TaxTMI Updates e-Newsletter
Jul 09,2020

Revocation of cancellation of GST registration - calculation of period for filing application for revocation - Central Goods and Services Tax (Removal of Difficulties) Order, 2020 - effect of Removal of Difficulties Order on prior cancellation orders - cancellation of registration under Section 29(2)(c) of the Goods and Services Tax Act, 2017 - setting aside administrative orders and remand for fresh decision

Central Goods and Services Tax (Removal of Difficulties) Order, 2020 - calculation of period for filing application for revocation - effect of Removal of Difficulties Order on prior cancellation orders - Applicability of the Removal of Difficulties Order, 2020 to the petitioner's time-barred application for revocation of cancellation and consequent validity of earlier orders. - HELD THAT: - The High Court accepted the petitioner's submission that the Gazette Notification dated 25.6.2020 (Central Goods and Services Tax (Removal of Difficulties) Order, 2020) clarifies the computation of the thirty-day period for filing applications for revocation of cancellation where cancellation orders were passed up to 12th June, 2020. In view of that clarification, the Court found that the orders of the Assistant Commissioner and the Additional Commissioner (Appeal) dated respectively 2.11.2019 and 31.12.2019 cannot be sustained and therefore set those orders aside. The learned Standing Counsel did not dispute the Notification, and the Court proceeded to apply the Notification's benign effect to permit reconsideration of the petitioner's application for revocation filed on 19.10.2019.

Orders dated 2.11.2019 and 31.12.2019 set aside insofar as they rejected the petitioner's revocation application; the Removal of Difficulties Order, 2020 was held to be applicable.

Revocation of cancellation of GST registration - setting aside administrative orders and remand for fresh decision - Disposition of the petitioner's application for revocation of cancellation following setting aside of earlier orders. - HELD THAT: - Having set aside the administrative orders, the Court directed that the application dated 19.10.2019 for revocation of the cancellation dated 19.1.2019 be decided afresh in accordance with law. The Court imposed a fixed, short timeline for disposal, requiring the concerned authority to decide the application within fifteen days from production of a copy of the order or after verifying the order from the High Court website if a certified copy is not furnished. The direction is procedural and mandates expeditious reconsideration under the clarified timeline provided by the Removal of Difficulties Order.

Application for revocation to be decided in accordance with law within 15 days from production or verification of this order.

Final Conclusion: The High Court set aside the orders rejecting the petitioner's revocation application in light of the Central Goods and Services Tax (Removal of Difficulties) Order, 2020, and directed the concerned authority to decide the petitioner's application for revocation afresh within fifteen days.

Revocation of cancellation of registration - remedy under Section 30 of the Central Goods and Services Act, 2017 - direction to decide application expeditiously

Revocation of cancellation of registration - remedy under Section 30 of the Central Goods and Services Act, 2017 - direction to decide application expeditiously - Petition seeking quashing of cancellation of GST registration disposed of by granting liberty to file application for revocation and directing the authority to consider it forthwith. - HELD THAT: - The court recorded the respondents' contention that the petitioner has an alternative remedy under Section 30 of the CGST Act to seek revocation of cancellation of registration and that the appropriate authority, upon receipt of a properly filed application, is required to examine and pass orders. The petitioner undertook to file the requisite application for revocation. In view of these submissions the Court did not adjudicate the merits of the cancellation itself but disposed of the writ petition by granting the petitioner liberty to invoke the statutory remedy. The Assistant Commissioner of Commercial Taxes was directed to consider the application and pass appropriate orders expeditiously, and in any event within two weeks from receipt of a copy of the order. All substantive contentions between the parties were left open for determination by the authority on receipt of the application. [Paras 5]

Writ petition disposed of by granting liberty to file application for revocation under Section 30 CGST Act; authority directed to consider and decide the application expeditiously, within two weeks.

Final Conclusion: The petition challenging cancellation of GST registration is disposed of by permitting the petitioner to apply for revocation under Section 30 of the CGST Act; the Assistant Commissioner is directed to consider and dispose of such application expeditiously within two weeks; all contentions reserved.

Maintainability of writ relief in presence of statutory appeal - appeal under Section 107 of the Central Goods and Services Tax Act, 2017 - alternative efficacious remedy - clerical or typographical error versus adjudicatory determination

Maintainability of writ relief in presence of statutory appeal - appeal under Section 107 of the Central Goods and Services Tax Act, 2017 - alternative efficacious remedy - Writ petition under Article 226 is not maintainable because an efficacious statutory remedy by way of appeal under Section 107 is available and must be availed. - HELD THAT: - The Court noted that the CGST Act provides a specific appellate mechanism before the Appellate Authority for grievances against orders of an adjudicating authority, including requirements and consequences set out in Section 107. Where a remedy by appeal is provided and is equally efficacious, a High Court should not interpose itself as a middle authority by entertaining a writ petition seeking to quash the adjudicating order. Having regard to the statutory scheme and the availability of appeal to the Joint Commissioner (appellate authority) in matters of this nature, the petitioner was required to pursue the prescribed appellate remedy rather than invoke writ jurisdiction. The Court therefore declined to exercise writ jurisdiction and dismissed the petition on maintainability grounds. [Paras 8, 15, 16]

Writ petition dismissed as not maintainable since the statutory appeal under Section 107 is the appropriate remedy.

Clerical or typographical error versus adjudicatory determination - The alleged discrepancy in declared quantity was not accepted by the adjudicating officer as a mere clerical/arithmetical slip and therefore could not be treated as an oversight justifying writ relief. - HELD THAT: - The Court examined the petitioner's claim that the discrepancy arose from interchanged entries between columns and was a clerical error brought to the adjudicating authority's notice. The record showed that the authority considered the explanation, conducted personal hearing and passed the impugned order denying the petitioner's contention. Given that the authority did not accept the plea of a slip or oversight, the Court concluded that the matter was not shown to be a manifest clerical error susceptible to summary correction in writ jurisdiction. Consequently, the dispute as to factual correctness of quantity and tax/penalty imposition was left to the appellate process rather than being decided under Article 226. [Paras 6, 9, 11, 12, 13]

Alleged clerical error not established; adjudicating authority's refusal to treat it as such stands and the grievance must be pursued by appeal.

Final Conclusion: The High Court dismissed the writ petition, holding that the petitioner must avail the statutory appellate remedy under the CGST Act and that the alleged clerical error was not established so as to justify intervention under Article 226.

Penalty under section 271(1)(c) - Bona fide and inadvertent error - Furnishing inaccurate particulars of income - Genuineness of expenditure - Acceptance of assessment additions

Penalty under section 271(1)(c) - Bona fide and inadvertent error - Genuineness of expenditure - Furnishing inaccurate particulars of income - Whether the penalty imposed under section 271(1)(c) for the additions made in assessment should be sustained - HELD THAT: - The Tribunal found that the amounts disallowed (repairs and collection charges, excess depreciation on tourist buses and interest on housing loan) related to expenditures whose genuineness was not disputed by the Revenue and for which documentary support was on record. The assessee had made bona fide claims which were incorrectly calculated; there was no finding of concealment or of deliberate furnishing of inaccurate particulars. Reliance was placed on the principle that an inadvertent, bona fide error does not attract penalty under section 271(1)(c), as applied by the Supreme Court in Price Waterhouse Coopers (P) Ltd and followed by the jurisdictional High Court in Somany Evergree Knits Ltd., and the facts here showed inadvertence rather than intentional concealment. In view of the foregoing, the Tribunal concluded that imposition of penalty was not justified and directed deletion of the penalty confirmed by the CIT(A). [Paras 6, 7, 8]

Penalty under section 271(1)(c) set aside and directed to be deleted.

Final Conclusion: The appeal is allowed; the penalty imposed under section 271(1)(c) for Assessment Year 2013-14 is deleted because the additions arose from bona fide and inadvertent errors and the expenditures claimed were genuine.

Admission of additional evidence - Remand for fresh adjudication - Examination of business exigency / nature of advance - Chargeability under section 2(22)(e) as deemed dividend - Treatment as unexplained money under section 69A - Right to fair opportunity of hearing

Admission of additional evidence - Examination of business exigency / nature of advance - Chargeability under section 2(22)(e) as deemed dividend - Treatment as unexplained money under section 69A - Whether the additional evidence filed before the Tribunal should be admitted and the question whether the advance of Rs.30,89,000/- received from M/s SPR Infrastructure (India) Ltd. is a business advance or falls within section 2(22)(e) / section 69A requires fresh examination by the AO. - HELD THAT: - The Tribunal noted that the AO had originally made an addition under section 69A, and only in the remand report proposed an addition under section 2(22)(e). The assessee offered additional material before the Tribunal indicating the advance related to a proposed sale to SPRIIL and asserted business purpose; the material went to the root of the matter and had not been placed before the authorities below for lack of opportunity. The CIT(A) had not examined the business exigency or purpose for which the advance was received before holding the amount chargeable under section 2(22)(e). In these circumstances the Tribunal exercised its discretion to admit the additional evidence and remitted the matter to the AO to examine the nature and business exigency of the advance, and to decide whether the receipt is a business advance or exigible to tax under the provisions relied upon, after affording the assessee a fair hearing. [Paras 6]

Admitted the additional evidence and remanded the issue to the AO for fresh examination of the business exigency and tax character of the advance, after giving the assessee an opportunity of hearing; ground No. 11 treated as allowed for statistical purposes.

Remand for fresh adjudication - Admission of additional evidence - Right to fair opportunity of hearing - Whether the materially identical grounds raised in the second appeal require the same treatment and directions as in the first appeal. - HELD THAT: - The Tribunal recorded that facts and grounds in the second appeal are materially identical to the first. In view of the decision to admit the additional evidence and remit the first appeal for fresh consideration of the nature of the advance, the Tribunal directed that the same course be followed in the second appeal, with identical directions to the AO to examine the matter and afford a hearing to the assessee. [Paras 8]

The corresponding ground in the second appeal is remitted to the AO with identical directions; appeal treated as allowed for statistical purposes.

Final Conclusion: The Tribunal admitted additional evidence that goes to the root of the controversy and remitted the question whether the receipts from M/s SPR Infrastructure (India) Ltd. are business advances or taxable as deemed dividend / unexplained money to the AO for fresh adjudication after affording the assessee a fair opportunity of hearing; both appeals are treated as allowed for statistical purposes.

Accrual basis of accounting - Provisions for accrued expenses - Contingent/unascertained liability - Allowability of business expenditure under Section 37(1) - Stamp duty on lease deed-revenue v. capital expenditure - Enduring benefit test

Accrual basis of accounting - Provisions for accrued expenses - Contingent/unascertained liability - Allowability of business expenditure under Section 37(1) - Whether provisions for professional, miscellaneous and travel expenses booked at year end and reversed on receipt of invoices in the next year are contingent/unascertained liabilities and therefore disallowable under Section 37(1), or are allowable business expenses under accrual accounting - HELD THAT: - The Tribunal held that where a company maintains books on accrual basis it may make reasonable estimated provisions at the close of the year for liabilities the amount of which will be ascertained on receipt of invoices. Booking such provisions by debiting the relevant expense account and crediting an expenses payable/control account, and subsequently reversing the control account and debiting the actual invoices in the next year, is an accepted accrual accounting practice and does not convert the provision into an unascertained/contingent liability for tax purposes. The lower authorities failed to appreciate that reversal of the provision in the next year is a mechanical/control entry and does not change the year to which the expense relates; provisions made on a reasonable/scientific basis that pertain to the year under consideration are ascertained liabilities for that year and are allowable under Section 37(1). On this reasoning the Tribunal reversed the disallowances confirmed by the CIT(A) and directed deletion of the additions in respect of professional, miscellaneous and travelling provisions. [Paras 12]

Disallowances of provisions for professional, miscellaneous and travel expenses are deleted and those expenses are held allowable under Section 37(1) as accrued business expenses recognised on accrual basis.

Stamp duty on lease deed-revenue v. capital expenditure - Enduring benefit test - Allowability of business expenditure under Section 37(1) - Whether stamp duty paid for execution/registration of a lease deed (ten-year lease) is capital expenditure on the ground of enduring benefit or is revenue expenditure allowable under Section 37(1) - HELD THAT: - The Tribunal accepted the appellant's reliance on precedent and held that the period of lease alone is not decisive to characterise stamp duty as capital. Where stamp duty is paid in respect of a lease deed executed for carrying on the business, and the expense is incurred for the purpose of business, it may be revenue in nature. Applying the principle in the cited authority, the Tribunal concluded that the stamp duty paid for registering the lease deed is revenue expenditure and is allowable under Section 37(1), notwithstanding the ten year term of the lease. [Paras 17]

Stamp duty paid on execution/registration of the lease deed is held to be revenue expenditure and allowable under Section 37(1); the addition on this ground is deleted.

Final Conclusion: The appeal is allowed: the Tribunal deleted the disallowances in respect of provisions for professional, miscellaneous and travelling expenses (assessed for AY 2013 14) as allowable accrual based business expenses, and directed that the stamp duty paid on the lease deed be treated as revenue expenditure and allowed under Section 37(1).

Unexplained cash deposits - addition under section 68 as credit in books - deduction under section 54 for investment in residential property - remand for verification of documentary evidence filed under Rule 29

Unexplained cash deposits - addition under section 68 as credit in books - Deletion of addition relating to cash deposits treated as unexplained and added under section 68. - HELD THAT: - The Tribunal found that the assessee did not maintain books of account and therefore the statutory pre requisite for making an addition under the deeming provision invoked by the Assessing Officer (credit in the assessee's books) was absent. The assessee had furnished, during assessment and appellate proceedings, explanations and supporting material including evidence of holding agricultural land and a confirmation regarding receipt as share of agricultural income and an explanation that certain deposits were family savings. The Assessing Officer and the Commissioner (Appeals) ignored these explanations and sustained the addition under the statutory provision which presupposes credit in books maintained by the assessee. In those circumstances the addition could not be sustained and was deleted. [Paras 7]

Grounds 1 to 1.1 allowed and the addition made in respect of the cash deposits deleted.

Deduction under section 54 for investment in residential property - remand for verification of documentary evidence filed under Rule 29 - Claim of deduction under section 54 was not finally adjudicated and was remanded to the Assessing Officer for verification of additional documents. - HELD THAT: - The assessee produced a bundle of documents and sought to place additional evidence (including NOC and change in allottee details) before the Tribunal under Rule 29, which were not before the Assessing Officer or the Commissioner (Appeals). As these documents were developed/obtained after the CIT(A)'s order, the Tribunal did not decide the claim on merits but directed that the issue be remitted to the file of the Assessing Officer for proper verification of the documents and for deciding entitlement to deduction under section 54, giving the assessee an opportunity of hearing and observing principles of natural justice. The remand was ordered for verification rather than final adjudication by the Tribunal. [Paras 10]

Grounds 2 to 2.5 partly allowed for statistical purpose and matter remanded to the Assessing Officer for verification and fresh decision after giving the assessee opportunity of hearing.

Final Conclusion: The appeal is partly allowed: the addition in respect of cash deposits is deleted; the claim for deduction under section 54 is remitted to the Assessing Officer for verification of additional documents and fresh decision after affording opportunity of hearing.

Rejection of books of account under section 145(3) of the Income-tax Act - estimation of income by adopting average profit ratio - adoption of gross/net profit ratio based on historical assessment years - deletion of consequential disallowances where net profit addition is applied

Rejection of books of account under section 145(3) of the Income-tax Act - estimation of income by adopting average profit ratio - adoption of gross/net profit ratio based on historical assessment years - Whether the Assessing Officer's rejection of books of account and estimation of gross profit should be upheld and, if so, the appropriate profit ratio to be adopted for assessment year 2011-12. - HELD THAT: - The Tribunal upheld the AO's rejection of the books of account under section 145(3) after noting persistent infirmities and inconsistencies in documentation and substantiation. While upholding rejection, the Tribunal held that the proper method of estimation is to adopt a profit ratio reflecting the assessee's historical performance rather than mechanically applying a single prior-year rate. Having examined the assessee's results for earlier years and the variations in GP/NP ratios, the Bench found it appropriate to compute the gross profit for AY 2011-12 by taking the average of the current year and four preceding assessment years (AYs 2007-08 to 2010-11), arriving at 11.31%. The Tribunal directed the AO to quantify the gross profit ratio accordingly and recompute the addition, thus upholding rejection on merits but remanding the matter for calculation and quantification of the addition on the basis of the adopted average ratio. [Paras 11]

Rejection of books under section 145(3) upheld; gross profit ratio to be adopted as the average of current year and four preceding years (11.31%) and the AO directed to quantify and recompute the addition accordingly (remanded for computation).

Deletion of consequential disallowances where net profit addition is applied - application of net profit addition instead of separate disallowances - Whether the separate additions/disallowances for commission, fines & penalties and interest on FDR should be sustained in addition to the profit estimation for AY 2011-12. - HELD THAT: - The Tribunal held that once it proceeded with profit addition on the basis of the adopted average profit ratio for the year, the other additions made by the AO and confirmed by the CIT(A) (disallowance of commission, fines and penalties, and difference in interest on FDR) do not require separate treatment and are consequentially liable to be deleted. The Bench therefore deleted those additions, considering them unnecessary in view of the net profit/gross profit adjustment mechanism adopted. [Paras 12]

Additions/disallowances for commission, fines & penalties and interest on FDR deleted as not maintainable once profit has been adjusted on the adopted average ratio.

Final Conclusion: The appeal is allowed: the Tribunal upheld rejection of books of account for AY 2011-12 but directed the AO to adopt a gross profit ratio of 11.31% (average of current year and four preceding years) and to recompute the addition; consequential additions relating to commission, fines & penalties and interest on FDR were deleted.

Registration under section 12AA - definition of 'charitable' under section 2(15) - genuineness of activities for registration - interplay between exemption under section 10(23A) and deduction/exemption under section 11 - grant of approval for 80G exemption consequent to 12AA registration - requirement of financial statements for registration

Definition of 'charitable' under section 2(15) - registration under section 12AA - genuineness of activities for registration - Appellant's objects and activities qualify as charitable within the meaning of section 2(15) and therefore entitlement to registration under section 12AA and consequent 80G exemption. - HELD THAT: - The Tribunal held that the appellant, being a statutory Bar Council established to control, supervise and regulate the legal profession, has a dominant purpose amounting to advancement of general public utility. The decision of the Apex Court in CIT vs. Bar Council of Maharashtra (extracted at para 11) and other authorities establish that an institution serving a defined section of the public (here the legal profession and the litigating public) can satisfy section 2(15). Having accepted the object as charitable and the genuineness of activities, further scrutiny of financials is a matter for assessment and does not preclude registration. Applying these principles, the Tribunal concluded that the appellant is entitled to registration under section 12AA and consequent exemption under section 80G. [Paras 6, 11, 15, 20]

Registration under section 12AA and consequent 80G exemption granted as appellant's dominant purpose is charitable within section 2(15).

Requirement of financial statements for registration - genuineness of activities for registration - Whether the Commissioner (Exemption) was justified in rejecting registration solely for non-furnishing of financial statements for FY 2018-19. - HELD THAT: - The Tribunal held that the threshold question for registration is satisfaction about the object and genuineness of activities as reflected in the institution's objects; detailed examination of modus operandi or application of funds (including recent financials) is not a pre condition to registration. Authorities cited (paras 13-16) indicate that scrutiny of finances and application of funds is primarily within the assessment proceedings. The CIT (E)'s rejection on the sole ground of non-furnishing of FY 2018-19 financials was therefore held to be in error. The appellant had already furnished earlier financials (FY 2016-17 and FY 2017-18) and offered to furnish FY 2018-19, reinforcing that refusal for that reason alone was unjustified. [Paras 12, 13, 17, 19]

Rejection of registration solely for non-furnishing of FY 2018-19 financials set aside; such non-furnishing is not a ground to deny registration where objects and genuineness are established.

Interplay between exemption under section 10(23A) and deduction/exemption under section 11 - registration under section 12AA - Whether prior approval/notification under the tax law (section 10(23A) approval) prevents or is inconsistent with registration under section 12AA and claim of exemption under section 11. - HELD THAT: - The Tribunal rejected the view that exemption under section 10(23A) precludes registration under section 12AA or claim under section 11, noting that the two provisions operate in different circumstances and are not mutually exclusive. The record included government notifications granting approval to the appellant (noted at para 9), which the CIT (E) failed to take into account. The Tribunal held that existence of approval under section 10(23A) does not bar registration under section 12AA nor entitlement to exclusion under section 11 where applicable. [Paras 9, 18]

Approval under section 10(23A) does not preclude registration under section 12AA or exclusion under section 11; CIT (E)'s contrary view was incorrect.

Final Conclusion: Appeal allowed. Tribunal directs the Commissioner (Exemption) to grant registration under section 12AA and consequent 80G exemption to the Bar Council of Delhi, holding that its objects and activities are charitable within section 2(15), that non-furnishing of FY 2018-19 financials alone did not justify refusal, and that prior approval under section 10(23A) does not bar registration or claim under section 11.

Disallowance under section 14A read with Rule 8D - deduction under Chapter VI-A - section 80-IA(4) - treatment of undisclosed income discovered on search and seizure - adjustment of seized cash under section 132B against existing liability - protective addition versus substantive addition in search cases - application of precedents and follow-on effect of earlier Tribunal/High Court decisions

Disallowance under section 14A read with Rule 8D - Validity of the disallowance under section 14A read with Rule 8D for A.Y. 2009-10 where no exempt income was earned - HELD THAT: - The Tribunal accepted the assessee's uncontested factual position that no exempt income arose in the year and applied the settled legal position that section 14A/Rule 8D disallowance cannot be sustained where no exempt income has been earned. The Tribunal noted appellate and High Court authorities reversing the Special Bench decision relied upon by the AO and concluded that the AO and CIT(A) erred in sustaining the disallowance. For these reasons the assessee's ground was allowed. [Paras 25]

Disallowance under section 14A read with Rule 8D for A.Y. 2009-10 deleted; assessee's appeal allowed.

Deduction under Chapter VI-A - section 80-IA(4) - treatment of undisclosed income discovered on search and seizure - application of precedents and follow-on effect of earlier Tribunal/High Court decisions - Allowability of deduction under section 80-IA(4) in respect of (a) miscellaneous receipts and (b) additional/undisclosed business income offered after search (A.Y. 2009-10) and by parity for A.Y. 2010-11 and 2011-12 - HELD THAT: - On miscellaneous receipts the Tribunal grouped the receipts and: (i) directed the AO to follow the earlier Tribunal order in the assessee's own case for items already covered; (ii) directed the AO to examine items which the assessee never claimed; and (iii) directed the AO to test remaining receipts for business nexus and allow deduction if they are business income, after giving the assessee opportunity. As to the additional income disclosed consequent to search, the Tribunal followed a line of co-ordinate and High Court decisions holding that where undisclosed receipts are found to arise from the eligible business activity, statutory deductions under Chapter VI-A (here section 80-IA(4)) are allowable on the enhanced profits; the CIT(A)'s allowance on this point was sustained and Revenue's ground dismissed. The Tribunal applied the same reasoning mutatis mutandis to A.Y. 2010-11 and 2011-12. [Paras 31, 34, 36]

Revenue's challenge to allowance of deduction on undisclosed business income dismissed; miscellaneous-receipts challenge partly allowed in part and remitted to AO for item-wise examination and compliance with earlier Tribunal findings; same conclusions applied to A.Y. 2010-11 and 2011-12 (partly allowed for statistical purposes).

Adjustment of seized cash under section 132B against existing liability - protective addition versus substantive addition in search cases - Whether seized cash could be appropriated against tax liabilities (and consequent levy of interest under section 234B/234C) in respect of assessments arising from the search for A.Y. 2010-11 (and related years), and the legal effect of Adjustment/interest prior to amendment of section 132B - HELD THAT: - Relying on earlier Tribunal decisions and CBDT clarifications, the Tribunal held that prior to the Finance Act 2013 amendment (effective 1.6.2013) the phrase 'existing liability' in section 132B included self-assessment/advance tax liabilities and seized cash could be adjusted against such liabilities. The Tribunal accepted that where the assessee had requested adjustment of seized cash, the Department's failure to adjust and consequent charging of interest was not sustainable for the pre-amendment period; accordingly the assessee's grounds seeking appropriation and relief from interest were allowed. Separately, in the appeal concerning the individual (managing director), the Tribunal found the AO's addition of seized cash in the individual's hands was protective and, given the company's acceptance and subsequent taxation of that income (and consistent statements/evidence), the substantive addition in the individual's hands was unsustainable. [Paras 38, 39, 49]

Requests to adjust seized cash against existing/self-assessment tax were upheld for the pre-amendment period and interest under sections 234B/234C was not to be charged from date of seizure to completion of assessment; protective addition treated as appropriate and substantive addition in the individual's hands dismissed-Revenue's appeal in ITA No.608 dismissed.

Final Conclusion: The Tribunal allowed the assessee's appeal deleting the section 14A disallowance for A.Y. 2009-10; sustained the CIT(A)'s allowance of section 80-IA(4) deduction on undisclosed business income discovered on search and remitted certain miscellaneous-receipts items to the AO for item-wise examination (with directions to follow prior Tribunal findings); applied the same conclusions to A.Y. 2010-11 and 2011-12 (partly for statistical purposes); held that seized cash could be adjusted against existing/self-assessment tax for pre-1.6.2013 cases and quashed interest where appropriate; and dismissed the Revenue's appeal against deletion of the addition in the individual assessee's case.

Disallowance under section 14A of the Income-tax Act r.w.r Rule 8D - Computation of deduction under section 10A - exclusion of telecommunication charges and foreign currency expenses from export turnover and total turnover - Characterisation of licence fee paid to Department of Telecommunications as partly capital and partly revenue and apportionment for section 35ABB - Admission and adjudication of additional legal grounds raising claim for foreign tax credit under section 90(1)(a)(ii) and DTAA (Indo US) - Application of Rule 8D where mutual fund investments have zero opening and closing balances - Allowability of write off of advances as business loss or prior period expense

Disallowance under section 14A of the Income-tax Act r.w.r Rule 8D - Disallowance under section 14A for dividend income in A.Y. 2005-06 restricted to 10% and disallowance in A.Y. 2006-07 restricted to 5%; Rule 8D not applicable retrospectively to A.Y. 2005-06 and applicability prospective from A.Y. 2008-09 - HELD THAT: - For A.Y. 2005-06 the Tribunal accepted the approach of the CIT(A) that a reasonable apportioned expenditure for earning exempt dividend income should be disallowed and that restriction to 10% of dividend income was reasonable in the facts; no interference was called for. For A.Y. 2006-07 the Tribunal observed that Rule 8D is settled to be applicable from A.Y. 2008-09 onwards, but some reasonable expenditure must be disallowed and the CIT(A)'s restriction to 5% of dividend income was held to be reasonable. For A.Y. 2008-09, Rule 8D being in force, its application was considered on facts (see separate issue on mutual funds). [Paras 2, 9, 55, 61]

Disallowance u/s 14A in A.Y.2005-06 dismissed (CIT(A)'s 10% restriction upheld); in A.Y.2006-07 CIT(A)'s restriction to 5% upheld; Rule 8D treated as applicable prospectively from A.Y.2008-09

Computation of deduction under section 10A - exclusion of telecommunication charges and foreign currency expenses from export turnover and total turnover - Interpretation of 'export turnover' and 'total turnover' for section 10A - Telecommunication charges and expenses incurred in foreign currency attributable to delivery of software/technical services are to be excluded from both export turnover and total turnover while computing deduction under section 10A; matter directed to Assessing Officer for adjustment where necessary - HELD THAT: - The Tribunal followed consistent precedent including a coordinate bench and High Court authority holding that receipts which are mere reimbursements (freight, telecom, foreign currency expenses) lack the element of turnover and are excluded from export turnover; since total turnover is aggregate of domestic and export turnover, the same items must be excluded from total turnover as well. In view of parity of facts with earlier decisions in the assessee's own case, the Tribunal set aside the lower order and directed exclusion of such expenses from both export and total turnover and remittance to AO for consequential computation and verification. [Paras 10, 14, 17, 20, 21]

Grounds relating to exclusion of telecommunication and foreign currency expenses from export turnover and total turnover allowed; AO directed to exclude such expenses while computing deduction under section 10A

Characterisation of licence fee paid to Department of Telecommunications as partly capital and partly revenue and apportionment for section 35ABB - Licence fee payable to DOT to be apportioned between capital and revenue - amounts payable up to 31-7-1999 to be treated as capital (eligible for amortisation under section 35ABB) and amounts payable on revenue sharing basis after 1-8-1999 to be treated as revenue; matter remitted to Assessing Officer for application of this test - HELD THAT: - Relying on the Jurisdictional High Court's decision in CIT v. Bharti Hexacom Ltd. and other precedents, the Tribunal held that licence fee has both capital and revenue elements: initial payments up to 31-7-1999 relate to establishment/acquisition and are capital, whereas post 1-8-1999 revenue sharing payments are in the nature of operating expenses. The Tribunal therefore restored the issue to the AO to determine apportionment and to allow amortisation of the capital portion under section 35ABB in accordance with the cited authorities. [Paras 25, 29, 34, 35]

Revenue's grounds dismissed; issue remitted to AO to apportion licence fee into capital (up to 31-7-1999) and revenue (post 1-8-1999) parts and decide admissibility under section 35ABB

Admission and adjudication of additional legal grounds raising claim for foreign tax credit under section 90(1)(a)(ii) and DTAA (Indo US) - Additional grounds raising claim for foreign tax credit were admitted and the Tribunal directed the Assessing Officer to consider foreign tax credit in accordance with the Karnataka High Court's ruling in Wipro (interpreting section 90 and the Indo US DTAA), subject to production of requisite evidence - HELD THAT: - The Tribunal held that a legal plea can be raised by way of additional ground before disposal and, following Supreme Court precedent, admitted the ground. On merits, following the detailed reasoning of the Karnataka High Court, the Tribunal observed that income exempt under section 10A is nonetheless chargeable under sections 4 and 5 (tax liability suspended by exemption) and falls within the scope of section 90(1)(a)(ii); under Article 25 of the Indo US DTAA and the amended section 90, credit may be available even where income is exempt in India, subject to treaty conditions and limits. The Tribunal therefore directed the AO to consider the claim of foreign tax credit and verify evidence and computation as per the cited authority. [Paras 41, 44, 48, 53]

Additional grounds admitted; foreign tax credit claim allowed for consideration and verification by AO in accordance with Karnataka High Court's decision in Wipro and DTAA provisions

Application of Rule 8D where mutual fund investments have zero opening and closing balances - Where exempt dividend arose from mutual fund units that were both purchased and sold within the same year leaving nil opening and closing balances, disallowance under section 14A r.w.r Rule 8D deleted - HELD THAT: - The Tribunal noted that Rule 8D(2)(ii) requires determination of average value of investments; where opening and closing balances are nil because units were bought and sold during the year, it is impossible to compute the average value for Rule 8D(2)(ii). Following a coordinate bench decision in the assessee's own case for a later year, the Tribunal deleted the disallowance levied under Rule 8D in respect of such mutual fund investments. [Paras 72, 74, 75]

Disallowance u/s 14A r.w.r Rule 8D in respect of mutual fund investments bought and sold within the year deleted

Allowability of write off of advances as business loss or prior period expense - Write off of advances shown as recoverable from DOT and subsequently written off during the year was allowed (addition deleted) on facts - held not to result in revenue leakage and to be allowable in the year of write off - HELD THAT: - The AO viewed the amounts as capital and disallowed them; CIT(A) confirmed. The Tribunal examined the factual matrix and the assessee's return history and concluded that treating the write off as prior period expense would not cause revenue leakage given consistent tax treatment in earlier years. In the interests of justice and on the facts before it, the Tribunal directed deletion of the addition of the written off advances. [Paras 78, 82, 84, 88, 89]

Addition of Rs. 25.69 lakhs (advances written off) deleted; write off allowed

Final Conclusion: The Tribunal disposed of the cross appeals for A.Y.2005-06, 2006-07 and 2008-09: it upheld restrained disallowances under section 14A for earlier years (10% and 5%), deleted Rule 8D disallowance for mutual fund transactions with nil opening/closing balances, directed exclusion of telecom and foreign currency expenses from export and total turnover for section 10A computations and remitted licence fee apportionment to the AO for application of the Bharti Hexacom approach; additional grounds claiming foreign tax credit were admitted and remitted to the AO for adjudication in accordance with the Karnataka High Court's decision and DTAA provisions; several Revenue appeals were dismissed and the assessee's appeals were partly or wholly allowed as recorded.

Effect of nomination under section 72 - Vesting of securities in nominee - Maintainability of petition under sections 241 and 242 - Requirement of 10% shareholding under section 244 - Parallel civil proceedings and forum preclusion

Maintainability of petition under sections 241 and 242 - Requirement of 10% shareholding under section 244 - Parallel civil proceedings and forum preclusion - Whether the company petition under sections 241 and 242 should be entertained in the presence of an earlier pending civil suit concerning right, title and interest in the same shares and in light of the petitioner's minuscule shareholding. - HELD THAT: - The Court held that the core dispute about right, title and interest in the shares is a civil dispute to be finally adjudicated by the civil court. Given the pending partition suit which affects ownership of the shares, and the status quo order of the civil court keeping the shares in the name of the nominee, it would be inappropriate for the NCLT to determine ownership rights in parallel company proceedings. Further, the petitioner possessed only 0.03% shareholding (acquired after filing the civil suit), which is far below the threshold prescribed by the statute to maintain proceedings under sections 241/242 read with section 244. Relying on precedents that require a real stake and the statutory qualifying percentage, the Court concluded that the petition cannot be entertained in the present facts and ordered dropping of the company proceedings with liberty to file afresh if the civil suit results in the petitioner acquiring the requisite shareholding. [Paras 20, 24, 25, 29]

Proceedings under sections 241 and 242 are not to be entertained and are ordered to be dropped in view of the pending civil suit and the petitioner's inadequate shareholding, with liberty to file afresh if the civil suit results in entitlement to the requisite 10% shareholding.

Effect of nomination under section 72 - Vesting of securities in nominee - Whether the effect of the nomination in favour of the registered nominee can be determined in the company petition proceedings. - HELD THAT: - The Court refrained from deciding the effect of the nomination made under section 72, noting that the question of whether absolute right, title and interest vested in the nominee (to the exclusion of legal representatives) is a matter of civil rights and must be finally determined in the pending civil suit. The Court observed that adjudicating the effect of nomination in these company proceedings could jeopardise the parties' rights in the civil suit and therefore eschewed any final determination on this point. [Paras 16, 20, 27]

Effect of nomination is not decided in these proceedings and is left to be finally adjudicated in the pending civil suit.

Requirement of 10% shareholding under section 244 - Whether a waiver of the statutory qualifying shareholding requirement under the proviso to section 244 should be granted to the petitioner in the present facts. - HELD THAT: - The Court declined to grant any waiver of the requirement under the proviso to section 244. Having held that the petitioner's claimed entitlement is disputed and must be resolved by the civil court, and noting the petitioner's very small registered holding acquired after institution of the civil suit, the Court considered it inappropriate to dispense with the statutory threshold in the company proceedings. The Court left open the possibility of fresh company proceedings if the civil suit results in the petitioner acquiring the required shareholding. [Paras 27, 29]

No waiver of the requirement under section 244 is granted; the petitioner may file fresh company proceedings only if the civil suit results in entitlement to the requisite shareholding.

Final Conclusion: The orders of NCLT and NCLAT are set aside to the extent that the company petition under sections 241 and 242 shall not be entertained given the pending civil suit and the petitioner's inadequate shareholding; the company proceedings are directed to be dropped with liberty to initiate fresh proceedings if the civil suit conclusively awards the petitioner sufficient shareholding (to meet the section 244 threshold).

Prohibition of Fraudulent and Unfair Trade Practices - manipulative trading - creation of Last Traded Price Variation, New High Price and first trade - penalty under section 15HA of the SEBI Act - mitigating factors under section 15J

Delay in initiation of proceedings - investigation during interim - Whether the inordinate delay in issuance of the show cause notice vitiated the adjudication proceedings - HELD THAT: - The Tribunal examined the chronology and the conduct of the regulator's investigation and noted that SEBI had been conducting the investigation during the interim and that delay had occurred in part due to change in the Adjudicating Officer. On the material before the Tribunal the preliminary objection of substantial delay was not accepted and the Tribunal found no merit in setting aside the proceedings on that ground. [Paras 9]

Objection of inordinate delay rejected; proceedings not vitiated by delay.

Creation of Last Traded Price Variation, New High Price and first trade - manipulative trading - lack of evidence of motive or fund transfers - market liquidity and public announcements - imposition of penalty under section 15HA of the SEBI Act - Whether the appellant-noticees were guilty of violations of the PFUTP Regulations and liable to monetary penalty - HELD THAT: - The Tribunal accepted that the impugned order recorded trading patterns by the group which produced LTPs, NHPs and first trades and that their inter-connected trading prima facie suggested manipulative effort. However, the Tribunal found that the scrip was progressively more liquid during the investigation period with rising prices and volumes, there was no established connection with company promoters, and crucially there was no evidence of fund transfers or any motive demonstrating collusion. In view of these factors the Tribunal held that the material was insufficient to sustain imposition of monetary penalties; while the trading pattern warranted suspicion, absent further evidence the penalties would be disproportionate. The Tribunal therefore modified the direction imposing penalty and declined to impose monetary punishment, opting instead to issue warnings to the appellants. The Tribunal also noted that the net profits/losses among the group were negligible given their circular trading to a limited extent. [Paras 10, 11]

Findings of suspicious trading upheld as prima facie, but monetary penalties set aside for lack of corroborative evidence; appeals disposed by substituting warning for penalty.

Treatment of minor in proceedings - Whether action was to be taken against the minor among the noticees - HELD THAT: - The Tribunal observed that although trading in the name of a minor was dealt with in the impugned order, no action has been rightly contemplated against the minor and the adjudicatory direction did not materialize into penal action against the minor party. [Paras 10]

No penal action directed against the minor.

Final Conclusion: The Tribunal rejected the delay objection, held that prima facie manipulative indicators existed but that evidence was insufficient to sustain monetary penalties; consequently the penalties imposed by the AO were set aside and the appeals disposed of by issuing warnings to the appellants, with no order as to costs.

Remand for fresh consideration - declaration in Form SVLDRS-1 - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - rejection of declaration as incorrect - consideration in terms of the scheme and the rules - permission to file a fresh declaration

Declaration in Form SVLDRS-1 - rejection of declaration as incorrect - remand for fresh consideration - consideration in terms of the scheme and the rules - permission to file a fresh declaration - Impugned order rejecting the SVLDRS-1 declaration (Annexure-M) set aside and the matter remanded to the authorities to reconsider the declaration filed on 14.01.2020 (ARN LD14012000001159) in terms of the Scheme and rules. - HELD THAT: - The Court set aside the rejection recorded in Annexure-M and remitted the declaration dated 14.01.2020 for fresh consideration by the competent authorities. The authorities are directed to reconsider the application/declaration furnished by the petitioner in terms of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and the rules framed thereunder; if a fresh declaration is required by the authorities, the petitioner shall be permitted to file it. The respondents are directed to pass appropriate orders on the declaration/application within two months from receipt of the certified copy of the order. The disposal follows the approach taken by a coordinate Bench in a similar matter and implements the remedial process contemplated under the Scheme rather than adjudicating the merits of the underlying demand in this writ petition. [Paras 13, 15]

Annexure-M is set aside; the declaration filed on 14.01.2020 (ARN LD14012000001159) is remitted to the authorities for fresh consideration under the Scheme and rules, allowing filing of a fresh declaration if required, and requiring decision within two months.

Final Conclusion: Writ petition disposed by setting aside the rejection order and remanding the SVLDRS-1 declaration filed on 14.01.2020 for fresh consideration in accordance with the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and applicable rules, with liberty to file a fresh declaration and a two-month timeline for decision.

Maintainability of complaint under Section 138 of the Negotiable Instruments Act where complaint filed before expiry of 15 days from receipt of notice - condition precedent of service of notice and prescribed timelines under the proviso to Section 138 - proof of service of legal notice - distinction between postal receipt and production of the notice as exhibit - application of presumption under Section 139 where complaint itself is not maintainable

Maintainability of complaint under Section 138 of the Negotiable Instruments Act where complaint filed before expiry of 15 days from receipt of notice - condition precedent of service of notice and prescribed timelines under the proviso to Section 138 - Complaint filed before expiry of 15 days from service/dispatch of the statutory notice under the proviso to Section 138 is not maintainable and criminal proceedings founded on such complaint are liable to be quashed. - HELD THAT: - The court applied the ratio of the Supreme Court decisions discussed in the judgment, holding that the proviso to Section 138 prescribes mandatory sequential eventualities: presentation and dishonour of the cheque, service of notice and lapse of the prescribed period (15 days) after receipt of the notice before the drawer can be said to have committed the offence. A complaint instituted before expiry of the 15-day period cannot be treated as a valid complaint in law because the drawer cannot be said to have committed the offence until that period has lapsed. In the present case the complaint was filed ten days after alleged dispatch of the notice (even if the postal slip dated 02.05.2006 is taken to relate to the notice), therefore the complaint was premature and not maintainable. [Paras 14, 18, 22, 23]

The complaint filed on 12.05.2006 before expiry of the 15-day period was not maintainable and proceedings based thereon were liable to be quashed.

Proof of service of legal notice - distinction between postal receipt and production of the notice as exhibit - requirement of exhibiting the legal notice as evidence of service - A mere postal receipt or registry slip without production of the legal notice as an exhibit does not suffice to establish service of the statutory notice required under Section 138; the courts below erred in treating the postal receipt as proof of service. - HELD THAT: - The trial court relied on a postal receipt dated 02.05.2006 to conclude that notice had been issued and hence the complaint was instituted within the stipulated time; however, the record did not contain the legal notice dated 02.05.2006 as an exhibit. The High Court found that treating the postal slip alone as proof of service was legally erroneous. Given the mandatory character of the proviso to Section 138, the absence of the notice as an exhibit meant the condition precedent of service was not satisfactorily proved and the subsequent filing cannot be validated by reliance on the postal receipt alone. [Paras 16, 17, 22]

The courts below erred in holding that service of notice was proved merely by a postal receipt; the legal notice was not exhibited and service was not established for purposes of Section 138.

Application of presumption under Section 139 where complaint itself is not maintainable - limits on reliance upon statutory presumptions when foundational requirements for prosecution are missing - Presumption under Section 139 cannot salvage a conviction where the complaint was not maintainable on the day it was filed because the mandatory conditions for constituting the offence were not satisfied. - HELD THAT: - Both the trial and appellate courts invoked the presumption under Section 139 to support conviction despite defects in proof of service and premature filing. The High Court held this approach to be impermissible: statutory presumptions cannot be used to cure the fundamental non satisfaction of the proviso to Section 138 which renders the complaint itself legally defective. As the complaint was not maintainable when filed, reliance on Section 139 could not validate the conviction. [Paras 17, 21, 22, 23]

Conviction could not be sustained by relying on Section 139 because the complaint was legally defective and not maintainable at the time of filing.

Final Conclusion: Impugned judgments of conviction and sentence under Section 138 of the Negotiable Instruments Act were set aside because the complaint was instituted before expiry of the mandatory 15 day period after service of notice and because service was not proved by production of the notice as an exhibit; the reliance on the presumption under Section 139 could not cure these fatal defects. The petition is allowed and records are remitted to the trial court.

Abuse of the process of court - taking cognizance - criminal breach of trust and cheating - proceedings under Section 138 of the Negotiable Instruments Act as a bar to subsequent IPC complaint - defence tested in earlier NI Act proceedings

Abuse of the process of court - proceedings under Section 138 of the Negotiable Instruments Act as a bar to subsequent IPC complaint - defence tested in earlier NI Act proceedings - taking cognizance - Complaint Case No. 1914/2010 filed after initiation of proceedings under Section 138 N.I. Act was an abuse of the process of court and the order taking cognizance under Sections 406/34 IPC and issuing summons was wrongly recorded. - HELD THAT: - The complaint itself shows in Para-8 that the cheques were dishonoured and the complainant became aware of the dishonour after service of the notice; the complaint was filed subsequently. The same cheques were the subject matter of criminal proceedings under Section 138 N.I. Act (C/1 Case No. 448 of 2010) in which the complainant (there the accused) was tried, convicted and his appeal was dismissed. Thus the allegations in the complaint amounted to the complainant advancing in the instant IPC complaint the defence which had already been raised and rejected in the NI Act proceedings. The Court relied on the principle laid down by the Supreme Court in Sunil Kumar v. Escorts Yamaha Motors Ltd. and Eicher Tractor Ltd. v. Harihar Singh that initiation of criminal proceedings under the IPC after institution of proceedings under Section 138 N.I. Act concerning the same cheques can amount to an abuse of the process of the court. Applying those authorities to the facts - namely, prior NI Act proceedings involving the same cheques and adjudication of the complainant's defence by two courts - the High Court concluded that the complaint was instituted as a collateral or retaliatory measure and that the taking of cognizance and issuance of summons in respect of Sections 406/34 IPC was untenable. [Paras 8, 9, 10, 11]

Complaint Case No. 1914/2010 was an abuse of process; the order dated 22.11.2010 taking cognizance under Sections 406/34 IPC and issuing summons is set aside.

Final Conclusion: The petition is allowed; the High Court quashed the order dated 22.11.2010 by which the trial court took cognizance under Sections 406/34 IPC and issued summons in Complaint Case No. 1914/2010 on the ground that the complaint amounted to an abuse of the process of the court in view of prior proceedings under Section 138 N.I. Act and adjudication of the defence therein.