TaxTMI Updates e-Newsletter
Aug 13,2020

Right to statutory appeal - appeal under Section 107 of the Kerala State Goods and Service Tax Act - consideration by Appellate Authority - condonation of delay

Right to statutory appeal - appeal under Section 107 of the Kerala State Goods and Service Tax Act - consideration by Appellate Authority - Petitioners permitted to approach the constituted Appellate Authority and have appeals filed under Section 107 be considered. - HELD THAT: - The petitions were filed at a time when no Appellate Authority under the Ordinance/Act existed. The court, noting that a competent Appellate Authority has since been constituted, granted liberty to the petitioners to approach that authority. The court directed that if the petitioners file appeals under Section 107, the Appellate Authority shall consider them - addressing the petitioners' statutory right to have their appeals adjudicated by the appropriate forum now in place. This constitutes a final direction that the/Appellate Authority must entertain and consider the appeals filed under the stated provision. [Paras 2, 4]

Liberty granted to approach the Appellate Authority; appeals filed under Section 107 shall be considered by that Authority.

Condonation of delay - consideration by Appellate Authority - If a delay condonation petition is filed, the Appellate Authority shall consider and condone the delay treating the petitioners as having bonafidely prosecuted their cause before the High Court. - HELD THAT: - The court recognised that the writ petitions had been prosecuted before it when the Appellate Authority was not in existence. In view of that factual context the court directed that any application for condonation of delay filed before the Appellate Authority must be considered on the basis that the petitioners had bonafidely prosecuted their cause before this Court, and that the Authority shall condone the delay. The direction is prospective and mandates consideration and allowance of condonation where such application is presented. [Paras 5]

Appellate Authority shall consider any condonation petition and condone delay, treating the petitioners as bonafide in prosecuting their cause before the High Court.

Final Conclusion: Writ petitions disposed of with liberty to the petitioners to file appeals before the constituted Appellate Authority; the Authority is directed to consider appeals under Section 107 and to entertain and condone any delay petitions on the stated bonafide basis.

Substantial question of law - appellate re-examination of factual findings - remand for fresh consideration - confirmation of Tribunal order - scope of interference on facts

Substantial question of law - appellate re-examination of factual findings - remand for fresh consideration - confirmation of Tribunal order - No substantial question of law arises; appeal dismissed and the Tribunal's order is confirmed. - HELD THAT: - The matter involved a second round of litigation. The Tribunal had previously remanded the matter to the Assessing Officer for re-examination. Following the remand, the Assessing Officer performed factual inquiries, the Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal, and the Tribunal thereafter independently re-examined the findings and affirmed the order of the CIT(A). The High Court examined the sequence of factual and appellate steps and concluded that the Tribunal had given independent reasons in affirming the CIT(A)'s order. Given that the dispute turned on factual determinations revisited after remand and affirmed by the Tribunal, the High Court held that no substantial question of law arose for its consideration and there was no proper basis for interference in exercise of its appellate jurisdiction.

Appeal dismissed; order of the Income Tax Appellate Tribunal dated 18.07.2019 in ITA No.2099/Chny/2017 is confirmed.

Final Conclusion: The Revenue's appeal under Section 260A is dismissed for want of any substantial question of law; the Tribunal's order confirming the CIT(A)'s decision is upheld and the assessment-year dispute for Assessment Year 2006-2007 stands finally determined in favour of the assessee as per the Tribunal's order.

Penalty under section 271(1)(c) - book profit under section 115JB - Explanation 4 to section 271(1)(c) - pre-amendment interpretation - amendment to Explanation 4 by Finance Act, 2015 w.e.f. 01-04-2016 - prospective application of statutory amendment - Nalwa Sons Investments Ltd. (Delhi High Court) on penalty where assessment is under section 115JB

Penalty under section 271(1)(c) - book profit under section 115JB - Explanation 4 to section 271(1)(c) - pre-amendment interpretation - amendment to Explanation 4 by Finance Act, 2015 w.e.f. 01-04-2016 - Whether penalty under section 271(1)(c) could be imposed for additions/disallowances made under the general provisions where the assessee was assessed and paid tax on book profits under section 115JB for A.Y. 2014-15 (pre-amendment Explanation 4). - HELD THAT: - The Tribunal examined the pre-amended wording of Explanation 4 to section 271(1)(c) and the Delhi High Court's decision in CIT v. Nalwa Sons Investments Ltd., which held that where assessment is finally made on deemed 'book profit' under section 115JB (being higher than the result under normal provisions), additions/disallowances under the normal provisions have no bearing on tax evasion for the year because tax is determined on the deemed income and the concealment does not lead to actual tax evasion in that assessment. The Tribunal noted that Parliament thereafter amended Explanation 4 by the Finance Act, 2015 (effective 01-04-2016) to provide a formula making penalty quantifiable even where both general provisions and section 115JB apply; the amendment was explicitly prospective and applies from A.Y. 2016-17. Since the year before the Tribunal is A.Y. 2014-15, the post-amendment provision does not apply. Following the High Court precedent and the prospective scope of the legislative amendment, the Tribunal concluded that penalty under section 271(1)(c) could not be sustained for the additions/disallowances made under the normal provisions for A.Y. 2014-15 where the assessee was assessed under section 115JB. [Paras 10, 11]

Penalty under section 271(1)(c) quashed insofar as it relates to additions/disallowances made under the normal provisions for A.Y. 2014-15, because the pre-amended Explanation 4 does not permit imposition of such penalty where assessment is on book profits under section 115JB.

Final Conclusion: The appeal is allowed: the penalty under section 271(1)(c) imposed for A.Y. 2014-15 is quashed on the ground that the pre-amendment Explanation 4 did not permit quantification of penalty in respect of additions made under the normal provisions where tax was determined under section 115JB; the legislative amendment of 2015 is prospective from A.Y. 2016-17 and not applicable to the year in issue.

Unexplained cash credits under Section 68 - reopening of assessment under Section 147 - burden to prove identity, genuineness and creditworthiness of lender - shift of burden to revenue after assessee discharges initial onus - deletion of addition where bank channels and confirmations establish genuineness

Unexplained cash credits under Section 68 - burden to prove identity, genuineness and creditworthiness of lender - shift of burden to revenue after assessee discharges initial onus - deletion of addition where bank channels and confirmations establish genuineness - Deletion of the addition of Rs. 4,00,000 treated as unexplained credit in the hands of Shri Neetu Nayyar for AY 2009-2010. - HELD THAT: - The Tribunal found that the assessee produced documentary evidence - bank entries showing receipt through proper banking channels, passport, visa and residence identity documents of the alleged lender and loan confirmations - which discharged the assessee's initial onus of proving the identity and genuineness of the lender. Following the reasoning of the co-ordinate Bench in Smt. Meena Nayyar (SMC-I), once the assessee produced such evidence the burden shifted to the revenue to conduct further enquiries and to bring material to negate the genuineness of the transaction. The Assessing Officer and the Commissioner (Appeals) did not place sufficient material to characterise the receipt as an accommodation entry or to impugn the credibility of the documents; accordingly the addition was set aside. As the deletion of the addition rendered the question of reopening academic, the Tribunal did not decide the validity of the reopening under Section 147 on merits.

Addition of Rs. 4,00,000 treated as unexplained credit deleted; reopening left academic.

Unexplained cash credits under Section 68 - burden to prove identity, genuineness and creditworthiness of lender - shift of burden to revenue after assessee discharges initial onus - deletion of addition where bank channels and confirmations establish genuineness - Deletion of the addition of Rs. 7,50,000 treated as unexplained credit in the hands of Smt. Honey Nayyar for AY 2009-2010. - HELD THAT: - On facts similar to those in the co-ordinate Bench's decision for Smt. Meena Nayyar, the Tribunal held that the assessee furnished confirmations, bank statements showing receipt through proper banking channels and identity documents of the lenders, thereby discharging the initial burden under Section 68. In absence of affirmative material from the revenue to rebut these documents or to show the amounts were accommodation entries, the addition confirmed by the authorities below could not be sustained and was consequently deleted. The question of validity of reopening under Section 147 was not adjudicated as it became academic after deletion of the addition.

Addition of Rs. 7,50,000 treated as unexplained credit deleted; reopening left academic.

Final Conclusion: Both appeals for AY 2009-2010 are allowed and the additions treated as unexplained credits under Section 68 are deleted; the issue of reopening under Section 147 is left undecided as academic.

Rejection of books of accounts under section 145(3) of the Act - estimation of income by inference and computation of net profit - use of contemporaneous documentary evidence versus third party statements for disallowance - reliance on historical average net profit for estimation of undisclosed income - addition on account of alleged bogus purchases/sub contracting

Rejection of books of accounts under section 145(3) of the Act - use of third party statement as sole basis for rejection - Validity of rejection of the assessee's books of accounts by the Assessing Officer - HELD THAT: - The Tribunal upheld the finding of the first appellate authority that the Assessing Officer's rejection of the assessee's books was not unsupported. The AO had doubted genuineness of payments to a sub contractor and relied on an investigation report and third party statement; the assessee produced work order, invoices, ledger entries in the subcontractor's books, bank statements and TDS evidence. The CIT(A) and the Tribunal observed that no specific defect in the assessee's accounting method or material error in records was pointed out by the AO, but noting the inability to establish with positive evidence that the subcontractor actually performed the work, the authorities nonetheless found grounds to treat the books as not fully reliable. On the whole facts, including completion of the contract to ONGC's satisfaction and documentary record of payments, the Tribunal found no illegality in the CIT(A)'s conclusion and did not disturb the rejection as applied in the assessment process.

Rejection of books of accounts upheld as not vitiated by legal infirmity in the facts of the case.

Estimation of income by inference and computation of net profit - reliance on historical average net profit for estimation of undisclosed income - addition on account of alleged bogus purchases/sub contracting - Correctness of the Assessing Officer's estimate of net profit at 40% and the CIT(A)'s reduction to 7% for computing addition on alleged bogus purchases - HELD THAT: - The Tribunal found the AO's estimate of 40% net profit to be without basis and unsupported by materials in the record; the AO did not furnish any justification or evidentiary foundation for adopting such a high rate. The CIT(A) examined the assessee's declared net profit rates in preceding years and the year under consideration (historical rates around 2.61% to 8.62%, with the immediate years averaging about 5.15%-5.95%) and held that 40% was unreasonable. Having regard to the documentary material produced by the assessee (work order, invoices, ledger, bank entries and evidence of TDS) and the fact that the ultimate contractee accepted the work, the CIT(A) adopted a mitigated estimate of net profit at 7% on the turnover to quantify the addition. The Tribunal agreed that the AO's unilateral and unexplained uplift to 40% was unjustified and that the CIT(A)'s approach of moderating the estimate having regard to historical results and the material on record was sustainable. Consequently both parties' appeals on this aspect were dismissed.

AO's estimation at 40% rejected; CIT(A)'s estimate of net profit at 7% on turnover sustained.

Consequential nature of interest and penalty proceedings - Whether separate adjudication on interest and penalty was required at this stage - HELD THAT: - The Tribunal recorded that controversies raised by the assessee concerning charging of interest and initiation of penalty proceedings were either consequential on the assessment outcome or premature. In view of the disposal on merits of the primary issues (books and estimation), there was no need for independent adjudication of interest under the relevant sections or the initiation of penalty under section 271(1)(c) at this juncture.

No separate adjudication on interest and penalty called for; matters are consequential or premature.

Final Conclusion: Both cross appeals are dismissed: the Tribunal sustains the CIT(A)'s moderation of the AO's addition by rejecting the AO's unexplained 40% profit estimate and upholding the CIT(A)'s estimate of 7% of turnover; the rejection of books, as applied in the assessment, is not found to be legally impermissible on the facts, and peripheral issues of interest and penalty need no separate adjudication at this stage.

Validity of reliance on draft assessment order - Deduction under section 10AA for SEZ units - Effect of Advance Pricing Agreement and assessment under section 92CD - Remand to Dispute Resolution Panel for verification of receipt of convertible foreign exchange - Disallowance under section 40(a) and reclassification under section 37(1) - Disallowance under section 40(a) for payments to non-residents and associated enterprises - Depreciation on leased assets (finance lease) and ownership test - Depreciation rate for computer software (computers including computer software) - Disallowance under section 14A and Rule 8D - Liability for interest under section 234B on incremental income post-APA

Validity of reliance on draft assessment order - Objection to the assessing officer/DRP placing reliance on a draft assessment order for earlier assessment year was rejected. - HELD THAT: - The Tribunal considered the plea that the AO/DRP impermissibly relied on the draft assessment order for AY 2009-10 (set aside by Karnataka High Court by consent). It noted that the AO/TPO had referred to enquiries and material from earlier assessment years because the issues were common and that the AO issued contemporaneous show-cause notices and independently examined evidence for the year under consideration. The Tribunal found that the matter was already comprehensively dealt with by the Tribunal in the assessee's own case for AY 2008-09 and that it would be futile to remit the issue where the earlier Tribunal order squarely covered the matters in great detail. The preliminary objection was therefore rejected and reliance on earlier materials held not to vitiate the present assessment.

Objection rejected; reliance on earlier draft/final orders for common issues held permissible and not fatal to the assessment.

Deduction under section 10AA for SEZ units - Claim for deduction under section 10AA for AY 2013-14 was allowed for statistical purposes subject to verification of evidences and related conditions. - HELD THAT: - The Tribunal examined revenue objections (non-registration of SOW/DOU, alleged failure to match SOFTEX forms and invoices, alleged non compliance with SEZ/STPI procedures, unit wise P&L reliability, and ownership/form of undertakings) and applied CBDT Circular No.1/2013 and earlier Tribunal decisions in the assessee's own cases (notably AY 2008-09). It held that (i) benefit under section 10AA cannot be denied merely because separate SOWs were not filed where SOWs/other documents establish scope of work; (ii) SOFTEX declarations and SEZ approvals on record negate revenue's presumption of non-compliance; (iii) unit wise profit allocation methodology and accounting system adopted by the assessee were acceptable following earlier Tribunal findings; and (iv) in absence of any adverse action/revocation by SEZ authorities, compliance could not be presumed to have been violated. On these bases the Tribunal allowed the ground for statistical purposes but directed focused verification (see separate remand issue regarding convertible foreign exchange).

Deduction under section 10AA allowed for statistical purposes; assessee directed to file supporting documents and AO/DRP to verify and compute admissible deduction.

Remand to Dispute Resolution Panel for verification of receipt of convertible foreign exchange - Issue whether the sale proceeds of exported computer software were brought into India in convertible foreign exchange (for the purposes of section 10A/10AA and Explanation 2 to section 10A(3)) was remanded to the DRP for verification. - HELD THAT: - Following the Tribunal's review of the record and earlier Tribunal decisions (AY 2008-09), it observed that the AO/DRP had not verified whether convertible foreign exchange representing consideration for exported computer software had been brought into India. The Tribunal directed the DRP to examine the assessee's evidence (including documents referred to in the Deutsche Bank/transactional audit and any invoices/receipts) to establish whether convertible foreign exchange was brought into India and whether such receipts represent consideration for export of software. The DRP was given liberty to examine and the AO to rebut the assessee's claims; the issue was remanded for fresh consideration and quantification.

Remanded to DRP for verification of receipts and to decide admissible deduction on that basis.

Effect of Advance Pricing Agreement and assessment under section 92CD - Deduction under section 10AA is available on incremental income arising from an APA and assessments under section 92CD must give effect to the APA; the Tribunal directed the DRP to grant the 10AA deduction in respect of the APA driven incremental income subject to verification of receipt/bringing in of convertible foreign exchange. - HELD THAT: - The Tribunal followed the reasoning in analogous Tribunal decisions: an APA determines arm's length price and the modified return filed under section 92CD is to be assessed as a return furnished under section 139 so that other provisions of the Act (including deduction provisions like section 10AA) apply. The proviso to section 92C(4) (which restricts allowance of certain deductions where income is enhanced by transfer pricing adjustments made by AO/TPO) does not apply to additional income offered voluntarily in a modified return pursuant to an APA. The APA's critical assumptions (including invoicing/realisation clauses and rollback provisions) were noted; the Tribunal held that the assessee is entitled to claim deduction under section 10AA on the APA incremental income, but directed DRP to verify realisation/bringing into India of the related convertible foreign exchange before allowing the deduction.

Assessee entitled to section 10AA deduction on APA incremental income; matter remitted to DRP to verify and allow deduction in accordance with the APA and proof of realisation.

Disallowance under section 40(a) and reclassification under section 37(1) - Issues concerning year end provisions (suo moto disallowed by the assessee under section 40(a)) and the AO's reclassification/disallowance under section 37(1) were set aside to the DRP for detailed verification and fresh decision. - HELD THAT: - The Tribunal observed that the assessee maintained mercantile accounting, created year end provisions on a reasonable/estimative basis, and had in many instances reversed provisions when invoices were received in the subsequent year with tax deducted then. Supreme Court authority was cited for accrual/accrued liabilities principles. The AO had not verified the submissions, TDS compliance, ledger entries, reconciling payments and TDS deposits. The DRP had earlier directed verification; the Tribunal directed the assessee to file detailed reconciliations (opening/closing provision balances, mapping of payments to provisions, proof of TDS deduction/deposit, CA certificate where applicable) and remitted the matter to the DRP to verify nature of provisions, applicability of TDS, existence of lower/NIL withholding certificates, and allow relief to the extent payments/TDS were established.

Set aside to DRP for fresh verification and decision after specified documentary verification; relief may be allowed to the extent payments/TDS are proved.

Disallowance under section 40(a) for payments to non-residents and associated enterprises - The Tribunal remitted the disallowance under section 40(a) in respect of payments to non residents and associated enterprises to the DRP for fresh consideration after verification of invoices, nature of payments (reimbursements v. taxable receipts), and applicability of TDS provisions/Explanation 2 to section 195. - HELD THAT: - The AO had disallowed significant foreign payments for non deduction of tax at source, treating some payments as taxable (e.g., royalty) and rejecting CA certificates as unreliable based on earlier years. The Tribunal noted that the nature of many payments (reimbursements, purchase of goods, insurance, distributed software) required detailed verification of invoices and supporting documents. Following prior Tribunal practice in the assessee's own cases, the Tribunal remitted the matter to the DRP with directions that the assessee be permitted to file all relevant invoices and evidence, and that DRP/AO analyse the payments in light of the invoices and the legal tests for withholding under section 195 (including Explanation 2) before making any disallowance.

Remitted to DRP for verification and fresh decision; assessee to be given opportunity to produce invoices and evidence.

Depreciation on leased assets (finance lease) and ownership test - Claim for depreciation on assets under finance leases was remitted to the Assessing Officer for verification in the light of the contractual ownership rights and Supreme Court precedent; the Tribunal indicated the assessee may be entitled to depreciation if the ownership/right to retain legal title exists. - HELD THAT: - The assessee claimed depreciation on assets given on finance lease; the AO disallowed on the view that the assessee was not the legal owner. The Tribunal noted the accounting and tax treatment divergence and that the question turns on the ownership/rights under lease documents and the Supreme Court decision relied upon (holding that an assessee who retains legal title/right to retain title may be owner for depreciation purposes). The Tribunal remitted the issue to the AO for detailed verification of lease agreements, schedules, invoices and related documents and directed the AO to apply the Supreme Court ratio and afford the assessee a hearing.

Remitted to Assessing Officer for verification and decision in accordance with law; proper opportunity to be given to assessee.

Depreciation rate for computer software (computers including computer software) - Where computer software is capitalised, depreciation is to be allowed at 60%; the matter was remitted to the AO to determine which software expenditures are capital and to allow 60% on capitalised software. - HELD THAT: - The AO restricted depreciation on acquired software to 25% treating it as intangible/license; the Tribunal followed coordinate bench precedents (e.g., Infosys line of authority and Amway/Datacraft decisions) holding that 'computers including computer software' attract 60% where the software is capitalised. The Tribunal directed the AO to verify whether particular software expenditure is capital or revenue; if capitalised, depreciation at 60% is to be allowed and the assessee be given an opportunity of hearing.

AO to reconsider; allow 60% depreciation on capitalised computer software; verify and exclude revenue items.

Disallowance under section 14A and Rule 8D - Disallowance under section 14A (and Rule 8D) was deleted as the assessee had not earned any exempt income in the year. - HELD THAT: - The Tribunal accepted the assessee's submission and followed the Delhi High Court authority cited (Cheminvest Ltd.) that Rule 8D/section 14A disallowance is not applicable where no exempt income is earned in the relevant year. On that factual basis the Tribunal set aside the disallowance.

Disallowance under section 14A deleted.

Liability for interest under section 234B on incremental income - Assessee is liable to pay interest under section 234B on incremental income assessed pursuant to the APA; the claim to the contrary was dismissed. - HELD THAT: - The Tribunal reviewed the statutory scheme for interest on shortfall of advance tax and held that incremental income arising from the APA (and resulting assessed tax) attracts section 234B interest where advance tax paid falls short of the assessed tax. The Tribunal distinguished authorities relied on by the assessee and followed higher court precedent (including Bombay High Court decisions) that interest under section 234B is mandatory where assessed tax exceeds advance tax; issues of waiver/reduction of interest lie under the statutory waiver provisions and not by interpretation to avoid levy. The plea that incremental income arose post return did not absolve the assessee of section 234B liability.

Claim dismissed; interest under section 234B payable on assessed tax including APA incremental income.

Final Conclusion: The appeal is partly allowed. The Tribunal rejected the challenge to reliance on earlier draft/final orders, allowed the assessee's section 10AA claim in principle (subject to DRP/AO verification of convertible foreign exchange receipts) and held that APA driven incremental income can qualify for section 10AA relief (to be verified and given effect by DRP). Several factual and documentary issues were remitted to the DRP or Assessing Officer for detailed verification (receipt/realisation of export proceeds, mapping of provisions and TDS compliance, foreign payments and invoices, leased asset ownership and depreciation computation, and quantification of reliefs). Disallowance under section 14A was deleted, and the assessee was held liable for interest under section 234B on the APA incremental income.

Deduction for provision for bad and doubtful debts under section 36(1)(viia) - Exclusion of a primary cooperative agricultural and rural development bank from the cooperative bank category in clause (viia) - Allowability of written off time barred interest under section 36(1)(vii) and potential overlap with section 36(1)(viia) - Verification of actual write off in books and applicability of section 36(2)

Deduction for provision for bad and doubtful debts under section 36(1)(viia) - Exclusion of a primary cooperative agricultural and rural development bank from the cooperative bank category in clause (viia) - Whether the assessee, being a primary cooperative agricultural and rural development bank, is entitled to deduction under section 36(1)(viia) in respect of provision for NPA principal. - HELD THAT: - The Tribunal found that clause (viia) grants deduction to scheduled banks, non scheduled banks and cooperative banks, but expressly excludes a primary agricultural credit society and a primary cooperative agricultural and rural development bank from the cooperative bank category. The assessee did not dispute that it is a primary cooperative agricultural and rural development bank and therefore falls within the statutory exception. The appellate authority's conclusion that the assessee was covered by clause (viia) was held to be based on a misunderstanding of the statutory text. Accordingly the CIT(A)'s contrary finding was set aside. [Paras 5]

Assessee, being a primary cooperative agricultural and rural development bank, is not entitled to deduction under section 36(1)(viia); the CIT(A)'s opposite finding is set aside.

Allowability of written off time barred interest under section 36(1)(vii) and potential overlap with section 36(1)(viia) - Verification of actual write off in books and applicability of section 36(2) - Whether the amount claimed as time barred interest was actually written off in the books and hence allowable, and whether the AO should verify overlap between deductions under sections 36(1)(vii) and 36(1)(viia). - HELD THAT: - The Tribunal observed that the CIT(A) deleted the addition on the basis that the assessee had treated the time barred interest as written off, but the supporting details were not part of the audited books and were not certified by the auditors. It was unclear from the materials whether the entire amount formed part of the interest income in the profit and loss account or met the conditions of section 36(2). The Tribunal noted the settled principle that deduction under section 36(1)(vii) for debts written off is allowable only to the extent such bad debt exceeds the credit balance of provisions under clause (viia), and that overlap must be guarded against. In the interests of justice the Tribunal remanded the issue to the assessing officer to re examine and verify whether the amount was actually written off and to apply the law accordingly, affording the assessee opportunity of hearing. [Paras 7]

Issue remanded to the assessing officer for fresh examination and verification of whether the time barred interest was actually written off in the books and for applying sections 36(1)(vii)/36(1)(viia)/36(2) as appropriate.

Final Conclusion: The appeal is partly allowed: the CIT(A)'s allowance under section 36(1)(viia) is set aside insofar as the assessee is a primary cooperative agricultural and rural development bank and thus excluded from clause (viia); the question of allowability of time barred interest is remanded to the assessing officer for verification and fresh adjudication.

Proviso to Section 2(15) - exclusion for activities in the nature of trade, commerce or business or rendering services for fee - exemption under Section 11 - charitable purpose and advancement of general public utility - interpretation of dominant and prime objective test for charitable status - carry forward of excess capital expenditure - set off against future income

Proviso to Section 2(15) - exclusion for activities in the nature of trade, commerce or business or rendering services for fee - exemption under Section 11 - charitable purpose and advancement of general public utility - interpretation of dominant and prime objective test for charitable status - Whether the proviso to Section 2(15) applies to the assessee (Ahmedabad Urban Development Authority) and disentitles it from exemption under Section 11 for A.Y. 2013-14. - HELD THAT: - The Tribunal applied the decision of the Hon'ble Gujarat High Court in respect of the assessee, which held that the proviso to Section 2(15) must be read in light of the dominant and prime objective test and is directed only at entities truly carrying on activities in the nature of trade, commerce or business or rendering services in relation thereto for a fee or other consideration. On the facts the assessee is a statutory urban development authority constituted under the Gujarat Town Planning Act; receipts from sale of limited plots and regulatory fees are incidental to carrying out statutory town planning functions and must be used for providing public utilities. There is no element of profiteering, accounts are subject to government control and audit, and the dominant objective is not profit making. Following the High Court's reasoning that such statutory and incidental activities do not convert the assessee into a commercial entity, the Tribunal found no infirmity in the CIT(A)'s decision to treat the assessee as entitled to exemption under Section 11 and accordingly dismissed the revenue's challenge on this issue. [Paras 6]

Proviso to Section 2(15) is not applicable to the assessee; exemption under Section 11 allowed for A.Y. 2013-14 and the revenue's appeal on this ground dismissed.

Carry forward of excess capital expenditure - set off against future income - treatment of prior year excess expenditure where statute is silent - Whether excess capital expenditure of earlier years may be carried forward and set off against income of subsequent years in absence of an express statutory provision. - HELD THAT: - The Tribunal noted that the CIT(A) relied on judicial precedents, including the Hon'ble Supreme Court's decision in Subros Educational Society, to hold that where an assessee is entitled to certain allowances (such as depreciation), the excess expenditure may be carried forward for set off against future income. Having considered the authorities invoked and the material on record, and noting the Department did not controvert the precedents relied upon, the Tribunal found no infirmity in the CIT(A)'s allowance of carry forward of excess capital expenditure and dismissed the revenue's ground on this issue. [Paras 10]

Claim for carrying forward excess capital expenditure allowed; revenue's appeal on this point dismissed.

Final Conclusion: Both appeals filed by the revenue for A.Y. 2013-14 are dismissed: the proviso to Section 2(15) does not apply to the Ahmedabad Urban Development Authority and exemption under Section 11 is upheld; the carry forward of excess capital expenditure for set off against future income is also sustained.

Refund of tax paid on return filed under section 158BC - proviso (b) to section 240 - refund limited to tax paid in excess of tax chargeable on total income returned - admitted tax liability arising from self-assessment - void ab initio / non est in the eye of law of a return - deemed acceptance of return where fresh assessment is barred - Article 265 - levy or collection of tax only by authority of law - precedents applying Shelly Products and Micro Nova to block assessment/self-assessment tax

Refund of tax paid on return filed under section 158BC - void ab initio / non est in the eye of law of a return - proviso (b) to section 240 - refund limited to tax paid in excess of tax chargeable on total income returned - admitted tax liability arising from self-assessment - precedents applying Shelly Products and Micro Nova to block assessment/self-assessment tax - Whether the assessee was entitled to refund of tax and interest paid with the return filed in response to a notice under section 158BC after the High Court quashed the notice/proceedings. - HELD THAT: - The Tribunal held that the facts show the assessee filed the return more than fifteen days after the notice and the return was not treated as invalid by the Assessing Officer; the income declared was a voluntary declaration and the tax paid thereon constituted an admitted liability by way of self-assessment. Applying the reasoning in Shelly Products and as followed in Micro Nova and the Delhi High Court decisions, tax paid by way of self-assessment or on the basis of the return filed by the assessee is not automatically refundable merely because initiation of proceedings was later quashed for defect in the notice. Section 240 (and its proviso) confines refund, in the context of annulment, to amounts paid in excess of the tax chargeable on the total income returned; where fresh assessment is barred, the revenue may be required to accept the return as it stands and refund any true excess, but it does not follow that tax paid under a voluntary/valid return must be refunded in full. The Karnataka High Court authority relied upon by the assessee was distinguished on its facts because there the return was treated as invalid by the AO; in the present case the return was valid and not so treated, hence the ratio in Shelly Products/Micro Nova governs and the claim for refund of tax paid on the declared income fails. [Paras 5, 6]

Claim for refund of tax and interest paid on the return filed in response to the section 158BC notice dismissed; appeal has no merit.

Final Conclusion: The Tribunal dismissed the appeal: because the return filed by the assessee was valid and the tax paid on that voluntary declaration constituted admitted self-assessed liability, the assessee was not entitled to refund of the tax and interest merely because proceedings under section 158BC were quashed; refund under section 240 is confined to tax paid in excess as indicated by the proviso and the governing precedents.

Penalty under section 271(1)(c) - concealment of income - furnishing of inaccurate particulars of income - estimation-based disallowance of bogus purchases - requirement of recorded satisfaction before initiating penalty proceedings - defective penalty notice

Penalty under section 271(1)(c) - estimation-based disallowance of bogus purchases - concealment of income - furnishing of inaccurate particulars of income - requirement of recorded satisfaction before initiating penalty proceedings - Validity of deletion of penalty levied under section 271(1)(c) in respect of additions made by estimating bogus purchases and disallowance of depreciation - HELD THAT: - The Assessing Officer made additions on an estimated basis treating certain purchases as bogus and disallowed depreciation on alleged bogus assets, and levied penalty under section 271(1)(c). The assessee produced purchase bills, account-payee cheque payments and stock entries; the AO relied on absence of transport receipts or weighbridge challans but made no recorded finding of actual concealment or that the assessee furnished inaccurate particulars. Mere suspicion or doubt, or an estimate-based addition, is not a sufficient foundation for levy of penalty under section 271(1)(c). The authorities below found no record of satisfaction by the AO that the case involved concealment or furnishing of inaccurate particulars; reliance on the decision of the Bombay High Court in Goa Coastal Resorts established that initiation of penalty requires clear satisfaction and a non-defective notice. Although the CIT(A) relied in part on other case law and reasoning with which the Tribunal did not fully agree, on the facts-absence of recorded satisfaction, estimation basis of addition and existence of documentary material-the Tribunal held that deletion of the penalty was justified and the Revenue's appeal must be dismissed.

The deletion of the penalty under section 271(1)(c) was upheld and the Revenue's appeal dismissed.

Final Conclusion: On the facts and for want of a recorded satisfaction and adequate material showing concealment or furnishing of inaccurate particulars, the Tribunal dismissed the Revenue's appeal and upheld the deletion of the penalty under section 271(1)(c).

Deemed speculative loss under the Explanation to section 73 - principal business test for trading in shares - application of section 14A and Rule 8D for expenditure relating to exempt income - inclusion of shares held as stock-in-trade for computation of average value of investments - recording of satisfaction under section 14A(2) - apportionment limited to investments yielding exempt income

Deemed speculative loss under the Explanation to section 73 - principal business test for trading in shares - Whether loss from purchase and sale of shares is to be treated as speculative loss under the Explanation to section 73 or as normal business loss where the assessee's principal business is trading in shares. - HELD THAT: - The Tribunal examined the Explanation to section 73 and the amendment by Finance Act, 2014, and noted the binding pronouncement of the Supreme Court that the 2014 amendment is prospective from 01/04/2015. The authorities below recorded conflicting factual findings: the Assessing Officer found that the assessee incurred losses from share trading, whereas the CIT(A) found profit from share trading (computed without certain direct and indirect expenses). Because the legal consequence under the Explanation to section 73 (i.e., classification as deemed speculative loss) depends on the factual determination whether the assessee earned profit or incurred loss from share trading and whether the principal-business test is satisfied, the Tribunal held that the matter requires fresh verification. The Tribunal therefore applied the legal principle that if the assessee has profit from share trading then the Explanation does not apply, but if it has loss from share trading the Explanation will render that loss a deemed speculative loss and restrict set off; given contradictory findings and incomplete consideration of expenditures, the factual matrix must be re-examined by the AO. [Paras 11]

Set aside to the file of the Assessing Officer for fresh examination and recomputation of profit or loss from share trading and for determining applicability of the Explanation to section 73 in accordance with law.

Application of section 14A and Rule 8D for expenditure relating to exempt income - inclusion of shares held as stock-in-trade for computation of average value of investments - recording of satisfaction under section 14A(2) - apportionment limited to investments yielding exempt income - Whether disallowance under section 14A read with Rule 8D is sustainable, including (a) whether the AO recorded requisite satisfaction under section 14A(2), (b) whether shares held as stock-in-trade are includible in average value of investments, and (c) the proper scope of investments to be considered for disallowance. - HELD THAT: - The Tribunal found that the AO had in fact recorded satisfaction under section 14A(2) having regard to the amount of exempt income and the assessee's suo moto computation and therefore was entitled to apply Rule 8D. Reliance was placed on the Supreme Court position that once exempt dividend is earned the theory of apportionment under section 14A is triggered, and accordingly shares held as stock in trade must be included in computing average value of investments for Rule 8D. The Tribunal also examined the assessee's contention that mixed funds presumed to be own funds (and therefore no disallowance) was not sustainable on the facts, noting that the assessee's own capital was lower than investments (if stock in trade were included) and that substantial interest expenditure had been incurred. The Tribunal clarified the settled principle that only those investments which yielded exempt income for the year should be taken for computing the average value for the purpose of the 0.5% disallowance under Rule 8D(2)(iii). In view of these principles the Tribunal directed recomputation by the AO in accordance with the directions given. [Paras 15, 16]

AO's invocation of Rule 8D sustained; shares held as stock in trade are to be included for computing average value; AO to restrict consideration to investments yielding exempt income, net off interest income as directed, and recompute disallowance under section 14A/Rule 8D afresh.

Final Conclusion: The Tribunal allowed the appeal and cross objection for statistical purposes by setting aside both disputed issues to the file of the Assessing Officer: (i) the question of treatment of loss/profit from share trading under the Explanation to section 73 is remitted for fresh factual and consequential legal determination; and (ii) disallowance under section 14A/Rule 8D is upheld in principle with directions on inclusion of stock in trade and limiting investments to those yielding exempt income, and the AO is directed to recompute the disallowance accordingly.

Arm's length price - Comparable Uncontrolled Price (CUP) - internal CUP - performance/corporate guarantee as an international transaction - interest charged at arm's length for short-term intra-group loan - interest under section 234A of the Act - interest under section 234B of the Act - interest under section 234C of the Act - remand for verification/reconciliation

Arm's length price - Comparable Uncontrolled Price (CUP) - internal CUP - performance/corporate guarantee as an international transaction - Arm's length commission for performance guarantee provided to the AE in respect of bareboat charter hire charges (AY 2011-12). - HELD THAT: - The Tribunal proceeded on the admitted footing that provision of performance/corporate guarantee falls within the definition of an international transaction. The Transfer Pricing Officer had applied the commission charged by State Bank of India (Singapore Branch) as an external CUP and determined a higher rate, which the DRP reduced. The assessee contended that a performance/corporate guarantee is not equivalent to a bank guarantee and relied on the guarantee commission actually charged to the assessee by ICICI Bank. The Tribunal accepted that a performance/corporate guarantee (unsecured) is distinguishable from a bank guarantee and that the assessee's own bank guarantee commission of 0.25% constitutes a reliable internal CUP. On that basis the arm's length price of the guarantee commission was fixed at 0.25% and the addition was disallowed to that extent. [Paras 9]

Arm's length price of performance guarantee commission fixed at 0.25%; ground partly allowed.

Interest charged at arm's length for short-term intra-group loan - arm's length price - Whether the interest charged by the assessee on a short-term loan (approx. 15 days) to its AE is at arm's length (AY 2011-12). - HELD THAT: - The assessee had charged interest at LIBOR plus 1.5% for very short-term advances. The TPO applied an alternative benchmark based on domestic prime lending rate plus mark-up, and the DRP directed a higher mark-up. The Tribunal observed that the loan was for a brief period (about 15 days) and that the AE had obtained finance from SBI Singapore at six months LIBOR plus 250 basis points. On these facts the Tribunal concluded that the rate charged by the assessee was at arm's length and required no adjustment. [Paras 12]

Ground allowed; no adjustment to the interest charged.

Arm's length price - corporate guarantee - internal CUP - Arm's length guarantee fee for unsecured corporate guarantee provided for loan availed by the AE (AY 2011-12). - HELD THAT: - The assessee had charged 0.25% as guarantee fee for an unsecured corporate guarantee while the TPO and DRP applied higher rates. The Tribunal noted that the lender's loan to the AE was fully secured by the value of the vessels, so the lender's exposure was effectively secured and the assessee's corporate guarantee remained unsecured with negligible risk. On these facts the Tribunal held that the fee charged by the assessee at 0.25% represented the arm's length rate and no adjustment was warranted. [Paras 17]

Ground allowed; guarantee fee of 0.25% accepted as arm's length.

Interest under section 234A of the Act - Levy of interest under section 234A where return of income was filed within the due date (AY 2011-12). - HELD THAT: - The Tribunal recorded that the return for the impugned assessment year was filed within the time provided under section 139(1). In such circumstances interest under section 234A is not chargeable. [Paras 19]

Ground allowed; no interest under section 234A is chargeable.

Interest under section 234B of the Act - interest under section 234C of the Act - Levy of interest under sections 234B and 234C (AY 2011-12). - HELD THAT: - The Tribunal held that interest under section 234B is consequential and need not be separately adjudicated at this stage. As to section 234C, the Tribunal directed that such interest, if chargeable, should be computed not on the assessed income but on the income returned by the assessee, thereby reducing the base for computation of installment defaults. [Paras 21]

Ground partly allowed; 234B left consequential, 234C to be computed on returned income.

Remand for verification/reconciliation - Addition on account of difference between interest credited to Profit & Loss and interest reflected in Form 26AS - whether addition sustainable (AY 2012-13). - HELD THAT: - A monetary addition was made by the Assessing Officer for discrepancy between interest credited in books and Form 26AS entries. The assessee explained that interest for the last quarter had been accounted in the subsequent year and offered part of the amount in that later year. The Tribunal found that the AO had made the addition without seeking explanation and that the matter required verification. The issue was restored to the file of the Assessing Officer for reconciliation and fresh adjudication after giving the assessee opportunity to produce corroborative evidence. [Paras 30]

Issue remanded to Assessing Officer for verification and fresh adjudication after hearing the assessee.

Arm's length price - Comparable Uncontrolled Price (CUP) - internal CUP - Arm's length commission for performance guarantee (AY 2012-13) and corporate guarantee for loan availed by AE (AY 2012-13). - HELD THAT: - Facts for AY 2012-13 were stated to be identical to those in the corresponding grounds for AY 2011-12. The Tribunal applied its earlier reasoning and directed the Assessing Officer to compute the arm's length price of performance guarantee commission and corporate guarantee commission at 0.25% respectively. [Paras 26, 28]

Grounds partly allowed; arm's length commission fixed at 0.25% for both guarantees by application of the earlier decision mutatis mutandis.

Interest under section 234A of the Act - Direction regarding levy of interest under section 234A where return filed within due date (AY 2012-13). - HELD THAT: - Mirroring the decision for AY 2011-12, the Tribunal directed the Assessing Officer not to levy any interest under section 234A if the return was filed within the time specified under section 139(1). [Paras 32]

Assessing Officer directed not to levy section 234A interest if return filed within due date.

Interest under section 234B of the Act - interest under section 234C of the Act - Levy of interest under sections 234B and 234C (AY 2012-13). - HELD THAT: - As in the earlier assessment year, the Tribunal held that section 234B is consequential and need not be separately adjudicated. For section 234C the Tribunal directed computation of interest on the basis of the income returned by the assessee and not on the assessed income. [Paras 34]

Ground partly allowed; 234B consequential, 234C to be computed on returned income.

Remand for verification/reconciliation - Initiation of penalty proceedings under section 271(1)(c) - pre mature dismissal (both years). - HELD THAT: - The Tribunal found challenges to initiation of penalty proceedings premature at the appellate stage and dismissed those grounds accordingly. [Paras 23, 36]

Grounds dismissed as premature.

Final Conclusion: Both appeals were partly allowed: guarantee commissions for performance and corporate guarantees were accepted at 0.25% (AO to compute accordingly for both assessment years), the short term interest rate charged was held to be at arm's length, section 234A interest was disallowed where returns were filed in time, section 234C interest must be computed on returned income (section 234B left consequential), a discrepancy in interest receipt for AY 2012-13 was remanded to the AO for verification, and penalty challenges were dismissed as premature.

Fair market value determination of capital asset - Mandate to refer to Valuation Officer under Section 55A (pre-amendment) - Adoption of Approved Valuer's cost of acquisition as on 1.4.1981 - Acceptance of District Valuation Officer's valuation as on date of sale - Dismissal of departmental appeals on account of low tax effect under CBDT monetary limits

Mandate to refer to Valuation Officer under Section 55A (pre-amendment) - Adoption of Approved Valuer's cost of acquisition as on 1.4.1981 - Whether the Assessing Officer was justified in referring to the District Valuation Officer for determination of FMV as on 01.04.1981 and in relying on the DVO report instead of the Approved Valuer's valuation for computing indexed cost of acquisition. - HELD THAT: - The CIT(A) examined the AO's reference dated 26.09.2011 and held that, for the assessment year under consideration, Section 55A empowered reference to the Valuation Officer only where the AO was of the opinion that the value claimed by the assessee was less than its fair market value; it did not permit a reference merely to "verify" the correctness of an Approved Valuer's report. The DVO's report had in fact fixed the FMV as on 01.04.1981 at an amount lower than the Approved Valuer's figure. Following precedents which held that a DVO reference was not warranted where DVO valuation is lower than the assessee's declared value, the CIT(A) concluded that the AO lacked mandate to seek DVO valuation for 01.04.1981 and therefore adopted the Approved Valuer's valuation as the cost of acquisition for computation of indexed cost. The Tribunal upheld the CIT(A)'s reasoned findings and declined to interfere. [Paras 7]

The AO did not have authority under the provisions of Section 55A (as applicable to the year) to refer for valuation of FMV as on 01.04.1981 merely to verify the Approved Valuer's report; the Approved Valuer's valuation as on 01.04.1981 is adopted for computing indexed cost of acquisition.

Fair market value determination of capital asset - Acceptance of District Valuation Officer's valuation as on date of sale - Whether the District Valuation Officer's determination of the FMV of the property as on the date of sale (04.09.2008) could be accepted for fixing the sale consideration of the assessee's share. - HELD THAT: - The DVO determined the FMV of the entire property as on 04.09.2008 and, after considering the appellant's submissions, the CIT(A) found that the DVO had correctly valued the property as on the date of sale. The assessee in appellate proceedings accepted the DVO's valuation as at the date of sale to avoid protracted litigation. The CIT(A) accordingly adopted the DVO figure to compute the sale consideration attributable to the assessee's share, recalculated indexed cost (using the Approved Valuer's 01.04.1981 figure as noted above) and recomputed long term capital gains. The Tribunal sustained these findings. [Paras 7]

The DVO's valuation as on 04.09.2008 is accepted for determining the sale consideration of the assessee's share and used in recomputing the long term capital gains.

Dismissal of departmental appeals on account of low tax effect under CBDT monetary limits - Whether the departmental appeals where the tax effect was below the revised monetary threshold should proceed before the Tribunal. - HELD THAT: - The Tribunal recorded that the CBDT revised the monetary limit for filing departmental appeals before the Tribunal from Rs.20 lakhs to Rs.50 lakhs by circular dated 08.08.2019. The admitted tax effect in three of the Revenue's appeals was below Rs.50 lakhs. Applying the circular, the Tribunal dismissed those appeals for want of sufficient tax effect without adjudicating their merits, while noting that the Revenue may apply for restoration if it establishes applicability of exceptions under the circular. [Paras 12, 13, 14, 15, 16]

Appeals in which the admitted tax effect is below the CBDT-prescribed monetary threshold are dismissed on account of low tax effect; Revenue may seek restoration only if an exception under the CBDT circular applies.

Final Conclusion: The Tribunal dismissed the departmental appeals: it upheld the CIT(A)'s decision to accept the Approved Valuer's cost as on 01.04.1981 (holding the AO lacked mandate to refer that date to the DVO under Section 55A as applicable), accepted the DVO's valuation as on the date of sale for computing sale consideration, recomputed the long term capital gains accordingly, and dismissed three additional appeals on the ground of low tax effect pursuant to the CBDT's revised monetary limits.

Agricultural land within the meaning of Section 2(14)(a)(iii) - exemption of sale proceeds of agricultural land from capital gains - sanctity of revenue records (7/12 extract and Form 7/7A) in determining nature of land - non-requirement of declaration of agricultural income to claim agricultural status - consistency of departmental treatment / prohibition of divergent views in respect of same transaction - time limit for pronouncement of orders under Rule 34(5) of the ITAT Rules and effect of COVID-19 lockdown

Agricultural land within the meaning of Section 2(14)(a)(iii) - exemption of sale proceeds of agricultural land from capital gains - sanctity of revenue records (7/12 extract and Form 7/7A) in determining nature of land - consistency of departmental treatment / prohibition of divergent views in respect of same transaction - The land appurtenant to the bungalow (comprising Gut Nos. 363, 364, 365 and 366 totalling 1.33 acres) is agricultural land within the meaning of Section 2(14)(a)(iii) and the sale proceeds thereof are exempt from tax as agricultural income. - HELD THAT: - The Tribunal placed material reliance on revenue records - specifically the 7/12 extracts and Form 7/7A appended to the registered sale deed which showed rice cultivation - and on the Tahsildar's certificate regarding distance from municipal limits and village population. Revenue did not contend that the land's nature had been changed to non-agricultural or produce evidence to rebut the government records. Given the statutory import of such revenue records, they cannot be discarded; on the facts these records establish agricultural use. Further, the Department's acceptance of exemption claimed by two co-owners in respect of the same land militates against permitting a divergent conclusion for the present assessee who is on the same footing and derives income from the same transaction. The Tribunal also applied the principle that absence of declared agricultural income does not defeat agricultural character where revenue records show agricultural use, following the precedent relied upon by the assessee. For these reasons the addition made by the Assessing Officer in respect of sale of the agricultural land was directed to be deleted and the claim of exemption upheld. [Paras 9, 10, 11, 12]

Addition qua sale of the agricultural land deleted; sale proceeds of the land held exempt from tax.

Non-requirement of declaration of agricultural income to claim agricultural status - The objection by Revenue that the assessee did not declare income from agricultural operations is without merit and is not a ground to deny agricultural status. - HELD THAT: - Relying on established authority, the Tribunal held that where the revenue records show agricultural use and there is no evidence of conversion to non-agricultural use, it is immaterial whether agricultural income was declared by the assessee. Thus the absence of declared agricultural income cannot by itself rebut the character of the land as agricultural. [Paras 10]

Rejection of the exemption on the ground of non-declaration of agricultural income is not warranted.

Time limit for pronouncement of orders under Rule 34(5) of the ITAT Rules and effect of COVID-19 lockdown - Pronouncement of the Tribunal's order beyond the 90-day period prescribed by Rule 34(5) of the ITAT Rules was justified in view of the COVID-19 lockdown and the exceptional circumstances which interrupted ordinary functioning. - HELD THAT: - The Tribunal recorded that the hearing concluded before the lockdown but the order could not be pronounced within 90 days due to the nationwide lockdown declared in March 2020. Citing a coordinate Bench's approach, the Tribunal excluded the lockdown period in computing the 90-day limit and treated the delay as arising from extraordinary circumstances, thereby invoking the exception inherent in the rule. The order was accordingly pronounced beyond the ordinary 90-day period. [Paras 15, 16]

Delay in pronouncement beyond 90 days due to COVID-19 lockdown is justified; order pronounced accordingly.

Final Conclusion: Appeals allowed: the sale proceeds attributable to the agricultural land are held exempt for AY 2012-13 and the Assessing Officer is directed to delete the addition; the Tribunal's pronouncement beyond 90 days is justified by the COVID-19 lockdown.

Stay of recovery - prima facie case - balance of convenience - conditional stay subject to interim payment - compliance with tribunal directions

Stay of recovery - conditional stay subject to interim payment - prima facie case - balance of convenience - Application for stay of recovery of outstanding demand for assessment year 2015-16. - HELD THAT: - The Tribunal examined the motion for stay where the assessee had already made payments aggregating more than 27% of the total demand and relied on a decision of the Delhi Tribunal. The Department opposed the stay as factually distinguishable. On a prima facie assessment the Tribunal found that the balance of convenience favoured granting a conditional stay. Consequently, the Tribunal allowed stay of recovery subject to specified conditions: payment of an interim amount of Rs. 4.00 lacs in two instalments by specified dates; furnishing proof of deposit to the Registry and copy to the Departmental Representative; avoidance of frivolous adjournments and compliance with ITAT Rules if a paper book is to be filed; and a provision that breach of conditions will automatically vacate the stay and forfeit the benefit of early hearing. The stay was granted for a period of 180 days from the date of the order or until disposal of the appeal, whichever is earlier. [Paras 4, 5, 7]

Stay of recovery granted for assessment year 2015-16 on terms of interim payment and compliance with Tribunal directions; stay to operate for 180 days or until disposal of the appeal.

Final Conclusion: The assessee's stay application is allowed on terms: interim payment of Rs. 4.00 lacs in two instalments, compliance with filing and adjournment conditions, and proof of payment; recovery stayed for 180 days from the date of the order or until disposal of the appeal, subject to automatic vacation on breach of conditions.

Cost of acquisition - reverse indexation - valuation by registered valuer - revenue records as basis of cost - estimation of cost of acquisition - computation including interest - part relief

Cost of acquisition - reverse indexation - valuation by registered valuer - revenue records as basis of cost - estimation of cost of acquisition - Determination of the appropriate cost of acquisition for a capital asset purchased in 1957 and sold in 2012 for assessment year 2013-14. - HELD THAT: - The Tribunal found that the assessee relied on a registered valuer's report which adopted reverse indexation to assess the cost of acquisition as of 01.04.1981, while the Revenue relied on local revenue records to fix a much lower historic cost. The Bench recorded that neither party supplied cogent evidence to fully justify their respective valuations, including exact location and comparable sale consideration. In view of the absence of convincing proof from either side, the Tribunal declined to accept either valuation in entirety and applied a pragmatic estimation. Adopting a rule-of-thumb approach, the Tribunal fixed a lump-sum cost of acquisition of Rs. 3,00,000 with effect from 01.04.1981, thereby granting both parties part relief. The Tribunal directed that necessary computation, including interest, be carried out in accordance with law and having regard to the jurisdictional High Court decision in Ajay Prakash Verma vs. ITO . [Paras 4]

Appeal partly allowed by fixing the cost of acquisition at Rs. 3,00,000 w.e.f. 01.04.1981; computations, including interest, to follow as per law and the cited authority.

Final Conclusion: The Tribunal partly allowed the appeal for AY 2013-14 by rejecting both the assessee's reverse-indexation valuation and the Revenue's reliance on revenue records, and by fixing an estimated lump-sum cost of acquisition of Rs. 3,00,000 as on 01.04.1981; consequential computations including interest to be completed in accordance with law and the cited High Court decision.

Equipment Type Approval - Writ of mandamus - release of consignment - customs clearance - compliance with law, rules, regulations and Government policies

Equipment Type Approval - The Equipment Type Approval applied for by the petitioner has been issued. - HELD THAT: - The petition challenged non-issuance of Equipment Type Approval for the imported Wireless Communication Module, noting an application dated 19.06.2020. The Attorney General for India informed the Court that the requisite approval has since been issued, thereby removing the principal grievance on which the writ petition was founded. [Paras 4]

The Court recorded that the Equipment Type Approval has been issued and that the main grievance of the petition is therefore addressed.

Release of consignment - customs clearance - compliance with law, rules, regulations and Government policies - The consignment imported against Bill of Entry No.7779051 dated 29.05.2020 is to be released. - HELD THAT: - With the Equipment Type Approval having been granted, the only remaining relief sought was release of the impugned consignment. The Court directed respondent No.2 to release the consignment in accordance with applicable law, rules, regulations and Government policies, requiring expeditious action by the customs authority. [Paras 5]

Respondent No.2 is directed to release the consignment in accordance with law, rules, regulations and Government policies as expeditiously as possible and practicable, within one week from the date of the order.

Final Conclusion: The writ petition is disposed of: the Court recorded that Equipment Type Approval has been granted and directed the customs authority to release the consignment within one week in accordance with applicable law and policy.

Mandatory pre-deposit under Section 129E of the Customs Act, 1962 - waiver of pre-deposit - application of amended Section 129E to appeals filed on or after 6th August 2014 - condition precedent to the CESTAT entertaining appeals - statutory limitation on judicial waiver of prescribed pre-deposit

Mandatory pre-deposit under Section 129E of the Customs Act, 1962 - application of amended Section 129E to appeals filed on or after 6th August 2014 - condition precedent to the CESTAT entertaining appeals - Whether the pre-deposit requirement prescribed by the amended Section 129E applies and can be waived in respect of the petitioner's appeals. - HELD THAT: - The Court held that the amended Section 129E prescribes a mandatory pre-deposit (7.5% or 10% as applicable) as a condition precedent for the appellate authority to entertain appeals, and that the statute itself effects a waiver of the balance of the demanded duty. Where the wording of the provision is unambiguous, courts cannot grant a further waiver beyond what the statute provides. The Court concurred with earlier authorities holding that the amended provision applies to appeals filed on or after 6th August 2014 and that the second proviso excludes only appeals and stay applications already pending before that date. Consequently, no further judicial waiver of the prescribed pre-deposit was permissible in the present case. [Paras 8, 10, 11, 12, 13]

The statutory pre-deposit under Section 129E applies to the petitioner's appeals and cannot be waived by the Court.

Waiver of pre-deposit - statutory limitation on judicial waiver of prescribed pre-deposit - Whether exceptional relief by way of writ should be granted to dispense with the pre-deposit or to direct application of amounts earlier deposited. - HELD THAT: - The Court examined the facts, noted that the petitioner's appeals under Section 129A were pending before CESTAT and that the legislative scheme already limits waiver to the extent embodied in Section 129E. The Court took judicial notice (and accepted counsel's confirmation) of the petitioner's substantial annual turnover for FY 2018-19 and observed that the statutory deposit required amounted to a small percentage of that turnover. In these circumstances, and having declined to go into the merits of the underlying adjudications (which the CESTAT must decide after statutory pre-deposit), the Court found no grounds to exercise writ jurisdiction to relieve the petitioner from the statutory pre-deposit or to order application of earlier deposited amounts as the required pre-deposit. [Paras 15, 16, 17, 18]

Relief by way of writ to dispense with or re-apply pre-deposit was refused; the petitioner must make the statutory pre-deposit and pursue the appeals before CESTAT.

Final Conclusion: The writ petition is dismissed; the petitioner must deposit the pre-deposit mandated by Section 129E and prosecute its statutory appeals before the CESTAT, which shall decide them on merits after compliance with the statutory pre-deposit requirement; all pending applications are disposed of accordingly.

Provisional assessment - mandamus to assess imported goods - assessment in accordance with law, rules, regulations and Government policies - disposal of writ petition

Provisional assessment - mandamus to assess imported goods - assessment in accordance with law, rules, regulations and Government policies - Direction to the respondent authorities to conduct provisional assessment of the imported goods described as "Dry Dates" imported against Bill of Entry No.8098954 dated 7th July, 2020. - HELD THAT: - The petitioner sought a writ in the nature of mandamus for provisional or final assessment and provisional release of the imported consignment. The Court found it sufficient, for disposal of the petition, to direct the respondents to carry out provisional assessment of the goods. The respondents were commanded to conduct the provisional assessment in accordance with the applicable law, rules, regulations and Government policies, and to complete that exercise within two weeks from the date of the order. No further adjudication or order on release or final assessment was made by this order. [Paras 4]

Respondents directed to conduct provisional assessment of the imported goods in accordance with law within two weeks; writ petition disposed of.

Final Conclusion: Writ petition disposed by directing the respondent authorities to conduct provisional assessment of the goods imported against Bill of Entry No.8098954 dated 7.7.2020 in accordance with applicable law, rules, regulations and Government policies within two weeks.

Rule 6A export of services test - establishments of distinct persons under Explanation 3(b) to Section 65B(44) - treatment of services to parent/subsidiary as export of service versus exempted service - jurisdiction to issue show cause notice - extension of limitation under Section 73 for wilful mis-statement or suppression

Rule 6A export of services test - establishments of distinct persons under Explanation 3(b) to Section 65B(44) - treatment of services to parent/subsidiary as export of service versus exempted service - Services rendered by the petitioner in India to its holding company outside India are to be treated as export of service under Rule 6A and are not excluded by Explanation 3(b) to Section 65B(44). - HELD THAT: - The Court examined clauses (a) to (e) of Rule 6A and found that the petitioner satisfied the prescribed conditions: provider located in taxable territory, recipient located outside India, place of provision outside India, services not covered by Section 66D, and payment in convertible foreign exchange. Clause (f) excludes services where provider and recipient are merely establishments of a distinct person as per Item (b) of Explanation 3 to Section 65B(44). The Court held that a separately incorporated holding company in Germany is not an "establishment" of the petitioner so as to treat both as mere establishments of the same person; Explanation 4 (branch/agency/representational office) demonstrates the legislative meaning of "establishment." On proper construction, the relationship between separately incorporated entities cannot be equated to an "establishment" contemplated by Explanation 3(b). Consequently, clause (f) of Rule 6A does not apply and the services in question qualify as "export of service." The respondents' interpretation treating the holding company as the petitioner's other establishment was held to be a misinterpretation and therefore could not support liability to service tax under Rule 6A read with Section 65B(44). [Paras 11, 12, 13]

The services rendered by the petitioner to its holding company are export of service under Rule 6A and not caught by Explanation 3(b); therefore those services are not liable to service tax on the basis contended in the show cause notice.

Jurisdiction to issue show cause notice - extension of limitation under Section 73 for wilful mis-statement or suppression - The show cause notice issued relying on Section 73 (extended limitation for wilful mis-statement/suppression) and on the characterization that the recipient was an "establishment" was without jurisdiction and not tenable. - HELD THAT: - Having held that the services qualified as export of service and that the holding company could not be treated as the petitioner's establishment, the Court concluded that the statutory foundation for invoking liability (and hence invoking extended limitation under Section 73) was absent. There was no material to show any willful mis-statement or suppression by the petitioner that would justify application of the extended limitation period. The impugned notice therefore rested on a misinterpretation of Explanation 3(b) and on an incorrect premise, rendering the issuance of the show cause notice beyond the respondents' jurisdiction. The Court further observed that where an authority acts without jurisdiction, writ jurisdiction under Article 226 is available notwithstanding the existence of alternative statutory remedies. [Paras 14, 15, 16]

The show cause notice purporting to recover tax for the stated period and invoking extended limitation was issued without jurisdiction and is liable to be quashed.

Final Conclusion: The writ petition is allowed; the impugned show cause notice dated 10.11.2017 is quashed as the services rendered by the petitioner to its holding company outside India qualify as export of service under Rule 6A and the notice, including invocation of extended limitation under Section 73, was without jurisdiction.

Liability of directors at the time of winding up under the Tamil Nadu General Sales Tax Act and the Central Sales Tax Act - liability of former directors for company sales tax arrears - recoverability of sales tax arrears from persons not directors when liability arose - writ of prohibition against tax recovery proceedings

Liability of directors at the time of winding up under the Tamil Nadu General Sales Tax Act and the Central Sales Tax Act - liability of former directors for company sales tax arrears - Whether the petitioners, having ceased to be directors before the assessment years and before winding up, could be held liable and subjected to recovery proceedings for the sales tax arrears of the company. - HELD THAT: - The Court held that the statutory liability contemplated by the provisions relied upon attaches to persons who were directors of the company at the time the company was wound up (or who were directors during the period in respect of which the tax liability arose). The petitioners had resigned from the board long prior to the assessment years when the sales tax arrears accrued and long prior to the winding up of the company. In those circumstances the petitioners could not be treated as directors at the relevant point in time and there was no legal basis shown in the recovery proceedings for fastening liability upon them. Although prior decisions were noted where persons who were directors during the period of liability were held jointly and severally liable, those authorities do not support proceedings against persons who ceased to be directors before the liability arose. The High Court therefore found no warrant for permitting recovery proceedings to be continued against the petitioners.

Proceedings for recovery of the company's sales tax arrears could not be sustained against the petitioners who had ceased to be directors before the relevant liability arose; prohibition against such proceedings granted.

Writ of prohibition against tax recovery proceedings - Whether a writ of prohibition should issue to restrain respondents from proceeding against the petitioners for recovery of the company's sales tax arrears. - HELD THAT: - Given the absence of a statutory footing to treat the petitioners as liable (they were not directors at the relevant times), the Court exercised its jurisdiction to prevent illegitimate enforcement action. The learned single Judge and Division Bench precedents on liability of directors who were in office during the liability period were considered but distinguished on the facts. The Court concluded that, in the absence of any justification in the recovery proceedings to fasten liability on these former directors, exercise of writ relief was appropriate to prohibit further action against them.

Writ of Prohibition issued restraining respondents from taking any proceedings against the petitioners for recovery of the sales tax arrears of the company; writ petitions allowed.

Final Conclusion: Writ petitions allowed; respondents restrained by a writ of prohibition from proceeding against the petitioners for recovery of the company's sales tax arrears, since the petitioners had ceased to be directors before the tax liability arose and before winding up.