TaxTMI Updates e-Newsletter
Sep 29,2021

Laches and delay in seeking writ relief - Maintainability of writ petition under Article 226 - Principle of natural justice (audi alteram partem) - Availability of alternate remedy by statutory appeal

Laches and delay in seeking writ relief - Maintainability of writ petition under Article 226 - Availability of alternate remedy by statutory appeal - Whether the writ petition under Article 226 could be entertained despite being filed more than two years after the order of cancellation of registration dated 05.09.2019. - HELD THAT: - The petition was instituted more than two years after the impugned order dated 05.09.2019. No credible or satisfactory explanation was furnished for the delay, including the period March 2020 to September 2021. The court observed that cancellation orders are uploaded on the GST portal and are ordinarily accessible to the concerned parties, casting doubt on any claim of unawareness of the order. In the absence of a plausible justification for the unexplained laches, the court declined to exercise its extraordinary writ jurisdiction under Article 226 to entertain the belated petition. However, recognising the availability of an alternate statutory remedy, the court permitted the petitioner to file an appeal within two weeks accompanied by a copy of the order, directing that such appeal be decided on its own merits in accordance with law.

Writ petition dismissed on account of inordinate and unexplained delay; petitioner permitted to file appeal within two weeks with copy of this order, which shall be decided on merits.

Principle of natural justice (audi alteram partem) - Whether the contention of violation of natural justice in cancelling the GST registration was adjudicated on merits by the court. - HELD THAT: - The petitioner argued that cancellation without issuance of a prior show cause notice violated natural justice and relied upon earlier Division Bench authority. The court recorded the submission but did not adjudicate the contention on merits because the petition was dismissed on the threshold ground of inordinate delay. The question of compliance with natural justice in the impugned cancellation order was therefore not finally decided by the court; the remedy of appeal was left open for fresh consideration of such contentions.

Contention of violation of natural justice not decided on merits; petitioner's right to raise that contention in the alternative statutory appeal preserved.

Final Conclusion: The writ petition challenging cancellation of GST registration dated 05.09.2019 is dismissed for inordinate and unexplained delay; petitioner is granted leave to file the statutory appeal within two weeks with a copy of this order, which the appellate authority shall decide on merits in accordance with law, and the petitioner remains free to apply for fresh registration without prejudice from observations in this order.

Summary order. Notice issued returnable on 6th October, 2021; petitioner permitted to press for interim relief on the returnable date and the request for interim relief shall be considered after hearing both sides.

Cancellation of registration for non-filing of returns for continuous six months - appeal under the provisions of Section 107 of the GST Act, 2017 - dismissal on ground of limitation without affording opportunity of hearing - direction to decide appeal on merits - judicial remand for fresh decision

Dismissal on ground of limitation without affording opportunity of hearing - direction to decide appeal on merits - Annulment of the appellate authority's dismissal in Annexure P/5 and direction for a fresh adjudication on merits - HELD THAT: - The High Court found that the Appellate Authority dismissed the petitioner's appeal against cancellation of registration solely on the ground of limitation under the statutory appeal mechanism, and did so on the first date without giving the petitioner an opportunity to explain the delay. The court concluded that the appellate order could not stand as the petitioner had not been afforded a hearing on the question of delay or on the merits. In view of these findings the court did not decide the substantive merits of the cancellation itself; instead it directed the Appellate Authority to decide the petitioner's appeal afresh on merits within two months from communication of the order and prohibited the authority from being influenced by its earlier order dated 17.6.2021.

Annexure P/5 set aside to the extent of directing the Appellate Authority to decide the appeal anew on merits within two months without being influenced by the earlier order.

Final Conclusion: Writ petition allowed to the limited extent of quashing the appellate dismissal; the Appellate Authority is directed to decide the petitioner's appeal on merits within two months from communication of this order.

Rule 86-A of the Central Goods and Services Tax Rules, 2017 - power to block debit from electronic credit ledger - reasons to believe and recording reasons in writing - communication of reasons and opportunity to be heard - principles of natural justice - entitlement to reasons for administrative action (as applied from GKN Driveshafts)

Rule 86-A of the Central Goods and Services Tax Rules, 2017 - power to block debit from electronic credit ledger - reasons to believe and recording reasons in writing - communication of reasons and opportunity to be heard - principles of natural justice - Validity of invoking Rule 86-A to prevent debit from the electronic credit ledger without communicating recorded reasons and without affording the assessee an opportunity to object. - HELD THAT: - The Court held that Rule 86-A confers a drastic power on the authority to prevent debit of amounts from the electronic credit ledger where the authority has reasons to believe that input tax credit has been fraudulently availed or the assessee is otherwise ineligible under the contingencies set out in Rule 86-A(1). Such power can be exercised only after the authority has formed reasons to believe and recorded those reasons in writing. Although the rule does not expressly provide a procedure for communicating those reasons, the principles of natural justice require that the reasons which weighed with the authority must be communicated to the assessee so as to enable the assessee to make an effective representation seeking revocation of the blocking. The Court applied the reasoning in GKN Driveshafts to hold that an assessee is entitled to be furnished the reasons for the administrative action and to file objections which the authority must consider and decide by a speaking order. The Court therefore found that invocation of Rule 86-A without communicating the recorded reasons to the assessee is unauthorised and without jurisdiction, and that the assessee's representation must be considered after providing the recorded reasons so as to permit the assessee to file specific objections. [Paras 5, 9, 11, 12, 13]

The writ appeal was allowed: respondents are directed to communicate the reasons recorded in writing for invoking Rule 86-A to the appellant, permit the appellant to file objections, and thereafter consider and pass a reasoned order on the representation; if satisfied, the authority may revoke the blocking, otherwise pass a speaking order, subject to further legal challenge by the appellant.

Final Conclusion: The invocation of Rule 86-A to block debit from the electronic credit ledger must be supported by recorded reasons communicated to the assessee and followed by an opportunity to be heard; the authorities are directed to communicate those reasons, consider the appellant's objections and pass a speaking order.

Opportunity of hearing under Section 75(4) of the TNGST Act - Adjournment limit under proviso to Section 75(5) - Availability of statutory appeal under Section 107

Opportunity of hearing under Section 75(4) of the TNGST Act - Whether the assessee was denied the mandatory opportunity of personal hearing as required by Section 75(4). - HELD THAT: - The Court examined the sequence of notices, adjournment request and the assessor's finding that the assessee was invited for personal hearing on multiple dates, filed an adjournment request, was given extended time and ultimately appeared and filed objections on 30.12.2020 when a personal hearing was conducted. The Court held that Section 75(4) mandates that an opportunity of hearing shall be granted where a request in writing is received or an adverse decision is contemplated; the factual record shows that such opportunity was provided and utilised by the assessee. The petition therefore does not establish a breach of the mandatory hearing requirement. [Paras 11, 13, 17, 18]

The contention that no personal hearing was afforded is rejected and the assessment orders are not vitiated for lack of hearing.

Adjournment limit under proviso to Section 75(5) - Whether the proviso to Section 75(5) requires that a minimum of three opportunities of personal hearing must be given to the assessee. - HELD THAT: - The Court analysed the proviso which prescribes that no adjournment shall be granted for more than three times. It concluded that the proviso establishes a maximum limit on adjournments, not a minimum entitlement to three hearings. The statutory scheme thus mandates at least one opportunity of hearing and permits additional adjournments on sufficient cause subject to the stated maximum; there is no legal basis to treat three hearings as a minimum requirement. [Paras 12, 15, 16]

The argument that three personal hearings are mandatorily required is untenable and is rejected.

Final Conclusion: Writ petitions challenging assessment orders for AYs 2017-18 to 2020-21 are dismissed: the Court found no violation of the hearing mandate in Section 75(4) and rejected the contention that three hearings are a statutory minimum; the assessee remains entitled to file the statutory appeal under Section 107 and the time consumed by filing the writ petition may be excluded by the Appellate Authority; no order as to costs.

Exemption under Sections 11 and 12 - disallowance under Section 13(1)(a) - application under Section 220(6) - treatment as not in default pending disposal of appeal - prohibition on coercive action during interim consideration

Application under Section 220(6) - treatment as not in default pending disposal of appeal - prohibition on coercive action during interim consideration - Whether the petitioner should be relegated to seek interim relief under Section 220(6) and whether coercive action in respect of the demand should be restrained pending such consideration - HELD THAT: - The Court directed that the petitioner be relegated to file an application under Section 220(6) before the Assessing Officer within two weeks. On receipt, after affording opportunity of hearing, the Assessing Officer shall decide the application in accordance with the discretion vested by Section 220(6) and having regard to the facts that the petitioner had hitherto enjoyed the benefit under Sections 11 and 12 and that that benefit has been withdrawn by relying on Section 13(1)(a). Pending such decision, and insofar as the claim of exemption under Sections 11 and 12 for AY 2018-19 is concerned, the Assessing Officer shall treat the demand as not being a tax in default within the meaning of Section 220(6) and shall pass the needful order within four weeks. The Court recorded that until the Assessing Officer decides the application, no persuasive or coercive action, including action pursuant to the impugned show cause / demand notice, shall be taken against the petitioner. [Paras 12, 13, 16, 18]

Petitioner relegated to file application under Section 220(6); Assessing Officer to decide within four weeks and, meanwhile, refrain from coercive action and treat the demand relating to the claimed exemption as not in default.

Exemption under Sections 11 and 12 - disallowance under Section 13(1)(a) - Whether the petitioner is entitled to exemption under Sections 11 and 12 in view of the amendment invoking Section 13(1)(a) - HELD THAT: - The Court observed that the substantive question of whether the petitioner remains entitled to exemption under Sections 11 and 12 despite the 1998 amendment invoking promotion of a minority interest falls for adjudication by the appellate authority where the appeal dated 29.04.2021 is pending. The Court noted that that appellate forum must decide the issue on merits and that a national appellate registry may take time; accordingly, the correctness of the assessing officer's reliance on Section 13(1)(a) and resultant denial of exemptions was not decided on merits by this Court but is left to the appellate authority and to be taken into account by the Assessing Officer while considering any application under Section 220(6). [Paras 12, 16]

Substantive question as to applicability of Sections 11 and 12 vis-a -vis Section 13(1)(a) is not decided and remains for determination by the appellate authority; the assessing officer's demand is to be considered in that context.

Final Conclusion: Writ petition disposed by relegating the petitioner to file an application under Section 220(6) within two weeks; the Assessing Officer shall decide it after hearing within four weeks, having regard to the petitioner's prior enjoyment of benefits under Sections 11 and 12, and no coercive action shall be taken meanwhile; the substantive question of entitlement under Sections 11 and 12 versus Section 13(1)(a) is left for adjudication in the pending appeal.

Faceless assessment - show cause notice and draft assessment order - violation of mandatory procedure under Section 144B(1)(xvi)(b) - non est assessment under Section 144B(9) - remand for fresh consideration - time-limits for compliance - limitation under Section 153(6)(i)

Faceless assessment - show cause notice and draft assessment order - violation of mandatory procedure under Section 144B(1)(xvi)(b) - non est assessment under Section 144B(9) - Whether the assessment order, notice of demand and penalty could be sustained where no proof of service of the show cause notice and draft assessment order under Section 144B(1)(xvi)(b) was available - HELD THAT: - The Court found that Section 144B(1)(xvi)(b) mandatorily requires that where a proposed variation prejudicial to the assessee is made, the assessee must be given an opportunity by service of a show cause notice and draft assessment order. The respondent conceded that although the documents were uploaded, proof of service upon the petitioner was not available. Since the petitioner's averment that no show cause notice and draft assessment order were issued was not shown to be false, the mandatory procedure in Section 144B was violated. In view of Section 144B(9), assessments made otherwise than in accordance with the procedure laid down in Section 144B are non est. The absence of compliance with the statutorily mandated opportunity to be heard vitiated the impugned orders. [Paras 4, 5]

Impugned assessment order, notice of demand dated 23rd April 2021 and penalty notice dated 11th June 2021 set aside for failure to comply with the mandatory procedure under Section 144B.

Remand for fresh consideration - time-limits for compliance - limitation under Section 153(6)(i) - Remedial directions to be given following the finding of procedural non-compliance and the temporal limits for fresh action by the Assessing Officer - HELD THAT: - The matter was remanded to the Assessing Officer with directions to re-issue the draft assessment order and a show cause notice under Section 144B(1)(xvi) within two working days. The petitioner was directed to file its response within seven working days, after which the Assessing Officer must pass a reasoned order in accordance with law. The Court recorded the petitioner's concession that, as per Section 153(6)(i), the Assessing Officer would have one year from the date of the order to complete the assessment. These directions effectuate fresh consideration consistent with the mandatory procedural requirements previously omitted. [Paras 6]

Matter remanded to the Assessing Officer with specified timelines for re-issuance of draft order and show cause notice, filing of response, and passing of a reasoned order; limitation period recorded as one year from the date of this order under Section 153(6)(i).

Final Conclusion: The writ petition is allowed to the extent that the impugned assessment order, demand notice and penalty are set aside for non-compliance with Section 144B; the matter is remanded to the Assessing Officer with directions to re-issue the draft assessment order and show cause notice within two working days, permit the petitioner seven working days to respond, and thereafter pass a reasoned assessment order, subject to the one year limitation under Section 153(6)(i) as recorded.

Notice under Section 148 - Reopening of assessment - Reasons for reopening - GKN Driveshafts principle - Right to file objections - Requirement to pass speaking order on objections - Disposal of objections before proceeding with assessment

GKN Driveshafts principle - Reasons for reopening - Right to file objections - Requirement to pass speaking order on objections - Disposal of objections before proceeding with assessment - Assessing Officer must dispose of the objections to the notice under Section 148 by passing a speaking order before proceeding with assessment for the assessment year 2015-2016. - HELD THAT: - The writ petition challenged a notice issued under Section 148 for assessment year 2015-2016. Applying the mechanism enunciated in GKN Driveshafts, the procedure is that upon issuance of a notice under Section 148 the noticee may file a return and, if desired, seek reasons for reopening; the Assessing Officer is obliged to furnish reasons within a reasonable time. On receipt of reasons the noticee is entitled to file objections, and the Assessing Officer must dispose of those objections by passing a speaking order. In the present matter reasons for reopening were furnished and objections were filed; accordingly the Assessing Officer is required to dispose of the objections by a speaking order before proceeding with the assessment. The court directed that the speaking order be passed within a fortnight and served on the petitioner shortly thereafter. [Paras 6, 7, 8]

Objections to the Section 148 notice must be disposed of by a speaking order before proceeding with assessment for assessment year 2015-2016; direction given for prompt disposal and service.

Final Conclusion: Writ petition disposed of recording that the Assessing Officer shall pass a speaking order on the objections to the Section 148 notice (relating to assessment year 2015-2016) before proceeding with assessment, with the speaking order to be passed within a fortnight and served on the petitioner; parties' rights and contentions left open.

Reopening of assessment - Change of opinion - New tangible material - Section 147 of the Income Tax Act - Writ jurisdiction to challenge reopening

Reopening of assessment - Change of opinion - New tangible material - Section 147 of the Income Tax Act - Whether the matter challenging the validity of reopening the assessment under Section 147 should be remitted for fresh adjudication on merits. - HELD THAT: - The High Court held that the learned Single Judge did not examine or record any finding on the core contention raised by the assessee that the reopening amounted to a mere change of opinion and that no fresh tangible material justified invocation of Section 147. The Assessing Officer relied on purportedly new information unearthed during search proceedings regarding receipt of alleged on-money; the assessee's case was that the same facts and documents (including bank statements and financials) were placed before the AO at the original assessment and that the sale had not fructified. Because these competing factual contentions and the notings from the search premises were not considered and decided by the Single Judge, the High Court concluded that the correctness of the reopening cannot be tested on appeal without a first-instance finding. Accordingly, the impugned order was set aside and the writ petition restored to the file of the learned Single Judge for full consideration and decision on merits as to whether the reopening was supported by fresh tangible material or amounted to a change of opinion. [Paras 6, 7, 11, 12, 13]

The impugned order is set aside and W.P.No.32366 of 2017 is restored to the file of the learned Single Judge for fresh hearing and decision on the merits concerning the validity of the reopening under Section 147; the interim stay is revived until disposal.

Final Conclusion: Writ appeal allowed; impugned order set aside and the writ petition restored for fresh adjudication on whether the reopening under Section 147 was justified by new tangible material or was a change of opinion; interim stay revived until disposal.

Penalty under Section 271(1)(c) - Concealment of income versus furnishing inaccurate particulars of income - Recording of satisfaction by Assessing Officer as precondition to penalty - Requirement of proper show cause notice before levy of penalty

Penalty under Section 271(1)(c) - Concealment of income versus furnishing inaccurate particulars of income - Recording of satisfaction by Assessing Officer as precondition to penalty - Requirement of proper show cause notice before levy of penalty - Penalty levied under section 271(1)(c) was invalid where assessment recorded satisfaction of concealment but penalty was imposed for furnishing inaccurate particulars without proper satisfaction and notice. - HELD THAT: - The Tribunal examined whether the statutory preconditions for levying penalty under section 271(1)(c) were fulfilled. The assessment order recorded satisfaction that the assessee had concealed income, whereas the penalty order proceeded on the ground of furnishing inaccurate particulars of income. The Tribunal held that the Assessing Officer must first record satisfaction while completing assessment and then, on that basis, issue a proper show cause notice under section 274 read with section 271(1)(c) before imposing penalty on the appropriate limb. Reliance was placed on the principle announced in CIT vs Samson Perinchery that initiation and levy of penalty must be aligned to the same limb and a penalty cannot be sustained if it is levied on a different limb without a proper show cause notice. Applying this principle to the facts, the Tribunal concluded that the basic condition for levy of penalty was not satisfied and the penalty order suffered from lack of jurisdictional exercise. [Paras 7, 8]

Penalty order under section 271(1)(c) set aside and appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal for AY 2015-16, set aside the penalty imposed under section 271(1)(c) on the ground that the Assessing Officer recorded satisfaction on one limb but imposed penalty on another without issuing a proper show cause notice.

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - absence of concealment or inaccurate particulars as defence to penalty - mere incorrect claim in law does not ipso facto attract penalty - bonafide claim and absence of dishonest or contumacious conduct as bar to penalty - effect of co-ordinate bench order rendering penalty infructuous - presumption in Explanation-1 to section 271(1) where claim is held malafide

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - absence of concealment or inaccurate particulars as defence to penalty - Validity of penalty imposed for inadmissible guest house maintenance expenses of Rs. 2,10,000/- - HELD THAT: - Tribunal upheld the order of the ld. Commissioner deleting the penalty. The Tribunal recorded that to levy penalty for furnishing inaccurate particulars the Department must establish either that no explanation was offered or that an offered explanation was found false. The Assessing Officer did not demonstrate falsity or concealment; the Assessee had consistently claimed similar guest house expenses as deductions in preceding years without disallowance. The ld. Commissioner explicitly found absence of concealment or inaccurate particulars and observed that AO did not establish any bogus claim. No material exists to controvert those findings and the Tribunal found no perversity or illegality in the ld. Commissioner's conclusion. [Paras 4]

Penalty deleted; Revenue's ground dismissed.

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - effect of co-ordinate bench order rendering penalty infructuous - Sustainability of penalty relating to 'repairs of the road not belonging to the Assessee' (claimed addition Rs. 198.81 lakhs) - HELD THAT: - The Assessing Officer imposed penalty on the basis that expenditure on roads not exclusively for company use showed concealment. The ld. Commissioner deleted the penalty noting absence of concealment or falsity. The Tribunal relied on a co-ordinate bench order dated 06/11/2019 in the Assessee's own case for the same assessment year which had deleted the addition; in view of that deletion the penalty could not survive. The Department did not rebut the co-ordinate bench finding and the penalty was therefore held to be infructuous. [Paras 5]

Penalty cancelled as infructuous; Revenue's ground dismissed.

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - effect of co-ordinate bench order rendering penalty infructuous - Sustainability of penalty imposed in respect of 'payments made to the transporters' (addition Rs. 5801.76 lakhs) - HELD THAT: - The Assessing Officer levied penalty on the ground that requisite transporter details were not produced, implying inaccurate particulars. The ld. Commissioner deleted the penalty on findings of no concealment or bogus claims. The Tribunal noted that a co-ordinate bench (order dated 06/11/2019 in I.T.A. No. 05/BLPR/2012) allowed the Assessee's challenge to the same addition and remitted the matter for quantification/allowability; in those circumstances the penalty could not survive. The Department did not controvert this factual position. [Paras 6]

Penalty cancelled as infructuous; Revenue's ground dismissed.

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - mere incorrect claim in law does not ipso facto attract penalty - bonafide claim and absence of dishonest or contumacious conduct as bar to penalty - presumption in Explanation-1 to section 271(1) - Validity of penalty sustained by ld. Commissioner in respect of addition treating 'Land Compensation and Rehabilitation Expenses' as capital (claimed as revenue) - HELD THAT: - The Tribunal set aside the penalty imposed and confirmed by the ld. Commissioner. While earlier appellate authorities and the Tribunal had treated the expenditure as capital in earlier years and the Department relied on that history, the Tribunal applied settled principles that assessment and penalty proceedings are distinct and that mere disallowance of an item does not automatically attract penalty. Reliance was placed on precedent that an incorrect claim in law, if bona fide, does not amount to furnishing inaccurate particulars; penalty is appropriate only where the assessee acted dishonestly or in conscious disregard of obligations. The Tribunal observed that the Assessee continued to claim the expenditure and that appeals against earlier adverse decisions were pending before the High Court, making the claim debatable and supporting bona fides. As there was no finding of deliberate falsehood or that information in the return was incorrect, the Tribunal concluded the penalty could not be sustained. [Paras 8]

Penalty set aside.

Final Conclusion: The appeals result in dismissal of the Revenue's challenges to the deletion of penalties relating to guest house expenses, road repairs and transporter payments (penalties held infructuous or unsupported), and in allowing the Assessee's challenge by setting aside the penalty sustained in respect of Land Compensation and Rehabilitation Expenses for A.Y. 2008-09.

Taxability of payments as royalty under Section 9(1)(vi) - definition of royalties under Article 12 of the India-Netherlands DTAA - distinction between use of copyrighted article and use of copyright - obligation to deduct tax at source under Section 195 - effect of retrospective amendment (Explanation 4) to Section 9(1)(vi) on royalty characterisation

Taxability of payments as royalty under Section 9(1)(vi) - definition of royalties under Article 12 of the India-Netherlands DTAA - distinction between use of copyrighted article and use of copyright - Payments made to Shell International B.V. as license fee for use of HR software do not constitute 'royalty' liable to tax in India under Article 12 of the India-Netherlands DTAA and Section 9(1)(vi) as applied in the facts of this case. - HELD THAT: - The Tribunal examined the applicability of the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT and applied its holding to the present facts. The Supreme Court held that distribution agreements/EULAs that give end-users a right to use or access software do not necessarily create an interest or right amounting to the use of copyright so as to attract the royalty definition in the relevant DTAAs and that the domestic amendments and explanations (including Explanation 4 to Section 9(1)(vi)) are not more beneficial to taxpayers in those factual matrices. Following that precedent, the Tribunal found that the payments characterised as license fees for HR software, in the factual context before it, could not be treated as royalty under Article 12 and consequently were not taxable in India as royalty under Section 9(1)(vi). The Tribunal therefore set aside the findings of the lower authorities on this point. [Paras 11, 12, 13]

Issue decided in favour of the assessee; license-fee payments are not royalty and the orders treating them as such are set aside.

Taxability of payments as royalty under Section 9(1)(vi) - definition of royalties under Article 12 of the India-Netherlands DTAA - effect of retrospective amendment (Explanation 4) to Section 9(1)(vi) on royalty characterisation - Payments for ongoing support services related to the HR software do not constitute 'royalty' under Article 12 of the India-Netherlands DTAA and Section 9(1)(vi) in the factual matrix of this case. - HELD THAT: - The Tribunal considered whether payments for ongoing support and maintenance ancillary to software access amounted to royalty or fees for technical services under the treaty. Relying on the Supreme Court's reasoning in Engineering Analysis Centre, the Tribunal concluded that such payments, as made under the Service Order before it, did not confer on the payer any right to use copyright that would attract the treaty definition of royalties. The Tribunal therefore found the lower authorities' classification of the ongoing support charges as royalty to be unsustainable and set aside those findings. [Paras 11, 12, 13]

Issue decided in favour of the assessee; ongoing support payments are not royalty and the orders treating them as such are set aside.

Obligation to deduct tax at source under Section 195 - taxability of payments as royalty under Section 9(1)(vi) - No liability arises on the assessee to deduct TDS under Section 195 in respect of the payments held not to be royalty; consequential interest under Section 201(1A) cannot be sustained. - HELD THAT: - The lower authorities held the assessee an assessee in default for failure to deduct tax on amounts characterised as royalty. Having held that the payments were not royalty under the DTAA and Section 9(1)(vi) in the circumstances of the case, the Tribunal followed the logical consequence of that conclusion: the statutory obligation to deduct tax at source under Section 195 did not arise. Therefore, the consequential determination of default and interest under Section 201(1A) based on non-deduction of TDS was set aside along with the substantive classification. [Paras 11, 12, 13]

Issue decided in favour of the assessee; no TDS obligation or consequent interest liability arises on the payments so classified.

Final Conclusion: Following and applying the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd., the Tribunal held that the license fees and related support payments to the non-resident were not 'royalty' under the India-Netherlands DTAA or Section 9(1)(vi) in the facts of these appeals, set aside the contrary findings below, and allowed the assessee's appeals (including the consequential TDS/default findings).

Permanent Establishment - Article 5(4) - Article 5(5) - agent of independent status - dependent agent - ordinary course of business - Article 7 - taxability of business profits

Permanent Establishment - Article 5(4) - Article 5(5) - agent of independent status - ordinary course of business - Article 7 - taxability of business profits - Whether the assessee had an agency permanent establishment in India through Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd and whether, consequently, the business profits were taxable in India under Article 7 of the India-Mauritius DTAA. - HELD THAT: - The Tribunal examined whether the two Indian agents were dependent agents constituting a PE under Article 5(4) read with the exception in Article 5(5). Material on record showed both agents rendered services to multiple principals during the year, with the receipts from the assessee forming only a small proportion of their total commission income. Those facts demonstrated that the agents were acting in the ordinary course of their independent businesses and were not exclusively devoted to the assessee. The Tribunal relied on earlier coordinate-bench decisions addressing identical facts and identical contractual clauses, which held that presence of agency clauses in agreements does not by itself convert normal independent agents into dependent agents if they provide services to multiple principals in the ordinary course of business. Applying Article 5(5)'s clear and unambiguous language, the Bench concluded the exception applied and the agents were of independent status. Because no agency PE existed in India, Article 7 could not be invoked to tax the assessee's business profits in India; the addition based on PE was therefore deleted. [Paras 14, 15, 16]

M/s Samsara Shipping Pvt Ltd and Parekh Marine Agency Pvt Ltd are agents of independent status under Article 5(5); no agency PE exists in India and the business profits are not taxable in India under Article 7. The addition is deleted.

Final Conclusion: Appeals partly allowed. For the assessment years in dispute the Tribunal held that the alleged Indian agents were of independent status and did not constitute a permanent establishment; accordingly, business profits were not taxable in India under Article 7 and the additions were deleted.

Preservation of environment (including watersheds, forest and wildlife) - Charitable purpose as defined in section 2(15) - First proviso to section 2(15) - activities involving trade, commerce or business - Registration under section 12A - finality and binding effect of Tribunal's order - Specific provision prevailing over general provision (rule of statutory construction) - Allowability of prior period / crystallised expenses

Preservation of environment (including watersheds, forest and wildlife) - Charitable purpose as defined in section 2(15) - Registration under section 12A - finality and binding effect of Tribunal's order - Activities of the assessee fall within the expression 'Preservation of environment (including watersheds, forest and wildlife)' and are charitable - HELD THAT: - The Tribunal and the Commissioner (Appeals) applied earlier final decisions in the assessee's own case, including the ITAT order granting registration under section 12A (16/01/2009) and subsequent upholding by the Allahabad High Court and the Supreme Court, to hold that the activities - including removal and disposal of trees and regulated exploitation of forest produce under statutory mandate - are for preservation of the environment and are charitable. The appellant AO's contrary conclusion, based on an earlier High Court ruling characterising exploitation as commercial, was held to be displaced by the later ITAT findings which have attained finality. The Tribunal emphasised that the assessee's objects, statutory control, working plans, audit and legislative oversight, and the prohibition on felling growing trees, demonstrate environmental preservation as the dominant object rather than commercial exploitation. Reliance was placed on the binding nature of the assessee's earlier ITAT orders and higher court dismissals of departmental appeals when applying those findings to the year under appeal.

Findings of learned CIT(A) affirmed and activities held to fall within 'Preservation of environment' and thus charitable.

First proviso to section 2(15) - activities involving trade, commerce or business - Specific provision prevailing over general provision (rule of statutory construction) - The proviso to section 2(15) excluding charitable status where activities involve trade/commerce/business does not apply to the assessee; the specific head 'preservation of environment' prevails over general public utility contention - HELD THAT: - The authorities applied the rule that a specific provision prevails over a general provision and followed precedents interpreting the 2009 amendment to section 2(15). Since preservation of environment was specifically incorporated in section 2(15) w.e.f. 01/04/2009 and the assessee's activities fall squarely within that specific head, the proviso aimed at commercial activities under the general public utility limb was held inapplicable. The Tribunal and CIT(A) reasoning - accepted by the AT - relies on judicial interpretations that the specific clause is controlling and on the factual matrix showing non commercial conduct of the assessee's functions.

Revenue's contention under the first proviso to section 2(15) rejected; assessee not hit by proviso.

Registration under section 12A - finality and binding effect of Tribunal's order - Registration granted for preservation, supervision and development of forest - Registration under section 12A granted to the assessee for preservation, supervision and development of forests is valid and binding; it is not restricted to 'exploitation of forest produce' as a commercial object - HELD THAT: - The Tribunal's earlier order granting registration under section 12A to the assessee and the subsequent dismissal of departmental appeals by the High Court and Supreme Court were treated as final and binding on the revenue authorities. The AT observed that the objects under the statute creating the Corporation - read with the ITAT's findings and higher judicial affirmations - show the Corporation was constituted for preservation and regulated exploitation under public interest, not commercial exploitation. The assessing officer cannot reopen issues already decided by binding appellate orders.

CIT(A)'s acceptance of the assessee's registration and its scope upheld; Revenue's challenge dismissed.

Allowability of prior period / crystallised expenses - Deletion of additions/disallowance relating to prior period expenses upheld - HELD THAT: - Relying on precedents, the authorities held that an expense is deductible in the year in which the liability is determined and crystallised. Where the quantum or liability was finalised only after the close of the earlier financial year (and therefore crystallised in a subsequent year), the claim in that subsequent year was held legitimate. The Tribunal's prior decisions in the assessee's case on prior period expenses were applied to the year under appeal and the AO's disallowance was set aside for lack of merit.

Disallowance/addition deleted; CIT(A)'s allowance of such expenses sustained.

Final Conclusion: Having applied and followed binding orders in the assessee's own case and relevant authorities, the Appellate Tribunal found no infirmity in the CIT(A)'s conclusions that the assessee's activities qualify as 'preservation of environment' and charitable, that the section 12A registration is valid, and that prior period expense disallowances were erroneous; the Revenue's appeal is dismissed.

Client code modification (CCM) - accommodation entries and commission - allowability of interest under funds borrowed wholly and exclusively for business (Section 36(1)(iii)) - disallowance in respect of exempt income (Section 14A and Rule 8D) - taxation of receipt of shares at concessional price as income of recipient (Section 56(2)(viia)) - valuation of unquoted shares - fair market value under Rule 11U/11UA - characterisation of capital infusion v. loan and Transfer Pricing applicability (Section 92) - arm's length pricing of foreign currency loans - application of LIBOR as benchmark

Client code modification (CCM) - accommodation entries and commission - Validity of additions made by AO on account of CCM and related commission - HELD THAT: - Tribunal upheld the CIT(A)'s conclusion that the AO's addition on account of alleged misuse of CCM was unsustainable on the material before him. The CIT(A) found CCM volume was within exchange/SEBI permissible limits (below 1%), no penalty or adverse finding was recorded by the exchange/SEBI, the AO's approach was speculative (accepting 20% as genuine and treating balance as accommodation entries), and there was no independent evidence that the broker or other parties implicated had admitted receipt of undisclosed consideration. The Tribunal observed an identical issue in a group company decision and, finding facts of the present case comparable, followed that precedent to dismiss Revenue's challenge to deletion of the addition and related commission.

Addition on account of CCM and related commission deleted; Revenue's grounds on CCM dismissed.

Allowability of interest under funds borrowed wholly and exclusively for business (Section 36(1)(iii)) - commercial expediency of advances to group concerns - Sustainability of AO's disallowance of interest expenses as partly used for non business purposes - HELD THAT: - CIT(A)'s finding that transactions with the identified persons/entities were business transactions (not loans) and advances were in the course of share broking/trading business was upheld. The AO's disallowance (50% of interest) was found to be an estimation without pin pointing specific interest bearing funds diverted to non business use. The Tribunal relied on and followed its earlier decisions in the assessee's related years where capital/advances to group concerns were held to be for commercial expediency and not amenable to recharacterisation as non business use, and accordingly found no infirmity in deletion of the disallowance.

Addition under Section 36(1)(iii) deleted; Revenue's ground dismissed.

Disallowance in respect of exempt income (Section 14A and Rule 8D) - Extent of disallowance under Section 14A read with Rule 8D in respect of dividend income - HELD THAT: - While the AO had applied Rule 8D to make a substantial notional disallowance, CIT(A) deleted it on facts, holding the dividend income arose from shares held as stock in trade and was incidental to business. The Tribunal accepted the alternate legal position urged by the assessee and held, following the Delhi High Court authority cited, that a disallowance under Section 14A cannot exceed the actual exempt income where appropriate; accordingly the disallowance is restricted to the actual dividend received in the year.

Disallowance under Section 14A restricted to actual dividend income received; Revenue's appeal partly allowed to that limited extent.

Taxation of receipt of shares at concessional price as income of recipient (Section 56(2)(viia)) - valuation of unquoted shares - fair market value under Rule 11U/11UA - Whether AO rightly taxed as income the benefit on allotment of NCDEX shares at below market price under Section 56(2)(viia) - HELD THAT: - AO treated the difference between last traded price and allotment price as income under Section 56(2)(viia). CIT(A) applied valuation methodology in Rules 11U/11UA (noting those rules were in force for the relevant date) and found that the fair market value so computed was lower than the allotment price; additionally the shares issued to the assessee and to the other party were on different terms (lock in/penalty etc.), so a direct comparison was inappropriate. The Tribunal found that the CIT(A)'s reasoning stood uncontroverted and therefore no addition was sustainable under Section 56(2)(viia).

Addition under Section 56(2)(viia) deleted; Revenue's ground dismissed.

Valuation of sale proceeds - evidentiary burden to prove understatement - Sustenance of AO's addition treating sale proceeds from disposal of USE shares as understated - HELD THAT: - AO estimated a higher sale value based on earlier transactions and seized documents; CIT(A) found that multiple allotments/transfers at par had occurred and that transfers were made in haste to comply with SEBI's direction to reduce shareholding, buyers confirmed consideration, and there was no material to prove receipt of any amount over declared sale consideration. The Tribunal agreed with CIT(A) that AO's adverse inference was not supported by reliable evidence and upheld deletion of the addition.

Addition on account of alleged undisclosed sale proceeds of USE shares deleted; Revenue's grounds dismissed.

Characterisation of capital infusion v. loan and Transfer Pricing applicability (Section 92) - arm's length pricing of foreign currency loans - application of LIBOR as benchmark - Whether AO could recharacterise capital infusion into AE as loan for TP adjustments and whether LIBOR is the appropriate ALP benchmark for foreign currency funding - HELD THAT: - AO treated remittances to foreign affiliates as interest free loans and computed ALP interest. CIT(A) (and the Tribunal following earlier coordinate decisions and High Court authority) held recharacterisation of bona fide capital infusion into loans is impermissible in absence of findings of sham; where TP adjustments were considered, ALP for foreign currency lending should be determined with reference to relevant international benchmarks (US$ LIBOR) rather than domestic Rupee rates. The Tribunal directed that the assessee may compute ALP on LIBOR basis and, in the earlier identical factual context, deleted the AO's adjustment where no sham or recharacterisation was established.

AO's Section 92 additions set aside; ALP to be determined with reference to appropriate USD LIBOR comparables; Revenue's grounds dismissed.

Final Conclusion: Tribunal partly allowed the Revenue appeals: it sustained the CIT(A)'s deletions of additions made by the AO on account of CCM, interest disallowance under Section 36(1)(iii), alleged undisclosed sale proceeds of USE shares, taxation under Section 56(2)(viia) in respect of NCDEX allotment, and Transfer Pricing additions relating to foreign currency funds (subject to ALP to be determined on USD LIBOR basis where applicable). The only modification ordered was that any disallowance under Section 14A be restricted to the actual exempt dividend received for the relevant year.

Disallowance under Section 36(1)(iii) - nexus between interest bearing funds and interest free advances - addition on account of loss in packing material (bardana) - business usage and wear and tear - assessment under Section 144 - effect of ex parte assessment on opportunity to produce evidence

Disallowance under Section 36(1)(iii) - nexus between interest bearing funds and interest free advances - Deletion of addition made under Section 36(1)(iii) by treating sundry debtors as interest free advances without established nexus to interest bearing funds. - HELD THAT: - The Assessing Officer made an addition by computing notional interest on sundry debtors and invoked Section 36(1)(iii). The record did not contain any agreement or material establishing that the debtors were linked to interest bearing funds or that interest was contractually chargeable; copies of debtors' accounts produced showed no charge of interest. The Tribunal found that the AO had not established the requisite nexus between interest bearing funds and the interest free advances and that therefore invocation of Section 36(1)(iii) was not justified. In view of the absence of evidence of nexus or an obligation to charge interest, the addition sustained by the Commissioner (Appeals) was deleted. [Paras 9]

Addition under Section 36(1)(iii) deleted for want of nexus and absence of evidence showing chargeability of interest.

Addition on account of loss in packing material (bardana) - business usage and wear and tear - assessment under Section 144 - effect of ex parte assessment on opportunity to produce evidence - Deletion of addition on account of alleged bardana loss where assessee produced purchase and sale bills and usage/reuse of packing material explained. - HELD THAT: - The AO had added the bardana loss on the ground that the assessee failed to justify the loss, the assessment having been completed ex parte. However, on appeal the assessee produced purchase and sale bills before the Commissioner (Appeals) showing purchases at higher rates and sales at lower rates and explained that bardana is packing material that is reused and deteriorates over time, causing price differences. The Tribunal noted the commercial practice in the trade, the inevitability of wear and tear and reuse of bardana, and that there was no evidence of inflated purchases or suppressed sales. Given that the assessee furnished documentary evidence on appeal and no malafide or suppression was shown, the addition was held unjustified and deleted. [Paras 16]

Addition on account of bardana loss deleted as unsupported and explained by trade usage and wear and tear; ex parte assessment did not sustain the addition in presence of appellate evidence.

Final Conclusion: The Tribunal allowed the appeal, deleting both the addition made under Section 36(1)(iii) for notional interest and the addition on account of bardana loss; the assessment adjustments appealed against were set aside.

Section 201(1) and 201(1A) TDS recovery mechanism - Treatment of surrogacy payments as contractual payments - Section 194C of the Act (TDS on contractual payments) read with disallowance under Section 40(a)(ia) - Section 194J (TDS on professional/technical services) - absence of technical service element

Section 201(1) and 201(1A) TDS recovery mechanism - Section 194C of the Act (TDS on contractual payments) read with disallowance under Section 40(a)(ia) - Treatment of surrogacy payments as contractual payments - Applicability of TDS under Section 194C and consequential recovery under Sections 201(1)/201(1A) in respect of payments made in the surrogacy arrangement. - HELD THAT: - The Tribunal upheld the coordinate-bench reasoning that payments made by the infertility centre in the surrogacy arrangementare contractual in nature and therefore attract the TDS machinery under Section 194C read with the consequential disallowance provision. The Tribunal relied on the surrogacy agreement on record which expressly named the assessee as a party and contained clauses (including a material breach clause) imposing reimbursement liabilities on the infertility centre, negating the assessee's contention that it was not a contracting party. Further factual findings recorded by the coordinate bench - including admissions by the intermediary/payee that amounts were received from the assessee and absence of accounts for payments to surrogate mothers, and the arrangement with the NGO for procuring surrogate mothers - supported the conclusion that the payments were contractual and that TDS obligations and related disallowances were properly invoked. The present bench adopted this judicial consistency and therefore confirmed the TDS recovery demands under Section 201(1)/201(1A) insofar as Section 194C applicability and the connected disallowance under Section 40(a)(ia) are concerned. [Paras 4]

The Tribunal confirmed the invoking of Section 194C and the TDS recovery mechanism under Sections 201(1)/201(1A), dismissing the assessee's challenge in respect of those demands.

Section 194J (TDS on professional/technical services) - absence of technical service element - Whether the payments constituted technical, managerial or professional fees attracting Section 194J. - HELD THAT: - On the question whether the intermediary's role in arranging surrogate mothers amounted to rendering technical or similar services within the statutory expression attracting Section 194J, the coordinate bench found no element of managerial, professional or technical service in the arrangement. That finding led to reversal of the lower authorities' invocation of Section 194J. The present Tribunal accepted that conclusion and held that Section 194J is not attracted on the facts of these cases. [Paras 4]

Tribunal reversed the invocation of Section 194J and held that the payments did not constitute technical/professional services attracting TDS under Section 194J.

Final Conclusion: Appeals dismissed. TDS recovery under Sections 201(1)/201(1A) was upheld on the basis that surrogacy payments were contractual and attracted Section 194C (with related disallowance under Section 40(a)(ia)); the invocation of Section 194J was reversed as no technical/professional service element was found.

Permanent Establishment - Fixed place permanent establishment - Dependent agent permanent establishment - Independent agent - Authority to conclude contracts - Software installation as permanent establishment - Business connection - Attribution of profits under Article 7 of DTAA

Permanent Establishment - Fixed place permanent establishment - Software installation as permanent establishment - Dependent agent permanent establishment - Independent agent - Authority to conclude contracts - Attribution of profits under Article 7 of DTAA - Business connection - Whether the assessee had a permanent establishment in India (either a fixed place PE by virtue of software installed at agents' premises or an agency PE through its representatives) and whether profits attributable to Indian operations could be taxed under Article 7 of the India-US DTAA. - HELD THAT: - The Tribunal applied and followed its consistent earlier decisions for multiple assessment years holding that, while the assessee had a business connection in India, it did not have a fixed place PE nor an agency PE. On the question of the software, the Tribunal observed that the software remained the property of the assessee, was merely used by agents to access the assessee's mainframe abroad, and even if treated as an installation it was not for exploration or exploitation of natural resources and therefore could not constitute a fixed place PE. With respect to agency PE, the Tribunal examined the relevant tests: agents acting in the ordinary course of their business, activities not being wholly or almost wholly devoted to the assessee, and transactions being at arm's length. The Tribunal found that agents (Department of Posts, banks, NBFCs, tour operators) carried on business activities systematically and were not economically dependent on the assessee; compensation terms indicated arm's length dealing; and there was no evidence that agents had authority, or habitually exercised authority, to conclude contracts on behalf of the assessee. The fact that agents executed the payment leg of contracts concluded abroad did not amount to concluding contracts in India. Having applied the determinative tests and followed the Co-ordinate Benches' jurisprudence on identical facts, the Tribunal held that no PE existed in India and consequently profits, if any, attributable to Indian operations could not be taxed as business profits under Article 7 of the DTAA. [Paras 5, 6]

Findings of the CIT(A) that the assessee did not have a PE in India and that profits attributable to Indian operations could not be taxed under Article 7 are upheld; the Department's grounds on PE and attribution are dismissed.

Business connection - Attribution of profits under Article 7 of DTAA - Whether any profits should be attributed and taxed in India given the finding on absence of a permanent establishment. - HELD THAT: - Because the Tribunal held there was no fixed place PE nor agency PE, it followed that business profits could not be brought to tax in India under Article 7. Earlier findings recognizing a business connection did not alter this outcome: absence of PE precluded assessment of business profits under the treaty. The Tribunal relied on consistent precedent of Coordinate Benches on identical facts and found no reason to depart from that view. [Paras 5, 6]

No profits attributable to Indian operations are taxable in India under Article 7; the Department's contention for profit attribution is rejected.

Business connection - Interest under the statute - Whether interest under the statute (as raised by the Department) is payable by the assessee in view of the taxability findings. - HELD THAT: - The CIT(A)'s conclusion on absence of taxable business profits rendered the Department's ground on interest ancillary and infructuous. The Tribunal, following the reasoning that without taxability of business profits there is no basis for charging the interest claimed, dismissed the Department's ground without separate quantification or inquiry into interest. [Paras 5, 6]

Grounds of the Department relating to interest are dismissed as infructuous in light of the finding that no business profits are taxable in India.

Final Conclusion: The appeal filed by the Department is dismissed; the Tribunal upholds the CIT(A)'s conclusion that, despite a business connection, the assessee did not have a permanent establishment in India (neither fixed place nor agency PE) and therefore profits attributable to Indian operations cannot be taxed in India under Article 7 of the India-US DTAA, with ancillary grounds including interest dismissed as infructuous.

Allowability of ESOP expenses as revenue expenditure under section 37(1) - valuation of ESOP cost by discounted cash flow (DCF) method - disallowance of expenditure relating to exempt income under section 14A and Rule 8D - no disallowance under section 14A where no exempt income is earned in the relevant year

Allowability of ESOP expenses as revenue expenditure under section 37(1) - valuation of ESOP cost by discounted cash flow (DCF) method - ESOP expenses debited to profit and loss account are allowable as revenue expenditure and the valuation adopted by the assessee using DCF is acceptable. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that ESOP expense claimed by the assessee is allowable in principle under the recognised jurisprudence of coordinate benches and relevant High Court decisions. The Assessing Officer's blanket rejection of the DCF valuation was not sustained where the AO had not found any specific impropriety in the parameters used; DCF is an accepted method that involves future projections and the assessee demonstrated that actual figures were in line with projections. The CIT(A) also noted that the benefit had been accounted as a perquisite in the hands of employees and taxed accordingly. Having considered precedent and the assessee's submissions, the Tribunal found no infirmity in allowing the ESOP expenditure as revenue in nature and permitting the valuation adopted by the assessee. [Paras 5]

The addition disallowing ESOP expense was deleted and the ESOP expense of the assessee is allowable as revenue expenditure; the AO's rejection of the DCF valuation is disapproved.

Disallowance of expenditure relating to exempt income under section 14A and Rule 8D - no disallowance under section 14A where no exempt income is earned in the relevant year - Disallowance under section 14A/Rule 8D cannot be made where the assessee has not earned any exempt income in the relevant assessment year. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the assessee had not received any exempt income in the impugned year; applying section 14A requires a link to expenditure incurred in relation to exempt income. Reliance was placed on a coordinate bench decision to the effect that in absence of exempt income, no expenditure can be disallowed under section 14A. The Tribunal found no merit in the Assessing Officer's calculation of a notional disallowance based on investment balances and consequently endorsed deletion of the section 14A disallowance. [Paras 5]

The disallowance made under section 14A/Rule 8D was deleted as there was no exempt income in the year; the ground of addition on this account is dismissed.

Final Conclusion: The appeal filed by the Revenue is dismissed; the CIT(A)'s order allowing the ESOP expense (including the DCF valuation) and deleting the disallowance under section 14A is upheld.

Revisional jurisdiction under section 263 - erroneous and prejudicial to the revenue - dual role of the Assessing Officer as investigator and adjudicator - no-enquiry / non-application of mind - CBDT circular on penny stocks - Explanation 2(c) to section 263 - presumption under Section 114(e) of the Indian Evidence Act

Revisional jurisdiction under section 263 - erroneous and prejudicial to the revenue - no-enquiry / non-application of mind - CBDT circular on penny stocks - presumption under Section 114(e) of the Indian Evidence Act - Whether the Principal Commissioner of Income Tax rightly invoked revisional jurisdiction under section 263 to set aside the assessment on account of alleged non-enquiry into claimed loss from sale of certain scrips - HELD THAT: - The Tribunal held that the pre-condition for exercise of revisional jurisdiction under section 263 - that the AO's order is both erroneous and prejudicial to the revenue - was not satisfied. The AO had issued detailed notices under section 142(1) calling for specific particulars and documentary evidence relating to purchase, sale, bank payments, demat statements and contract notes in respect of the scrips; the assessee furnished the requested particulars and supporting documents and the AO, after perusal and verification, accepted the claim of business loss. The PCIT's conclusion of no enquiry was therefore based on surmise; the PCIT did not point to any material showing that the AO failed to investigate or that the view taken by the AO was unsustainable in law. The Tribunal accepted the proposition that the AO could be presumed to have been aware of the Directorate/CBDT communications on penny stocks and that the detailed queries in the section 142(1) notices indicate enquiry prompted by those communications (a presumption permissible under Section 114(e) of the Indian Evidence Act). Invocation of Explanation 2(c) to section 263 by the PCIT was held to be incorrect on the facts, and mere suspicion or conjecture could not substitute for evidence to show the AO's order was erroneous and prejudicial to revenue. Because the PCIT did not conduct an independent enquiry or demonstrate that the AO's view was unsustainable in law, the requisite jurisdictional condition precedent for exercise of revisional power was absent. [Paras 5, 6, 7, 8, 9]

Ld. PCIT's exercise of revisional jurisdiction under section 263 was without jurisdiction and the impugned revisional order is quashed.

Final Conclusion: The assessee's appeal is allowed; the revisional order dated 25.03.2019 passed under section 263 is quashed as lacking jurisdiction.

Confiscation and levy of duty and penalty on imported goods - antique article determination - donation of seized goods to Revenue - public auction by Revenue - reserve price for auction

Confiscation and levy of duty and penalty on imported goods - donation of seized goods to Revenue - public auction by Revenue - reserve price for auction - Permitting the Revenue to auction the seized idol/statue and directing completion of auction formalities within three months with liberty to fix an appropriate reserve price - HELD THAT: - The petitioner, who had been proceeded against for not declaring an imported metal idol/statue as an antique and against whom duty and penalty were imposed following valuation by the Customs authorities, stated on instructions that he would donate the idol/statue to the Customs Department. In the peculiar facts of the case and in view of the petitioner's fair gesture and absence of objection, the Court directed that the Revenue be permitted to appoint an appropriate agency and conduct a public auction of the subject idol/statue. The Court authorised the Revenue to determine an appropriate reserve price and required that all formalities connected with the auction be completed within three months. The result of the auction is to be placed on record before the adjourned date of hearing. [Paras 5, 6, 7]

Revenue permitted to auction the seized idol/statue through an appropriate agency, to fix an appropriate reserve price, complete auction formalities within three months, and place auction result on record.

Final Conclusion: The writ petition was directed to stand over for three months; in the meantime the Revenue was authorised to auction the seized idol/statue (with liberty to fix a reserve price) and to place the auction result on record before the adjourned hearing.

Scheme of Arrangement - dispensation of meeting of equity shareholders - convening creditors' meetings - appointment of chairperson and scrutinizer - statutory auditor/CA certificate certifying shareholders and creditors - compliance with Companies Act, 2013 and Companies (CAA) Rules, 2016 - filing of reports and petition for sanction of scheme

Dispensation of meeting of equity shareholders - Scheme of Arrangement - statutory auditor/CA certificate certifying shareholders and creditors - Whether the meetings of the equity shareholders of the Applicant Companies may be dispensed with for the proposed Scheme of Arrangement. - HELD THAT: - The Tribunal noted that the Applicant Companies followed the procedural requirements under the Companies Act, 2013 and the Companies (CAA) Rules, 2016, that the Board of Directors approved the Scheme, and that statutory auditors and chartered accountants furnished certificates certifying the details of shareholders and creditors and compliance of the accounting treatment. The Applicants also filed affidavits from the relevant shareholders expressing no objection to dispensation. On this basis the Tribunal was satisfied that material facts were disclosed and that dispensation of the meetings of equity shareholders was justified. [Paras 5, 6]

Meetings of the equity shareholders of all the Applicant Companies are dispensed with.

Convening creditors' meetings - Scheme of Arrangement - compliance with Companies Act, 2013 and Companies (CAA) Rules, 2016 - Whether meetings of secured and unsecured creditors of the Applicant Companies should be convened and the terms for such meetings. - HELD THAT: - Having accepted that the Scheme and accompanying certifications meet statutory requirements, the Tribunal directed convening of specified meetings of secured and unsecured creditors of the several Applicant Companies on specified dates and times by Video Conferencing/Other Audio Visual Means. The Tribunal fixed quorum requirements for each meeting (ranging from one member to specified percentage of total value as appropriate), and directed publication of notices in specified newspapers. These directions implement the procedural step of obtaining creditor consideration and approval of the Scheme in accordance with the Act and Rules. [Paras 5, 6]

Meetings of the secured and unsecured creditors of the Applicant Companies shall be convened on the dates, times and with the quorum and publication directions specified by the Tribunal.

Appointment of chairperson and scrutinizer - convening creditors' meetings - Appointment of chairpersons and scrutinizers for the creditors' meetings and fixation of their remuneration. - HELD THAT: - For each set of creditor meetings the Tribunal appointed named advocates as Chairpersons and named Practising Company Secretaries as Scrutinizers, and fixed their remuneration for each meeting. The appointments and remuneration were directed to facilitate conduct and scrutiny of the meetings held by electronic means. [Paras 6]

Specified Chairpersons and Scrutinizers are appointed for the respective creditors' meetings and their remuneration as fixed by the Tribunal is allowed.

Filing of reports and petition for sanction of scheme - Scheme of Arrangement - Requirement to file reports of meetings and subsequent petition for sanction of the Scheme. - HELD THAT: - The Tribunal directed the appointed Chairpersons and Scrutinizers to file their respective reports with the Registry within two weeks from the conclusion of each meeting. Thereafter the Applicant Companies were granted two weeks' time to file appropriate Company Petitions to seek sanction of the Scheme, subject to all statutory compliances. This order confines the Tribunal's current role to facilitating meetings and requires the Applicants to pursue the sanction stage thereafter. [Paras 6]

Chairpersons and Scrutinizers to file reports within two weeks of meetings; Applicants given two weeks thereafter to file petitions for sanction of the Scheme.

Right to approach Tribunal by interim application - Whether any person aggrieved by the order has a remedy. - HELD THAT: - The Tribunal expressly provided that any person, company or institution aggrieved by the order may approach the Tribunal by filing interim application(s) seeking appropriate directions, thereby preserving the right to seek relief against aspects of the order. [Paras 6]

Aggrieved persons may file interim application(s) before the Tribunal seeking appropriate directions.

Final Conclusion: The Tribunal, being satisfied with compliance of statutory requirements and supporting certifications, dispensed with meetings of the equity shareholders, directed convening of the specified secured and unsecured creditors' meetings (with prescribed quorum, publication, and electronic mode), appointed Chairpersons and Scrutinizers with fixed remuneration, required filing of their reports and permitted Applicants a limited period to file petitions for sanction of the Scheme; aggrieved parties may seek relief by interim application.

Commercial or Industrial Construction Service - taxability depends on user of the building - construction for educational institutions not taxable as CICS - CBEC Circular No. 80/10/2004-ST clarifying leviability - finality of tribunal order - consideration alone does not determine commercial nature

Commercial or Industrial Construction Service - taxability depends on user of the building - CBEC Circular No. 80/10/2004-ST clarifying leviability - construction for educational institutions not taxable as CICS - consideration alone does not determine commercial nature - Whether construction of buildings for educational institutions for the period 01.04.2012 to 30.06.2012 falls within the definition of Commercial or Industrial Construction Service and is liable to service tax - HELD THAT: - The Tribunal had earlier considered the definition of Commercial or Industrial Construction Service and held that taxability turns on the user of the constructed building; reliance was placed on CBEC Circular No. 80/10/2004-ST which clarifies that leviability depends on whether the building is used for commerce or industry. The Adjudicating Authority had found the buildings were used for educational purposes and the Revenue produced no evidence to show use for commercial purposes. Those findings were upheld by the Tribunal and attained finality. In the absence of any material to displace the earlier finding about user and use, the present challenge to the dropped demand cannot be sustained. The mere fact that construction was undertaken for consideration did not, without more, convert the activity into commercial construction taxable as CICS. [Paras 6, 7, 10]

The demand for service tax on construction of educational institutions for 01.04.2012 to 30.06.2012 was correctly dropped; the Department's appeal is dismissed.

Final Conclusion: The appeal by the Department is dismissed as the Tribunal's prior decision holding construction for educational institutions not taxable as CICS (based on user of the building and the CBEC clarification) has attained finality and the Revenue produced no evidence to rebut the finding.

Inclusion of value of free goods supplied by service recipient in taxable value - Gross amount charged / consideration for taxable service under Section 67 - Application of precedent on valuation (Bhayana Builders; Vantage International)

Inclusion of value of free goods supplied by service recipient in taxable value - Gross amount charged / consideration for taxable service under Section 67 - Whether the value of free diesel supplied by the service recipient is includible in the taxable value of mining services provided by the assessee. - HELD THAT: - The Tribunal applied its consistent view in Vantage International, following the principle in M/s. Bhayana Builders that valuation under Section 67 is based on the "gross amount charged by the service provider for such service provided or to be provided by him" and therefore does not extend beyond amounts charged by the provider. It was an admitted fact that the service recipient supplied diesel free and the service provider did not charge for fuel; the value of such free supply was not billed or charged and thus had no nexus as consideration for the taxable service. The Commissioner's attempt to distinguish mining services on this ground was held to have no legal basis because Section 67 contains no such distinction. Applying these legal principles, the Tribunal found no merit in confirming the demand in respect of free diesel for mining services. [Paras 4, 5]

Appeal by the assessee allowed; demand in respect of free diesel supplied for mining services not sustained.

Inclusion of value of free goods supplied by service recipient in taxable value - Gross amount charged / consideration for taxable service under Section 67 - Whether the Revenue's appeal against dropping the demand in respect of free diesel attributable to supply of tangible goods succeeds. - HELD THAT: - The Tribunal applied the same legal proposition that the value for service tax is the gross amount charged by the service provider for the taxable service. Where the service provider did not charge the recipient for diesel supplied free by the recipient, that value cannot be added to the gross amount charged. The earlier adjudicatory finding dropping the demand in respect of free diesel for supply of tangible goods was consistent with this principle and did not call for interference. Consequently, the Revenue's appeal was found to lack merit. [Paras 4, 5]

Revenue's appeal dismissed; dropping of demand in respect of free diesel for supply of tangible goods upheld.

Final Conclusion: Applying the settled rule that taxable value under Section 67 is confined to the gross amount charged by the service provider for the taxable service, the Tribunal allowed the assessee's appeal (no inclusion of free diesel for mining services) and dismissed the Revenue's appeal (upholding the dropping of demand for free diesel attributable to supply of tangible goods).

Writ against show cause notice - Jurisdictional incompetence - Mala fides - Violation of principles of natural justice - Availability of alternative remedy by appeal - Exercise of writ jurisdiction under Article 226

Writ against show cause notice - Jurisdictional incompetence - Mala fides - Exercise of writ jurisdiction under Article 226 - Entertainability of a writ petition challenging a show cause/notice issued under the Tamil Nadu Value Added Tax Act, 2006. - HELD THAT: - The High Court held that writ petitions challenging show cause notices are not to be entertained as a routine exercise of jurisdiction under Article 226. A writ against a show cause notice may be entertained only in limited circumstances: where the notice is issued by an authority that is incompetent or without jurisdiction, or where mala fides is alleged. Allegations of mala fides must be specifically pleaded and, if directed at an individual officer, that officer should be impleaded in his personal capacity. Ordinary objections including alleged breaches of natural justice should be raised before the statutory authority and, if dissatisfied, aggrieved parties must pursue the appellate remedies provided under the Act. The Court declined to adjudicate disputed facts or merits in writ proceedings, emphasising that factual disputes must be resolved by the authority on the basis of documents and evidence and not by the High Court in an Article 226 petition. [Paras 10, 11, 12]

Writ petition challenging the show cause notice is not maintainable on merits; such relief is permissible only on jurisdictional incompetence or proven mala fides, and not for routine factual disputes.

Availability of alternative remedy by appeal - Violation of principles of natural justice - Direction as to procedural course for the petitioner in respect of the impugned notice. - HELD THAT: - The Court observed that the impugned notice afforded the petitioner an opportunity to file material evidence or to pay the compounding fee, and recorded that the petitioner is at liberty to submit explanations, material evidence, or details of any appeal already preferred to the respondents for their consideration. The High Court declined to resolve the contested factual or merit-based issues in these writ proceedings and left such matters to be examined by the statutory authorities in the first instance. [Paras 5, 6, 8, 13, 14]

Petitioner permitted to submit material evidence, explanations or appeal particulars to the authority for consideration; the court will not adjudicate the disputed facts in the writ petition.

Final Conclusion: Writ petition dismissed; petitioner permitted to place material evidence/explanations or appeal particulars before the authorities for consideration; no order as to costs.

Appellate power confined to the subject matter of assessment - absence of jurisdiction to change the character of the transaction - harmonious construction of clauses conferring appellate powers - restriction on enhancement to matters considered in assessment - inclusion of freight in value of sale

Absence of jurisdiction to change the character of the transaction - appellate power confined to the subject matter of assessment - Whether the Appellate Joint Commissioner had jurisdiction, in exercise of appellate powers under Section 52(3) of the TNVAT Act, to alter the character of the sale transaction and direct the Assessing Officer to treat an interstate sale as a local sale. - HELD THAT: - The Court held that the appellate authority's powers under Section 52(3) must be read harmoniously and are confined to the subject matter of the assessment before the Assessing Officer. Clause (b) cannot be construed in isolation so as to permit the Appellate Authority to travel beyond the issues adjudicated at assessment and to exercise sui generis revisionary powers which belong to different provisions and procedures. Relying on the established principle that enhancement or alteration is restricted to matters considered expressly or by clear implication at assessment, the Court found that the Appellate Authority, after accepting the appellant's contention that freight could not be added to the value, nonetheless proceeded to change the character of the transaction to a local sale - a matter which was neither the assessee's case nor decided by the Assessing Officer. That act exceeded the appellate jurisdiction and was therefore without authority. [Paras 3, 4]

The Appellate Joint Commissioner acted without jurisdiction in directing the Assessing Officer to treat the transaction as a local sale; the impugned appellate order is quashed.

Final Conclusion: Writ appeal allowed; the appellate order dated 17.05.2013 is quashed as beyond the Appellate Joint Commissioner's jurisdiction for altering the character of the transaction; writ petition allowed; no costs.