to be complied with by authorised technical employees accompanied by one director; schedule to be communicated by e-mail to the petitioner and counsel; applications disposed of on these terms.

Interim protection against precipitate action - adjournment and filing of written submissions - Grant of interim protection and procedural directions pending next hearing - HELD THAT: - The Court listed the matter for further hearing and directed that until the next date no precipitate action shall be taken against the petitioner and/or its director(s). Parties were directed to file written submissions not exceeding three pages each at least three days before the next hearing. The matter was fixed for hearing on the specified date. [Paras 5, 6, 7]

Matter listed for further hearing; no precipitate action against the petitioner or its directors till then; parties to file short written submissions in advance.

Final Conclusion: Applications concerning compliance with the challenged summonses were disposed of by permitting authorised technical staff to appear along with one director and by directing communication of the schedule by e-mail; the matter is listed for further hearing with interim protection against precipitate action and directions for filing brief written submissions.

Exemption under Notification No.25/2002-Cus - scope of exemption determined by goods specified in notification table - irrelevance of notification heading and budget speech for grant of exemption - use of imported capital goods in manufacture of PCB assemblies

Exemption under Notification No.25/2002-Cus - scope of exemption determined by goods specified in notification table - irrelevance of notification heading and budget speech for grant of exemption - Appellant's eligibility for exemption under Notification No.25/2002-Cus in respect of specified imported equipment though the appellant is not an IT/Electronic industry. - HELD THAT: - The Tribunal found that the imported items are expressly listed in the table of Notification No.25/2002-Cus (as amended) at the relevant serial numbers and were used for manufacture of PCB assemblies in the appellant's factory. The notification does not condition the exemption on the importer being an IT/Electronic industry. The heading of the notification and any reference to the budget speech are not part of the notification and cannot be read to impose additional limitations; therefore, denial of exemption solely on the basis that the appellant's principal manufacturing activity is induction furnaces and welding equipment was unsustainable. The Tribunal relied on its earlier final order in the appellant's own case (A/12469/2021 dated 25.10.2021) which had reached the same conclusion and held that the subsequent recovery proceedings arising from the earlier order could not be sustained in view of that decision. Accordingly the impugned order assessing recovery was set aside and the appeal allowed.

Impugned order set aside; appellant held eligible for exemption under Notification No.25/2002-Cus and appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that exemption under Notification No.25/2002-Cus applies whenever the imported goods are covered by the notification table and used in manufacture of PCB assemblies, and that the notification's heading or budget speech cannot be invoked to deny the exemption; the recovery order was set aside.

Value of services not to depend on goods supplied free of cost by the service recipient - Definition of gross amount charged under Explanation (c) to Section 67 - Contract value governs taxable value of services

Value of services not to depend on goods supplied free of cost by the service recipient - Definition of gross amount charged under Explanation (c) to Section 67 - Contract value governs taxable value of services - Free supply of cement and steel by the appellant to the contractor is not includible in the taxable value of the construction service provided by the contractor. - HELD THAT: - The Tribunal applied the Supreme Court's reasoning in Commissioner of Service Tax v. Bhayana Builders, holding that the value of taxable services cannot be made dependent on the value of goods supplied free of cost by the service recipient. Explanation (c) to the definition of "gross amount charged" deals with modes or book adjustments by which consideration is discharged (such as credit/debit notes or accounting entries) and does not permit addition of the market value of free-supplied materials over and above the contract value. The Commissioner (Appeals) attempted to distinguish Bhayana Builders, but the Tribunal found no basis for that distinction and adopted the Supreme Court's conclusion that a value which is not part of the contract between the service provider and the service recipient has no relevance in determining the taxable value of the services.

The demand treating the free supply of materials as part of the taxable value of construction service is set aside; such free supplies are not includible in the taxable value.

Final Conclusion: The appeal is allowed and the order of the Commissioner (Appeals) dated January 13, 2021 is set aside: the cost of materials supplied free of cost by the appellant to the contractor cannot be included in the taxable value of the contractor's service.

Works contract service - abatement for material component - determination of value for service portion under Notification No.24/2012-ST - service tax payable on 40% where proper accounts not maintained - adjustment/credit for excess tax paid - penalty for short payment of service tax - interest not payable where excess tax situation is regularised

Works contract service - abatement for material component - determination of value for service portion under Notification No.24/2012-ST - service tax payable on 40% where proper accounts not maintained - Calculation of service tax liability for works contract services - whether tax could be levied on 100% of gross value instead of applying abatement for material component - HELD THAT: - The Tribunal found that works contract services fall within the definition concerned and that Notification No.24/2012-ST prescribes the method for determination of the service portion. Where the assessee is unable to maintain proper accounts, the notification mandates that service tax shall be computed on 40% of the gross amount (thereby abating 60% as material component). The adjudicating authorities erred in computing service tax on 100% of turnover for the years in question instead of applying the abatement prescribed by the notification. On this basis the impugned orders calculating liability on the entire gross value were held to be illegal and set aside.

Impugned computation on 100% of gross turnover is set aside; appellant to compute service tax applying the abatement/formula under Notification No.24/2012-ST and file a calculation sheet before the assessing officer.

Adjustment/credit for excess tax paid - interest not payable where excess tax situation is regularised - penalty for short payment of service tax - Entitlement to adjustment or credit for excess tax paid and correctness of interest and penalties imposed - HELD THAT: - The appellant had admittedly paid service tax on the full gross value for the relevant periods and sought recalculation and adjustment for the excess paid by applying the abatement. The Tribunal accepted the appellant's position insofar as the liability must be recalculated under the notification and directed the appellant to file the revised computation. Given the circumstances and the direction to recalculate liability, the Tribunal held that no interest was payable and consequently set aside the penalties imposed under the impugned orders.

Appellant permitted to recalculate and claim adjustment/credit as per the Rules; no interest payable; penalties set aside.

Final Conclusion: Appeal allowed. The orders of adjudication and first appeal are set aside insofar as they compute service tax on 100% of turnover; appellant to recalculate service tax applying the method prescribed by Notification No.24/2012-ST and file the computation before the assessing officer, pay any residual liability if payable; no interest shall be payable and the penalties imposed are quashed.

Quashing of criminal prosecution - Stay on recovery of tax and penalty pending appeal - Pre-deposit condition and its effect on prosecution - Distinction between stay of recovery and adjudication on merits - Power to prosecute under the Central Excise Act - Section 309 CrPC-exemption from personal appearance

Quashing of criminal prosecution - Stay on recovery of tax and penalty pending appeal - Pre-deposit condition and its effect on prosecution - Distinction between stay of recovery and adjudication on merits - High Court erred in quashing the criminal prosecution solely because the CESTAT granted stay on recovery of tax and penalty subject to a pre-deposit. - HELD THAT: - The CESTAT had granted a stay of recovery on condition that the appellant make a specified pre-deposit; the appeal before the CESTAT remained pending and there was no adjudication on the merits of the tax liability. A stay of recovery, particularly when made subject to a pre-deposit, does not amount to exoneration or a decision on merits which would justify quashing criminal proceedings under the Central Excise Act. The High Court therefore wrongly treated the tribunal's conditional stay as a ground for quashing the criminal complaints. In consequence, the impugned order quashing the criminal complaint could not be sustained and was set aside by this Court. The Court left open the respondents' right to seek exemption from personal appearance or to apply under Section 309 CrPC, noting that such applications, if filed, are to be considered in accordance with law and without any comment from this Court.

Impugned order dated 10.01.2019 quashing the criminal complaint in C. C. No. 332 of 2011 is set aside; quashing solely on the basis of a conditional stay of recovery is not justified.

Final Conclusion: Appeal allowed; the High Court order quashing the criminal prosecution is set aside. Respondents remain free to seek statutory exemptions or reliefs (including under Section 309 CrPC), and the CESTAT is requested to decide the pending appeal expeditiously.

Clandestine manufacture and clandestine removal - reliance on third party transport records and private diaries for proving removal - requirement of tangible corroborative evidence linking factory to alleged removals (receipt/use of raw material, production/consumption indicators, transport/gate records, receipt of sale proceeds) - inadmissibility / non reliance of statements whose makers are not examined in chief before the adjudicating authority (tribunal direction on cross examination) - confiscation and penalty under the excise procedure rules (confiscation in lieu of clandestine stock and penalty under Rule 26(1) / Rule 25 framework) - burden and sufficiency of evidence to sustain demands based on circumstantial third party material

Clandestine manufacture and clandestine removal - confiscation and penalty under the excise procedure rules (confiscation in lieu of clandestine stock and penalty under Rule 25) - Validity of confiscation of 692,000 cigarettes and imposition of penalty in relation to stock found at factory on 14.05.2010. - HELD THAT: - The Tribunal held that the Panchnama of 14.05.2010 did not establish that the excess stock was pre existing at the time of counting because the Panchnama itself records continuous production after 12:00 noon and the inspecting officer conceded that goods produced on 14.05.2010 might have been seized. The adjudicating authority made no finding that production had stopped at noon; therefore the alleged excess could represent production after noon. The Panchnama and related proceedings were found unreliable to prove clandestine pre existing stock. The Tribunal further found no material showing breach of the Trade Notice by officers or mala fide conduct; the de sealing reports recorded machines de sealed and no positive evidence of officers' connivance was produced. Consequentially confiscation and penalties based on the alleged excess stock were unsustainable. [Paras 43]

Confiscation of 692,000 cigarettes and the penalties imposed in respect thereof quashed; confiscation and penalty not sustainable.

Reliance on third party transport records and private diaries for proving removal - burden and sufficiency of evidence to sustain demands based on circumstantial third party material - requirement of tangible corroborative evidence linking factory to alleged removals (receipt/use of raw material, production/consumption indicators, transport/gate records, receipt of sale proceeds) - Sustainability of demands (including demand of Rs. 1,03,74,648/- and Rs. 28,39,43,195/-) founded primarily on documents and statements seized from traders, transporters and a railway agent. - HELD THAT: - The Tribunal applied the settled principle that allegations of clandestine manufacture and removal must be supported by tangible, direct and corroborative evidence - e.g., receipt and non accountal of raw materials at the factory, usage/consumption indicators, security/vehicle entry/loading evidence, transport documentation directly linked to factory dispatches and receipt of sale consideration. The impugned demands rested mainly on cryptic entries in private transport/rail records, RRs/LRs described as 'POP'/'Allu Papdi', and third party statements. No documents or records were seized from the factory nor was any direct nexus established between the alleged consignments and ETCL (no evidence of purchase of requisite raw materials, no transport/gate/loading evidence, no money trail). The Tribunal also emphasised that many third party statement makers either retracted or were not made available for cross examination as directed by the Tribunal, rendering such statements and the seized private records insufficient for sustaining the demands. In absence of corroboration and necessary investigative linkages (including inquiries at transit points like Itarsi/Bhopal), the demands based on these materials could not be upheld. [Paras 48, 49, 50, 51, 52]

Demands founded on third party transport/railway records and uncorroborated statements set aside; the large demands (including those referred in SCNs dated 16.02.2012 and 16.07.2013) are unsustainable.

Inadmissibility / non reliance of statements whose makers are not examined in chief before the adjudicating authority (tribunal direction on cross examination) - burden and sufficiency of evidence to sustain demands based on circumstantial third party material - Effect of failure to permit and procure cross examination of third party witnesses whose statements were relied upon by Revenue. - HELD THAT: - The Tribunal noted the earlier CESTAT direction that statements recorded under investigation whose makers are not examined in chief before the adjudicating authority must be eschewed from evidence and cannot be relied upon. The adjudicating authority did not secure attendance for cross examination of many transport/railway personnel and other third parties; several witnesses retracted or could not be confronted. Examination in chief conducted by the adjudicating authority was perfunctory (statements were simply read over and affirmed without substantive testing). Given the non availability for proper examination in chief and cross examination, the Tribunal held that the third party statements and associated private records lacked the probative force necessary to sustain adjudication against ETCL. [Paras 52, 53]

Statements and records of third parties not subjected to proper examination in chief / cross examination cannot ground the demands; Revenue could not rely upon them to justify the impugned demands.

Penalty under Rule 26(1) of Central Excise Rules, 2002 - confiscation and penalty under the excise procedure rules (confiscation in lieu of clandestine stock and penalty under Rule 25) - Sustainability of penalties imposed on the director, transporters, godown owners, railway agent and departmental officers. - HELD THAT: - The Tribunal found no cogent evidence of culpable conduct, connivance or pecuniary benefit to support penalties imposed on the director or on third parties (transporters, godown owners, railway agent). Where the foundational demand itself was unsustainable, penalties premised on that demand also fell. As to departmental officers penalised under Rule 26(1), the Tribunal found absence of evidence of dereliction or connivance; trade notice related procedural requirements were recorded to have been complied with (de sealing reports recorded machine numbers) and no proof of active facilitation was produced. In sum, penalties on all noticees were not sustainable. [Paras 59, 60]

All penalties imposed on the director, co appellants (transporters, godown owners, railway agent) and departmental officers set aside.

Final Conclusion: On the facts and for the reasons given, the Tribunal set aside the adjudicating order; demands and penalties based on alleged clandestine manufacture/removal (including confiscation, the substantial duty demands and penalties on the director, third parties and departmental officers) were found unsustainable for want of direct, corroborative linkage and admissible evidence, and all appeals are allowed with consequential relief.