TaxTMI Updates e-Newsletter
Nov 11,2019

Measurement of ground clearance in laden condition - application of Indian Standard IS-9435 for measurement of vehicle dimensions - reference to statutes in pari materia for interpretative aid - role of ARAI certification and Central Motor Vehicles Rules in determining vehicle specifications

Measurement of ground clearance in laden condition - application of Indian Standard IS-9435 for measurement of vehicle dimensions - role of ARAI certification and Central Motor Vehicles Rules in determining vehicle specifications - Ground clearance specified in the Explanation to Sr. No. 52B of the Cess Rate Notification is to be measured in laden condition. - HELD THAT: - The term 'ground clearance' is not defined in the GST / Compensation Cess enactments; therefore the authority applied the doctrine of reference to statutes in pari materia and looked to the Central Motor Vehicles Act, 1988 and the rules thereunder and the Indian Standard IS-9435. Clause 5.8 of IS-9435 expressly provides that the measurement of minimum ground clearance "has to be done on fully laden vehicle to the maximum authorized GVW." ARAI, the prescribed testing authority under section 56 of the Motor Vehicles Act, certifies vehicle dimensions in accordance with IS-9435. Given that the Cess Rate Notification does not prescribe a methodology for measuring ground clearance and that vehicle certification and dimension standards are governed by the Motor Vehicles regime and IS-9435, the correct legal conclusion is that ground clearance for the purpose of Sr. No. 52B must be determined in the laden state. The Advance Ruling Authority's contrary view - that unladen measurement should be used because passenger weight varies - was rejected as inconsistent with established standards and relevant precedents applying standardized passenger weight for payload calculations. [Paras 19, 20, 21, 23, 24]

Ground clearance for Sr. No. 52B must be measured in laden condition.

Measurement of ground clearance in laden condition - application of Indian Standard IS-9435 for measurement of vehicle dimensions - A vehicle whose ground clearance is more than 170 mm in unladen condition but below 170 mm in laden condition does not fall within Sr. No. 52B of the Cess Rate Notification. - HELD THAT: - Because the regulatory standard (IS-9435) requires measurement of ground clearance in the fully laden state and the Cess Rate Notification's Explanation incorporates ground clearance as a qualifying parameter, the qualifying threshold of 170 mm must be satisfied in the laden condition. Consequently, a vehicle meeting the 170 mm threshold only in the unladen state but falling below it when measured laden does not satisfy the Explanation and therefore is not classifiable under Sr. No. 52B. [Paras 20, 21, 24]

Vehicle with unladen >170 mm but laden <170 mm will not be covered under Sr. No. 52B.

Final Conclusion: The Appellate Authority set aside the Advance Ruling answers on measurement of ground clearance and held that ground clearance for the purpose of Sr. No. 52B of the Cess Rate Notification must be measured in the laden condition in accordance with IS-9435 and ARAI certification; accordingly, vehicles that are below 170 mm when measured laden do not attract the 22% compensation cess under Sr. No. 52B even if unladen clearance exceeds 170 mm.

Supply of services - consideration - membership fee not leviable to GST - registration fee leviable to GST - liability to register under GST for organised training programs/workshops - amendment of order under Section 102 of the CGST Act, 2017

Supply of services - consideration - membership fee not leviable to GST - registration fee leviable to GST - Membership fee collected by the Lions Club of Poona Kothrud is not consideration for a taxable supply and is not liable to GST; registration fees charged separately for participation in skill-oriented workshops are consideration for supply and are taxable. - HELD THAT: - The authority revisited its earlier conclusion that the club's membership fee constituted consideration for leadership and skill-development programs. On review of the respondent's submissions, the Body of Individuals declaration and the detailed breakup of expenditure, it was found that membership fees are appropriated exclusively to administrative and incidental heads (meeting expenses, printing, stationery, postage, greetings, and fees payable to higher offices) and members are not entitled to facilities such as sports, recreation or personal services. The respondent also produced registration receipts and flyers showing separate fees charged for participation in training programs. There is therefore no cogent evidence that membership fees are used to organize the training programs. Applying the inclusive definition of consideration in the GST law, the authority held that only amounts paid as a fee specifically for participation in training/workshops constitute consideration for the supply of services and are taxable; the general membership subscription, used only for administrative expenses and not conferring the specified facilities, does not amount to consideration for those taxable services.

Amendment of the earlier AAAR order to hold that membership fee is not consideration subject to GST, while registration fees for the workshops are consideration and taxable; the club is liable to register for GST on account of organising training programs/workshops.

Final Conclusion: The AAAR order dated 23.04.2019 is amended under Section 102 of the CGST Act, 2017 to record that the membership subscription collected by Lions Club of Poona Kothrud is not consideration for taxable supplies and thus not leviable to GST, whereas separate registration fees for skill-oriented workshops are consideration for supply and are subject to GST; the club remains liable to obtain registration for its training activities.

Summary order. Writ petition dismissed as withdrawn with liberty to challenge the subsequent order passed under Section 129(3) of the HGST Act.

Deduction under Section 54 - Substantial compliance with Section 54(1) - Directory nature of Section 54(2) - Capital gains deposit account requirement - Utilisation of capital gain for construction within three years - Burden of proof on the assessee

Deduction under Section 54 - Substantial compliance with Section 54(1) - Directory nature of Section 54(2) - Whether non-deposit of the disputed sum in the capital gains deposit account under Section 54(2) disentitles the assessee to deduction under Section 54 where the assessee otherwise satisfies the requirements of Section 54(1). - HELD THAT: - The Court held that Section 54(1) prescribes the mandatory substantive condition for grant of deduction - purchase or construction of a residential house within the specified period - and that satisfying Section 54(1) constitutes substantial compliance entitling the assessee to the deduction. Section 54(2), which prescribes deposit of unutilised capital gain in a notified capital gains account, operates as a procedural mechanism to protect the Revenue where the substantive requirement of Section 54(1) is not met. Accordingly, mere non-deposit in the capital gains deposit account under Section 54(2) cannot, by itself, defeat a claim for deduction if the assessee proves that the disputed amount was utilised for acquiring or constructing the new residential asset within the time prescribed by Section 54(1). The Court rejected the Revenue's contention that strict compliance with the notification/deposit requirement should automatically deny the exemption where the assessee demonstrates utilisation for construction within the three-year period. The Supreme Court decision relied on by the Revenue was found inapposite on the facts, since the determinative question is factual utilisation within the period laid down by Section 54(1). [Paras 10, 11, 12, 14, 16]

Non-deposit under Section 54(2) alone does not preclude allowance of deduction under Section 54 if the assessee satisfies the substantive requirement under Section 54(1).

Utilisation of capital gain for construction within three years - Capital gains deposit account requirement - Whether the disputed amount claimed as deduction was in fact utilised by the assessee towards additional construction within the time limit prescribed by Section 54(1). - HELD THAT: - The Court observed that the Revenue denied the claim solely on the ground of non-deposit in the capital gain account and that, in light of the legal conclusion that Section 54(2) is procedural, the factual question whether the disputed sums were utilised for construction within the three year period remains to be examined. The Court directed that the assessing authority must verify whether the disputed amount was utilised within the statutory period for construction and, if such utilisation is established, grant the deduction accordingly. The matter was remitted to the first respondent for fresh consideration in accordance with these findings. [Paras 13, 17]

Remitted to the first respondent to verify whether the disputed amount was utilised for construction within the time prescribed by Section 54(1) and to pass a fresh order accordingly.

Final Conclusion: Writ petition allowed in part; legal conclusion that non-deposit under Section 54(2) is not by itself fatal to a Section 54 claim where Section 54(1) is complied with, and the matter is remitted to the assessing authority to verify whether the disputed amount was utilised for construction within the three year period and to pass fresh orders within eight weeks.

Erroneous and prejudicial to the interest of revenue - Scope and exercise of jurisdiction under Section 263 - Verification of claimed expenses by the Assessing Officer - Remand for verification by assessing authority - Findings of fact and appellate interference

Findings of fact and appellate interference - Whether the Tribunal erred in setting aside the order under Section 263 insofar as it was founded on deposits introduced by members of the AOP. - HELD THAT: - The Tribunal recorded a categorical finding that the Commissioner did not, at the time of examining the assessment records, treat the assessment order as erroneous and prejudicial to the revenue on the basis of the deposits introduced by members of the AOP. That conclusion is a finding of fact recorded by the Tribunal after scrutiny of the record and, in the view of this Court, does not warrant interference. The appellate court deferred to the Tribunal's factual conclusion that the CIT's action could not now be sustained on the ground of those deposits. [Paras 10]

Tribunal's factual finding on deposits introduced by members of the AOP is upheld; no interference.

Scope and exercise of jurisdiction under Section 263 - Verification of claimed expenses by the Assessing Officer - Remand for verification by assessing authority - Whether the Commissioner was justified in setting aside the assessment under Section 263 on the ground that the Assessing Officer allowed significant expenses without proper verification. - HELD THAT: - The Commissioner recorded that the Assessing Officer accepted substantial claims for salary, rent, wages and freight and other expenses without conducting necessary enquiries or verification (including large cash salary payments and lack of insistence on supporting particulars). The assessment order itself did not demonstrate that the AO had carried out such verification. Given the absence of documentary indication in the assessment order that these allowances were verified, the Commissioner was justified in remanding the matter for fresh verification. Accordingly, the Court finds that the matter should be returned to the assessing authority for verification of salary, rent and wages and freight expenses. [Paras 11, 14, 15]

Remitted to the Assessing Officer for verification of salary, rent, wages and freight expenses; remand to be completed within three months.

Final Conclusion: Appeal partly allowed. Tribunal's factual finding on deposits is sustained; matter remitted to the Assessing Officer for verification of salary, rent and wages and freight expenses allowed in assessment, to be completed within three months. The question of law is answered in favour of the revenue and against the assessee.

Treatment of sale proceeds as business income versus capital gains - estimation of gross/net profit rate by the assessing officer - best of judgment and requirement of relevant material for estimation - remand for fresh adjudication in accordance with higher court's decision - onus on the assessee to explain cash found on search - admission of additional evidence under Rule 46A

Treatment of sale proceeds as business income versus capital gains - remand for fresh adjudication in accordance with higher court's decision - Whether profit on sale of property is to be assessed as income from business/profession or under the head capital gains. - HELD THAT: - The Tribunal observed that the determinative question-whether receipts from sale of properties are assessable as business income or as capital gains-is also the subject-matter of appeals pending before the Himachal Pradesh High Court in related assessment years. Given that the ultimate classification will determine the approach to computation, the Tribunal declined to decide the classification in this assessment year and remitted the matter to the Assessing Officer for adjudication in accordance with the ultimate outcome of the High Court proceedings. The Tribunal noted that the AO must first determine the correct head of income; only if the activity is held to be business/profession should the AO proceed to determine the applicable profit rate afresh. [Paras 6]

Issue remitted to the Assessing Officer for fresh adjudication after the outcome of the pending High Court appeals; AO to first decide head of income and then compute profit if business income is held.

Estimation of gross/net profit rate by the assessing officer - best of judgment and requirement of relevant material for estimation - Whether the profit rate applied by revenue (30%) for computing profit on sale of property was justified and, if not, the appropriate approach to fixation of profit rate. - HELD THAT: - The Tribunal examined the reasoning in earlier Tribunal orders and authorities cited, emphasising that any estimate of profit must be based on relevant factors and not arbitrary guesswork. It recorded that the AO applied a 30% gross profit rate without considering relevant factors (past tax history, nature of business, comparable cases with points of similarity, prevailing economic conditions, etc.) and without rational analysis. In the earlier Tribunal decision quoted, a 21% rate was applied as meeting the ends of justice on those facts. However, since the core question of classification (business income v. capital gains) remains pending before the High Court and will determine whether a profit rate is to be applied at all, the Tribunal remitted the matter to the AO to determine the head of income first and to fix the profit rate thereafter, applying the proper factors and reasoning if business income is held. [Paras 5, 6]

Profit-rate issue to be reconsidered by the Assessing Officer after determination of the head of income; prior application of an arbitrary gross profit rate set aside for fresh adjudication.

Onus on the assessee to explain cash found on search - admission of additional evidence under Rule 46A - remand for fresh adjudication in accordance with higher court's decision - Whether the addition of unexplained cash found on search in the assessee's hands was justified. - HELD THAT: - The Tribunal noted that cash was seized during search and that the onus lay on the assessee to explain its source and nature. The assessee asserted that portions of the cash belonged to other persons and were reflected in their books; copies of cash books and confirmations were placed on record. The AO and CIT(A) did not accept the explanation after individual analysis, and the CIT(A) declined to admit certain cashbook entries as additional evidence under Rule 46A. The Tribunal found that the AO ought to have examined the treatment of the cash in the alleged creditors' books and formed an opinion on that basis rather than reject the explanation without analysis. In view of related issues being remitted and to enable proper appraisal of the third parties' records and the claim, the Tribunal remitted this issue to the AO for fresh adjudication and directed the AO to analyse the treatment given in the books of the alleged owners of the cash and then decide whether the cash is explained. [Paras 12]

Addition set aside for remand; matter to be re-adjudicated by the Assessing Officer who shall analyse the records of the alleged owners of the cash and then determine whether the cash found stands explained.

Statutory dismissal of general ground - Validity of ground No.4 which was general in nature. - HELD THAT: - The Tribunal observed that ground No.4 was general and did not call for any specific finding. Such a ground does not require detailed adjudication and was therefore rejected. [Paras 2]

Ground No.4 rejected as being general and not calling for any specific finding.

Final Conclusion: The assessee's appeal is allowed for statistical purposes: the classification of sale proceeds (business income v. capital gains) and the profit-rate computation are remitted to the Assessing Officer for fresh adjudication in accordance with the eventual decision of the High Court; the addition of unexplained cash is also remitted for fresh analysis of the alleged owners' books and supporting material; a general ground was rejected.

Set-off of interest on tax refunds against interest on tax demand - Section 14A disallowance and Rule 8D computation - Netting interest received and interest paid for Rule 8D - Consideration of only investments which actually yield exempt income for Rule 8D - Inclusion of strategic/subsidiary investments in Rule 8D computation subject to yield of exempt income - Computation of book profits under Section 115JB and non-application of Rule 8D mechanism - Treatment of gains on sale of listed shares as long-term capital gains where STT suffered - Tax credit for foreign tax withheld on dividend

Set-off of interest on tax refunds against interest on tax demand - Assessee permitted to set off interest paid on income-tax demands against interest received on income-tax refunds for tax computation. - HELD THAT: - The Tribunal, following the decision of the jurisdictional High Court in DIT (International Taxation) v. Bank of America NT and SA, accepted the assessee's treatment of netting interest paid on tax demands against interest received on refunds and allowed the ground raised by the assessee. The Tribunal considered the identical factual situation and found no legal impediment to permitting the set-off so that only the net interest receivable is taxed. [Paras 2]

Ground No.1 of the assessee appeal allowed; netting of interest permitted.

Section 14A disallowance and Rule 8D computation - Netting interest received and interest paid for Rule 8D - Consideration of only investments which actually yield exempt income for Rule 8D - Inclusion of strategic/subsidiary investments in Rule 8D computation subject to yield of exempt income - Disallowance under section 14A read with Rule 8D to be recomputed by the Assessing Officer in accordance with specified principles and settled law. - HELD THAT: - The Tribunal held that the AO should recompute the section 14A disallowance afresh. Directions given (a) consider only those investments which actually yielded exempt income for the purpose of Rule 8D(2); (b) permit netting of interest received with interest paid while computing the disallowance under Rule 8D(2); and (c) consider investments in subsidiaries and other strategic investments for Rule 8D(2) only if they actually yielded exempt income. The Tribunal noted settled decisions of higher forums and directed recomputation under normal provisions subject to these directions. The Tribunal also admitted and allowed the assessee's Additional Ground No.2A regarding computation of disallowance for book profits under section 115JB, directing the AO to follow the Special Bench decision that Rule 8D(2) mechanism cannot be imputed into Explanation 1(f) to section 115JB(2) and only actual expenses debited to profit & loss relatable to exempt income should be considered. [Paras 3]

Grounds relating to section 14A/Rule 8D allowed for statistical purposes with directions to recompute; Additional Ground No.2A admitted and allowed directing application of Special Bench position for section 115JB.

Treatment of gains on sale of listed shares as long-term capital gains where STT suffered - Gains on sale of 2% shares of TCS (listed shares) held for more than 12 months and sold after suffering STT are held to be long-term capital gains eligible for exemption under the then-applicable law. - HELD THAT: - On the facts that the shares were shown as 'Investments' in the balance sheet, that similar treatment had been consistently adopted and accepted by the revenue in earlier years, and in view of CBDT Circular No.6/2016 (paras relied upon by the Tribunal) which directs that where listed shares held for more than 12 months are treated by the assessee as capital assets the AO should not dispute such classification, the Tribunal found no infirmity in the CIT(A)'s direction to treat the sale proceeds as long-term capital gains and grant exemption under section 10(38). The Tribunal rejected the AO's characterisation of the assessee as a dealer based on borrowings and other general considerations in absence of material change in facts. [Paras 6]

Revenue's ground dismissed; gains treated as long-term capital gains and exemption under section 10(38) accepted.

Tax credit for foreign tax on dividend - Assessee entitled to credit for tax withheld in foreign jurisdiction on dividend income; AO to decide in accordance with prior tribunal order and relevant High Court authority. - HELD THAT: - The Tribunal observed that the overseas tax withheld pertained to foreign dividend which was taxed in India as well. In view of an earlier tribunal order in the assessee's favour for AY 1995-96 and the jurisdictional High Court decision in CIT v. Ambalal Kilachand, the Tribunal directed the AO to decide the issue in light of those authorities and to grant credit for the foreign tax withheld. The revenue's contrary order for a different year relied upon by the Department was not placed before the Tribunal, and accordingly the Tribunal directed adjudication consistent with the favourable precedents. [Paras 7]

Revenue's ground disallowed for statistical purposes; AO directed to grant tax credit for foreign tax withheld on dividend as per prior authorities.

Grounds 3 and 4 of the assessee's appeal not pressed and dismissed as not pressed; Revenue Grounds 1 and 6 need no specific adjudication. - HELD THAT: - The assessee's Grounds Nos.3(i), 3(ii) and 4 were expressly not pressed before the Tribunal and are dismissed on that basis. The revenue's Grounds Nos.1 and 6 were general and did not require specific adjudication by the Tribunal. [Paras 4, 5]

Assessee Grounds 3 and 4 dismissed as not pressed; Revenue Grounds 1 and 6 left undecided as not requiring adjudication.

Final Conclusion: Cross appeals for A.Y.2008-09 are partly allowed: the assessee permitted netting of interest paid on tax demands against interest on tax refunds; the section 14A/Rule 8D disallowance is remitted for recomputation with directions (consider only investments yielding exempt income, permit netting of interest, include subsidiary/strategic investments only if they yielded exempt income) and section 115JB computation is to follow the Special Bench position; gains on sale of listed TCS shares treated as long-term capital gains eligible for exemption; foreign tax withheld on dividend to be allowed as credit in accordance with earlier tribunal and High Court decisions; other specified grounds were not pressed or required no adjudication.

Deemed income under sections 69, 69A, 69B and 69C - Characterisation as business income - Onus on the assessee to establish source of surrendered income - Tax treatment under section 115BBE and denial of set off against deemed income - Survey disclosure and classification of surrendered amounts

Characterisation as business income - Onus on the assessee to establish source of surrendered income - Survey disclosure and classification of surrendered amounts - Whether the unexplained expenditure of Rs. 32 lakhs on construction of building disclosed during survey is to be treated as business income and eligible for set off/benefits applicable to business income. - HELD THAT: - The Tribunal accepted the assessee's admission that the unexplained expenditure was incurred for construction of a business asset and observed that expenditure laid out for the purpose of business ordinarily takes the character of business income if the source was generated by business operations. The Court noted that where surrendered amounts are shown to have arisen from business activity and the assessee establishes (or admits) that the expenditure was for business purposes, such amounts are to be assessed as business income under the normal provisions, thereby attracting the incidental benefits including set off of brought forward losses or allowances as applicable. The Tribunal followed coordinate bench decisions treating admitted trade receivables/explanations of commercial origin as business income and directed AO to assess Rs. 32 lakhs as business income accordingly. [Paras 7, 8]

Surrendered expenditure of Rs. 32 lakhs is to be treated as business income and is eligible for set off and other incidental benefits applicable to business income.

Deemed income under sections 69, 69A, 69B and 69C - Tax treatment under section 115BBE and denial of set off against deemed income - Onus on the assessee to establish source of surrendered income - Whether the excess cash of Rs. 8 lakhs disclosed during survey is to be treated as deemed income and assessed on a gross basis without allowing set off. - HELD THAT: - The Tribunal found that the assessee failed to satisfactorily explain the source of the excess cash discovered during survey. Applying the settled principle that unrecorded money which the assessee cannot satisfactorily explain is to be treated as deemed income under the provisions dealing with unexplained money/investments/expenditure, the Tribunal held that such amounts attract the special tax regimen under section 115BBE. Consequently, the excess cash is to be assessed as deemed income on a gross basis and no deduction or set off is permissible against it. [Paras 9]

Excess cash of Rs. 8 lakhs is deemed income and shall be assessed on gross basis without allowing set off or deductions against it.

Final Conclusion: Appeal partly allowed: Rs. 32 lakhs surrendered for construction of building is to be treated as business income (eligible for set off/benefits applicable to business income), whereas Rs. 8 lakhs excess cash is treated as deemed income and taxable on a gross basis without allowance of set off.

Long term capital gains - Accommodation entries / jamakharchi companies - Stock market manipulation and rigging of penny stocks - Use of investigation statements as admissible evidence - Unexplained cash credit treated as unexplained receipt - Unexplained expenditure as commission - Set off of interest against salary/professional income - Test of human probabilities and surrounding circumstances (Sumati Dayal) - Burden to rebut investigation and documentary evidence

Long term capital gains - Accommodation entries / jamakharchi companies - Stock market manipulation and rigging of penny stocks - Use of investigation statements as admissible evidence - Burden to rebut investigation and documentary evidence - Test of human probabilities and surrounding circumstances (Sumati Dayal) - The claimed exemption under section 10(38) was not allowable as the long term capital gain arising from sale of LD&PL shares was held to be bogus and the transactions were accommodation entries effected through a contrived scheme. - HELD THAT: - The Tribunal upheld the findings of the Assessing Officer and CIT(A) that the assessee was a beneficiary of a pre-arranged scheme to generate bogus long term capital gains. The authorities recorded that the assessee acquired preferentially allotted shares of a company (LD&PL) which had negligible business activity and low market prices at the time of allotment, and later sold at an astronomically higher price after the scrip was rigged. The AO relied on the DDIT (Inv.) Kolkata investigation, recorded statements of brokers/operators (identifying jamakharchi companies, dummy buyers and modus operandi), BSE/SEBI information including suspension of trading and the absence of credible financials or corporate reasons for price rise. The assessee failed to rebut or controvert the investigation material with cogent evidence; third party statements and the sequence of transactions supported the conclusion of a pre designed accommodation entry operation. The Tribunal applied the test of human probabilities and surrounding circumstances (as applied in Sumati Dayal and followed by higher courts) and endorsed the conclusion that the claimed LTCG was not genuine, thus not entitled to exemption under section 10(38). [Paras 17, 18, 23, 28, 36]

Exemption under section 10(38) denied; long term capital gain treated as bogus and additions upheld.

Unexplained expenditure as commission - Burden to rebut investigation and documentary evidence - The addition made by the AO treating commission paid for arranging the bogus capital gain as unexplained expenditure was sustained in principle but the rate of commission was reduced. - HELD THAT: - Having held that the LTCG was bogus, the Tribunal accepted the factual finding that commission was paid for arranging the accommodation entry and that an addition under the head of unexplained expenditure was warranted. However, on assessment of the totality of facts and circumstances the Tribunal reduced the commission rate applied by the AO from 5% to 2% and accordingly modified the addition. [Paras 37, 38]

Addition on account of commission sustained in principle but reduced from 5% to 2%; ground partly allowed.

Set off of interest against salary/professional income - Admission by authorised representative as evidentiary basis - The set off of interest claimed against a receipt was disallowed because the receipt was held to be salary (not professional income) and the assessee/AR had admitted the same during assessment proceedings. - HELD THAT: - The AO treated the receipt from M/s. Sagar Paridhan Pvt. Ltd. as salary since the assessee was a director and the authorised representative admitted that Rs. 24,00,000 was salary and not professional fees. The CIT(A) and the Tribunal found no cogent evidence to overturn that admission; the assessee had treated similar receipt as salary in the preceding year. In these circumstances the claimed set off of interest against professional income could not be allowed. [Paras 39, 40]

Set off disallowed and addition sustained; ground dismissed.

Final Conclusion: The appeal is partly allowed: the Tribunal upheld the denial of exemption under section 10(38) treating the LTCG as bogus and sustained related additions; the commission addition was confirmed in principle but reduced to 2%; the disallowance of interest set off (treating the receipt as salary) was upheld.

Disallowance under section 40(a)(ii) - meaning of "tax" under section 2(43) - relief under section 90/91 and application of DTAA - deductibility under section 37 - capitalisation and depreciation of computer software - royalty under section 9(1)(vi) including Explanation-3 and Explanation-4 - disallowance under section 40(a)(i) for failure to deduct tax at source - foreign tax credit under section 90/91 for income exempt under section 10A/10AA - international transaction and transfer pricing (section 92B) - appropriate profit level indicator - guarantee fees as international transaction (Explanation-(i)(c) to section 92B) - arm's length interest on interest free loans to associated enterprises - obligation to deduct tax under section 195 in respect of commission to non residents

Disallowance under section 40(a)(ii) - meaning of "tax" under section 2(43) - relief under section 90/91 and application of DTAA - deductibility under section 37 - Whether state/local taxes paid overseas fall within section 40(a)(ii) and thereby are non deductible, or whether they are deductible (including under section 37) where no relief under section 90/91 is available. - HELD THAT: - The Tribunal accepted the legal principle that the statutory definition of "tax" in section 2(43) refers to tax chargeable under the Indian Act and observed the effect of Explanation-1 to section 40(a)(ii) that taxes eligible for relief under section 90/91 are excluded from deduction. Relying on the reasoning of the Hon'ble Bombay High Court in Reliance Infrastructure Ltd., the Tribunal held that taxes levied abroad which are not eligible for relief under section 90 or section 91 do not fall within section 40(a)(ii) and therefore are not automatically disallowable. Because the factual question whether the state/local taxes paid by the assessee (in the USA and Canada) are eligible for relief under section 90 remained to be verified, the Tribunal directed the Assessing Officer to examine and verify applicability of section 90; if such taxes are not eligible for relief under section 90/91, the assessee's deduction is to be allowed.

Legal principle applied: overseas taxes not eligible for relief under section 90/91 do not fall within section 40(a)(ii); remand to Assessing Officer to verify eligibility under section 90/91 and allow deduction if no relief is available.

Capitalisation and depreciation of computer software - disallowance under section 40(a)(i) for failure to deduct tax at source - royalty under section 9(1)(vi) including Explanation-3 and Explanation-4 - Whether expenditure for purchase of software for internal use is capital in nature (eligible for depreciation), and whether payments for software acquired for trading/re sale constitute royalty attracting TDS consequences under section 40(a)(i). - HELD THAT: - The Tribunal held that expenditure on software acquired for internal use created assets of enduring benefit and is capital in nature; depreciation treatment as allowed by the authorities was upheld following the Tribunal's earlier view in the assessee's own case. As to software acquired for trading/resale, the Tribunal found the Assessing Officer had not made necessary factual enquiries to determine whether the transaction amounted to sale of a copyrighted article or transfer of rights in copyright (royalty) as clarified by Explanation-4 to section 9(1)(vi). Given unresolved factual and legal questions (including retrospective clarification by Explanation-4 and the assessee's reliance on NGC Networks), the Tribunal restored that part of the issue to the Assessing Officer for fresh adjudication after affording the assessee opportunity to be heard.

Internal use software: capital expenditure entitled to depreciation. Trading/resale software: remanded to Assessing Officer for factual verification and fresh decision on whether payments are in nature of royalty (with consequential TDS consequence).

Advertisement expenditure - revenue v. capital - admission of additional evidence and remand for de novo adjudication - Whether the assessee's advertisement and promotional expenditures are revenue or capital in nature, and whether a specified component (experience certainty campaign) is capital. - HELD THAT: - On the material before it the Tribunal agreed with the Commissioner (Appeals) that the bulk of the advertising outlays constituted routine promotional expenditure for the assessee's ongoing business and were revenue in nature; there was no material to treat them as brand building capital expenditure. However, the Commissioner (Appeals) had treated an identified component (experience certainty campaign) as capital on an apparent misunderstanding and the assessee supplied additional evidence before the Tribunal. Because that additional evidence could materially affect characterisation and was not considered below, the Tribunal admitted the additional evidence and restored the specific component to the Assessing Officer for de novo adjudication after affording the Revenue a fair opportunity to test the documentary proofs.

Majority of advertisement expenditure held revenue; the specific experience campaign item remanded to the Assessing Officer for fresh adjudication after consideration of admitted additional evidence.

Foreign tax credit under section 90/91 for income exempt under section 10A/10AA - application of DTAA provisions (country specific differences) - Whether foreign tax paid on income exempt in India under section 10A/10AA is admissible as foreign tax credit under section 90/91 and applicable DTAAs. - HELD THAT: - Examining treaty texts and judicial precedent (including Wipro), the Tribunal held that availability of credit depends upon the specific treaty terms: where the DTAA (e.g., Indo US and several other treaties) provides credit even if the income is exempt in India, the assessee is entitled to foreign tax credit; where the treaty (e.g., Indo Canada, Indo Finland) does not provide such benefit unless the income is taxable in India, credit is not available. For non treaty cases, section 91 applies. Applying these principles to the facts, the Tribunal directed the Assessing Officer to allow credit for taxes paid in USA and other DTAA/non DTAA countries except Finland and Canada in accordance with the respective treaty provisions and section 91.

Foreign tax credit allowed to the extent provided by the applicable DTAA or section 91: credit granted for USA and those DTAAs that permit credit for income exempt in India; credit not allowed where treaty forbids it (Canada, Finland). Assessing Officer directed to grant credit accordingly.

International transaction and transfer pricing (section 92B) - appropriate profit level indicator - consideration of pass through outsourcing costs in comparability - alternative benchmarking with foreign comparables - Appropriate profit level indicator (PLI) and comparability treatment for transfer pricing adjustment relating to provision of software consultancy services to AEs; acceptability of alternative benchmarking with foreign comparables. - HELD THAT: - On the factual matrix and functional analysis the Tribunal upheld the Commissioner (Appeals)'s approach that the AEs perform significant marketing/distribution and bear risks (including credit risk), so remuneration based on gross margin/sales (return on sales) is appropriate rather than OP/VAE. The Tribunal also agreed that the Transfer Pricing Officer erred in excluding outsourcing/subcontracting costs as pass through for the AEs while not applying the same treatment to comparables, thereby distorting comparability. The Commissioner (Appeals)'s detailed review and selection of alternative foreign comparables was held to be reasonable and the Tribunal declined to disturb those findings. The Tribunal noted MAP resolutions applicable to transactions with AEs in USA and Netherlands and excluded those from its operative effect.

Commissioner (Appeals)'s selection of gross margin/sales as PLI, inclusion of outsourcing costs consistently, and acceptance of the assessee's alternative benchmarking with approved comparables sustained; MAP outcomes for USA/Netherlands remain operative for those AEs.

Arm's length interest on interest free loans to associated enterprises - international transaction and transfer pricing (section 92B) - Whether interest free advances to certain AEs should be treated as loans for transfer pricing purposes (with an arm's length interest adjustment) or as quasi equity/shareholder activity. - HELD THAT: - The Tribunal found that the Assessing Officer and Commissioner (Appeals) had not adequately considered the detailed factual and documentary submissions of the assessee that many advances were for downstream acquisitions, converted to equity or served shareholder purposes, and that the assessee's contention that advances were quasi equity had not been properly addressed. Given unresolved factual and legal issues (including applicability of OECD guidance and relevant precedents), the Tribunal restored the matter to the Assessing Officer for de novo adjudication after affording the assessee a fair opportunity to be heard and directed examination of all relevant facts and authorities.

Issue remanded to the Assessing Officer for fresh fact based inquiry and transfer pricing determination of the nature of the advances and any arm's length interest adjustment.

Guarantee fees as international transaction (Explanation-(i)(c) to section 92B) - appropriate guarantee commission rate - Whether provision of guarantees to AEs is an international transaction under section 92B and, if so, the appropriate arm's length guarantee commission. - HELD THAT: - The Tribunal held that, after insertion of Explanation-(i)(c) to section 92B (with retrospective effect), providing guarantees to AEs constitutes an international transaction. Following precedents and comparability, the Tribunal directed the Assessing Officer to apply a guarantee commission of 0.5% per annum on both performance/lease guarantees and financial guarantees (reducing the higher rates originally determined by the Transfer Pricing Officer).

Provision of guarantees is an international transaction; guarantee commission fixed at 0.5% per annum and directed to be applied by the Assessing Officer.

Commission to non residents and requirement under section 195 - Whether commissions paid to certain non resident agents required deduction of tax at source under section 195 (and consequent disallowance under section 40(a)(i)). - HELD THAT: - On the facts recorded and not controverted by Revenue, the Tribunal accepted the Commissioner (Appeals)'s factual finding that the non resident agents performed services outside India, lacked business connection or PE in India, and the commission payments were not chargeable to tax in India. As such there was no obligation to withhold under section 195 and the Assessing Officer's disallowance under section 40(a)(i) was correctly deleted.

Disallowance under section 40(a)(i) in respect of commission to the non resident agents deleted; no requirement to withhold tax under section 195 on these payments.

Final Conclusion: Assessee's appeal partly allowed and Revenue's appeal dismissed. Key outcomes: (i) overseas state/local taxes not within section 40(a)(ii) if not eligible for relief under section 90/91 - Assessing Officer to verify; (ii) internal use software treated as capital (depreciation allowed); trading software issue remanded for factual determination of royalty character; (iii) most advertisement expenditure held revenue with a specific component remanded for fresh inquiry on admitted additional evidence; (iv) foreign tax credit to be allowed in accordance with specific DTAA terms (credit allowed for USA and treaties permitting credit; not for Canada/Finland where treaty denies it; section 91 to apply where relevant); (v) TP issues: Commissioner (Appeals)'s approach on PLI and comparables sustained (MAP outcomes to govern USA/Netherlands), guarantees treated as international transactions with fee fixed at 0.5% p.a., interest free loans remanded for fresh fact finding; (vi) deletion of disallowance for commission paid to certain non residents as no withholding obligation under section 195.

Deduction under Section 80P(2)(a)(i) - application of Section 80P(4) - exclusion of co-operative banks - classification as co-operative bank versus co-operative credit society - scope of "attributable to" in Section 80P(2)(a)(i) - deduction under Section 80P(2)(d) for interest on investments - opportunity of hearing / audi alteram partem

Deduction under Section 80P(2)(a)(i) - classification as co-operative bank versus co-operative credit society - scope of "attributable to" in Section 80P(2)(a)(i) - application of Section 80P(4) - exclusion of co-operative banks - Entitlement of the assessee (a co-operative credit society) to deduction under Section 80P(2)(a)(i). - HELD THAT: - The Tribunal held that the assessee is a co-operative credit society and not a co-operative bank for the purposes of Section 80P(4). The three conditions in Section 56(c)(ccv) of the Banking Regulation Act, 1949 required to categorize an entity as a co-operative bank (principal business being banking; paid-up share capital and reserves not less than one lakh; bye-laws not permitting other co-operative societies as members) were considered. Acceptance and lending only from members excludes the society's principal business being banking. The Tribunal accepted authorities distinguishing co-operative credit societies from co-operative banks and construed the phrase "attributable to" in Section 80P(2)(a)(i) as wide enough to include receipts related to the business of providing credit to members. On these bases the Tribunal upheld the CIT(A)'s conclusion that the assessee was entitled to deduction under Section 80P(2)(a)(i). [Paras 10, 11]

Assessee, being a co-operative credit society and not a co-operative bank, is entitled to deduction under Section 80P(2)(a)(i); revenue appeal on this issue dismissed.

Deduction under Section 80P(2)(d) for interest on investments - opportunity of hearing / audi alteram partem - Whether the CIT(A)'s bifurcation and disallowance of deduction under Section 80P(2)(d) in respect of interest on investments was correctly made without giving the assessee an opportunity of being heard. - HELD THAT: - The Tribunal found that the CIT(A) had on a fresh basis bifurcated the assessee's claim between Section 80P(2)(a)(i) and Section 80P(2)(d) (treating interest on FDs as not eligible under 80P(2)(d)) without affording the assessee an opportunity to be heard on that new basis. While the Tribunal agreed with the legal view that interest on investments may not qualify under Section 80P(2)(d) where the society is effectively carrying on distinct investment activity, it nonetheless observed that the CIT(A) must afford the assessee a chance to meet the adverse inference before finally denying the portion of deduction. Consequently, the Tribunal set aside the denial of the specified amount and restored that issue to the file of the CIT(A) for fresh adjudication with directions to provide a sufficient opportunity of hearing to the assessee. [Paras 13]

Part of the claim (interest on investments claimed under Section 80P amounting to the specified sum) restored to the file of CIT(A) for fresh adjudication with opportunity of being heard; matter remanded for limited reconsideration.

Deduction under Section 80P(2)(a)(i) - deduction under Section 80P(2)(d) for interest on investments - Disposition of cross appeals for A.Y. 2012-13 and A.Y. 2013-14 between the assessee and the revenue. - HELD THAT: - Applying the reasoning and directions given for A.Y. 2012-13, the Tribunal disposed the cross appeals for A.Y. 2013-14 mutatis mutandis. The revenue's appeals challenging allowance of deduction under Section 80P(2)(a)(i) were dismissed. The assessee's appeals were allowed for statistical purposes, subject to the remand direction to the CIT(A) to re-adjudicate the limited issue concerning interest on investments after affording opportunity of hearing. [Paras 12, 22, 23]

Revenue appeals for both years dismissed; assessee's appeals allowed for statistical purposes, with the limited remand directed in favour of the revenue on the investment-interest component.

Final Conclusion: The Tribunal affirmed that the assessee (a co-operative credit society) is entitled to deduction under Section 80P(2)(a)(i) for the amounts attributable to its credit activities and dismissed the revenue appeals. However, the Tribunal set aside and remanded the limited question of denial of deduction in respect of interest on investments (treated under Section 80P(2)(d)) to the CIT(A) for fresh adjudication after affording the assessee a proper opportunity of hearing; the parties' appeals are otherwise disposed of in the terms stated.

Jurisdiction under section 153C of the Income tax Act, 1961 - incriminating material requirement for exercise of section 153C - allowability of interest on related party loan after subsequent agreement - deductibility of foreign exchange restatement loss as revenue expenditure under Accounting Standard (AS) 11 - non applicability of section 14A disallowance where no exempt income is earned - deletion of penalty under section 271(1)(c) when underlying additions are deleted - application of ratio in Sinhgad Technical Education Society - application of ratio in Kabul Chawla - application of ratio in CIT vs Woodward Governor India Pvt. Ltd. - application of ratio in Cheminvest Ltd. vs CIT

Jurisdiction under section 153C of the Income tax Act, 1961 - incriminating material requirement for exercise of section 153C - application of ratio in Sinhgad Technical Education Society - application of ratio in Kabul Chawla - Validity of assessment framed under section 153C read with section 143(3) in AY 2005-06 in the absence of any incriminating material relating to the disallowance. - HELD THAT: - The Assessing Officer made a disallowance of ROC fees (20%) and completed assessment under section 153C r.w.s. 143(3). The Tribunal examined whether jurisdiction under section 153C could be exercised when no incriminating material relating to that disallowance was found or seized from the searched person. Relying on the ratio in Sinhgad Technical Education Society and Kabul Chawla, the Tribunal held that in the absence of any incriminating material found during the search relating to the disallowance, the Assessing Officer could not validly exercise jurisdiction under section 153C for that assessment year. The assessment order was held to be bad in law and set aside. [Paras 4, 5, 8, 10, 11]

Assessment framed under section 153C r.w.s. 143(3) for AY 2005-06 is invalid and set aside; additional ground allowing this challenge is allowed.

Allowability of interest on related party loan after subsequent agreement - application of ratio in CIT vs Woodward Governor India Pvt. Ltd. - Allowability of interest claimed on loan from holding company Y2K Systems (AYs 2007-08 and 2008-09) which was originally interest free but subsequently made interest bearing. - HELD THAT: - The loan from the holding company was advanced in 2002 as an interest free facility and later extended by a fresh agreement effective 01.04.2006 providing interest at 6%. The Tribunal noted that the Tribunal in relation to AY 2003-04 has subsequently accepted the genuineness of the loan (order dated 01.07.2019). The parties validly converted the earlier interest free arrangement into an interest bearing obligation by agreement; therefore interest claimed for the years under appeal is allowable as revenue expenditure. The claim for AY 2007-08 is allowed, and the identical contention for AY 2008-09 is allowed on the same reasoning. [Paras 13, 15, 16, 17, 18]

Interest on the related party loan is allowable for AYs 2007-08 and 2008-09; grounds of appeal on this point are allowed.

Deductibility of foreign exchange restatement loss as revenue expenditure under Accounting Standard (AS) 11 - application of ratio in CIT vs Woodward Governor India Pvt. Ltd. - Allowability of foreign exchange loss arising on restatement of US$ loan as deductible revenue expenditure in AY 2009-10. - HELD THAT: - The assessee restated the foreign currency loan in accordance with AS 11 and claimed the resulting diminution as a revenue loss. Although the loan had earlier been contested, the Tribunal in AY 2003-04 has accepted the genuineness of the loan. Applying accounting principles under AS 11 and the Supreme Court's decision in Woodward Governor, the Tribunal held that gains or losses on restatement are to be recognised in profit and loss and are deductible or taxable as the case may be. The foreign exchange loss claimed in AY 2009-10 was therefore held to be allowable as revenue expenditure. [Paras 21, 22, 24]

Foreign exchange loss on restatement of the loan in AY 2009-10 is allowable as revenue expenditure; grounds challenging its allowance are allowed.

Non applicability of section 14A disallowance where no exempt income is earned - application of ratio in Cheminvest Ltd. vs CIT - Validity of disallowance under section 14A in AY 2009-10 where no exempt income was earned during the year. - HELD THAT: - Relying on the High Court's decision in Cheminvest Ltd. v. CIT, the Tribunal observed that where no exempt income is earned in the relevant year, no disallowance under section 14A is warranted. Applying that principle to the facts, the Tribunal held the section 14A disallowance to be not sustainable and allowed the ground raised by the assessee. [Paras 25]

Disallowance under section 14A for AY 2009-10 is deleted; ground raised by the assessee is allowed.

Deletion of penalty under section 271(1)(c) when underlying additions are deleted - Validity of penalty under section 271(1)(c) for AY 2009-10 imposed on account of additions which were subsequently deleted. - HELD THAT: - The penalty was levied on the basis of disallowance of the foreign exchange loss and the section 14A addition. Having deleted those disallowances and additions, the Tribunal found no basis to sustain penalty for concealment of income. Consequently, the Tribunal upheld the CIT(A)'s deletion of penalty and dismissed the Revenue's appeal. [Paras 26, 27]

Penalty under section 271(1)(c) for AY 2009-10 is deleted; Revenue's appeal against deletion is dismissed.

Final Conclusion: The Tribunal allowed all four appeals filed by the assessee (AYs 2005-06, 2007-08, 2008-09 and 2009-10) by setting aside the s.153C assessment for AY 2005-06, allowing interest and foreign exchange loss deductions and deleting the s.14A disallowance; the Revenue's appeal against deletion of penalty for AY 2009-10 is dismissed.

Identity, genuineness and creditworthiness of unsecured loans (application of the test under section 68) - treatment of opening balances accepted in preceding assessment year - addition on account of sundry creditors representing purchases made during the year - remand for verification of confirmations filed before appellate authority - business purpose test for disallowance of interest on investments

Identity, genuineness and creditworthiness of unsecured loans (application of the test under section 68) - treatment of opening balances accepted in preceding assessment year - Deletion of addition of Rs. 2,21,25,000/- made on account of unsecured loans - HELD THAT: - The Tribunal found that the assessee had placed before the Assessing Officer the audit report disclosing names, addresses and PANs of lenders, confirmations of fresh loans, and copies of lenders' ITRs and bank statements. Fresh loans during the year were limited to the amount shown in the audit report and were routed through banking channels. The immediately preceding assessment year had been completed u/s 143(3) and opening balances were therefore not liable to be added. On appreciation of these materials the CIT(A) rightly concluded that the identity, genuineness and creditworthiness of the credits were established and the AO erred in making the addition without dealing with the evidence on record. [Paras 5]

Addition deleted; revenue's ground dismissed.

Addition on account of sundry creditors representing purchases made during the year - treatment of opening balances accepted in preceding assessment year - remand for verification of confirmations filed before appellate authority - Deletion of addition of Rs. 3,54,63,946/- on account of sundry creditors, with partial restoration to AO for verification - HELD THAT: - The Tribunal recorded that confirmations in respect of Rs. 1,96,52,805.72 were filed before the AO and showed outstanding balances arising from opening balances and purchases made during the year; additional confirmations amounting to Rs. 1,62,12,538.37 were furnished only before the CIT(A). Citing settled law that opening balances accepted in the immediately preceding assessment year and amounts representing unpaid price of purchases cannot be added where books are not rejected and trading results stand undisturbed, the Tribunal sustained deletion insofar as confirmations were before the AO. However, because confirmations totalling Rs. 1,62,12,538.37 were submitted first at the appellate stage, the Tribunal restored that portion to the file of the AO with directions to verify from purchase bills and accounts whether the outstanding amounts consist of opening balance or purchases; if so, no addition should follow. [Paras 5]

Deletion sustained for Rs. 1,96,52,805.72; Rs. 1,62,12,538.37 restored to AO for verification; ground partly allowed for statistical purposes.

Business purpose test for disallowance of interest on investments - Deletion of disallowance of interest of Rs. 4,28,550/- on account of investments in insurance scheme and FDRs - HELD THAT: - The CIT(A) found as a factual matter that the investment in the bank-linked insurance scheme and FDRs was obligatory in the context of availing bank facilities, the investments were in the names of the firm's partners, maturity proceeds were deposited in the firm's bank account and subsequently utilised for business purposes. The Department failed to demonstrate any factual infirmity in those findings. On that basis the Tribunal upheld the appellate authority's conclusion that the investments served a business purpose and the interest disallowance was rightly deleted. [Paras 5]

Addition deleted; revenue's ground dismissed.

Final Conclusion: For AY 2013-14 the Tribunal upheld deletion of the unsecured loans addition and the disallowance of interest on investments; it sustained deletion in respect of sundry creditors where confirmations were before the AO but remanded Rs. 1,62,12,538.37 to the AO for verification of purchase bills and opening balances, and the revenue's appeal is partly allowed for statistical purposes.

Threshold for departmental appeals / tax-effect limit - retrospective applicability of administrative litigation policy - liberty to recall or restore appeals in exceptional cases - bar of limitation on imposition of penalty - section 275(1)(a) limitation - section 275(1A) inapplicable where no penalty is passed within limitation

Threshold for departmental appeals / tax-effect limit - retrospective applicability of administrative litigation policy - liberty to recall or restore appeals in exceptional cases - Whether departmental appeals in which the tax effect does not exceed Rs.50,00,000 are maintainable and whether the CBDT circular dated 8th August 2019 applies to pending appeals. - HELD THAT: - The Tribunal found that the CBDT Circular No.17/2019 (8th August 2019) enhances monetary limits for filing departmental appeals and must be read with the earlier Circular No.3/2018. Paragraph 13 of the earlier circular, retained in substance, expressly provides for retrospective application to pending SLPs/appeals/cross objections/references and permits withdrawal of pending appeals below the specified tax limits. In view of this, the concession in the 8th August 2019 circular applies to appeals pending on the date of the circular as well as to appeals to be filed thereafter. The Tribunal consequently dismissed the Revenue's appeal as withdrawn for low tax effect. The Tribunal nevertheless recognised the possibility of calculation errors or permissive exceptions under the circular and accordingly granted liberty to the Department to seek recall and restoration of any appeal which, upon verification, is shown to exceed the monetary threshold or falls within the specified exceptions; the Tribunal will grant opportunity of hearing before recalling any summary dismissal. [Paras 5, 6, 7, 8, 9]

Appeals in which the tax effect does not exceed Rs.50,00,000 are not maintainable and the CBDT circular dated 8th August 2019 applies retrospectively to pending appeals; the Revenue's appeal is dismissed as withdrawn, subject to liberty to seek recall in exceptional or verifiable erroneous cases.

Bar of limitation on imposition of penalty - section 275(1)(a) limitation - section 275(1A) inapplicable where no penalty is passed within limitation - Whether the penalty imposed under section 271(1)(c) was time barred and whether section 275(1A) governed the limitation in the facts of the case. - HELD THAT: - The Tribunal analysed section 275 and its sub sections. Section 275(1)(a) prescribes that where the relevant order is the subject matter of appeal to the Commissioner (Appeals) or the Tribunal, a penalty order must be passed within the financial year in which penalty proceedings are completed or within six months from the end of the month in which the appellate order is received by the Commissioner, whichever is later. Section 275(1A) permits passing or revising penalty orders by giving effect to subsequent appellate or revision orders, but it presupposes that a penalty order is passed within the statutory limitation; it does not enlarge limitation where no penalty has been lawfully passed within time. On the facts, the Tribunal noted that the order giving effect to the Tribunal's decision was dated 24/09/2014 and thus received in September 2014; the penalty was imposed on 27/01/2016, beyond the limitation period computed under section 275(1)(a). Accordingly, section 275(1A) did not operate to save the belated penalty. The Tribunal agreed with the CIT(A) that the penalty order was barred by limitation and upheld the deletion of the penalty. [Paras 17, 18, 19]

Penalty imposed under section 271(1)(c) is time barred under section 275(1)(a); section 275(1A) does not apply to validate a penalty passed after the limitation period.

Final Conclusion: Both appeals filed by the Revenue are dismissed: the appeal challenging the appellate order is dismissed as withdrawn under the CBDT litigation policy threshold (applied to pending appeals) subject to liberty to seek recall in identified exceptional cases; the appeal against deletion of penalty is dismissed by confirming that the penalty was time barred and correctly deleted.

Exemption of long-term capital gain under section 10(38) - unexplained cash credit under section 68 - addition under section 69C / treatement of sale proceeds as accommodation entry - circumstantial evidence and test of human probabilities - admissibility and sufficiency of documentary evidence (contract notes, demat records, STT and bank credits) - reliance on investigation reports and statements of entry operators - opportunity to cross-examine / disclosure of material relied upon

Exemption of long-term capital gain under section 10(38) - unexplained cash credit under section 68 - circumstantial evidence and test of human probabilities - admissibility and sufficiency of documentary evidence (contract notes, demat records, STT and bank credits) - Whether long-term capital gains claimed as exempt under section 10(38) could be rejected and treated as unexplained cash credit where circumstantial evidence shows arranged accommodation entries and the assessee failed to discharge onus of proving genuineness of transactions - HELD THAT: - The Tribunal examined whether the documentary records produced by the assessee (broker debit notes, contract notes, demat statements, STT challans and bank credits) sufficed to prove genuineness of purchases and sales. It accepted Revenue's compilation of circumstantial factors: off market purchases in physical form, purchases in cash without supporting receipts, dematerialization only immediately prior to sales, astronomical and simultaneous rise in prices of multiple thinly traded scrips without commensurate financial performance, suspension/XT category trading alerts by the stock exchange, and linkage of brokers/concerns to admitted accommodation entry operators. Applying the test of human probabilities, the Tribunal held that such a consistent pattern across all scrips was not reasonably explicable as innocent market movement or mere windfall. The Court treated these consistent circumstantial facts as legally sufficient to conclude that the sales were part of arranged accommodation entries and that the amounts credited were unexplained cash credit. The Tribunal distinguished the cases cited by the assessee on their facts and relied on precedent upholding additions where share price rise was unsupported by company fundamentals. Consequently, the Tribunal upheld the rejection of exemption under section 10(38) and the addition under section 68 (and related treatment under section 69C) as justified on the materials before the authorities. [Paras 6]

Assessee failed to prove genuineness of transactions; exemption under section 10(38) disallowed and additions under section 68 (and related treatment under section 69C) upheld.

Reliance on investigation reports and statements of entry operators - opportunity to cross-examine / disclosure of material relied upon - Whether reliance on investigation material and statements (including statement of an admitted entry operator) without furnishing the entire investigation dossier to the assessee vitiates the assessment and requires quashing - HELD THAT: - The Tribunal noted that the authorities did not rely solely on the statement of brokers or the investigation report; they considered a range of corroborative circumstantial evidence which was put to the assessee and on which the assessee was given opportunity to explain the transactions. The Tribunal held that absence of production of the entire investigation dossier did not render the proceedings invalid where independent and cogent corroborative material existed and the assessee was afforded chance to justify the transactions. The Tribunal therefore found the principle in the case relied upon by the assessee inapplicable on the facts. [Paras 3, 6]

Reliance on investigation material and broker statements, in conjunction with other corroborative circumstantial evidence, did not vitiate assessment; no quashing was warranted for non-production of the entire investigation dossier.

Final Conclusion: The Tribunal dismissed the appeals, holding that the assessee failed to discharge the burden to prove genuineness of the purchase sale transactions; the claimed exemption under section 10(38) was rightly disallowed and additions under section 68 (and related treatment under section 69C) were sustained, and non production of the complete investigation file did not invalidate the assessment in the presence of corroborative material.

Rejection of books of account under section 145(3) - Assessment by estimation on best judgment under section 144 - Use of assessee's past profit history as basis for estimation - Net profit rate (NP) applied on turnover for estimation - Treatment of interest on fixed deposits furnished as performance guarantee as business income - Penalty under section 271(1)(c) consequential on deleted addition

Rejection of books of account under section 145(3) - Assessment by estimation on best judgment under section 144 - Use of assessee's past profit history as basis for estimation - Net profit rate (NP) applied on turnover for estimation - Whether additions made by applying NP rates of 8% (AO) and 11% (CIT(A)) were justified after rejection of books of account - HELD THAT: - Once the books were rejected under section 145(3), income had to be assessed by estimation under section 144 on relevant, proper and reasonable criteria rather than arbitrariness. Where the assessee's own past profit history is available and not disputed, that history constitutes the preferred and reliable basis for estimation instead of adopting a disparate NP rate without proper comparability. The Tribunal found the assessee's net profit before tax, interest and depreciation for the year under consideration (5.38%) to be in line with the average of the preceding three years (5.11%), and therefore no trading addition was warranted. The CIT(A)'s exercise of examining alleged bogus subcontract payments and enhancing income by applying a higher NP rate was held to be irrelevant and inconsistent with the principle that estimation based on turnover and appropriate NP history must govern the assessment after rejection of books. The AO's and CIT(A)'s adopted NP percentages lacked a proper basis in the facts of this case and could not justify the additions.

Additions made by applying NP rates and the enhancement by the CIT(A) are deleted; no trading addition is warranted.

Method of accounting for recognition of revenue - Closing contract work treated as inventory/closing stock vs. sale - Whether Rs. 5,00,000 shown as closing stock for uncertified contract work should be treated as sales for the year - HELD THAT: - The assessee consistently followed a method of accounting whereby revenue from a contract was recognized subject to certification by the awarder company; uncertified contract value was shown as closing stock and offered in income in the subsequent year. This is a method of accounting with no immediate revenue effect and, if followed consistently, treating the amount as sales for the year under appeal would result in double taxation. Accordingly, the addition on this account was not justified.

Addition relating to the Rs. 5,00,000 shown as closing stock is deleted.

Treatment of interest on fixed deposits furnished as performance guarantee as business income - Whether interest earned on FDRs furnished as security/performance guarantee is business income or income from other sources - HELD THAT: - The FDRs were placed to furnish performance guarantees required to secure the assessee's contracts. The revenue did not dispute that fact. Interest on such deposits has a direct nexus with the assessee's business activity of executing contracts and is incidental to securing and carrying on that business. In view of binding decisions of the Jurisdictional High Court and coordinate Tribunal precedents relied upon by the parties, interest on FDRs used for performance guarantees must be treated as business income and not as income from other sources.

Interest on FDRs taken for furnishing performance guarantees is held to be business income and is accepted in favour of the assessee.

Penalty under section 271(1)(c) consequential on deleted addition - Whether penalty under section 271(1)(c) sustained after deletion of the enhancement - HELD THAT: - The CIT(A) levied penalty in respect of the enhancement he had made. Having held that the enhancement was unwarranted and deleted it on the quantum appeal, the consequential penalty could not survive. Further, the Tribunal noted that penalty in respect of additions made on estimation is not justified in view of coordinate bench precedent relied upon by the assessee.

Penalty under section 271(1)(c) is deleted.

Final Conclusion: Both appeals of the assessee are allowed: the trading additions and enhancement based on applying arbitrary NP rates are deleted, the Rs.5,00,000 closing stock addition is deleted, interest on FDRs furnished as performance guarantees is treated as business income, and the consequential penalty under section 271(1)(c) is deleted.

Liquidation under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 - Commencement of liquidation and fresh moratorium under Section 33(5) of the Insolvency and Bankruptcy Code, 2016 - Appointment of Liquidator and duties under the Insolvency and Bankruptcy (Liquidation Process) Regulations - Public announcement and statutory intimation to regulatory and fiscal authorities - Order of discharge to officers, employees and workmen under Section 33(7) of the Insolvency and Bankruptcy Code, 2016 - Extension of CIRP period under Section 12(2) of the Insolvency and Bankruptcy Code, 2016 - Failure to receive a resolution plan within the insolvency period as ground for liquidation

Failure to receive a resolution plan within the insolvency period as ground for liquidation - Liquidation under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 - Corporate debtor ordered to be liquidated where no resolution plan was received within the permissible CIRP period. - HELD THAT: - The Tribunal found that although the Corporate Insolvency Resolution Process was admitted and the CIRP period was extended under Section 12(2), no resolution plan was received by the Committee of Creditors within the maximum period available. In view of the statutory mandate in Section 33(1) - where no resolution plan is received before expiry of the insolvency resolution process period or the maximum permitted period, or where a plan is rejected under section 31 - the adjudicating authority is required to pass an order for liquidation. Applying that statutory scheme to the facts (including the CoC meetings and the expiry of the extended CIRP period), the Tribunal was constrained to order liquidation of the Corporate Debtor and to give effect to liquidation commencement in terms of Chapter III of the IBC and the Liquidation Process Regulations. [Paras 15, 16, 17, 18]

Order that the corporate debtor be liquidated with effect from the date of this order.

Appointment of Liquidator and duties under the Insolvency and Bankruptcy (Liquidation Process) Regulations - Public announcement and statutory intimation to regulatory and fiscal authorities - Order of discharge to officers, employees and workmen under Section 33(7) of the Insolvency and Bankruptcy Code, 2016 - Appointment of a liquidator and directions for conduct of liquidation including public announcement, intimation to authorities and discharge of employees. - HELD THAT: - On liquidation being ordered, the Tribunal appointed the then Resolution Professional as Liquidator (who had consented) and directed her to carry out the liquidation process in accordance with the Insolvency and Bankruptcy Code and the Insolvency and Bankruptcy (Liquidation Process) Regulations. The Tribunal directed issuance of the statutory public announcement, communication of the order to the Registrar of Companies and the Insolvency and Bankruptcy Board of India, and intimation to fiscal/regulatory authorities (including the Income Tax Department) as required. The order was also treated as a notice of discharge to officers, employees and workmen under Section 33(7). The Liquidator was directed to submit a Preliminary Report within the regulated time-frame and to proceed with liquidation in accordance with the relevant regulations. [Paras 18]

Ms. Sarita Duck appointed as Liquidator with directions to make public announcement, intimate authorities, treat order as discharge notice to staff, and to conduct liquidation as per law and submit the Preliminary Report within the prescribed period.

Pending applications that bear on liquidation to be listed along with the main insolvency petition - Pending interlocutory applications that have bearing on liquidation to be placed before the Tribunal in the liquidation proceedings. - HELD THAT: - The Tribunal observed that several pending applications filed by the Resolution Professional and third parties related to possession, claims, avoidance or recovery had direct bearing on issues arising in liquidation. Rather than adjudicating them separately at this stage, the Tribunal directed that those listed IAs be taken up along with the main insolvency petition as part of the liquidation process so that matters relevant to realization and distribution can be considered in the liquidation proceedings. [Paras 18]

Pending IAs specified in the order are to be listed and dealt with along with the liquidation proceedings in IB No. 726/ND/2018.

Final Conclusion: The Tribunal ordered liquidation of Balajidham Buildestates Pvt. Ltd. on account of failure to receive a resolution plan within the permitted CIRP period (after extension), appointed the named Liquidator with statutory directions to commence and conduct liquidation (including public announcement and intimation to authorities), treated the order as discharge to employees, and directed pending applications bearing on liquidation to be listed in the liquidation proceedings.

Moratorium under Section 14 of the I&B Code - Essential supplies (electricity) under Regulation 32 - Prohibition on disconnection of essential supplies during CIRP - Operational Creditor - Resolution Professional's duties in CIRP - Adjustment/set-off of payments made for pre CIRP dues against current CIRP charges - Resolution Plan approved under Section 31 of the I&B Code - Escrow deposit for restoration of supply

Moratorium under Section 14 of the I&B Code - Essential supplies (electricity) under Regulation 32 - Prohibition on disconnection of essential supplies during CIRP - Electricity supply could not be disconnected during the Corporate Insolvency Resolution Process. - HELD THAT: - The moratorium imposed by Section 14(1)-(2) of the I&B Code prevents termination, suspension or interruption of essential supplies during the CIRP. Regulation 32 identifies electricity as an essential supply. On that basis the Tribunal held that the Electricity Board was not entitled to disconnect supply during the CIRP and such disconnection violated Section 14(2). [Paras 21, 22, 23]

Disconnection of electricity during CIRP was impermissible and contrary to the moratorium; the Electricity Board should not have disconnected supply.

Resolution Professional's duties in CIRP - Operational Creditor - Adjustment/set-off of payments made for pre CIRP dues against current CIRP charges - Payments made by the Resolution Professional towards pre CIRP dues for restoration of supply should not have been made and, if made, are to be adjusted against current CIRP charges; any surplus found due to such adjustment should be returned by the Electricity Board. - HELD THAT: - The Tribunal held that the Resolution Professional ought not to have paid pre CIRP arrears to secure restoration of electricity. Instead the matter should have been brought before the Adjudicating Authority to secure restoration while providing for payment of current CIRP period charges. If earlier payments were made, those payments should be adjusted against the current charges; and if, after adjustment, an amount remains payable back to the Corporate Debtor, the Electricity Board should return it. This approach preserves the moratorium and ensures proper treatment of operational claims and payments in the CIRP. [Paras 24, 25, 27]

The Resolution Professional should not have paid pre CIRP dues to restore supply; such payments, if made, must be adjusted against current CIRP charges and any excess returned by the Electricity Board.

Resolution Plan approved under Section 31 of the I&B Code - Escrow deposit for restoration of supply - Resolution Professional's duties in CIRP - The Adjudicating Authority could not, after approval of the Resolution Plan, pass the impugned order directing release of the escrowed amount to the Electricity Board; the impugned order was set aside. - HELD THAT: - The Tribunal found that once the Resolution Plan had been approved under Section 31, the Adjudicating Authority was not entitled to subsequently order release of the escrowed deposit in the manner effected by the impugned order dated 25th February, 2019. Given the earlier conclusions on impermissible disconnection and required adjustment of pre CIRP payments against current charges, the order releasing the escrowed sums to the Electricity Board could not stand. Accordingly the impugned order was set aside and the appeals were allowed. [Paras 28, 29]

The impugned order releasing the escrowed amount to the Electricity Board is set aside; appeals allowed.

Final Conclusion: The Tribunal held that disconnection of electricity during CIRP was impermissible, that the Resolution Professional should not have paid pre CIRP dues to secure restoration (such payments must be adjusted against current CIRP charges with any surplus returned), and that the Adjudicating Authority's subsequent order releasing the escrowed deposit to the Electricity Board was not permissible; the impugned order dated 25th February, 2019 is set aside and the appeals are allowed.

Summary order. Appeal admitted on three substantial questions of law concerning (i) applicability of CBEC Circulars regarding provisional assessment in absence of an order under Rule 9B, (ii) whether assessments for 1990-1991 to 1993-1994 are provisional without a specific Rule 9B order, and (iii) whether limitation bars substantial portion of the demand for specified periods; stay application disposed of; informal paper books to be filed by 29th November, 2019; appeal listed for hearing on 11th December, 2019.

Summary order. Appeal CEA No.76/2019 dismissed as withdrawn on appellant-Revenue's application permitting withdrawal in view of revised departmental instructions and affidavit; permission to withdraw granted and appeal dismissed as withdrawn.

Suppressed sales - shortage in closing stock - estimate bills and credit note books - admission of suppression - re-assessment to the best of its judgment under Section 39(1) of the Act - best judgment assessment - penalty under Section 72(2) of the Act - remand for redetermination of penalty

Suppressed sales - estimate bills and credit note books - admission of suppression - best judgment assessment - Enhancement of turnover by addition equal to the suppressed sales discovered from estimate bill books and credit note books. - HELD THAT: - The Prescribed Authority was empowered under the statute to re-assess to the best of its judgment where there are grounds to believe that the return understates the correct tax liability. The Enforcement Authority discovered seven estimate bill books and credit note books and the assessee admitted suppression on two inspections; these circumstances constituted adequate material to form the basis for estimating escaped turnover. Reliance on precedents recognising that detection over a limited period may be extrapolated to estimate escaped turnover for the relevant assessment period supports the addition. The appellate modification deleting a general 10% addition to other months does not affect the validity of the specific enhancement for the month in which suppression was detected. Accordingly the challenge to the addition equal to the suppressed sales is rejected and the assessment confirmed. [Paras 8, 9, 10, 11]

Addition of turnover equal to the suppressed sales shown in the estimate bills and credit note books upheld and answered against the assessee.

Shortage in closing stock - suppressed sales - re-assessment to the best of its judgment under Section 39(1) of the Act - Treatment of the noted stock difference (shortage in closing stock) as suppressed turnover and addition of equal value to turnover. - HELD THAT: - The shortage in closing stock observed during inspection indicated that goods liable to tax had not been properly accounted for in the books, corroborating a pattern of not maintaining regular accounts and unrecorded sales. Such material furnished a valid basis for the Prescribed Authority to include the deficit in stock within the enhanced turnover in a best judgment assessment. The Tribunal and appellate authorities correctly sustained the addition on this ground in the facts of the case. [Paras 9, 10, 11]

Addition on account of shortage in closing stock treated as suppressed turnover upheld and answered against the assessee.

Penalty under Section 72(2) of the Act - remand for redetermination of penalty - return filed disclosing detected turnover - Validity and quantum of the penalty imposed under Section 72(2) in view of the return filed by the assessee disclosing the detected turnover. - HELD THAT: - Although the enforcement detection and subsequent admission sustained the assessments, the Court found it necessary that the penalty component under Section 72(2) be revisited because the assessee had filed a return for September, 2013 disclosing the turnover detected by the Enforcement Authority. Consequently, the matter of penalty was not finally adjudicated on merits by this Court; the Prescribed Authority is directed to consider the return submitted by the assessee and re-determine the penalty in accordance with the statutory provision in an expedited manner. [Paras 6, 11, 12]

Penalty under Section 72(2) is remanded to the Prescribed Authority for re-determination in accordance with law.

Final Conclusion: Except for the penalty under Section 72(2) which is remitted for re-determination by the Prescribed Authority in view of the return filed for September, 2013, the additions made to turnover on account of suppressed sales discovered from estimate bill and credit note books and on account of shortage in closing stock are upheld and the questions of law raised on those points are answered against the assessee.

Finality clause - Excepted matters - Non-arbitrability of decision on liquidated damages - Mechanism for quantification of compensation by administrative officer - Liquidated damages vis-a -vis penalty - Scope of arbitration clause

Non-arbitrability of decision on liquidated damages - Finality clause - Mechanism for quantification of compensation by administrative officer - Excepted matters - Levy of pre-estimated liquidated damages and reasonable compensation by the Superintending Engineer under Clause 2 is not arbitrable and is an excepted matter. - HELD THAT: - Clause 2 confers upon the Superintending Engineer both the power to levy compensation for delay and a complete mechanism to assess and quantify such compensation, expressly providing that the Superintending Engineer's decision "shall be final". Read with Clause 25, which excludes from arbitration those matters where the contract itself provides a named adjudicator, the finality clause operates to place determination under Clause 2 outside the scope of the arbitration agreement. The Court applied the reasoning in Vishwanath Sood v. Union of India and Another and Food Corporation of India v. Sreekanth Transport to hold that where parties have consciously vested final adjudicatory power in an administrative officer, that decision is an excepted matter not amenable to arbitration. Distinguishing Bharat Sanchar Nigam Limited and another v. Motorola India (P) Ltd. , the Court observed that unlike the clause in BSNL which contemplated a prior adjudication of liability (i.e., existence of delay) before quantification, Clause 2 here itself creates the liability and the quantification mechanism vested in the Superintending Engineer; consequently the question of levy and quantum under Clause 2 cannot be reopened in arbitration. [Paras 16, 19, 21, 24, 25]

Levy and quantification of compensation under Clause 2 are excepted from arbitration; such decisions by the Superintending Engineer are final and not arbitrable.

Scope of arbitration clause - Liquidated damages vis-a -vis penalty - Arbitrator's jurisdiction - The Arbitrator exceeded his jurisdiction in adjudicating Claim No.6 (challenge to the levy of compensation under Clause 2) and the Division Bench rightly set aside the Arbitrator's award insofar as it disallowed ONGC's claimed compensation. - HELD THAT: - The Arbitrator treated the compensation as a penalty and on that basis disallowed the sums levied by ONGC; however, because Clause 2 makes the decision of the Superintending Engineer final and constitutes an excepted mechanism for determination of liability and quantum, the Arbitrator had no jurisdiction to entertain a challenge to that levy. The Division Bench correctly exercised its appellate power under Section 37 to reverse the Arbitrator's finding on Claim No.6, applying the ratio in Vishwanath Sood and Food Corporation of India . The Court found no error in the Division Bench's conclusion that the levy was not an afterthought and that the Arbitrator had travelled beyond the contractually defined scope of arbitration. [Paras 7, 23, 24, 25, 26]

Award set aside to the extent it adjudicated Claim No.6; Arbitrator exceeded jurisdiction in entertaining a challenge to the Superintending Engineer's levy under Clause 2.

Final Conclusion: Appeals dismissed. The decision of the Superintending Engineer under Clause 2 is an excepted matter and not arbitrable; the award was set aside insofar as it disallowed the levy under Clause 2, and the orders of the High Court Division Bench were upheld. Directions in the impugned order regarding adjustment/refund were implemented as recorded by the Court.