TaxTMI Updates e-Newsletter
Nov 01,2021

Writ jurisdiction vis-a -vis statutory appeal - Appealability of orders under Section 254(2) of the Income Tax Act - Substantial question of law as requirement for appeal to High Court - Proof of consumption and production requirement for claiming exemption under Section 80IB - Rectification application not to be treated as review in disguise

Writ jurisdiction vis-a -vis statutory appeal - Appealability of orders under Section 254(2) of the Income Tax Act - Substantial question of law as requirement for appeal to High Court - Maintainability of writ petition challenging the Tribunal's order dated 24.04.2009 passed on an application under Section 254(2) and the Tribunal's appellate order dated 30.12.2008. - HELD THAT: - The Court examined whether the petitioner could invoke writ jurisdiction in view of the statutory appellate remedy under Section 260-A. The order dated 30.12.2008 was passed by the Tribunal in appeal and is therefore amenable to appeal under Section 260-A if a substantial question of law is involved. The Tribunal's order dated 24.04.2009, being a refusal of an application under Section 254(2), falls within the category identified by the Delhi Full Bench in Lachman Dass Bhatia whereby an order rejecting an application under Section 254(2) is not appealable under Section 260-A. In the absence of a statutory remedy against such a rejection, writ jurisdiction is available to challenge the same. Reliance on the principle that statutory forums ordinarily exclude writ remedy (as reiterated by the Apex Court) did not preclude entertaining the writ in respect of the non-appealable Section 254(2) rejection. [Paras 13, 14]

Writ petition maintainable insofar as it challenges the Tribunal's order dated 24.04.2009 rejecting the Section 254(2) application; the order dated 30.12.2008 remains appealable under Section 260-A.

Proof of consumption and production requirement for claiming exemption under Section 80IB - Rectification application not to be treated as review in disguise - Whether non-consideration of a certificate from the electricity department vitiated the Tribunal's order denying benefit under Section 80IB for assessment year 2005-2006. - HELD THAT: - The authorities denied the Section 80IB benefit because the assessee failed to produce contemporaneous evidence of electricity consumption and payment to establish actual production. The petitioner relied on an electricity department certificate produced with the rectification application; however, the certificate itself bears a date (26th August 2009) subsequent to the assessment, the appellate order and the Tribunal's order and therefore was not in existence to be placed before those authorities nor could it have accompanied the rectification application which was decided on 24th April 2009. Consequently the Tribunal did not err in treating the attempt to introduce that certificate as an impermissible review in the guise of rectification and in upholding the denial of the exemption. [Paras 15, 16, 17]

No interference with the Tribunal's decision; the purported electricity certificate was not available on record at the relevant times and its non-consideration does not vitiate the order denying Section 80IB relief.

Final Conclusion: Writ petition dismissed. The challenge to the Tribunal's rejection of the Section 254(2) rectification application was maintainable, but on merits the Tribunal correctly upheld denial of Section 80IB relief since the alleged electricity payment certificate was issued after completion of proceedings and could not have been considered.

Revocable transfer - revocable transfer of assets chargeable as income of transferor - representative assessee - application of double taxation avoidance agreement (India UAE DTAA) over domestic law - recognition of foreign trust for income tax purposes - piercing or lifting the corporate/arrangement veil

Revocable transfer - revocable transfer of assets chargeable as income of transferor - Whether the capital contribution by ADIA to the Jersey settled trust is a revocable transfer and, if so, whether income arising to the trust is chargeable as the income of ADIA under the Act. - HELD THAT: - The Deed of Settlement contains express clauses evidencing a right of re transfer, rights to terminate and to receive proceeds on termination, and distribution obligations in favour of ADIA as settlor and sole beneficiary. Section 61 charges to tax income arising by virtue of a revocable transfer as the income of the transferor and is not confined to trusts settled in India. Section 63 extends the meaning of transfer (to include settlements and trusts) but does not restrict applicability to Indian trusts; its clauses (a) and (b) operate to include revocable transfers and settlements within Section 61. The AAR's view that Sections 61 and 63 apply only to trusts under the Indian Trust Act or only to trusts settled in India is incorrect and imports a restriction not found in the statute. Consequently, the transfer to the Trust here qualifies as a revocable transfer and income arising therefrom is taxable as income of ADIA, attracting the treaty consequences applicable to ADIA. [Paras 24, 25, 26, 31, 33]

The contribution to the Trust is a revocable transfer within the meaning of Sections 61 and 63, and income arising to the Trust is chargeable as the income of ADIA.

Recognition of foreign trust for income tax purposes - representative assessee - Whether a trust settled outside India (a Foreign Trust) and a foreign trustee are capable of being treated as a trust and trustee for the purposes of Sections 160, 161 and related provisions of the Income tax Act. - HELD THAT: - The Act does not expressly confine Sections 60-64 or Sections 160-166 to trusts settled in India. The Income tax return forms themselves require disclosure of foreign trusts, indicating that foreign trusts are contemplated by the statute. Judicial precedent has treated certain foreign trusts as within the ambit of the Act. Section 160(1)(iv) and Section 161 operate to make trustees assessable in a representative capacity and to subject them to liabilities in the same manner and to the same extent as the beneficiary; there is no statutory bar that a trustee must be resident in India to be a representative assessee. The AAR's conclusion that foreign trust/trustee cannot be so treated because India has not ratified the Hague Trust Convention or because there is no India Jersey treaty is unsustainable. [Paras 26, 29, 31, 32]

A Foreign Trust and a foreign trustee can be treated as a trust and trustee for the purposes of the Act; trustee may be assessable in a representative capacity under Sections 160 and 161 as envisaged by the statute.

Application of double taxation avoidance agreement (India UAE DTAA) over domestic law - revocable transfer of assets chargeable as income of transferor - Whether ADIA, being a UAE resident covered by Article 24 of the India UAE DTAA, is entitled to treaty relief in respect of income arising from investments made by the Trust. - HELD THAT: - If income arising to the Trust is chargeable as the income of ADIA by virtue of Sections 61 and 63 (or, alternatively, if the trustee is assessable in a representative capacity so that the tax consequences are the same as those of the sole beneficiary), then ADIA is entitled to the benefit of Article 24 of the India UAE DTAA which exempts income of the Government/institutions (including ADIA) derived from the other Contracting State. Section 90(2) requires that where a treaty is more beneficial it should apply. The AAR erroneously declined treaty relief on the premise that the income accrued to the Trust and not to ADIA; the Court held that treating the substance in accordance with Sections 61/63 or Sections 160/161 engages the treaty benefit for ADIA. [Paras 15, 31, 32, 33]

ADIA is entitled to the benefit of Article 24 of the India UAE DTAA in respect of the income arising from the investments, as that income is chargeable to ADIA under Sections 61/63 or is ultimately the income of ADIA through representative assessment.

Piercing or lifting the corporate/arrangement veil - Whether the AAR was justified in refusing to apply Sections 61/63 on the basis that the trust structure was a device or that the settlor's routing of investments through the trust indicated tax avoidance warranting denial of treaty benefit. - HELD THAT: - The material shows commercial and administrative reasons for using Jersey and the Trust; there was no finding of tax avoidance or sham in the operative sense. Section 61 applies to revocable transfers on their terms; AAR's speculation about why ADIA did not invest directly or its reference to a later proposed amendment to the Act are not valid bases to deny the statutory and treaty entitlements. Reliance by AAR on a proposed amendment (post hearing) without giving ADIA opportunity to comment was improper. [Paras 28, 30, 33]

AAR's refusal to apply Sections 61/63 on the premise of device/tax avoidance or its reliance on a subsequent proposed amendment was unsound; no piercing of the arrangement was warranted on the facts.

Settlor as sole beneficiary - recognition of foreign trust for income tax purposes - Whether the fact that the settlor is also the sole beneficiary invalidates the trust for the purposes of the Act or disentitles ADIA to statutory/treaty treatment. - HELD THAT: - Neither the Income tax Act nor the Indian Trust Act prohibit the settlor being a beneficiary. Authorities permit a settlor to be a sole beneficiary where the trustee is distinct from the settlor; the trustee in this case is ETL. The AAR's conclusion that a settlor cannot be sole beneficiary misunderstands the law and is contrary to precedent. [Paras 27, 33]

The settlor being the sole beneficiary does not in itself negate the trust or disentitle ADIA to the statutory or treaty consequences.

Final Conclusion: The AAR ruling dated 18 March 2020 is quashed. The Court held that the contribution to the Jersey trust was a revocable transfer (or, alternatively, taxable in representative terms), and therefore the income arising on the investments is chargeable as ADIA's income and, being covered by Article 24 of the India UAE DTAA, is not taxable in India; consequential steps under the impugned ruling are set aside. Petitions disposed of with no order as to costs.

Quashing of assessment order under Section 263 of the Income Tax Act - carryover of additional depreciation under Section 32(1)(iia) of the Income Tax Act - interpretation of proviso limiting additional depreciation when asset is used for less than 180 days - clarificatory amendment and retrospective application of tax provision - beneficial construction of taxation statute

Quashing of assessment order under Section 263 of the Income Tax Act - Validity of ITAT's quashing of the order passed under Section 263 in respect of Assessment Year 2010-2011. - HELD THAT: - The High Court reviewed the ITAT's decision setting aside the order under Section 263 and concluded that the Tribunal did not commit perversity or apply incorrect principles of law. The Tribunal's examination of the facts and legal test was found to be correct on the material before it; consequently the High Court saw no substantial question of law warranting interference with the ITAT's order. The court therefore declined to interfere with the Tribunal's quashing of the Section 263 order.

ITAT's quashing of the Section 263 order is upheld; no substantial question of law arises and the appeal on this ground fails.

Carryover of additional depreciation under Section 32(1)(iia) of the Income Tax Act - interpretation of proviso limiting additional depreciation when asset is used for less than 180 days - clarificatory amendment and retrospective application of tax provision - beneficial construction of taxation statute - Whether the balance additional depreciation (restricted to 50% in year of acquisition where plant/machinery was used for less than 180 days) may be claimed in the succeeding assessment year. - HELD THAT: - The Court followed the view of the Karnataka High Court in Rittal India and its own earlier unreported decision in Godrej Industries, as well as the Madras High Court's reasoning in T. P. Textiles, that the unamended language of clause (iia) read with the proviso allows claim of the remaining additional depreciation in the subsequent year. The legislative insertion of a third proviso clarifying allowance of the balance in the immediately succeeding year reinforces that interpretation; the High Court treated that amendment as clarificatory of the pre-existing right rather than purely prospective. Applying the principle that beneficial tax provisions are to be construed liberally to effect their purpose, the Court held that the ITAT correctly allowed carryover of the balance additional depreciation.

Balance additional depreciation restricted in the year of acquisition may be claimed in the succeeding assessment year; ITAT's allowance is sustained.

Final Conclusion: Appeal dismissed; the Tribunal's order quashing the Section 263 order and allowing carryover of the balance additional depreciation was upheld, the Court adopting the view that the proviso and subsequent clarificatory amendment support allowance of the balance in the succeeding assessment year.

Reopening of assessment under Section 147 - notice under Section 148 - information within the meaning of Section 147(b) - opinion of internal audit - reassessments based on audit objections - assessing officer's independent formation of belief

Reopening of assessment under Section 147 - opinion of internal audit - information within the meaning of Section 147(b) - assessing officer's independent formation of belief - Reopening of assessment based on audit objections and the opinion of the internal audit was not a valid basis for issuing notice under Section 148/147. - HELD THAT: - The Court held that the opinion or objection of the internal audit party of the Income-tax Department cannot constitute 'information' under Section 147(b) so as to justify reopening an assessment. Reliance was placed on the principle that the Assessing Officer must himself determine the legal effect of any law or material which comes to his notice and form an independent belief that income has escaped assessment; the audit opinion cannot colour or supply that belief. The Court referred to the settled position that notices of reassessment cannot be issued solely on the basis of audit objections and reiterated that reasons recorded for reopening must reflect the Assessing Officer's own evaluation. Applying these principles to the facts, the Court found no perversity in ITAT's conclusion that the reopening was invalid, since the reopening proceeded essentially from audit objection despite the Assessing Officer having recorded a contrary view in correspondence with the Director of Audit. [Paras 4, 5, 6, 7]

ITAT correctly annulled the reopening of assessment; the reopening based on audit objection/internal audit opinion was invalid.

Final Conclusion: The appeal is dismissed; the High Court concurs with ITAT that reopening the assessment on the basis of audit objections or the internal audit's opinion was not lawful and the reassessment notice under Section 148/147 was therefore invalid.

Show cause notice - right to be heard - failure to consider representations - dependent agent permanent establishment - liability under Section 201(1) and 201(1A) read with Section 195 - remand for fresh consideration

Show cause notice - right to be heard - failure to consider representations - liability under Section 201(1) and 201(1A) read with Section 195 - Validity of the impugned order dated 30th March 2021 in view of non-consideration of certain replies to show cause notices and absence of opportunity to be heard on the dependent-agent/PE contention. - HELD THAT: - The order under challenge held the petitioner liable under the tax provisions referenced, but the record shows the assessing officer's order does not refer to or deal with the petitioner's replies dated 10th March 2021 and 26th March 2021. The assessing officer also relied on the view that the petitioner was a dependent agent within the meaning of the DTAA without having called upon the petitioner in the show cause notice to address that specific contention. A show cause notice is a preliminary step to enable effective response; failure to consider representations and failure to afford an opportunity to meet a substantive case amounted to breach of the audi alteram partem principle. The court therefore declined to adjudicate on merits and quashed the impugned order for want of compliance with the duty to consider replies and to afford a proper hearing. [Paras 5, 7, 8]

Impugned order dated 30th March 2021 quashed and any consequential demand notices set aside; matter remanded for fresh consideration after hearing the petitioner.

Remand for fresh consideration - show cause notice - dependent agent permanent establishment - Procedure to be followed on remand including issuance of fresh show cause notice if necessary and preservation of parties' rights. - HELD THAT: - The court directed the assessing authority to pass fresh orders after hearing the petitioner. If the authority considers it necessary to add or amplify points (including the contention regarding dependent agent/PE), it must issue a fresh show cause notice and afford the petitioner opportunity to respond. The court expressly kept open all rights and contentions of the parties, including the petitioner's right to raise limitation, and required withdrawal of the earlier appeal by the petitioner as undertaken. [Paras 8]

Matter remanded to respondent no.1 to issue fresh show cause notice if required and to decide afresh after hearing; all rights including limitation preserved.

Final Conclusion: The High Court quashed the order dated 30th March 2021 and related demand notices for failure to consider material replies and for not affording an opportunity to meet the dependent-agent/PE contention, remanding the matter for fresh adjudication after hearing the petitioner while leaving all parties' rights, including limitation, open.

Deduction under Section 80P(2)(a)(i) for co-operative societies carrying on banking or providing credit facilities to members - Definition of "member" under the Karnataka Co-operative Societies Act and its bearing on entitlement to Section 80P deduction - Permissibility of loans to nominal or non-member depositors under state co-operative law - Application of the decision in Mavilayi Service Co-operative Bank Ltd. to state law co-operative societies - Remand to Assessing Officer for fresh enquiry to determine the nature of business and membership characterisation

Remand to Assessing Officer for fresh enquiry to determine the nature of business and membership characterisation - Application of the decision in Mavilayi Service Co-operative Bank Ltd. to state law co-operative societies - Whether the impugned tribunal and assessment orders should be set aside and the matter remanded to the Assessing Officer for fresh decision in light of state co-operative law and the Apex Court decision in Mavilayi. - HELD THAT: - The High Court found that the Tribunal had correctly identified factual and legal aspects that required fresh consideration by the Assessing Officer, including the characterisation of members under the Karnataka Co-operative Societies Act and the effect of allowing loans to nominal or non-member depositors. The Court held that the Apex Court judgment in Mavilayi, which construed a state Act definition of "member" and upheld that loans to nominal members could qualify for Section 80P(2)(a)(i), required the Assessing Officer to re-examine the assessment with reference to Sections 2(f) and 60 of the Karnataka Act read with Section 80P(2)(a)(i). In view of these considerations the consequential assessment order could not stand and the matter must be restored to the Assessing Officer for reconsideration; the Court declined to answer the substantial questions of law on the merits. [Paras 12, 14, 15, 16]

Impugned orders dated 31.12.2018 (Tribunal) and 30.12.2019 (Assessing Officer) are set aside and the matter is restored to the file of the Assessing Officer for fresh decision in accordance with law and the observations made, leaving all rights and contentions open.

Definition of "member" under the Karnataka Co-operative Societies Act and its bearing on entitlement to Section 80P deduction - Permissibility of loans to nominal or non-member depositors under state co-operative law - Whether the question of entitlement to deduction under Section 80P(2)(a)(i) as determined by the Assessing Officer is finally adjudicated or requires fresh enquiry and application of state law and precedent. - HELD THAT: - The Court observed that the Assessing Officer's consequential order had concluded that the society transacted with associate/nominal members to an extent that precluded treatment as a society solely providing credit to its members. However, because the Karnataka Act defines "member" to include nominal members and contains provisions permitting loans to depositors, the correctness of disallowing the Section 80P claim calls for reconsideration in light of the Mavilayi decision. Accordingly, the issue of entitlement to the deduction was not finally decided on merits by this Court; it is remanded to the Assessing Officer to re-evaluate the claim applying Sections 2(f) and 60 of the Karnataka Act vis-a -vis Section 80P(2)(a)(i) and the Apex Court's reasoning. [Paras 11, 13, 14, 15]

Entitlement to deduction under Section 80P(2)(a)(i) is remanded for fresh examination by the Assessing Officer in the light of the Karnataka Co-operative Societies Act and the Mavilayi judgment; no final adjudication on merits is made by this Court.

Final Conclusion: The appeal is allowed in part: the Tribunal's order and the Assessing Officer's consequential assessment order for AY 2013-14 are set aside and the matter is restored to the Assessing Officer to re-do the assessment expeditiously, reconsidering entitlement to deduction under Section 80P(2)(a)(i) with reference to Sections 2(f) and 60 of the Karnataka Co-operative Societies Act and the Apex Court decision in Mavilayi; all rights and contentions are left open.

Consideration of fresh evidence before the Tribunal without remand - competence of the Tribunal as last fact-finding authority - perversity standard in appellate review of factual findings - obligation to seek remand for verification of newly produced documents

Consideration of fresh evidence before the Tribunal without remand - obligation to seek remand for verification of newly produced documents - Whether the Tribunal was justified in considering material placed before it for the first time without remanding the matter to the Assessing Officer for verification. - HELD THAT: - The High Court found that the materials relied upon before the Tribunal were not entirely novel to the assessing authority since the assessee had furnished clarifications in rectification proceedings under Section 154 before the Assessing Officer, which were disposed of. Given that the relevant entries and breakup figures appeared in the assessee's P&L and ledger accounts and were available in the record, the Tribunal was entitled to examine those materials and reach its own factual conclusion. The Court held that where the material is before the Tribunal and the Tribunal, as the final fact-finding authority, considers the documents and evidence, there is no absolute obligation to remit the matter for verification unless perversity or other exceptional circumstances are shown. The Tribunal's exercise of fact-finding jurisdiction in examining the breakup figures and clarifications was therefore upheld. [Paras 9]

The Tribunal was justified in examining the material produced before it without remanding the matter to the Assessing Officer.

Competence of the Tribunal as last fact-finding authority - perversity standard in appellate review of factual findings - Whether the Tribunal's factual finding allowing the assessee's claim was perverse and therefore susceptible to interference in an appeal under Section 260A. - HELD THAT: - The Court reiterated the settled principle that findings of fact recorded by the Tribunal, being the last fact-finding authority, cannot be interfered with unless shown to be perverse. The Tribunal had considered the breakup in the P&L account and ledger entries showing reimbursements credited against expenses and recorded specific findings (as reflected in the Tribunal's paragraphs 10.5 and 12.1) accepting the assessee's position. The High Court found no perversity in those findings and noted precedent that absent a demonstration of perversity in fact-finding, no substantial question of law arises under Section 260A. Consequently, the Tribunal's allowance of the assessee's appeal on these factual aspects was sustained. [Paras 10, 11]

The Tribunal's factual findings are not perverse and do not warrant interference under Section 260A.

Final Conclusion: The Revenue's appeal is dismissed. The High Court upholds the Tribunal's exercise of fact-finding jurisdiction in considering the assessee's material and finds no perversity in the Tribunal's conclusions, so no substantial question of law arises under Section 260A in respect of Assessment Year 2014-15.

Deduction under Section 57(iii) of the Income Tax Act - nexus between expenditure and borrowed funds - failure to produce annexure and schedule referred to in lease/hire agreements - remand for production of documents and fresh consideration by Assessing Officer

Deduction under Section 57(iii) of the Income Tax Act - nexus between expenditure and borrowed funds - failure to produce annexure and schedule referred to in lease/hire agreements - remand for production of documents and fresh consideration by Assessing Officer - Claim for deduction under Section 57(iii) of the Act in respect of interest paid to the bank remitted for fresh consideration due to non-production of annexure/schedule - HELD THAT: - The Tribunal and the lower authorities denied the deduction because the annexure (Annexure A) and Schedule I specifically referred to in the agreements of 05.12.2007 and 21.05.2008 were not produced and, in the absence of those documents, the assessee failed to establish the nexus between the expenditure and the borrowed funds. The High Court found that the documents referred to in the agreements were relevant to the claim and that the Tribunal dismissed the appeal solely on that ground. The Court did not decide the substantive entitlement to deduction on merits; instead, having regard to the absence of the Annexure/Schedule and the request by the assessee to furnish them, the Court considered that granting one further opportunity to produce the materials would not prejudice the Revenue. Consequently, the Court set aside the Tribunal's order and remanded the matter to the Assessing Officer with liberty to the assessee to place Annexure A and Schedule I in support of the claim, directing the Assessing Officer to consider the materials and pass appropriate orders in accordance with law without answering the substantial question of law raised in the appeal. [Paras 11, 12, 13]

Order of the Tribunal set aside and matter remanded to the Assessing Officer for reconsideration after allowing the assessee to produce the Annexure and Schedule referred to in the agreements; all rights and contentions kept open.

Final Conclusion: Appeal allowed in part; impugned Tribunal order set aside and matter remanded to the Assessing Officer for reconsideration after giving the assessee opportunity to produce the Annexure/Schedule referred to in the agreements, with liberty to all parties to place their contentions; substantive question of law left open.

Allowability of deduction for delayed deposit of employees' contributions to PF/ESI and interplay of section 36(1)(va) with section 43B - precedential effect of coordinate bench decision and application of conflicting judgments principle favouring the assessee

Allowability of deduction for delayed deposit of employees' contributions to PF/ESI and interplay of section 36(1)(va) with section 43B - precedential effect of coordinate bench decision and application of conflicting judgments principle favouring the assessee - Deletion of disallowance made under section 36(1)(va) for delayed deposit of employees' PF/ESI contributions where such amounts were deposited with authorities before filing the return of income. - HELD THAT: - The Tribunal noted that it was an undisputed fact that employees' contributions, though deposited late under the statutory due dates, were deposited with the appropriate authorities before the filing of the return. The Bench followed the decision of the Coordinate Bench in DCIT vs. Dee Development Engineers Ltd., which, after considering Delhi High Court authorities, applied the principle that where conflicting judicial views exist the decision favourable to the assessee applies and held in similar facts that no disallowance under section 36(1)(va) was warranted when payment was made before filing the return. Revenue placed no material to show that the Coordinate Bench decision had been stayed, set aside or overruled by a higher forum. For like reasons the Tribunal held that the addition on account of delayed deposit of PF/ESI required deletion. [Paras 8, 10]

Addition under section 36(1)(va) deleted and the appeals allowed for the years under consideration.

Final Conclusion: Following the Coordinate Bench precedent and on the facts that employees' contributions were deposited before filing the returns, the Tribunal deleted the disallowance under section 36(1)(va) and allowed the appeals for A.Y. 2017-18 and A.Y. 2018-19.

Rejection of books of account under section 145(3) - estimation of income by applying an estimated gross profit rate - taxation of excess profit as income from other sources - eligibility for deduction under section 80IC and impact of estimation on such deduction

Rejection of books of account under section 145(3) - Validity of the Ld. CIT(A)'s rejection of the assessee's books of account and invocation of section 145(3). - HELD THAT: - The Tribunal examined the Ld. CIT(A)'s detailed enquiry into discrepancies in the assessee's financials, including comparative charts of profits of the assessee and related concerns operating in the same area. The Ld. CIT(A)'s conclusions that the books could not be relied upon were found to be supported by relevant materials and uncontroverted by the assessee's representative before the Tribunal. On this basis the Tribunal held that the rejection of the books and invocation of section 145(3) was not perverse and did not call for interference. [Paras 5]

The rejection of books of account under section 145(3) was upheld.

Estimation of income by applying an estimated gross profit rate - taxation of excess profit as income from other sources - Correctness of the Ld. CIT(A)'s estimation of gross profit rate (applied by the authorities) and classification/ taxation of the difference as income from other sources. - HELD THAT: - The Tribunal reviewed the Ld. CIT(A)'s estimation methodology and the material relied upon to derive the estimated gross profit rate (as applied by the Ld. CIT(A) and affirmed in earlier Tribunal order), noting that the estimation was based on comparative profit levels and other relevant data. The Tribunal found the estimated gross profit rate to be reasonable in the facts and circumstances and not liable to be set aside as perverse. Consequently, charging the difference between the assessee's disclosed gross profit rate and the estimated rate as income from other sources was sustained. [Paras 5]

The estimation of gross profit rate and the consequent taxation of the difference as income from other sources were sustained.

Eligibility for deduction under section 80IC and impact of estimation on such deduction - Whether the assessee's entitlement to deduction under section 80IC (existing since AY 2007-08) was negated by the estimation or otherwise required interference. - HELD THAT: - The Tribunal noted that the assessee had been an eligible unit for deduction under section 80IC since AY 2007-08 and that the Ld. CIT(A) had given partial relief to the assessee while estimating income. Having upheld the rejection of books and the reasonableness of the estimation, the Tribunal found no infirmity in the Ld. CIT(A)'s approach insofar as it affected the deduction claim and saw no basis to interfere further. [Paras 5]

The Ld. CIT(A)'s partial relief to the assessee and treatment of the section 80IC claim, in light of the estimation, were upheld.

Final Conclusion: The Tribunal dismissed all revenue appeals for AY 2013-14, AY 2014-15 and AY 2015-16, upholding the Ld. CIT(A)'s rejection of the books under section 145(3), the estimated gross profit rate and the consequent taxation, and sustaining the partial relief afforded to the assessee.

Rate of depreciation for computer and computer software under Rule 5 of the IT Rules, 1962 - Computer software as tangible asset / integrated part of computer eligible for higher depreciation - Distinction between copyrighted article and copyright for characterisation as royalty - Payment for purchase of copyrighted article not taxable as royalty under the proviso to section 9(1)(vii) - Obligation to deduct tax at source under section 195 and disallowance under section 40(a)(i) for non-deduction

Rate of depreciation for computer and computer software under Rule 5 of the IT Rules, 1962 - Computer software as tangible asset / integrated part of computer eligible for higher depreciation - Whether depreciation on the software purchased is allowable at 60% under Rule 5 (as computer and computer software) or restricted to 25% as an intangible (license/patent). - HELD THAT: - The Tribunal examined the nature of the software acquired (Windows, MS Office, Solaris and other operating systems) and the rates prescribed in Appendix I to the IT Rules, 1962. Appendix I and Rule 5 treat "computer software" (including programmes recorded on any storage device) as an asset eligible for depreciation at the higher rate of 60%. The Tribunal held that the software purchased is embedded in and forms an integrated part of the computer system and therefore qualifies as computer software under Rule 5. The AO and the CIT(A) were therefore incorrect to characterise the acquisition as a license/intangible eligible only for depreciation at 25%. The assessee's claim for depreciation at 60% was accepted and the AO was directed to allow depreciation accordingly. [Paras 8]

Depreciation on the software is allowable at 60% under Rule 5 and the additions disallowing excess depreciation are deleted.

Distinction between copyrighted article and copyright for characterisation as royalty - Payment for purchase of copyrighted article not taxable as royalty under the proviso to section 9(1)(vii) - Obligation to deduct tax at source under section 195 and disallowance under section 40(a)(i) for non-deduction - Whether payment to a non-resident for purchase of software (a copyrighted article) is in the nature of royalty taxable in India and liable to deduction of tax at source under section 195, failure of which attracts disallowance under section 40(a)(i). - HELD THAT: - The Tribunal noted that the assessee acquired a copyrighted article (copy of software) from a non-resident and did not acquire the copyright itself. The proviso to section 9(1)(vii) applies to payments for acquiring copyright (i.e., copyright as such), and does not extend to payments for copyrighted articles. The decision relied upon by the AO was examined against consistent judicial authorities (including High Court and Supreme Court precedents cited in the order) which held that consideration for acquisition/resale/use of computer software by end users/distributors under EULAs/distribution agreements is not a payment of royalty for the use of copyright. Applying that principle, the Tribunal concluded that the payments in question are outside the scope of "royalty" and therefore not taxable in India as such; consequently there was no obligation to deduct tax under section 195 and the disallowance under section 40(a)(i) could not be sustained. [Paras 13]

Payment to the non-resident for purchase of the software is not in the nature of royalty; no TDS under section 195 was required and the disallowance under section 40(a)(i) is deleted.

Final Conclusion: The appeal is allowed: depreciation on the acquired software is held allowable at 60% under Rule 5 and the addition for non deduction of TDS (treatment of payment as royalty and consequent disallowance under section 40(a)(i)) is deleted.

Allowability of rental expenses as business expenditure - crystallisation of liability - mercantile system of accounting versus actual payment - genuineness of expenditure - renewal/extension of lease and consequential liability

Allowability of rental expenses as business expenditure - crystallisation of liability - mercantile system of accounting versus actual payment - renewal/extension of lease and consequential liability - genuineness of expenditure - The disallowance of rental and interest payments of Rs. 13,11,244/- was not justified and the claim by the assessee is allowable. - HELD THAT: - The Assessing Officer disallowed the aggregate amount on the ground that it related to earlier years and, applying mercantile accounting, was not allowable. The material on record, however, shows that the assessee paid rent and delayed interest on 29.8.2009 and that the District Collector by order dated 8.9.2009 renewed the lease for a further period of 15 years. The amount comprises lease rent and interest pertaining to the period 2003-2008 but the liability was crystallised and determinable in the financial year relevant to the assessment year under consideration. The Tribunal found no infirmity in the genuineness of the expenditure and held that the Assessing Officer failed to consider the decisive fact of crystallisation of liability during the year under consideration; accordingly the disallowance could not be sustained and the claim must be allowed. [Paras 6, 7]

Disallowance set aside; assessee's claim of Rs. 13,11,244/- allowed.

Final Conclusion: The appeal is allowed: the rental and related interest payments that were crystallised during the year relevant to A.Y. 2010-11 are deductible as business expenditure and the addition made by the Assessing Officer is vacated.

Allowability of expenditure where employer deposits employees' contributions before filing return despite statutory delay - disallowance under Section 36(1)(va) for delayed deposit of employees' contribution to EPF/ESI - precedential application of a co-ordinate Bench of the Tribunal - effect of conflicting High Court decisions and application of the view favourable to the assessee

Allowability of expenditure where employer deposits employees' contributions before filing return despite statutory delay - disallowance under Section 36(1)(va) for delayed deposit of employees' contribution to EPF/ESI - precedential application of a co-ordinate Bench of the Tribunal - Addition under Section 36(1)(va) made for delayed deposit of employees' EPF/ESI contributions is not sustainable where the employees' contributions collected were deposited with the appropriate authorities before the filing of the return of income. - HELD THAT: - The Tribunal examined whether delayed statutory deposit of employees' contributions mandated disallowance under Section 36(1)(va) notwithstanding that amounts collected from employees were deposited with authorities before the return was filed. The Bench followed a coordinate Bench decision in DCIT vs. Dee Development Engineers Ltd., which, after considering competing High Court precedents including the decisions relied upon by the parties, applied the principle that when two judicial views conflict the view favourable to the assessee applies. The coordinate Bench held that the legislative intent is to allow the expenditure when payment is actually made and that belated deposit, where it is made prior to filing the return, does not attract treatment as deemed income under Section 2(24)(x) nor justify disallowance under Section 36(1)(va). No material was placed before the Bench to show that the coordinate Bench decision relied upon had been stayed, set aside or overruled by a higher forum. For these reasons the Tribunal held that the addition required deletion. [Paras 6, 7]

Addition under Section 36(1)(va) deleted and the assessee's ground is allowed.

Final Conclusion: The appeal is allowed; the addition made for delayed deposit of employees' EPF/ESI contributions is deleted following the view of a co-ordinate Bench that where the contributions collected were deposited before filing the return, no disallowance under Section 36(1)(va) is called for.

Overriding effect of Insolvency and Bankruptcy Code - binding nature of resolution plan under section 31 of the Insolvency and Bankruptcy Code - extinguishment of pre-acquisition tax liabilities - termination of pending assessments and proceedings by NCLT order

Overriding effect of Insolvency and Bankruptcy Code - binding nature of resolution plan under section 31 of the Insolvency and Bankruptcy Code - extinguishment of pre-acquisition tax liabilities - termination of pending assessments and proceedings by NCLT order - Effect of the NCLT order approving the resolution plan dated 12.02.2018 on income-tax proceedings (including the present appeal) relating to periods prior to acquisition of control by the resolution applicant for A.Y. 2010-11 - HELD THAT: - The Tribunal applied the statutory scheme and Supreme Court decisions to conclude that the Insolvency and Bankruptcy Code has overriding effect over inconsistent provisions of other laws, and that a resolution plan approved by the adjudicating authority under section 31 is binding on all stakeholders. In light of these principles and the specific NCLT order in the assessee's case which declares that all dues under the Income Tax Act in relation to periods prior to acquisition of control are extinguished and that pending assessments or proceedings in respect of such periods shall stand terminated, the Tribunal held that the NCLT order extinguishes the company's tax liabilities for the prior period and terminates antecedent proceedings. Because the present appeal concerns A.Y. 2010-11 (a period prior to acquisition of control), the Tribunal treated the implications of the NCLT order as determinative of the tax liability question and directed restoration of the case to the Assessing Officer for action in accordance with law, effectively disposing the appeal in the light of the NCLT order and applicable precedents. The Tribunal proceeded ex parte against the Revenue after noting lack of responsive material from the Department and absence of action by the Assessing Officer despite service of the NCLT order. [Paras 11, 12, 13]

All tax dues and proceedings in respect of periods prior to acquisition of control, including A.Y. 2010-11, stand extinguished as per the NCLT order; the appeal is accordingly disposed and the matter is restored to the Assessing Officer for necessary action in accordance with law.

Final Conclusion: The Tribunal held that the NCLT order approving the resolution plan (12.02.2018) extinguishes pre-acquisition income-tax liabilities and terminates pending proceedings for the prior period including A.Y. 2010-11; the appeal is treated as allowed for statistical purposes and the case is restored to the Assessing Officer for action in accordance with law.

Entitlement to interest on refunds - Section 244A of the Income tax Act - Refunds determined by the Settlement Commission - Delay in grant of refund by revenue and compensatory interest - Interpretation of 'any amount due' - Functus officio of the Settlement Commission

Entitlement to interest on refunds - Section 244A of the Income tax Act - Refunds determined by the Settlement Commission - Delay in grant of refund by revenue and compensatory interest - Interpretation of 'any amount due' - Assessee entitled to interest under section 244A on refunds determined by the Settlement Commission but paid late by the department - HELD THAT: - The Settlement Commission's order under section 245D(4) fixed the quantum of refund due to the assessee; that determined refund constitutes 'any amount due' within the meaning of section 244A. The Commission's observation that it did not deal with interest liability after March 2008 only reflects that it became functus officio thereafter and does not disentitle the assessee from statutory interest. Where the revenue retains a refund determined by the Settlement Commission and grants it after an undue delay, the assessee is entitled to interest under section 244A for the period of delay. The suggestion that the phrase 'any amount due' excludes interest (and that allowing interest would amount to 'interest on interest') is contrary to precedent of the Supreme Court which has held that the interest component partakes the character of 'amount due' and that retention of money by the revenue attracts compensatory interest. Administrative instructions and circulars of the CBDT reinforce that interest under section 244A should be granted simultaneously with grant of refund and that appeals on this ground should not be pressed. Applying these principles, the Tribunal directed grant of interest from 14.7.2009 until the date of payment for the assessment years under consideration. [Paras 4]

Interest under section 244A is payable on the refunds determined by the Settlement Commission for the relevant assessment years for the period of delay; AO directed to grant interest from 14.7.2009 until date of grant of refund.

Final Conclusion: Appeals allowed; Assessing Officer directed to grant interest under section 244A on the refunds determined by the Settlement Commission for AYs 1994 95 to 1997 98 from 14.7.2009 till the date of payment.

Provisional attachment under section 110(5) of the Customs Act, 1962 - validity period of provisional attachment - operation of law upon expiry of statutory period - lifting of provisional attachment and restoration of bank account operation - continuation of criminal or civil proceedings subject to law

Provisional attachment under section 110(5) of the Customs Act, 1962 - validity period of provisional attachment - operation of law upon expiry of statutory period - lifting of provisional attachment and restoration of bank account operation - Whether the provisional attachment of the petitioner's bank account remained valid after the maximum statutory duration and whether the bank should be informed to restore operation of the account. - HELD THAT: - The Court noted that an order of provisional attachment made under section 110(5) initially remains in force for six months and, by the proviso, may be extended for a further period not exceeding six months, so that the maximum statutory life of such an order is one year. Having found that the one year period has expired, the Court held that the provisional attachment has, by operation of law, ceased to be operative. In consequence the Joint Commissioner of Customs was directed to communicate immediately to the petitioner's banker that the attachment's validity has ceased and that the petitioner is entitled to operate the relevant bank account; such communication was directed to be made as early as possible and in any event within seven days from the date of the order. The Court allowed the writ petition on that basis while expressly preserving the respondents' right to proceed against the petitioner for any violation of law in accordance with law. [Paras 2, 4, 5, 6]

Provisional attachment ceased by operation of law on expiry of the maximum one year period; Joint Commissioner to inform the banker within seven days and the petitioner's bank account to be restored; writ petition allowed, without costs, subject to respondents' right to proceed in accordance with law.

Final Conclusion: The writ petition is allowed: the provisional attachment of the petitioner's bank account has ceased by operation of law on expiry of the maximum statutory duration and the authority is directed to notify the banker within seven days to restore operation of the account; respondents remain free to take lawful action thereafter.

Jurisdiction to issue show cause notice - authority not a proper officer within the meaning of Section 28(4) read with Section 2(34) of the Customs Act, 1962 - show cause notice totally non est for want of jurisdiction - entertainment of writ under Article 226 where proceedings wholly without jurisdiction - alternative remedy not a bar where proceedings wholly without jurisdiction

Authority not a proper officer within the meaning of Section 28(4) read with Section 2(34) of the Customs Act, 1962 - show cause notice totally non est for want of jurisdiction - set aside of proceedings initiated by improper officer - Validity of the show cause notice issued by the Joint Director, DRI, Mumbai (respondent No.2) under Section 28 read with Section 124 of the Customs Act, 1962. - HELD THAT: - The Court applied the binding Supreme Court precedent in M/s. Canon India Private Limited and the subsequent decision in Commissioner of Customs, Kandla which hold that a DRI officer who is not a 'proper officer' as defined under Section 28(4) read with Section 2(34) lacks jurisdiction to issue show-cause notices under the Customs Act. On that basis the impugned proceedings initiated by the Joint Director, DRI, Mumbai were found to be without authority of law. The Court therefore held that the show-cause notice, the order-in-original and the order-in-appeal founded upon that notice are invalid and liable to be set aside. The Court expressly observed that this conclusion does not preclude the competent authority from proceeding in accordance with law, i.e., by action taken by a competent/proper officer. [Paras 10, 11, 12, 15, 16]

The show cause notice issued by respondent No.2 and the consequent adjudication and appellate orders were set aside as being wholly without jurisdiction.

Entertainment of writ under Article 226 where proceedings wholly without jurisdiction - alternative remedy not a bar where proceedings wholly without jurisdiction - jurisdiction to invoke writ jurisdiction despite alternate statutory remedy - Whether the writ petition under Article 226 is maintainable despite the availability of alternate statutory remedies under the Customs Act. - HELD THAT: - Addressing the respondents' contention on alternate remedy, the Court relied on settled principles (including Whirlpool) that an alternative remedy does not preclude constitutional relief when the proceedings are wholly without jurisdiction. Having found the show-cause proceedings to be non est for want of jurisdiction, the Court held that the existence of a statutory appeal did not bar the High Court from exercising writ jurisdiction. The Court also referred to earlier orders of this Court which recognise that writ petitions challenging show-cause notices may be entertained where the issuing authority lacks inherent jurisdiction. [Paras 8, 9, 13, 14, 15]

The writ petition was maintainable and entertained despite the availability of alternate remedies; the plea of alternate remedy was rejected.

Final Conclusion: Writ petition allowed. The show-cause notice issued by the Joint Director, DRI, and the consequent adjudication and appellate orders are set aside for want of jurisdiction; petition disposed of with no order as to costs, without preventing competent authority from proceeding correctly in accordance with law.

Power of relaxation under Clause 14 of the Plant Quarantine (Regulation of Import into India) Order, 2003 - one-time exception by Officer in-charge of Plant Quarantine Station - second or subsequent relaxation to be considered by Joint Secretary (Plant Protection) - requirement of recording reasoning and opportunity of hearing before refusal - remand for fresh consideration on factual enquiry as to prior relaxation

Power of relaxation under Clause 14 of the Plant Quarantine (Regulation of Import into India) Order, 2003 - one-time exception by Officer in-charge of Plant Quarantine Station - second or subsequent relaxation to be considered by Joint Secretary (Plant Protection) - Interpretation of Clause 14 regarding which authority may grant relaxation for waiver of import permit or phytosanitary certificate and the statutory scheme for one-time and subsequent relaxations. - HELD THAT: - The Court construed Clause 14 to mean that the Central Government may relax conditions in public interest and that the Joint Secretary in-charge of Plant Protection is the competent authority. The provision delegates power to officers in charge of Plant Quarantine Stations to grant a one-time exception in favour of a single party, but expressly requires that all second or subsequent cases of violation by any party be forwarded to the Joint Secretary (Plant Protection). Thus the Officer in-charge may grant only a one-time relaxation; further relaxations must be considered by the Joint Secretary. [Paras 15, 16, 17, 18]

Clause 14 permits the Officer in-charge of the Plant Quarantine Station to grant a one-time relaxation; all second or subsequent relaxation requests must be forwarded to and decided by the Joint Secretary (Plant Protection).

Requirement of recording reasoning and opportunity of hearing before refusal - remand for fresh consideration on factual enquiry as to prior relaxation - Validity of the impugned order refusing relaxation on the ground that the petitioner had already availed maximum relaxations, and appropriate course of action. - HELD THAT: - The Court found that the third respondent's order rejecting the petitioner's request relied solely on a stated reason that the petitioner had already availed relaxation, without evident application of mind, recording of reasons, or providing opportunity to the petitioner to contest that factual premise. The Court held that whether the petitioner had previously sought or obtained any relaxation is a factual question which the Officer must verify. If no prior relaxation is shown, the Officer may consider granting the one-time relaxation under Clause 14; if records show prior relaxation, the Officer must forward the matter to the Joint Secretary (Plant Protection) for decision on a second or subsequent relaxation. Accordingly, the impugned order was set aside and the matter remitted for reconsideration after hearing and factual enquiry. [Paras 19, 20, 21, 22, 23]

Impugned order set aside; matter remitted to the third respondent to verify whether any earlier relaxation was availed, to give the petitioner an opportunity of being heard, and thereafter either grant the one-time relaxation or forward the request to the Joint Secretary (Plant Protection) as required by Clause 14.

Final Conclusion: The Court set aside the impugned order and remitted the matter to the third respondent for fresh consideration: verify the factual question of any prior relaxation, afford the petitioner an opportunity to be heard, and thereafter either grant the one-time relaxation under Clause 14 or forward the request to the Joint Secretary (Plant Protection) for decision on second or subsequent relaxation; compliance directed within four weeks.

Option to pay fine in lieu of confiscation - Absolute confiscation - Mandatory offer of redemption where goods are not prohibited - Confiscation for undeclared goods - Burden to establish source/ownership of seized goods - Remand for verification and fresh adjudication

Option to pay fine in lieu of confiscation - Mandatory offer of redemption where goods are not prohibited - Burden to establish source/ownership of seized goods - Whether absolute confiscation and penalty could be sustained without first offering the appellant the statutory option of redemption and without affording an opportunity to establish ownership/source of the seized gold - HELD THAT: - The adjudicating authority confiscated the gold absolutely and imposed penalty after recording that the appellant was not the owner and the gold was not declared. Section 125 (as amended) requires that, in respect of goods which are not prohibited, the person from whose possession goods were seized must be given an option to pay a fine in lieu of confiscation. Treating the gold as a prohibited item and denying the redemption option rendered the order arbitrary. The appellate order relied on the courts' decisions upholding confiscation where the owner could not explain the source; however, those decisions are not a bar to a legitimate owner establishing source. The Tribunal found that the Order-in-Original did not reflect any prior opportunity given to the appellant to establish the source or ownership, that a document produced before the Tribunal was objected to as not having been placed before the lower authorities and being an afterthought, and that the proper course is to permit the adjudicating authority to offer the redemption option and then examine any explanation or evidence of source/ownership in the light of relevant precedent. For these reasons the Tribunal set aside the impugned order and remitted the matter to the adjudicating authority to first offer the redemption option under Section 125, allow the appellant to attempt to establish source/ownership, and then pass a fresh reasoned order considering the Kerala High Court/Apex Court decisions in Om Prakash Khatri as applicable. [Paras 5, 6]

Impugned order set aside and matter remitted to the adjudicating authority to offer redemption under Section 125, permit the appellant to establish source/ownership, and pass a fresh order thereafter.

Final Conclusion: The appeal is allowed by way of remand: the order of absolute confiscation and penalty is set aside and the matter is restored to the adjudicating authority to offer the statutory option of redemption, examine any explanation/evidence of source or ownership, and pass a fresh reasoned order in accordance with the law and relevant precedents.

Amendment under Section 154 of the Customs Act - correction of clerical or inadvertent errors in Bill of Entry - re-assessment by exercise of power under Section 17(4) of the Customs Act - refund claim governed by modification of assessment/self-assessment - obligation to seek modification of assessment before claiming refund

Refund claim governed by modification of assessment/self-assessment - obligation to seek modification of assessment before claiming refund - Whether the refund sanctioned by the adjudicating authority could stand when the underlying assessment/self-assessment had not been modified in accordance with law - HELD THAT: - The Tribunal accepted the binding ratio of the Hon'ble Supreme Court in ITC Ltd., which holds that a claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to appropriate proceedings. The Tribunal noted that the Commissioner (Appeals) had already examined and allowed the appellant's contention that the excess duty payment arose from an inadvertent error and that amendment under Section 154 is the appropriate remedy leading to consequential re-assessment. That speaking order became final and the Revenue failed to challenge it in time; consequently the Revenue could not object to orders passed giving effect to that final appellate direction. The Tribunal therefore found the impugned Order-in-Appeal (which had set aside the refund sanction) unsustainable in view of the prior final appellate adjudication and the Supreme Court dictum that refund follows modification of assessment. [Paras 6, 7, 10]

The impugned order setting aside the refund sanction is not sustained in view of the binding Supreme Court precedent and the final appellate order which had directed rectification; the Revenue's objections are misplaced as they failed to challenge the Commissioner (Appeals) order when opportunity existed.

Amendment under Section 154 of the Customs Act - correction of clerical or inadvertent errors in Bill of Entry - re-assessment by exercise of power under Section 17(4) of the Customs Act - Whether the appellant's request for amendment/rectification of the Bill of Entry for correction of an inadvertent error was maintainable and what further steps should follow - HELD THAT: - The Tribunal held that the excess duty was paid due to a rectifiable inadvertent mistake and that the appellant's request for amendment of the Bill of Entry fell within the scope of correction under Section 154 read with Section 149. The Tribunal relied on the reasoning in the Bombay High Court decision discussed in the order (Dimension Data) and the jurisdictional High Court authority referred to, which recognise that clerical/inadvertent errors in self-assessed Bills of Entry can be corrected by amendment and that consequential re-assessment under Section 17(4) would then follow. Accordingly, the Tribunal directed that the matter be remanded to the Adjudicating Authority to consider the appellant's request for amendment and thereafter pass an appropriate order under Section 17(4) after verifying genuineness and giving opportunity of hearing, following the directions contained in Paragraph 29 of the Dimension Data decision. [Paras 9, 10, 11]

The appellant's request for amendment/rectification is in order; the matter is remitted to the Adjudicating Authority to act on the amendment request and pass consequential orders under Section 17(4) after due verification and hearing.

Final Conclusion: The appeal is allowed by way of remand: the impugned order is set aside and the matter is remitted to the Adjudicating Authority with directions to consider and allow, if found genuine, the amendment/rectification of the Bill of Entry under Section 154 (read with Section 149) and thereafter pass consequential re-assessment orders under Section 17(4) in accordance with the cited judicial directions.

Admission of company petition under the Insolvency and Bankruptcy Code, 2016 - operational debt and default exceeding the statutory threshold - dispute alleged after demand as an afterthought does not preclude admission under Section 9 - completeness of application under Section 9(3)(b) - moratorium during CIRP and appointment of Interim Resolution Professional

Operational debt and default exceeding the statutory threshold - admission of company petition under the Insolvency and Bankruptcy Code, 2016 - The Petition under section 9 of the IBC is admissible as default of an operational debt due and payable is established and the application is complete. - HELD THAT: - The Adjudicating Authority found on the record that materials were supplied by the Operational Creditor pursuant to purchase orders and that the Corporate Debtor accepted and used the supplies without contemporaneously raising any dispute. The Operational Creditor produced demand notice and invoices and the default was held to be in excess of the statutory minimum. The Authority held that the petition complied with the statutory requirements for initiation of CIRP and that there was no reason to refuse admission on the facts and material placed before it. [Paras 21, 22, 24, 25]

Petition admitted and CIRP initiated against the Corporate Debtor.

Dispute alleged after demand as an afterthought does not preclude admission under Section 9 - completeness of application under Section 9(3)(b) - The objection that a pre existing dispute barred initiation of CIRP was rejected as an afterthought and insufficient to defeat the petition. - HELD THAT: - The Corporate Debtor asserted that excess supplies and other disputes existed; however, the Adjudicating Authority observed that such contentions were raised only after the demand for payment and that the Corporate Debtor had previously accepted the goods, requested further supplies and agreed to release balance payments by email. On this basis the Authority treated the plea of dispute as belated and not a conclusive bar to admission under the statutory framework, and further held the petition to be complete under the requirements of Section 9(3)(b). [Paras 22, 23]

Contention of a pre-existing dispute rejected; petition treated as complete.

Moratorium during CIRP and appointment of Interim Resolution Professional - admission of company petition under the Insolvency and Bankruptcy Code, 2016 - Upon admission, moratorium was declared and an Interim Resolution Professional was appointed to take control of the Corporate Debtor and carry out CIRP functions. - HELD THAT: - Following admission of the petition, the Authority directed the operation of the moratorium provisions in relation to suits, transfers, enforcement of security and recovery of leased property for the duration of the CIRP. The Authority appointed an Interim Resolution Professional to perform the functions and responsibilities specified under the IBC and directed public announcement and related administrative steps necessary to commence the CIRP. [Paras 28, 29, 30, 31, 33]

Moratorium imposed and Interim Resolution Professional appointed; public announcement and statutory steps ordered.

Final Conclusion: The Company Petition under section 9 of the IBC filed by the Operational Creditor was admitted: the Authority found default of an operational debt, rejected the belated dispute pleaded by the Corporate Debtor, declared the moratorium and appointed an Interim Resolution Professional to commence the CIRP.

Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - existence of a pre existing dispute - default in payment of operational debt - appointment of Interim Resolution Professional - declaration of moratorium under Section 14 - role of IRP in verification and quantification of admitted claims

Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - default in payment of operational debt - Application under Section 9 by the Operational Creditor was admitted and CIRP ordered to be initiated against the Corporate Debtor. - HELD THAT: - The Tribunal found that there existed a business relationship and that medicines were supplied by the Operational Creditor to the Corporate Debtor pursuant to purchase orders raised from time to time. The Corporate Debtor did not produce evidence to substantiate its plea of delayed delivery, non acceptance or return of goods, or losses suffered; nor did it effectively rebut the demand notice served under Section 8. On the record before the Tribunal the Corporate Debtor had defaulted in payment of its debts and the application under Section 9 was otherwise defect free. While the Corporate Debtor's counsel conceded a lesser admitted liability, the precise amount was held to be a matter for the IRP to determine during the CIRP. Applying these findings, the Tribunal held that the statutory threshold for admission under Section 9 was satisfied and therefore admitted the petition and ordered initiation of CIRP.

The Section 9 application was admitted and CIRP was ordered to be initiated.

Existence of a pre existing dispute - There was no pre existing dispute between the parties which precluded admission of the Section 9 application. - HELD THAT: - The Corporate Debtor had not replied to the demand notice under Section 8 nor placed on record documentary evidence supporting its assertions of delay, cancellation, return of goods or consequential losses. The Tribunal characterised those contentions as unsubstantiated and thus frivolous or spurious for the purpose of resisting initiation of CIRP. In view of absence of material to demonstrate a bona fide dispute existing prior to receipt of the demand notice, the Tribunal concluded that the pre existing dispute defence did not bar admission.

The plea of a pre existing dispute was rejected and held insufficient to prevent admission.

Role of IRP in verification and quantification of admitted claims - The exact quantum of the debt claimed was left to be verified and determined by the IRP in the course of the CIRP. - HELD THAT: - Although the Operational Creditor claimed a specific aggregate amount including interest, the Tribunal observed that the precise amount of debt would be determined by the Interim Resolution Professional during the CIRP. The Tribunal therefore admitted the Section 9 application despite the dispute over quantum and directed that the IRP undertake verification and computation of claims as part of the CIRP process.

Quantum of debt to be determined by the IRP during CIRP; matter of quantum not finally adjudicated by the Tribunal.

Appointment of Interim Resolution Professional - declaration of moratorium under Section 14 - Mr. Navin Khandelwal was appointed as Interim Resolution Professional and the statutory moratorium was declared with consequential directions. - HELD THAT: - The Operational Creditor proposed and the proposed IRP consented to act. Exercising the powers under the Code, the Tribunal appointed the proposed IRP and directed him to perform functions under the relevant provisions, to make the public announcement and call for claims. The Tribunal declared the moratorium prohibiting institution or continuation of suits, transfer or disposal of assets, enforcement of security interests and recovery of property occupied by the Corporate Debtor, and directed cooperation from the Corporate Debtor's personnel. Directions were also given for payment of a prescribed advance to the IRP and for communication and uploading of the order.

Proposed IRP appointed and moratorium declared with directions for conduct of CIRP.

Final Conclusion: The Tribunal admitted the Section 9 petition, held that there was no pre existing dispute to bar admission, appointed the proposed IRP, declared the moratorium under Section 14 and directed the IRP to verify and quantify the claims in the course of the CIRP; the application CP(IB)/12[MP]2021 was allowed.

Eligibility of resolution applicant under Section 29A - application of Section 240A to MSMEs - participation of promoters/related parties in the corporate insolvency resolution process - maximisation of value and promotion of entrepreneurship under the IBC

Eligibility of resolution applicant under Section 29A - application of Section 240A to MSMEs - participation of promoters/related parties in the corporate insolvency resolution process - Whether Mr. Piyush Periwal is entitled to submit or participate in a resolution plan in the CIRP of National Plywood Industries Ltd. - HELD THAT: - The Tribunal found that the Corporate Debtor is an MSME and noted the NCLAT's corroborating observations permitting an opportunity to MSME promoters to file resolution plans in furtherance of the legislative intent to preserve entrepreneurship. Clauses (c) and (h) of Section 29A-which would otherwise disqualify persons with NPAs or guarantors of invoked guarantees-are rendered inapplicable to resolution applicants in respect of MSME corporate insolvency processes by Section 240A(1). Applying these provisions, the Tribunal held that the disqualifications relied upon by the petitioner do not, on the statutory scheme, operate to bar Mr. Periwal from submitting or participating in a resolution plan for the MSME corporate debtor. The Tribunal therefore found no merit in the petitioner's prayers seeking to restrain him from submitting or participating in any resolution plan. [Paras 33, 34, 36, 37]

IA dismissed; Mr. Piyush Periwal is not prohibited from submitting or participating in the resolution process of National Plywood Industries Ltd.; no costs.

Final Conclusion: The application seeking to restrain the promoter/related party from submitting or participating in the MSME corporate debtor's resolution process was dismissed: the Tribunal held that Section 240A exempts the MSME resolution applicant from certain disqualifications in Section 29A, and accordingly there is no bar on Mr. Periwal's participation.

Refund of unutilised Cenvat credit - eligibility of input service credit - nexus between input service and output service - subscription fee characterised as input service versus mere subscription - technical defect in invoice (absence of service tax registration number) not vitiating credit/refund - refund under Rule 5 of the Cenvat Credit Rules, 2004

Eligibility of input service credit - nexus between input service and output service - refund of unutilised Cenvat credit - Credit/refund in respect of invoices issued by M/s. Host India Events & Marketing (described as Event Management Services). - HELD THAT: - The invoices describe the service as Event Management Services and not as Education and Training or Subscription Fee. The Tribunal's decision in M/s. DBOI Global Services P. Ltd. holding Event Management Services to be eligible input service (upheld by the Bombay High Court) is followed. There is sufficient nexus shown by the invoice description and service tax payment; therefore disallowance by the original authority on the ground of no nexus is unjustified and the appellant is entitled to credit/refund on these invoices. [Paras 12]

Allowed credit/refund in respect of invoices dated 11.03.2015 and 13.03.2015 issued by M/s. Host India Events & Marketing.

Refund of unutilised Cenvat credit - non-production of invoices - Refund claim in respect of invoices issued by M/s. People Craft and M/s. Airtel (invoices not produced by appellant). - HELD THAT: - The appellants did not contest these items and were unable to produce the invoices. The lower authority's rejection of the refund claims in respect of these invoices is therefore maintained. [Paras 13]

Rejection of refund in respect of invoices by M/s. People Craft and M/s. Airtel upheld.

Subscription fee characterised as input service versus mere subscription - eligibility of input service credit - refund of unutilised Cenvat credit - Refund claim in respect of Subscription Fee paid to Export Promotion Council for EOU/SEZ and M/s. Nasscom. - HELD THAT: - The Tribunal's decision in M/s. Alliance Global Services IT India (P) Ltd., which held such membership/association fees eligible as input services, is followed. The Supreme Court authority relied on by the lower authority concerned interpretation of 'inputs' and not 'input services' and was thus inapplicable. On this basis the subscription fees paid to Export Promotion Council for EOU/SEZ and M/s. Nasscom are held to be eligible for credit/refund. [Paras 14]

Allowed credit/refund in respect of invoices dated 20.04.2015 (Export Promotion Council for EOU/SEZ) and 15.05.2015 (M/s. Nasscom).

Subscription fee characterised as input service versus mere subscription - refund of unutilised Cenvat credit - Refund claim in respect of invoices issued by M/s. Beyond Square Solutions (P) Ltd. described as monthly Subscription Fee but asserted by appellant to be for software services. - HELD THAT: - The invoices unambiguously describe the expenses as monthly Subscription Fee, with a constant monthly amount, and the appellants have not produced evidence to demonstrate that the payments were for bespoke software services rather than routine subscription. On the face of the invoices and absence of supporting proof, the Tribunal finds no reason to treat these payments as eligible software service consideration and upholds the rejection. [Paras 15]

Rejection of credit/refund in respect of invoices issued by M/s. Beyond Square Solutions (P) Ltd. upheld.

Technical defect in invoice (absence of service tax registration number) not vitiating credit/refund - eligibility of input service credit - refund of unutilised Cenvat credit - Refund claim in respect of invoices issued by M/s. Crave Infotech and M/s. Dayadimensi India (P) Ltd. where invoices did not indicate service tax registration number of service provider. - HELD THAT: - The omission of the service provider's registration number on the invoice is a technical infraction attributable to the service provider and not the recipient. There is no dispute that service tax was paid and that services were received and used. Applying the reasoning in M/s. Mafatlal Industries Ltd., such technical defects do not justify denial of credit/refund to the appellant. [Paras 16]

Allowed credit/refund in respect of invoices issued by M/s. Crave Infotech and M/s. Dayadimensi India (P) Ltd.

Final Conclusion: The appeal is partly allowed: refunds/credits allowed for invoices of M/s. Host India Events & Marketing, Export Promotion Council for EOU/SEZ, M/s. Nasscom, and the two consultancy firms; refunds/credits rejected and maintained for invoices of M/s. People Craft, M/s. Airtel and M/s. Beyond Square Solutions (P) Ltd.; appeal otherwise dismissed, with consequential reliefs as applicable.

Refund of unutilized/accumulated cenvat credit - conditions of Notification No. 27/2012 for grant of cenvat refund - para 2(h) of Notification No. 27/2012 - Rule 5 of Cenvat Credit Rules, 2005 - effect of change in law by the GST Act, 2017 on refund procedure - principle that introduction of a new law cannot deprive vested rights of a taxpayer - requirement of a reasoned order by an appellate authority

Refund of unutilized/accumulated cenvat credit - conditions of Notification No. 27/2012 for grant of cenvat refund - para 2(h) of Notification No. 27/2012 - Rule 5 of Cenvat Credit Rules, 2005 - effect of change in law by the GST Act, 2017 on refund procedure - Refunds sanctioned by the adjudicating authority under the Notification and Cenvat Credit Rules were valid and properly granted to the appellant. - HELD THAT: - The adjudicating authority examined the conditions of Notification No. 27/2012 and Rule 5 of the Cenvat Credit Rules, 2005, and specifically applied para 2(h) of the Notification. It noted that the appellant, being a 100% EOU, had satisfied the export conditions and had debited the refund amount manually at the time of filing the claim, consistent with para 2(h). The authority also took note of the change in law brought about by the GST Act, 2017 (abolishing the ER-3 return) but correctly held that such change does not defeat a taxpayer's right to refund where the tax payer's money is with the Revenue. The Tribunal found the adjudicating authority's reasoning logical and well-founded and, following earlier decisions of this Bench, concluded that the refunds were correctly sanctioned. [Paras 4, 6]

The refunds as sanctioned by the Orders-in-Original are upheld and the appellant is entitled to the refunds.

Requirement of a reasoned order by an appellate authority - principle that findings unsupported by reasons are arbitrary and unsustainable - The Commissioner (Appeals) order setting aside the refunds was unsustainable for lack of independent reasons. - HELD THAT: - The Commissioner (Appeals) merely reproduced the findings of the adjudicating authority and concluded that the sanctioning order was not legal and proper without articulating any independent reasoning or addressing the adjudicating authority's analysis. Such an approach was held to be baseless and arbitrary. In the absence of reasoned findings by the appellate authority overturning the adjudicating authority's conclusions, the appellate orders could not be sustained and were set aside. [Paras 5, 6]

The orders of the Commissioner (Appeals) setting aside the refunds are set aside for want of reasons; the appeals are allowed.

Final Conclusion: The Tribunal allowed the appeals, set aside the Commissioner (Appeals) orders for lack of reasons, upheld the Orders-in-Original granting refund of unutilized/accumulated cenvat credit to the appellant, and directed consequential relief as per law.

Refund of tax paid under mistake - application of Section 11B of the Central Excise Act, 1944 to payments made by mistake - claim for refund when tax not leviable / amount collected without authority of law

Refund of tax paid under mistake - application of Section 11B of the Central Excise Act, 1944 to payments made by mistake - Whether a refund claim for excess service tax paid by the assessee under mistake is barred by the one year limitation prescribed by Section 11B of the Central Excise Act, 1944. - HELD THAT: - The Tribunal found that the appellant made an excess payment which could be ascertained only after filing the ST 3 returns for April 2017 to June 2017. Reliance was placed on decisions of the jurisdictional High Court and other benches holding that Section 11B's limitation does not apply to refunds of tax paid under a mistake or where the tax was not leviable, since the department cannot retain amounts not collected under authority of law. The Tribunal observed that computing limitation from the date of earlier challans would ignore the fact that the excess became apparent only upon filing returns; accordingly the bar of Section 11B was inapplicable to the present refund claim. Applying these authorities and reasoning, the Tribunal held that the rejection of the refund as time barred was unsustainable and set aside the impugned order. [Paras 6, 7, 10]

Rejection of the refund claim as barred by limitation under Section 11B is quashed; refund claim allowed and impugned order set aside.

Final Conclusion: The appeal is allowed; the order rejecting the refund claim for excess service tax paid for April 2017 to June 2017 as time barred under Section 11B is set aside and the appellant is entitled to consequential relief.

Construction of Residential Complex Services - Membership of Club or Association Services - taxable event as rendition of service - deeming explanation extending tax net to amounts received before completion certificate - Rule 6(1) of Service Tax Rules - no tax where service was not taxable when provided - extended period of limitation / invocation of longer period of limitation - right to use versus sale of parking space - self service principle (no taxable service between club and its members) - bona fide belief and absence of mala fide in tax liability

Right to use versus sale of parking space - Construction of Residential Complex Services - extended period of limitation / invocation of longer period of limitation - bona fide belief and absence of mala fide in tax liability - Demand of Service Tax on car parking charges collected by the appellant - HELD THAT: - The Tribunal found the sale deed and terms described the amounts as for the right to use car parking space and not as a sale of parking area or a construction service. Even though preferential location rules excluded car parking from one category, the determinative point was that the levy of construction service for such charges was introduced w.e.f. 01/07/2010 and the taxability was uncertain. In these circumstances the appellant had a bona fide belief that no tax was payable and the Revenue failed to produce positive evidence of mala fide to justify invocation of the extended period. Reliance was placed on precedent where demands raised by invoking longer limitation were set aside where the law was nascent and taxability unclear. Applying that reasoning, the demand raised over the extended period was unsustainable. [Paras 6]

Demand on car parking charges set aside on limitation ground and appeal allowed on that issue.

Membership of Club or Association Services - self service principle (no taxable service between club and its members) - Demand of Service Tax on amounts characterised as club membership subscriptions/deposits for the period when no club existed - HELD THAT: - The Architect's Certificate established that the club did not exist during the disputed period and the department produced no contrary evidence. Further, the Supreme Court authority establishes that services between a club and its members amount to self service and are not taxable. On these bases the Tribunal concluded the amounts could not be subjected to service tax under the membership head. [Paras 6]

Demand under 'Membership of Club or Association Services' set aside.

Taxable event as rendition of service - deeming explanation extending tax net to amounts received before completion certificate - Rule 6(1) of Service Tax Rules - no tax where service was not taxable when provided - Demand of Service Tax on amounts received on or after 01/07/2010 for construction work performed prior to 01/07/2010 - HELD THAT: - The Tribunal examined the statutory explanation which deems construction of a complex to be a service where sums are received before issuance of completion certificate and observed that the explanation extends the tax net to amounts received prior to completion certificate. However, the explanation cannot retrospectively impose tax on services rendered before the levy itself came into existence. Rule 6(1) of the Service Tax Rules protects amounts attributable to periods when the service was not taxable. Precedents were cited holding that the taxable event is the rendition of the service and that tax cannot be levied on services performed prior to introduction of the levy merely because payment was received later. Applying these principles, the Tribunal held there was no justification to impose service tax on services rendered upto 30/06/2010 merely because consideration was received thereafter. [Paras 6]

Demand confirmed by adjudicating authority on this ground set aside; no service tax liability for services rendered prior to 01/07/2010.

Final Conclusion: All demands confirmed by the lower authority were set aside: car parking charge demand was quashed on limitation and bona fide belief grounds; club membership demand was quashed for absence of a club and by the self service principle; and demands on payments received after 01/07/2010 for services rendered before that date were quashed as the taxable event was the rendition of service and amounts attributable to pre taxable periods are not exigible. The appeal is allowed with consequential relief.

Eligibility of CENVAT credit on removal after being used under Rule 3(5A)(a) - Admissibility of CENVAT credit in receiver's hands where supplier's payment and valuation are affirmed by Range Officer - Transaction value and 'stock transfer' notation not determinative of CENVAT credit eligibility - Valuation of used capital goods in accordance with Circular No. 643/34/2002-CX

Eligibility of CENVAT credit on removal after being used under Rule 3(5A)(a) - Transaction value and 'stock transfer' notation not determinative of CENVAT credit eligibility - Denial of CENVAT credit on the ground that the invoices were marked 'This is stock transfer, not sale' and that the transaction value therefore had no basis. - HELD THAT: - The Tribunal held that the statutory criterion for availing credit under Rule 3(5A)(a) is 'removal after being used' and not whether the inter-document description constitutes a sale. A notation of 'stock transfer, not sale' on the invoice does not by itself render the recorded transaction value irrelevant or disentitle the receiver to CENVAT credit. The Tribunal noted that the CENVAT credit was taken at the time of purchase when the transaction value was already determined and that the transfer documents and valuation particulars supported that determination. Consequently, denial of credit solely because the invoice bore a 'stock transfer' remark was incorrect. [Paras 5]

The denial of CENVAT credit on the basis that the transaction was a 'stock transfer' and therefore the transaction value had no basis was held to be erroneous.

Admissibility of CENVAT credit in receiver's hands where supplier's payment and valuation are affirmed by Range Officer - Valuation of used capital goods in accordance with Circular No. 643/34/2002-CX - Whether the receiver's claim to CENVAT credit can be contested when the supplier's payment and valuation have been affirmed by the Range Officer. - HELD THAT: - The Tribunal accepted the appellant's submission and the report of the Range Officer that the supplier had paid the amount and that valuation had been made in accordance with Circular No. 643/34/2002-CX. It reiterated the settled legal position that the legality of availment of credit cannot be challenged at the receiver's end where the supplier's compliance has been affirmed, particularly in a revenue-neutral situation. Applying these principles, the Tribunal found no basis to disallow the receiver's credit where the supplier's payment and valuation were validated by the jurisdictional officer. [Paras 5, 6]

Credit availed by the receiver could not be denied where the supplier's payment and valuation were affirmed by the Range Officer; such denial was set aside.

Final Conclusion: The appeal is allowed; the Commissioner (Appeals)'s denial of CENVAT credit of Rs. 19,69,367/- is set aside and the appellant is entitled to consequential relief.

Quashing of criminal proceedings - Section 482 Cr.P.C. - exercise of inherent powers of High Court - Section 138 N.I. Act - cheque bounce offence and effect of post-notice payment - disputed questions of fact not to be decided in proceedings under Section 482 Cr.P.C.

Disputed questions of fact not to be decided in proceedings under Section 482 Cr.P.C. - Section 138 N.I. Act - cheque bounce offence and effect of post-notice payment - Whether the petition under Section 482 Cr.P.C. challenging the complaint under Section 138 N.I. Act could be quashed where the parties dispute factual questions as to service of demand notice and the nature/timing of payment. - HELD THAT: - The High Court declined to entertain disputed factual controversies in proceedings under Section 482 Cr.P.C. and held that such matters are to be adjudicated at trial. The Court examined the rival contentions concerning date of receipt/service of the legal notice and whether the NEFT payment made by the petitioner was within the statutory period and towards the outstanding cheque amount, and observed that these are contested facts. Reliance was placed on binding precedents which establish that a High Court should not resolve factual disputes in exercise of inherent jurisdiction to quash criminal proceedings and that quashal is appropriate only where the complaint discloses no offence or is frivolous, vexatious or oppressive. Applying that principle, the Court found the present petition to be devoid of merit because it sought determination of contested factual issues (receipt of notice, timing and purpose of payment) which require trial. [Paras 11, 12, 13, 14]

Petition under Section 482 Cr.P.C. dismissed; disputed factual issues concerning service of notice and the NEFT payment to be decided at trial.

Final Conclusion: The petition seeking quashal of the complaint under Section 138 N.I. Act was dismissed because the dispute fundamentally involved contested questions of fact (service of demand notice and adequacy/timing of payment), which cannot be resolved in proceedings under Section 482 Cr.P.C. and must be left for trial.