TaxTMI Updates e-Newsletter
Oct 16,2018

Interim injunction against coercive tax recovery - application of Goods and Services Tax to ongoing contracts - inclusion and deduction of tax from bills - prima facie satisfaction, balance of convenience and irreparable harm

Interim injunction against coercive tax recovery - inclusion and deduction of tax from bills - prima facie satisfaction, balance of convenience and irreparable harm - Interim protection against coercive action for payment of GST and permissibility of respondent to add and deduct GST from petitioner's bills during pendency of proceedings. - HELD THAT: - The Court, being prima facie satisfied and having regard to the balance of convenience and the risk of irreparable loss to the petitioner, restrained respondent authorities from taking any coercive action against the petitioner in relation to payment of GST in the interim. At the same time the Court clarified that the respondent authority remains at liberty to act in accordance with law by adding GST to the petitioner's bills and deducting it thereafter, if so advised. The order is interlocutory and limited to preserving the petitioner from immediate coercive measures while the substantive controversy about the treatment of contracts and invoices across the GST transition is left to be adjudicated on merits in due course.

No coercive action to be taken against the petitioner regarding payment of GST in the interim; respondent may add GST to bills and deduct same if legally appropriate.

Final Conclusion: Interim relief granted restraining coercive recovery of GST against the petitioner pending further adjudication, while permitting the authority to add GST to the bills and deduct it in accordance with law; matter listed for further hearing on 28.11.2018.

Provisional entertainment of returns - GST TRAN-1 - interim direction to open portal or allow manual filing

Provisional entertainment of returns - GST TRAN-1 - Respondents to provisionally entertain the petitioner's GST TRAN-1 and other returns pending further orders. - HELD THAT: - The Court directed that, pending further consideration and while the respondent is granted time to file a reply, the respondents shall provisionally entertain the petitioner's GST TRAN-1 and other returns. The provisional entertainment is to be effected either by opening the online portal or by allowing manual filing, as an interim measure until the matter is finally heard on the listed date. The order is interlocutory and confined to facilitating provisional acceptance of the returns rather than deciding the substantive entitlement or merits.

The respondents are directed to provisionally entertain the petitioner's GST TRAN-1 and other returns by opening the portal or allowing manual filing; matter listed on 29.10.2018.

Final Conclusion: Interim order directing provisional acceptance of the petitioner's GST TRAN-1 and other returns (via portal or manual filing) while respondents file their reply; matter posted for further hearing on 29.10.2018.

Extension of time for filing income-tax returns - exercise of powers under Section 119 for grant of extension of time - direction to consider representation and to pass a speaking order - liberty to approach court in case of grievance against administrative order

Direction to consider representation and to pass a speaking order - extension of time for filing income-tax returns - Respondent authorities were directed to consider the petitioners' representation dated 20.09.2018 seeking extension of the due date for filing tax audit report and income-tax return and to pass a speaking order on or before 25.10.2018. - HELD THAT: - The petition sought a further extension of the filing deadline (from the then fixed date of 30.09.2018) up to 31.12.2018 on account of processes and information (including GSTR-9) required by assessees. Respondents submitted that the deadline had already been extended to 31.10.2018 by an order dated 08.10.2018 issued under Section 119 of the Income Tax Act, 1961. Having considered the submissions, the Court declined to grant an immediate substantive extension but directed the respondent authorities to consider the pending representation of 20.09.2018 and to communicate a reasoned (speaking) decision by 25.10.2018 so that the petitioners, if aggrieved by the outcome, would have the liberty to approach the Court again. The order thus disposes of the writ petition by securing administrative consideration with reasons rather than deciding the merits of the requested extension. [Paras 6, 7]

Petition disposed by directing respondents to consider the representation dated 20.09.2018 and to pass a speaking order by 25.10.2018, with liberty to the petitioners to approach the Court again if aggrieved.

Final Conclusion: Writ petition disposed of by directing the respondent authorities to consider the petitioners' representation of 20.09.2018 for extension of the filing due date and to pass a speaking order by 25.10.2018; petitioners given liberty to approach the Court again if aggrieved.

Refund of tax collected by a third party - writ jurisdiction and alternate efficacious remedy - obligation of the collecting intermediary to seek refund - non-recovery of tax directly from Department where tax was not collected from assessee

Refund of tax collected by a third party - obligation of the collecting intermediary to seek refund - non-recovery of tax directly from Department where tax was not collected from assessee - Whether the petitioners can directly seek refund from the Income Tax Department for Security Transaction Tax remitted by the Bombay Stock Exchange (BSE), or whether the remedy lies against the BSE which collected and remitted the tax. - HELD THAT: - The court examined the pleadings and materials and found that the BSE deducted Security Transaction Tax from the refunds paid to the petitioners and remitted that amount to the Income Tax Department. The Income Tax Department had not collected any tax from the petitioners themselves and therefore, according to the pleadings, was not the proper respondent to be sued for refund. The court held that where a third party (here the BSE) has collected and remitted the tax, the collecting intermediary is the party which must seek any refund from the Department if it considers the remittance erroneous. If the BSE does not pursue such remedy, the petitioners have an alternate civil remedy against the BSE to recover the amount retained. The dispute being essentially factual and involving the position of the collecting intermediary, it was not appropriate for resolution in writ jurisdiction on the present pleadings. [Paras 2, 3]

Writ petition not maintainable against the Income Tax Department; petitioners' remedy is to have the BSE seek refund from the Department or to pursue a civil claim against the BSE for recovery of the amount retained.

Final Conclusion: Writ petition disposed of: petitioners cannot directly obtain refund from the Income Tax Department where the tax was collected and remitted by the BSE; the BSE must seek refund from the Department or the petitioners may pursue a civil action against the BSE.

Ad hoc disallowance of expenditure - genuineness of expenditure - reopening of assessment - factual findings and perversity test - corroborative documentary evidence (invoices, ledgers, PAN) - consistency of acceptance in subsequent years - followed precedent of a Coordinate Bench

Ad hoc disallowance of expenditure - genuineness of expenditure - corroborative documentary evidence (invoices, ledgers, PAN) - factual findings and perversity test - followed precedent of a Coordinate Bench - Deletion of ad hoc disallowance of 50% made by the Assessing Officer on repair and maintenance expenditure - HELD THAT: - The Assessing Officer reopened assessment and made an ad hoc disallowance of 50% of the claimed repair and maintenance payments after finding that confirmations from some vendors were not produced; four vendors did appear and documentary evidence was furnished but remaining payments were not independently confirmed by the assessee. The Commissioner (Appeals) reduced the ad hoc disallowance to 5% after noting production of invoices, ledgers and acceptance of payments to the contractors in subsequent years. The Tribunal examined the factual material, recorded that complete vendor details including PAN, invoices and ledger accounts were filed, and followed an earlier Coordinate Bench decision for other assessment years of the assessee; it therefore deleted the ad hoc disallowance. The High Court held that these are primarily factual findings and there is no perversity in the Tribunal's conclusions, noting also its own dismissal of a similar challenge for a different assessment year; accordingly the Tribunal's deletion of the disallowance was upheld. [Paras 3, 4, 6, 7]

Tribunal's deletion of the ad hoc disallowance was upheld and the Revenue's appeal dismissed.

Final Conclusion: The High Court dismissed the Revenue's appeal against the Tribunal's order deleting the ad hoc disallowance of repair and maintenance expenditure for Assessment Year 2003-2004, upholding the Tribunal's factual findings and conclusion that the expenditure was substantiated.

Capital expenditure versus revenue expenditure - commercial test for classification of expenditure - amortisation under build-operate-transfer (BOT) arrangements - accrual of liability on encashment of performance bank guarantee - distinction between liquidated damages for loss of fixed asset and payments for failure to perform service concession

Capital expenditure versus revenue expenditure - commercial test for classification of expenditure - amortisation under build-operate-transfer (BOT) arrangements - The sum of Rs. 2,08,92,603 disallowed by the Assessing Officer is revenue expenditure and not capital expenditure. - HELD THAT: - The Court applied the commercial test to distinguish capital from revenue expenditure, observing that where construction under BOT does not vest ownership in the assessee and the expenditure confers no enduring benefit or capital asset on the assessee, such costs are not capital in nature but are to be amortised over the tenure of the agreement. The respondent had failed to perform obligations under the concessionaire agreement (including operation, maintenance and payment of monthly concession fee), and the payment on encashment of the performance security arose from that failure. The Court noted that construction costs in BOT schemes are amortisable and that payments consequent to failure to perform contractual obligations are revenue in character; Saurashtra Cement (liquidated damages for loss of a fixed asset) was distinguished. The Tribunal's conclusion that the disputed amount was revenue expenditure was upheld, and the Tribunal's direction that any refund received upon success in arbitration would be taxable in the year of receipt was endorsed. [Paras 16]

Addition disallowing Rs. 2,08,92,603 as capital expenditure set aside; amount held to be revenue expenditure.

Accrual of liability on encashment of performance bank guarantee - accrual principle - Whether deduction could be disallowed for AY 2009-10 because actual payment was made after 1 April 2009 - rejected; liability accrued on 26 March 2009 when the High Court permitted encashment. - HELD THAT: - The Court held that the Delhi High Court's order permitting encashment of the bank guarantee fixed the respondent's liability as from the date of that order. Although the monetary payment was effected later, the liability had accrued on the date the encashment was permitted and the assessee was directed to pay interest from the interim order date; consequently the timing of actual payment after 1 April 2009 did not preclude treating the liability as having accrued earlier. [Paras 17]

Contention that the expenditure could not be claimed in AY 2009-10 because payment occurred after 1 April 2009 rejected; liability held to have accrued on 26 March 2009.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal's findings that the disputed payment is revenue expenditure and that the liability accrued on the date the High Court permitted encashment are upheld, with the Tribunal's direction regarding taxation of any subsequent refund preserved.

Limitation triggered by receipt of ITAT order by Departmental representative - commencement of limitation for Revenue upon receipt by Commissioner/Commissioner (Judicial) - applicability of special limitation for remand under Section 153(2A) - priority of chapter XIV block/ search assessment code over general limitation - quashing of assessment completed beyond statutory limitation

Limitation triggered by receipt of ITAT order by Departmental representative - commencement of limitation for Revenue upon receipt by Commissioner/Commissioner (Judicial) - The date from which limitation began to run for the Revenue in respect of steps consequent to the ITAT remand. - HELD THAT: - Applying the Full Bench decision in Odeon Builders, the Court held that limitation for the Revenue begins when the departmental representative (including the Commissioner of Income-tax (Judicial) or a Commissioner-level officer nominated as Departmental Representative) first receives a copy of the ITAT order. The evidence in the present proceedings established that the Departmental Representative received a copy of the ITAT order dated 30.03.2016; accordingly the starting point of limitation was 31.03.2016. [Paras 5]

Limitation for Revenue commenced from 31.03.2016.

Applicability of special limitation for remand under Section 153(2A) - priority of chapter XIV block/ search assessment code over general limitation - quashing of assessment completed beyond statutory limitation - Whether the remand assessment completed on 22.12.2017 was time-barred in view of the special limitation under Section 153(2A) and Chapter XIV provisions governing block/search assessments. - HELD THAT: - The Court examined the statutory scheme and concluded that Chapter XIV governing block/search assessments constitutes a complete code with its own specific periods of limitation. Section 153(2A) was a special provision applicable to fresh assessments made pursuant to orders under Sections 250/254 etc., and prescribed the limited period available to complete remand work. The two-year/other general limitation provisions cannot be read so as to defeat the special regime meant to ensure completion of search/block assessments and remands within the prescribed shorter period. Applying that principle to the facts, the remand had to be worked out within the period available under Section 153(2A) (the Court identifying the last valid date as 31.12.2016); the assessment completed on 22.12.2017 was therefore beyond the statutory period and liable to be set aside. [Paras 6, 7, 8]

The assessment order dated 22.12.2017 (and consequential actions) was time-barred and is quashed.

Final Conclusion: Writ petitions allowed; the assessment order dated 22.12.2017 passed pursuant to remand and all consequential orders and actions are quashed.

Deduction under section 80-IC - eligibility of undertaking located in a notified industrial area - Thirteenth and Fourteenth Schedule - exclusion/eligibility of manufactured article - remand report and verification by Assessing Officer - precedent in assessee's own case / reliance on earlier Tribunal decision

Deduction under section 80-IC - Thirteenth and Fourteenth Schedule - exclusion/eligibility of manufactured article - remand report and verification by Assessing Officer - precedent in assessee's own case / reliance on earlier Tribunal decision - eligibility of undertaking located in a notified industrial area - Assessee's entitlement to deduction under section 80-IC for AY 2011-12 - HELD THAT: - The Assessing Officer denied the deduction inter alia on grounds that the product might fall within the negative list (Thirteenth Schedule), that Form 10CCB and separate accounts were not filed, and on alleged discrepancies between receipts and TDS particulars. The CIT(A) obtained a remand report from the AO, who accepted that there was no discrepancy in income/receipts as per TDS and accounts, and that the unit was situated in a notified area. The CIT(A) also followed the Tribunal's earlier decision in the assessee's own case (ITA No.3381/Mum/2013 dated 30.11.2015) which had examined these contentions, observed the AO's remand report, and upheld entitlement to deduction after appropriate adjustments (including carry forward of loss of earlier year). The Tribunal before us noted that Revenue did not demonstrate any material distinction in facts for AY 2011-12 from the facts adjudicated earlier and found no infirmity in the CIT(A)'s application of the earlier Tribunal ruling and the AO's remand findings. On that basis the claim under section 80-IC was held to be admissible for AY 2011-12 and the addition deleted. [Paras 8, 9]

Deduction under section 80-IC allowed for AY 2011-12; Revenue's appeal dismissed.

Final Conclusion: Revenue's appeal challenging allowance of deduction under section 80-IC for AY 2011-12 is dismissed; the Tribunal upheld the CIT(A)'s decision following the AO's remand report and the Tribunal's earlier ruling in the assessee's own case.

Treatment of agricultural income as income from other sources under section 68 - evidence of ownership and operation for claiming agricultural income - reliance on prior tribunal decision in assessee's own case

Treatment of agricultural income as income from other sources under section 68 - evidence of ownership and operation for claiming agricultural income - Whether the sum claimed as agricultural income could be held not to be agricultural income and added to income as income from other sources under section 68 for assessment year 2011-2012. - HELD THAT: - The Tribunal noted that the Assessing Officer had examined title deeds and other material and concluded that the agricultural properties in respect of which agricultural income was claimed did not belong to the assessee but to other family members, and that the assessee failed to produce documentary evidence to show that he received agricultural income by virtue of conducting agricultural operations on those properties. The Tribunal further relied on an earlier Tribunal order in the assessee's own case for assessment year 2009-2010, where identical facts led to the conclusion that the claimed agricultural income was not genuine agricultural income and, therefore, amounts credited to the assessee's books had to be added as income from other sources under section 68. In light of the Assessing Officer's categorical findings, uncontested by the assessee, and the earlier binding decision on identical facts, the Tribunal held that the authorities were justified in treating the claimed agricultural receipts as not agricultural income and in invoking section 68 to add them as income from other sources. [Paras 6, 7]

Addition of the claimed agricultural income of Rs. 11,71,000 as income from other sources under section 68 is upheld and the appeal is dismissed.

Final Conclusion: The Tribunal dismissed the assessee's appeal for assessment year 2011-2012, upholding the addition of the claimed agricultural income as income from other sources under section 68, relying on the Assessing Officer's findings and a prior Tribunal decision in the assessee's own case with identical facts.

Requirement of specificity in show-cause notice - Validity of penalty for concealment or furnishing inaccurate particulars of income under Section 271(1)(c) - Void ab initio of penalty proceedings for defective notice - Precedential application of higher court decisions on notice-defects

Requirement of specificity in show-cause notice - Validity of penalty for concealment or furnishing inaccurate particulars of income under Section 271(1)(c) - Void ab initio of penalty proceedings for defective notice - Whether the penalty levied under Section 271(1)(c) is valid where the show-cause notice under Section 274 recites both charges (concealment and furnishing inaccurate particulars) without specifically alleging one and striking out the other. - HELD THAT: - The Tribunal found that the show-cause notice dated 5.3.2014 recited both alternative charges - that the assessee had concealed particulars of income or had furnished inaccurate particulars of income - without specifying or striking out either charge. Relying on the jurisdictional High Court decision in Principal Commissioner of Income Tax-I v. Kulwant Singh Bhatia and precedents including CIT v. Manjunatha Cotton & Ginning Factory and CIT v. SSA's Emerald Meadows, and following a coordinate-bench decision in Keti Sangam Infrastructure (I) Ltd v. DCIT, the Tribunal held that a notice which fails to specify the particular charge does not satisfy the statutory requirement and is legally deficient. A defective notice of this nature renders the penalty proceedings vitiated and void ab initio, so that the penalty cannot be sustained. Applying these principles to the facts before it, the Tribunal concluded that the penalty imposed on account of the disallowance of depreciation could not stand. [Paras 7, 8]

Impugned penalty under Section 271(1)(c) is set aside as the show-cause notice was legally defective; penalty deleted.

Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y. 2010-11, set aside the order confirming penalty under Section 271(1)(c) and deleted the impugned penalty on the ground that the show-cause notice failed to specify the particular charge and was therefore defective.

Disallowance under section 14A - computation of disallowance under Rule 8D(2)(iii) - indirect administrative expenditure - apportionment of common expenses between exempt and taxable income - Book Profits for the purpose of section 115JB (MAT) - adjustment of section 14A disallowance while computing book profits under section 115JB

Disallowance under section 14A - computation of disallowance under Rule 8D(2)(iii) - indirect administrative expenditure - apportionment of common expenses between exempt and taxable income - Whether professional charges paid to consultants and auditors form part of indirect administrative expenditure for the purpose of computing disallowance under Rule 8D and if so, whether such common expenses must be apportioned between exempt and taxable income. - HELD THAT: - The Tribunal held that the professional charges in issue were part of indirect administrative expenditure and therefore includible for computation of disallowance under Rule 8D, because they could not be shown to be exclusively incurred for a particular (truck) business and were incurred for the assessee's business as a whole. However, since the expenditures were not exclusively incurred to earn the exempt dividend income, the appropriate approach is apportionment. Applying the proportion of exempt income in total income as reflected in the profit and loss account (37%), the Tribunal restricted the allowable disallowance to that proportion of the aggregated administrative expenses disallowed by the lower authorities. The Tribunal thus sustained the disallowance only to the extent apportioned to exempt income. [Paras 5, 6]

Professional charges are includible as indirect administrative expenditure under Rule 8D, but the disallowance must be apportioned and is restricted to the proportion of exempt income (37%) of the administrative expenses; disallowance sustained to that extent.

Book Profits for the purpose of section 115JB (MAT) - adjustment of section 14A disallowance while computing book profits under section 115JB - Whether the disallowance under section 14A is required to be adjusted while computing Book Profits for the purpose of section 115JB. - HELD THAT: - The Tribunal followed the Special Bench view and the line of authorities applying the ratio of the Supreme Court, holding that adjustment of section 14A disallowance was not required while computing Book Profits under section 115JB. The Tribunal noted and followed precedents which treat the net profit shown in the profit and loss account as not to be gone behind for computing book profits except as provided by the Explanation to the relevant provision, and the jurisdictional decisions of the Bombay High Court supporting the same approach. [Paras 7]

No adjustment of section 14A disallowance is required while arriving at Book Profits for the purpose of section 115JB; Ground Number 2 allowed.

Final Conclusion: The appeal is partly allowed: (i) disallowance under section 14A is sustained only to the apportioned extent attributable to exempt income (37% of the administrative expenses), and (ii) no adjustment of the section 14A disallowance is to be made while computing Book Profits under section 115JB for AY 2013-14.

Reopening of assessment and reason to believe - reassessment jurisdiction - addition under section 69C - peak credit method - estimation of profit element on alleged bogus purchases - verification of suppliers and invoices - undue VAT input credit against bogus purchases

Addition under section 69C - peak credit method - estimation of profit element on alleged bogus purchases - Appropriate quantum and method for making addition in respect of alleged bogus purchases. - HELD THAT: - The Tribunal found that the assessee, a trader in steel, had undisputed sales turnover and banked receipts but could not produce any supplier to confirm purchases, nor furnish addresses for verification. The AO had treated the bills as accommodation entries and worked out peak credit to arrive at an addition under section 69C. The CIT(A), relying on judicial precedents, replaced the peak-credit addition by estimating a profit element at 12.5% of the alleged bogus purchases. The Tribunal agreed that an addition should account for the profit element and the undue VAT benefit arising from the alleged accommodation bills, but held that 12.5% was on the higher side for a price sensitive commodity like steel. Applying an evaluative approach to the factual matrix, the Tribunal reduced the estimation to 8% of the alleged bogus purchases and thereby adjusted the addition accordingly. [Paras 5]

Addition upheld in principle as estimation of profit element embedded in alleged bogus purchases but reduced from 12.5% to 8% of the alleged purchases.

Reopening of assessment and reason to believe - reassessment jurisdiction - verification of suppliers and invoices - undue VAT input credit against bogus purchases - Validity of reassessment under reopening provisions on the basis of information received from Sales Tax Department and related legal grounds urged by the assessee. - HELD THAT: - The Tribunal observed that the original return was processed under section 143(1) and the reopening took place within four years. The AO came into possession of tangible information from the Sales Tax Department indicating that the assessee had benefitted from accommodation purchases and had claimed wrong input VAT credit. The reasons recorded were supplied to the assessee during proceedings. By utilizing that tangible material the AO formed the requisite belief that income had escaped assessment and proceeded under reassessment provisions. The Tribunal held that the CIT(A) did not make any new addition beyond changing the method of estimation; the reassessment jurisdiction and the additions flowing from the Sales Tax intelligence were therefore sustainable. Consequently, legal contentions attacking the validity of reopening, the alleged absence of material for invoking section 147, the proposition that AO cannot assess other income after accepting the assessee's contention, and the contention that additions should have been treated differently rather than under section 69C were rejected. [Paras 6]

Reassessment held valid on the basis of tangible information from Sales Tax Department; grounds 2 to 5 dismissed.

Final Conclusion: Appeal partly allowed: additions sustained in principle but reduced on quantum - estimation fixed at 8% of alleged bogus purchases for AY 2009-10; reassessment proceedings upheld as valid.

Requirement of nexus between seized material and additions in assessments under Section 153A - addition under section 68 - unexplained share capital/share premium - statement recorded pre-search not constituting incriminating material for post-search assessment - Rule 27 ITAT Rules - admission of additional grounds to support appellate order - change of opinion doctrine in reassessment of completed assessments

Addition under section 68 - unexplained share capital/share premium - requirement of nexus between seized material and additions in assessments under Section 153A - statement recorded pre-search not constituting incriminating material for post-search assessment - change of opinion doctrine in reassessment of completed assessments - Whether the addition of Rs. 80 lakh made u/s 68 in assessment year 2006-07 could be sustained in absence of any incriminating material found during the search - HELD THAT: - The Tribunal held that the Assessing Officer did not rely on any incriminating material seized during the course of the search to justify the addition. The only material relied upon by the department, the statement of Shri Tarun Goyal, was recorded before the search and therefore could not be treated as incriminating material discovered in the search. The Tribunal applied the binding law of the jurisdictional High Court in CIT v. Kabul Chawla, emphasizing that while Section 153A permits assessments for the relevant years, additions interfering with completed assessments must have a nexus with incriminating material unearthed during the search. Absent such seized material or a permissible nexus, treating previously accepted share capital as unexplained would amount to a change of opinion without supporting evidence. Following this reasoning, the Tribunal concluded that the addition under section 68 could not be sustained. [Paras 9]

Impugned addition of Rs. 80 lakh u/s 68 deleted as no incriminating material seized during the search justified the addition.

Rule 27 ITAT Rules - admission of additional grounds to support appellate order - Whether the assessee's application under Rule 27 of the ITAT Rules seeking admission of the ground that no incriminating material was found during search should be admitted - HELD THAT: - The Tribunal observed that a respondent in an appeal may support the appellate authority's order on a ground even if it did not itself file an appeal against that order and that admission of such a ground is permissible. Considering that the ground was specifically raised before the CIT(A) as ground no. 1.7, the Tribunal admitted the assessee's Rule 27 application and considered the contention that the addition lacked support of seized material. [Paras 5, 6]

Application under Rule 27 admitted and the ground that no incriminating material was found during the search was entertained.

Final Conclusion: The Tribunal admitted the assessee's additional ground under Rule 27 and, applying the jurisdictional law requiring a nexus between seized material and any interference with completed assessments, held that the addition under section 68 could not be sustained in absence of incriminating material; accordingly the departmental appeal was dismissed.

Allocation of expenses between distinct income streams - allowability of business expenditure - arbitrary or whimsical disallowance - credit for tax deducted at source - rectification under section 154 - precedential effect of Tribunal orders in the assessee's own case

Allocation of expenses between distinct income streams - allowability of business expenditure - arbitrary or whimsical disallowance - precedential effect of Tribunal orders in the assessee's own case - Deletion of ad hoc disallowance of employee cost, administrative expenses, depreciation and interest aggregating to Rs. 2,54,61,231/- - HELD THAT: - The Tribunal held that the Assessing Officer had dislodged the assessee's detailed bifurcation of expenses and, without any basis, arbitrarily attributed the entirety of employee cost, fifty per cent of administrative expenses, interest and depreciation exclusively to the service income. The Tribunal found that the assessee had earned income from separate streams (royalty from sublicensing, service fees and marketing/business development) and had furnished specific allocations for service income which the A.O wrongly discarded. The CIT(A) was also faulted for upholding the A.O's allocation and for relying on predecessor orders; the Tribunal noted that those predecessor disallowances for earlier years had, in fact, been set aside by the Tribunal on appeal. In view of the absence of a reasoned or scientific basis for the A.O.'s recomputation and applying the precedential outcome in the assessee's own case for earlier years, the Tribunal deleted the ad hoc disallowance. [Paras 11]

Disallowance of Rs. 2,54,61,231/- deleted and assessee's claimed expenses accepted for the purposes of assessment.

Credit for tax deducted at source - rectification under section 154 - Direction to grant credit for TDS of Rs. 28,97,906/- and disposal of pending rectification application - HELD THAT: - The Tribunal observed that the A.O. failed to grant credit for TDS deducted on royalty receipts and that the assessee had filed an application under section 154 for rectification which remained pending despite a direction from the CIT(A) to decide it by a speaking order. Since the non compliance with the CIT(A)'s direction appeared from the record and was challenged before the Tribunal, the Tribunal directed that while giving appellate effect to its order the A.O. shall allow credit of the TDS, if any, as per law, and dispose of the rectification application accordingly. [Paras 12]

A.O. directed to allow TDS credit if permissible under law and to dispose of the section 154 rectification application by a speaking order while giving effect to the Tribunal's decision.

Final Conclusion: The appeal is allowed: the ad hoc disallowance of expenses is deleted and the Assessing Officer is directed to allow any admissible TDS credit and dispose of the pending rectification application in a speaking, time bound manner while giving effect to this order.

Bogus purchases - Accommodation entries - Estimation of profit element on disallowed purchases - Reliance on Sales Tax Department website for identification of suspicious dealers - Burden of proof for genuineness of purchases - Project completion method of accounting - Application of CBDT Circular No. 3/2018 for low tax-effect appeals

Bogus purchases - Reliance on Sales Tax Department website for identification of suspicious dealers - Burden of proof for genuineness of purchases - Whether purchases could be treated as wholly bogus solely on the basis of information on the Sales Tax Department website and investigative leads when the assessee produced vouchers and books of account. - HELD THAT: - The Tribunal found that the Assessing Officer made additions treating purchases as bogus primarily on the basis of information published on the Sales Tax Department website and inputs from the investigation wing, without independent or concrete verification. The assessee produced invoices, delivery challans, bank statements and other documents and the Assessing Officer accepted sales from those purchases but rejected the purchases as non-genuine without examining the evidence. In these circumstances the Tribunal held that treating the entire purchases as bogus on the sole basis of the departmental list, without confronting and verifying the documentary evidence produced by the assessee, was not justified. [Paras 2, 3, 8, 9]

The Assessing Officer's blanket disallowance of the purchases was not sustained; the assessee's evidence could not be ignored and the addition could not stand in full.

Estimation of profit element on disallowed purchases - Project completion method of accounting - Appropriate percentage to be adopted as the deemed profit/savings when purchases are treated as suspect but sales/consumption are undisputed and the assessee follows project completion accounting. - HELD THAT: - The Commissioner (Appeals) had estimated the profit element at 25% (in one order) and at 15% (in the reproduced group-case), whereas the Tribunal, on identical facts in an earlier order in the assessee's group, observed that when sales/consumption are not disputed and the assessee follows project-completion method, a modest percentage should be adopted to reflect the notional savings from purchases from the grey market. Having regard to the identical facts and earlier coordinate-bench guidance, the Tribunal directed that the disallowance be restricted to 3% of the implicated purchases. [Paras 4, 8, 9]

Disallowance restricted to 3% of the purchases; higher estimates by lower authorities set aside.

Application of CBDT Circular No. 3/2018 for low tax-effect appeals - Whether Revenue appeals for certain assessment years should be dismissed in view of CBDT Circular No. 3/2018 because the tax effect is below the notified threshold. - HELD THAT: - The Tribunal noted that in respect of Revenue appeals for Assessment Years 2008-09 and 2011-12 the tax effect was less than the threshold prescribed in CBDT Circular No. 3/2018 dated 11/07/2018. Applying that administrative guidance, the Tribunal dismissed those Revenue appeals. [Paras 7, 10]

Revenue appeals for the specified years dismissed in view of CBDT Circular No. 3/2018.

Final Conclusion: On the facts the Tribunal held that the Assessing Officer could not sustain a blanket disallowance of purchases based solely on departmental lists without verifying the documentary proof produced by the assessee; following an identical group-bench decision the notional profit/savings on such purchases is to be restricted to 3%; accordingly the assessee's appeals are partly allowed and the Revenue appeals are dismissed (with some Revenue appeals dismissed under CBDT Circular No. 3/2018 where tax effect was below the threshold).

Pre-operative expenditure - capitalisation and amortisation of preliminary and pre-operative expenses - treatment of pre-operative expenses under the specific statutory mechanism (section 35D) vis-a -vis general business deduction (section 37) - principle that a specific statutory provision prevails over a general deduction provision - disallowance of expenditure where business was not set up during the relevant year

Pre-operative expenditure - capitalisation and amortisation of preliminary and pre-operative expenses - treatment of pre-operative expenses under the specific statutory mechanism (section 35D) vis-a -vis general business deduction (section 37) - disallowance of expenditure where business was not set up during the relevant year - Validity of disallowance of pre-operative/preliminary expenses claimed as business revenue expenditure instead of being dealt with under the statutory scheme for pre-operative expenses - HELD THAT: - The Tribunal affirmed the findings of the AO and CIT(A) that the amounts shown as miscellaneous expenditure/preliminary & pre-operative expenses in the books were correctly treated as pre-operative expenditure. The assessee had capitalised such expenses in the books and written off a part; it could not in computation deviate by claiming the entire amount as revenue deduction for AY 2010-11. The authorities found that the business was not set up in the impugned year; therefore the claim could not be allowed as current business expenditure. The CIT(A) correctly applied the principle that where a specific statutory mechanism exists to deal with pre-operative expenses, the assessee cannot bypass it and seek the same relief under the general deduction provision. On the material before it, the Tribunal found no perversity in those conclusions and upheld the disallowance. [Paras 3, 5, 6]

Disallowance of pre-operative/preliminary expenses affirmed and the appeal dismissed.

Final Conclusion: The appeal is dismissed; the Tribunal upholds the disallowance of pre-operative/preliminary expenses for AY 2010-11 as rightly treated under the specific statutory mechanism and not allowable as a revenue deduction where the business was not set up in that year.

Allowability of provision for leave encashment - deduction under section 43B - allocation and capitalisation of interest on borrowed capital to capital work-in-progress - disallowance of interest attributable to advances to sister concern for non-business purposes - computation of disallowance under section 14A read with Rule 8D - onus on assessee to establish availability of interest free funds / cash flow linkage - no disallowance under section 14A where no exempt income is earned (Maxopp principle)

Allowability of provision for leave encashment - deduction under section 43B - onus on assessee to establish availability of interest free funds / cash flow linkage - Whether the closing balance in provision for leave encashment relating to the assessment year is allowable or disallowable and the requirement for year wise bifurcation to determine the disallowable portion - HELD THAT: - The Tribunal noted that the assessee debited a lump sum amount to profit and loss account, which comprised actual payments and change in actuarial provision. There was no year wise bifurcation showing how much of the closing provision related to the assessment year as distinct from amounts carried forward from earlier years. In the absence of such bifurcation and precise linkage, the Assessing Officer cannot quantify the disallowance. The Assessing Officer must disallow only that portion of provision for leave encashment which relates to the assessment year under consideration, after adjusting payments made after the year end but before filing the return. The matter requires verification of records and cash/payment linkage to ascertain the exact amount relatable to the year. [Paras 7]

Issue remitted to the Assessing Officer for fresh consideration and determination of the year wise amount of provisions for leave encashment relating to the assessment year, after giving the assessee opportunity of hearing.

Disallowance of interest attributable to advances to sister concern for non-business purposes - onus on assessee to establish availability of interest free funds / cash flow linkage - Whether interest expense is disallowable proportionately where borrowed funds were advanced to sister concerns for non business purposes and whether the assessee has discharged the onus to show lack of nexus between borrowed funds and such advances - HELD THAT: - The Tribunal observed that the assessee did not demonstrate commercial expediency or furnish details/cash flow showing that the advances to sister concerns were funded from its own non interest bearing funds or were in the ordinary course of business. Given the absence of evidence establishing the source of the funds and the nexus (or lack thereof) between borrowed funds and the advances, the question of proportionate disallowance could not be finally adjudicated. The Tribunal referred to the requirement that the assessee must establish by relevant books/cash flow that borrowed funds were not used for interest free advances. [Paras 13, 21]

Issue remitted to the Assessing Officer for fresh consideration in accordance with law after affording reasonable opportunity of hearing to the assessee.

Allocation and capitalisation of interest on borrowed capital to capital work-in-progress - onus on assessee to establish availability of interest free funds / cash flow linkage - Whether interest on borrowed capital relating to capital work in progress is required to be capitalised or may be allowed as deduction where the assessee contends that interest free/internal funds were used - HELD THAT: - The Tribunal recorded that under the statutory scheme interest on borrowed capital used for acquisition of assets must ordinarily be capitalised while the asset remains uninstalled and not put to use. The assessee asserted availability of interest free funds but failed to prove availability of such funds at the time of each investment (the test is availability at the time of making the investment, not merely at year end). In absence of evidence establishing that borrowed funds were not utilised for the capital WIP, the question of disallowance/capitalisation requires fresh factual examination. [Paras 19]

Issue remitted to the Assessing Officer for fresh consideration with a direction that the assessee must establish availability of interest free funds at the time of investment; matter to be decided after affording opportunity of hearing.

Computation of disallowance under section 14A read with Rule 8D - no disallowance under section 14A where no exempt income is earned (Maxopp principle) - onus on assessee to establish availability of interest free funds / cash flow linkage - Whether disallowance under section 14A read with Rule 8D is exigible where the assessee used own funds for investments yielding exempt income, and whether disallowance can be made when no exempt income is earned - HELD THAT: - The Tribunal held that the assessee failed to demonstrate by cash/fund flow statements that investments yielding exempt income were made out of its own interest free funds or that interest on borrowings related exclusively to business purposes; thus factual verification is necessary. The Tribunal clarified legal propositions: Rule 8D is applicable even if investments are made from own funds when common administrative/overhead expenses exist; however, following the Supreme Court in Maxopp Investment Ltd., if no exempt income is actually earned, there can be no disallowance under section 14A read with Rule 8D. The Tribunal therefore remitted the matter for fresh consideration so that the Assessing Officer can examine the facts and apply Rule 8D consistently with these principles. [Paras 27]

Issue partly remitted to the Assessing Officer for fresh consideration after affording reasonable opportunity of hearing; legal clarification given that Rule 8D applies despite use of own funds where common expenses exist, but no disallowance arises if no exempt income is earned.

Final Conclusion: The appeals are partly allowed for statistical purposes. Several issues (allowability of leave encashment provision; interest attributable to advances to sister concerns; capitalisation of interest on capital WIP; computation under section 14A r.w. Rule 8D) have been remitted to the Assessing Officer for fresh consideration and quantification after the assessee furnishes necessary year wise bifurcation or cash/fund flow evidence and is heard; the Tribunal clarified that Rule 8D may apply even where own funds are used if common administrative expenses exist, and that no section 14A disallowance arises where no exempt income is earned.

Public auction - notice of auction - compliance with prior appellate order - service by e-mail - interim restraint on further steps - treating unchallenged allegations as not admitted

Notice of auction - service by e-mail - interim restraint on further steps - Whether the defendant no.1 received proper notice of the public auction and what interim steps should follow pending service of notice. - HELD THAT: - The Court found that the defendant no.1 only became aware on the evening of 11th October, 2018 that the Customs had proceeded to hold the auction and that proper notice had not been shown to have been received. The parties agreed that notice of the auction would be served on defendant no.1 and other concerned parties by e-mail, with particulars provided to the Customs forthwith. Until such notice is served on defendant no.1 and the other concerned parties, the Customs shall not take any further steps in relation to the public auction. The Court expected that defendant no.1 would accept such notice without delay, having regard to admitted substantial dues outstanding to the Customs and related authorities.

Notice must be served by e-mail with particulars; until service is effected, Customs shall take no further steps in relation to the public auction.

Public auction - compliance with prior appellate order - Whether the public auction may proceed in respect of all 905 containers or must be restricted to 256 containers in view of the earlier appellate order. - HELD THAT: - Having regard to the orders passed by this Court in the appeal which restricted the cause of action pleaded in the plaint to 256 containers, the Court held that the public auction should likewise have been restricted to that number. The Customs had proceeded with notice contemplating sale of all 905 containers, but the Court recorded that the auction ought to have been confined to the 256 containers within the scope of the suit as restricted by the appellate order.

The public auction must be restricted to the 256 containers covered by the appellate order; sale of the remaining containers is not to proceed under the current auction process.

Public auction - interim listing for further directions - treating unchallenged allegations as not admitted - Directions regarding the remaining 649 containers and the evidentiary status of allegations where affidavits have not been called. - HELD THAT: - The Court noted that a separate suit had been filed in 2012 for the remaining 649 containers but that no steps had been taken to prosecute that suit so as to enable sale of those goods. The defendant no.1 was directed to inform the Court by the next listing (27th November, 2018) what it proposes to do with respect to the remaining 649 containers and what steps have been taken in that suit. Further, since affidavits had not been called for from the Customs or the other defendant, the Court directed that the allegations in the petition should be treated as not admitted for present purposes.

List on 27th November, 2018 for defendant no.1 to state steps regarding the 649 containers; in the absence of affidavits from Customs or defendant no.3, the petition's allegations are to be treated as not admitted.

Final Conclusion: The Court directed that proper e-mail service of auction notice be effected before any further action by Customs; the auction must be confined to the 256 containers within the scope of the appellate order; defendant no.1 to inform the Court by the next listing regarding the remaining 649 containers; and, without affidavits from Customs or defendant no.3, the petition's allegations are to be treated as not admitted.

Discretion under rule 12 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 - Post-export inclusion of particulars for sanction of drawback - Duty drawback entitlement upon export - Conversion of free shipping bills to drawback shipping bills - CBEC circulars permitting drawback claims without conversion - Amendment under section 149 of the Customs Act, 1962

Discretion under rule 12 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 - Post-export inclusion of particulars for sanction of drawback - Whether the Commissioner of Customs erred in refusing to exercise discretion under rule 12 to permit post-export inclusion of particulars relevant for sanction of drawback. - HELD THAT: - The Tribunal found that export of the goods (molasses) was established by customs endorsements and the master of the vessel, and that the goods were exported in bulk carrier which made substitution or concealment improbable. The Commissioner failed to take into account the appellant's lack of awareness of drawback eligibility consequent to the lifting of the export ban in January 2007, and did not demonstrate any misrepresentation by the appellant. On scrutiny the exercise of discretion under rule 12 was therefore held to be inadequately reasoned and unsustainable. The Tribunal set aside the refusal to permit post-export incorporation of particulars and directed the Commissioner to allow incorporation of relevant details and refer the shipping bills to the competent authority for deciding entitlement to drawback. [Paras 5, 6, 7]

Refusal to exercise discretion under rule 12 set aside; Commissioner directed to permit post-export inclusion of particulars and refer shipping bills for decision on drawback entitlement.

CBEC circulars permitting drawback claims without conversion - Conversion of free shipping bills to drawback shipping bills - Amendment under section 149 of the Customs Act, 1962 - Duty drawback entitlement upon export - Whether drawback claims in respect of exported molasses filed as free shipping bills required conversion under the amendment process envisaged by section 149, or could be considered without such conversion in view of Board instructions. - HELD THAT: - The Tribunal recorded that the drawback schedule provides eligibility for molasses and that statutory provisions for payment of drawback apply once goods are exported. It observed that CBEC Circular No. 4/2004 and Circular No. 36/2010 clarify that drawback claims, even when exported against free shipping bills, should be allowed without undergoing conversion via the section 149 amendment process. On this basis the requirement of conversion was held not to be mandatory for allowing drawback where eligibility on export is established. [Paras 5]

CBEC instructions displace the need for conversion under section 149 for allowing drawback where export and eligibility are established; conversion not required.

Final Conclusion: The Tribunal set aside the Commissioner's order refusing post-export inclusion of particulars under rule 12, directed that the relevant particulars be incorporated and the shipping bills be referred to the competent authority for determination of drawback entitlement, and held that CBEC circulars permit allowance of drawback without conversion of free shipping bills where export and eligibility are established.

Determination of value for additional duty levied on retail selling price - inapplicability of Customs Act valuation provisions to duties leviable under section 4A of Central Excise Act - prohibition on enhancing assessable value for section 4A goods by recourse to section 14 valuation rules - absence of statutory machinery to alter declared retail selling price and consequent bar to recovery - recoverability of duty under section 28 of the Customs Act where retail selling price is alleged to be subsequently higher

Determination of value for additional duty levied on retail selling price - inapplicability of Customs Act valuation provisions to duties leviable under section 4A of Central Excise Act - Whether valuation under section 14 of the Customs Act and the rules framed thereunder can be invoked to revise the assessable value for levy of additional duty governed by section 4A of the Central Excise Act. - HELD THAT: - The Tribunal held that additional duties of customs leviable under the Customs Tariff Act are to be collected in the manner they would have been recoverable under the Central Excise Act if manufactured in India. For most goods the default stream applies the value assessed under Customs Act (section 14) for basic customs duty, but where goods fall within the scope of section 4A the latter statute provides its own definition of value. Consequently, the general valuation provisions of section 14 and the rules made thereunder cannot be applied to alter the value for goods governed by section 4A. The Court therefore rejected the proposition that assessable value for the purpose of additional duty under section 4A can be enhanced by recourse to Customs Act valuation rules, concluding that such recourse is impermissible and cannot form the basis for demand. [Paras 3]

Valuation under section 14 of the Customs Act is not applicable to additional duties collectible under section 4A of the Central Excise Act; value for such goods must be determined under the statutory definition in section 4A and cannot be enhanced by invoking Customs valuation rules.

Absence of statutory machinery to alter declared retail selling price and consequent bar to recovery - recoverability of duty under section 28 of the Customs Act where retail selling price is alleged to be subsequently higher - Whether, in the absence of statutory provisions permitting alteration of the declared retail selling price, duty can be recovered under section 28 of the Customs Act on the basis of subsequently discovered higher retail selling prices. - HELD THAT: - The Tribunal observed that there is no machinery provision in the applicable enactments to alter the retail selling price declared by the importer after importation, nor is there a provision specifically enabling recovery where the retail selling price is subsequently shown to be higher. Given that the additional duty for such goods is governed by the Central Excise provision (section 4A) with its own valuation concept, and no statutory mechanism exists to re-determine retail selling price post-import, initiation of recovery proceedings under the facts pleaded in the show-cause notice was improper. Consequently, the demand and recovery under section 28 could not be sustained. [Paras 4, 5]

In the absence of statutory machinery to alter the declared retail selling price or to effect recovery on the basis of a subsequent increase in such price, recovery under section 28 is unsustainable; the impugned demand and ancillary penalties cannot be maintained.

Final Conclusion: The Tribunal set aside the impugned order of the lower authority and allowed the appeal, holding that valuation rules under the Customs Act cannot be used to revise value for goods covered by section 4A of the Central Excise Act and that recovery under section 28 based on subsequently alleged higher retail selling prices is unsustainable in the absence of statutory machinery to alter or re-determine the declared retail selling price.

Date for determination of rate of duty - Tariff valuation of imported goods - Notification-based exemption - Redetermination of assessable value - Confiscation and penalty

Date for determination of rate of duty - Tariff valuation of imported goods - Date on which rate of duty and valuation are to be determined and its application to the vessel - HELD THAT: - The Tribunal applied Sections 15 and 47 of the Customs Act and held that the rate of duty and tariff valuation applicable to imported goods is the rate and valuation in force on the date of entry inwards of the vessel. On the material placed on record the identity and date of entry inwards of the vessel are established by the boarding superintendent's certificate and related documentary evidence, and the date of entry inwards is 25.11.2006. The legal consequence is that the notification in force on that date governs the duty liability. [Paras 4]

The date for determination of rate of duty and tariff valuation is 25.11.2006 and that date governs the duty liability.

Notification-based exemption - Sustainability of the Commissioner's conclusion that exemption under Notification No.21/2002-Cus Sl. No.353 applied - HELD THAT: - The Tribunal examined the Notification No.21/2002-Cus as it existed on the date of importation and the subsequent amendment by Notification No.20/2007-Cus. Having regard to the rate applicable on the date of entry inwards (25.11.2006), the Tribunal found that the Commissioner's order granting exemption under Sl. No.353 was not sustainable and cannot stand without redetermination of duty in accordance with the notification as it existed on the date of importation. [Paras 5, 6]

The Commissioner's finding of exemption under Sl. No.353 of Notification No.21/2002-Cus is set aside for redetermination in accordance with the notification in force on the date of entry.

Redetermination of assessable value - Confiscation and penalty - Whether the matter requires remand for fresh adjudication of duty, confiscation and penalty - HELD THAT: - In light of the conclusion that the earlier exemption finding is unsustainable, the Tribunal directed that all issues, including the correct assessable value for demand of duty, and proposals for confiscation and penalty, be reopened and redetermined by the adjudicating authority. The Tribunal exercised its appellate power to remit the matter for fresh adjudication rather than decide the quantum or ancillary reliefs itself, and fixed a time-frame for completion of remand proceedings. [Paras 7]

The appeal is allowed in part and the matter is remitted to the adjudicating authority for redetermination of duty, confiscation and penalty within three months of receipt of the order.

Final Conclusion: The Tribunal held that the rate and valuation for duty are to be determined as on the date of entry inwards (25.11.2006), set aside the Commissioner's exemption finding under the notification as applied, and remitted the matter to the adjudicating authority to redetermine assessable value, confiscation and penalty afresh within three months.

Penalty under Section 112(a) for aiding or abetting evasion of customs duty - Penalty under Section 114AA for making, signing or using false declaration - Evidentiary value and conclusiveness of statement recorded under Section 108 of the Customs Act, 1962

Penalty under Section 112(a) for aiding or abetting evasion of customs duty - Evidentiary value and conclusiveness of statement recorded under Section 108 of the Customs Act, 1962 - Imposition of penalty on the appellant under Section 112(a) of the Customs Act, 1962 was justified and is upheld. - HELD THAT: - The appellant's statement recorded under Section 108 recorded admission that the importer agreed to pay the appellant Rs.4 lakhs for customs clearance and that the value of the imported goods had been mis-declared. The appellant had also advised the importer not to accept under-valuation, a fact reflected in the adjudication findings. Those statements were not retracted prior to adjudication. On this factual basis the appellant materially assisted in the scheme to evade appropriate customs duty, attracting penal liability under Section 112(a). The authorities below correctly applied the provision and were justified in imposing the penalty. [Paras 5]

Penalty under Section 112(a) sustained.

Penalty under Section 114AA for making, signing or using false declaration - Imposition of penalty on the appellant under Section 114AA of the Customs Act, 1962 was not justified and is set aside. - HELD THAT: - The adjudication and appellate records show that the appellant did not make, sign or use any declaration or statement in respect of the importation of the vehicle. Since the statutory offense under Section 114AA requires making, signing or using such a declaration, the provision cannot be attracted against the appellant on the facts found. Accordingly the penalty under Section 114AA cannot be sustained. [Paras 5]

Penalty under Section 114AA set aside.

Final Conclusion: The appeal is partly allowed: the penalty imposed under Section 112(a) of the Customs Act, 1962 is upheld, while the penalty imposed under Section 114AA is set aside.

Maintainability of appeal - decision or order by Commissioner as adjudicating authority - letter/communication of Assistant Commissioner not constituting appealable order - requirement of record showing order passed by competent authority - distinction between communication of competent authority's order and mere communication without authority

Maintainability of appeal - letter/communication of Assistant Commissioner not constituting appealable order - decision or order by Commissioner as adjudicating authority - Whether an appeal is maintainable before the Tribunal against a letter of the Assistant Commissioner conveying that the adjudicating authority has declined to grant cross-examination, where there is no record that the Commissioner (adjudicating authority) passed any order. - HELD THAT: - Sections 129A / 35B recognise the decision or order passed by the Commissioner of Customs / Central Excise as the adjudicating authority for entertaining an appeal before the Tribunal. The Assistant Commissioner's letter dated 03.05.2018 only conveyed that he had been directed by the adjudicating authority not to grant cross-examination; the communication was silent as to the mode of direction and there is no available record showing that the Commissioner passed any order or took a decision which was merely communicated by the Assistant Commissioner. In these circumstances the Assistant Commissioner's communication cannot be treated as an appealable order under the statutory scheme. This view is consistent with earlier Tribunal decisions in Delta Overseas and Ramesh Govindbhai Patel where a similar letter from an Assistant Commissioner was held not to constitute an appealable order. The decision in Amit Electronics relied upon by the appellant is distinguishable because in that case there was an actual order passed by the Commissioner which was merely communicated by the Assistant Commissioner; where such an order by the competent authority exists, an appeal is maintainable. [Paras 5, 6]

The appeals are not maintainable and are therefore dismissed.

Final Conclusion: Applications for early hearing and stay are dismissed; the appeals against the Assistant Commissioner's letter are held not maintainable and are dismissed.

Derivative action - interlocutory injunction - prima facie case - forum shopping - clean hands - ouster of civil court jurisdiction by company law proceedings - indoor management doctrine - oppression and mis management

Derivative action - interlocutory injunction - prima facie case - Whether the petitioner, as a minority shareholder, was entitled to interlocutory relief in the nature of a derivative action to restrain or affect voting in relation to the proposed demerger. - HELD THAT: - The Court examined the nature and effect of the relief sought and the petitioner's actual shareholding and power to influence the subject company. Given the petitioner's negligible shareholding (0.06% in the affected company) the claimed relief would confer a substantive advantage by judicial order that the petitioner could not obtain through voting rights. The Court held that to maintain a derivative claim warranting such an injunction, evidence of mis management or oppression of a higher order had to be shown; the apprehension of a particular manner of voting by other shareholders was too remote to constitute such mis management. On the material before it the petitioner failed to establish a sufficient prima facie case to go to trial for the interlocutory relief prayed for.

Interlocutory relief in the nature of a derivative injunction was refused for want of a prima facie case.

Ouster of civil court jurisdiction by company law proceedings - appropriate proceedings - Whether the civil court could entertain the present interlocutory application in the face of company law proceedings under Sections 230-232 and the contention that such matters fall within the exclusive domain of the NCLT. - HELD THAT: - The Court considered respondents' plea that the subject matter fell within the statutory scheme for compromise, arrangement and demerger and that civil jurisdiction was thereby barred or inappropriate. While noting prior proceedings in company law fora and an earlier Supreme Court pronouncement that did not preclude 'appropriate proceedings in accordance with law', the Court found that the present interlocutory application did not constitute an appropriate company law remedy but rather an attempt to obtain by civil injunction what the petitioner could not achieve through ordinary shareholder rights. The application was therefore not one that the civil court should grant on the facts and in the form presented.

The civil court would not grant the present form of interlocutory relief; the application was not an appropriate proceeding under company law to restrain the demerger voting process.

Forum shopping - clean hands - Whether the petitioner's conduct amounted to forum shopping or an absence of clean hands sufficient to deny equitable relief. - HELD THAT: - The Court observed that the petitioner had earlier pursued remedies in company law fora and before the Supreme Court and, having failed to obtain relief, sought by the present application to secure related relief through the civil jurisdiction. The attempt to use civil injunction to accomplish what could not be achieved by the petitioner's limited shareholder position was held to border on forum shopping. The petitioner was held not to have come to the court with clean hands in seeking the interlocutory orders.

The application was dismissed inter alia on account of forum shopping and the petitioner's lack of clean hands.

Indoor management doctrine - oppression and mis management - Whether there was a manifest case of fraud, oppression or mis management that would justify court interference with the internal management of the company. - HELD THAT: - Respondents relied on the principle that courts are generally loath to interfere with a company's internal management unless a clear case of injustice, fraud or mis management is made out. The Court found that the petitioner had not demonstrated manifest fraud or oppression of the requisite character; the contention of adverse impact from the proposed demerger was speculative and remote and did not meet the threshold for overriding the doctrine of non interference in indoor management.

No manifest fraud or mis management was shown to justify interference with the company's internal affairs; relief was therefore not warranted.

Final Conclusion: The interlocutory application seeking injunctions in aid of a claimed derivative action was dismissed on contest. The Court found no sufficient prima facie case, held that the relief sought was inappropriate in the civil forum (and amounted to an attempt to obtain by injunction what the petitioner could not achieve by voting), and recorded that the petitioner had not come with clean hands; the observations were confined to the interlocutory application and do not bind further proceedings.

Winding up petition - dishonour of cheque - interest under Section 80 of the Negotiable Instruments Act - bona fide defence in winding up - set-off and adjustment of payments between separate entities - relegation of dispute to civil suit

Winding up petition - dishonour of cheque - interest under Section 80 of the Negotiable Instruments Act - bona fide defence in winding up - Admission of winding up petition for Rs. 12,00,000 comprising Rs. 5,00,000 on account of a dishonoured cheque and Rs. 7,00,000 being admitted unpaid balance, and entitlement to interest and a scheme to stay winding up on instalment payments. - HELD THAT: - The court recorded that receipt of Rs. 32,00,000 by the company from the petitioner is admitted and that a cheque for Rs. 5,00,000 issued by the company was dishonoured. The company asserted repayment by encashment of five blank cheques leaving a balance of Rs. 7,00,000, but the defence based on adjustment against amounts allegedly receivable from two separate entities (Balaji Enterprises and Balaji Engineering Company) was unsupported by contemporaneous agreements or proceedings against those entities. The court held that the company had not demonstrated a bona fide defence sufficient to defeat the petitioner's claim for Rs. 12,00,000, while preserving the company's right to recover any sums if it proves on trial that blank cheques were filled and encashed as self-cheques. Applying the authorities cited to the facts, the court concluded that the petitioner was entitled to have the winding up petition admitted to the extent of Rs. 12,00,000 and awarded interest: on the Rs. 5,00,000 (dishonoured cheque) at the rate applicable under Section 80 of the Negotiable Instruments Act from the date of dishonour, and on the Rs. 7,00,000 at ten per cent from the date of the winding up notice, until realization. The court also framed terms under which payment by instalments would operate as a stay of the winding up petition, with consequences on default. [Paras 14, 16, 17, 19]

Winding up petition admitted for Rs. 12,00,000; Rs. 5,00,000 to carry interest under Section 80 of the Negotiable Instruments Act from 1st March, 2013 and Rs. 7,00,000 to carry interest at ten per cent from 11th January, 2014; stay of winding up on specified instalment payments and publication consequences on default.

Set-off and adjustment of payments between separate entities - relegation of dispute to civil suit - trial for disputed factual assertions - Whether disputed factual assertions about encashment of blank cheques and alleged mutual adjustments against amounts from third parties require trial or can be decided in winding up proceedings; and the treatment of the remaining Rs. 20,00,000 claim. - HELD THAT: - The court found that assertions by the company that blank cheques were filled in as self-cheques and that sums collected from two separate entities were to be set off raised factual issues unsupported by contemporaneous documents and not specifically denied in all particulars by the petitioner. Those factual disputes could not be resolved on the interlocutory record in the winding up petition and therefore require trial. Consequently, the petitioner's remaining claim of Rs. 20,00,000 was relegated to a civil suit; the court allowed the petitioner a limitation benefit if such suit is filed within the prescribed date and afforded the company corresponding limitation benefit for any suit or counterclaim it may institute. [Paras 13, 18]

Disputed factual contentions regarding encashment of blank cheques and inter-company adjustments are to be tried in a suit; the claim for Rs. 20,00,000 is relegated to suit with specified limitation benefits if filed by the stated date.

Final Conclusion: The winding up petition is admitted to the extent of Rs. 12,00,000 with interest as awarded; the company may avoid winding up by complying with the instalment schedule provided, and disputed factual issues and the remaining monetary claim are relegated to civil proceedings for trial, with specified limitation safeguards.

Recovery of money for goods sold and delivered - admission of liability by letters and oral evidence - proof by invoices and statement of account - interest on overdue payments - contractual rate of interest versus judicial moderation of interest - decree for recovery with costs

Recovery of money for goods sold and delivered - proof by invoices and statement of account - admission of liability by letters and oral evidence - Plaintiff entitled to recover the claimed amount for goods sold and delivered - HELD THAT: - The plaintiff produced the invoice series (Ex.P.3) and the statement of account (Ex.P.2) showing the alleged outstanding. The defendant did not specifically deny the deliveries in his pleadings and, in his proof affidavit and cross-examination, admitted the supplies reflected in Ex.P.3. The defendant also admitted sending letters (Ex.P.4 and Ex.P.5) undertaking payment in installments, thereby acknowledging liability. The defendant failed to produce contemporaneous documents or the asserted payment proofs (including invoices in his possession) to substantiate his denial or alleged earlier payments. On the admitted materials and absence of contrary documentary proof, the court found that the plaintiff established its claim for the goods sold and delivered and was entitled to recovery. [Paras 10, 11, 12, 13]

Issue answered in favour of the plaintiff and against the defendant; plaintiff entitled to recover the suit amount for goods sold and delivered.

Proof by invoices and statement of account - alleged prior payment by demand draft - Defendant's contention of a payment of Rs. 5,00,000/- on 22.07.2009 did not discharge the outstanding liability - HELD THAT: - Although the defendant asserted that a demand draft for a sum was paid on 22.07.2009, the plaintiff's statement of account (Ex.P.2) and the invoice series (Ex.P.3) showed that the sum asserted by the defendant was adjusted by the plaintiff on 23.07.2009 and that an outstanding balance remained as on that date. The defendant did not produce independent evidence to establish that the entire outstanding had been settled. On the available records, the court rejected the defendant's claim of full settlement. [Paras 14]

Issue answered against the defendant and in favour of the plaintiff; the asserted demand draft did not extinguish the outstanding liability.

Interest on overdue payments - contractual rate of interest versus judicial moderation of interest - Plaintiff entitled to interest on overdue payments, but the contractual rate was moderated by the court - HELD THAT: - The invoices contained a clause providing for interest on overdue bills at a stated contractual rate. The court accepted that the plaintiff was entitled to interest on the overdue payments but found the rate claimed (as per invoices) to be exorbitant in the commercial context and considering prevailing rates at the relevant time. Exercising judicial discretion, the court moderated the interest: awarding simple interest at 18% p.a. from the date of the plaint until the date of decree and thereafter at 12% p.a. until realization. [Paras 15, 16, 17]

Interest awarded at 18% p.a. from date of plaint to date of decree and thereafter at 12% p.a. till realization.

Final Conclusion: Suit decreed in favour of the plaintiff for recovery of the claimed amount for goods sold and delivered; interest allowed at 18% p.a. from the date of the plaint to the date of decree and thereafter at 12% p.a. until realization; plaintiff also awarded costs.

Limitation Act applicability to insolvency proceedings - Article 137 of the Limitation Act - Meaning of "debt" and "due and payable" under the Insolvency and Bankruptcy Code - Section 433 of the Companies Act - application of the Limitation Act to the Tribunal - Retrospective operation of procedural amendments

Limitation Act applicability to insolvency proceedings - Article 137 of the Limitation Act - Meaning of "debt" and "due and payable" under the Insolvency and Bankruptcy Code - Whether the Limitation Act, 1963 applies to applications under Sections 7 and 9 of the Insolvency and Bankruptcy Code filed from the commencement of the Code on 01.12.2016 - HELD THAT: - The Court held that the Limitation Act applies to proceedings under the Code from its inception. The statutory definitions in the Code-particularly the definition of "debt" as a liability in respect of a claim which is "due" and the definition of "default" as non-payment of debt "due and payable"-must be read in context to mean debts that are due in law (i.e., not time-barred). Drawing on the Companies Act provisions (including the transfer of proceedings to the Tribunal) and principle that procedural provisions ordinarily operate retrospectively, the Court concluded that the NCLT/NCLAT must apply limitation law when deciding applications under Sections 7 and 9. Consequently Article 137 of the Limitation Act governs the right to sue where a default has occurred and will bar applications where the default occurred more than three years prior to filing, subject to any condonation under Section 5 of the Limitation Act. [Paras 11, 23, 27]

The Limitation Act, 1963 applies to applications under Sections 7 and 9 of the Code from its commencement; Article 137 will ordinarily govern such applications and time barred debts (subject to Section 5 condonation) cannot trigger CIRP.

Section 433 of the Companies Act - application of the Limitation Act to the Tribunal - Whether Section 433 of the Companies Act operates so as to bring the Limitation Act to bear on the NCLT/NCLAT when deciding matters under the Code - HELD THAT: - The Court found that the NCLT is constituted to exercise powers conferred "by or under this Act or any other law for the time being in force". Section 433 applies the Limitation Act to proceedings "before the Tribunal or the Appellate Tribunal" without limiting those words to proceedings only "under this Act". Transfer provisions (including transfer of pending winding up and other proceedings from High Courts/District Courts) and the Companies (Transfer of Pending Proceedings) Rules demonstrate that proceedings subject to limitation law can and do come before the Tribunal. Thus Section 433 applies to the Tribunal and Appellate Tribunal, and the Limitation Act governs their procedure in adjudicating applications under the Code. [Paras 8, 9, 11]

Section 433 of the Companies Act applies to the NCLT/NCLAT and the Limitation Act therefore governs proceedings before those fora, including applications under the Code.

Retrospective operation of procedural amendments - Whether the appeals should be remitted for fresh consideration in the light of the Court's finding on limitation - HELD THAT: - Given the determination that the Limitation Act applied from the inception of the Code, the Court found it unnecessary to decide separately on doctrines of laches. The appeals were therefore remitted to the NCLAT for fresh hearing and decision on all points other than the question of limitation, to be adjudicated having regard to the Court's conclusions regarding applicability of limitation law. [Paras 3, 28]

The appeals are remanded to the NCLAT for fresh decision in conformity with the Court's holding on the applicability of the Limitation Act.

Final Conclusion: The Limitation Act, 1963 applies to applications under Sections 7 and 9 of the Insolvency and Bankruptcy Code from its commencement; Article 137 governs time bar and debts barred by limitation cannot trigger CIRP (subject to Section 5 condonation); Section 433 of the Companies Act brings the Limitation Act to bear on NCLT/NCLAT; appeals are remanded to the NCLAT for fresh adjudication in light of these conclusions.

Service of demand notice under Section 8(1) of the Insolvency and Bankruptcy Code - admission of Section 9 insolvency petition - moratorium and appointment of Interim Resolution Professional - consequences of non-service of statutory notice - settlement between the parties - setting aside orders and dismissal of Section 9 petition - payment of fees of Resolution Professional

Service of demand notice under Section 8(1) of the Insolvency and Bankruptcy Code - consequences of non-service of statutory notice - Demand notice under Section 8(1) was not served on the Corporate Debtor and the Adjudicating Authority admitted the Section 9 application without taking that fact into account. - HELD THAT: - The record, including India Post delivery tracking, and the parties' admissions establish that the demand notice under Section 8(1) was never served on the Corporate Debtor. The Adjudicating Authority treated the notice as served and admitted the Section 9 petition despite the absence of service. Given the statutory importance of service of the demand notice as a precondition to admission under Section 9, the admission made without consideration of the non-service was legally unsustainable.

Findings of non-service compelled setting aside of the impugned admission order.

Settlement between the parties - setting aside orders and dismissal of Section 9 petition - Parties have settled the claim and the settlement was effected by payment; the appeal was allowed and the impugned order was set aside without remand. - HELD THAT: - The appellant filed an affidavit enclosing settlement terms and it was accepted by the operational creditor that payment was made by draft on 27th August, 2018. The Tribunal recorded that the parties had negotiated and reached settlement and therefore there was no need to remit the matter for further consideration. In view of the non-service of the demand notice and the settlement between the parties, the Tribunal set aside the Adjudicating Authority's order admitting the Section 9 petition and dismissed the application under Section 9.

Impugned order dated 14th June, 2018 is set aside and the Section 9 application is dismissed on the basis of non-service and settlement.

Moratorium and appointment of Interim Resolution Professional - setting aside orders and dismissal of Section 9 petition - All consequential orders arising from the impugned admission-declaration of moratorium, appointment of Resolution Professional, freezing of accounts and related actions including advertisement-are declared illegal and are set aside. - HELD THAT: - Because the foundational admission under Section 9 was set aside for want of service and the parties have settled, the Tribunal declared illegal and set aside all consequential actions taken pursuant to that admission, including moratorium declaration, appointment of the Resolution Professional, freezing of accounts, actions by the Resolution Professional and the advertisement calling for claims. The Corporate Debtor was released from the rigour of those orders and allowed to function through its Board of Directors immediately.

All consequential orders and actions flowing from the impugned admission are quashed and the Corporate Debtor is restored to its pre-admission position.

Payment of fees of Resolution Professional - The Adjudicating Authority is to fix the fee of the Resolution Professional and the Corporate Debtor shall pay the fee and other costs incurred by him. - HELD THAT: - Although the Tribunal set aside the appointment and actions of the Resolution Professional, it directed that the Adjudicating Authority determine the fee payable to the Resolution Professional for the work done, and that the Corporate Debtor pay such fee and other costs incurred. This preserves the professional's entitlement while restoring the Corporate Debtor to independent functioning.

Adjudicating Authority to fix the Resolution Professional's fee, payable by the Corporate Debtor.

Final Conclusion: The appeal is allowed: the admission of the Section 9 petition is set aside for non-service of the Section 8(1) demand notice and because the parties have settled; all consequential orders and actions under the impugned admission are quashed; the Corporate Debtor is released to function through its Board; the Adjudicating Authority shall fix the Resolution Professional's fee to be paid by the Corporate Debtor.

Liquidation under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 - Corporate Insolvency Resolution Process - Resolution Professional - Committee of Creditors - Moratorium and cessation on commencement of liquidation (Section 14 and Section 33(5)) - Appointment of Liquidator and Liquidation process under Chapter III of Part II - Public Announcement in liquidation (Regulation 12) - Preliminary Report by Liquidator (Regulation 13)

Liquidation under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 - Corporate Insolvency Resolution Process - Committee of Creditors - Resolution Professional - Moratorium and cessation on commencement of liquidation (Section 14 and Section 33(5)) - Appointment of Liquidator and Liquidation process under Chapter III of Part II - Public Announcement in liquidation (Regulation 12) - Preliminary Report by Liquidator (Regulation 13) - Order for liquidation of the corporate debtor and consequential appointments and directions - HELD THAT: - The Adjudicating Authority allowed the application filed under Section 33 of the Code and ordered liquidation of the corporate debtor. The decision was founded on findings that the corporate debtor was a non-operational, closed entity with complete cessation of business and absence of employees; no resolution applicants submitted expressions of interest or resolution plans despite public invitation; and the Committee of Creditors unanimously decided not to extend the CIRP beyond the statutory 180 day period. The Resolution Professional was unable to prepare a fully sourced Information Memorandum due to untraceable books of account, and the lack of viable bids precluded continuation of the CIRP. In consequence, the Authority directed liquidation to be carried out in the manner prescribed in Chapter III of Part II of the Code, appointed the existing Resolution Professional as Liquidator, required issuance of the statutory public announcement, directed communication of the order to the Registrar of Companies and the Insolvency and Bankruptcy Board of India, declared that the earlier moratorium under Section 14 shall cease and a fresh moratorium under Section 33(5) shall commence, and treated the order as notice of discharge under Section 33(7). The Liquidator was further directed to proceed with liquidation steps and to submit a Preliminary Report within seventy five days as mandated by the liquidation regulations.

Application under Section 33 is allowed; Bajrangbali Alloys Private Limited is ordered to be liquidated, Shri Pinaki Sircar is appointed as Liquidator, and consequential statutory directions are issued including public announcement, notifications to Registrar and IBBI, commencement of fresh moratorium, deemed discharge notice, and requirement to file a Preliminary Report.

Final Conclusion: The Tribunal ordered liquidation of the corporate debtor pursuant to Section 33 of the IBC, appointed the Resolution Professional as Liquidator, and issued consequential directions for carrying out the liquidation process in accordance with the Code and the Liquidation Process Regulations.

Cenvat credit - input services - exclusion clause in the definition of input services - services in relation to motor vehicles - refund claim and revised refund claim - remand for verification - penalty not leviable where credit reversed before show-cause

Cenvat credit - refund claim and revised refund claim - Meal voucher credit not contested by appellant and demand in respect thereof upheld - HELD THAT: - The appellants expressly did not press the claim relating to meal vouchers. The Tribunal therefore treats that head as abandoned and upholds the demand sustained in the impugned order in respect of the meal voucher amount. [Paras 6]

Demand in respect of meal vouchers upheld.

Cenvat credit - input services - Credit for professional charges allowed as eligible input services - HELD THAT: - The appellants produced particulars showing that professional charges were for commercial coaching and training services and for management and business consultancy necessary for their output service of e-publishing. The Tribunal is satisfied these services fall within the definition of input services and are necessary for the appellant's output services, and accordingly allows the credit claimed for professional charges. [Paras 7]

Credit for professional charges allowed.

Cenvat credit - exclusion clause in the definition of input services - services in relation to motor vehicles - Credit on Rent-a-Cab service not eligible under the exclusion clause and demand upheld - HELD THAT: - The appellants failed to produce evidence that the motor vehicles used by the rent-a-cab service provider were capital goods for that provider. Under the exclusion clause of the definition of input services, services provided in relation to motor vehicles are not eligible unless the vehicles are capital goods of the service provider. Absent such proof, the Tribunal upholds the disallowance of credit on rent-a-cab services. [Paras 8]

Credit for Rent-a-Cab services disallowed and demand upheld.

Cenvat credit - refund claim and revised refund claim - remand for verification - penalty not leviable where credit reversed before show-cause - Local sales credit remanded to adjudicating authority for verification whether credit was reversed; consequences for interest and penalty indicated if reversal preceded show-cause - HELD THAT: - The appellants contend they reversed the credit relating to local sales and filed a revised refund claim, but the record does not clearly demonstrate such reversal. The Tribunal therefore remands this specific head to the adjudicating authority for limited verification of whether the credit was reversed before issuance of the show-cause notice. The Tribunal records that if the adjudicating authority finds the credit was reversed prior to the show-cause notice, penalties in respect of this issue would not be sustainable, in accordance with the legal position noted by the Tribunal. [Paras 9]

Matter remanded to adjudicating authority to verify reversal of credit for local sales; if reversal occurred before show-cause, penalties shall not be imposed.

Final Conclusion: The appeal is partly allowed: credit for professional charges is allowed; demands in respect of meal vouchers (not pursued) and rent-a-cab services are upheld; the question of credit on local sales is remanded to the adjudicating authority for verification, with consequential relief (including waiver of penalties) if the credit was reversed prior to issuance of the show-cause notice.

Refund under section 11B of the Central Excise Act, 1944 - CENVAT credit - double payment of service tax - incidence/burden of tax - remand for fresh consideration - opportunity of personal hearing

Refund under section 11B of the Central Excise Act, 1944 - CENVAT credit - double payment of service tax - incidence/burden of tax - remand for fresh consideration - opportunity of personal hearing - Whether the rejection of the appellant's refund claim was justified without considering the documents produced to show double payment of service tax and non-availment of CENVAT credit, and what relief is appropriate. - HELD THAT: - The appellant asserted that service tax for the same services was discharged twice - once paid by the appellant and once collected by the bank by mistake - and produced documents, including a certificate from Canara Bank, to show that the appellant bore the incidence and had not availed CENVAT credit. The departmental notice alleged availment of CENVAT credit. The Tribunal found on the record that the adjudicating authority and the Commissioner (Appeals) did not consider the documents submitted by the appellant in reply to the show cause notice. Given the absence of consideration of these materials and conflicting contentions on fact (whether tax incidence was borne by the appellant and whether CENVAT credit was availed), the matter required fresh adjudication. The appropriate remedial step is to set aside the impugned order and remit the matter to the adjudicating authority to consider the documents produced, permit the appellant to furnish any further material, and afford a personal hearing before reaching a final decision on the refund claim.

Impugned order set aside and the matter remanded to the adjudicating authority for fresh consideration of the documents, with a further opportunity to the appellant to produce documents and for personal hearing.

Final Conclusion: Appeal allowed by way of remand; impugned order set aside and the adjudicating authority directed to reconsider the refund claim after taking into account the documents produced by the appellant and after granting a further opportunity for production of documents and personal hearing.

Extended period of limitation - interpretational issue not attracting extended limitation - proviso to Section 73(1) - fraud, suppression, collusion - service tax liability of computer training institutes - clarificatory notification - limitation barred demand

Extended period of limitation - proviso to Section 73(1) - fraud, suppression, collusion - interpretational issue not attracting extended limitation - Whether the demand for service tax for the period 01/07/2004 to 15/06/2005 could be sustained by invoking the extended period of limitation when the show-cause notice did not allege fraud, suppression or collusion and the controversy involved interpretation of a notification. - HELD THAT: - The show-cause notice dated 23/03/2007 invoked the extended period for the period 01/07/2004 to 15/06/2005, but did not allege any of the acts mentioned in the proviso to Section 73(1) (fraud, suppression, collusion). Neither the original authority nor the Commissioner (Appeals) recorded any finding to justify invocation of the extended limitation. Where the dispute involves an interpretational question with judicially unsettled position, invocation of extended limitation is impermissible in the absence of specific allegations and findings of fraud/suppression/collusion. The Tribunal relied on precedents holding that mere failure to pay tax or an interpretational controversy does not constitute fraud or suppression for the proviso. Applying these principles to the present record, the demand could not be sustained under the extended period.

Extended period of limitation could not be invoked; the entire demand for 01/07/2004 to 15/06/2005 is barred by limitation.

Service tax liability of computer training institutes - clarificatory notification - Whether on merits the appellant was liable to service tax for providing computer training services during the period in question. - HELD THAT: - The Tribunal noted that the legal issue on merit has been finally settled against the appellant by the Hon'ble Supreme Court in Sunwin Techno Solutions Pvt. Ltd., which held that the notification relied upon was clarificatory and that services provided by computer training institutes were liable to service tax with effect from 01/07/2004. The appellant's counsel conceded that on merits there was no case in view of that decision.

On merits the services are liable to service tax as held by the Supreme Court, but this finding did not save the demand which was time-barred in the present case.

Final Conclusion: The appeal is allowed: although the merits are against the appellant under the Supreme Court ruling, the demand for the period 01/07/2004 to 15/06/2005 was issued after the limitation period without any allegation or finding of fraud/suppression and is therefore barred by limitation; the impugned order is set aside with consequential relief.

Cenvat credit - Interconnect Usage Charges - Input Service Distributor - Procedural defects not to deny substantial benefit - Modvat credit principle

Cenvat credit - Interconnect Usage Charges - Input Service Distributor - Procedural defects not to deny substantial benefit - Entitlement of the appellant to take cenvat credit on services received by BSNL(WTR) relating to Interconnect Usage Charges despite absence of interconnectivity with certain BSNL units. - HELD THAT: - The Tribunal accepted that the audit related to the period 01.06.2007 to 30.09.2008 and that credit had been availed on account of service tax paid on input services including Interconnect Usage Charges. Applying the reasoning of the earlier Tribunal decisions relied upon by the appellant, the Tribunal treated the controversy as one primarily of procedure rather than mis-utilisation of ineligible credit. It noted that where the relevant unit had followed the procedure of registration as an Input Service Distributor and distributed credit within BSNL, there was no substantive misuse; the credit was taken within the organisation and remained verifiable by Revenue. Relying on the Modvat credit principle and precedent which held that minor procedural defects cannot defeat a substantial statutory benefit, the Tribunal held that denial of the impugned credit on account of such procedural shortcomings was not sustainable. On that basis the impugned order confirming the demand was set aside and the appeal allowed.

Impugned order set aside and appeal allowed; appellant entitled to avail the cenvat credit as held by preceding Tribunal decisions.

Final Conclusion: The appeal was restored and finally allowed: the Tribunal set aside the order confirming demand and held that cenvat credit on interconnect-related services availed by the appellant during 01.06.2007 to 30.09.2008 could not be denied for minor procedural defects where the credit was within the organisation and verifiable.

Penalty for failure to pay service tax - reasonable cause under Section 80 - penalty under Section 76 - penalty under Section 78

Penalty for failure to pay service tax - reasonable cause under Section 80 - penalty under Section 76 - penalty under Section 78 - Whether penalties imposed for short payment of service tax are justified and whether waiver under Section 80 is permissible - HELD THAT: - The Tribunal accepted the factual finding recorded by the Commissioner that the assessee had received the service tax amount from the service recipient but failed to discharge the liability in time and did not disclose receipt in the periodical ST-3 returns. On that basis the Tribunal found that the failure to pay was deliberate and not excused by reasonable cause; accordingly Section 80 could not be invoked to waive penalties. Having regard to the payment of the entire service tax with interest by the appellant, the Tribunal exercised its appellate power to differentiate between the penalties imposed: upholding the penalty under Section 78 while setting aside the penalty imposed under Section 76. The Tribunal thereby treated payment with interest as a mitigating circumstance relevant to the quantum of penalty while leaving the finding of deliberate default intact. [Paras 6, 7]

Invocation of Section 80 refused; penalty under Section 78 upheld; penalty under Section 76 set aside; appeal partly allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal upheld the finding of deliberate failure to pay service tax (refused waiver under Section 80), upheld the penalty under Section 78, and set aside the penalty under Section 76; the impugned order is modified accordingly.

Works Contract Service - Service Tax Liability - Penalty under Section 78 of the Finance Act, 1994 - Remand for verification and recomputation - Inclusion of non-taxable receipts in gross taxable value

Remand for verification and recomputation - Inclusion of non-taxable receipts in gross taxable value - Remand to adjudicating authority to verify the assessee's claim that certain amounts received as hand loans were wrongly included in the gross taxable value, and to re-compute service tax liability accordingly. - HELD THAT: - The Commissioner (Appeals) observed that the assessee claimed certain receipts characterised as hand loans were erroneously included in the gross taxable value used to compute service tax. The Tribunal finds no reason to disturb that view and notes Revenue produced no contrary evidence to rebut the claim. In view of the contention and absence of rebuttal, the matter was appropriately remanded to the adjudicating authority for verification of the claim and recomputation of tax liability and penalty in accordance with the findings of that verification. [Paras 2, 5, 6]

Remand to the adjudicating authority for verification of the hand-loan claim and re-computation of service tax liability and penalty upheld; Revenue's challenge to the remand dismissed.

Penalty under Section 78 of the Finance Act, 1994 - Service Tax Liability - Works Contract Service - Whether penalty under Section 78 is attracted and the quantum of penalty the assessee is entitled to discharge. - HELD THAT: - It is undisputed that the assessee rendered works contract services and did not discharge service tax nor file returns until departmental investigation. The Tribunal accepts that failure to pay and non-disclosure brought the case within the scope of penalty under Section 78. However, having considered the matter and the Commissioner (Appeals)'s approach, the Tribunal held that the assessee is entitled to discharge 25% of the penalty subject to fulfillment of the statutory conditions under Section 78, thereby reducing the penalty liability to that extent. [Paras 5]

Penalty under Section 78 sustained in principle but limited so that the assessee may discharge 25% of the quantum of penalty subject to statutory conditions.

Final Conclusion: Revenue's appeal is dismissed insofar as it assails the remand; the assessee's appeal is partly allowed - the matter is remanded for verification and recomputation of liability with the assessed penalty moderated so that the assessee may discharge 25% of the penalty subject to conditions under Section 78 of the Finance Act, 1994.

CENVAT credit - input service - tripartite arrangement - proviso to Rule 9(2) of the CENVAT Credit Rules, 2004 - compliance with documentary requirements - reimbursement of invoice value - remand for fresh adjudication

CENVAT credit - input service - compliance with documentary requirements - proviso to Rule 9(2) of the CENVAT Credit Rules, 2004 - tripartite arrangement - reimbursement of invoice value - Whether CENVAT credit taken by the appellant on invoices issued in the name of a third party and involving reimbursement can be sustained or requires fresh adjudication under the proviso to Rule 9(2). - HELD THAT: - The Tribunal recorded that sub-rule (2) of Rule 9 was not complied with on the face of the documents. The proviso to Rule 9(2) permits the jurisdictional service tax authority to allow credit if the document contains particulars of the service provider and the authority is satisfied that the services have actually been received and accounted for in the receiver's books. The record indicates a tripartite arrangement in which the appellant paid the invoice amount (including service tax) to the service provider and there exists nexus between the services and the appellant's business activities; however, invoices were addressed to and reimbursement was effected by the third party. Given the admitted non-compliance with the documentary requirement and the presence of facts warranting scrutiny under the proviso, the Tribunal did not decide the entitlement on merits. Instead, it directed remand to the original authority to examine the records, apply the proviso to Rule 9(2) where appropriate, and afford the appellant an opportunity of personal hearing before passing a fresh adjudication. [Paras 5, 6, 7, 8]

Appeal allowed by way of remand to the original adjudicating authority to decide, after examining records and granting personal hearing, whether the proviso to Rule 9(2) permits grant of CENVAT credit in the facts of the case.

Final Conclusion: The Tribunal has remitted the matter to the original authority for fresh adjudication on applicability of the proviso to Rule 9(2) of the CENVAT Credit Rules, 2004, directing examination of records and grant of personal hearing; no final decision on entitlement, demand, interest or penalties was recorded by the Tribunal.

Clandestine removal - invoice without duty - use of inflated bank statements - retracted statement - corroborative evidence requirement - burden of proof in clandestine removal - consequence of absence of corroboration

Clandestine removal - invoice without duty - use of inflated bank statements - retracted statement - corroborative evidence requirement - The demand for duty, interest and penalty based on alleged clandestine removal was not sustainable in the absence of adequate corroborative evidence. - HELD THAT: - The Revenue relied on (a) invoices without duty, (b) statements submitted to the bank showing inflated sales and the bank manager's certification, and (c) a statement of Shri Mahesh Tiwari. The consignee named on the invoices denied receipt of goods, no incriminating statement was recorded from the appellants, and the statement of Shri Mahesh Tiwari was retracted the next day and, in any event, he was not related to the appellants during the impugned period. The appellants explained that invoices and inflated sale figures were used to obtain bank finance to maintain operations. The Tribunal held that mere issuance of non-duty invoices and inflated bank statements, without independent corroboration - such as evidence of increased electricity consumption, raw material procurement, mode of removal of goods, employment/labour changes, or flow back of money - cannot sustain a charge of clandestine removal. Relying on the reasoning in Vijay Packaging Systems Ltd. (as cited by the parties), the charge of clandestine removal was held unproved and the demand set aside. [Paras 6, 7]

Impugned order confirming demand and imposing penalty set aside; appeals allowed with consequential relief.

Final Conclusion: The Tribunal found the evidence insufficient to prove clandestine removal; accordingly the confirmed demand with interest and penalties was set aside and the appeals were allowed.

VAT actually paid for deduction under Section 4 of the Central Excise Act - Inclusion of subsidy in assessable value - Use of VAT 37B challans as discharge of VAT liability - Transaction value concept - Investment Promotion Scheme subsidy treatment

VAT actually paid for deduction under Section 4 of the Central Excise Act - Use of VAT 37B challans as discharge of VAT liability - Inclusion of subsidy in assessable value - Whether VAT discharged by utilising investment subsidy challans in form VAT 37B qualifies as VAT actually paid and therefore may be deducted from transaction value under Section 4 of the Central Excise Act, or whether such subsidy must be included in the assessable value of goods. - HELD THAT: - The appellants operated under the Rajasthan Investment Promotion Scheme whereby VAT/CST/SGST is remitted to the Government and a portion is disbursed back as subsidy in the form of VAT 37B challans usable in subsequent periods to discharge VAT liability. The Tribunal noted the principle that post-01/07/2000 only sales tax/VAT actually paid can be deducted under Section 4(3)(d), but found that where the statutory scheme treats payment by VAT 37B challans as a legal discharge of tax liability, such utilisation is equivalent to actual payment for the purpose of transaction value. The Tribunal followed earlier precedent distinguishing the Apex Court's decision in Super Synotex in light of remission/subsidy schemes (as in Welspun Corporation Ltd.) and held that subsidy amounts discharged by using VAT 37B challans are not required to be included in the assessable value. Accordingly, the view of Revenue that VAT discharged by utilising the 37B challans is not "actually paid" was rejected and the additions to assessable value were held unjustified.

Impugned order holding that VAT discharged by utilising VAT 37B challans is not VAT actually paid was set aside; such subsidy amounts were not includible in the assessable value and the appeal was allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that VAT discharged by utilisation of investment subsidy in form VAT 37B constitutes VAT actually paid for the purposes of deduction under Section 4 and therefore the subsidy amounts need not be included in the assessable value; the impugned order was set aside.

Availability of Cenvat credit on inputs cleared under area-based exemption - application of Rule 12 of Cenvat Credit Rules - retrospective effect of amendment removing an omission - remand for verification of supplier's exemption status - penalty not justified

Availability of Cenvat credit on inputs cleared under area-based exemption - application of Rule 12 of Cenvat Credit Rules - remand for verification of supplier's exemption status - Whether Cenvat credit availed by the appellant on inputs procured from M/s Ritzy Polymers can be sustained or must be reversed, having regard to the supplier's claim to area-based exemption and the specification of notifications in Rule 12. - HELD THAT: - The Tribunal noted that the supplier, M/s Ritzy Polymers, had availed exemption under Notification No.1/2010 which is disputed and remains to be finally determined. The supplier alternatively claimed entitlement to Notification No.56/2002 upto 05.09.2014, and the jurisdictional authorities appear to have permitted continuation under that notification. Since the denial of the appellant's Cenvat credit (demand up to 19.01.2014) is closely linked to the factual/legal status of the supplier's exemption, the Tribunal found it necessary to set aside the impugned order and remit the matter to the adjudicating authority for a de novo decision. The adjudicating authority is to verify whether M/s Ritzy Polymers were permitted to avail benefit of Notification No.56/2002 during the period under dispute; if duty is to be regarded as paid under that notification, the appellant's Cenvat credit cannot be denied. [Paras 7]

Impugned order set aside insofar as the demand of Rs. 71.79 lakhs; matter remanded to the adjudicating authority for de novo decision after verifying whether the supplier was permitted to avail Notification No.56/2002 during the period up to 19.01.2014.

Penalty not justified - Whether any penalty should be imposed on the appellant in respect of the denied Cenvat credit. - HELD THAT: - Having set aside the demand and remitted the matter for fresh consideration of the supplier's exemption status, the Tribunal observed that, on the facts and in any case, there was no justification for imposing a penalty on the appellant. [Paras 8]

No penalty is justified; any penalty imposed is set aside.

Final Conclusion: The Tribunal set aside the impugned order insofar as the demand of Rs. 71.79 lakhs and remanded the matter to the adjudicating authority for de novo decision after verification of the supplier's entitlement to Notification No.56/2002 for the period in question; the imposition of penalty was held to be unjustified and is set aside.

Valuation under Rule 8 of the Central Excise Valuation Rules - transaction value and related party pricing - relationship between buyer and seller / related parties - de novo adjudication / remand for fresh trial - non cooperation in ex parte proceedings and duty to produce CAS 4

Relationship between buyer and seller / related parties - transaction value and related party pricing - Whether the relationship between the assessee and M/s. Magnum Steels Ltd. justified invocation of Rule 8 and adjustment of transaction value. - HELD THAT: - The Tribunal found that the question of whether the two companies were related and interconnected - and consequently whether the invoice transaction value was unacceptable - remained undecided on merits because the proceedings below were ex parte and the assessee had not placed on record the relevant documents (notably CAS 4). The Tribunal observed that an identical issue in a matter involving the same buyer had been remanded for de novo adjudication and that, in the present case, valuation could not be properly determined without fresh consideration of the relationship and production/market evidence. In view of the absence of cooperation and the lack of necessary documentary material, the Tribunal considered it appropriate to remit the issue to the adjudicating authority for fresh adjudication and verification of whether the documents establish a related party relationship so as to invoke Rule 8. [Paras 5, 6, 7, 8]

Remanded to the adjudicating authority for de novo adjudication on whether the parties are related and whether Rule 8 should be invoked; appellant directed to produce relevant documents.

Valuation under Rule 8 of the Central Excise Valuation Rules - non cooperation in ex parte proceedings and duty to produce CAS 4 - de novo adjudication / remand for fresh trial - Whether the valuation of the excisable goods could be sustained in the absence of documents necessary for application of Rule 8. - HELD THAT: - The Tribunal noted that valuation by applying 110% of cost of production under Rule 8 was proposed by the department but the adjudicating authority was unable to make a proper valuation because the assessee had not furnished CAS 4 and other relevant documents during ex parte proceedings. Given the identical controversy in a related remanded matter and to avoid inconsistent decisions, the Tribunal directed that valuation be reconsidered afresh by the adjudicating authority after receipt and verification of requisite documents from the appellant and after giving personal hearing. [Paras 3, 5, 7, 8]

Remanded for de novo determination of valuation under Rule 8 after production and verification of requisite documents and personal hearing.

Final Conclusion: The appeal is allowed by way of remand; both the question of relationship between the parties and the valuation of the excisable goods under Rule 8 are sent back for de novo adjudication, with directions to the appellant to produce all requisite documents (including CAS 4) and to appear for personal hearing within one week of notice.

Input service - Cenvat credit of service tax on sales commission - sales promotion included in input services - declaratory amendment and retrospective effect of explanation - Circular No. 943/4/2011-CX as clarificatory source

Input service - Cenvat credit of service tax on sales commission - sales promotion included in input services - Circular No. 943/4/2011-CX as clarificatory source - Availability of cenvat credit of service tax paid on commission to foreign/domestic agents as input service - HELD THAT: - The Tribunal examined the definition of "input service" under the Cenvat Credit Rules, 2004 and noted that services used for "advertisement or sales promotion" are expressly included. Sales commission paid to agents falls within the ambit of sales promotion activities covered by the definition. The Tribunal also relied on Circular No. 943/4/2011-CX dated 29.04.2011 which recognised cenvat credit on commission paid to commission agents. Decisions of earlier authorities recognizing sales-related services as input services were noted in support. On this legal foundation the denial of cenvat credit by the original adjudicating authority was held to be incorrect and the Commissioner (Appeals) correctly allowed the credit.

Cenvat credit of service tax paid on commission to agents is admissible as input service and the Commissioner (Appeals) rightly allowed the credit.

Declaratory amendment and retrospective effect of explanation - Cenvat credit of service tax on sales commission - Whether the explanation inserted by Notification No. 2/2016 dated 03.02.2016 operates retrospectively to validate earlier availment of credit - HELD THAT: - The Tribunal treated the amendment in Rule 2 (1)(C) effected by Notification No. 2/2016 as clarificatory/declaratory in nature, intended to explain the meaning of earlier circulars and remove doubt as to the availability of credit. Reliance was placed on a Tribunal decision to the same effect and the Apex Court's principle that declaratory explanations operate retrospectively. Having found the explanation to be declaratory and consistent with the pre-existing circular, the Tribunal held that the explanation could be applied retrospectively to the period April 2015 to November 2015 and thus support the Commissioner (Appeals) in granting relief.

The explanation in Notification No. 2/2016 is declaratory and can be given retrospective effect to uphold the availment of cenvat credit for the impugned period.

Final Conclusion: The appeal is dismissed. The order of the Commissioner (Appeals) allowing cenvat credit of service tax paid on sales commission (for April 2015 to November 2015) is upheld, the amendment/explanation in Notification No. 2/2016 being held declaratory and retrospectively effective.

Principle of natural justice - Reasonable opportunity of hearing - Consecutive short-interval hearings - Remand for de novo adjudication

Principle of natural justice - Reasonable opportunity of hearing - Consecutive short-interval hearings - Impugned order suffers from violation of the principle of natural justice as the opportunities of personal hearing afforded were not reasonable. - HELD THAT: - The Tribunal found that the adjudicating authority had fixed three consecutive dates for personal hearing at short intervals, which prima facie does not constitute a reasonable opportunity to defend. Relying on the Tribunal's earlier decision in Deepak Gupta vs CCE, Kolkata the bench held that granting hearings on consecutive days at short notice cannot be regarded as compliance with the duty to afford a reasonable opportunity before passing an order. In view of the material on record and the absence of adequate opportunity to the appellants to rebut the allegations or to procure documents returned by the Department, the Tribunal concluded that the principle of natural justice was violated and the impugned order could not stand. [Paras 5, 6]

Impugned order set aside; matter remitted to the original authority for fresh adjudication after affording a reasonable opportunity of hearing to the appellants.

Final Conclusion: The appeal is allowed by way of remand: the impugned order is set aside and the matter is remitted for de novo decision after providing a reasonable opportunity of hearing to the appellants; the appellants are directed to appear before the adjudicating authority by 09.10.2018 to seek hearing.

Penalty for delayed payment of duty under Rule 8(3A) - interpretation of "for each month or part thereof" - calculation of penalty on the basis of actual days of delay

Penalty for delayed payment of duty under Rule 8(3A) - interpretation of "for each month or part thereof" - calculation of penalty on the basis of actual days of delay - Penalty under Rule 8(3A) is to be computed pro rata for part months on the basis of actual number of days of delay and not by treating any broken month as a full month. - HELD THAT: - The Tribunal examined Rule 8(3A) which prescribes penalty "for each month or part thereof" for failure to pay duty declared in the return. Applying the judicial interpretation of "part thereof" by the Madras High Court in State of Tamil Nadu v. P.T.C. Sanghvi & Co. and the Allahabad High Court in Brook Bond India Ltd. v. Commissioner of Sales Tax, the Tribunal holds that "part thereof" means the actual number of days of delay and therefore the penalty must be calculated on the basis of months and the actual days of delay. The decision follows the Tribunal's earlier order in the appellant's own case which applied those High Court precedents and allowed computation of penalty pro rata for broken periods of a month. On this basis the impugned order denying benefit for the broken period was set aside.

Impugned order set aside; appeal allowed and penalty to be computed pro rata for part months on basis of actual days of delay.

Final Conclusion: The appeal is allowed and the penalty under Rule 8(3A) for the period August to December, 2016 shall be computed pro rata for part months by reference to the actual number of days of delay.

Exemption under Notification No. 89/95-CE of waste, parings and scrap arising during manufacture - by-products versus waste distinction - incidental products not being manufactured excisable goods - benefit of exemption where the final product is nil-rated or exempt

Exemption under Notification No. 89/95-CE of waste, parings and scrap arising during manufacture - by-products versus waste distinction - incidental products not being manufactured excisable goods - Whether waste products such as soap stock (gum), sludge, fatty acid oil and spent earth generated during refining of edible oil are taxable dutiable by products or are exempt as waste under Notification No. 89/95 CE dated 18/02/1995. - HELD THAT: - The Tribunal applied and followed the Larger Bench decision in Ricela Health Foods Ltd. & Ors. v. CCE, Chandigarh and its own prior order in the appellant's case, holding that the items in dispute are not by products manufactured during the course of producing the final edible oil but are incidental waste arising in the refining process. The removal or recovery of such unwanted materials (gums, waxes, fatty acids with odour, sludge, spent earth) does not constitute a separate process of manufacture making them excisable goods. Because the final product (refined edible oil) was chargeable to nil rate or exempt during the period, these incidental wastes fall within the scope of Notification No. 89/95 CE and are therefore exempted from excise duty. The Tribunal set aside the order-in-appeal and allowed the appeal following the Larger Bench and regional precedents. [Paras 4]

The wastes - soap stock (gums), sludge, fatty acid oil and spent earth - are not excisable by products but incidental waste covered by Notification No. 89/95 CE; the appeal is allowed and the impugned order set aside.

Final Conclusion: Appeal allowed; impugned order set aside as the contested products are incidental waste covered by Notification No. 89/95 CE for the period April 2010 to December, 2013.

Notice under section 17 of the Wealth Tax Act, 1957 - reason to believe - escape of assessment - net wealth chargeable to tax - failure to furnish return - nexus between borrowings and assets

Notice under section 17 of the Wealth Tax Act, 1957 - reason to believe - escape of assessment - net wealth chargeable to tax - failure to furnish return - Validity of the notice issued under section 17 of the Wealth Tax Act, 1957 for assessment year 2013-14 - HELD THAT: - The Assessing Officer recorded reasons after perusal of the balance sheet and annexed documents indicating possession of cash and fixed assets which, on a prima facie view, produced taxable wealth that had not been declared because no wealth tax return was filed for A.Y. 2013-14. Section 17 permits issuance of a notice where the officer has 'reason to believe' that net wealth chargeable to tax has escaped assessment. The Court found that the AO had a prima facie basis for such belief arising from the assessee's own accounts and returns and that the issuance of the notice after recording reasons was justified. The contention that the existence of borrowings or a negative capital balance negated the notice was not a matter capable of short-circuiting the statutory power to issue a notice under section 17 where no return had been furnished.

Notice under section 17 for A.Y. 2013-14 upheld; petition dismissed insofar as it challenged the issuance of the notice.

Nexus between borrowings and assets - burden to show nexus between borrowings and assets - Objection that unsecured loans and other liabilities eliminated net wealth because the assessee did not demonstrate application of such borrowings to acquisition of the assets - HELD THAT: - The Assessing Officer rejected the assessee's objection that loans removed any net wealth on the ground that the assessee had not established a co-relation between the unsecured loans/other liabilities and the acquisition of the assets alleged to constitute wealth. The Court accepted the AO's approach that the mere assertion of liabilities or a negative capital balance in the balance-sheet, without showing how specific borrowings were applied to acquire the assets, did not defeat the prima facie reason to believe that wealth had escaped assessment. The factual and evidentiary determination as to whether borrowings are attributable to the assets requires assessment and cannot be decided at the notice stage.

Assessee's objection based on unsecured loans/negative capital balance dismissed; AO entitled to require assessment to examine nexus.

Final Conclusion: The High Court dismissed the petition and upheld the Assessing Officer's issuance of a notice under section 17 of the Wealth Tax Act, 1957 for A.Y. 2013-14, finding that the AO had recorded sufficient reasons and that the assessee had failed to establish a nexus between borrowings and the assets to negate the prima facie belief of escaped wealth.

Commercial asset - commercial establishment - exemption under section 2(ea)(i)(3) of the Wealth Tax Act - character of property - capable of being put to productive use

Commercial asset - exemption under section 2(ea)(i)(3) of the Wealth Tax Act - Whether the assessee's share in the cinema theatre property is a commercial asset and therefore exempt from wealth tax under the exclusion in section 2(ea)(i)(3). - HELD THAT: - The Tribunal accepted the CIT(A)'s finding that the assessee purchased the cinema theatre (land and building) along with other business entities as part of a commercial venture and that the assessee's business is in real estate, reflected in its financials. The fact that the property is held in the course of a commercial enterprise and is shown as an asset in the assessee's accounts supports classification as a commercial asset. Relying on precedents, the Tribunal held that ownership of a commercial asset which is capable of being put to productive use brings it within the exclusion and renders it not exigible to wealth tax under the stated provision.

The assessee's share in the theatre property is a commercial asset and is excluded from wealth tax under section 2(ea)(i)(3).

Character of property - capable of being put to productive use - Whether temporary non-use or non-operation of the theatre during the relevant years negates its character as a commercial asset. - HELD THAT: - The Tribunal rejected the Revenue's contention that absence of commercial operation during the relevant years makes the property exigible to wealth tax. It observed that inability to operate (for renovation, lack of permission or business reasons) does not alter the inherent character of the property as a commercial establishment. The dispositive principle applied is that ownership of a commercial property that remains capable of commercial use retains its commercial character for wealth tax exclusion purposes even if not actually used during the year.

Temporary non-use of the theatre during the relevant years does not deprive it of its commercial character; the exclusion applies.

Final Conclusion: Revenue's appeals for A.Y 2007-08 and A.Y 2008-09 are dismissed; the assessee's share in the cinema theatre is held to be a commercial asset excluded from wealth tax under section 2(ea)(i)(3), and temporary non use does not negate that character.