TaxTMI Updates e-Newsletter
Sep 20,2019

Quashing of appellate order for non-appendage of certified copy - revisional powers under Section 108 of the Haryana Goods and Services Tax Act, 2017 - annulment and remand to appellate authority for adjudication on merits - disposal of writ as infructuous

Quashing of appellate order for non-appendage of certified copy - disposal of writ as infructuous - Writ petition seeking quashing of the appellate order was disposed of as infructuous. - HELD THAT: - The petitioner challenged the appellate order dated 18.6.2019 which dismissed its appeal on the ground that a certified copy of the order in original had not been appended. Although the petitioner contended the certified copy had in fact been appended, the State informed the Court that the Revisional Authority, exercising the power under Section 108 of the Haryana Goods and Services Tax Act, 2017, had annulled the impugned order. In view of that annulling action, the substantive challenge to the appellate order no longer required adjudication by the High Court and the writ petition was rendered infructuous.

Writ petition disposed of as infructuous.

Revisional powers under Section 108 of the Haryana Goods and Services Tax Act, 2017 - annulment and remand to appellate authority for adjudication on merits - The Revisional Authority annulled the impugned order and remanded the matter to the Appellate Authority for adjudication on merits. - HELD THAT: - On instructions, the State informed the Court that the Revisional Authority under Section 108 had annulled the impugned order and directed that the appeal be adjudicated on merits by the Appellate Authority. This constitutes a remand for fresh consideration on merits and displaces the need for the High Court to decide the substantive merits of the challenge to the earlier appellate order.

Matter remitted to the Appellate Authority for determination of the appeal on merits pursuant to the Revisional Authority's annulment and remand.

Final Conclusion: The writ petition was disposed of as infructuous because the Revisional Authority under Section 108 annulled the impugned order and remitted the matter to the Appellate Authority for fresh adjudication on merits.

Deduction u/s 80P (2) - scope of introduction of sub-section (4) - provisions of this Section applicability in relation to any Co-operative Bank other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank - if the assessee is having a valid registration u/s 8 of the KCS Act, the authorities under the IT Act have to extend the benefit of deduction provided u/s 80P, by reason of sub-section (4) thereof, to such societies - HELD THAT :- Delay condoned.

Leave granted. Issue notice on the prayer for stay.

Liability to capital gains tax - dissolution of the firm as on 31st March 2002 - partnership firm deed dated 03.08.2005, is a good piece of evidence to show that the assessee firm continued to be in existence after re-constitution, that is, even after 31.03.2002 without getting dissolved - Finding of dissolution on 31.03.2002 set aside; firm held to have been re-constituted and to have continued, not dissolved as per HC [2018 (12) TMI 217 - MADRAS HIGH COURT] - HELD THAT:- SLP dismissed.

Addition u/s 14A - Applications for condonation of delay - HELD THAT:- Petitioner submits that though the specific questions of law with reference to Section 14A of the Income Tax Act 1961 were set out in the impugned order, no finding has been recorded by the High Court on the above questions.

Moreover, it has been submitted that in M/S RELIANCE INDUSTRIES LTD [2019 (1) TMI 757 - SUPREME COURT] [together with connected cases], this Court, by its order dated 2 January 2019, has remanded the proceedings back to the High Court.

Issue notice on the applications for condonation of delay and on the Special Leave Petitions returnable in six weeks.

Transfer of assessment - failure to disclose reasons - right to be heard - procedural fairness - centralisation of assessments - related concerns - remand for fresh consideration

Transfer of assessment - failure to disclose reasons - procedural fairness - right to be heard - related concerns - Validity of the order transferring the assessees' assessment on the ground that the notice and order did not disclose reasons and that material relied upon (DDIT's report) was not supplied to the assessees before passing the order, denying them an effective opportunity to rebut the material. - HELD THAT: - The Court found that the transfer notice and the impugned order proceeded on the basis that the petitioners were 'related concerns' with the Jai Bharat Group but did not set out reasons for the transfer. The DDIT's comments, which allegedly contained incriminating material and references to bogus billing, were not furnished to the petitioners prior to passing the order; consequently the petitioners were deprived of an opportunity to meet that material. The absence of stated reasons in the notice and the failure to place the DDIT report before the petitioners rendered the order cryptic and procedurally unfair. In view of these defects, the Court held that the transfer order could not stand but granted the Revenue liberty to cure the illegality by giving the petitioners an opportunity to file objections and by affording a fresh hearing before passing a fresh order determining whether transfer is justified.

Impugned transfer order set aside; matter remanded to the Revenue to consider the question afresh after giving the petitioners the copy of the DDIT report, permit further objections within three weeks, and afford another opportunity of hearing before passing a fresh order.

Final Conclusion: The petition succeeds: the transfer order dated 2.1.2019 is set aside for want of reasons and denial of opportunity to rebut material; Revenue is permitted to place the DDIT report before the petitioners, entertain further objections within three weeks, and pass a fresh order after affording a hearing.

Re-opening of assessment - reason to believe - change of opinion - tangible material - reassessment proceedings under Section 147 - date of investment fixed by seized document

Re-opening of assessment - reason to believe - change of opinion - tangible material - Validity of initiation of reassessment proceedings under Section 147/148 in respect of the assessment year 1988-89 - HELD THAT: - The Court applied the legal principle that post-amendment re-opening must rest on "reason to believe" supported by tangible material and not merely amount to a "change of opinion". The letter found at the time of search had already been considered in proceedings under Section 132(5) and in the original assessment under Section 143(3); the revenue failed to demonstrate circumstances or fresh material that would convert the earlier-considered material into a new "reason to believe" justifying reassessment. Reliance on the reasoning in Kelvinator (as discussed in the judgment) reinforced that reopening on the basis of previously available material, without a live nexus or fresh tangible material, amounts to change of opinion and is impermissible. For these reasons the ITAT's conclusion that proceedings under Section 147 were rightly initiated was held to be incorrect. [Paras 7]

Proceedings under Section 147/148 were not validly initiated; the ITAT was incorrect in holding the reassessment was rightly initiated.

Date of investment fixed by seized document - Whether, in absence of a date in the seized document, the relevant year of investment is the year of seizure (leading to addition in A.Y. 1988-89) - HELD THAT: - The Court examined the material on record including bank statements and explanations furnished by the assessee from the proceedings under Section 132(5), the original assessment and the reassessment proceedings. The seized letter did not specify dates of advances; the assessee was able to substantiate that amounts were sent on various earlier dates. In these circumstances the Court held that the mere presence of the document in the year of seizure does not alone fix that year as the year of investment. On the evidence and findings recorded by the authorities below, the addition made in the year of reference could not be sustained. [Paras 8]

The impugned addition cannot be treated as relating to the year of seizure and is not sustainable; the ITAT was wrong to hold otherwise.

Final Conclusion: Reference allowed. Both questions referred by the ITAT are answered against the revenue and in favour of the assessee: reassessment proceedings under Section 147/148 were invalidly initiated and the addition based on the seized letter for A.Y. 1988-89 is deleted.

Presumption of undisclosed investment from stamp duty valuation - section 69B unexplained investment - section 50C deeming fiction applicable to seller not purchaser - revisional jurisdiction under section 263 - onus of proof on revenue to establish understatement

Section 69B unexplained investment - presumption of undisclosed investment from stamp duty valuation - onus of proof on revenue to establish understatement - Whether a presumption can be drawn that the difference between stamp duty valuation and declared purchase price constitutes unexplained investment taxable under Section 69B in the hands of the purchaser. - HELD THAT: - The Court held that Section 69B requires a factual finding that the assessee has made investments or expended amounts in excess of those recorded in the books and that the assessee has offered no satisfactory explanation. Absent evidence that the excess consideration actually passed from purchaser to seller, an addition under Section 69B cannot rest on a mere inference from stamp duty valuation. Drawing such a presumption would permit subjective and notional taxation contrary to the constitutional and statutory scheme; the primary burden to establish understatement lies on the Revenue and must be discharged by cogent material before any measure to quantify undisclosed investment is adopted. Reliance on stamp valuation alone, without foundational evidence showing payment of excess consideration, is impermissible for invoking Section 69B. [Paras 25, 26, 27]

No presumption can be legally drawn from the stamp duty valuation alone to treat the difference as unexplained investment under Section 69B; the Revenue must first prove actual understatement of investment.

Section 50C deeming fiction applicable to seller not purchaser - Whether Section 50C can be invoked to treat stamp valuation as full value of consideration for imposing tax on the purchaser by treating the differential as undisclosed income. - HELD THAT: - The Court reaffirmed the settled principle that Section 50C is a deeming fiction enacted for determining full value of consideration for computing capital gains in the hands of the transferor (seller) and not for treating any notional income in the hands of the purchaser. Although the authorities below appeared to be influenced by the principle underlying Section 50C, that provision cannot be extended to convert a purchaser's position into one where the stamp valuation alone forms the basis for additions under Section 69B. The Court observed that Section 50C's scope is confined to cases of transfer and capital gains computation in the hands of sellers. [Paras 22]

Section 50C's deeming fiction applies to the seller for capital gains purposes and cannot be used as a substitute basis to make additions under Section 69B in the hands of the purchaser.

Revisional jurisdiction under section 263 - onus of proof on revenue to establish understatement - Whether the revisional order under Section 263 setting aside the assessment (as upheld by the Tribunal) was sustainable where the purported basis was the stamp duty-sale price disparity. - HELD THAT: - The Court confined its adjudication to the limited question whether a presumption could be drawn from the stamp duty payment. Because the jurisdictional premise for interference under Section 263-namely that the assessment was erroneous and prejudicial to the Revenue-depended on a presumption that the purchaser had paid undisclosed consideration, and because such a presumption is impermissible without foundational evidence, the exercise of revisional power could not be sustained on that basis. The Court therefore found it unnecessary to delve into broader aspects of the scope of Section 263 but concluded that in the absence of evidence proving understatement the revisional action set aside the assessment improperly. [Paras 23, 31]

Revisional action under Section 263 predicated solely on the disparity between stamp valuation and declared price, without evidence proving actual payment of excess consideration, was unsustainable; the Tribunal's affirmation of that revisional order is quashed.

Final Conclusion: The appeal is allowed. The Tribunal's order upholding the revisional order under Section 263 is quashed and set aside because the difference between stamp valuation and declared purchase price, standing alone, cannot be presumed to be unexplained investment taxable under Section 69B; Section 50C applies to sellers for capital gains purposes and cannot be used to impose a notional tax on the purchaser without foundational evidence.

Provision for shortfall of Central Sales Tax - accrual basis taxation of interest on fixed deposit receipts - deductibility of interest relating to excise duty paid

Provision for shortfall of Central Sales Tax - Sustenance of addition on account of provision made for shortfall of Central Sales Tax. - HELD THAT: - The question was answered by applying the ratio laid down in the earlier decision in Sirsa Industries reported at 178 ITR 437 PH. The Court held that the Tribunal's addition of Rs. 20,701/- on account of the provision for Central Sales Tax shortfall is to be decided in the same terms as in Sirsa Industries, and accordingly sustained or disposed of following that precedent.

Question No.1 is decided in the same terms as the decision in Sirsa Industries 178 ITR 437 PH.

Accrual basis taxation of interest on fixed deposit receipts - Restoration of addition on account of interest on F.D.Rs assessed on accrual basis. - HELD THAT: - The Court determined Question No.2 by applying the law as laid down in this Court's earlier order dated 24.7.2019 in ITR No.225 of 1995. The present reference was directed to be decided in the same terms as that earlier decision, and the Tribunal's reliance upon the cited ratio was accepted to the extent reflected in that precedent.

Question No.2 is decided in the same terms as the order dated 24.7.2019 passed in ITR No.225 of 1995.

Deductibility of interest relating to excise duty paid - Restoration of deduction claimed on interest attributable to excise duty paid during the assessment year. - HELD THAT: - The Court observed that learned counsel for the appellant could not dispute that this issue had already been authoritatively decided by this Court in Sirsa Industries (178 ITR 437 PH). Consequently, Question No.3 was disposed of by directing that it be decided in the same terms as Sirsa Industries, thereby restoring or disposing of the deduction consistent with that precedent.

Question No.3 is decided in the same terms as the decision in Sirsa Industries 178 ITR 437 PH.

Final Conclusion: The reference is disposed of by answering Question No.2 in terms of the Court's order dated 24.7.2019 in ITR No.225 of 1995, and Questions No.1 and No.3 in the same terms as the decision in Sirsa Industries 178 ITR 437 PH.

Benefit under Section 194C(6) conditioned on compliance with Section 194C(7) - disallowance under Section 40(a)(ia) for failure to deduct tax at source - remand for verification of compliance and filing of Form No.26Q

Benefit under Section 194C(6) conditioned on compliance with Section 194C(7) - disallowance under Section 40(a)(ia) for failure to deduct tax at source - remand for verification of compliance and filing of Form No.26Q - Whether non compliance with the procedural requirement under Section 194C(7) would ipso facto disentitle the assessee to the substantive benefit of Section 194C(6) and justify disallowance under Section 40(a)(ia), and whether the Tribunal was correct in remanding the matter to the Assessing Officer to verify compliance and filing of Form No.26Q. - HELD THAT: - The Court examined the statutory scheme under Section 194C and observed that the substantive benefit conferred by sub Section (6) is subject to the procedural compliance mandated by sub Section (7), but the failure to comply with the procedural requirement does not automatically result in an immediate disallowance under Section 40(a)(ia) without inquiry. The Tribunal had directed a remand to the Assessing Officer to verify whether the assessee had complied with the relevant provisions and whether Form No.26Q had in fact been filed (even belatedly), and to determine if any fee under the applicable provisions was payable. The High Court found no infirmity in the Tribunal's approach of directing verification rather than laying down a categorical rule of disallowance, and declined to overturn the Tribunal's order. The Court noted authorities relied upon but held they did not advance the Revenue's case to justify interference.

The Tribunal's remand for verification of compliance and filing of Form No.26Q was upheld; non compliance with Section 194C(7) does not automatically mandate disallowance under Section 40(a)(ia) without enquiry.

Final Conclusion: No substantial question of law arises; the Revenue's appeal is dismissed and the Tribunal's order remanding the matter to the Assessing Officer for verification is upheld.

Unexplained cash credit under section 68 - burden of proof on assessee to establish identity, genuineness and creditworthiness of creditors - non-compliance with notice under section 133(6) not by itself sufficient for addition under section 68 - disallowance of partners' remuneration under section 40(b) - requirement of partnership deed specifying amount or manner of quantification - disallowance under section 40(a)(ia) for failure to deduct TDS and applicability of the second proviso - consistency in tax treatment across assessment years

Unexplained cash credit under section 68 - burden of proof on assessee to establish identity, genuineness and creditworthiness of creditors - non-compliance with notice under section 133(6) not by itself sufficient for addition under section 68 - Deletion of addition of Rs. 62,50,000 treated as unexplained unsecured loans brought to tax under section 68. - HELD THAT: - The Tribunal found that the assessee produced confirmations, bank statements, ledger entries and tax return particulars of the lenders and that several lenders were corporate entities duly assessed to tax. The Assessing Officer made no independent enquiries from the lenders' AOs, bankers or Registrar of Companies nor produced material to show that the amounts emanated from the assessee. The Tribunal held that mere non-response to notices under section 133(6) is not a ground, by itself, to treat receipts as unexplained cash credit where the assessee has otherwise discharged its evidentiary burden. Reliance was placed on authorities recognizing that once the assessee furnishes complete particulars, the department must pursue the creditors if it disputes their genuineness or source. On these facts the assessee discharged the initial burden and the addition confirmed by the lower authorities was deleted.

Addition of Rs. 62,50,000 under section 68 deleted; assessee's grounds 1 and 1.1 allowed.

Disallowance of partners' remuneration under section 40(b) - requirement of partnership deed specifying amount or manner of quantification - consistency in tax treatment across assessment years - Deletion of disallowance of Rs. 18,00,000 representing alleged excess partners' remuneration under clause (v) of section 40(b). - HELD THAT: - The Tribunal noted that the partnership deed authorised remuneration to working partners under clauses of the deed and provided for fixation of the amount by mutual decision and that similar payments had been allowed consistently in preceding assessment years. The Assessing Officer and Commissioner (Appeals) disallowed the payment on the ground that the deed did not specify quantum or the manner of quantification. Applying the principle of consistency and following the cited Supreme Court precedent, the Tribunal concluded that the payment was authorised by the deed and its disallowance in the instant year was not tenable.

Disallowance of Rs. 18,00,000 under section 40(b) deleted; assessee's grounds 2 to 2.2 allowed.

Disallowance under section 40(a)(ia) for failure to deduct TDS and applicability of the second proviso - Deletion of disallowance of Rs. 7,69,097 made under section 40(a)(ia) for alleged failure to deduct tax at source on interest payments. - HELD THAT: - The Tribunal observed that the assessee was not liable to deduct tax at source on interest payments in the circumstances of the case and that the second proviso to section 40(a)(ia) (retrospectively applicable) protected the assessee where the payee had paid tax on the interest. On these grounds the disallowance under section 40(a)(ia) was held to be incorrect and was deleted.

Disallowance of Rs. 7,69,097 under section 40(a)(ia) deleted; assessee's grounds 3 to 3.2 allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal by deleting the additions and disallowances contested for AY 2015-16; the Revenue's cross-appeal was dismissed.

Maintainability of revenue appeal in view of CBDT monetary limit circulars - application of CBDT circulars to pending appeals - remand for fresh adjudication of claim under 80-IA - restitution of matters to the Assessing Officer for fresh decision - dismissal of cross-objection as not pressed

Maintainability of revenue appeal in view of CBDT monetary limit circulars - application of CBDT circulars to pending appeals - The appeal filed by the revenue for A.Y.2010-11 is not maintainable and is dismissed pursuant to the monetary limits and directions in the CBDT circulars. - HELD THAT: - The Tribunal considered CBDT Circular No.3/2018 dated 11-7-2018 (which enhanced the monetary limit for filing appeals) and Circular No.17/2019 dated 08-08-2019 (which further raised the monetary limit and directed departmental officers to withdraw or not pursue certain appeals). Having noted that the tax effect in the revenue's appeal is below the monetary threshold prescribed by the Board, and following the reasoning of a coordinate Bench of this Tribunal which applied the circulars to pending appeals, the Tribunal held the appeal not maintainable and dismissed it. The Tribunal, while dismissing, kept open the limited option for the revenue to move a miscellaneous application if an exception in the later circulars applies. [Paras 3]

Revenue's appeal dismissed as not maintainable under the CBDT monetary-limit circulars, with liberty to apply for recall if an exception applies.

Dismissal of cross-objection as not pressed - The assessee's cross-objection is dismissed as not pressed. - HELD THAT: - Because the revenue's appeal was dismissed on the basis of tax-effect and monetary-limit circulars, the assessee did not press its cross-objection. The Tribunal therefore dismissed the cross-objection for non-prosecution. [Paras 4]

Cross-objection dismissed as not pressed.

Remand for fresh adjudication of claim under 80-IA - restitution of matters to the Assessing Officer for fresh decision - The claim for deduction under section 80-IA (raised by the assessee by letter after the assessment order) is to be adjudicated afresh by the Assessing Officer; consequential findings of the CIT(A) are set aside and issues on merits are restored to the AO. - HELD THAT: - The assessee filed a letter claiming deduction under section 80-IA after the assessment order but before the appellate proceedings. The CIT(A) declined to entertain the additional ground on the ground that it did not originate from the assessment order. The Tribunal found it appropriate in the interest of justice to remit the additional claim to the AO for adjudication after giving the assessee an opportunity of hearing. Because the additional ground may affect the merits of the other contested items (issues 1 to 4), the Tribunal set aside the CIT(A)'s findings on those issues and restored the entire matter to the AO for fresh examination in accordance with law. [Paras 10, 11, 12]

Additional ground claiming deduction under section 80-IA remanded to the AO for fresh adjudication; CIT(A)'s findings set aside and related issues restored to the AO.

Final Conclusion: The revenue's appeal for A.Y.2010-11 is dismissed as not maintainable under the CBDT monetary-limit circulars; the assessee's cross-objection is dismissed as not pressed; the assessee's appeal for A.Y.2011-12 is allowed for statistical purposes by remanding the 80-IA claim to the Assessing Officer for fresh adjudication and setting aside the CIT(A)'s consequential findings.

Registration under section 12AA - approval under section 80G(5) - genuineness of objects versus commencement of activities - prematurity of enquiry into activities at registration stage - opportunity of being heard before adverse order

Registration under section 12AA - genuineness of objects versus commencement of activities - prematurity of enquiry into activities at registration stage - opportunity of being heard before adverse order - Whether refusal of registration under section 12AA was justified where the trust was at a nascent stage and had not commenced substantial activities - HELD THAT: - The Tribunal held that at the stage of consideration for registration under section 12AA the inquiry is confined to the genuineness of the trust's objects and not to detailed verification of activities or application of funds which have not yet commenced. The Pr. CIT (E) rejected registration on the ground that required details about running of the proposed institution and bifurcation of receipts were not furnished; however, the trust had informed that it was in a nascent stage and had not started functioning. Following judicial precedents which restrict the Commissioner's enquiry at the registration stage to the objects and genuineness thereof, the Tribunal concluded that denial of registration for want of activities was premature. The matter was therefore set aside to the file of the Pr. CIT (E) for fresh consideration of the basic facts and for affording the assessee a proper opportunity of being heard, permitting the assessee to furnish material in support of its claim. [Paras 6, 7, 8]

Registration refusal under section 12AA set aside and matter remitted to Pr. CIT (E) for fresh disposal after giving opportunity to the assessee to place material regarding genuineness of objects

Approval under section 80G(5) - opportunity of being heard before adverse order - remand for fresh consideration - Whether refusal of approval under section 80G(5) should stand where the application was rejected on the same premature grounds as the 12AA registration denial - HELD THAT: - The Tribunal observed that facts relevant to the 80G(5) approval were identical to those considered for registration under section 12AA. In view of its finding that the rejection under section 12AA was premature and required fresh examination after permitting the assessee to furnish material and be heard, the Tribunal remitted the approval application under section 80G(5) to the file of the Pr. CIT (E) for reconsideration in light of the material to be filed and the established ratio, with a direction to allow a proper opportunity of being heard. [Paras 10, 11]

Approval under section 80G(5) set aside and remitted to Pr. CIT (E) for fresh disposal after permitting the assessee to file material and be heard

Final Conclusion: Both appeals challenging denial of registration under section 12AA and denial of approval under section 80G(5) are allowed for statistical purposes and the matters are remitted to the Pr. CIT (E) for fresh consideration after giving the assessee an opportunity to furnish material and be heard.

Deduction under section 80-IA(4)(ii) - trading in bandwidth versus provision of internet services - outsourcing of network services and compliance with ISP licence conditions - onus of proof on the assessee to establish eligibility - remand for de novo adjudication with opportunity to be heard

Deduction under section 80-IA(4)(ii) - trading in bandwidth versus provision of internet services - outsourcing of network services and compliance with ISP licence conditions - onus of proof on the assessee to establish eligibility - Whether the assessee is entitled to deduction under section 80-IA(4)(ii) or whether the receipts represent trading in bandwidth, and whether these matters require fresh adjudication by the Assessing Officer. - HELD THAT: - The Tribunal found that the Assessing Officer and the Commissioner (Appeals) concluded on the basis of submissions and accounting notes that the assessee was engaged in wholesale procurement and sale of bandwidth and had outsourced significant network activities to a sister concern, leading to denial of deduction. The assessee contested this characterization, relying on its ISP licence, invoices describing Global Internet Access services, audit reports and other communications to show it provided internet services rather than merely trading bandwidth. The bench considered that the factual contentions and documentary material placed before it required reappreciation by the lower authorities. Given competing findings below and the evidentiary character of the dispute (including whether the assessee actually used purchased bandwidth to provide services and the effect of payments to the sister concern), the Tribunal held that these matters should be adjudicated afresh by the Assessing Officer. The Tribunal emphasised that the onus remains on the assessee to establish that it fulfills the eligibility conditions of section 80-IA(4)(ii) and directed that the assessee be given a reasonable opportunity of hearing and the chance to substantiate its claim.

Matter remitted to the file of the Assessing Officer for de novo adjudication on the question of entitlement to deduction under section 80-IA(4)(ii), keeping all issues open and directing that the assessee be granted a reasonable opportunity to substantiate its claim.

Final Conclusion: The Tribunal set aside the earlier conclusions on entitlement to deduction and remitted the matter to the Assessing Officer for fresh adjudication with all issues left open and the onus on the assessee to prove eligibility; grounds allowed for statistical purposes and the appeal is partly allowed.

Genuineness of share transactions - claim of exemption under section 10(38) - onus of proof on the assessee - right to fair opportunity and principles of natural justice - remand for re adjudication with opportunity to rebut investigative material

Genuineness of share transactions - claim of exemption under section 10(38) - right to fair opportunity and principles of natural justice - remand for re adjudication with opportunity to rebut investigative material - onus of proof on the assessee - Whether the purchases and sales of shares claimed to attract exemption under section 10(38) were genuine and whether the matter requires fresh adjudication after giving the assessees adequate opportunity to meet the investigative material relied upon by the Revenue. - HELD THAT: - The Tribunal found that the Assessing Officers based adverse findings largely on materials collected during departmental investigations into brokers and broking entities, and that the assessees were not afforded a fair opportunity to meet or rebut that material. While the onus to establish entitlement to the exemption rests on the assessee, any evidence or information adverse to the assessee gathered by the Department must be furnished to the assessee and put to them for rebuttal. Statements or investigative reports which have not been disclosed to the assessee and which have not been tested by cross examination cannot constitute a conclusive foundation for disallowing the exemption. In light of these principles and the absence of crucial factual materials (such as proof of possession, demat entries, mode and source of payment, identity of counterparties and role of intermediaries), the Tribunal held that the issue of genuineness could not be finally adjudicated on the record before it. The Tribunal therefore directed that the matter be remitted to the Assessing Officer to examine and decide afresh after giving the assessees copies of the investigative material, affording them a reasonable opportunity to produce evidence and witnesses (including brokers/sub brokers or others through whom the transactions occurred), and after such further enquiry as the Assessing Officer may deem necessary. [Paras 4, 6, 7]

The issue of entitlement to exemption under section 10(38) was not finally decided; the appeals were remitted to the respective Assessing Officers for re adjudication after furnishing the investigative material to the assessees and giving them adequate opportunity to rebut and substantiate the transactions.

Final Conclusion: Appeals partly allowed for statistical purposes and remitted to the respective Assessing Officers for fresh adjudication on the genuineness of the impugned share transactions, after disclosure of investigative material and after affording the assessees adequate opportunity to substantiate and rebut the claims.

Remand for fresh adjudication - natural justice - onus of proof for claim of exemption - claim of exemption under section 10(38) - penny stock transactions - use of investigation statements without opportunity of cross-examination

Penny stock transactions - remand for fresh adjudication - Validity of treating the purchase and sale of shares as penny stock transactions and denial of exemption under section 10(38). - HELD THAT: - The Tribunal found that the assessments were primarily grounded on materials collected during departmental investigations of brokers and related entities without giving the assessees adequate opportunity to meet and rebut that material. Assessments cannot be founded on suspicion or on untested information alone; where facts necessary for adjudication are not established on record and the assessee has not been afforded a fair chance to substantiate the transactions, the proper course is to remit the matter. Following the coordinate-bench reasoning in Shri Heerachand Kanunga, the Tribunal directed that the Assessing Officer shall re-adjudicate the genuineness of the impugned transactions by requiring the assessees to produce all relevant evidence and persons involved in the transactions and by conducting such enquiries as appropriate, while ensuring the assessee is given adequate opportunity to rebut material proposed to be relied upon against them.

Issue remitted to the Assessing Officer for fresh adjudication after affording the assessees adequate opportunity; appeals partly allowed for statistical purposes.

Onus of proof for claim of exemption - use of investigation statements without opportunity of cross-examination - natural justice - Extent to which investigation materials and third party statements may be used against the assessee and the burden of proof for claiming exemption. - HELD THAT: - The Tribunal reiterated that the onus to establish entitlement to exemption under section 10(38) lies on the assessee, who must place before the Income tax authorities adequate materials to enable a conclusion. However, where the Department relies on statements or internal investigation records adverse to the assessee, those materials cannot be treated as conclusive evidence unless the assessee is furnished with them and given an opportunity to cross examine or otherwise meet them. Statements of third parties, not made available to the assessee for confrontation, remain mere information and cannot form the sole foundation for an adverse assessment.

Assessee remains bound by the burden to prove the exemption; departmental investigation material cannot be used as final evidence against the assessee without providing opportunity to rebut or cross examine, and such procedural safeguards must be observed on remand.

Final Conclusion: The Tribunal set aside the impugned conclusions and remitted the question of genuineness of the long term capital gains claimed under section 10(38) to the respective Assessing Officers for fresh adjudication after giving the assessees adequate opportunity to substantiate their transactions and to meet the departmental material; appeals are partly allowed for statistical purposes.

Disallowance under section 40A(2)(b) as diversion of income - treatment of payments as research expenditure - application of section 14A read with Rule 8D - inclusion/exclusion of section 14A disallowance in computation of book profit under section 115JB clause (f) of Explanation 1 - treatment of late payment of employer's contribution to PF/ESIC under clause 2(24)(x) - revenue neutrality / double taxation principle in related party payments

Disallowance under section 40A(2)(b) as diversion of income - treatment of payments as research expenditure - Validity of disallowance of alleged research fees paid to Clinical Care Consultant Pvt. Ltd. (CCCPL) treated as diversion of income and disallowed under section 40A(2)(b). - HELD THAT: - The Tribunal upheld the appellate authority's conclusion that the claimed payments to CCCPL could not be substantiated as genuine research expenditure. The assessee failed to produce documentary evidence showing that CCCPL possessed the requisite infrastructure, assets, manpower or incurred research expenditure as envisaged by the Memorandum of Understanding. The MOU was on plain paper and did not specify the nature of research; CCCPL's books showed no research assets or expenses. On these factual findings the authorities concluded the payments were paper entries and a device to reduce tax incidence. The Tribunal found the facts of the cited High Court authority inapplicable and agreed that, in absence of substantiation, the disallowance was just and proper and dismissed the assessee's ground. [Paras 9]

Assessee's challenge to the disallowance of the research fees paid to CCCPL is dismissed.

Application of section 14A read with Rule 8D - Validity of addition of Rs. 35,825 under section 14A (Rule 8D) made by AO on account of exempt income related expenses. - HELD THAT: - The Tribunal found that the AO and first appellate authority did not refer to the assessee's books of account or record the requisite satisfaction under section 14A r.w. r.8D before making the suo motu disallowance. Because the statutory scheme requires examination of books and satisfaction to be recorded, and that was not done, the Tribunal reversed the addition and directed the AO to delete the disallowance. [Paras 12]

Addition made under section 14A r.w.r. 8D of Rs. 35,825 is deleted.

Treatment of late payment of employer's contribution to PF/ESIC under clause 2(24)(x) - Allowability of deduction for employer's late payment of employee contributions to PF/ESIC. - HELD THAT: - The assessee conceded at hearing that the issue was covered against it by binding precedent of the jurisdictional High Court (GSRTC Ltd.). The Tribunal therefore confirmed the authorities below in disallowing the claim in view of the settled law relied upon by the Department and accepted by the assessee's counsel. [Paras 14]

Assessee's ground challenging disallowance of late PF/ESIC contribution is dismissed.

Application of section 14A read with Rule 8D - inclusion/exclusion of section 14A disallowance in computation of book profit under section 115JB clause (f) of Explanation 1 - Whether the disallowance computed under section 14A r.w.r. 8D should be added back while computing book profit for MAT under section 115JB (clause (f) of Explanation 1). - HELD THAT: - Relying on a Special Bench decision of the Delhi Tribunal, the Tribunal held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resort to the computation contemplated under section 14A read with Rule 8D. Applying that ratio to the facts, the Tribunal concluded that the disallowance under section 14A r.w.r. 8D could not be included in the clause (f) computation for MAT and therefore deleted the addition made for MAT purposes. [Paras 18]

Addition of the section 14A r.w.r. 8D disallowance for computation of book profit under section 115JB is deleted.

Disallowance under section 40A(2)(b) as diversion of income - revenue neutrality / double taxation principle in related party payments - Revenue's challenge to the CIT(A)'s deletion of addition under section 40A(2)(b) in respect of professional fees paid to CCCPL. - HELD THAT: - The Tribunal examined the CIT(A)'s reasoning that the payments to CCCPL were commercially reasonable and that taxing the same in the hands of the company when the recipients (directors/doctors) had already offered income to tax at the highest rate would amount to double taxation. The Tribunal also noted accepted precedents of the jurisdictional High Court and Tribunal on revenue neutrality and on the special nature of professional doctors' remuneration. On facts the Tribunal found the assessee's explanations reasonable, the deletion by the CIT(A) consistent with the principle against double taxation and the authorities relied upon, and there was no infirmity warranting interference. Accordingly the revenue's appeal was dismissed. [Paras 28]

Revenue's appeal against deletion of the section 40A(2)(b) addition is dismissed; the CIT(A)'s deletion is sustained.

Final Conclusion: For A.Y. 2012-13 the Tribunal dismissed the assessee's challenge only in respect of the disallowance of alleged research fees to CCCPL (confirmed as not substantiated) and dismissed the assessee's challenge to the PF/ESIC disallowance; it allowed the assessee on the section 14A addition (deleted) and on the exclusion of section 14A disallowance from MAT book profit computation (deleted), and it dismissed the revenue appeal, thereby upholding the CIT(A)'s deletion of the section 40A(2)(b) disallowance in respect of professional fees.

Suppression of material facts - writ petition dismissed in limine - quashing of show cause notice - recall and re-assessment of bills of entry - penalty imposed on customs broker - liberty to file objections to show cause notice

Suppression of material facts - writ petition dismissed in limine - Maintainability of the writ petition in view of non-disclosure of material facts by the petitioner. - HELD THAT: - The Court found that the affidavit in support of the writ petition omitted material events and communications central to the controversy, including the petitioner's letters dated 06.06.2017, 08.06.2017 and 14.06.2017 and the sequence leading to the impugned show cause notice. The petitioner had, by letter dated 08.06.2017, accepted the levy of penalty and sought permission to remit it under protest while also requesting issuance of a show cause notice; that request was reiterated on 14.06.2017. These facts were not disclosed in the affidavit and only emerged during argument. The Court held that such suppression of relevant material facts disentitles the petitioner to equitable relief and, on that ground, the petition could not be entertained.

Writ petition rejected in limine for suppression of material facts; petition held not maintainable.

Quashing of show cause notice - recall and re-assessment of bills of entry - penalty imposed on customs broker - liberty to file objections to show cause notice - Whether the impugned show cause notice dated 08.08.2017 should be quashed and the further procedural course. - HELD THAT: - Although the petitioner sought quashing of the show cause notice, the Court declined to grant that relief in view of the nondisclosure described above. The Court noted that the Assistant Commissioner had earlier permitted recall and re-assessment of the bills of entry and had imposed a penalty which the petitioner had sought to remit under protest and to have a show cause notice issued. Rather than quashing the notice, the Court dismissed the writ petition while granting the petitioner a limited procedural remedy: liberty to file objections to the show cause notice within two weeks from the date of the order.

Prayer to quash the show cause notice denied; petitioner granted liberty to file objections to the show cause notice within two weeks.

Final Conclusion: The writ petition is dismissed in limine for suppression of material facts; the petitioner's request to quash the show cause notice is refused, but the petitioner is granted liberty to submit objections to the show cause notice within two weeks; no costs.

Ex-gratia payments from Official Liquidator's Establishment Charges Account - Authority of Official Liquidator to create and operate an establishment charges account - Continuing effect of prior judicial orders and administrative precedent - Judicial disposal by reference to earlier directions

Ex-gratia payments from Official Liquidator's Establishment Charges Account - Continuing effect of prior judicial orders and administrative precedent - Whether the Official Liquidator may make ex-gratia payments to company-paid staff and casual sweepers from the Official Liquidator's Establishment Charges Account on the occasion of Durga Puja 2019 in light of earlier orders. - HELD THAT: - The Court noted an earlier order of 5th April, 1991 permitting the Official Liquidator to create and operate an "Official Liquidator's Establishment Charges Account" for payment of salaries and allied establishment charges, and recorded that successive applications have been entertained annually for one-time extra expenses to make ex-gratia payouts on festive occasions. The office relied on the precedent of those earlier orders and on a practice of acting in good faith. In the absence of contested legal principle or fresh challenge to the validity of the prior orders, the Court disposed of the present application by applying the directions contained in the last order dated 31st August, 2018 in respect of the prayers previously allowed.

Application disposed of by directing compliance with the terms of the last order dated 31st August, 2018 in respect of the prayers allowed thereby.

Final Conclusion: The application by the Official Liquidator for payment of ex-gratia to company-paid staff and consolidated wages to casual sweepers for Durga Puja 2019 is disposed of by directing that the matter be dealt with in accordance with the directions contained in the order dated 31st August, 2018; the Court acted on the basis of prior orders and established practice rather than fresh adjudication of the underlying entitlement.

Refund of service tax - limitation period for refund - receipt of payment in convertible foreign exchange - export of services - amendment to notification introducing one-year limitation - time-bar - refund claim premature

Refund of service tax - limitation period for refund - receipt of payment in convertible foreign exchange - time-bar - Whether the refund claim filed on 25.11.2016 was barred by the limitation prescribed having regard to the dates on which convertible foreign exchange was received and service tax paid. - HELD THAT: - The Tribunal examined the dates of receipt of foreign payments and the timing of the refund application. The appellant received part payments on 10.11.2014 and 7.7.2015 and filed the refund claim on 25.11.2016. Applying the one-year limitation period as considered by the authorities below to the receipts already made, the refund claim fell beyond the prescribed period. The Tribunal observed that if the later receipt (21.5.2018) argued by the appellant were to be treated as the relevant receipt, the claim would have been premature as of the date of filing. On these factual matrices the Tribunal found no merit in the contention that the claim could not be rejected on limitation grounds and upheld the rejection as legal and proper. [Paras 6]

Refund claim rejected as time-barred or, if later receipts were treated as relevant, premature; rejection upheld.

Amendment to notification introducing one-year limitation - export of services - refund of service tax - Whether the amendment to the notification introducing a one-year limitation with effect from 1.3.2016 applied so as to preclude the appellant's refund claim given that the services were exported prior to 1.3.2016. - HELD THAT: - The appellant contended that the original notification did not prescribe a limitation and that the amendment brought in by Notification dated 1.3.2016 could not be applied to services completed before that date. The Tribunal noted this submission but proceeded to resolve the appeal on the factual timing of payments and filing. It held that even assuming the amendment applied, the claim was not maintainable on the facts; and conversely, if the later receipt were treated as the operative event, the claim would have been premature. The Tribunal therefore did not find a sustainable ground in the appellant's contention to disturb the impugned orders. [Paras 3, 6]

Challenge to applicability of the 1.3.2016 amendment does not advance the appellant's case; appeal dismissed on factual and limitation grounds.

Final Conclusion: The impugned orders rejecting the refund claim are affirmed; the appeal is dismissed as the refund was either time barred having regard to receipts and filing dates or premature if later receipts are treated as operative.

Taxability under reverse charge when service is received from a non-resident provider - recipient liable for service tax under reverse charge mechanism - export of service (Business Auxiliary Service) - place of consumption vs place of performance - reimbursement for sharing of expenses not chargeable as manpower supply service

Taxability under reverse charge when service is received from a non-resident provider - recipient liable for service tax under reverse charge mechanism - export of service (Business Auxiliary Service) - place of consumption vs place of performance - reimbursement for sharing of expenses not chargeable as manpower supply service - Whether the demand of service tax under Section 66A and the Service Tax Rules (reverse charge) is sustainable where the assessee provided support services to overseas group companies and received reimbursement. - HELD THAT: - The tribunal examined Section 66A and the Service Tax Rules which impose liability on the recipient where a service is provided by a person located outside India and received in India. On the undisputed facts the appellants were providing support services to overseas group companies and receiving reimbursements; they were not receiving manpower services from abroad. Consequently the statutory reverse-charge liability on an Indian recipient of services from abroad does not arise. The tribunal relied on earlier decisions treating such transactions as export of services (Business Auxiliary Services) where the foreign group companies are the recipients/consumers and the place of consumption governs taxability. The reimbursements constituted sharing of expenses/consideration for services provided to foreign recipients and therefore were not taxable under the manpower-supply head invoked by the department. In view of this legal analysis and precedent, the demand under Section 66A and the Rules was held unsustainable. [Paras 5, 6]

Impugned orders confirming the service tax demand under Section 66A are set aside and the appeals are allowed.

Final Conclusion: The Tribunal held that Section 66A and the reverse-charge rules do not apply because the appellants provided services to overseas group companies (constituting export of service/Business Auxiliary Service) and therefore the demand for service tax was unsustainable; impugned orders set aside and appeals allowed.

Summary order. Hearing of the appeals directed to be expedited; applications for early hearing disposed of.

Cenvat credit on outdoor catering services - amended definition of input service (w.e.f. 01.04.2011) - personal consumption exclusion - services provided to all employees (not individual employees) - nexus with manufacture - binding precedent of High Court over Tribunal Larger Bench

Cenvat credit on outdoor catering services - amended definition of input service (w.e.f. 01.04.2011) - personal consumption exclusion - services provided to all employees (not individual employees) - binding precedent of High Court over Tribunal Larger Bench - Entitlement to avail Cenvat credit on outdoor catering services availed at the factory during 2011-12. - HELD THAT: - The Tribunal considered whether outdoor catering services procured at a remote factory location for approximately 250 workers qualify as admissible input services after the amendment to the definition of 'input service' effective 01.04.2011. The Tribunal held that the exclusion in the amended definition applies to services that are for personal consumption of an employee (or a particular employee/group) and does not extend to services provided to all employees as a collective facility essential for operation of a remote factory. The Bench noted co-ordinate and High Court decisions holding that outdoor catering may have the requisite nexus with manufacture and be admissible as input service, and observed that the Rajasthan High Court decision in Mangalam Cement Ltd upholding credit on outdoor catering was not placed before the Larger Bench in Wipro Ltd. The Tribunal applied the binding High Court precedent and followed judicial discipline to prefer that ruling over the contrary Larger Bench decision of the Tribunal, concluding that on the facts-catering provided to all employees at a remote factory-the credit is allowable. The Tribunal therefore set aside the denial of credit and allowed consequential relief. [Paras 6, 7, 9]

The appellant is entitled to avail Cenvat credit on outdoor catering services availed at the factory; the demand is unsustainable and the appeal is allowed with consequential relief.

Final Conclusion: Appeal allowed; Cenvat credit on outdoor catering services for the period 2011-12 granted and the demand set aside, with consequential relief.

Trade discount - additional consideration - assessable value - separate commercial transactions - quid pro quo - principal-to-principal transaction

Trade discount - additional consideration - assessable value - separate commercial transactions - quid pro quo - The admissibility of the discount of Rs.0.70 per kg allowed to BEST during June 2009 to April 2010 and whether that discount constituted additional consideration to be added to the assessable value of CNG sold. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals)'s conclusion that the discount given to BEST arose under an earlier agreement (21.12.2006) which contemplated supply to BEST and an agreed trade discount; the later agreement (12.05.2008) permitting sales to outside vehicles and providing for fixed and variable fees for outside sales was a separate commercial transaction. No investigation or evidence was placed by the Department to establish that the discount was in fact a flow-back or constituted consideration for infrastructural facilities; even on the department's case, the Commissioner (Appeals) noted that the original agreement treated facilities as provided but the trade discount resulted in the appellant accepting a lower sale amount, i.e., a quid pro quo, so the facilities were not received 'free of cost'. The Tribunal found no material to disturb the appellate finding that the discount was not shown to be additional consideration recoverable into assessable value, and noted prior authority and factual distinction where discounts to bulk purchasers were held admissible on a principal-to-principal basis. [Paras 7]

The discount of Rs.0.70 per kg to BEST for June 2009 to April 2010 is admissible and not required to be added as additional consideration; the impugned order of the Commissioner (Appeals) is upheld and the Revenue's appeal is dismissed.

Final Conclusion: The Revenue's appeal is dismissed. The Tribunal upholds the Commissioner (Appeals)'s finding that the discount allowed to BEST during June 2009 to April 2010 was not established as additional consideration for infrastructural facilities and need not be added to the assessable value.

Clandestine manufacture and clearance based on electricity consumption - inadmissibility of sole reliance on expert technical report for duty demand - requirement of corroborative evidence for demand based on technical energy audit - need for test/experiment to correlate electricity consumption with production

Clandestine manufacture and clearance based on electricity consumption - inadmissibility of sole reliance on expert technical report for duty demand - requirement of corroborative evidence for demand based on technical energy audit - need for test/experiment to correlate electricity consumption with production - Demand of duty based solely on the technical opinion of Dr. N.K. Batra (electricity-consumption calculation) alleging unrecorded manufacture and clearance is sustainable. - HELD THAT: - The Tribunal found that the quantification of alleged clandestine production was determined only by applying Dr. N.K. Batra's technical opinion correlating electricity units to ingot production, without any further enquiry, corroborative evidence or practical tests. The Court held that such a demand cannot be sustained where it rests solely on electricity-consumption calculations and the expert report, in absence of examination of other corroborative parameters such as procurement of additional raw material, movement of raw material and finished goods, records of unrecorded production, or conducting test/experiment to verify the operation of the furnace vis-a -vis energy consumption and output. The Tribunal applied and followed earlier judicial decisions (including the cited Jharkhand High Court authorities and Tribunal precedents) which establish that a demand founded only on expert energy-consumption opinion, without supporting independent evidence or verification, is not legally tenable. Consequently, the impugned order confirming duty, interest and penalty on that sole basis was set aside. [Paras 5, 6]

The demand based solely on Dr. N.K. Batra's electricity-consumption report is unsustainable in law; the impugned order is set aside and the appeals are allowed.

Final Conclusion: Following precedent, the Tribunal allowed the appeals and set aside the adjudication which confirmed duty, interest and penalty based solely on an electricity-consumption technical report without corroborative evidence or verification.

Principles of natural justice - personal hearing - ex parte disposal - remand for fresh consideration - service of notice at address furnished in appeal - cancellation of registration affecting communication

Principles of natural justice - personal hearing - ex parte disposal - service of notice at address furnished in appeal - cancellation of registration affecting communication - Ext.P3 order did not satisfy the requirement of providing personal hearing to the petitioner and was therefore violative of principles of natural justice. - HELD THAT: - The Court examined the sequence of notices and the fact of cancellation of the petitioner's registration (Ext.P4) with effect from 15.7.2015. Though notices were sent to the address furnished in the memorandum of appeal, the cancellation of registration showed that the petitioner had discontinued business and was not necessarily available at that address when the second respondent proceeded to hear and decide Ext.P2. The introductory portion of Ext.P3 records that the petitioner was not heard and that notices were returned as 'closed'. On these facts the Court concluded that the appeal was disposed of without affording the petitioner the audience to which he was entitled; the reasoning that no representation was received and therefore ex parte disposal was justified was held untenable in the circumstances. [Paras 6, 7]

Ext.P3 set aside as violative of principles of natural justice; petitioner entitled to personal hearing.

Remand for fresh consideration - personal hearing - The appeal (Ext.P2) was remitted to the second respondent for reconsideration and disposal in accordance with law after affording the petitioner an opportunity of personal hearing. - HELD THAT: - To secure the ends of justice the Court remitted the matter to the second respondent for fresh consideration and disposal of Ext.P2 in accordance with law. The petitioner was directed to appear before the second respondent on the specified date with a copy of the judgment and the books of account relied upon; the second respondent was directed to hear and dispose of the appeal expeditiously, preferably by the date indicated in the order. The remand is for fresh consideration on merits in light of the opportunity of hearing. [Paras 7, 8]

Matter remitted to the second respondent for fresh consideration and disposal after affording personal hearing; directions issued for appearance and expeditious disposal.

Final Conclusion: Ext.P3 is set aside for breach of principles of natural justice; Ext.P2 is remitted to the second respondent for fresh consideration and disposal after affording the petitioner personal hearing, with directions to appear with books and for expeditious disposal.