TaxTMI Updates e-Newsletter
Aug 23,2019

Classification of goods - static converter versus electric accumulator - HSN Explanatory Notes - essential character rule (General Rules of Interpretation, Rule 3(b)) - trade/common parlance theory - persuasive value of technical expert opinion and prior decisions - GST tariff notifications as corroborative of classification

Classification of goods - static converter versus electric accumulator - HSN Explanatory Notes - Power Bank traded by the appellant is classifiable under Chapter Heading 85.07 as an electrical accumulator and not under Chapter Heading 85.04 as a static converter. - HELD THAT: - The Appellate Authority examined the functional architecture of the product and the HSN Explanatory Notes applicable to headings 85.04 and 85.07. The Explanatory Notes show that static converters are characterised by conversion of electrical energy (one-way flow) without storage, whereas accumulators are characterised by reversible electrochemical action that permits repeated charging and discharging (storage and supply of electricity). A Power Bank comprises a lithium-ion polymer battery together with charge-management circuitry and a voltage-boost converter; these components operate in tandem to store electrical energy and discharge it to a connected device. The presence of converting circuitry does not displace the essential characteristic of storage. Applying the nomenclature and Explanatory Notes, the critical feature - accumulation of electrical energy coupled with supply on demand - aligns the product with heading 85.07. Consequently the Power Bank is an accumulator and not a static converter. [Paras 10, 11, 12, 17, 18]

Power Bank classified as an electric accumulator under Chapter Heading 85.07.

Persuasive value of technical expert opinion and prior decisions - trade/common parlance theory - The technical report from IIT (BHU) and the cited precedents (including the Delhi CESTAT decision in S.B. Industries and the Luminous UPS decisions) do not warrant reclassification of the Power Bank as a static converter. - HELD THAT: - The IIT (BHU) report was examined and found to be non-conclusive - it stated a Power Bank 'can be considered' as a static converter and did not categorically exclude its character as an accumulator; therefore it was given no decisive weight. The Delhi CESTAT decision relied upon concerned exemption eligibility and did not determine classification; its observations are obiter and not persuasive for the present classification question. The Larger Bench decisions on UPS were considered but distinguished on facts and function: UPS units involve rectifier-inverter modules and supply regulated AC output, whereas Power Banks supply DC from stored energy via boost converters. As classification depends on factual similarity, those precedents were held inapplicable to the Power Bank. [Paras 12, 13, 14, 15, 16]

Technical opinion and cited authorities are not persuasive to change classification; they are either non-conclusive, factually distinguishable, or obiter.

Essential character rule (General Rules of Interpretation, Rule 3(b)) - GST tariff notifications as corroborative of classification - The essential-character approach and subsequent GST tariff notifications corroborate classification of lithium-ion power banks under Chapter Heading 85.07. - HELD THAT: - The Authority applied the rule that composite goods are to be classified according to the component giving them their essential character. The Power Bank's essential character is found in its function of storing and supplying electrical energy. Additionally, amendments to GST notifications (including insertion of entries for lithium-ion batteries and lithium-ion accumulators/power banks) demonstrate that lithium-ion power banks have been treated as falling under heading 85.07 for tariff and rate purposes. These tariff changes buttress the classification conclusion reached on the legal and functional analysis. [Paras 6, 10, 19, 20]

Essential-character principle and subsequent tariff notifications support classification of Power Bank under 85.07.

Final Conclusion: The Appellate Authority for Advance Ruling upheld the Karnataka AAR's ruling; the appeal is dismissed and the Power Bank marketed by the appellant is held to be classifiable as an electrical accumulator under Chapter Heading 85.07.

Writ of mandamus - reopening of GST portal - enlargement of time for filing TRAN-1 and TRAN-2 - manual consideration of GST TRAN-1 and TRAN-2 applications - due verification of transitional credits - access to electronic payment system

Writ of mandamus - reopening of GST portal - enlargement of time for filing TRAN-1 and TRAN-2 - manual consideration of GST TRAN-1 and TRAN-2 applications - Respondents to reopen the electronic portal or, failing that, to entertain the petitioner's GST TRAN-1 and TRAN-2 applications manually and permit filing for transactional credit. - HELD THAT: - The court accepted the petitioner's contention that the electronic system did not respond on the last date for filing (27.12.2017) and that as a result the petitioner risked losing transitional credit. In exercise of its equitable jurisdiction, the court directed the respondents to reopen the portal within two weeks. If the portal is not reopened, the respondents are directed to entertain the petitioner's GST TRAN-1 and TRAN-2 manually and to pass orders after due process. The direction is remedial and procedural in nature, aimed at ensuring the petitioner has an opportunity to present its claimed transitional credits despite electronic failure on the filing deadline.

Direction issued to reopen portal within two weeks or, alternatively, to entertain and decide TRAN-1 and TRAN-2 applications manually.

Due verification of transitional credits - manual consideration of GST TRAN-1 and TRAN-2 applications - access to electronic payment system - Respondents to verify the credits claimed by the petitioner and to ensure the petitioner can pay taxes through the electronic system for utilization of any credit allowed. - HELD THAT: - The court left the substantive adjudication of the claimed transitional credits to the respondents, directing that any manual or subsequent electronic processing be accompanied by due verification. The respondents are also required to ensure the petitioner is permitted to make tax payments through the regular electronic system so that any credit allowed may be utilized. The court thereby remitted the factual and verification exercise to the administrative authority for fresh consideration and decision in accordance with law.

Matter remitted to respondents for verification of claimed credits and consequent orders; respondents must also ensure electronic payment access for the petitioner.

Final Conclusion: The writ petition was allowed to the extent that respondents are directed to reopen the portal within two weeks or, if not reopened, to entertain the petitioner's TRAN-1 and TRAN-2 manually, verify the claimed transitional credits and pass orders thereon, and to ensure the petitioner has access to the electronic payment system; a counter-affidavit was permitted and the matter was listed for further hearing.

Detention of goods under Section 129 of the CGST Act, 2017 - release of detained goods on furnishing bank guarantee - time bound completion of enquiry and communication of order - fair and reasonable opportunity in post detention enquiry - judicial restraint from adjudicating merits at preliminary stage

Judicial restraint from adjudicating merits at preliminary stage - The writ petition will not be entertained on merits at the preliminary stage and is disposed of without adjudication on the substantive challenge to the detention order. - HELD THAT: - The Court declined to adjudicate the substantive legality of the detention and related notices at this interim stage. Having considered the rival submissions, the Court held that the issues raised were at a preliminary stage and it was not convinced to entertain the writ petition for a final decision on merits. The petition was therefore disposed of by issuing procedural directions to implement the scheme under the Act rather than by deciding the contested legal contentions regarding compliance or omission in transit documentation. [Paras 5]

Writ petition not entertained on merits and disposed of by the Court with procedural directions.

Release of detained goods on furnishing bank guarantee - time bound completion of enquiry and communication of order - fair and reasonable opportunity in post detention enquiry - Directed procedure for interim release of detained goods, validity period of the bank guarantee and time bound completion of the enquiry with opportunity to the petitioner. - HELD THAT: - The Court directed that the petitioner shall furnish a bank guarantee for the tax and penalty shown in the detention notice within two days and apply for release of the goods enclosing a copy of the order. On receipt of the bank guarantee, the designated respondent shall release the detained goods within twelve hours. The bank guarantee is to be kept valid for six weeks from the date of the order. The respondent must complete the enquiry, afford the petitioner a fair and reasonable opportunity as envisaged under the Act, and pass and communicate the final order within four weeks. If the respondent fails to pass the order within the stipulated time, the petitioner is not obliged to keep the bank guarantee valid beyond six weeks. These directions implement a time bound, interim relief mechanism while preserving the authority's obligation to conduct a fair enquiry under the statute. [Paras 5]

Petitioner to furnish bank guarantee within two days; goods to be released within twelve hours of receipt; bank guarantee to remain valid six weeks; respondent to complete enquiry and pass order within four weeks; failure entitles petitioner to discontinue the bank guarantee after six weeks.

Final Conclusion: The petition is disposed of without adjudication on merits; interim, time bound directions are issued for furnishing a bank guarantee, immediate release of the detained goods on receipt, and completion of the statutory enquiry with a fair opportunity within four weeks, failing which the petitioner may allow the bank guarantee to lapse after six weeks.

Power of inspection, search and seizure - Right to make copies or take extracts of seized documents - Limit on disclosure where copying may prejudicially affect investigation - Mandamus to decide statutory request within a specified time-frame

Right to make copies or take extracts of seized documents - Limit on disclosure where copying may prejudicially affect investigation - Mandamus to decide statutory request within a specified time-frame - Direction to respondent to consider and dispose of the petitioner's request dated 02.07.2019 for copies of the statement and documents seized on 24.01.2019 in accordance with law within a fortnight - HELD THAT: - The petitioner sought copies of his statement and documents/electronic devices seized during search. Section 67(5) of the Central Goods and Services Tax Act, 2017 recognises the entitlement of the person from whose custody documents are seized to make copies or take extracts in the presence of an authorised officer, subject to the exception where such copying may, in the opinion of the proper officer, prejudicially affect the investigation. In the circumstances of this petition and on the petitioner's representation dated 02.07.2019 (received 03.07.2019), the Court found it appropriate to direct the respondent to consider the request on its merits and in accordance with law, applying the statutory test in Section 67(5), and to communicate a decision within a stipulated short period. The Court expressly left all other contentions raised by the petitioner open, expressing no opinion on them. [Paras 8, 9, 11]

Respondent to dispose of the petitioner's request dated 02.07.2019 for copies of seized materials in accordance with law, applying Section 67(5) CGST Act, within a fortnight from receipt of this order; other contentions left open; writ petition disposed.

Final Conclusion: Writ petition disposed directing the respondent to decide the petitioner's request for copies of seized documents in accordance with Section 67(5) CGST Act within a fortnight; other issues not adjudicated.

Block assessment - Initiation of proceedings u/s 158BD on the satisfaction of assessing officer - Requirement of recording satisfaction before initiating block assessment - Recording of satisfaction prior to initiating block assessment proceedings was not required in the present case because the same Assessing Officer both initiated and completed the assessment [2013 (9) TMI 870 - ALLAHABAD HIGH COURT]

HELD THAT:- Special leave petition is dismissed as withdrawn.

Interest u/s 234B and 234C - Retrospective operation of statute and advance tax liability - Question of law v. question of fact - High Court [2018 (11) TMI 1663 - CALCUTTA HIGH COURT] declines to admit the appeal on paragraphs 7(a), (d) and (e); declines any challenge by the revenue to paragraph 7(c) of the Tribunal's order; and upholds imposition of interest under sections 234B and 234C except insofar as the income arises from retrospective operation of a statute or decision, in which case interest is not sustainable

HELD THAT:- Delay condoned. Leave granted.

Direction to appellate authority to consider and dispose of statutory appeal - stay of recovery proceedings pending disposal of appeal - application of earlier Division Bench / Full Bench precedent

Direction to appellate authority to consider and dispose of statutory appeal - stay of recovery proceedings pending disposal of appeal - application of earlier Division Bench / Full Bench precedent - Petition disposed directing the Commissioner of Income Tax (Appeals) to consider and dispose the statutory appeal and to keep recovery proceedings in abeyance pending disposal. - HELD THAT: - The Division Bench judgment cited by the petitioner (Ext.P5) and the Full Bench decision in The Mavilayi Service Co-operative Bank Ltd. v. The Commissioner of Income Tax, Calicut were relied upon. The learned Standing Counsel conceded that the facts of the present case are substantially the same as those considered in Ext.P5. In view of the similarity of facts and the cited precedents, the court directed the 2nd respondent to consider and dispose of the subject statutory appeal at the earliest and ordered that recovery proceedings and collection of the assessed tax be kept in abeyance pending disposal of that appeal.

The Commissioner of Income Tax (Appeals) is directed to consider and dispose the appeal at the earliest and recovery/collection of assessed tax shall remain in abeyance until disposal of the appeal.

Final Conclusion: Writ petition disposed by directing the CIT(A) to decide the statutory appeal promptly and by ordering suspension of recovery/collection of the assessed tax pending disposal of the appeal, following the earlier Division Bench/Full Bench decisions.

Voluntary Disclosure of Income Scheme (VDIS) - eligibility and effect of certificate issued under the scheme - Applicability of VDIS where notice under Sections 142/148 of the Income tax Act was issued prior to commencement of the scheme - Misrepresentation as ground for revocation of VDIS certificate - Power under Section 21 of the General Clauses Act to rescind or revoke notifications/orders issued under a Central Act - Effect of appellate order on the subsistence of VDIS certificate

Applicability of VDIS where notice under Sections 142/148 of the Income tax Act was issued prior to commencement of the scheme - Voluntary Disclosure of Income Scheme (VDIS) - eligibility and effect of certificate issued under the scheme - Whether the petitioner was entitled to the benefits of VDIS and protection of certificate under Section 68(2) when a notice under Section 148 had been served prior to the commencement of the scheme - HELD THAT: - The court examined Section 64(2)(i) of the VDIS and the chronology of events and held that the scheme excluded persons in respect of incomes for which a notice under Section 142 or Section 148 had been served before the scheme commenced. The petitioner had filed a belated return on 14.03.1996 and a revised return on 08.05.1997 and had, in the course of proceedings, received notice under Section 148 prior to the VDIS notification. The petitioner's subsequent declaration under VDIS and issuance of certificates did not cure the statutory bar created by Section 64(2)(i). The court found that the petitioner had misrepresented facts in invoking VDIS by suppressing earlier returns and that, on that basis and in view of the prior notice under Section 148, the petitioner could not claim entitlement to the scheme's protection. [Paras 21, 22, 23, 24, 30]

The petitioner was not entitled to benefits under VDIS in respect of the declared amount for AY 1994-1995; the declaration and certificate could not immunise him from assessment where a notice under Section 148 preceded the scheme.

Misrepresentation as ground for revocation of VDIS certificate - Effect of appellate order on the subsistence of VDIS certificate - Whether the certificates issued under Section 68(2) of VDIS could be revoked on the ground of misrepresentation and whether the 1st respondent validly exercised that power after the ITAT proceedings - HELD THAT: - The court found on the material that the petitioner had previously disclosed the receipts as gifts in an earlier return and thereafter filed declarations under VDIS that contradicted those earlier disclosures. The revocation proceedings conducted by the 1st respondent were founded on alleged fraud and misrepresentation in obtaining the certificates. Although the ITAT had observed that immunity under a valid certificate subsists unless withdrawn, the court accepted that revocation is permissible where the certificate was obtained by misrepresentation. The court therefore sustained the revocation on the merits of misrepresentation as set out in the record. [Paras 17, 18, 19, 24, 25]

The certificates issued under Section 68(2) of VDIS were lawfully revocable on the ground of misrepresentation; revocation was upheld.

Power under Section 21 of the General Clauses Act to rescind or revoke notifications/orders issued under a Central Act - Whether the 1st respondent had jurisdiction to invoke Section 21 of the General Clauses Act to revoke certificates issued under Section 68(2) of VDIS - HELD THAT: - The court interpreted Section 21 of the General Clauses Act as a rule of construction that confers, where applicable, the power to add to, amend, vary or rescind notifications or orders made under a Central Act, unless a specific bar exists. The VDIS did not provide for prior enquiry before issuance of certificates and did not expressly oust the general power to rescind. On a conjoint reading of Section 68 of VDIS and Section 21 of the General Clauses Act, the court concluded that the authority had jurisdiction to invoke Section 21 to withdraw or revoke certificates issued under Section 68(2) when obtained by misrepresentation. [Paras 26, 27, 28]

Section 21 of the General Clauses Act empowered the authority to revoke VDIS certificates in the circumstances found on the record.

Delay and laches in initiating revocation proceedings - Whether the long gap between issuance of the certificates and their revocation disentitled the revenue to proceed or rendered the revocation invalid - HELD THAT: - The petitioner relied on delay and laches; the court examined the chronology including the proceedings under Section 263 and the ITAT decision and found no compelling basis to hold the revocation invalid on account of delay. The court rejected the contention that the authority lacked jurisdiction to revoke after the lapse of time where revocation was founded on misrepresentation and where statutory provisions allowed rescission under Section 21 of the General Clauses Act. [Paras 6, 7, 25, 28]

Delay/laches did not invalidate the revocation; the revocation was sustained despite the time gap.

Refund of amounts paid under VDIS upon revocation of certificate - Whether the petitioner was entitled to refund of amounts paid under VDIS after the certificates were revoked - HELD THAT: - The petitioner contended that if certificates were withdrawn, the amounts paid under VDIS ought to have been refunded. The court did not find merit in this contention in the circumstances of misrepresentation and the statutory scheme and did not direct any refund. The relief sought on this ground was not acceded to. [Paras 10, 31]

No refund was directed; the petitioner was not granted relief on the claim for repayment of amounts paid under VDIS.

Final Conclusion: The writ petition is dismissed. The High Court upheld the revocation by the tax authority of the VDIS certificates issued in respect of the declared receipts for FY 1993-1994/AY 1994-1995, holding that the petitioner was not entitled to VDIS protection where notices under Section 148 had been served prior to the scheme and where the certificates were obtained by misrepresentation; Section 21 of the General Clauses Act authorized rescission of the certificates and no refund was directed.

Comparability of entities for transfer pricing - functional comparability in transfer pricing - arm's length price determination - exclusion of comparables as inappropriate due to size, brand and risk profile - application of precedent in transfer pricing comparability analysis

Comparability of entities for transfer pricing - functional comparability in transfer pricing - exclusion of comparables as inappropriate due to size, brand and risk profile - Infosys BPO Limited is not a suitable comparable for determining the arm's length margin of the assessee. - HELD THAT: - The Court accepted the assessee's showing of material functional and commercial dissimilarities between Infosys BPO and the assessee: Infosys BPO provided third party business process management services across multiple industries, incurred substantial brand promotion, selling and marketing expenditures, and assumed full commercial risk; the assessee was a captive provider predominantly to its foreign associated enterprise with minimal marketing spend, no comparable goodwill valuation and limited risk profile. The Court held that these differences are determinative of comparability and justify exclusion of Infosys BPO as a comparable. The Court applied earlier decisions which treated a 'giant' multifunctional entity as unsuitable where its scale, brand value and risk profile could not be equated with the assessee, and distinguished authorities relied upon by Revenue where the comparables did not involve such giant corporations. The Tribunal's reliance on its earlier approach and exclusion of Infosys BPO was therefore upheld. [Paras 10, 11, 13]

The Tribunal did not err in excluding Infosys BPO Limited from the list of comparables; the appeals are dismissed.

Final Conclusion: The challenge to the Tribunal's exclusion of Infosys BPO as a comparable is rejected; the Tribunal's decision to exclude Infosys BPO is affirmed and the revenue appeals are dismissed.

Reopening of assessment under Section 147/notice under Section 148 - deemed escapement by non-filing (Explanation 2(a) to Section 147) - no-return-required exemption for foreign company under Section 115A(5) - capital account transaction vis-a -vis income (share purchase) - GKN Driveshafts procedure for furnishing reasons and disposal of objections - CBDT Standard Operating Procedure for Non-Filers Monitoring System (NMS)

Reopening of assessment under Section 147/notice under Section 148 - deemed escapement by non-filing (Explanation 2(a) to Section 147) - no-return-required exemption for foreign company under Section 115A(5) - CBDT Standard Operating Procedure for Non-Filers Monitoring System (NMS) - Validity of the notice dated 26th March, 2018 issued under Section 148, which was triggered by NMS detection of non-filing, in light of the assessee's status and statutory exemption from filing. - HELD THAT: - The Court found that the notice, though system-generated by the NMS on account of non-filing, could not automatically sustain reopening where the undisputed facts showed the petitioner to be a Swiss tax resident whose Indian receipts for the relevant year comprised only dividend and interest subject to TDS. Section 115A(5) exempts such an assessee from the obligation to furnish a return when its assessable income consists only of specified dividend/interest and TDS has been deducted. The CBDT Instruction setting out the NMS SOP requires marking 'No return is required' in such cases and confirmation by the Range head. Once these specific facts and legal position were brought to the respondent's notice, the assessing officer was obliged to apply his mind; mere generation of an NMS alert did not, by itself, constitute valid reasons to believe that income chargeable to tax had escaped assessment. [Paras 18, 19, 20, 21, 23]

The notice under Section 148 was set aside as invalid insofar as it proceeded from a failure to appreciate the operation of Section 115A(5) and the applicable NMS/SOP, and hence did not furnish a sustainable basis for reopening.

Capital account transaction vis-a -vis income (share purchase) - reopening of assessment under Section 147/notice under Section 148 - Whether the petitioner's purchase of shares in its Indian subsidiary could be treated as 'income' giving rise to escapement of income for the purpose of reopening the assessment. - HELD THAT: - The Court accepted the petitioner's contention that the acquisition of shares in its subsidiary was a capital account transaction and not income. The decision of the Bombay High Court treating such transactions as capital in nature had been accepted by the CBDT and directed to be followed by field officers. The assessing officer's premise that the share investment constituted income and thereby formed a 'live link' for reopening was therefore flawed and unsustainable. [Paras 4, 8, 24, 25]

The assumption that the share purchase amounted to income subject to tax was rejected; the transaction is a capital account transaction and cannot justify reopening on the asserted ground of escapement.

GKN Driveshafts procedure for furnishing reasons and disposal of objections - reopening of assessment under Section 147/notice under Section 148 - Whether the respondent complied with the procedural obligation to furnish reasons and to pass a speaking order disposing of the objections before proceeding with assessment. - HELD THAT: - The Court reiterated the GKN Driveshafts procedure: after issuance of a Section 148 notice, the assessing officer must furnish reasons within a reasonable time, consider objections and dispose of them by a speaking order before proceeding. In this case the petitioner filed objections drawing attention to the statutory exemption and the nature of the share transaction, but the respondent's order rejecting objections did not deal with these specific points and wrongly invoked Explanation 2(b) instead of addressing the no-return-required position under Explanation 2(a) and the CBDT SOP. This showed non-application of mind and failure to follow the mandated procedure. [Paras 6, 18, 22, 23, 26]

The order rejecting objections was set aside for failure to apply the GKN procedure and for non-application of mind; the respondent must not proceed further pursuant to the impugned notice.

Final Conclusion: The writ petition is allowed: the notice dated 26th March, 2018 under Section 148 and the order dated 23rd October, 2018 rejecting objections are quashed for failure to appreciate the exemption under Section 115A(5), mischaracterisation of a share purchase as income, and non-application of the GKN Driveshafts procedure; no order as to costs.

Condonation of delay in filing income tax returns under Section 119(2)(b) of the Income-tax Act - locus standi of a third party to challenge administrative exercise of discretion - judicial review of administrative discretion under Section 119(2)(b)

Condonation of delay in filing income tax returns under Section 119(2)(b) of the Income-tax Act - locus standi of a third party to challenge administrative exercise of discretion - judicial review of administrative discretion under Section 119(2)(b) - Whether a third party (a voter) has locus to challenge an order under Section 119(2)(b) condoning delay in filing returns for the stated assessment years, and whether the High Court may interfere with the exercise of discretion in such case. - HELD THAT: - Section 119(2)(b) authorises the Board to empower an income-tax authority to admit an application or claim after the prescribed period where it considers it desirable or expedient for avoiding genuine hardship. The sole sine qua non for exercise of that power is the existence of genuine hardship. In the present case the tax authority considered whether genuine hardship existed and exercised its discretion to condone the delay in filing returns for the assessment years in question. Once such discretion under Clause (b) of sub-section (2) of Section 119 has been validly exercised, there is no scope for the Court to interfere with the administrative decision, particularly when the challenge is mounted by a third party who lacks a direct locus. The petitioner's motive relating to potential electoral consequences does not confer standing to assail the tax authority's discretionary order; accordingly the writ petition cannot be maintained. [Paras 6, 7, 8]

The petitioner has no locus to challenge the impugned order; the writ petition is dismissed.

Final Conclusion: The High Court dismissed the writ petition by a third party challenging the Principal Commissioner's exercise of discretion under Section 119(2)(b) to condone delay in filing returns for assessment year 2014-2015 to 2017-2018, holding that the petitioner lacked locus and that there was no scope for judicial interference with the discretionary order.

Capital expenditure versus revenue expenditure - Explanation 1 to Section 32 of the Income Tax Act - legal fiction treating leasehold occupier as owner for period of occupation - enduring benefit test - appeal under Section 260A - tax effect threshold under CBDT Circular No.3 of 2018

Capital expenditure versus revenue expenditure - Explanation 1 to Section 32 of the Income Tax Act - legal fiction treating leasehold occupier as owner for period of occupation - enduring benefit test - Whether the expenditure on renovation of leased premises and on vasthu consultancy for setting up a new office is to be treated as revenue expenditure or as capital expenditure. - HELD THAT: - The Court held that Explanation 1 to Section 32 creates a statutory legal fiction by which an assessee holding a lease or right of occupancy is to be treated as the owner of the building for the period of occupation, so that expenditure of the type contemplated by the Explanation falls to be considered as capital in nature if it gives an enduring benefit. Applying that principle to the factual matrix - substantial interior works, fittings, furniture, electrical installations and consultancy for setting up showrooms to prescribed designs - the Court found these outlays to be capital in character because they produced an enduring advantage during the period of occupation. The Court further observed that the CIT(A) did not apply Explanation 1 and that the Tribunal affirmed the CIT(A) without giving independent reasons. As the materials and details of expenditure had been before the authorities, remand was not warranted; the orders of the CIT(A) and the Tribunal were set aside and the Assessing Officer's order restored. [Paras 25, 29, 31, 33, 35]

Expenditure on renovation of leased premises and on vasthu consultancy, as shown on the facts, is capital expenditure because Explanation 1 to Section 32 treats the leasehold occupier as owner and such expenditure results in an enduring benefit; therefore the Revenue's appeal succeeds and the Assessing Officer's order is restored.

Final Conclusion: The Revenue's appeal under Section 260A is allowed; the orders of the CIT(A) and the Tribunal are set aside, the Assessing Officer's order is restored and the substantial questions of law are answered in favour of the Revenue.

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Transfer pricing: aggregation under TNMM and independent benchmarking of international transaction - Estimation of income or disallowances and its effect on penalty liability - Disallowance for lack of documentary evidence - Deduction/disallowance relating to post-amalgamation capital increase

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Transfer pricing: aggregation under TNMM and independent benchmarking of international transaction - Deletion of penalty in respect of transfer pricing adjustment relating to export of manufactured finished goods. - HELD THAT: - The Tribunal in quantum proceedings held that treating non-associated enterprise (non-AE) transactions at par with associated enterprise (AE) transactions for the cited sales was inappropriate because of differences in quantities, locations and product customization, and therefore the transaction required independent benchmarking. The assessee had applied TNMM in aggregate and computed the arm's length price (ALP) in good faith with due diligence. Mere difference in the manner of ALP determination, and the fact that the Tribunal directed fresh determination, does not establish concealment of particulars or furnishing of inaccurate particulars of income. Reliance on earlier Tribunal authority was noted. On these findings the CIT(A) correctly deleted the penalty imposed by the AO and that conclusion is upheld.

Penalty deleted insofar as it related to the transfer pricing addition; deletion upheld.

Deduction/disallowance relating to post-amalgamation capital increase - Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Deletion of penalty in respect of disallowance of expenses incurred for increase in share capital after amalgamation (u/s.35DD related claim). - HELD THAT: - The Tribunal in quantum proceedings deleted the assessment addition on this head. Since the assessment addition which formed the foundation for levy of penalty ceased to exist, there is no basis for imposing penalty under section 271(1)(c). The appellate authority's deletion of penalty was therefore justified.

Penalty deleted in respect of the disallowance arising from post-amalgamation share capital increase; deletion upheld.

Disallowance for lack of documentary evidence - Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Deletion of penalty in respect of disallowance from 'Miscellaneous Expenses' largely determined on an ad hoc basis for want of supporting details. - HELD THAT: - The authorities made ad hoc disallowances where the assessee could not produce necessary details; some specific expenses were allowed on fuller scrutiny. Disallowances in several heads were sustained only because of non-availability of corroborative evidence rather than any finding of deliberate concealment or inaccurate particulars. In such circumstances, imposition of penalty is not warranted. The CIT(A)'s deletion of penalty on this ground was therefore proper and is affirmed.

Penalty deleted in respect of disallowance from Miscellaneous Expenses; deletion upheld.

Estimation of income or disallowances and its effect on penalty liability - Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Deletion of penalty in respect of addition/disallowance relating to expenses on premises assessed on an estimated basis. - HELD THAT: - The AO made an estimated disallowance of premises expenses which was reduced on appeal and ultimately treated as a capitalization with allowance of depreciation by the Tribunal. It is a settled principle that additions or disallowances made or sustained on estimate/guesswork do not justify imposition of penalty under section 271(1)(c) because estimation lacks the requisite precision to sustain a finding of concealment or furnishing inaccurate particulars. Decisions of various High Courts were noted to support this legal position. Given that the sustenance of disallowance was essentially estimation-driven and devoid of proper authentication, the CIT(A)'s deletion of penalty was correct.

Penalty deleted in respect of premises-related disallowance assessed on estimate basis; deletion upheld.

Final Conclusion: All grounds on which penalty under section 271(1)(c) was imposed were found to be unsustainable: transfer pricing adjustment did not demonstrate concealment as ALP computation was made in good faith; the post-amalgamation disallowance was deleted in quantum; miscellaneous disallowances arose from lack of documentary evidence rather than deliberate concealment; and estimation-based disallowances cannot support penalty. The Revenue's appeal is dismissed.

Transfer pricing - Arm's Length Price - Transactional Net Margin Method (TNMM) - Profit Level Indicator - Operating profit to Total cost (OP/TC) - Comparability analysis - Exclusion from comparable set - Risk adjustment - Deduction under section 10A - export turnover and total turnover - Revenue recognition - work in progress vs immediate expensing

Transfer pricing - Transactional Net Margin Method (TNMM) - Profit Level Indicator - Operating profit to Total cost (OP/TC) - Comparability analysis - Exclusion from comparable set - Transfer pricing addition in the international transaction of rendering of Software Development services - inclusion/exclusion of specific comparables - HELD THAT: - The Tribunal accepted TNMM with OP/TC as the PLI as the appropriate method and confined the dispute to comparability of selected entities. Applying functional analysis of the assessee (offshore software development as independent contractor, use of AE intellectual property, AE owning resulting IP, cost plus 10% arrangement), the Tribunal examined each challenged comparable against the assessee's functional profile and revenue recognition practices. Bodhtree Consulting Ltd. was excluded because it followed a different revenue recognition model (expensing work in progress while recognizing revenue on billing) producing fluctuating margins, a distinction affirmed by precedent and recorded as rendering it non comparable. e Infochips was excluded because its reported single segment combined software development and ITES (including consultancy), frustrating entity level comparability with the assessee's pure software development transaction. e Zest Solutions Ltd. was upheld as comparable on facts showing it operated as a pure software development enterprise and adopted appropriate work in process accounting. Helios & Matheson Information Technology Ltd. and KALS Infosystems Ltd. were excluded as both operated in software product businesses (sales of products) rather than being pure service providers, making them functionally dissimilar. Maars Software International Ltd. was excluded following earlier Tribunal reasoning that predominance of on site services made it non comparable with the assessee's offshore model. The Tribunal set aside the impugned addition on comparability grounds in respect of the software development transaction and directed recomputation in accordance with these inclusions/exclusions. [Paras 9, 10, 11, 12, 13]

Several challenged comparables were excluded (Bodhtree, e Infochips, Helios & Matheson, KALS, Maars) and e Zest retained; matter remitted for fresh ALP determination reflecting these comparability findings.

Risk adjustment - Transfer pricing - Whether risk adjustment should be computed in relation to the software development transaction - HELD THAT: - The Tribunal noted that in an earlier order for the assessee (A.Y. 2006 07) the matter was remitted to AO/TPO for computation of risk adjustment after affording opportunity to the assessee. No distinguishing features were shown to displace that approach for the present year. Respectfully following the prior Tribunal direction, the Tribunal set aside the impugned order on this score and remitted the matter to the file of the AO/TPO to compute the risk adjustment in accordance with the earlier directions, allowing the assessee reasonable opportunity of hearing. [Paras 14, 15]

Issue remitted to AO/TPO for computation of risk adjustment in accordance with Tribunal's earlier directions.

Transfer pricing - Transactional Net Margin Method (TNMM) - Comparability analysis - Exclusion from comparable set - Transfer pricing addition in the international transaction of rendering of Sales Support services - inclusion/exclusion of TSR Darashaw Limited as comparable - HELD THAT: - Having analyzed the functional profile of the assessee's sales support services (marketing and sales support for BMC products in India/APAC) and examined TSR Darashaw's annual report, the Tribunal found TSR Darashaw to be primarily a broking and investment banking house with payroll, registrar/transfer agent and records management activities. Those functions are materially different from the assessee's marketing/sales support services. Noting a change in TSR Darashaw's business profile recognized by a co ordinate bench and on the present factual comparison, the Tribunal excluded TSR Darashaw from the final set of comparables. The assessee indicated that exclusion of TSR Darashaw would render other comparability challenges unnecessary; accordingly the Tribunal did not further consider other comparables. [Paras 16, 17, 18, 19]

TSR Darashaw Limited excluded from comparables; transfer pricing addition in sales support service remitted for fresh determination in light of this exclusion.

Deduction under section 10A - export turnover and total turnover - Revenue recognition - foreign currency expenses - Computation of deduction under section 10A - whether foreign currency expenses excluded from export turnover must also be excluded from total turnover - HELD THAT: - The AO had excluded certain foreign currency expenses from export turnover when computing deduction under section 10A but did not correspondingly adjust total turnover. The Tribunal construed the statutory formula (s.10A(4)) and the defined term 'export turnover' in Explanation 2(iv), observing that if an amount is excluded from export turnover it cannot simultaneously remain included in total turnover; total turnover is the sum of export and domestic turnover. Following the Delhi High Court precedent (as discussed in the order), the Tribunal held that any exclusion from export turnover must also be deducted from total turnover for the purpose of computing the eligible deduction under section 10A, and accordingly overturned the AO's computation. [Paras 21, 22, 23]

Assessee's ground allowed: foreign currency expenses excluded from export turnover must also be excluded from total turnover in computing deduction under section 10A; assessment recomputed accordingly.

Penalty proceedings - Interest - consequential - Grounds contesting interest and initiation of penalty under section 271(1)(c) - HELD THAT: - The Tribunal treated the ground on interest as consequential to the substantive adjustments and held that the ground challenging initiation of penalty under section 271(1)(c) was premature in the present proceedings. [Paras 24]

Interest issue treated as consequential; penalty ground held premature.

Summary dismissal - ground not pressed - Ground no.15 (inclusion of sales support division revenue in turnover for deduction u/s 10A) not pressed - HELD THAT: - The appellant did not press ground no.15 at hearing; the Tribunal dismissed it for that reason. [Paras 21]

Ground dismissed as not pressed.

Final Conclusion: The Tribunal partly allowed the appeal for A.Y. 2008 09: it excluded several challenged comparables (Bodhtree, e Infochips, Helios & Matheson, KALS, Maars) and retained e Zest for the software development transaction, excluded TSR Darashaw for the sales support transaction, remitted both transactions to AO/TPO for fresh ALP determination (including computation of risk adjustment) consistent with these findings and after affording hearing, allowed the assessee's challenge to the 10A computation by directing that foreign currency expenses excluded from export turnover must also be excluded from total turnover; other grounds were held consequential or premature and the appeal was otherwise partly allowed.

Most appropriate method - arm's length principle - comparability analysis - transactional net margin method (TNMM) - internal TNMM - cost plus method (CPM) - selection and exclusion of comparables - restriction of adjustment to international transactions

Internal TNMM - opportunity to be heard - Applicability of the internal TNMM claimed by the assessee and whether the TPO improperly rejected it without giving opportunity - HELD THAT: - The assessee relied on internally segmented results to invoke internal TNMM. The Transfer Pricing Officer examined the submissions, recorded the replies (including the last reply dated 10.10.2017) and considered them in the order dated 20.10.2017. The TPO found that proper segmental data was not available and that one segment showed losses while the other showed profits, undermining the reliability of internal TNMM. On the record of opportunities given and the deficiency of segmental information, the tribunal found no merit in the contention that no opportunity was afforded or that internal TNMM could be applied in the absence of adequate and verifiable segmental allocations of costs and profits.

Rejection of internal TNMM by the TPO sustained; no interference.

Most appropriate method - transactional net margin method (TNMM) - Whether external TNMM was the most appropriate method to determine arm's length price - HELD THAT: - Having found the assessee's internal CPM and internal TNMM unsuitable on the facts (no reliable segmental cost allocation and inconsistent segmental results), the TPO applied external TNMM as the most appropriate method since the assessee imported raw materials, assembled/manufactured and sold in the domestic market. The tribunal, on review of the nature of the business and the procedural steps (including issue of show-cause), upheld the TPO's choice of external TNMM as appropriate in the totality of facts.

External TNMM held to be the most appropriate method; TPO's methodological choice upheld.

Comparability analysis - selection and exclusion of comparables - Validity of inclusion/exclusion of specific comparable companies (Acrysil Ltd. and JSL Life Style Ltd.) in the final comparable set - HELD THAT: - The tribunal examined product lines, raw materials and availability of segmental results. Acrysil Ltd. manufactures sinks and faucets using quartz, which is materially different from the assessee's kitchen appliances business; the tribunal found no basis for comparison and directed exclusion. JSL Life Style Ltd. dealt in a range of lifestyle and plumbing products, undertook R&D and did not have segmental results to isolate comparable products; given the dissimilar product mix and absence of segmentals, the tribunal directed exclusion of JSL Life Style Ltd. from the comparable set.

Acrysil Ltd. and JSL Life Style Ltd. excluded from the comparable set.

Comparability analysis - selection and exclusion of comparables - Whether Gorani Industries Ltd. should be included as a comparable - HELD THAT: - Gorani Industries Ltd. was functionally comparable (manufacture and sale of glass, gas, cook tops, chimneys etc.). The TPO had rejected it as a persistent loss maker, but the assessee demonstrated that for the relevant assessment year the company showed marginal operating profits and that earlier alleged losses resulted from incorrect inclusion of finance costs as operating expenses. With corrected margins (OP/OR 0.13%) and considering the assessee's low margin (1.94%), the tribunal found no merit in excluding Gorani on the persistent loss ground and directed its inclusion as a comparable.

Gorani Industries Ltd. to be included as a comparable.

Arm's length principle - restriction of adjustment to international transactions - Whether any transfer pricing adjustment should be made at the entity level or restricted to the value of international transactions - HELD THAT: - On inclusion of Gorani Industries Ltd. the comparable mean margin moves closer to the assessee's reported margin (1.94%), eliminating the need for an adjustment. The tribunal accepted the proposition (as laid down by the Bombay High Court) that any adjustment arising from transfer pricing must be restricted to the international transactions in question and not be applied at the entity level. The tribunal found the DRP's approach on this point unsustainable and directed that any adjustment, if warranted, be confined to the international transaction value.

Transfer pricing adjustment, if any, to be confined to international transactions; on inclusion of Gorani no adjustment is required for the assessment year.

Final Conclusion: The appeal is partly allowed: the tribunal upholds external TNMM as the most appropriate method, excludes Acrysil Ltd. and JSL Life Style Ltd. from the comparable set, directs inclusion of Gorani Industries Ltd., and holds that any adjustment must be restricted to international transactions; consequential and unpressed grounds are dismissed as indicated.

Disallowance under Section 14A read with Rule 8D - Attribution of interest to exempt income - 0.5% administrative expenses under Rule 8D(2)(iii) - Only investments capable of yielding exempt income to be considered for Section 14A - Presumption of application of interest-free funds in absence of specific correlation - Netting of interest income and interest expense for NBFCs in Section 14A computation - Assessee's burden to disclose modus operandi and evidentiary details for investment funding

Only investments capable of yielding exempt income to be considered for Section 14A - Disallowance under Section 14A read with Rule 8D - Extent of investments to be taken into account for computing disallowance under Section 14A read with Rule 8D - HELD THAT: - The Tribunal held that for purpose of disallowance under Section 14A read with Rule 8D only those securities and investments which are capable of yielding exempt income during the relevant year are to be considered. Investments that yield taxable income (for example certain debentures, bonds, loans, or growth mutual funds producing taxable returns) are not to be included in the base for computing Section 14A disallowance. This approach is applied in light of Supreme Court authority (Maxopp) and consistent decisions of High Courts and the Special Bench which require consideration only of investments actually yielding tax-free income in the year. [Paras 7]

Only investments capable of yielding exempt income are to be considered while computing disallowance under Section 14A read with Rule 8D.

Netting of interest income and interest expense for NBFCs in Section 14A computation - Presumption of application of interest-free funds in absence of specific correlation - Treatment of interest expenditure in case of an NBFC engaged in borrowing and investing - HELD THAT: - The Tribunal accepted that where an assessee (here an NBFC) has both interest-bearing borrowings and interest-earning investments (taxable), only the net interest expense is to be considered for purposes of Section 14A read with Rule 8D(2)(ii) if there is no specific correlation demonstrated between borrowed funds and investments yielding exempt income. In absence of evidence showing that borrowed funds were specifically utilized for investments producing exempt income, the presumption applies that investments capable of yielding tax-free income were made from interest-free funds. [Paras 7]

For the NBFC assessee, only net interest expenditure is to be considered for Section 14A disallowance unless specific correlation of borrowings to exempt-earning investments is proved.

Assessee's burden to disclose modus operandi and evidentiary details for investment funding - 0.5% administrative expenses under Rule 8D(2)(iii) - Disallowance under Section 14A read with Rule 8D - Whether AO validly invoked Section 14A and whether computation should be remitted for fresh adjudication - HELD THAT: - The Tribunal noted that the assessee had itself made a suo motu disallowance under Section 14A (applying 0.5% under Rule 8D(2)(iii)) and that the onus lay on the assessee to produce details of modus operandi, investment management and funding to rebut the disallowance. The AO had recorded satisfaction (albeit briefly) in the assessment order. Given the factual complexity and the absence before the AO of full documentary particulars and demonstration of correlation, the Tribunal directed that the matter be restored to the AO for de novo adjudication. The assessee is to file complete details and the AO is to grant opportunity and admit evidence; the AO shall compute disallowance afresh in accordance with the legal principles stated. [Paras 7, 8, 9]

AO's invocation of Section 14A is to be examined and the quantum of disallowance recalculated in de novo proceedings; assessee must furnish full particulars and AO shall afford opportunity and recompute in accordance with Tribunal directions.

Final Conclusion: The Tribunal held that (a) only investments capable of yielding exempt income are relevant for disallowance under Section 14A read with Rule 8D, (b) for the NBFC assessee only net interest expense is to be considered unless specific correlation of borrowings to exempt-earning investments is proved, and (c) in view of insufficient particulars on record the matter is remitted to the AO for fresh computation and adjudication for ay:2012-13 and ay:2013-14 with directions that the assessee file full details and the AO afford adequate opportunity.

Rectification under section 154: mistake apparent from the record - deduction under section 80IA on a standalone unit-wise basis - set-off of losses between eligible units for computing 80IA deduction - deduction under chapter: business income versus gross total income

Rectification under section 154: mistake apparent from the record - Validity of the Assessing Officer's rectification under section 154 reducing the claim of deduction under section 80IA - HELD THAT: - The Tribunal examined whether the AO's action under section 154 amounted to correction of a 'mistake apparent from the record' or instead involved a debatable issue of method of calculation. While a pure computational error may be corrected under section 154, the AO's step here involved altering the method by which deduction under section 80IA was quantified - specifically by setting off losses of certain eligible units against profits of others. That question raises mixed or debatable issues of law and fact and does not constitute an obvious, self-evident mistake amenable to summary rectification under section 154. Reliance placed on precedents holding that section 154 is confined to glaring, patent errors supports the conclusion that the rectification was impermissible. [Paras 8, 9, 11]

Rectification order passed by the AO under section 154 is not sustainable and is set aside.

Deduction under section 80IA on a standalone unit-wise basis - set-off of losses between eligible units for computing 80IA deduction - deduction under chapter: business income versus gross total income - Whether losses of some eligible units can be set off against profits of other eligible units for computing deduction under section 80IA, and whether deduction is to be restricted to business income rather than gross total income - HELD THAT: - On the merits the Tribunal held that section 80IA(5) requires computation of deduction in respect of each eligible unit as if it is the only source of income of the assessee - i.e., on a standalone basis. Consequently, loss incurred by one eligible unit cannot be set off against the profits of another eligible unit when computing the deduction under section 80IA. The Tribunal canvassed and followed a consistent line of judicial authorities establishing that deductions contemplated by these provisions are to be determined with reference to the profits of the particular eligible undertaking, and that losses of other units do not reduce the quantum of deduction available for a profitable eligible unit. Applying the same reasoning, the Tribunal deleted the CIT(A)'s observation that deduction under section 80IA is to be allowed only to the extent of business income and not against gross total income. [Paras 11, 17, 18]

Losses of eligible units cannot be set off against profits of other eligible units for computing section 80IA deduction; the CIT(A)'s contrary finding is deleted and the assessee's claim is upheld on a unit-wise standalone basis.

Final Conclusion: The assessee's appeal is allowed: the AO's rectification under section 154 is quashed as it sought to alter a debatable method of quantification, and on merits the deduction under section 80IA must be computed unit-wise so that losses of eligible units are not set off against profits of other eligible units; the CIT(A)'s adverse observation regarding deduction being limited to business income is deleted.

Penalty under section 271(1)(c) - Disallowance of provision for standard assets - Deletion of addition in quantum appeal - Disallowance of capital loss - Inaccurate particulars of income

Penalty under section 271(1)(c) - Disallowance of provision for standard assets - Deletion of addition in quantum appeal - Cancellation of penalty levied under section 271(1)(c) in respect of disallowance of provision for standard assets of Rs. 1,93,30,000/- - HELD THAT: - The Tribunal noted that the same addition (disallowance of provision for standard assets) had been deleted in the separate quantum appeal by this Tribunal, which followed the decision of a Coordinate Bench. Because the addition was deleted on merits in the quantum proceedings, there remained no justification to sustain a penalty under section 271(1)(c) in respect of that disallowance. The appellate authority therefore correctly cancelled the penalty insofar as it related to the provision for standard assets, and the Revenue's challenge to that cancellation fails.

Penalty in respect of the disallowance of provision for standard assets is cancelled.

Penalty under section 271(1)(c) - Disallowance of capital loss - Inaccurate particulars of income - Validity of penalty under section 271(1)(c) in respect of disallowance of capital loss of Rs. 7,000/- - HELD THAT: - The assessee admitted that the claimed capital loss had been inadvertently not added back and that the particulars filed were inaccurate in respect of that item. The Commissioner (Appeals) found on the admitted facts that the assessee had furnished inaccurate particulars of income and therefore upheld the penalty levied by the Assessing Officer under section 271(1)(c). The Revenue's appeal did not persuade the Tribunal to disturb that finding of admission and confirmation of penalty.

Penalty in respect of the disallowance of capital loss is confirmed.

Final Conclusion: The Revenue's appeal is dismissed: the cancellation of penalty relating to the deleted addition for provision for standard assets is upheld, and the confirmation of penalty in respect of the admitted inaccurate claim of capital loss is left intact.

Penalty under section 271(1)(c) - civil/strict liability for loss of revenue - ex facie bogus or false claim attracting penalty - set-off of business losses and unabsorbed depreciation against income from house property - requirement of business user for deductions under sections 32 and 37 - finality of concurrent factual findings

Penalty under section 271(1)(c) - ex facie bogus or false claim attracting penalty - set-off of business losses and unabsorbed depreciation against income from house property - requirement of business user for deductions under sections 32 and 37 - finality of concurrent factual findings - civil/strict liability for loss of revenue - Levy of penalty under section 271(1)(c) upheld insofar as the assessee claimed set-off of business losses and unabsorbed depreciation against income from house property despite having no business, rendering the claim non genuine and attracting penalty. - HELD THAT: - The tribunal accepted the concurrent finding that the assessee did not carry on any business in the relevant year (finalised in the tribunal's quantum order), yet the assessee sought set-off of business losses and depreciation against income offered under the head 'Income from House Property' by invoking section 71. Sections 32 and 37 require that depreciation and business expenditure be incurred 'for the purposes of the business', a condition absent here. In these circumstances the claim was held to be ex facie non genuine and lacking bona fides and therefore liable to attract penalty under section 271(1)(c). The appellate authority's reliance on precedents holding that the penalty is a civil/strict liability provision to meet loss of revenue and that an ex facie bogus claim may attract penalty was treated as applicable. The assessee's non appearance before the tribunal and lack of fresh evidence in penalty proceedings reinforced the conclusion that the onus to justify the claim was not discharged. On this basis the tribunal declined to interfere with the CIT(A)'s confirmation of the penalty. [Paras 5, 6, 8]

Penalty under section 271(1)(c) confirmed as rightly levied; appeal dismissed.

Final Conclusion: The tribunal dismissed the appeal for AY 2010-11 and upheld the penalty imposed under section 271(1)(c), concluding that the assessee's claim to set off business losses and depreciation against income from house property was non genuine and rightly attracted penal liability.

Condonation of delay - remand to original adjudicating authority - jurisdiction to adjudicate - decide the appeal on merits - not to be influenced by a stayed decision

Condonation of delay - Application for condonation of delay in filing the appeal - HELD THAT: - The application seeking condonation of delay (CM Appl. 21451/2019) was considered on the averments made. The Court found the explanation adequate and exercised its discretion to condone the delay, disposing of the condonation application accordingly.

Delay in filing the appeal is condoned and the condonation application stands disposed of.

Remand to original adjudicating authority - jurisdiction to adjudicate - decide the appeal on merits - not to be influenced by a stayed decision - Validity of the Tribunal's remand order and direction for adjudication on merits including the question of jurisdiction - HELD THAT: - The Tribunal had remanded the matter to the original adjudicating authority to decide jurisdiction after awaiting the Supreme Court's judgment in Mangli Impex. This High Court, noting its earlier approach in a similar matter and that the Mangli Impex decision was stayed, set aside the Tribunal's remand order. The Court directed the Tribunal to determine the appeal on its merits, including the question of jurisdiction, without being influenced by the decision in Mangli Impex. [Paras 5]

Impugned remand order is set aside; the Tribunal is directed to decide the appeal on merits, including jurisdiction, without regard to the Mangli Impex decision.

Final Conclusion: The condonation application is allowed and the Tribunal's remand order is set aside; the matter is remitted to the Tribunal to decide the appeal on merits, including the question of jurisdiction, uninfluenced by the Mangli Impex decision.

Extension of Export Obligation Period - Prospective v retrospective grant of extension - Export Promotion Capital Goods (EPCG) scheme compliance and consequences - Regularisation/condonation for unfulfilled export obligation under Para 5.8.3 of HBP - Availability of departmental grievance redressal remedies - Seizure under Section 110(1) of the Customs Act

Extension of Export Obligation Period - Prospective v retrospective grant of extension - Whether the authority erred in granting the two year extension of the Export Obligation Period retrospectively from the original expiry date instead of prospectively from the date of the extension order, and whether the court should direct a fresh prospective extension. - HELD THAT: - The court recorded that the respondent authority granted an extension of two years from the date of original expiry of the license (27.03.2015) up to 27.03.2017. The court held that the authority has power to grant extension and has in fact granted the two year extension from the date of expiry of the original export obligation period and not from the date of approval. The court further observed that even if the extension were considered from the date of the approval order (02.01.2017), that period would have expired on 02.01.2019 and, as on the hearing date, no prospective two year period remained to be granted. In those circumstances the court declined to direct a fresh prospective extension from the date of the court's order. [Paras 7, 8]

Petitioners' challenge to the retrospective manner of the two year extension and their prayer for a fresh prospective two year extension is rejected.

Export Promotion Capital Goods (EPCG) scheme compliance and consequences - Regularisation/condonation for unfulfilled export obligation under Para 5.8.3 of HBP - Whether the petitioners were entitled to relief despite having failed to fulfil export obligations and having not regularised the unfulfilled block as required under the scheme. - HELD THAT: - The court noted that the EPCG authorization required fulfilment of specified export blocks and that the petitioner failed to complete the first block by 27.03.2013 and did not regularise within three months as prescribed by Para 5.8.3 of the Handbook. The court accepted the respondents' position that the petitioner did not comply with the scheme conditions, delayed approaching authorities for several years, and therefore could not claim the exemption as a matter of right. On that basis the court found no merit in granting the equitable relief sought. [Paras 7]

Petitioners' claim is negatived because they failed to fulfil and regularise the export obligation as required under the EPCG scheme.

Availability of departmental grievance redressal remedies - Whether the petitioners could invoke writ jurisdiction without exhausting the departmental grievance redressal mechanism. - HELD THAT: - The court observed that the petitioners had not availed the departmental remedies available under the Foreign Trade Policy/Handbook (including reference to grievance redressal provisions) before approaching the court. The respondents contended, and the court accepted, that the petitioner ought to have utilised the internal grievance redressal mechanisms prior to invoking writ jurisdiction. In view of this, the court declined to exercise discretion in favour of the petitioners. [Paras 3, 7]

Petition is not maintainable in the exercise of discretionary writ jurisdiction where departmental remedies were not exhausted; petition dismissed.

Final Conclusion: The petition is dismissed. The court upheld the authority's grant of a two year extension measured from the original expiry and found no ground to direct a fresh prospective extension, noting the petitioners' failure to regularise unfulfilled export obligations and their omission to exhaust departmental grievance remedies.

Condonation of delay - National Litigation Policy - withdrawal of appeals in terms of litigation policy - monetary threshold for invocation of litigation policy

Condonation of delay - Delay of 105 days in filing the appeals before the Tribunal was condoned. - HELD THAT: - The Tribunal considered the reasons set forth in the Miscellaneous Applications filed by the Appellant and found them sufficient to excuse the delay in filing the appeals. Having accepted the explanation, the Tribunal allowed the Miscellaneous Applications and condoned the delay, thereby permitting the appeals to be placed on record and proceed further. [Paras 2]

Delay of 105 days is condoned and the Miscellaneous Applications (for condonation) are allowed.

National Litigation Policy - withdrawal of appeals in terms of litigation policy - monetary threshold for invocation of litigation policy - Revenue's withdrawal of appeals under the Board's National Litigation Policy was accepted and the appeals dismissed under that Policy because the amounts involved were below the specified monetary limit. - HELD THAT: - The Tribunal examined the record and noted that the amount involved in the cases was below the monetary limit of Rs. 10 lakhs specified in the Board's Instruction (National Litigation Policy). In accordance with the Revenue's Miscellaneous Applications to withdraw the appeals pursuant to the Policy, the Tribunal dismissed the appeals under the Litigation Policy. Consequential Miscellaneous Applications and Stay Petitions were also disposed of. [Paras 4]

Appeals dismissed under the National Litigation Policy and related Miscellaneous Applications and Stay Petitions disposed of.

Final Conclusion: The Tribunal condoned the delay in filing the appeals and, on the Revenue's invocation of the National Litigation Policy given the amounts were below the prescribed monetary threshold, accepted withdrawal of the appeals and dismissed them under the Policy; ancillary applications disposed of.

State under Article 12 - maintainability of writ under Article 226 - delegation of disciplinary authority - competent authority for initiation of disciplinary proceedings - natural justice in departmental inquiry - judicial review of inquiry report - referral to Chief Vigilance Commissioner for inquiry

State under Article 12 - maintainability of writ under Article 226 - Whether Petronet LNG Limited is a State for purposes of writ jurisdiction and whether the writ petition is maintainable under Article 226. - HELD THAT: - The Court concluded that Petronet LNG Limited, being a public limited joint venture with 50% shareholding by central PSUs, subject to deep and pervasive governmental control and falling within the purview of CVC, is an instrumentality of the State within the meaning of Article 12. Having so held, the Court found the writ petition maintainable under Article 226. [Paras 57, 58]

Petronet LNG Limited is an instrumentality of the State under Article 12; the writ petition is maintainable.

Delegation of disciplinary authority - competent authority for initiation of disciplinary proceedings - Whether the charge-sheet dated 21.08.2018 and constitution of the Inquiry Committee were invalid for lack of approval by the Board/Disciplinary Authority under the Companies Act and related policies. - HELD THAT: - On construction of the Companies Act provisions and the company's DOA and HR policies, the Court held that initiation of disciplinary proceedings does not require prior Board approval and that MD & CEO is empowered under the delegation of authority and HR policy to initiate disciplinary action and appoint an inquiry committee. The Court examined the original file during hearing and recorded that the MD & CEO had approved issuance of the charge-sheet; accordingly the challenge that the charge-sheet was non-est for lack of Board approval did not succeed on the facts of this case. [Paras 63, 64, 65, 66, 67]

MD & CEO is competent to initiate disciplinary proceedings and the charge-sheet was validly approved by the MD & CEO.

Natural justice in departmental inquiry - judicial review of inquiry report - Whether the Inquiry Committee's ex parte findings and alleged bias warranted quashing of the inquiry report without further process. - HELD THAT: - The Court recorded that the petitioner did not attend the inquiry despite opportunities and that the writ was filed after the inquiry report was communicated but before the petitioner submitted a response. Rather than quashing the report on that ground, the Court granted the petitioner liberty to file a response within three weeks and directed the respondents to consider the reply and pass orders in accordance with law, including addressing the petitioner's contention regarding non-action against another employee with similar club membership. [Paras 59, 60, 61, 70]

Petitioner permitted to file response; respondents directed to consider the response and pass orders in accordance with law.

Referral to Chief Vigilance Commissioner for inquiry - Disposition of the corruption allegations made by the petitioner against the MD & CEO (respondent no.6). - HELD THAT: - The Court observed that if information on corrupt practices is on record it cannot be ignored. The Court therefore directed that the Chief Vigilance Commissioner be informed and requested to inquire into the specific allegations set out by the petitioner concerning respondent no.6 and to take action as per law. This direction does not adjudicate the merits of those allegations but refers them for independent investigation by the CVC. [Paras 68, 69, 72]

Allegations against respondent no.6 referred to the Chief Vigilance Commissioner for inquiry and action as per law.

Final Conclusion: Writ petition is maintainable; the challenge to the charge-sheet and inquiry based on absence of Board approval failed because the MD & CEO was found to be competent and to have approved the charge-sheet on the record perused by the Court; petitioner granted liberty to file a response within three weeks and respondents directed to consider it and pass orders; allegations of corruption against the MD & CEO are directed to be enquired into by the Chief Vigilance Commissioner.

Moratorium under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 - counterclaim as a proceeding against the corporate debtor - set-off and interlinked adjudication of claim and counterclaim - prohibition limited to proceedings endangering, diminishing, dissipating or adversely impacting assets of corporate debtor - continuation of proceedings not prohibited where no threat to assets - adjudication by civil court vis-a -vis claims before the Resolution Professional/NCLT

Moratorium under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 - counterclaim as a proceeding against the corporate debtor - set-off and interlinked adjudication of claim and counterclaim - prohibition limited to proceedings endangering, diminishing, dissipating or adversely impacting assets of corporate debtor - adjudication by civil court vis-a -vis claims before the Resolution Professional/NCLT - Whether the defendant's counter claim is barred by the moratorium under Section 14(1)(a) of the Code or whether the plaint and counter claim should be adjudicated together by the Court. - HELD THAT: - The Court held that, while a counter claim is in form a proceeding against the corporate debtor and thus falls within the language of Section 14(1)(a), the embargo must be read in light of its purpose - to prevent actions that would endanger, diminish, dissipate or adversely impact the assets of the corporate debtor. Where the claim and the counter claim arise from the same transaction and are interlinked such that the entitlement of either party cannot be determined without adjudicating both, compelling the defendant to pursue its claim only before the Resolution Professional/NCLT would frustrate substantive adjudication and risk inconsistent outcomes. Proceedings that do not threaten the assets of the corporate debtor may be permitted to continue. Given the uncertainty as to which party, if any, will ultimately be entitled to recover, and the summary nature of NCLT/RP claim processing (which does not involve a trial), the Court found it appropriate that the plaint and counter claim be tried together by the civil court. The Court observed that Section 14 could become operative at a later stage (for example, at execution) if continuation would in fact impair the corporate debtor's assets, but on the facts before it there was no present threat to assets and therefore no basis to stay the counter claim under Section 14. [Paras 6, 7, 8, 9]

The counter claim is not stayed under Section 14 of the Code; the suit and counter claim shall proceed to trial before this Court.

Final Conclusion: The Court directed that the plaint and the interlinked counter claim be adjudicated together by the civil court and declined to stay the counter claim under the moratorium at this stage; further consideration of Section 14's effect may follow later if continuation risks the corporate debtor's assets.

Liquidation estate under Section 36(4)(a)(iii) - workmen's dues - distribution of assets under Section 53 - exclusion of provident fund, pension fund and gratuity fund from liquidation estate - overriding effect of the Insolvency and Bankruptcy Code over inconsistent provisions of the Companies Act

Liquidation estate under Section 36(4)(a)(iii) - exclusion of provident fund, pension fund and gratuity fund from liquidation estate - All sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund are not part of the liquidation estate. - HELD THAT: - The Court examined Section 36 of the I&B Code and specifically relied on sub-section (4)(a)(iii) which expressly excludes "all sums due to any workmen or employee from the provident fund, the pension fund and the gratuity fund" from the liquidation estate. On that basis the Court held that such sums cannot be treated as assets of the corporate debtor for the purposes of liquidation and cannot be used for recovery in liquidation. The reasoning rests on the literal and specific exclusion contained in Section 36(4)(a)(iii). [Paras 13]

The provident fund, pension fund and gratuity fund amounts do not form part of the liquidation estate.

Distribution of assets under Section 53 - workmen's dues - Since the provident fund, pension fund and gratuity fund are excluded from the liquidation estate, they are not subject to distribution under Section 53 of the I&B Code. - HELD THAT: - Section 53 governs distribution of proceeds from sale of liquidation assets in a specified order of priority. Because Section 36(4)(a)(iii) removes the provident, pension and gratuity funds from the liquidation estate, there are no corresponding liquidation assets in respect of those funds to be distributed under Section 53. The Court therefore held that the question of distributing those funds under the waterfall in Section 53 does not arise. [Paras 16, 24]

The excluded funds cannot be included for distribution under Section 53.

Workmen's dues - overriding effect of the Insolvency and Bankruptcy Code over inconsistent provisions of the Companies Act - The Explanation to Section 53 which refers to the meaning of "workmen's dues" in Section 326 of the Companies Act cannot be used to import Explanation (iv) of Section 326 so as to bring provident, pension and gratuity funds into the liquidation estate; in any event Section 53 read with Section 36(4) has overriding effect over Section 326 to the extent of any inconsistency. - HELD THAT: - The Court observed a distinction between the limited conception of "workmen's dues" for distribution under Section 53(1)(b)(i) (which is temporally confined to twenty-four months preceding the liquidation commencement date) and the broader definition of "workmen's dues" in Section 326 of the Companies Act. It held that the appellant cannot derive advantage from Explanation (iv) to Section 326 to include provident, pension and gratuity funds within Section 53 because Section 36(4)(a)(iii) expressly excludes those sums from the liquidation estate. Further, given the I&B Code's overriding effect, Section 53 read with Section 36(4) prevails over Section 326 of the Companies Act insofar as they are inconsistent. [Paras 18, 20, 21, 23]

Explanation (iv) to Section 326 cannot be invoked to include the excluded funds in the liquidation estate, and Section 53 read with Section 36(4) overrides inconsistent provisions of the Companies Act.

Final Conclusion: The Adjudicating Authority's order holding that provident fund, pension fund and gratuity fund sums do not form part of the liquidation estate and therefore are not distributable under Section 53 of the I&B Code is affirmed; the appeal is dismissed.

Financial creditor - financial debt - disbursement for consideration of time value of money - maintainability of an application under Section 7 of the I&B Code

Financial creditor - financial debt - disbursement for consideration of time value of money - maintainability of an application under Section 7 of the I&B Code - Whether Indiabulls Housing Finance Ltd. is a financial creditor of Rudra Buildwell Projects Pvt Ltd for the purposes of proceedings under Section 7 of the I&B Code. - HELD THAT: - The loan agreement identifies Mr. Davender Singh as the borrower and IHFL as the financial creditor; IHFL disbursed amounts to the borrower. A contemporaneous tripartite agreement recorded that the builder agreed to assume liability for interest payable by the borrower for a specified "Liability Period" and, in consequence, made certain payments to IHFL. Sections 5(7) and 5(8) of the I&B Code define "financial creditor" and "financial debt" and establish that a person who has disbursed money for the consideration of the time value of money is a financial creditor in respect of the person to whom the disbursement was made. Because the disbursement was made in favour of the borrower and not to Rudra Buildwell Projects Pvt Ltd, the respondent cannot be treated as the corporate debtor of IHFL for the purpose of a Section 7 petition. The Adjudicating Authority therefore correctly held that the Section 7 application was not maintainable against Rudra Buildwell Projects Pvt Ltd.

The Section 7 application by IHFL against Rudra Buildwell Projects Pvt Ltd is not maintainable because the financial debt was disbursed to the borrower and Rudra Buildwell is not the corporate debtor of IHFL.

Final Conclusion: The appeal is dismissed; the Adjudicating Authority was correct in rejecting the Section 7 application as Rudra Buildwell Projects Pvt Ltd is not the corporate debtor of Indiabulls Housing Finance Ltd.

Renting of immovable property service - Business Auxiliary Service - surface right - incidental activity versus main activity - deputation of employees / cost reimbursement - point of taxation - limitation / time-bar

Renting of immovable property service - surface right - incidental activity versus main activity - Acquisition of land by the appellant for and transfer to the JV company is not a taxable service under the renting of immovable property service; the element of surface right is incidental to mining and does not convert the completed sale into a service. - HELD THAT: - The Tribunal found on the record that the land was acquired from cultivators through the Land Acquisition Officer and payment was completed from the escrow account prior to the later governmental decision refusing transfer/mortgage. The Mines and Minerals (Development and Regulation) Act recognises surface rights as incidental to mining operations, the main activity being extraction and benefits arising out of land. A subsequent change in policy and denial of transfer does not retrospectively convert a completed sale into a taxable renting service. Further, even on the assumption that any element of surface right could be taxable, the Revenue failed to segregate and ascertain the value of any service component instead of treating the entire acquisition cost as consideration for a service. Reliance on precedents treating benefits arising out of land (e.g., development rights/royalty) as immovable property supported the conclusion that no service was rendered by the appellant in relation to the acquisition and transfer to the JV company. [Paras 17, 18, 21]

No service liability arises on the acquisition and transfer of land; the demand on this count is unsustainable.

Business Auxiliary Service - limitation / time-bar - The grant of 51% equity to the appellant in the JV company is not a service chargeable as Business Auxiliary Service; alternatively, any demand relating to that grant is barred by limitation. - HELD THAT: - The Tribunal observed that the impugned order did not identify a sub-category within Business Auxiliary Service that would embrace the grant of equity. The grant of shares did not constitute promotion, marketing or similar activities covered under BAS. Even if the equity allotment were treated as consideration for a service, the allotment occurred in 2008-09 while the show cause notice was issued in 2015, beyond the statutory period of five years; accordingly, that part of the demand could not be sustained. The Tribunal also relied on authorities indicating that sums characterized as a partner's or co-venturer's share or royalty arising from joint operations are not consideration for rendition of services. [Paras 22]

The demand in respect of the 51% equity is not maintainable; it is neither within BAS nor within the limitation period.

Deputation of employees / cost reimbursement - Business Auxiliary Service - Recovery of expenses by the appellant from the JV company for deputation of its employees on actual cost basis does not constitute Business Auxiliary Service and is not taxable. - HELD THAT: - The Tribunal held that the appellant merely recovered actual costs without any mark-up for deputed employees and did not act as a manpower supply agency. Relying on settled reasoning and prior decisions, recoveries that are mere reimbursements of employment costs (including cases of joint employment) do not amount to consideration for a service. The absence of any mark-up or separate contractual supply of manpower confirmed that these recoveries were cost reimbursements and outside the charge to BAS. [Paras 23, 24]

Recoveries for deputation of employees on actual basis are not taxable as Business Auxiliary Service.

Limitation / time-bar - The Department was not entitled to invoke the extended period of limitation; the demand is time-barred and there is no record of suppression or intent to evade duty. - HELD THAT: - The Tribunal found that the Department had prior knowledge of the land acquisition transactions and that subsequent governmental actions altering transferability amounted to a change of position rather than concealment. There was no evidence of suppression of facts or intent to evade payment of duty that would justify invocation of the extended limitation under the statute. Consequently, the show cause notice issued beyond the normal period could not be sustained. [Paras 25]

The demand is time-barred; extended limitation cannot be invoked.

Final Conclusion: The appeal is allowed; the impugned order confirming service tax demand and penalty is set aside. Consequential relief to the appellant is granted in accordance with law.

Time of payment of service tax - confirmation of demand - interest for delayed payment - penalty under Section 77 - penalty under Section 78 - bona fide belief - remand for quantification of interest

Time of payment of service tax - confirmation of demand - Whether the confirmed demand of service tax could be sustained where the appellant paid the tax subsequently. - HELD THAT: - The Tribunal found that the only dispute between the parties related to the timing of deposit of service tax - whether it was payable at the time of raising of invoices or on receipt of consideration. The Revenue did not dispute that the appellant eventually deposited the tax. In view of subsequent payment, confirmation of the demand cannot be upheld. [Paras 4]

The confirmation of the service tax demand is set aside insofar as it is based on non-payment, because the tax was subsequently paid by the appellant.

Interest for delayed payment - remand for quantification of interest - Whether interest is payable for delayed deposit of service tax and the quantum of such interest. - HELD THAT: - The Tribunal accepted that payment made after the time of raising invoices attracts liability for interest. The Tribunal accordingly sustained the liability for interest and directed the Lower Authorities to quantify the amount of interest due, leaving computation to be carried out by the adjudicating authority. [Paras 5]

Liability to pay interest for delayed deposit is upheld and the matter is remitted to the Lower Authorities to quantify the interest.

Penalty under Section 77 - penalty under Section 78 - bona fide belief - Whether penalties under Sections 77 and 78 are leviable where there was no mala fide and the appellant had a bona fide belief about timing of tax liability in construction-sale transactions. - HELD THAT: - The Tribunal observed that in the construction industry invoices for sale of flats are often not raised prior to actual realization and the appellant believed tax was payable on actual sale. In the absence of mala fide conduct and given this industry practice and belief, the Tribunal exercised its discretion to relieve the appellant from penal consequences, setting aside penalties imposed under both provisions. [Paras 3, 5]

Penalties imposed under Section 77 and Section 78 are set aside and waived.

Final Conclusion: The appeal is allowed in part: the confirmed demand is not sustained insofar as tax was subsequently paid; interest for delayed payment is upheld and remitted to the Lower Authorities for quantification; penalties under Sections 77 and 78 are set aside in view of the assessee's bona fide belief and industry practice.

Limitation in reopening assessments - invocation of Section 11A of the Central Excise Act, 1944 read with Section 73 of the Finance Act, 1994 - bona fide reliance on judicial precedent - mala fide, suppression or misleading the revenue - input service - outward transportation up to place of removal

Limitation in reopening assessments - invocation of Section 11A of the Central Excise Act, 1944 read with Section 73 of the Finance Act, 1994 - Whether the demand in respect of service tax credit could be reopened and recovered by invoking Section 11A read with Section 73, notwithstanding the period of limitation - HELD THAT: - The Court found that the portion of demand amounting to the disputed credit was barred by limitation and that there was no valid foundation for invoking Section 11A read with Section 73 to reopen the assessments for the relevant period. The Tribunal's acceptance of the Department's invocation of those provisions was not justified on the facts: during April 2009 to March 2011 the law as laid down by the Larger Bench of the CESTAT treated the outward transportation service as an eligible input service, and hence the assessee's claim fell within an extant judicial view at the relevant time. A subsequent contrary decision by the High Court does not operate retrospectively to make the earlier availment mala fide or to validate reopening under the special provisions relied upon by the Revenue. On this basis the Court held the reopening to be impermissible and the demand to be time-barred. [Paras 7, 8]

Section 11A of the Central Excise Act, 1944 read with Section 73 of the Finance Act, 1994 was not invokable to raise the subject demand for the period April, 2009 to March, 2011; the demand was barred by limitation.

Bona fide reliance on judicial precedent - mala fide, suppression or misleading the revenue - input service - outward transportation up to place of removal - Whether the assessee acted mala fide or misled the Department in availing the disputed credit - HELD THAT: - The Court held that the assessee did not act mala fide or mislead the authorities. At the time the credits were availed the Larger Bench of the CESTAT in ABB Ltd. had held that services for outward transportation up to the place of removal constituted admissible input services under the CENVAT Credit Rules, and that view was operative during the relevant period. Reliance by the assessee on that judicial view amounted to bona fide reliance on precedent; a later High Court decision adverse to that view cannot be used to brand past conduct as mala fide so as to justify invoking the provisions relied upon by the Revenue. [Paras 7]

The assessee's availment of the disputed credit was in bona fide reliance on prevailing judicial precedent and did not amount to mala fide conduct or suppression/misleading of the Department.

Final Conclusion: The appeal is allowed: the CESTAT's order upholding the reopening and demand in respect of the disputed service-tax credit is set aside; Section 11A read with Section 73 could not be invoked and the subject demand for April, 2009 to March, 2011 is barred by limitation.

Amalgamation with retrospective effect - assessments in name of dissolved Transferor company - treating revised assessment orders as revisional / show-cause notices to Transferee - right to opportunity of hearing / reply to revisional notices - redoing revised assessments by jurisdictional Assessing Officer on merits - communication of revised assessment under due acknowledgement

Amalgamation with retrospective effect - assessments in name of dissolved Transferor company - treating revised assessment orders as revisional / show-cause notices to Transferee - right to opportunity of hearing / reply to revisional notices - Validity of revised assessments made in the name of the dissolved Transferor company in view of the amalgamation - HELD THAT: - The Company Court's order of amalgamation dated 20.09.2012, which took effect retrospectively from 01.04.2011, resulted in the dissolution of the Transferor company. Notices and revised assessments issued in the name of the dissolved Transferor after approval of the scheme could not stand without affording the Transferee entity an opportunity to be heard. In these circumstances the Court held that the impugned revised assessment orders should not be treated as final assessments in the name of the dissolved Transferor; instead they are to be treated as revisional or show-cause notices addressed to the Transferee entity so that the Transferee may file objections and be heard before any fresh revised assessment is completed. [Paras 11, 12, 13, 14]

Impugned orders are treated as revisional / show-cause notices to the Transferee (Sripathi Paper and Boards Private Limited); Transferee to file objections and be afforded opportunity before revised assessments are completed.

Redoing revised assessments by jurisdictional Assessing Officer on merits - communication of revised assessment under due acknowledgement - Procedure and timelines for completing the revisional exercise after treating impugned orders as revisional notices - HELD THAT: - The Court directed that upon receipt of this order the Transferee shall file its replies/objections within four weeks. The jurisdictional Assessing Officer must then complete the revisional assessment on the merits of those replies/objections and in accordance with law, within twelve weeks from receipt. The revised assessment so made must be communicated to the dealer (the Transferee) under due acknowledgement in conformity with the rules applicable under the TNVAT regime. [Paras 14]

Transferee to file objections within four weeks; Assessing Officer to redo and pass revised assessments on merits within twelve weeks and communicate them under due acknowledgement.

Final Conclusion: The six writ petitions are disposed of by treating the impugned revised assessment orders as revisional/show-cause notices addressed to the Transferee (Sripathi Paper and Boards Private Limited), directing the Transferee to file objections within four weeks and the Assessing Officer to complete fresh revised assessments on merits and communicate them within twelve weeks; no costs.

Limitation on assessment and reassessment - Proviso to Section 34(1) - formation and recordal of "reasons to believe" - Concealment, omission or failure to disclose full material particulars - Requirement of nexus between reasons to believe and non-payment of tax - Independent inquiry beyond reliance on third party/CE intelligence reports - Separate assessments under DVAT and CST - non aggregation of liabilities

Limitation on assessment and reassessment - Proviso to Section 34(1) - formation and recordal of "reasons to believe" - Concealment, omission or failure to disclose full material particulars - Requirement of nexus between reasons to believe and non-payment of tax - Validity of reopening assessment beyond four years by invoking the proviso to Section 34(1) of the DVAT Act - HELD THAT: - The Court applied the legal tests laid down in H M Industries and related paragraphs of Section 34(1). The proviso extends limitation to six years only where the Commissioner has formed "reasons to believe" that tax was not paid because of the assessee's concealment, omission or failure to disclose full material particulars. Such "reasons to believe" must be recorded in writing and must have a live nexus with non payment of tax. Absent recorded reasons and demonstrable nexus, jurisdiction to invoke the extended six year period is lacking. The file notings and notice in the present case do not disclose that the Commissioner arrived at subjective satisfaction linking the Petitioner's failure to pay tax to concealment, omission or failure to disclose material particulars; therefore the statutory preconditions for reopening beyond four years are not fulfilled. [Paras 15, 16, 18, 19, 25]

Reopening of assessment beyond four years by invoking the proviso to Section 34(1) was invalid for want of recorded reasons and requisite nexus; extended limitation could not be invoked.

Independent inquiry beyond reliance on third party/CE intelligence reports - Concealment, omission or failure to disclose full material particulars - Whether reliance solely on the DGCEI/Central Excise material without independent departmental enquiry suffices to form reasons to believe for reassessment under the DVAT Act - HELD THAT: - The Court examined the department's file notings showing the DGCEI report as the trigger. It held that reliance on a third party Central Excise report, without further independent inquiry by the VAT authorities to establish that the facts disclosed amounted to concealment, omission or failure to disclose material particulars under the DVAT regime, cannot supply the requisite "reasons to believe." The distinction between proceedings under the Central Excise/CENVAT regime and those under the DVAT Act was emphasised; the mere existence of CE proceedings or an SCN does not automatically justify VAT reassessment absent an independent satisfaction linked to VAT liability. [Paras 17, 20, 21, 22]

DGCEI/Central Excise material alone, without independent inquiry demonstrating nexus to VAT non payment, did not furnish the statutory basis for reassessment.

Separate assessments under DVAT and CST - non aggregation of liabilities - Limitation on assessment and reassessment - Permissibility of combining DVAT and CST liabilities in a single default assessment order and the prospect of issuing separate orders subsequently - HELD THAT: - The Court noted that under the statutory scheme liabilities under the DVAT Act and the Central Sales Tax Act are distinct and could not be combined into a single assessment. The department's characterisation of the combined assessment as a mere "technical problem" was rejected. Allowing the department to repeat the exercise by issuing separate DVAT and CST orders would be impermissible where time bar and substantive jurisdictional defects exist; in any event such repetition would now be time barred. [Paras 6, 24, 25]

Combining DVAT and CST assessments in one order was impermissible; the department cannot cure the defect by issuing separate orders now, particularly where limitation and jurisdictional defects exist.

Final Conclusion: The petition is allowed. The notices dated 11th October 2017 under Section 59(2) and the default assessment orders dated 18th January 2018 under Sections 32 and 33 of the DVAT Act are set aside as the statutory preconditions for reopening beyond four years were not satisfied; no order as to costs.

Failure to give reasons for rejecting objections - requirement to advert to and answer objections in revised assessment - remand for fresh decision with reasons - proviso to Section 27(2) - requirement of giving reasonable opportunity to show cause - statutory appeal in prescribed form requiring grounds of appeal

Failure to give reasons for rejecting objections - requirement to advert to and answer objections in revised assessment - remand for fresh decision with reasons - Validity of the revised assessment orders which merely state that the dealer's reply was not accepted without giving reasons. - HELD THAT: - The Court found that the impugned revised assessment orders were set aside solely because they do not advert to the detailed objections filed by the writ petitioner and do not state reasons explaining why those objections/reply were not accepted. The absence of any articulation or evaluation of the objections in the orders rendered the orders unsustainable. Rather than expressing any view on the merits of the objections, the Court directed that the respondent shall, without further reference to the writ petitioner, pass fresh revised assessment orders that expressly advert to the writ petitioner's replies/objections and give reasons for not accepting them. The Court observed that requiring reasons at this stage avoids delay that would otherwise arise if the appellate authority were constrained to remit the matter for want of articulated grounds on appeal. [Paras 14]

Impugned orders set aside; respondent directed to pass fresh revised assessment orders adverting to and giving reasons for rejecting the writ petitioner's objections.

Proviso to Section 27(2) - requirement of giving reasonable opportunity to show cause - statutory appeal in prescribed form requiring grounds of appeal - Whether the statutory requirement of giving reasonable opportunity under the proviso to Section 27(2) was complied with and whether the respondent should again seek further submissions from the writ petitioner before passing fresh orders. - HELD THAT: - The Court found that revisional notices were issued and the writ petitioner filed detailed objections; accordingly, the statutorily imperative requirement under the proviso to Section 27(2) that the assessee be given reasonable opportunity to show cause against the proposed orders has been complied with. On that basis, the Court directed that the respondent, relying on the objections already on record, shall pass fresh orders addressing those objections and giving reasons for not accepting them, without calling for further submissions from the writ petitioner. The Court also noted that this course would expedite resolution and avoid unnecessary remands by an appellate authority. [Paras 14]

Respondent to proceed afresh on the basis of existing objections; no further reference to the writ petitioner required for the purpose of giving opportunity under the proviso to Section 27(2).

Final Conclusion: The four challenged revised assessment orders for the Assessment Years 2009-10, 2011-12, 2013-14 and 2015-16 are set aside solely for failure to advert to and give reasons for rejecting the writ petitioner's objections; the respondent is directed to pass fresh revised assessment orders addressing the objections and giving reasons, to be completed and communicated within eight weeks; no view expressed on the merits.

Interim stay of tax recovery - condition precedent of deposit for stay - judicial modification of interim orders - mechanical exercise of discretion - expedited disposal of appeals

Interim stay of tax recovery - condition precedent of deposit for stay - mechanical exercise of discretion - Whether the tribunal's interim orders insisting on deposit of 30% of disputed tax for grant of stay required judicial modification - HELD THAT: - The High Court observed that the impugned interim orders did not reflect any advertence to the merits of the appeals and appeared to be passed in a mechanical manner. Rather than remitting the interim applications for fresh consideration, which would multiply proceedings, the Court exercised its supervisory jurisdiction to moderate the condition imposed for grant of stay. As an equitable relief the percentage of deposit was reduced, while preserving the requirement of deposit and execution of a simple bond for the balance, thereby balancing the need for protection of revenue with the equities of the petitioner.

Imposed deposit condition in the tribunal's interim orders modified from 30% to 20% of the disputed demand, with a simple bond for the balance, to be complied with within thirty days.

Judicial modification of interim orders - expedited disposal of appeals - Whether the appeals before the tribunal should be directed to be expeditiously heard and disposed of after the modified deposit is made - HELD THAT: - The Court declined to remit the matter and instead directed that if the petitioner makes the modified deposit and executes the bond within the stipulated time, the tribunal shall take all earnest endeavour to dispose of the second appeals at the earliest possible. This direction was made to avoid multiplicity of proceedings and to ensure an early adjudication on merits following compliance with the modified interim conditions.

Tribunal directed to make all earnest endeavour to dispose of the appeals at the earliest possible upon compliance with the modified deposit and bond requirement.

Final Conclusion: Original petition disposed by modifying the tribunal's interim orders: petitioner to deposit 20% of the disputed demand and execute a simple bond for the balance within thirty days; on such compliance the tribunal shall endeavour to dispose of the appeals at the earliest. The interim applications were not remitted for fresh consideration.

Principles of natural justice - pre-assessment notice - quashing of assessment order - de novo assessment - opportunity of hearing

Principles of natural justice - pre-assessment notice - opportunity of hearing - Impugned assessment order set aside for violation of the principles of natural justice where the Assessing Officer proceeded on the basis that there was no reply to a pre-assessment notice despite the petitioner having sent a reply which was received and acknowledged. - HELD THAT: - The Court examined the assessment records and the Assessing Officer's file note concerning the pre-assessment notice dated 24.02.2015. Although the Assessing Officer recorded that there was no response and confirmed the proposals rejecting the exemption claim, the records affirm that the petitioner had furnished a reply on 11.12.2014 which was received and acknowledged on 12.12.2014. In these circumstances the Assessing Officer's failure to take the petitioner's response into account amounted to a breach of principles of natural justice, rendering the impugned assessment order susceptible to quashing. The Court therefore allowed the writ petition and set aside the assessment order for want of fair opportunity and consideration of the petitioner's submissions. [Paras 5, 6]

Assessment order quashed for violation of principles of natural justice; writ petition allowed.

De novo assessment - opportunity of hearing - Assessment remitted to the Assessing Officer for fresh consideration and decision after affording opportunity to the petitioner to produce its reply and supporting documents. - HELD THAT: - Having quashed the impugned order, the Court directed that the petitioner shall appear before the Assessing Officer on 20.06.2019 with its reply and supporting documents. The Assessing Officer was directed to afford due opportunity of hearing and to pass appropriate orders de novo on or before 04.07.2019. The remand requires the Assessing Officer to reconsider the claim on merits after taking into account the petitioner's previously filed reply and annexures. [Paras 7]

Matter remitted for de novo assessment after affording opportunity; fresh orders to be passed by the Assessing Officer within the stipulated time.

Final Conclusion: Writ petition allowed: impugned assessment order quashed for breach of natural justice; matter remitted to the Assessing Officer for de novo consideration after giving the petitioner an opportunity to be heard, with directions and a timetable for compliance.

Presumption under Section 139 of the Negotiable Instruments Act - conviction under Section 138 of the Negotiable Instruments Act - rebuttal of statutory presumption by evidence - burden of proof in cheque dishonour cases - mercantile transaction and running account - imposition of fine and compensation in lieu of imprisonment

Presumption under Section 139 of the Negotiable Instruments Act - burden of proof in cheque dishonour cases - The complainant discharged the initial burden and the statutory presumption under Section 139 arose in his favour that the cheques were issued for discharge of a debt or liability. - HELD THAT: - The Court held that once the complainant (PW-1) proved issuance of the cheques in respect of mercantile transactions, the statutory presumption under Section 139 was attracted. The presumption operates after the complainant proves the execution/possession of the negotiable instrument and shifts the onus to the accused to adduce evidence to rebut that presumption. The High Court and trial court erred in disregarding PW-1's oral testimony merely because the complaint lacked specific averments regarding cash and credit sales; the evidence given at trial was sufficient to raise the presumption in favour of the complainant. [Paras 16, 18]

Presumption under Section 139 arises on the complainant's evidence and should have been raised by the courts below.

Rebuttal of statutory presumption by evidence - mercantile transaction and running account - The receipts relied upon by the respondent did not successfully rebut the presumption that the cheques were issued for discharge of a legally enforceable debt. - HELD THAT: - The respondent produced multiple receipts (Ex.-16/C and Ex.-22/C) and oral evidence claiming cash payments and retention of blank cheques by the complainant. The Court examined the documentary and oral material and found the receipts did not create reasonable doubt about credit sales or extinguish the legally enforceable debt for which the cheques were issued. The Court also rejected the defence that complainant's retention or use of blank cheques justified acquittal, finding the testimony and circumstances relied upon by the respondent to be improbable and insufficient to discharge the burden of rebuttal. [Paras 11, 13, 19]

Receipts and oral defence did not rebut the statutory presumption; the defence was held to be unbelievable and insufficient.

Conviction under Section 138 of the Negotiable Instruments Act - imposition of fine and compensation in lieu of imprisonment - The respondent was convicted under Section 138 of the Negotiable Instruments Act and a monetary sentence (fine and compensation) was imposed, with imprisonment in default. - HELD THAT: - Having concluded that the presumption under Section 139 stood unrebutted and that the cheques were issued for discharge of debt, the Court set aside the High Court's order of acquittal and convicted the respondent under Section 138. Considering the lapse of time since the cheque transactions (2003), the Court imposed a fine (inclusive of compensation) to be deposited within a stipulated period and ordered imprisonment for default, rather than imposing an immediate term of incarceration. [Paras 19, 20]

Acquittal set aside; respondent convicted under Section 138 and sentenced to pay fine and compensation, with imprisonment for default.

Final Conclusion: The High Court's acquittal is set aside; the statutory presumption under Section 139 was held to arise and was not rebutted by the respondent, who is convicted under Section 138. A monetary sentence (fine and compensation) was imposed with imprisonment in default; the fine is to be deposited and paid to the complainant as directed.

Completion of sale upon issuance of sale certificate under SARFAESI Act - Right of redemption of mortgagor - Validity of tender under Section 13(8) of the SARFAESI Act - Interaction of non-obstante clause with other laws (Sections 35 and 37 of the SARFAESI Act) - Registration of sale certificate not required for SARFAESI auction sale under the Registration Act

Completion of sale upon issuance of sale certificate under SARFAESI Act - Registration of sale certificate not required for SARFAESI auction sale under the Registration Act - The sale effected by public auction under Section 13(4) of the SARFAESI Act becomes complete and absolute on confirmation and issuance of the sale certificate; registration of the sale certificate is not a prerequisite for the sale to become final under the SARFAESI scheme. - HELD THAT: - Relying on authority and reasoning adopted by the High Court, the Division Bench held that once the auction purchaser is confirmed and a sale certificate is issued under rule 9(7), the sale stands completed for the purposes of the SARFAESI Act and the purchaser acquires vested rights. The court observed that the sale certificate issued pursuant to a public auction under the SARFAESI Act does not require registration under section 17(2)(xii) of the Registration Act and therefore registration is not essential to complete the transfer under the SARFAESI scheme. Having regard to the facts, the auction was confirmed and the sale certificate issued prior to the appellants' attempts to tender dues, and hence the sale had become absolute. [Paras 10, 24, 25, 30]

Sale by public auction under SARFAESI Act became final on issuance of the sale certificate and did not require registration to be effective.

Right of redemption of mortgagor - Validity of tender under Section 13(8) of the SARFAESI Act - The appellants failed to validly exercise the right of redemption because they did not tender the outstanding dues in the manner and within the time prescribed under Section 13(8) and related rules; consequently their right of redemption was extinguished. - HELD THAT: - The court recorded that Section 13(8) (as applicable then) required tender of dues before the date fixed for sale; the appellants approached the bank only after the date fixed for sale and after confirmation of auction. The attempts made by the appellants (deposits in a third party account, cheques which the bank was not obliged to accept, and demand drafts drawn in the name of the Authorized Officer rather than the bank) did not constitute valid tender in law. The appellants also failed to seek permission to deposit amounts in court or to place funds in the relevant loan accounts during pendency of proceedings. On these factual and legal bases the court concluded that the appellants did not discharge the obligation required to exercise redemption and therefore lost that remedy. [Paras 10, 11, 27, 28, 29]

Appellants' attempts did not amount to valid tender under Section 13(8); their right of redemption was not preserved and stood extinguished.

Interaction of non-obstante clause with other laws (Sections 35 and 37 of the SARFAESI Act) - Sections 35 and 37 of the SARFAESI Act are to be read conjointly; the non-obstante clause in Section 35 gives overriding effect to actions under the SARFAESI Act over inconsistent provisions of other laws, and there is no conflict defeating the object of the Act. - HELD THAT: - The court examined Section 37 (that SARFAESI provisions are in addition to and not in derogation of other laws) and observed that where the SARFAESI Act contemplates action that satisfies its conditions (such as a completed sale under Section 13 and issuance of sale certificate), the non-obstante provision in Section 35 ensures the SARFAESI remedy prevails over inconsistent rights under other laws. Thus, even assuming the Transfer of Property Act confers a right of redemption, the SARFAESI machinery, when lawfully exercised, will have overriding effect to achieve the statute's object of enabling expedited realisation by secured creditors. [Paras 12]

Sections 35 and 37 must be read together; the non-obstante clause in Section 35 gives overriding effect to SARFAESI actions over inconsistent rights under other laws.

Final Conclusion: The appeals are dismissed. The High Court's decision upholding the auction sale and sale certificate in favour of the auction purchaser is affirmed; the appellants failed to validly tender the dues in time and thus cannot reopen the auction process.

Deposit to establish bona fides - pre-deposit under Section 18 of the SARFAESI Act - pre-deposit is neither a secured asset nor a secured debt - general lien under Section 171 of the Contract Act - right to withdraw/claim refund of judicially held deposit

Deposit to establish bona fides - pre-deposit under Section 18 of the SARFAESI Act - pre-deposit is neither a secured asset nor a secured debt - general lien under Section 171 of the Contract Act - right to withdraw/claim refund of judicially held deposit - Entitlement of the appellants to withdraw the amount deposited in the Registry of the High Court pursuant to the order dated 11.10.2017. - HELD THAT: - The deposit of Rs. 40 crores was made only to demonstrate the appellants' bona fides in support of a revised settlement offer and was directed to be treated as a deposit in the Registry of the High Court rather than as payment towards the debt. Applying the principle in Axis Bank (that a pre-deposit for prosecuting remedies under the SARFAESI Act is not a 'secured asset' or 'secured debt'), such a deposit cannot be appropriated as though it were security for the bank's claim. The bank's contention that it possessed a general lien under Section 171 of the Contract Act was rejected on the ground that the deposit was not bailed to the bank but held by the Court, and therefore the bank lacked the contractual basis for asserting a lien over the judicial deposit. The appellants' entitlement to withdraw the judicially held deposit follows from these conclusions and cannot be negated by directions that the money remain with the bank. [Paras 11, 12]

The appellants are entitled to withdraw the amount deposited in terms of the order dated 11.10.2017; the High Court order refusing refund is set aside and the deposited amount is to be returned with any accrued interest.

Final Conclusion: The judgment and order of the High Court dated 19.03.2019 is set aside; the appellants' application for refund is allowed and the amount deposited pursuant to the High Court's order of 11.10.2017 is to be returned to the appellants with interest within two weeks. Appeals allowed.