TaxTMI Updates e-Newsletter
Aug 22,2020

Summary order. Application for advance ruling under Section 97 disposed of on applicant's request for withdrawal.

Classification of goods under the Harmonized System of Nomenclature (HSN) - Fracture appliance - Articles of plastics - Functional character test for tariff classification

Fracture appliance - Articles of plastics - Functional character test for tariff classification - Classification of 'Cast Protector' as a fracture appliance falling under HSN 9021.10.00 or as an article of plastics under HSN 3926 90 99. - HELD THAT: - The authority examined the product's nature, composition and functional use. Although the Cast Protector is used by persons with orthopaedic casts to keep the cast dry while bathing, it is a reusable waterproof covering made of PVC film, rubber diaphragm and plastic rings and not a pharmaceutical or prosthetic device. Its primary character is that of a covering made of plastic material which can be employed to protect casts, bandages, dressings, wounds, ulcers and similar conditions from water exposure. The authority held that mere use in conjunction with a fracture cast does not convert the article into a fracture appliance within the meaning of heading 9021. The determinative test is the product's character and function: it is principally an article of plastic and therefore classifiable under the residual provision for other plastic articles rather than under the heading for orthopaedic/fracture appliances.

Cast Protector is not a fracture appliance under HSN 9021.10.00 and is classifiable under HSN 3926 90 99 as an other article of plastics.

Final Conclusion: The advance ruling holds that the Cast Protector is not classifiable as a fracture appliance under HSN 9021.10.00 but is classifiable as an article of plastic under HSN 3926 90 99.

Services relating to cultivation of plants and rearing of all life forms of animals - renting or leasing of vacant land with or without a structure incidental to its use - renting in relation to immovable property - exemption under Notification No.12/2017 - Central Tax (Rate)

Services relating to cultivation of plants and rearing of all life forms of animals - renting or leasing of vacant land with or without a structure incidental to its use - renting in relation to immovable property - exemption under Notification No.12/2017 - Central Tax (Rate) - Lease rent charged for use of a water channel for fish farming falls within the exemption at Sl. No.54 of Notification No.12/2017-Central Tax (Rate) dated 28.06.2017. - HELD THAT: - The Authority examined whether the transaction satisfies the conditions of Sl. No.54. The activity involves rearing of animals (fish and crabs), which qualifies as rearing of life forms of animals. The arrangement between the applicant and the Grama Panchayat is renting/lease of immovable property: the allotment letter and agreement show annual lease of the wetland and Para 2(zz) of the notification defines renting in relation to immovable property to include letting, leasing or similar arrangements. The fact that the lease was awarded by auction to determine the highest rent does not alter the nature of the transaction as renting. Applying an inclusive meaning of land (which covers works constructed for use of water such as canals), the water channel is within the ambit of vacant land with or without incidental structure. All conditions of the entry at Sl. No.54 are therefore satisfied and the service falls within the exempted category.

The lease rent charged by the Grama Panchayat for the water channel used for fish farming is covered by the exemption at Sl. No.54 of Notification No.12/2017 and is exempt from GST.

Final Conclusion: The Authority rules that the renting/lease of the Paruthithodu water channel to the applicant for fish/crab rearing for April 2019 to March 2020 is an exempt service under Sl. No.54 of Notification No.12/2017-Central Tax (Rate).

Cancellation of registration under Section 329(2) of the West Bengal Goods & Service Tax Act, 2017 - principles of natural justice - jurisdictional competence of tax authorities - availability of alternative remedy by way of appeal under Sections 30 and 107 of the West Bengal Goods & Service Tax Act, 2017 - maintainability of writ petition in presence of efficacious statutory remedy

Cancellation of registration under Section 329(2) of the West Bengal Goods & Service Tax Act, 2017 - principles of natural justice - jurisdictional competence of tax authorities - Validity of the impugned order cancelling the petitioner's GST registration and whether it was without jurisdiction or violative of the principles of natural justice. - HELD THAT: - The High Court examined the order dated January 3, 2020 issued by the Joint Commissioner cancelling the petitioner's registration under Section 329(2) of the West Bengal GST Act, 2017. The court noted that the petitioner had been granted ample opportunity of hearing prior to the cancellation. On the material before it the court found no ground to hold the impugned order to be without jurisdiction or in violation of the principles of natural justice. Accordingly, the court did not interfere with the administrative action on those grounds.

The cancellation order was not held to be without jurisdiction or violative of natural justice.

Availability of alternative remedy by way of appeal under Sections 30 and 107 of the West Bengal Goods & Service Tax Act, 2017 - maintainability of writ petition in presence of efficacious statutory remedy - Whether the writ petition was maintainable in view of the existence of an alternative statutory remedy. - HELD THAT: - The court observed that the petitioner has an effective alternative remedy available under the statute in the form of appeals provided by Sections 30 and 107 of the West Bengal GST Act, 2017. Having found the availability of that efficacious statutory remedy, the court concluded that exercise of writ jurisdiction was not warranted in the facts of the case and therefore declined to entertain the petition.

The writ petition was dismissed on the basis that an alternative statutory remedy by appeal exists.

Final Conclusion: Writ petition dismissed; the court declined to interfere with the cancellation order, finding no breach of jurisdiction or natural justice, and noting that the petitioner has an effective statutory remedy of appeal under Sections 30 and 107 of the West Bengal GST Act, 2017. No order as to costs.

Attachment of bank account - freezing of bank account as a drastic remedy - requirement of recording reasons in writing before attachment - interim procedural directions and issuance of notice

Summary disposal of interlocutory applications - Applications C.M.Nos.19283/2020 & 19285/2020 disposed of with exemption allowed - HELD THAT: - The Court recorded a short order granting exemption and disposed of the listed applications. The order is administrative and does not contain extended legal reasoning on the merits of the underlying dispute; it simply allows the exemption prayed in those applications and disposes them accordingly.

Exemption allowed and the applications stand disposed of.

Attachment of bank account - freezing of bank account as a drastic remedy - requirement of recording reasons in writing before attachment - interim procedural directions and issuance of notice - Notice issued and procedural directions in writ petition challenging attachment of bank account - HELD THAT: - The petitioner challenged orders attaching its bank account and sought de-freezing, contending that no proceedings under Section 74 had been initiated and that attachment could be resorted to only after recording reasons in writing. The Court did not adjudicate these contentions on merits; instead it issued notice to the respondents, directed filing of counter-affidavits within two weeks with liberty for rejoinder, and listed the matter for further hearing. The Court also directed uploading and circulation of the order.

Notice issued; counter-affidavits to be filed within two weeks, rejoinder if any before next date; matter listed on 21st September, 2020.

Final Conclusion: Interlocutory applications were allowed and disposed of by a brief order; the main writ petition challenging attachment of the petitioner's bank account was not finally adjudicated but issued notice with directions for filing pleadings and listed for further hearing.

Maintainability under Section 157(2) of the Kerala Goods and Services Act, 2017 - quashing of Lok Ayukta complaint - writ of certiorari - mandamus directing expeditious disposal - cognizance and evidence stage of Lok Ayukta proceedings - availability of alternate efficacious remedy

Maintainability under Section 157(2) of the Kerala Goods and Services Act, 2017 - quashing of Lok Ayukta complaint - cognizance and evidence stage of Lok Ayukta proceedings - Whether Exhibit P1 complaint before the Kerala Lok Ayukta could be quashed or declared not maintainable under Section 157(2) of the Kerala Goods and Services Act, 2017. - HELD THAT: - The Court declined to grant a declaration that the complaint was not maintainable or to quash the complaint because the Lok Ayukta had already taken cognizance and the matter was pending at the evidence stage. Given that adjudication of the complaint had progressed to evidence, the writ remedy seeking quashing was not appropriate. The petitioner's contention based on Section 157(2) was therefore not accepted as a ground for quashing the complaint at this stage.

Declaration and writ of certiorari to quash the complaint refused; complaint not quashed.

Mandamus directing expeditious disposal - availability of alternate efficacious remedy - Whether a mandamus should be issued directing the Kerala Lok Ayukta to dispose of Exhibit P1 complaint expeditiously. - HELD THAT: - The Court observed that the complaint, filed in January 2018, was one among several pending matters before the Lok Ayukta and remained at the evidence stage. The Court held that the petitioner had an alternate and efficacious remedy of approaching the Lok Ayukta for early disposal, and therefore issuance of a mandamus by this Court under Article 226 for the relief sought was not warranted. In light of available alternate remedy and the locus of ongoing proceedings, the request for a direction for expeditious disposal was refused.

Prayer for mandamus to direct expeditious disposal refused; petitioner may seek early disposal before the Lok Ayukta.

Final Conclusion: Writ petition dismissed; the application to quash or declare the Lok Ayukta complaint not maintainable was refused as proceedings are at the evidence stage, and no mandamus for expeditious disposal was issued in view of the availability of an alternate efficacious remedy before the Lok Ayukta.

Cancellation of registration under CGST - revocation of cancellation of registration - service of notice by e-mail or on the common portal - opportunity of being heard - Central Goods and Services Tax (Removal of Difficulties) Order, 2020 - extension of time for filing revocation applications

Cancellation of registration under CGST - revocation of cancellation of registration - Central Goods and Services Tax (Removal of Difficulties) Order, 2020 - extension of time for filing revocation applications - Petition challenging cancellation of GST registration dismissed as withdrawn with liberty to seek revocation in terms of the Central Board's Removal of Difficulties Order and the State Government order. - HELD THAT: - The petitioner challenged an order of cancellation of registration. Subsequent to the challenge, the Central Board of Indirect Taxes and Customs issued the Central Goods and Services Tax (Removal of Difficulties) Order, 2020 clarifying that, for cancellations effected up to 12 June 2020 where notice was served by e-mail or made available on the common portal, the later of the date of service or 31 August 2020 shall be treated as the relevant date for calculating the thirty day period for filing applications for revocation of cancellation. The State Government issued a consequential G.O. Accordingly the petitioner filed a memo seeking permission to withdraw the writ petition and liberty to approach the Assessing Authority by the cut off date provided in the Notification for restoration of registration. In that context the Court placed the memo on record and allowed withdrawal of the petition while granting the petitioner liberty to invoke the statutory remedy made available by the Removal of Difficulties Order and the State G.O.

Writ petition dismissed as withdrawn; petitioner granted liberty to apply for revocation of cancellation before the assessing authority in accordance with the Removal of Difficulties Order and the State Government order.

Final Conclusion: The writ petition was dismissed as withdrawn and the petitioner was granted liberty to approach the Assessing Authority for revocation/restoration of registration in conformity with the Central Board's Removal of Difficulties Order, 2020 and the State Government's consequential order; connected petitions closed with no costs.

Cancellation of registration - service of notice by e-mail or on the common portal - revocation of cancellation of registration - thirty day period - removal of difficulties order extending time for revocation and condonation - liberty to approach assessing authority for restoration of registration

Revocation of cancellation of registration - thirty day period - removal of difficulties order extending time for revocation and condonation - service of notice by e-mail or on the common portal - Clarification by the Central Board/central government order that extended the period for filing application for revocation of cancellation of registration shall apply to registrations cancelled up to 12th June, 2020 where notice was served by e-mail or made available on the common portal. - HELD THAT: - The Court recorded and relied upon the Central Board of Indirect Taxes and Customs Order No. 01/2020 dated 25.06.2020 which, in exercise of powers under section 172, clarified that for registered persons who were served notice under the methods specified in the Act (by e-mail or on the common portal) and whose cancellation orders were passed on or before 12.06.2020, the later of the date of service or 31st August 2020 would be treated as the relevant date for calculating the thirty day period for filing an application for revocation. The order was framed as a 'removal of difficulties' measure to address the practical inability of affected taxpayers, under the newly enacted regime, to apply within the originally prescribed time limits. The High Court placed that administrative clarification on record and treated it as operative for the petitioner's case.

The Court accepted and recorded the applicability of the Central Government/CBIC removal of difficulties order extending the effective period for filing revocation applications in the circumstances stated.

Liberty to approach assessing authority for restoration of registration - cancellation of registration - Petition dismissed as withdrawn and petitioner granted liberty to approach the Assessing Authority for restoration of registration within the cut-off date provided in the CBIC order. - HELD THAT: - In view of the administrative clarification and the consequential State Government order, the petitioner sought leave to withdraw the writ petition and to be permitted to make an application for revocation of cancellation before the Assessing Authority within the extended period. The Court placed the petitioner's email seeking withdrawal on record, allowed the withdrawal, and expressly granted liberty to approach the Assessing Authority in accordance with the timeline set out in the removal of difficulties Order.

Writ petition dismissed as withdrawn and petitioner given liberty to approach the Assessing Authority for restoration of registration within the period specified in the administrative order; connected matters closed.

Final Conclusion: The High Court recorded and gave effect to the Central Government/CBIC removal of difficulties order extending the effective period for filing revocation applications where notice was served by e mail or made available on the common portal (for cancellations up to 12.06.2020), allowed the petitioner to withdraw the writ, and granted liberty to approach the Assessing Authority within the extended time; petition dismissed as withdrawn and connected petitions closed.

Detention of goods in transit under Section 129 - requirement of particulars in FORM GST EWB-01 - documents to be carried during transit under Rule 138A - distinction between tax invoice and e-way bill for assessment

Detention of goods in transit under Section 129 - requirement of particulars in FORM GST EWB-01 - documents to be carried during transit under Rule 138A - Whether detention of the consignment was justified because the e-way bill did not separately mention the tax amount. - HELD THAT: - The Court held that power to detain under Section 129 is available only where transportation is in contravention of the Act or Rules and not merely because a document relevant for assessment omits tax particulars. Rule 138A prescribes the documents to be carried during transit (invoice or bill of supply or delivery challan and the e-way bill in FORM GST EWB-01 or its number). The prescribed FORM GST EWB-01 contains no field requiring separate entry of the tax amount payable; therefore non-mentioning of tax in the e-way bill cannot be treated as a contravention of the Rules. Where, as in this case, the transportation was accompanied by a valid tax invoice showing tax paid and an e-way bill in the prescribed format, there was no breach of provisions warranting detention under Section 129. The respondents' contention equating the e-way bill with a tax invoice for the purpose of requiring tax particulars in the e-way bill was rejected. [Paras 4]

Detention was unjustified; detention notices quashed and goods to be released on production of this judgment.

Final Conclusion: Writ petition allowed: Ext.P4 series of detention notices quashed and respondents directed to release the goods forthwith on production of a copy of the judgment; respondents to communicate the directions to enable expeditious clearance.

Detention of goods under Section 129 of the GST Act - prima facie justification for detention - release of detained goods on bank guarantee pending adjudication - adjudication under Section 130 of the GST Act - directions for expeditious adjudication

Detention of goods under Section 129 of the GST Act - prima facie justification for detention - Detention of the vehicle and goods was not shown to be unjustified on a prima facie consideration of the detention notice. - HELD THAT: - The Court examined the detention notice (Ext.P4) and noted that the grounds recorded were that the goods found on inspection differed from those described in the invoice and transport documents. On a prima facie appraisal of the reasons furnished in Ext.P4, the Court concluded that the detention could not be characterised as unjustified and therefore did not interfere with the detention on merits at the interlocutory stage. [Paras 1]

The detention stands sustained on prima facie consideration and is not quashed.

Release of detained goods on bank guarantee pending adjudication - adjudication under Section 130 of the GST Act - directions for expeditious adjudication - Petitioner permitted to clear the goods and vehicle on furnishing a bank guarantee; files to be forwarded for adjudication which must be completed after hearing the petitioner within one month. - HELD THAT: - Although the detention was prima facie sustained, the Court accepted the petitioner's request to clear the goods on condition of furnishing a bank guarantee to cover the amounts demanded in Ext.P4. The Court directed the first respondent to allow clearance on that condition and to forward the files to the adjudicating authority. The adjudication under Section 130 of the GST Act must be completed only after affording the petitioner a hearing and within one month from the date the files are forwarded to the adjudicating authority. The petitioner was directed to produce a copy of the judgment and the writ petition to the first respondent to facilitate further action. [Paras 2]

Goods and vehicle to be released on furnishing a bank guarantee; adjudication by the competent authority to be completed after hearing the petitioner within one month of forwarding the files.

Final Conclusion: Writ petition disposed by permitting release of detained goods and vehicle on furnishing a bank guarantee; detention not quashed on prima facie grounds; adjudication under Section 130 to be completed after hearing the petitioner within one month of forwarding the files.

Income Tax Settlement Commission order u/s 245D(4) - undisclosed foreign income and assets - whether the Settlement Commission lacked the jurisdiction to decide the applications under section 245C? - HELD THAT:- The counter affidavit be filed within a period of four weeks from today. Rejoinder affidavit be filed within a period of four weeks from the date of service of the counter affidavit on the petitioners.

Counsel for the parties have agreed that the petition can be disposed of at this stage. In order to facilitate the Court in doing so, counsel shall file notes of their written submissions at least two weeks before the next date of listing.

List the Special Leave Petition after eight weeks.

Comparability of companies for transfer pricing - use of financial year data for comparables - working capital adjustment in transfer pricing - risk adjustment in transfer pricing - exclusion of comparables based on turnover disparity - applicability of Section 14A read with Rule 8D where no exempt income is earned

Comparability of companies for transfer pricing - use of financial year data for comparables - Inclusion of comparables with different financial year-ends and direction to obtain/examine comparable data for the assessee's financial year. - HELD THAT: - The Tribunal's direction to furnish and consider data for the assessee's financial year (1 April to 31 March) for companies having different year-ends was sustained. The High Court found that the Tribunal applied the precedent in R R Donnelley India Outsource Private Limited and similar authorities and that the direction to remand for obtaining and verifying comparable data for the relevant financial year was legally permissible. The Court held that if results can reasonably be extrapolated from available data that is a matter for verification, but the Tribunal's approach to seek data for the assessee's financial year and remit for verification did not suffer from legal infirmity. Accordingly, no interference was warranted with the Tribunal's order on this aspect. [Paras 10, 11]

Tribunal's direction to furnish and consider comparable data for the assessee's financial year is upheld; order affirmed.

Risk adjustment in transfer pricing - Grant of 2% risk adjustment on an adhoc basis by the Tribunal. - HELD THAT: - The Tribunal directed a 2% risk adjustment on an adhoc basis relying on its view of the assessee's limited-risk, captive-service profile vis-a -vis independent comparables and precedent in M/s.KOB Medical Textiles Pvt. Ltd. The High Court treated the matter as essentially factual and noted that the determination of risk and its quantification involves factual appreciation which does not raise a substantial question of law. Consequently, the Tribunal's factual conclusion to grant an adhoc 2% adjustment was not interfered with by the Court. [Paras 15, 16]

Finding of the Tribunal granting 2% risk adjustment on adhoc basis is not interfered with; no substantial question of law arises.

Working capital adjustment in transfer pricing - Remand to rework working capital adjustment and verification of advances/deposits/recoverables. - HELD THAT: - The Tribunal remitted the matter to the Assessing Officer/TPO to rework the working capital adjustment after considering the value of advances, deposits recoverable and related factors; the High Court held this to be a primarily factual exercise and declined to entertain it as a substantial question of law. The Court emphasised that an appellate jurisdiction under Section 260A is limited and will not permit reappraisal of factual findings of the Tribunal. Accordingly, the remand for fresh factual verification and re-computation of working capital adjustment was affirmed. [Paras 2, 13]

Remand to the Assessing Officer/TPO to rework and verify working capital adjustment is affirmed; matter left for factual determination.

Exclusion of comparables based on turnover disparity - Exclusion of certain large-turnover comparables (notably Infosys BPO Ltd and Cosmic Global Ltd) from the comparable set. - HELD THAT: - The Tribunal excluded Infosys BPO Ltd and Cosmic Global Ltd from the list of comparables; the High Court examined the point and observed that comparables with disproportionately larger turnover and differing commercial profile (brand value, scale, independent risks) cannot properly be treated as comparable to a captive, limited risk service provider. The Court noted supporting High Court and Tribunal authorities and that the Revenue had not pursued the assessee's earlier decision in the related assessment year as a substantial question of law in a pending appeal. On these bases the Tribunal's exclusion of those companies was held to be proper and affirmed. [Paras 2, 7, 12]

Exclusion of the identified large-turnover companies from comparables is upheld; Tribunal's direction confirmed.

Applicability of Section 14A read with Rule 8D where no exempt income is earned - Deletion of disallowance under Section 14A where no exempt income was earned in the relevant year. - HELD THAT: - Relying on the Division Bench decision in Commissioner of Income Tax Vs. Chettinad Logistics Pvt. Ltd., which was affirmed by the Supreme Court on delay and merits, the Tribunal held and the High Court confirmed that Section 14A (and Rule 8D) disallowance is not applicable where no exempt income was earned in the relevant assessment year. The High Court found this principle applicable to the assessee's facts and answered the substantial question against the Revenue. [Paras 2, 17]

Disallowance under Section 14A deleted where no exempt income was earned; Tribunal's order affirmed.

Final Conclusion: The appeal is dismissed. The Tribunal's directions to exclude specified large-turnover comparables and to remit for obtaining comparable-year data are affirmed; the remand for reworking working capital adjustment and the adhoc 2% risk adjustment are treated as factual determinations and not interference-worthy; deletion of Section 14A disallowance (no exempt income) is affirmed.

Revision under Section 263 - Erroneous order prejudicial to the revenue - Deduction under Section 80IB(10) - Application of income for charitable purposes - Section 13(8) retrospective effect - Lack of enquiry versus inadequate enquiry

Revision under Section 263 - Erroneous order prejudicial to the revenue - Lack of enquiry versus inadequate enquiry - Whether the Commissioner was justified in invoking revisional jurisdiction under Section 263 by treating the Assessing Officer's order as erroneous and prejudicial to the revenue where the Assessing Officer had not made any enquiry regarding the claim under Section 80IB(10). - HELD THAT: - The Court explained that two concomitant conditions must be satisfied for exercise of Section 263: the order of the Assessing Officer must be erroneous and such error must be prejudicial to the interests of the revenue. The Court applied the settled principle that not every loss of revenue or difference of opinion permits revision; where two reasonable views are possible the Assessing Officer's view cannot be treated as erroneous. On the facts, the Assessing Officer's assessment record showed no enquiry into the claim under Section 80IB(10). The Director (DIT) treated the AO's failure as an erroneous order prejudicial to revenue and invoked Section 263. The Tribunal itself recorded that enquiries ought to have been made and that failure rendered the AO's order erroneous and prejudicial. The Court therefore sustained the proposition that lack of enquiry can render an order erroneous and prejudicial, distinguishing inadequate enquiry as a different concept and noting the Tribunal erred in misapplying precedent that dealt with different factual circumstances. [Paras 6, 7, 10, 11]

The Court upheld that the Assessing Officer's failure to make requisite enquiries could render the order erroneous and prejudicial to revenue, thereby justifying invocation of Section 263 in principle, whilst distinguishing lack of enquiry from inadequate enquiry.

Deduction under Section 80IB(10) - Section 13(8) retrospective effect - Application of income for charitable purposes - Whether the Tribunal was correct in setting aside the revisional order under Section 263 by examining the merits (including application of Section 13(8)) instead of restricting itself to the question whether the Commissioner was justified in invoking Section 263, and what order should follow. - HELD THAT: - The Court held that the Tribunal, having recorded that the AO's order was erroneous and prejudicial (and that the AO ought to have examined the claim in light of Section 11), ought not to have proceeded to decide the merits by applying Section 13(8). The merits of the claim for deduction under Section 80IB(10) were not the subject-matter of the limited appellate challenge before the Tribunal; by traversing beyond that scope and accepting the retrospective effect of Section 13(8) to decide the claim on merits the Tribunal exceeded its remit. Consequently the Tribunal's order setting aside the DIT's revision on the ground of Section 13(8) was quashed. The Court did not express any opinion on the correctness of the assessee's claim for deduction under Section 80IB(10) and directed that the Assessing Officer consider the claim afresh in accordance with law after making necessary enquiries and affording opportunity to the assessee. [Paras 11, 12]

The Tribunal erred in deciding the merits by applying Section 13(8); the Tribunal's order is quashed and the matter is remitted to the Assessing Officer to decide the claim under Section 80IB(10) afresh in accordance with law.

Final Conclusion: Substantial questions answered in favour of the revenue; the Tribunal's order is quashed for having traversed beyond its scope by deciding merits under Section 13(8); the DIT's direction to disallow the Section 80IB(10) deduction is quashed insofar as it directed disallowance, and the Assessing Officer is directed to re-examine the assessee's claim afresh in accordance with law after making appropriate enquiries and affording opportunity to the assessee.

Equalisation Levy - Permanent Establishment - Exception to Equalisation Levy for income effectively connected to an Indian PE - Binding effect of Authority for Advance Rulings - Double taxation - Refund with statutory interest - Penalty for non-payment of tax

Equalisation Levy - Permanent Establishment - Exception to Equalisation Levy for income effectively connected to an Indian PE - Binding effect of Authority for Advance Rulings - Penalty for non-payment of tax - Refund with statutory interest - Respondent No.3 is bound by the averments in its reply-affidavit that it will not collect Equalisation Levy in respect of income which is effectively connected to an Indian permanent establishment and will not seek Equalisation Levy where income-tax has been paid, and that the question of imposing penalty for non-payment of Equalisation Levy during the pendency of the writ petition is premature. - HELD THAT: - The petitioner sought a stay of payment of the Equalisation Levy. In its reply-affidavit respondent No.3 stated that the applicant is not liable to pay Equalisation Levy in respect of income effectively connected to a PE in India, that Section 165A(2) provides an exception for entities with a PE, and that respondent No.3 does not seek to collect Equalisation Levy for income on which income-tax has been paid by the applicant during the pendency of the writ petition. The petitioner then declined to press the application, requesting only that the respondent's stand be recorded. The Court accepted and recorded the respondent's averments and held respondent No.3 bound by them. The Court also observed that the respondent, being bound by the AAR ruling and its own affidavit, was not seeking Equalisation Levy during the pendency of the petition, making any claim of future penalty for non-payment premature. Consequently, the application for stay was disposed of on the basis that respondent No.3's stated position is binding on it.

Averments in respondent No.3's reply-affidavit are accepted and respondent No.3 is held bound by them; the application stands disposed of accordingly.

Final Conclusion: The Court recorded and accepted respondent No.3's stand that it will not collect Equalisation Levy in respect of income effectively connected to an Indian PE or where income-tax has been paid, held respondent No.3 bound by those averments, and disposed of the stay application on that basis.

Fee for Technical Services - Section 44BB - income from prospecting, extraction or production of mineral oils - Explanation to Section 9(1)(vii) - "for a project undertaken by the recipient" - Interaction of special taxation provisions with general provisions - Clarificatory proviso and its retrospective application

Fee for Technical Services - Section 44BB - income from prospecting, extraction or production of mineral oils - Characterisation of amounts received for seismic survey services and alleged reimbursements - whether taxable as Fee for Technical Services or covered by the special regime under Section 44BB. - HELD THAT: - The High Court observed that the substantial questions of law raised had already been answered by the Hon'ble Supreme Court in ONGC v. CIT, 376 ITR 306 (Supreme Court), which was followed. On that authority the Court endorsed the conclusion favourable to the assessee that revenues from conduct of seismic surveys fell within the special scheme for prospecting etc. of mineral oils and were not taxable as Fee for Technical Services under the general provision. Both parties accepted that the Supreme Court decision disposed the contested legal points, and the High Court therefore answered the question in favour of the assessee by applying the precedent. [Paras 2, 3]

Amounts received for seismic survey services were held not to be FTS and to fall under the special regime of Section 44BB; question answered in favour of the assessee following the Supreme Court decision.

Explanation to Section 9(1)(vii) - "for a project undertaken by the recipient" - Interaction of special taxation provisions with general provisions - Clarificatory proviso and its retrospective application - Whether the exclusion in the Explanation to Section 9(1)(vii), the interplay between special provisions (Sections 44DA/115A) and general provisions, and the character of the proviso to Section 44DA required a different result than that in ONGC. - HELD THAT: - The Court noted that the raised contentions concerning the second limb of the Explanation, the scope and priority of special provisions (Sections 44DA/115A) vis-a -vis general provisions, and the nature and retrospective effect of the proviso had been authoritatively considered and resolved by the Supreme Court in ONGC v. CIT. As both parties accepted that the Supreme Court's ratio was dispositive, the High Court declined to re-adjudicate those points and applied the Supreme Court's conclusions, thereby answering the substantial questions of law in favour of the assessee. [Paras 2, 3]

Questions regarding the Explanation to Section 9(1)(vii), the relation between special and general taxation provisions, and the clarificatory proviso were resolved by following the Supreme Court precedent; answered in favour of the assessee.

Final Conclusion: Appeal disposed of; substantial questions of law answered in favour of the assessee and against the revenue by following the decision of the Hon'ble Supreme Court in ONGC v. CIT (376 ITR 306).

Valuation of closing stock under Section 145A - Accrual of excise duty liability on removal of goods - Excise duty liability arising on manufacture versus on removal - State excise provision requiring duty payment or bond as condition precedent to removal - Precedent in Polyset Corporation and Wallace Flour Mills on crystallisation of excise liability

Valuation of closing stock under Section 145A - Accrual of excise duty liability on removal of goods - Excise duty liability arising on manufacture versus on removal - Whether excise duty payable in respect of finished goods held as closing stock must be included in closing stock valuation on the ground that liability to pay excise duty accrues on manufacture or only on removal - HELD THAT: - The Court examined whether the liability to pay excise duty for liquor manufactured but not removed arises immediately on manufacture or only when the goods are removed from the manufacturer's premises. Reliance was placed on the statutory scheme embodied in the State excise provision reproduced in the judgment which conditions removal on payment of duty or execution of a bond. The Court held that liability to pay excise duty arises on removal of the goods and does not crystallise merely by manufacture. This conclusion aligns with the reasoning in the Supreme Court decisions cited in the judgment (including Polyset Corporation and Wallace Flour Mills) and subsequent high court and Supreme Court authorities which were found to support the proposition that excise duty accrues on clearance/removal and not at the instant of manufacture. Applying that legal position to Section 145A valuation, the Court accepted the Tribunal's conclusion that excise duty payable on goods manufactured but not removed need not be included in the value of finished goods shown as closing stock.

Liability to pay excise duty arises on removal of goods and not on manufacture; therefore excise duty need not be included in the valuation of closing stock of finished goods under Section 145A.

Final Conclusion: The substantial question of law admitted is answered against the revenue and in favour of the assessee; the appeal is dismissed.

Stay of recovery of tax demand - deposit as condition for suspension of recovery pending appeal - judicial interference with terms of administrative stay - extension of time for compliance with conditional stay

Stay of recovery of tax demand - deposit as condition for suspension of recovery pending appeal - judicial interference with terms of administrative stay - extension of time for compliance with conditional stay - Challenge to the order granting stay of recovery subject to deposit of 20% of the assessed tax and the timetable for payment. - HELD THAT: - The Court noted the assessment order dated 31.12.2019 and the stay order dated 14.02.2020 which granted suspension of recovery on condition that the petitioner deposit 20% of the tax demand. Having regard to the petitioner's pleaded financial difficulties and the fact that only 20% was required to be deposited by the 1st respondent, the Court declined to disturb the quantum of the conditional deposit fixed by the 1st respondent. Exercising supervisory jurisdiction, the Court was nevertheless willing to afford additional time for compliance and accordingly extended the period for payment by four weeks and prescribed a payment schedule (initial payment by 31.03.2020 and the balance in three equal monthly installments by 30.06.2020). The Court further directed that failure to make any of the stipulated payments would vacate the stay, and that compliance with the schedule would operate to continue the stay of recovery until disposal of the appeal before the CIT (Appeals). [Paras 6, 7, 8]

The writ petition is disposed by refusing to interfere with the 20% deposit condition but granting an extension of four weeks and directing a specific payment schedule; default will vacate the stay, and compliance will preserve the stay until disposal of the appeal.

Final Conclusion: Writ petition disposed by upholding the conditional stay subject to the 20% deposit fixed by the authority, granting four weeks' additional time and a phased payment schedule; stay to continue till disposal of the appeal if payments are made as directed, otherwise the stay will stand vacated.

Unexplained investment in stock and spares - application of section 69A - capitalisation of stores and spares - books of account reflecting true state of affairs - bank stock statements versus books of account - onus on assessee to reconcile discrepancies

Unexplained investment in stock and spares - application of section 69A - capitalisation of stores and spares - bank stock statements versus books of account - books of account reflecting true state of affairs - Whether the addition made as unexplained investment in stock and spares under section 69A is sustainable where the value of stores and spares shown to the bank has been capitalised in the assessee's books as plant and machinery. - HELD THAT: - The Tribunal examined whether the discrepancy relied upon by the Assessing Officer arose from undisclosed investment or from accounting treatment. The Assessing Officer based the addition on a difference between the stock statement provided to the bank and the closing stock in the books. The Tribunal noted that no defect in the books of account was pointed out and the Revenue did not contend that purchases had been omitted or that excess stock existed outside books. The material on record, including financial statements, showed that the value of stores and spares had been capitalised under 'Plant and Machinery' in the books; accordingly such items would not appear in the closing stock figure. In these circumstances there was no evidence of unexplained investment outside the accounts and the provisions of section 69A were not attracted. The Tribunal thus accepted the assessee's explanation that the difference was due to accounting treatment and not to nondisclosure of investment. [Paras 13, 14, 15, 16]

The addition under section 69A treated as unexplained investment in stock and spares is deleted and the appeal is allowed.

Final Conclusion: The Tribunal held that the difference between stock shown to the bank and closing stock in books resulted from capitalisation of stores and spares in the books and not from unexplained investment; the addition under section 69A was deleted and the assessee's appeal allowed.

Deductibility of actual payment to Group Gratuity Scheme as business expenditure under Section 37(1) - Inapplicability of Section 40A(7) to actual payments made to an external Group Gratuity Scheme maintained by LIC - Revisionary jurisdiction under Section 263 - scope and correctness of exercise

Revisionary jurisdiction under Section 263 - scope and correctness of exercise - Whether the Principal Commissioner of Income Tax was justified in invoking revisional powers under Section 263 to direct disallowance of contribution to gratuity fund. - HELD THAT: - The Tribunal examined the assessment record and material produced before the Assessing Officer, including the trust deed, the collaboration/insurance agreement with LIC and evidence of actual premium payment and renewal. It found that the AO had allowed the claim as business expenditure after perusal of documents and that the contribution was an actual premium paid into a Group Gratuity Scheme maintained by LIC. Relying on consistent decisions of coordinate benches which treat actual payments to LIC group gratuity schemes as deductible under Section 37(1), the Tribunal held that the AO's order was not erroneous or prejudicial to the revenue. Consequently, the revisional direction of the Pr. CIT to disallow the payment was unjustified and amounted to an improper exercise of Section 263. [Paras 8]

Order passed by the Pr. CIT under Section 263 quashed and the direction to disallow the gratuity contribution set aside.

Deductibility of actual payment to Group Gratuity Scheme as business expenditure under Section 37(1) - Inapplicability of Section 40A(7) to actual payments made to an external Group Gratuity Scheme maintained by LIC - Whether contribution/premium paid to the LIC Group Gratuity Scheme during the year is allowable as a deduction (actual payment) despite non-approval of the fund. - HELD THAT: - On the facts, the assessee paid the premium to LIC under a Group Gratuity arrangement and produced the agreement, demand letter and cheque evidencing payment and renewal. The Tribunal followed authoritative coordinate-bench decisions treating payments made to LIC's group gratuity schemes as actual expenditure allowable under Section 37(1) even where the fund lacks formal approval, observing that Section 40A(7) applies to provisions made for gratuity (not to bona fide actual payments made to an external approved scheme like LIC). Given the absence of double claims or mere provisions and the existence of documentary proof of payment into LIC's group scheme, the payment was held deductible as business expenditure. [Paras 7, 8]

Contribution/premium paid to the LIC Group Gratuity Scheme held to be allowable as deduction under Section 37(1); disallowance under Section 40A(7) not sustainable.

Final Conclusion: The Tribunal allowed the assessee's appeal: the contribution paid to the LIC Group Gratuity Scheme for AY 2014-2015 was held to be an actual business expenditure deductible under Section 37(1), Section 40A(7) was not attracted, and the Pr. CIT's revisional order under Section 263 directing disallowance was quashed.

Bogus purchases - accommodation entries - profit element embedded in purchases - estimation of gross profit rate - onus of proof on the assessee - reopening of assessment

Bogus purchases - accommodation entries - onus of proof on the assessee - profit element embedded in purchases - Whether, where purchases are alleged to be made from hawala/accommodation parties, the entire purchase amount can be added back to income or only the profit element embedded in such purchases is taxable. - HELD THAT: - The Tribunal found that the assessing officer relied on information from investigation agencies and the Sales Tax Department to treat certain purchases as bogus, and the assessee produced books, purchase bills, ledgers and bank statements but did not conclusively discharge the onus to prove genuineness. The AO, however, did not pursue enquiries to a logical conclusion nor disputed the sales declared by the assessee. Having regard to the authorities cited and the circumstances of the case, the Tribunal held that when sales are not disputed and there is scope that purchases were effected albeit through different sources, the entire purchase price need not be added; instead only the profit element embedded in such purchases can be brought to tax. The Tribunal applied the established principle that no uniform yardstick can be mechanically adopted and estimation must depend on facts of each case, and therefore rejected the AO's approach of adding entire purchases but accepted taxation of the profit element. [Paras 5, 6]

Only the profit element embedded in the alleged bogus purchases is taxable; the entire purchase amount is not to be added.

Estimation of gross profit rate - profit element embedded in purchases - What gross profit rate should be applied for estimating the taxable profit element from the alleged bogus purchases in the facts of this case. - HELD THAT: - The AO and the Commissioner (Appeals) had applied a uniform rate of 40.50% gross profit without adducing comparable evidence to justify that rate for the assessee's manufacturing business. The Tribunal noted that coordinate benches have in similar factual matrices directed adoption of a lower rate and that the rate must reflect the nature of the assessee's business and available material. Concluding that the rate adopted by the authorities was on the higher side and unsupported by evidence, the Tribunal exercised its remedial discretion to fix a fair rate for the purpose of assessment and directed the assessing officer to estimate the income from the alleged bogus purchases at a gross profit rate of 12.50%. The direction is for computation of tax consequences by applying this rate. [Paras 6, 7]

The AO is directed to estimate the taxable profit element on the alleged bogus purchases at 12.50% gross profit.

Final Conclusion: Appeal partly allowed: the addition cannot be made for the entire purchase amounts; only the profit element is taxable and the AO is directed to compute income from the alleged bogus purchases by applying a gross profit rate of 12.50% for Assessment Year 2009-10.

Condonation of delay for sufficient cause - reasonable cause (ill health) as ground for condonation - power to condone delay to secure substantial justice - obligation of appellate authority to decide on merits rather than dismiss for non appearance - remand for fresh hearing to afford opportunity to be heard

Condonation of delay for sufficient cause - reasonable cause (ill health) as ground for condonation - power to condone delay to secure substantial justice - Whether the delay of 68 days in filing the appeal before the Tribunal should be condoned. - HELD THAT: - The Tribunal applied the statutory test of "sufficient cause" and the judicial exposition that "reasonable cause" includes illness of the aggrieved person or his representative. The assessee produced an affidavit and medical evidence that the assessee's father, who handled tax matters, was hospitalised and therefore the appeal could not be filed within time; the filing was effected immediately after recovery, resulting in a delay of 68 days. The Tribunal held that such illness amounted to a reasonable and sufficient cause, invoking the principle that powers to condone delay exist to secure substantial justice and that every day of delay must be explained. The Tribunal relied on established authorities stressing that nondeliberate delay does not bar relief and that refusal to condone would foreclose a suitor from presenting his cause. On these findings the Tribunal concluded that the delay be condoned and admitted the appeal for hearing. [Paras 5]

Delay of 68 days in filing the appeal is condoned and the appeal is admitted for hearing.

Obligation of appellate authority to decide on merits rather than dismiss for non appearance - remand for fresh hearing to afford opportunity to be heard - Whether the matter should be remitted to the Commissioner (Appeals) for fresh hearing in view of dismissal behind the assessee's back. - HELD THAT: - The Tribunal noted that although the Commissioner (Appeals) recorded discussion on merits, the appeal had been disposed of for non appearance without confronting the assessee with the AO's reasons. The Tribunal emphasised the duty of the appellate authority to decide appeals on available material when an assessee cannot attend, rather than to dismiss on technical grounds; where the assessee was not heard, the Tribunal found it appropriate to remit the matter so that the assessee may be given an opportunity to advance arguments and produce evidence. The Tribunal therefore set aside the CIT(A)'s order and directed that the assessee shall appear before CIT(A) and file necessary evidence, warning that unwarranted adjournments may justify disposal in accordance with law. [Paras 6]

Order of the CIT(A) is set aside and the matter is remitted to the file of the CIT(A) for fresh hearing and decision in accordance with law.

Final Conclusion: The Tribunal condoned the delay of 68 days in filing the appeal and admitted the appeal for hearing; it set aside the CIT(A)'s order and remitted the matter to the CIT(A) for fresh hearing and decision in accordance with law.

Deemed dividend - reimbursement of business expenditure - personal expenses met by company - allowability of expenditure in the hands of the company

Deemed dividend - reimbursement of business expenditure - Whether the payment of the assessee's credit card bill by the company constituted a deemed dividend under the provisions relied upon by the Assessing Officer or was a reimbursement of business expenditure not taxable in the hands of the assessee. - HELD THAT: - The Assessing Officer treated the sum paid by the company towards the assessee's Citibank credit card as an advance/benefit attracting the concept of deemed dividend and added it to the assessee's income. The assessee explained that most credit card charges were paid by him and only certain items were paid by the company as reimbursements for expenses incurred for and on behalf of the company (including renewal of a business membership, provision of a device for official use, and international roaming for business travel). The Commissioner (Appeals) agreed that the provision relied upon was not applicable but treated the payments as personal expenses of the assessee met by the company and sustained the addition. On review, the Tribunal found that the payments were reimbursements and that the provisions invoked by the Assessing Officer were not attracted. The Tribunal further noted that the disputed expenditure was not claimed by the assessee in computing his income and had been booked and allowed as business expenditure in the hands of the company; consequently the addition could not be sustained and was deleted. [Paras 3, 4, 5]

Addition held not sustainable; payment treated as reimbursement of business expenditure and not as deemed dividend or taxable personal income of the assessee.

Final Conclusion: Appeal allowed; impugned addition of Rs. 1.21 lakhs deleted on the conclusion that the payment by the company was a reimbursement of business expenses and not a deemed dividend or personal income of the assessee.

Deemed dividend - double taxation - application of judicial precedent - remand for factual verification and fresh adjudication - principles of natural justice

Deemed dividend - double taxation - application of judicial precedent - remand for factual verification and fresh adjudication - principles of natural justice - Whether the addition of deemed dividend should be sustained or the matter should be restored to the Assessing Officer for reconsideration in light of the jurisdictional High Court decision and to avoid double taxation. - HELD THAT: - The assessee, a 50% shareholder and director, was assessed to deemed dividend following survey findings; earlier assessment years had already brought certain amounts to tax as deemed dividend. The assessee relied on the jurisdictional High Court decision in Commissioner of Income Tax v. P. K. Badiani and contended that sustaining the additions would result in double taxation; that decision was not placed before the Assessing Officer. The Assessing Representative sought restoration to enable the AO to examine and apply the High Court ruling. The Departmental Representative conceded the restoration. The Tribunal, after hearing both sides, concluded that the applicability of the High Court's principles to the assessee's account requires factual verification by the Assessing Officer. Finding that double taxation is not warranted under the spirit of the statute and that the AO must consider the precedent and the assessee's factual matrix afresh in compliance with natural justice, the Tribunal set aside the order of the CIT(A) and remanded the matter to the Assessing Officer for adjudication in accordance with the cited authority and with opportunity to the parties. [Paras 4, 5]

Order of the CIT(A) set aside; matter restored to the file of the Assessing Officer to consider the High Court judgment and adjudicate the issue after factual verification and in compliance with principles of natural justice; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the appellate order and remitted the issue of deemed dividend to the Assessing Officer for fresh consideration in the light of the jurisdictional High Court decision, to avoid double taxation and after affording the parties opportunity under the principles of natural justice; appeal disposed of for statistical purposes.

Voluntary admission of income - assessment sustained on assessee's admission - penalty under section 271(1)(c) of the Act - burden on assessing officer to record satisfaction that explanation is false before levy of penalty - corroboration by banking transactions and third party confirmations

Voluntary admission of income - assessment sustained on assessee's admission - Validity of the addition of the voluntarily admitted agricultural income of Rs.10 lakhs in the assessment. - HELD THAT: - The Tribunal noted that the assessee (an HUF) had itself admitted additional income of Rs.10 lakhs by letter dated 04.12.2018. The Assessing Officer rejected the agricultural income claim for want of details and completed the assessment, and the assessee thereafter communicated willingness to offer the additional income. The Tribunal treated the admission as decisive and held that the assessment made by the AO and sustained by the CIT(A) was on sound footing, requiring no interference with the addition. [Paras 4]

The addition of the voluntarily admitted income is sustained and the corresponding grounds are dismissed.

Penalty under section 271(1)(c) of the Act - burden on assessing officer to record satisfaction that explanation is false before levy of penalty - corroboration by banking transactions and third party confirmations - Sustainability of penalty levied under section 271(1)(c) where the assessee furnished confirmations, village officer certificates and bank transaction evidence and where AO did not record a finding that the explanation was false. - HELD THAT: - The Tribunal recorded that during penalty proceedings the assessee furnished confirmation letters from purchasers, certificates from the Village Administrative Officer establishing ownership and existence of casurina plants, and explained that sale receipts were routed through bank accounts. The AO had issued summons to the purchaser and had compelled the assessee to appear under section 131, after which the assessee agreed to admit additional income on condition of no penalty; when penalty was nonetheless initiated the assessee proffered the documentary explanation. The Tribunal emphasised that penalty proceedings are separate and that before levying penalty the AO must record satisfaction that the explanation is false. As no such finding was recorded by the AO, and since the assessee prima facie placed relevant material and explanation, the Tribunal held the penalty to be unsustainable and deleted it. [Paras 6]

Penalty imposed under section 271(1)(c) is deleted and the corresponding grounds are allowed.

Final Conclusion: The appeal against the assessment addition (voluntary admission of income) is dismissed; the appeal against the penalty under section 271(1)(c) is allowed and the penalty is deleted.

Reopening of assessment beyond four years - failure to disclose fully and truly all material facts - reason to believe under section 147 - change of opinion - taxability of lapsed liability - taxability on termination of dealership agreement

Reopening of assessment beyond four years - failure to disclose fully and truly all material facts - reason to believe under section 147 - change of opinion - Validity of reopening assessment for AY 2009-2010 by issuance of notice under section 148/147. - HELD THAT: - The Tribunal held that reopening after the four-year period required establishment that income had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts. The Assessing Officer's reasons did not identify any particular material fact withheld by the assessee; the record showed that the issue of freezer deposits was considered and dealt with in the original scrutiny assessment completed under section 143(3). The reassessment thus proceeded on a different view of taxability (taxing all lapsed deposits as of 31.03.2006) compared to the approach adopted in the original assessment (proportionate taxation over four years), which amounted to a mere change of opinion. Relying on precedents emphasising that section 147 cannot be used as a tool for review, the Tribunal concluded the precondition for reopening beyond four years was not satisfied and quashed the reassessment order. [Paras 7]

Reopening of assessment for AY 2009-2010 is invalid and the reassessment order is quashed.

Taxability of lapsed liability - taxability on termination of dealership agreement - Whether lapsed freezer security deposits could be treated as income in AY 2009-2010. - HELD THAT: - On the merits, the Tribunal followed its earlier orders in the assessee's own case holding that freezer security deposits become taxable only in the year in which the dealership agreement is terminated and the recovery is made. The Tribunal noted that the Revenue's appeals against those earlier Tribunal orders had not resulted in reversal by the High Court and that pending appeals did not justify taking a different view. Applying that consistent precedent to the facts, the Tribunal held the deposits were not taxable in AY 2009-2010 unless and until the agreements terminated and the amounts were realised and offered to tax in that year. [Paras 7]

Lapsed freezer deposits are taxable only in the year of termination of the dealership agreement; they are not chargeable to tax in AY 2009-2010 on the facts before the Tribunal.

Final Conclusion: The Revenue's appeal is dismissed: the reassessment for AY 2009-2010 is quashed for lack of requisite non-disclosure of material facts and, on merits, freezer security deposits are taxable only in the year of termination of the dealership agreement.