TaxTMI Updates e-Newsletter
Aug 01,2020

Refund of unutilised input tax credit - inverted duty structure - input tax including inputs and input services - ultra vires subordinate legislation - rule making power under Section 164 - reading down and severance of offending words

Refund of unutilised input tax credit - inverted duty structure - input tax including inputs and input services - ultra vires subordinate legislation - reading down and severance of offending words - Whether Explanation (a) to Rule 89(5) of the CGST Rules, 2017 - by defining Net ITC as input tax credit availed on inputs only and excluding input services - is ultra vires Section 54(3) of the CGST Act, 2017 and if so, what relief is appropriate. - HELD THAT: - Section 54(3) permits a registered person to claim refund of "any unutilised input tax credit" where credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies (inverted duty structure). "Input tax" (Section 2(62)) and "input tax credit" (Section 2(63)) encompass tax charged on supplies of goods or services. Rule 89(5) prescribes the formula for refund on account of inverted duty structure and Explanation (a) to sub-rule (5), as substituted, defined "Net ITC" as input tax credit availed on "inputs" during the relevant period, thereby excluding input services. That narrowing by rule-making conflicts with the statutory phrase "any unutilised input tax credit" and effectively curtails the legislative entitlement to refund of input tax credit attributable to input services. The rule-making power under Section 164(1) permits rules to carry out the provisions of the Act, but cannot be used to whittle down the statutory grant of refund; where a subordinate provision transgresses the Act, it must yield. The Court examined the scheme and definitions in the Act, the amending notifications and related circular, and concluded that Explanation (a) operates contrary to Section 54(3). Where the offending words are severable, the proper remedial course is to read down the explanation so that "Net ITC" conforms to the statutory meaning of "input tax credit" (including both inputs and input services) for computation of refund under Rule 89(5). [Paras 23, 24, 25, 26, 27]

Explanation (a) to Rule 89(5) of the CGST Rules, 2017 is ultra vires Section 54(3) to the extent it confines Net ITC to tax on "inputs" only; it is read down so that Net ITC means input tax credit availed on inputs and input services, and the respondents are directed to consider refund claims accordingly.

Final Conclusion: The petitions are allowed to the extent indicated: Explanation (a) to Rule 89(5) is read down so that "Net ITC" for computing refund on account of inverted duty structure includes input tax credit on both inputs and input services; claimants' refund claims shall be determined and granted in accordance with this reading. No order as to costs.

Merger and transmission of litigation - maintainability of appeal filed in the name of an amalgamating (transferor) company - substitution of parties in appellate proceedings - remand for decision on merits

Merger and transmission of litigation - maintainability of appeal filed in the name of an amalgamating (transferor) company - substitution of parties in appellate proceedings - Whether the Tribunal was justified in dismissing the appeal as filed in the name of a non existent company notwithstanding a High Court sanctioned scheme of amalgamation transferring all existing and future litigation to the transferee company, and whether substitution was permissible or required before the Tribunal. - HELD THAT: - The High Court recorded that by a scheme of amalgamation sanctioned by the High Court, M/s. Zenta Knowledge Services Pvt. Ltd. merged with M/s. Accenture Services Pvt. Ltd. with effect from 1 April 2012, and that subsequently M/s. Accenture Services Pvt. Ltd. merged with M/s. Accenture Solutions Pvt. Ltd., the present appellant. By virtue of the sanctioned schemes, all existing and future litigations of the transferor companies were to be transferred to and continued in the name of the respective transferee companies. The Tribunal rejected the appeal on the technical ground that the memo of appeal had been filed in the name of a company that had ceased to exist and held that substitution could not be entertained during the pendency of proceedings. The High Court held that this approach was legally unsustainable because it did not take into account the effect of the High Court sanctioned amalgamation and automatic transmission of litigation to the transferee company. In view of that legal position, the Tribunal's dismissal on the ground of filing in the name of the non existent company could not be sustained. [Paras 6, 7]

Tribunal's order rejecting the appeal as filed in the name of a non existent company is set aside and the matter is remitted to the Tribunal to decide the appeals and cross appeal on merits in accordance with law.

Final Conclusion: The High Court set aside the Tribunal's order of 14 September 2016 and remanded the appeals (both the assessee's and the Revenue's) and the assessee's cross appeal for fresh adjudication on merits, leaving parties free to raise substantial questions of law thereafter.

Withholding of refund under Section 241A - scope of Section 241A post-conclusion of scrutiny assessment - direction to refund with interest

Withholding of refund under Section 241A - scope of Section 241A post-conclusion of scrutiny assessment - Whether a refund determined by an assessment order passed under Section 143(3) can be withheld by the Assessing Officer under Section 241A after the scrutiny assessment has concluded. - HELD THAT: - The Court recorded that Section 241A permits the Assessing Officer to withhold a refund only upon satisfaction of the statutory parameters and only up to the date on which assessment is made, i.e., during the pendency of the scrutiny assessment. Once an order under Section 143(3) has been passed concluding the scrutiny assessment, withholding of the refund under Section 241A is not permissible. The Court noted precedential treatment in similar circumstances and observed that withholding the refund in the present case prima facie appears without justification. Consequently, the respondents were directed to refund the amount determined by the assessment order together with interest within six weeks, subject to the respondents filing, within the same period, a counter-affidavit stating any valid justification for withholding the refund or part thereof; no further time would be granted for that purpose.

Refund withheld after conclusion of the scrutiny assessment cannot be sustained under Section 241A; respondents directed to refund the amount with interest within six weeks unless a contemporaneous justified counter-affidavit is filed.

Final Conclusion: Writ petition disposed directing respondents to refund the assessed amount for Assessment Year 2017-2018 with interest within six weeks, unless a valid justification for withholding is filed by respondents within the same period; list on 23rd September, 2020.

Dismissal of appeals for low tax effect - Central Board of Direct Taxes circular on threshold for filing and pursuing appeals - inability of Revenue to pursue appeals below prescribed threshold - liberty to restore appeals if tax effect exceeds threshold - substantial question of law left open

Central Board of Direct Taxes circular on threshold for filing and pursuing appeals - inability of Revenue to pursue appeals below prescribed threshold - Whether the Revenue can file or pursue appeals where the tax effect is below the threshold fixed by the CBDT circular. - HELD THAT: - The Court interpreted the relevant circular of the Central Board of Direct Taxes to mean that where the tax effect in a case is below the threshold prescribed by the circular, the Revenue is not entitled to file or to pursue appeals pending before the Tribunal, this Court or the Supreme Court. In light of that interpretation the Court held that the appeals before it, having tax effects below the threshold, could not be maintained. The observation was made to safeguard the Revenue's broader concern that identical substantial questions of law remain available for reconsideration in other connected proceedings where threshold requirements may be met. [Paras 5]

Revenue cannot file or pursue appeals below the threshold prescribed by the CBDT circular; the appeals are not maintainable on that ground.

Dismissal of appeals for low tax effect - liberty to restore appeals if tax effect exceeds threshold - Disposition of the present appeals which have tax effects below the prescribed threshold. - HELD THAT: - Applying the interpretation of the CBDT circular, the Court dismissed the five tax appeals on account of low tax effect. The Court expressly left the substantial questions of law framed at admission undetermined, and granted the Revenue liberty to make a mention to restore any appeal if it is shown that the tax effect in the respective case exceeds the threshold fixed by the circular, so that the appeals may be heard on merits. [Paras 6]

The appeals are dismissed for low tax effect; substantial questions of law remain open and liberty to restore is granted if threshold is exceeded.

Final Conclusion: The appeals are dismissed on account of low tax effect in terms of the CBDT circular; the substantial questions of law admitted are left open, and the Revenue is granted liberty to seek restoration of any appeal if the tax effect in that appeal is shown to exceed the prescribed threshold.

Contrived losses - undisclosed income - apportionment of group receipts - transfer of shares - seized electronic evidence - block assessment

Undisclosed income - apportionment of group receipts - seized electronic evidence - block assessment - Whether addition of interest income in respect of cross-investments in Ashima Syntex Ltd. could be sustained and in what quantum. - HELD THAT: - The Tribunal concluded that the seized worksheet on floppy represented gross cross-group calculations and that only the net interest difference shown in the papers (Rs. 1,84,425) could be treated as undisclosed income to be bifurcated among group entities in proportion to their investment in Ashima Syntex Ltd. The High Court examined the Tribunal's reasoning and found that the Tribunal had considered the seized electronic material, the concurrent factual findings (including admissions by certain assessees and extracts from Ashima Syntex Ltd.'s books), and the alternate contention of the assessee that only the net figure was chargeable. The Court held that the Tribunal's limited addition (net interest) followed from the material on record and was a permissible factual conclusion in block assessment proceedings. [Paras 2, 17, 36]

Tribunal's substitution of the Assessing Officer's gross addition by the net interest figure and its apportionment among the assessees is sustained; addition limited to the net interest shown in the seized papers and to be apportioned in proportion to investment.

Contrived losses - transfer of shares - block assessment - Whether losses claimed on inter group share transactions could be disallowed as contrived losses in block assessment proceedings. - HELD THAT: - The Tribunal found that sale bills from brokers, account payee cheque payments, entries in books of account, confirmations of purchase and subsequent transfer steps supported that the assessee's right in the shares was extinguished and that transactions were recorded and reflected in returns. The Tribunal therefore held that, on the facts, the losses could not be treated as contrived and disallowed in block assessment merely because physical transfer had not been registered before the date of search. The High Court agreed that the Tribunal had considered the material evidence and recorded factual findings; it concluded those findings did not warrant interference and that the Tribunal was entitled to hold that such losses were allowable. [Paras 2, 17, 42]

Tribunal's deletion of disallowance of losses claimed on inter group share transactions is upheld; the losses are allowable on the facts in the block assessment.

Final Conclusion: The High Court found no merit in the revenue's challenge and upheld the Tribunal's factual conclusions: the addition for interest is limited to the net figure shown in the seized papers and apportioned among the assessees, and the disallowance of alleged contrived losses is set aside. The appeal is dismissed.

Payments characterised as royalty - deduction of tax under section 195 - disallowance under section 40(a) - assessment revision under section 260(1A) - application of Article 24(4) of the DTAA (India-Netherlands)

Payments characterised as royalty - deduction of tax under section 195 - disallowance under section 40(a) - Tribunal's conclusion that the payments made by the assessee cannot be treated as royalty and hence no liability for deduction of tax under section 195, and that section 40(a) is not applicable. - HELD THAT: - The Court accepted the revenue's submission and answered the substantial question of law in favour of the revenue and against the assessee, thereby overturning the tribunal's finding that the payments were not royalty. Consequently, the legal position as decided is that the payments are to be treated as royalty with the attendant obligation for tax deduction under section 195 and potential application of section 40(a) where relevant.

Substantial question answered in favour of the revenue; the tribunal was not justified in holding the payments were not royalty and thus there is liability to deduct tax under section 195 and potential applicability of section 40(a).

Assessment revision under section 260(1A) - Direction to the assessing authority to pass an order under section 260(1A) in light of the outcome of the assessee's appeal before the Apex Court. - HELD THAT: - The Court directed that, in view of possible further appeal, the assessing authority should pass an order under section 260(1A) of the Act based on the result of the assessee's appeal to the Supreme Court. This is a procedural direction to ensure the assessing authority gives effect to the higher forum's decision when the appellate process concludes.

Assessing authority to pass order under section 260(1A) consistent with the outcome of the assessee's appeal to the Apex Court.

Application of Article 24(4) of the DTAA (India-Netherlands) - Whether Article 24(4) of the DTAA between India and the Netherlands must be considered by the assessing authority before giving effect to this order if the assessee loses before the Apex Court. - HELD THAT: - The Court remanded this legal question to the assessing authority for consideration: though not raised by the assessee earlier, Article 24(4) of the DTAA is a beneficial piece of delegated legislation and, if the assessee is entitled to its benefit, that cannot be denied. The Court therefore instructed that the assessing authority, before implementing the order in case the assessee loses before the Supreme Court, should consider the applicability of Article 24(4). This amounts to a remand for fresh consideration of that treaty provision rather than a final adjudication on its applicability.

Issue remanded: assessing authority to consider Article 24(4) of the India-Netherlands DTAA before giving effect to this order if the assessee loses before the Apex Court.

Final Conclusion: The appeal is allowed: the tribunal's finding that the payments were not royalty is set aside (answering the substantial question in favour of the revenue); the assessing authority is directed to pass an order under section 260(1A) in accordance with the Supreme Court's eventual decision; and the assessing authority must, before giving effect to this order if the assessee loses in the Apex Court, consider the applicability of Article 24(4) of the DTAA between India and the Netherlands.

Provision for warranty - computation of book profits under section 115JB - scientific basis of accounting provision - remand for de novo adjudication - pronouncement of orders beyond 90 days - exclusion of lockdown period for computation of time-limits - rule 34(5) of the Income Tax Appellate Tribunal Rules

Provision for warranty - computation of book profits under section 115JB - scientific basis of accounting provision - remand for de novo adjudication - Disallowance of provision for warranty in computation of book profits under section 115JB remitted to the Assessing Officer for fresh adjudication. - HELD THAT: - The Tribunal recalled its earlier order for the limited purpose of adjudicating the ground relating to disallowance of warranty provision of Rs. 23,48,01,000/- in computation of book profits under section 115JB. The appellate record showed no finding by the Commissioner (Appeals) on whether the provision was made on a scientific basis using past history; further, the same question had been set aside earlier to the file of the Assessing Officer under the normal provisions of the Act. In the interest of justice and because the outcome under section 115JB would depend on the outcome of the substantive adjudication under the normal provisions, the Tribunal set aside the ground to the file of the Assessing Officer for de novo adjudication in accordance with law. [Paras 2, 3]

Ground No.12 is remitted to the Assessing Officer for fresh adjudication.

Pronouncement of orders beyond 90 days - exclusion of lockdown period for computation of time-limits - rule 34(5) of the Income Tax Appellate Tribunal Rules - Pronouncement of the Tribunal's order beyond 90 days from conclusion of hearing is permissible by excluding the lockdown period. - HELD THAT: - Relying on the coordinate-bench precedent in JSW Ltd, the Tribunal held that the 'ordinary' 90-day limit in rule 34(5) must be interpreted pragmatically in light of the COVID-19 lockdown and associated judicial directions that extended limitation periods. The period of lockdown is to be excluded when computing the 90-day pronouncement period; exceptional and extraordinary circumstances caused by the pandemic justify pronouncing the order after the 90-day period. Applying that principle, the Tribunal proceeded to pronounce the present order beyond 90 days. [Paras 4, 5]

Order pronounced beyond 90 days after excluding the lockdown period; the Tribunal follows the JSW Ltd precedent.

Final Conclusion: The appeal is allowed for statistical purposes; the ground on disallowance of warranty provision in computation of book profits is remitted to the Assessing Officer for de novo adjudication, and the Tribunal's pronouncement beyond 90 days is sustained by excluding the lockdown period under rule 34(5).

Transfer pricing adjustment - Transaction Net Margin Method (TNMM) as Most Appropriate Method - Operating Profit/Operating Cost as profit level indicator - Comparability and selection/exclusion of comparable companies - Working capital adjustment - Arm's Length Price (ALP) - Binding effect of Dispute Resolution Panel directions under Section 144C(5) - Treatment of foreign exchange gain/loss as operating income - Computation of deduction under Section 10A - exclusion from export and total turnover - Grant of tax credit for TDS and levy of interest under Sections 234B/234C - Claim for interest under Section 244A

Transfer pricing adjustment - Transaction Net Margin Method (TNMM) as Most Appropriate Method - Operating Profit/Operating Cost as profit level indicator - Comparability and selection/exclusion of comparable companies - Working capital adjustment - Binding effect of Dispute Resolution Panel directions under Section 144C(5) - Validity of TPO/AO transfer pricing adjustment and whether AO was bound to give effect to DRP directions excluding specified comparables and granting working capital adjustment without cap - HELD THAT: - The Tribunal recorded that TNMM with OP/OC as the profit level indicator was the MAM and examined the TPO's and DRP's selections of comparables. The DRP directed exclusion of Acropetal Technologies Ltd., Eclerx Services Ltd., ICRA Online Ltd., Infosys BPO Ltd., and Sundaram Business Services Ltd., and directed that foreign-exchange gains/losses be treated as operating and that working-capital adjustment be granted on actual basis without arbitrary cap. The Tribunal upheld the DRP's exclusions following earlier Tribunal precedents (including Stream International/Arctern and Tesco/Tata Elxsi lines) which found those entities functionally dissimilar or having peculiar economic circumstances or brand/intangible effects making them unsuitable comparables. On working-capital adjustment, the Tribunal followed its earlier decision in ARM Embedded Technologies and related orders holding that working-capital adjustment must be allowed on actual basis and not restricted by an ad hoc cap set by the TPO. The Tribunal held that the AO's failure to give effect to the DRP's directions was misconceived and directed the AO/TPO to follow the DRP's directions in computing ALP and give effect to exclusions and working-capital adjustments. [Paras 19, 21, 23, 28, 29]

Directions of the DRP to exclude specified comparables and to grant working-capital adjustment on actual basis are upheld; AO/TPO directed to give full effect to the DRP's directions and recompute ALP accordingly (assessee's grounds treated as allowed for statistical purpose).

Treatment of foreign exchange gain/loss as operating income - Comparability adjustments - Whether gains/losses arising from foreign-exchange fluctuation are to be treated as operating in nature for margin computation - HELD THAT: - The Tribunal considered revenue's contention that forex gains/losses are incidental but not operating and found that the DRP's direction to treat such gains/losses as operating income was supportable. The Tribunal followed the Delhi High Court's reasoning in PCIT v. B.C. Management Services and related authorities holding that forex gain/loss attributable to the rendering of services should be regarded as part of operating income for transfer-pricing purposes. On that basis the DRP's direction was sustained and revenue's grounds to the contrary were dismissed. [Paras 25, 26]

Foreign-exchange gains/losses shall be treated as operating in nature for computing margins; DRP direction upheld and revenue's challenges dismissed.

Computation of deduction under Section 10A - exclusion from export and total turnover - Precedent of jurisdictional High Court binding - Whether telecommunication and foreign-travel expenses in foreign currency must be excluded from both export turnover and total turnover while computing deduction under Section 10A - HELD THAT: - The Tribunal examined the AO's approach of excluding the expenses from export turnover but not from total turnover and considered the assessee's reliance on the Karnataka High Court decision in CIT v. Tata Elxsi. As the Karnataka High Court's decision governs the jurisdiction and has been upheld by the Supreme Court in related matters, the Tribunal held that such expenses should be excluded from both export and total turnover while computing the Section 10A deduction. The DRP's direction adopting the assessee's alternate plea was accepted and the contrary view of the AO/CIT(A) was rejected. [Paras 30, 31]

Communication and foreign-travel expenses in foreign currency to be excluded from both export turnover and total turnover for Section 10A computation; DRP direction upheld.

Grant of tax credit for TDS and levy of interest under Sections 234B/234C - Claim for interest under Section 244A - Validity of AO's denial of full TDS credit, consequent levy of interest under Sections 234B/234C, and denial of interest under Section 244A - HELD THAT: - The Tribunal treated these contentions as factual in nature. It did not finally adjudicate the merits on the record but directed that the Assessing Officer should verify the factual claims regarding TDS credits and interest and rectify/adjust the assessment in accordance with law and the DRP's directions. The Tribunal declined to decide these factual contentions on the basis of the material before it and remitted the matter for verification and appropriate action by the AO. [Paras 32]

Matter remitted to the Assessing Officer to verify TDS credit, levy of interest under Sections 234B/234C and claim for interest under Section 244A, and to grant/rectify relief in accordance with law.

Final Conclusion: The Revenue's appeal is dismissed. The DRP's directions on comparables, treatment of forex gains as operating and allowance of working-capital adjustment on actual basis are upheld and the AO/TPO is directed to give effect to those directions and recompute ALP; the assessee's transfer pricing grounds are treated as allowed for statistical purposes. The Tribunal also directs exclusion of specified expenses from both export and total turnover for Section 10A computation. Factual issues relating to TDS credit and interest under Sections 234B/234C and interest under Section 244A are remanded to the Assessing Officer for verification and appropriate rectification.

Carry forward of unabsorbed depreciation - interpretation of amended section 32(2) - deeming of unabsorbed depreciation as part of subsequent year's depreciation - dispensing with eight year limitation for unabsorbed depreciation - carry forward of losses on amalgamation under Section 72A - achievement of prescribed production level after amalgamation - condition precedent versus directory requirement of statutory form filing

Carry forward of unabsorbed depreciation - interpretation of amended section 32(2) - dispensing with eight year limitation for unabsorbed depreciation - Whether unabsorbed depreciation pertaining to assessment years up to 2001-02 can be carried forward and set off in subsequent years without any time limit by virtue of the amendment to section 32(2) effective from 01.04.2002. - HELD THAT: - The Tribunal's reasoning, approved by the High Court, proceeds from the amendment to section 32(2) by Finance Act, 2001 and the explanatory Circular No.14 of 2001 which took effect from assessment year 2002-03. The amendment adds unabsorbed depreciation to the depreciation allowance of the following year and the Circular clarified that the legislative intent was to dispense with the earlier eight year limitation so as to enable industry to conserve funds for replacement of plant and machinery. Any unabsorbed depreciation available on 1 April 2002 (A.Y. 2002-03) is to be governed by the amended section 32(2). Consequently, unabsorbed depreciation relating to assessment years including and prior to 2001-02 that had been carried forward into A.Y. 2002-03 became part of depreciation for that year and, thereafter, is available for carry forward and set off against profits of subsequent years without limitation. The Revenue did not place before the Court any contrary higher authority or material sufficient to displace the Tribunal's conclusion; accordingly the Tribunal's deletion of the disallowance was upheld. [Paras 4]

The carry forward and set off of unabsorbed depreciation relating to assessment year 2001-02 and prior years is permissible in subsequent years without any time limit in terms of the amended section 32(2); the Tribunal's direction to allow the claimed unabsorbed depreciation is affirmed.

Carry forward of losses on amalgamation under Section 72A - achievement of prescribed production level after amalgamation - condition precedent versus directory requirement of statutory form filing - Whether non filing of the prescribed Form No.62 for the third assessment year after amalgamation disentitles the amalgamated company to carry forward losses under Section 72A where the amalgamated company achieved the required production threshold within four years. - HELD THAT: - The Court examined the factual finding recorded by the Commissioner of Income Tax (Appeals) for AY 2007-08 that the amalgamated company achieved more than 100% of the installed capacity of the amalgamating company in the fourth year and maintained the required level in the fifth year, supported by audited financial statements. Statutory provisions and Rule 9C require achievement of at least 50% of installed capacity within four years of amalgamation; however, the Court held that filing of Form No.62 for the third assessment year is not a condition precedent to the statutory entitlement but is, at best, directory. The mark of 50% may be achieved at any time within the four year period and undisputed evidence that the threshold was crossed in the fourth year suffices to permit carry forward of losses under Section 72A. No contrary material was produced by the Assessing Officer to rebut the factual finding relied upon. [Paras 6, 7]

Non filing of Form No.62 for the third assessment year does not automatically disentitle the assessee; having achieved the prescribed production threshold within four years, the amalgamated company is entitled to carry forward losses under Section 72A and the Tribunal's acceptance of that entitlement stands.

Final Conclusion: The Revenue's appeal is dismissed. The Tribunal's allowance of the claimed unabsorbed depreciation for the earlier assessment years (including 1999-2000 and 2000-01) in accordance with the amended section 32(2) is upheld, and the amalgamated company's entitlement to carry forward losses under Section 72A is sustained on the factual finding that the required production level was achieved within four years; non filing of Form No.62 for the third year is treated as directory and does not defeat the claim.

Disallowance under Section 14A read with Rule 8D - Computation of average value of investments for Rule 8D disallowance - Allowability of expenses as revenue or capital in income-tax assessment - Allowability of river diversion and HT line shifting expenses as revenue expenditure - Application of matching principle and treatment of deferred expenditure

Disallowance under Section 14A read with Rule 8D - Computation of average value of investments for Rule 8D disallowance - Whether the disallowance under Section 14A read with Rule 8D should be computed by taking the average value of only those investments which yielded exempt income during the year, and consequent direction for recomputation. - HELD THAT: - The Tribunal accepted the assessee's submission, following the ratio of the Special Bench of the Delhi Tribunal in ACIT v. Vireet Investment Pvt. Ltd., that only investments which actually yielded exempt income in the relevant year are to be included for computing the average value of investments for the purposes of Rule 8D. The Revenue's broader approach of taking the average value of total investments was held not to be correct in the facts of these appeals. Having applied that legal principle, the Tribunal restored the matter to the file of the Assessing Officer for recomputation of the disallowance under Section 14A in accordance with the stated observation. The Tribunal recorded that the ground is allowed for statistical purposes. [Paras 6]

Matter remitted to the Assessing Officer to recompute the Section 14A disallowance considering only those investments which yielded exempt income; ground allowed for statistical purposes.

Allowability of river diversion and HT line shifting expenses as revenue expenditure - Allowability of expenses as revenue or capital in income-tax assessment - Application of matching principle and treatment of deferred expenditure - Whether the river diversion and HT line shifting expenses are capital in nature or allowable as revenue expenditure in the year incurred. - HELD THAT: - The Tribunal examined the nature of the expenditure and the authorities relied upon by the assessee. Relying on the decisions of the Supreme Court in Bikaner Gypsums Ltd. and Taparia Tools Ltd., the Tribunal held that expenses incurred for removal of obstacles (river diversion and shifting of HT line) did not result in an enduring benefit to the assessee and were revenue in nature. The Tribunal further noted that the assessee had claimed the entire expenditure in the year in the return, and in view of the principles in Taparia Tools Ltd. the AO could not insist on spreading the deduction. Applying these principles, the Tribunal allowed the entire claim and deleted the addition. [Paras 11, 12]

Expenditure on river diversion and HT line shifting held to be revenue in nature; entire claim allowed and the addition deleted.

Final Conclusion: Both appeals allowed for statistical purposes: the Section 14A disallowance remitted to the Assessing Officer for recomputation limited to investments which yielded exempt income; the river diversion and HT line shifting expenses held to be revenue in nature and the additions deleted.

Maintainability of objection under Form No. 35A filed before the Dispute Resolution Panel - curability of procedural defects in verification of statutory forms - acceptance of scanned signature as provisional filing with subsequent production of original - rejection in limine of objections for defective verification - requirement of opportunity of hearing and reasoned order by the DRP - pronouncement of orders under Rule 34(5) of the Appellate Tribunal Rules and exclusion of lockdown/force majeure period from the 90 day limit

Maintainability of objection under Form No. 35A filed before the Dispute Resolution Panel - curability of procedural defects in verification of statutory forms - acceptance of scanned signature as provisional filing with subsequent production of original - rejection in limine of objections for defective verification - Validity of DRP's in limine rejection of the objection filed in Form No. 35A on account of submission of a scanned copy of the verification signature and whether such defect is curable. - HELD THAT: - The Tribunal examined the DRP's conclusion that a scanned signature on the verification page amounted to no legal sanctity and justified treating the Form No. 35A as non est. The Bench found that the assessee had prepared and filed the objection within time, had bona fide reasons (non availability of one director in Mauritius due to cyclone) for initially filing a scanned signed copy and subsequently furnished the original. The Tribunal treated the defect as procedural and curable rather than a jurisdictional bar to the DRP's consideration. The Bench relied on the coordinate decision in MSM Satellite (Singapore) Pte. Ltd. where similar procedural filing with scanned signature was held not to justify dismissal in limine and observed that acceptance of electronic filing by Revenue supports treating the scanned submission as provisional subject to production of originals and not as a ground for summary rejection. Consequently the DRP's order rejecting the objection in limine was quashed and the DRP was directed to accept the original Form No. 35A, afford the assessee an opportunity of hearing and decide the objections by a reasoned order in accordance with law. [Paras 8, 9]

DRP's in limine rejection of Form No. 35A on account of scanned signature was unsustainable; defect held curable, Form No. 35A to be accepted and matter remitted to DRP for hearing and reasoned adjudication.

Pronouncement of orders under Rule 34(5) of the Appellate Tribunal Rules and exclusion of lockdown/force majeure period from the 90 day limit - Whether the Tribunal's pronouncement of the order beyond 90 days from conclusion of hearing was permissible in view of lockdown/force majeure and Rule 34(5). - HELD THAT: - The Tribunal considered the coordinate Bench's analysis of Rule 34(5) which ordinarily requires pronouncement within 90 days of conclusion of the hearing but recognises exceptional circumstances. The Bench took judicial notice of the national lockdown and related judicial and executive orders treating the Covid 19 period as an extraordinary disruption (including extensions of limitation by higher courts and government notifications treating the pandemic as a force majeure/natural calamity). In that context the period of lockdown is to be excluded while computing the 90 day limit under Rule 34(5). The Tribunal applied that pragmatic interpretation and concluded that pronouncing the order after the lapse of ordinary 90 days was permissible on account of the exceptional circumstances arising from the pandemic. [Paras 10, 11]

Delay in pronouncement occasioned by lockdown/force majeure was permissible; the period of lockdown is excluded for computing the 90 day limit under Rule 34(5), and the order as pronounced is valid.

Final Conclusion: Appeal allowed for statistical purposes: the DRP's in limine rejection of the objection under Form No. 35A is quashed, the DRP is directed to accept the original Form No. 35A, grant the assessee an opportunity of hearing and pass a reasoned order; the delay in pronouncement of this Tribunal's order beyond 90 days is held permissible by excluding the lockdown/force majeure period under Rule 34(5).

Deduction under section 80P(2)(a)(i) for interest from non-member bank deposits - Deduction under section 80P(2)(d) for interest from investments with other co-operative societies - Deductibility of expenditure under section 57 against income from other sources - Principle of interpretation of taxing statutes

Deduction under section 80P(2)(a)(i) for interest from non-member bank deposits - Principle of mutuality - Interest earned on fixed deposits and deposits in non-member co-operative banks and commercial banks is not eligible for deduction under section 80P(2)(a)(i). - HELD THAT: - The Tribunal accepted the High Court's conclusion that the appellant, a thrift & credit co operative society not carrying on the business of banking, cannot have the expression "business of banking" expanded to include its activities so as to make interest from surplus funds eligible for deduction under section 80P(2)(a)(i). Relying on the High Court's finding that the assessee is not a banking company, the interest earned from fixed deposits out of surplus funds falls outside profits and gains attributable to carrying on the business of banking or providing credit facilities to members and therefore does not satisfy the requirements of section 80P(2)(a)(i). [Paras 10]

Claim for deduction under section 80P(2)(a)(i) in respect of interest on bank deposits is disallowed.

Deduction under section 80P(2)(d) for interest from investments with other co-operative societies - Scope of section 80P(2)(d) - Principle of interpretation of taxing statutes - Interest earned by the assessee from deposits with co operative banks/societies is eligible for deduction under section 80P(2)(d). - HELD THAT: - The Tribunal considered section 80P(2)(d) de novo and held that the provision grants a whole deduction for income by way of interest or dividends derived by a co operative society from investments with any other co operative society, without making any distinction as to the source of funds (for example, surplus funds). The Tribunal observed that co operative banks fall within the wider category of co operative societies and that the taxing provision must be read according to its clear language, without importing restrictions by implication. The decision in Totgars Co operative Sale Society Ltd. was found to address section 80P(2)(a)(i) and not (2)(d); the Tribunal noted instances where a High Court had allowed deduction under (2)(d). On this basis the Tribunal allowed the deduction under section 80P(2)(d) for interest from investments with co operative societies. [Paras 16, 18, 20]

Assessee is eligible for deduction under section 80P(2)(d) in respect of interest earned from other co operative societies (including co operative banks).

Deductibility of expenditure under section 57 against income from other sources - Expenditure incurred in relation to earning interest from commercial banks is allowable under section 57 against income charged as 'income from other sources'. - HELD THAT: - On scrutiny of section 57, the Tribunal directed that the Assessing Officer allow the expenditure incurred in earning the interest income from commercial banks. The Tribunal reasoned that where such interest is brought to tax under the head 'income from other sources', the assessee is entitled to deductions permitted by section 57, being expenses wholly and exclusively laid out for the purpose of making or earning such income. [Paras 22, 23]

Assessing Officer to allow expenditure under section 57 attributable to interest income taxed under 'income from other sources'.

Final Conclusion: All appeals are allowed: deduction under section 80P(2)(a)(i) is not available for interest on bank deposits from surplus/non member bank deposits, deduction under section 80P(2)(d) is allowed for interest from investments with other co operative societies (including co operative banks), and expenditure relevant to interest income taxed as 'income from other sources' is to be allowed under section 57 by the Assessing Officer.

Relinquishment of right - Capital gains on surrender of occupancy/possessory rights - Licence versus lease and test of exclusive possession - Receipt characterised under section 56 as receipt without consideration - Cost of acquisition and assets acquired by adverse possession

Relinquishment of right - Capital gains on surrender of occupancy/possessory rights - Licence versus lease and test of exclusive possession - Whether the amount of Rs. 25,00,000 received by the assessee on account of an out of court settlement is taxable as long term capital gains arising from relinquishment of rights in the suit premises. - HELD THAT: - The Tribunal examined the consent terms and the factual matrix and held that the original occupier (Smt. Saraswati Vithaldas Sahita) was a licensee of the flat, and that the appellant (daughter in law) received payment as part of an out of court settlement to ensure non interference with possession by the purchaser. Applying the well established distinction between licence and lease (the intention of the parties and the test of exclusive possession), and following precedents which treat amounts received on surrender of substantial tenancy/possessory rights as chargeable to capital gains only where such rights constitute an asset with ascertainable cost, the Tribunal found the facts here distinguishable from cases where a vested proprietary or tenancy interest was surrendered. The decisions relied upon establish that assets or rights acquired by adverse possession or mere licence do not automatically attract capital gains computation where no cost of acquisition is available or where the nature of the right is not an estate or interest in the property. On the materials (including the admitted licence status in the consent terms and the nature of payment as consideration for vacating and non interference), the Tribunal concluded that the ratio of the cited authorities applied in favour of the assessee and that the CIT(A)'s confirmation of taxation as long term capital gains was unsustainable.

Order of the CIT(A) confirming the addition of Rs. 25,00,000 as long term capital gains is set aside and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal for AY 2013 14, setting aside the CIT(A)'s finding that the Rs. 25,00,000 received by the assessee was taxable as long term capital gains, applying the licence/lease distinction and the precedents on surrender of possessory rights and cost of acquisition.

Undisclosed income detected on search - Penalty under Section 271AAB - applicability and rates - clause (a) conditions for lower rate under Section 271AAB

Penalty under Section 271AAB - applicability and rates - clause (a) conditions for lower rate under Section 271AAB - Whether penalty under Section 271AAB is leviable on the undisclosed investment and at what rate - HELD THAT: - The Tribunal affirmed that the undisclosed investment of Rs. 6,00,000 detected on search falls within the definition of 'undisclosed income' for the purposes of Section 271AAB. Although the assessee declared Rs. 5,20,000 in a revised return before issuance of notice under section 153A, the assessee failed to specify and substantiate the manner in which that amount was derived, and therefore did not satisfy the evidentiary conditions under clause (a) required for levy of penalty at the lower rate. The balance Rs. 80,000 was not offered in the return filed under section 153A and likewise the manner of its derivation was neither specified nor substantiated. In consequence, none of the conditions for attracting the 10% rate under clause (a) were met for either component, and penalty is leviable at the higher rate applicable to cases not covered by clauses (a) or (b). The Tribunal accordingly confirmed the levy of penalty at the higher rate on the undisclosed income detected on search. [Paras 7]

Penalty under Section 271AAB is leviable on the undisclosed investment of Rs. 6,00,000 and, as the conditions of clause (a) are not satisfied for either the Rs. 5,20,000 or the Rs. 80,000, the penalty is leviable at the higher rate (30%).

Undisclosed income detected on search - initiation of penalty proceedings - Whether penalty proceedings were initiated only in respect of Rs. 80,000 or in respect of the whole admitted sum of Rs. 6,00,000 - HELD THAT: - The Tribunal examined the assessment order in entirety and held that the Assessing Officer initiated penalty proceedings in respect of the entire sum of Rs. 6,00,000 which the assessee admitted pursuant to the search. The fact that Rs. 5,20,000 was subsequently offered in a revised return did not confine the initiation to the Rs. 80,000 brought to tax during assessment; the penalty notice was issued in relation to the whole admitted amount discovered by the search. [Paras 7]

Penalty proceedings were initiated in respect of the entire admitted undisclosed income of Rs. 6,00,000 and not only for Rs. 80,000.

Source of investment - point in time inquiry - undisclosed income detected on search - Whether cash in hand as on 31.03.2013 could be treated as source for investment registered on 05.04.2012 to avoid addition and penalty - HELD THAT: - The Tribunal held that the relevant inquiry is the source of funds at the time the investment was made (sale deed registered on 05.04.2012). There was no material on record to show that the assessee had sufficient cash or recorded sources on or before that date to substantiate the investment. Consequently, the contention that cash in hand as on 31.03.2013 could legitimately explain the earlier investment was rejected. [Paras 8]

The claim that cash in hand as on 31.03.2013 explained the investment made on 05.04.2012 is not accepted; absence of record for sufficiency of funds as on the investment date sustains the addition and penalty findings.

Final Conclusion: The assessee's appeal is dismissed; the Tribunal confirms that penalty under Section 271AAB was validly initiated in respect of the entire undisclosed investment detected on search and that, since the conditions for the lower rate were not met, penalty at the higher rate is confirmable, with the assessee's grounds rejected in favour of the Revenue.

Assessment framed on a non-existent entity - void ab initio - curability under Section 292B of the Income-tax Act, 1961 - effect of amalgamation on legal existence of amalgamating company - bar under Section 124 of the Income-tax Act, 1961

Assessment framed on a non-existent entity - void ab initio - effect of amalgamation on legal existence of amalgamating company - Assessment framed and assessment order passed in the name of the amalgamating company which had ceased to exist were void ab initio. - HELD THAT: - The Tribunal found on the record that the scheme of amalgamation had been sanctioned by the High Courts with effect from the appointed date, and the amalgamating company had ceased to exist when the assessment proceedings were continued and the assessment order was passed. The Assessing Officer's order title itself acknowledged the merger, showing awareness that the amalgamating company no longer existed. Applying the principle that an amalgamating company which has ceased to exist cannot be regarded as a person against whom assessment proceedings can be initiated, the Tribunal held that initiation and completion of assessment in the name of that non-existent entity is void ab initio and not a mere procedural irregularity. [Paras 7, 8]

Assessment proceedings and order in the name of the non-existent amalgamating company set aside as void ab initio.

Curability under Section 292B of the Income-tax Act, 1961 - assessment framed on a non-existent entity - The defect of framing assessment in the name of a non-existent entity is not a curable defect under Section 292B of the Act. - HELD THAT: - The Tribunal rejected the contention that the error of assessing a non-existent entity could be cured under Section 292B. Because the amalgamating company had ceased to exist prior to the assessment proceedings, the defect was substantive and rendered the proceedings void ab initio. Consequently, the provisions for curing certain procedural defects under Section 292B could not be invoked to validate an assessment launched against an entity which no longer existed. [Paras 7, 8]

Defect of assessment in the name of a non-existent entity cannot be cured under Section 292B; assessment is void ab initio.

Bar under Section 124 of the Income-tax Act, 1961 - assessment framed on a non-existent entity - Section 124 does not preclude the assessee from challenging the validity of an assessment framed on a non-existent person; the Tribunal allowed challenge to such assessment. - HELD THAT: - Having concluded that the amalgamating company had ceased to exist and that the assessment was void ab initio, the Tribunal held that the assessee could challenge the validity of the order despite the Revenue's reliance on Section 124. The Tribunal relied on authoritative precedent that an assessment against a non-existent entity cannot stand, and accordingly allowed the grounds challenging validity of the assessment framed in the name of the non-existent entity. [Paras 7, 8]

Challenge to validity of assessment framed on a non-existent person is maintainable; such assessment set aside.

Final Conclusion: The appeal is allowed and the assessment proceedings and order passed in the name of the amalgamating company, which had ceased to exist, are set aside as void ab initio; Grounds Nos. 1 to 3 are allowed and no adjudication was required on the remaining grounds.

TCS as advance payment of tax - TCS credit to the person in whose hands the income is finally assessed to tax - non-availability of TCS credit where Rule 37BA(2) conditions not fulfilled - agreement between main licensee and sub-licensee evidencing non-claim of TCS - remand for verification of TCS claim by the main licensee

TCS as advance payment of tax - TCS credit to the person in whose hands the income is finally assessed to tax - agreement between main licensee and sub-licensee evidencing non-claim of TCS - Entitlement of the assessee to TCS credit corresponding to income offered by him though TCS was collected in the name of the main licensee. - HELD THAT: - The Tribunal held that TCS is in the nature of tax and, where the income corresponding to the TCS has been offered and brought to tax in the hands of the assessee, the corresponding TCS should be allowed to that assessee. The absence of reflection in Form 26AS in the assessee's name and initial deduction in the main licensee's name does not by itself disentitle the assessee if the income has been rightly assessed to him. The assessee relied on an agreement in which the main licensee declared that filing returns and not claiming TCS would be the assessee's responsibility and undertook not to claim the TCS; this agreement, together with the fact that the assessee declared the revenues in his return, supports the claim for credit. The Tribunal therefore accepted that, subject to the main licensee not claiming the TCS, the assessee is entitled to corresponding credit even though the certificate initially issued is in the main licensee's name.

Assessee is eligible for TCS credit corresponding to income offered by him, subject to verification that the main licensee has not claimed the TCS.

Non-availability of TCS credit where Rule 37BA(2) conditions not fulfilled - remand for verification of TCS claim by the main licensee - Whether the claim should be remitted to the Assessing Officer for verification of whether the main licensee has claimed the TCS in his return, and consequent grant of credit to the assessee. - HELD THAT: - The Tribunal noted that the Assessing Officer and the CIT(A) had declined rectification under Section 154 because the TCS was recorded in the main licensee's name and Rule 37BA(2) conditions were not established on record. Given the assessee's agreement and the assessee's declaration of the income, the Tribunal directed that the matter be set aside to the Assessing Officer to verify from records (including the main licensee's PAN on file) whether the main licensee has claimed the TCS. If on verification it is found that the main licensee has not claimed the TCS, the Assessing Officer is to allow the TCS corresponding to the income declared by the assessee for the impugned assessment year. This direction is a remand for factual verification and consequent grant of credit if verification is in the assessee's favour.

Matter remitted to the Assessing Officer for verification whether the main licensee has claimed the TCS; if not claimed, allow corresponding TCS to the assessee for AY 2013-14.

Final Conclusion: Appeal disposed by setting aside the orders below and remitting the matter to the Assessing Officer to verify whether the main licensee has claimed the TCS; if verification shows no claim by the main licensee, grant the corresponding TCS credit to the assessee for Assessment Year 2013-14.

Provisional assessment - Mandamus - Assessment in accordance with law, rules, regulations and Government policies - Import under Bill of Entry

Provisional assessment - Import under Bill of Entry - Assessment in accordance with law, rules, regulations and Government policies - Direction to respondent authorities to conduct provisional assessment of the imported goods described as "Dry Dates" against Bill of Entry No.8025310 dated 29.06.2020. - HELD THAT: - The petitioner sought writ relief to compel provisional or final assessment and, alternatively, provisional release of the imported consignment of "Dry Dates" entered under the specified Bill of Entry. The Court found it sufficient to order the respondents to carry out provisional assessment rather than adjudicate on release or final assessment. The respondents were directed to undertake the provisional assessment in accordance with the applicable law, rules, regulations and Government policies and to complete the same within a maximum period of two weeks from the date of the order. This direction constitutes the operative relief granted by the Court; no determination was made on the merits of final assessment or on any claim for release absent compliance with statutory procedures. [Paras 4, 5]

Respondent authorities directed to conduct provisional assessment of the goods imported against Bill of Entry No.8025310 dated 29.06.2020 in accordance with law, within two weeks.

Final Conclusion: Writ petition disposed of by directing provisional assessment of the imported "Dry Dates" against Bill of Entry No.8025310 dated 29.06.2020 in accordance with applicable law, rules, regulations and Government policies, to be completed within two weeks.

Classification under Customs Tariff - Parts of seats vs parts and accessories of motor vehicles - Specific inclusion elsewhere excludes general parts entry - Notes to Section XVII - exclusion of vehicle seats - HSN explanatory notes and General Rules for Interpretation

Classification under Customs Tariff - Parts of seats vs parts and accessories of motor vehicles - Notes to Section XVII - exclusion of vehicle seats - HSN explanatory notes and General Rules for Interpretation - Child parts imported and assembled into Round Recliner are classifiable under CTH 9401 90 00 (parts of seats) and not under CTH 8708 (parts and accessories of motor vehicles). - HELD THAT: - The Tribunal examined the supply chain: imported child parts were assembled into Round Recliner, which is used to make Recliner Assembly that is incorporated into the complete vehicle seat; the assembled Round Recliner and subsequent assemblies had been classified under heading 9401 at downstream stages and that classification was not disputed by the department. The competing tariff entries show a specific heading for "Seats of a kind used for motor vehicles" (9401 20 00) and a specific sub-heading for "Parts" of heading 9401 (9401 90 00), whereas chapter entry 8708 is a general provision for parts and accessories of motor vehicles without any specific sub-heading for seats. The Notes to Section XVII and the HSN explanatory notes were applied: Section XVII(III)(C)(12) expressly treats vehicle seats of heading 9401 as covered more specifically elsewhere in the nomenclature and therefore excluded from Section XVII; the HSN explanatory note for 8708 requires that parts must not be excluded by the Notes to Section XVII. Because vehicle seats (and their parts) are specifically included under heading 9401, they are excluded from classification under 8708. The Tribunal therefore held that the child parts, being used to make parts of vehicle seats, satisfy the specific inclusion under 9401 and cannot be reclassified under the general parts heading 8708. The Tribunal also distinguished the precedents relied upon by both parties on the basis of differing facts and the presence here of an express tariff entry for seats and their parts. The determinative legal principle adopted is that a part more specifically provided for elsewhere in the nomenclature (here heading 9401 and its parts) prevails over a general parts entry in Chapter 87, and that the Notes to Section XVII operate to exclude such specifically included goods from chapter 87 classification. [Paras 5, 6, 7, 8, 11]

The child parts are classifiable under CTH 9401 90 00; the impugned order is set aside and the appeal is allowed.

Final Conclusion: Appeal allowed; imported child parts held to be parts of seats classifiable under CTH 9401 90 00 and not as parts and accessories of motor vehicles under CTH 8708, applying the express exclusion in the Notes to Section XVII and the HSN/General Rules for interpretation.

Cross-examination of witnesses - principles of natural justice - relevancy of statements under section 138B of the Customs Act - admissibility of statements recorded during investigation - delay in adjudication not a sole ground to deny cross-examination - discretion of adjudicating authority to refuse cross-examination

Cross-examination of witnesses - principles of natural justice - relevancy of statements under section 138B of the Customs Act - delay in adjudication not a sole ground to deny cross-examination - Whether the Adjudicating Authority was justified in rejecting the appellant's request to cross-examine witnesses during adjudication proceedings. - HELD THAT: - The Tribunal examined the reasoning recorded by the Principal Commissioner that cross-examination was refused because nothing new would emerge and that allowing it would delay adjudication. Relying upon the statutory scheme embodied in section 138B, particularly clause (b) of sub section (1), the Tribunal observed that statements recorded before customs officers are admissible in proceedings only when the maker is examined as a witness and the forum considers admission necessary in the interests of justice. The adjudicating authority is not invested with an unstructured discretion to preclude cross examination on the basis of a speculative conclusion that no new facts will surface or merely to avoid delay. Cross examination is an essential element of the right to a fair adjudication and an aspect of natural justice; whether it will assist the defence is for the party seeking it to show, not for the authority to presume to foreclose. Applying these principles to the facts, the Tribunal held that the appellant was entitled to cross examine the witnesses whose statements, letters or technical opinions had been used against it, since those materials had been relied upon in the show cause notice and their admissibility in the adjudication is allied to the witness being examined. The sole exception recognised was the SIO, whose role in investigation and in obtaining technical opinions made his cross examination unwarranted on the record before the Tribunal. Consequently, the Principal Commissioner's blanket refusal was set aside and the matter remitted for grant of cross examination as directed. [Paras 6]

The appeal is allowed; the Principal Commissioner shall permit cross examination of the witnesses whose statements, letters or technical opinions were relied upon in the show cause notice, except that cross examination of the SIO is not required.

Final Conclusion: The Tribunal allowed the appeal, holding that denial of cross examination solely on the ground of probable delay or presumption that nothing new would be elicited was impermissible; cross examination must be granted in respect of the witnesses relied upon in the show cause notice, except the SIO, and the adjudicating authority is directed to permit the same.

Condonation of delay - sufficient cause for condonation of delay - pendency of third party writ petition as a ground for condonation - limitation period expiry - availment of alternative remedy (payment of redemption fine)

Condonation of delay - sufficient cause for condonation of delay - pendency of third party writ petition as a ground for condonation - limitation period expiry - availment of alternative remedy (payment of redemption fine) - Whether the delay of 110 days in filing the appeal should be condoned. - HELD THAT: - The Tribunal found that the order under challenge was announced on 30 January 2019 and received by the appellant on 10 February 2019, so the limitation period expired on 11 May 2019. The sole reason advanced for delay was the pendency of Writ Petition No. 2826/2019 filed on 10 May 2019 before the High Court. Since that writ petition was filed one day before the expiry of the limitation period and was neither filed by the appellant nor by any co noticee, its subsequent pendency could not constitute a sufficient cause to excuse the subsequent delay of 110 days. The application did not furnish any other explanation for the prolonged delay. The Tribunal also noted that the impugned order afforded the importer an opportunity to pay a redemption fine, but the appellant was silent about seeking that option; this further detracted from the case for condonation. For these reasons the Tribunal held that the reason furnished was not a sufficient cause to condone the delay. [Paras 3, 4, 5]

Application for condonation of delay of 110 days dismissed; appeal dismissed consequently.

Final Conclusion: The Tribunal declined to condone the 110 day delay, holding that the pendency of a writ petition filed by a third party one day before expiry of limitation and the appellant's silence about the alternative remedy of paying redemption fine did not constitute sufficient cause; the condonation application and the appeal were dismissed.

Approval of resolution plan under section 31(1) of the Insolvency and Bankruptcy Code, 2016 - compliance of a resolution plan with the requirements of section 30 of the Insolvency and Bankruptcy Code, 2016 - binding nature of an approved resolution plan on the corporate debtor and stakeholders - cessation of moratorium on approval of resolution plan - obligation to obtain statutory and regulatory approvals under section 31(4) - duties of the resolution professional on approval - handover, filing of records with IBBI and compliance report

Compliance of a resolution plan with the requirements of section 30 of the Insolvency and Bankruptcy Code, 2016 - approval of resolution plan under section 31(1) of the Insolvency and Bankruptcy Code, 2016 - The resolution plan approved by the committee of creditors complies with the requirements of section 30 of the Code and is approved under section 31(1). - HELD THAT: - The Adjudicating Authority examined the documents, minutes of CoC meetings, valuation summary, compliance certificate and the affidavit of the resolution applicant and concluded that the plan meets the requirements set out in section 30 (including subsections (1) to (6)) and relevant CIRP Regulations. The CoC had approved the plan by 100% voting and the RP certified compliance with statutory and regulatory requirements, including eligibility under section 29A and statements under regulation 38(1A). On this basis the Tribunal held that the resolution plan is fit for approval under section 31(1). [Paras 30]

Resolution plan approved under section 31(1) as meeting the requirements of section 30 and applicable regulations.

Binding nature of an approved resolution plan on the corporate debtor and stakeholders - cessation of moratorium on approval of resolution plan - Effect of approval: the resolution plan is binding on the corporate debtor and its stakeholders and the moratorium ceases from the date of approval. - HELD THAT: - The Tribunal declared that upon approval under section 31(1) the resolution plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders. Consequentially, the moratorium previously in force was ordered to cease with effect from the date of this approval, removing the protection afforded during CIRP. [Paras 30, 31]

Approved resolution plan binding on all stakeholders; moratorium ceases from the date of approval.

Obligation to obtain statutory and regulatory approvals under section 31(4) - duties of the resolution professional on approval - handover, filing of records with IBBI and compliance report - Conditional and ancillary directions: the resolution applicant must obtain necessary approvals under section 31(4); the RP must hand over possession and file records with IBBI and a compliance report, after which the RP is discharged from the CIRP. - HELD THAT: - The Tribunal approved the plan subject to the resolution applicant securing any approvals required under law within one year as envisaged by section 31(4), and clarified that approval by the Adjudicating Authority does not confer statutory exemptions or concessions. The RP was directed to hand over charge, records, books and documents to the resolution applicant immediately, forward all CIRP records and the plan to the Insolvency and Bankruptcy Board of India, and file a compliance report with the registry; upon filing that report the RP would be discharged from the CIRP. The registry was directed to communicate authenticated copies of the order to relevant parties. [Paras 33, 34, 35, 36, 37]

Resolution applicant to obtain statutory approvals within one year; RP to hand over assets and records, forward records to IBBI, file compliance report and thereafter be discharged.

Final Conclusion: The Adjudicating Authority approved the resolution plan as meeting statutory requirements and binding on all stakeholders; the moratorium ceased on approval; the resolution applicant must obtain requisite statutory approvals within one year and the resolution professional is directed to effect handover, forward records to IBBI and file a compliance report, after which the RP is discharged and the application is disposed of with the stated directions.

Business Auxiliary Service - mutuality - lack of consideration - company limited by guarantee - cost sharing

Business Auxiliary Service - mutuality - lack of consideration - cost sharing - Whether the appellant was liable to pay service tax under the category of Business Auxiliary Service for the period April 2007 to September 2011. - HELD THAT: - The Tribunal found that the appellant, a company limited by guarantee, was constituted to enable member/group companies to mutually avail and share common facilities and resources and that services were rendered on a no-profit, cost-sharing basis as per norms/formula determined by the members. There was no evidence of any consideration paid by the group members to the appellant; the relationships were internal to the group and characterised by mutuality. On these facts the Tribunal held that the arrangement did not disclose the requisite service provider-service receiver relationship required to attract tax under the Business Auxiliary Service head. The Tribunal followed its earlier decision in Raheja Universal Pvt. Ltd. and concluded that services provided within the mutual association on cost sharing are not taxable as BAS where there is mutuality and absence of consideration. [Paras 5, 6]

The Tribunal set aside the impugned order and allowed the appeal, holding that the services were not taxable under Business Auxiliary Service due to mutuality and lack of consideration.

Final Conclusion: Appeal allowed; impugned order set aside and demand under Business Auxiliary Service for April 2007 to September 2011 quashed on the basis of mutuality and absence of consideration, with consequential relief as per law.

Construction of Residential Complex Service - exemption under Notification No.25/2012 ST (Sl. No.14) - reverse charge mechanism - sale of completed flats versus provision of service

Construction of Residential Complex Service - sale of completed flats versus provision of service - Whether the appellant provided Construction of Residential Complex Service prior to 30.06.2012 or the transactions were sale of completed residential units not liable to service tax. - HELD THAT: - Tribunal found no evidence that the appellant constructed a residential complex before 30.06.2012 or that more than two residential units were constructed together after 01.07.2012. The appellants had consistently stated that individual villas/units were constructed at different places and that sale occurred after completion. In the absence of material establishing construction of a complex with common facilities or advance receipt of consideration before completion, the activity was held not to fall within the chargeable service entry for Construction of Residential Complex Service prior to 30.06.2012. [Paras 5]

Appellant did not provide Construction of Residential Complex Service prior to 30.06.2012; the transactions were not held to be taxable services for that period.

Exemption under Notification No.25/2012 ST (Sl. No.14) - Construction of Residential Complex Service - Whether the appellant was eligible for exemption under Sl. No.14 of Notification No.25/2012 ST for activity of construction undertaken after 01.07.2012. - HELD THAT: - The Tribunal observed that the quantitative restriction (minimum units) did not support a finding against the appellant and that where single residential units were constructed and sold after completion, Sl. No.14 of Notification No.25/2012 ST applies. Given the factual finding that units were individual and sold after completion, the appellant was held eligible for the stated exemption for the period subsequent to 01.07.2012. [Paras 5]

Appellant entitled to exemption under Notification No.25/2012 ST (Sl. No.14) for activity undertaken after 01.07.2012.

Reverse charge mechanism - Whether the appellant was liable to pay service tax under the reverse charge mechanism for the disputed period. - HELD THAT: - On the record, there was no material to establish that the conditions for invoking reverse charge were satisfied. The Tribunal accepted the appellant's contention that services (for example, security or labour) either fell outside the charging ambit or were not procured through contractors attracting reverse charge. Consequently, the demand under the reverse charge mechanism was held to be unsustainable. [Paras 5]

Appellant was not liable to pay service tax under the reverse charge mechanism for the disputed period.

Final Conclusion: Impugned orders set aside; appeal allowed. The appellant is entitled to consequential relief in light of findings that no construction-of-residential-complex service was provided prior to 30.06.2012, that exemption under Notification No.25/2012 ST (Sl. No.14) applies after 01.07.2012, and that no reverse charge liability arises.

Invocation of extended period of limitation under Section 73(3) of the Finance Act, 1994 - Late filing of ST-3 returns and payment of late fee under Rule 7C of the Service Tax Rules, 1994 - Voluntary deposit and its effect on maintainability of a show cause notice - Reduced penalty under proviso to Section 78(1) of the Finance Act, 1994 indicating absence of suppression or fraud

Invocation of extended period of limitation under Section 73(3) of the Finance Act, 1994 - Late filing of ST-3 returns and payment of late fee under Rule 7C - Voluntary deposit and maintainability of show cause notice - Reduced penalty under proviso to Section 78(1) indicating absence of suppression or fraud - Show cause notice dated 05.06.2017 invoking extended period for the period 01.01.2013 to 30.09.2015 is not sustainable. - HELD THAT: - The Original Authority accepted that the appellant had recorded transactions in specified records and was entitled to reduced penalty, which indicates absence of suppression or fraudulent intention. The appellants had voluntarily deposited amounts prior to issuance of the show cause notice, and counsel contended that the voluntary deposit exceeded the service tax liability for the normal limitation period. In that factual matrix there were no ingredients for invoking the extended period under the proviso to Sub section (3) of Section 73. Reliance on non filing of ST 3 returns as a ground for invoking extended limitation is negated where late filing is addressed by Rule 7C providing for payment of late fee and where transactions are recorded and tax deposited before issue of notice. For these reasons the show cause notice was held unsustainable. [Paras 5]

Show cause notice dated 05.06.2017 for 01.01.2013 to 30.09.2015 quashed as not sustainable.

Setting aside impugned Order in Original - Consequential relief on quashing of proceedings - Impugned Order in Original dated 31.12.2018 is not sustainable and is set aside; appeals allowed with consequential relief. - HELD THAT: - Since the foundational show cause notice was held unsustainable for lack of ingredients to invoke extended limitation, the consequent adjudication recorded in the Order in Original could not be sustained. The Tribunal therefore set aside the impugned order and allowed the appeals, directing that the appellants be given consequential relief in accordance with law. [Paras 6]

Impugned Order in Original dated 31.12.2018 set aside; appeals allowed and appellants entitled to consequential relief as per law.

Final Conclusion: The Tribunal held that the show cause notice dated 05.06.2017 (01.01.2013 to 30.09.2015) was unsustainable because transactions were recorded, penalty was reduced indicating no suppression, and voluntary deposits prior to notice exceeded the normal period liability; consequently the Order in Original dated 31.12.2018 is set aside and all three appeals are allowed with consequential relief.

Breach of natural justice - opportunity to cross-examine witnesses - alternative remedy / relegation to appellate forum - maintainability of writ jurisdiction where efficacious alternative remedy exists - Tribunal as final fact-finding body - limitation / condonation - Tribunal to overlook delay objection

Maintainability of writ jurisdiction where efficacious alternative remedy exists - alternative remedy / relegation to appellate forum - Whether the High Court should exercise writ jurisdiction in the presence of an effective alternative remedy before the Tribunal. - HELD THAT: - The learned Single Judge had relegated the assessee to the effective alternative remedy of appeal before the CESTAT. This Court agreed with that course and held that mere allegation of breach of natural justice does not automatically justify short-circuiting the statutory appellate process. The High Court declined to examine the merits in the first instance and emphasized that the statutory appellate forum is the appropriate forum to consider disputed factual and legal contentions, particularly where the Tribunal is the designated fact-finding authority. [Paras 4, 7]

The writ petitions were not entertained on merits and the assessee was correctly relegated to the alternative remedy before the Tribunal.

Opportunity to cross-examine witnesses - Tribunal as final fact-finding body - breach of natural justice - Whether the question of whether the assessee was denied opportunity to cross-examine witnesses should be adjudicated by this Court or by the Tribunal. - HELD THAT: - The Court observed that issues concerning whether sufficient opportunity to cross-examine was afforded, or whether cross-examination was necessary, are matters appropriately examined by the Tribunal in the appeal. The Tribunal, being the final fact-finding body, can consider all facets including allegations of denial of natural justice, assess whether opportunities were adequate, and determine the necessity and extent of cross-examination. Accordingly, the substantive contention on cross-examination was not decided on merits by this Court but left for adjudication by the Tribunal. [Paras 8]

The question of adequacy or necessity of opportunity to cross-examine witnesses is left to be considered and decided by the Tribunal.

Limitation / condonation - Tribunal to overlook delay objection - Whether the Tribunal may be directed to entertain an appeal notwithstanding any objection as to limitation. - HELD THAT: - As a limited and discretionary relief, the Court granted the assessee a further four weeks to file an appeal before the Tribunal and requested that the Tribunal not raise a limitation objection to entertain the appeal, subject to other usual conditions for filing. The Court emphasised expedition in disposal given the antiquity of the matter. [Paras 9]

Assessee granted four weeks to file appeal; Tribunal requested not to raise limitation objection and to decide the appeal expeditiously subject to other filing conditions.

Final Conclusion: Writ appeals disposed by relegating the assessee to the alternative remedy before the Tribunal; the Tribunal is directed to consider the cross-examination and alleged breach of natural justice, the assessee is granted four weeks to file an appeal, and the Tribunal is requested not to raise limitation objection and to decide the appeal expeditiously.

Option between prescribed methods for reversal under Rule 6(3) - procedure of intimation and computation under Rule 6(3A) - non withdrawal of an exercised option during the remaining part of the financial year (Explanation I to Rule 6(3)) - procedural lapse in intimation is condonable and does not extinguish substantive option - Revenue cannot unilaterally choose an option on behalf of the assessee - recovery under Rule 14 of the Cenvat Credit Rules read with Section 11A

Option between prescribed methods for reversal under Rule 6(3) - procedure of intimation and computation under Rule 6(3A) - non withdrawal of an exercised option during the remaining part of the financial year (Explanation I to Rule 6(3)) - Validity of the appellant's exercise of option under Rule 6(3)(ii) read with Rule 6(3A) for the financial year 2008-09 despite having made 10% payments in April 2008 and whether Explanation I barred adoption of Rule 6(3)(ii) during the same financial year. - HELD THAT: - The Tribunal applied earlier coordinate bench authorities and held that Rule 6(3) and Rule 6(3A) permit a manufacturer to exercise the option under clause (ii) at any point during the financial year provided the procedural requirements of Rule 6(3A) are complied with. The evidence, including correspondence with the Range Superintendent between May and June 2008, showed that the appellant had not in fact exercised the option under Rule 6(3)(i) prior to intimating its choice under Rule 6(3)(ii). An initial payment of 10% made in April 2008, done as a protective measure while the appellant worked out the computation under Rule 6(3A), could not be treated as a positive exercise of the alternative option. The Tribunal followed precedents which treat the intimation and monthly provisional payments under Rule 6(3A) as procedural and condonable where complied with subsequently and recognised that Explanation I operates only after an option has been affirmatively exercised and notified; it cannot be invoked by inferring an exercise of option from precautionary payments. [Paras 15, 16]

The appellant validly and legally availed the option under Rule 6(3)(ii) read with Rule 6(3A) for 2008-09 and was not precluded by Explanation I from doing so.

Procedural lapse in intimation is condonable and does not extinguish substantive option - Revenue cannot unilaterally choose an option on behalf of the assessee - recovery under Rule 14 of the Cenvat Credit Rules read with Section 11A - Legality of the Commissioner treating the appellant as having exercised the Rule 6(3)(i) option and invoking demand, recovery and penalties under Rule 14/Section 11A and related provisions. - HELD THAT: - Relying on Tribunal and High Court precedents, the Bench held that the statutory scheme does not empower the Revenue to select an option on behalf of the assessee where the assessee has a choice among alternatives in Rule 6(3). A mere failure to follow the procedural formalities precisely at the outset does not automatically attract application of Rule 6(3)(i) or permit Revenue to impose the corresponding demand and penalties; procedural defaults can be remedied and substantive rights preserved where the conditions are ultimately complied with. On the facts, the Commissioner's conclusion that the appellant had exercised the Rule 6(3)(i) option was not supported by any document and was an impermissible inference; consequently the demand and penalties confirmed in the impugned order could not be sustained. [Paras 17, 18]

The Commissioner's selection of the Rule 6(3)(i) option, and the consequent demand, recovery and penalties, is unsustainable and is set aside.

Final Conclusion: The appeal is allowed. The impugned order dated 29.09.2010 is set aside; the confirmed demand and penalties cannot be sustained and the appellant is entitled to consequential relief.

Public Interest Litigation - Maintainability of PIL - Standing to sue on behalf of a class - Access to courts / ability of affected class to litigate - MSME Act - definition of "professionals"

Public Interest Litigation - Maintainability of PIL - Standing to sue on behalf of a class - Access to courts / ability of affected class to litigate - MSME Act - definition of "professionals" - Whether the writ petition filed as a public interest litigation by an advocate seeking inclusion of advocates within the definition of "professionals" under the Micro, Small and Medium Enterprises Development Act, 2006 is maintainable. - HELD THAT: - The Court observed that public interest litigation is available where affected persons are unable to access the courts due to factors such as indigence, illiteracy or other disabilities. The petitioner sought collective relief for advocates as a class by challenging their non-inclusion within the definition of "professionals" under the Act, 2006. The Court found that advocates, as a class, are capable of approaching the courts if aggrieved and therefore do not fall within the class of persons for whom PIL is the appropriate vehicle. The Court declined to adjudicate the substantive question of whether advocates should be included within the statutory definition, noting that individual advocates may approach the Court and that any such challenge can be decided on merits in accordance with applicable law, rules and regulations. [Paras 3, 4, 5]

The petition filed as a public interest litigation is dismissed as not maintainable; the substantive question of inclusion of advocates under the Act is left open for adjudication in proceedings brought by individual aggrieved advocates.

Final Conclusion: Writ petition dismissed for want of maintainability as a PIL; no adjudication on merits of inclusion of advocates within the definition of "professionals" under the MSME Act, 2006, and individual aggrieved advocates remain free to approach the courts.