TaxTMI Updates e-Newsletter
Nov 13,2021

Extension of period of limitation - exclusion of period in computation of limitation - fixed residual limitation of 90 days subject to longer actual balance - application of exclusion to arbitration and negotiation-instruments provisions and Commercial Courts provisions - exercise of powers under Article 142 read with Article 141 of the Constitution - regulated movement in containment zones for time bound legal purposes

Extension of period of limitation - exclusion of period in computation of limitation - Exclusion of the period from 15.03.2020 to 02.10.2021 from computation of limitation is restored and directed to be applied to all suits, appeals, applications and proceedings. - HELD THAT: - The Court, having taken suo motu cognizance of the difficulties caused by the COVID 19 pandemic and having earlier issued and modified orders, concluded that continuation of the initial universal suspension is no longer required but that the limited exclusion effected by the order of 08.03.2021 should be restored with a defined terminal date. Consequently, the period from 15.03.2020 until 02.10.2021 shall stand excluded for computing limitation, and any balance limitation remaining as on 15.03.2021 shall become available from 03.10.2021. The decision reflects the consensus of the parties and the Court's assessment of the prevailing public health situation.

Period from 15.03.2020 to 02.10.2021 excluded from computation of limitation; balance period as on 15.03.2021 available from 03.10.2021.

Fixed residual limitation of 90 days subject to longer actual balance - In cases where limitation would have expired between 15.03.2020 and 02.10.2021, parties shall have 90 days from 03.10.2021 to file, but if the actual balance period available from 03.10.2021 exceeds 90 days, that longer period shall apply. - HELD THAT: - The Court retained the one time remedial measure adopted on 08.03.2021 by continuing the 90 day protective window from the date when the excluded period ends. This preserves a uniform short window for filings for matters whose limitation expired during the excluded period while protecting claimants whose unexpired balance (computed as on 15.03.2021) is longer than 90 days by allowing that longer period to apply. The Court declined to modify this condition in substance.

A 90 day limitation from 03.10.2021 applies to matters whose limitation expired during the excluded period, subject to any longer actual balance available from 03.10.2021.

Application of exclusion to arbitration and negotiation-instruments provisions and Commercial Courts provisions - The exclusion of the period from 15.03.2020 to 02.10.2021 applies to periods prescribed under Sections 23(4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015, provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881, and any other laws prescribing limitation, outer limits for condonation or termination. - HELD THAT: - Recognising the particular statutory periods that bear on institution, condonation and termination of proceedings, the Court clarified that the exclusion shall be applied to those specified provisions and, by extension, to other laws with analogous limitation or outer limit provisions. This ensures uniform treatment across ordinary and special limitation regimes identified in the order.

The exclusion applies to the specified provisions of the Arbitration Act, Commercial Courts Act and Negotiable Instruments Act and to other laws prescribing limitation or outer limits.

Regulated movement in containment zones for time bound legal purposes - exercise of powers under Article 142 read with Article 141 of the Constitution - The Government is directed to amend containment zone guidelines to permit regulated movement for medical emergencies, essential goods and services, and other necessary functions including time bound applications for legal purposes; the Court exercised its constitutional powers to issue binding directions. - HELD THAT: - The Court noted that, notwithstanding restoration of the limited exclusion, containment zones still exist in some areas and practical access to time bound legal processes must be ensured. Using its powers under Article 142 read with Article 141, the Court directed amendment of containment guidelines to permit regulated movement for specified necessities, including legal and time bound applications, so as to give effect to the orders on limitation and prevent prejudice to litigants.

Government to amend containment guidelines to allow regulated movement for specified essential and time bound legal purposes; direction issued under Article 142 read with Article 141.

Final Conclusion: The Court disposed of the Miscellaneous Application restoring the limited exclusion of the period from 15.03.2020 to 02.10.2021 from computation of limitation, prescribed a 90 day (or longer actual balance) window from 03.10.2021 for matters whose limitation expired in the excluded period, declared that the exclusion applies to specified statutory provisions and similar laws, and directed amendment of containment zone guidelines to permit regulated movement for time bound legal and other essential purposes.

Summary order. Exemption application allowed subject to all just exceptions; writ petition issued notice; respondent to file counter-affidavit within four weeks and petitioner may file rejoinder; matter listed on 18th April, 2022.

Transitional input tax credit under Section 140 of the CGST Act - one-time filing of revised Form GST TRAN-1 and TRAN-2 - acceptance of transitional credit through GSTR-3B - reopening of GSTN Portal - speaking order

Transitional input tax credit under Section 140 of the CGST Act - one-time filing of revised Form GST TRAN-1 and TRAN-2 - acceptance of transitional credit through GSTR-3B - speaking order - Representation dated 20.3.2020 by the petitioner to seek adjustment of transitional input tax credit be decided by the competent authority. - HELD THAT: - The petitioner sought directions to permit one-time filing of revised Forms GST TRAN-1 and TRAN-2, or alternatively acceptance of transitional input tax credit claimed through GSTR-3B or physical forms, to enable claim of unreflected transitional credit under Section 140. Counsel for the petitioner stated that a representation dated 20.3.2020 had been submitted to the concerned Commissioner and sought issuance of a direction that respondent No.5 decide that representation by passing a speaking order. The Court found the request fair and did not adjudicate the substantive merits of the transitional credit claim. Instead, the Court directed respondent No.5 to consider and dispose of the representation by issuing a speaking order within a specified time frame, leaving the substantive determination to the respondent's consideration. [Paras 5, 6, 7]

Respondent No.5 directed to decide the petitioner's representation dated 20.3.2020 by passing a speaking order within three months from receipt of a certified copy of this order; petition disposed.

Final Conclusion: The petition is disposed of by directing respondent No.5 to decide the petitioner's representation of 20.3.2020 by a speaking order within three months of receipt of a certified copy of this order; no adjudication was made on the substantive claim for transitional input tax credit.

Grant of regular bail - Bailability of abetment under Section 132(1)(l) of the CGST Act - Role of accused in alleged fake-billing network and absence of incriminating recovery - Stalled investigation and prolonged custody - Protective bail conditions to prevent tampering and non-departure

Grant of regular bail - Bailability of abetment under Section 132(1)(l) of the CGST Act - Absence of incriminating material and stalled investigation - Application for regular bail by the accused Sulender Shah was allowed subject to conditions. - HELD THAT: - The court examined the nature of allegations and the progress of investigation against the applicant. The prosecution's case alleged involvement in a fraudulent input tax credit scheme operated through fictitious firms and that the applicant had a role in conversion/collection operations; however, on inquiry the Special Public Prosecutor and Investigating Officer conceded that the charges specifically against the applicant related to abetment as defined under the CGST Act and that abetment under Clause (l) of Section 132 is a bailable offence. The court noted that the applicant had been in custody for an extended period while investigation in respect of him had made no material progress, no incriminating recovery had been effected from him, and there were no allegations or evidence of tampering with evidence or influencing witnesses. The applicant's personal circumstances - a professional qualification, pursuit of higher studies, family responsibilities and clean antecedents - were taken into account. Applying these considerations, and balancing the bailable character of the specific offence against the need to safeguard the investigation and witnesses, the court concluded that continued incarceration was not warranted and that bail could be granted on appropriate conditions to ensure cooperation and prevent interference with the case.

Bail granted to the applicant on furnishing a personal bond with two local sureties and subject to conditions restraining tampering, inducement of witnesses, requiring cooperation with investigation, provision of contact details, and prohibition on leaving the country without court permission.

Final Conclusion: The bail petition is allowed; the applicant Sulender Shah is admitted to regular bail on execution of bond and compliance with stipulated conditions, while the investigation and any further proceedings remain unaffected.

Disallowance under Section 14A - exempt income - pay out test for expenditure - finality of earlier assessment and effect on subsequent taxation of recoveries - remand for verification of earlier disallowance - depreciation on assets leased to third parties - finality of Tribunal's factual findings

Disallowance under Section 14A - exempt income - pay out test for expenditure - Whether disallowance of expenditure under Section 14A is justified where no expenditure has been incurred in relation to exempt income. - HELD THAT: - The Court followed the co-ordinate bench decision which applied the Supreme Court precedents holding that Section 14A disallows deduction only where expenditure has actually been incurred (a 'pay out'). Dividend income in the case before the Tribunal did not involve any expenditure that would attract Section 14A. Applying the established principle that return or diminution in value of investment is distinct from expenditure, the Tribunal was correct in setting aside the disallowance and holding that no disallowance under Section 14A was called for. [Paras 6]

Answered in favour of the assessee; the disallowance under Section 14A was not sustainable.

Finality of earlier assessment and effect on subsequent taxation of recoveries - remand for verification of earlier disallowance - Whether realizations from assets of erstwhile Lakshmi Commercial Bank (LCB) can be taxed where at the time of merger the excess of liabilities over assets was not allowed as deduction, and whether the matter requires reconsideration. - HELD THAT: - The Tribunal recorded that on merger a loss arising from excess liabilities over assets was claimed but was not allowed at that time, and that the question whether that disallowance for assessment year 1988-1989 had attained finality remained pending. The Court held that if the disallowance in the earlier year had attained finality (i.e., the loss was disallowed or allowed finally), it would determine the taxability of subsequent realizations; hence this question requires fresh examination by the Assessing Officer. For want of conclusive material regarding the finality of the earlier assessment, the matter was remitted to the Assessing Officer to verify whether the loss in AY 1988-1989 was disallowed and to proceed according to law. [Paras 7, 8]

Order set aside and matter restored to the Assessing Officer for verification of finality of the AY 1988-1989 treatment; remand for fresh consideration.

Depreciation on assets leased to third parties - finality of Tribunal's factual findings - Whether the assessee-bank was entitled to depreciation on assets leased to M/s. Rajinder Steel and M/s. Kedia Group of Companies. - HELD THAT: - The Tribunal and the CIT(A) found on the materials that the transactions were genuine, the leased assets existed, and the bank was therefore entitled to claim depreciation. The Court applied the principle that appellate interference under Section 260-A is not warranted to overturn concurrent findings of fact recorded by the Tribunal, and followed the co-ordinate bench decision upholding these factual conclusions. Accordingly, the Tribunal's allowance of depreciation was held to be unimpeachable in exercise of the present appellate jurisdiction. [Paras 9]

Answered in favour of the assessee; the entitlement to depreciation on the leased assets is upheld.

Final Conclusion: The appeal is disposed of: the Tribunal's conclusion that no disallowance under Section 14A was called for is upheld; the question of taxation of realizations from LCB's assets is remitted to the Assessing Officer for verification of the finality of treatment in AY 1988-1989; and the Tribunal's factual finding allowing depreciation on assets leased to third parties is sustained.

Violation of Section 13(1)(c) by payment to trustees - Denial of exemption under Section 11 on account of diversion of funds - Charitable purpose - education under Section 2(15) and proviso applicability - Commercialisation of education / capitation fee as voluntary contribution - Revenue's scope to re cast managerial decisions of an educational trust

Violation of Section 13(1)(c) by payment to trustees - Denial of exemption under Section 11 on account of diversion of funds - Revenue's scope to re cast managerial decisions of an educational trust - Whether payments/remuneration to two trustees amounted to diversion of income attracting Section 13(1)(c) and justified denial of exemption under Section 11. - HELD THAT: - The allegation that trustees Sri Suresh Nagpal and Smt Geetha Nagpal were paid remuneration disproportionate to services and that such payments diverted trust income was held to be without basis. The Court reiterated that the revenue cannot usurp the managerial domain of an educational trust by re designing pay structures or supervising administrative choices; suspicion or conjecture alone does not justify denial of exemption. The CIT(A) and the Tribunal had found that the trustees had declared the receipts in their returns and that remuneration aligned with pay scales for the relevant posts; explanations for cash deposits were addressed. Absent cogent material establishing diversion for benefit of specified persons within the meaning of Section 13(1)(c), the Tribunal rightly rejected the revenue's plea and it was impermissible for this Court in exercise of Section 260A to re appreciate underlying facts. [Paras 9]

Alleged breach of Section 13(1)(c) based on trustees' remuneration not established; denial of exemption under Section 11 was not justified.

Charitable purpose - education under Section 2(15) and proviso applicability - Commercialisation of education / capitation fee as voluntary contribution - Whether collection of capitation fees as voluntary contributions and the generation of surplus rendered the institution non charitable under Section 2(15) (or Section 10(23)(c)) and disentitled it to exemption. - HELD THAT: - The Court observed that the proviso to Section 2(15) (inserted by Finance Act, 2008) excluding activities in nature of trade, commerce or business does not apply to objects of education. Reliance was placed on CBDT Circular No.11/2008 and on precedents holding that incidental surplus or generation of surplus from educational activities does not automatically convert the activity into trade or disentitle the trust to exemption. The Tribunal and CIT(A) had considered the factual matrix and concluded there was no intention to carry on business for profit and that the activities fell within charitable education. In absence of material proving commercialization or that receipts exceeded the statutory limits (where relevant), the revenue's contention that capitation fees/voluntary contributions amounted to commercialization was rejected. [Paras 11, 16, 18]

Proviso to Section 2(15) not attracted; generation of surplus or collection of capitation fee in the facts did not amount to commercialization to deny exemption under Section 11.

Final Conclusion: Both substantial questions were answered against the revenue: payments to trustees did not establish diversion under Section 13(1)(c) to deny exemption, and the facts did not show commercialization or disqualification under Section 2(15); the Tribunal's order upholding exemption for assessment years 2009-10 and 2010-11 is sustained, subject to the result of ITA No.47/2013.

Mandatory draft assessment under Section 144C - applicability of Section 144C on remand proceedings - violation of principles of natural justice renders assessment void ab initio - invalidity of consequential revision under Section 263 where assessment is void

Mandatory draft assessment under Section 144C - applicability of Section 144C on remand proceedings - natural justice - Whether the Assessing Officer was required to issue a draft of the proposed assessment order under Section 144C before passing the final assessment order even after remand by the Tribunal. - HELD THAT: - The Court held that the requirement in Section 144C to forward a draft of the proposed order to the eligible assessee is mandatory and applies even when the Assessing Officer is acting pursuant to a remand from the Tribunal. The phrase "in the first instance" cannot be read so as to limit the duty to the initial assessment alone; the statutory scheme and consistent judicial decisions establish that any final assessment order proposing a variation prejudicial to the assessee must be preceded by a draft order to afford the assessee an opportunity to accept or object. Failure to comply with this mandatory procedure results in breach of the principles of natural justice and renders the final assessment order vitiated. The Court relied on the line of High Court decisions which have held that non-issuance of the draft order under Section 144C invalidates the assessment and consequent demand notices, and concluded that the Assessing Officer's action in the second round was likewise subject to Section 144C's mandatory requirement. [Paras 7, 10, 11]

Requirement to issue draft assessment under Section 144C is mandatory even after remand by the Tribunal; failure to do so renders the final assessment order void.

Invalidity of consequential revision under Section 263 where assessment is void - Whether revision proceedings under Section 263 can be sustained where the underlying assessment is vitiated for failure to comply with Section 144C. - HELD THAT: - The Court held that if the assessment itself is void ab initio for non-compliance with the mandatory draft procedure under Section 144C, then any subsequent action taken by the Commissioner in revision under Section 263 is not valid. Since the impugned assessment was held to be invalid for breach of statutory procedure and natural justice, the foundation for invoking revision under Section 263 collapses and the revision action cannot be sustained. [Paras 10, 11]

Action under Section 263 is not sustainable where it is founded on an assessment order rendered void for non-compliance with Section 144C.

Final Conclusion: The appeal is dismissed: the Court answered the substantial questions in favour of the assessee by holding that Section 144C's draft-order requirement is mandatory even on remand and that a final assessment passed without the draft is void, which also defeats consequential revision under Section 263; the third substantial question was rendered unnecessary in view of a prior disposal.

Registration under section 12AA/12A - application of section 13(1)(c) read with section 13(3) - genuineness of activities of a newly formed trust - formation of satisfaction for grant of registration - non-reading/non-consideration of documentary evidence

Registration under section 12AA/12A - application of section 13(1)(c) read with section 13(3) - genuineness of activities of a newly formed trust - non-reading/non-consideration of documentary evidence - formation of satisfaction for grant of registration - Grant of registration to the applicant-Trust under section 12A of the Income Tax Act. - HELD THAT: - The Tribunal found that the ld. CIT(E) erred in rejecting registration. The ld. CIT(E)'s conclusion that section 13(1)(c) read with section 13(3) was attracted rested on conjecture that the lessee-Trust could transfer the land and constructions back to the lessor on lease termination; this was contradicted by paragraph 3 of the produced Lease Deed which stipulates that on expiry/termination the lessee shall be entitled to receive the then prevailing fair market value of the construction and shall not be obliged to transfer the construction to the lessor. The Tribunal further found that the Trust had produced bank statements, books of account, vouchers, audited accounts and a Note on activities, and had filed detailed replies (including replies dated 5.7.2018 and 8.8.2018) which were on the ld. CIT(E)'s record. The ld. CIT(E) nevertheless proceeded as if no material had been furnished; that non-reading and non-consideration of the documentary evidence rendered his findings unsustainable. Applying the principle that for a newly formed trust genuineness of activities is to be examined with reference to its objects and proposed activities, and having regard to the produced material (including audited accounts and activity note), the Tribunal concluded that the ld. CIT(E) failed to form the requisite satisfaction on proper evidence and that the order under appeal was vitiated by non-reading of material evidence. Consequently, the Tribunal cancelled the impugned order and directed grant of registration under section 12A forthwith. [Paras 16, 17, 18, 19, 20]

Impugned order set aside for non-reading of material documentary evidence; registration under section 12A granted to the Trust.

Registration under section 12AA/12A - infructuousness of duplicate application/proceedings - Disposition of the second appeal (ITA No.158/LKW/2019) filed against an identical order. - HELD THAT: - The Tribunal observed that the second application and the order under challenge were mutatis mutandis identical to those in ITA No.642/LKW/2018; having directed grant of registration while disposing ITA No.642/LKW/2018, the second appeal became infructuous. The Tribunal therefore dismissed ITA No.158/LKW/2019 as infructuous. [Paras 21, 22]

ITA No.158/LKW/2019 dismissed as infructuous.

Final Conclusion: The appeal in ITA No.642/LKW/2018 is allowed; the impugned order is cancelled for non-reading of material evidence and registration under section 12A is directed to be granted forthwith. The appeal in ITA No.158/LKW/2019 is dismissed as infructuous.

Reopening of assessment - reasons to believe - formation of belief - borrowed satisfaction - jurisdictional defect - client code modification (CCM) investigations

Reopening of assessment - reasons to believe - formation of belief - borrowed satisfaction - jurisdictional defect - client code modification (CCM) investigations - Validity of reopening the assessment proceedings under section 147/148 where reasons recorded relied on information from the investigation wing without independent application of mind by the Assessing Officer - HELD THAT: - The Tribunal examined the recorded reasons which merely reproduced information received from the ADIT(Inv.) about alleged tax evasion through client code modification and did not establish any specific linkage between the assessee and the broker or describe the nature/details of transactions that would prima facie give rise to a belief that income had escaped assessment. Reliance was placed on the decision of the Bombay High Court in Pr. CIT v. Shodiman Investments Pvt. Ltd., holding that reopening is an extraordinary power and the reasons to believe must show material forming the basis of reopening and evidence a nexus to the conclusion that income chargeable to tax has escaped assessment. The Tribunal found the reasons to be mechanical and constituting borrowed satisfaction or mere suspicion rather than an Assessing Officer's independent formation of belief. As the jurisdictional requirement for reopening was not satisfied, the reassessment order could not be sustained and was quashed. [Paras 5]

Reopening held invalid for lack of independent formation of belief; assessment framed in reassessment proceedings quashed.

Final Conclusion: Appeal allowed; reassessment for AY 2009-10 set aside for want of jurisdiction as the reopening was based on borrowed satisfaction and reasons did not establish a rational nexus to escapement of income.

Deductibility of employee's contribution to Provident Fund and ESI - application of section 36(1)(va) read with section 2(24)(x) of the Income Tax Act - allowability under section 43B where deposit is made before due date of filing return - prospective application of Explanation 5 to section 43B (Finance Act, 2021) - binding precedent of the jurisdictional High Court

Deductibility of employee's contribution to Provident Fund and ESI - application of section 36(1)(va) read with section 2(24)(x) of the Income Tax Act - allowability under section 43B where deposit is made before due date of filing return - prospective application of Explanation 5 to section 43B (Finance Act, 2021) - binding precedent of the jurisdictional High Court - Delayed deposit of employees' PF and ESI contributions, though beyond statutory due dates under the respective Acts, was allowable as deduction for AY 2017-18 where the amounts were deposited before the due date of filing the return. - HELD THAT: - The Tribunal held that the assessee's case is squarely covered by the binding decision of the jurisdictional Calcutta High Court in CIT v. Vijayshree Ltd., as followed by a Coordinate Bench of this Tribunal, which treated employees' contributions deposited before filing of return as deductible despite being made after statutory due dates under EPF/ESI Acts. The Explanation 5 to section 43B inserted by the Finance Act, 2021 with effect from 01.04.2021 does not apply to the assessment year under consideration (AY 2017-18). In view of the foregoing, the CIT(A)'s reliance on Explanation 5 to deny the claim was not sustainable; the Tribunal set aside the impugned order and directed deletion of the addition made by the lower authorities. [Paras 3, 4]

Assessee's appeal allowed; addition made on account of delayed deposit of employees' contribution deleted.

Final Conclusion: The Tribunal allowed the appeal, set aside the CIT(A)'s order and directed deletion of the addition relating to delayed employees' PF/ESI contribution for AY 2017-18 on the ground that the amounts were deposited before the due date of filing the return and Explanation 5 to section 43B is not applicable to the assessment year under consideration.

Disallowance under Section 14A read with Rule 8D - requirement of recording satisfaction by the Assessing Officer before invoking Rule 8D - proximate relationship between expenditure and exempt income - invalid assumption of jurisdiction by the Assessing Officer - deduction under Section 43B for employees' contributions deposited before the due date - disallowance under Section 36(1)(va) read with Section 2(24)(x)

Disallowance under Section 14A read with Rule 8D - requirement of recording satisfaction by the Assessing Officer before invoking Rule 8D - invalid assumption of jurisdiction by the Assessing Officer - proximate relationship between expenditure and exempt income - Validity of the Assessing Officer's dislodging of the assessee's suo moto Section 14A disallowance and computation of disallowance under Rule 8D. - HELD THAT: - The Tribunal applied binding precedents of the Supreme Court (Godrej & Boyce; Maxopp) and the Bombay High Court (Sociedade De Fomento Industrial) holding that before an AO applies Section 14A(2)/(3) read with Rule 8D the AO must record a clear satisfaction, with reference to the assessee's accounts, that the assessee's claim (including a suo moto apportionment) is not correct and explain how expenditure claimed against non exempt income relates to exempt income. On the facts the AO merely noted consolidated accounts and absence of separate accounts and proceeded mechanically to apply Rule 8D(2)(iii) without recording the requisite satisfaction or identifying expenditure having a proximate relationship with exempt income. That approach did not discharge the statutory obligation and amounted to invalid assumption of jurisdiction. Consequently the disallowance computed by the AO could not be sustained and the Tribunal set aside the AO's computation and directed that disallowance be restricted to the amount suo moto offered by the assessee in the return. [Paras 6, 7, 8, 9]

AO's Rule 8D disallowance held invalid for want of recorded satisfaction; disallowance restricted to the suo moto amount offered by the assessee.

Deduction under Section 43B for employees' contributions deposited before the due date - disallowance under Section 36(1)(va) read with Section 2(24)(x) - Whether employees' contributions to Provident Fund/ESI that were deposited before the due date for furnishing the return are deductible or liable to disallowance under Section 36(1)(va)/Section 2(24)(x). - HELD THAT: - Relying on the Bombay High Court decisions cited by the parties, the Tribunal held that employees' and employer's contributions to welfare funds are governed by Section 43B and are allowable if actually paid before the due date for furnishing the return. On the facts the assessee had deposited the employees' contributions before the due date of filing the return for A.Y.2016 17; therefore the amount was not liable to disallowance under Section 36(1)(va) read with Section 2(24)(x). The Tribunal vacated the disallowance upheld by the AO and CIT(A). [Paras 10, 11, 13]

Disallowance under Section 36(1)(va)/Section 2(24)(x) vacated; contributions deposited before the return filing due date are allowable under Section 43B.

Final Conclusion: Assessee's appeal allowed: AO's Rule 8D disallowance set aside and restricted to the suo moto amount offered by the assessee; disallowance under Section 36(1)(va)/Section 2(24)(x) vacated as contributions were deposited before the due date. Revenue's appeal dismissed.

Pre-operative expenditure - capitalization of project-related expenses - commencement of business - binding effect of coordinate bench decision

General ground - Ground No. 3 of the Revenue's appeal, being a general ground, was dismissed. - HELD THAT: - The Tribunal observed that Ground No. 3 did not raise any substantive question requiring adjudication and accordingly dismissed it as a general ground without further consideration. [Paras 2]

Ground No. 3 dismissed.

Relevance of grounds to impugned order - Ground No. 2, challenging allowance of adjustment of carry forward business losses with current year income from other sources, was dismissed as not emanating from the impugned order of the Ld. CIT(A). - HELD THAT: - The Tribunal accepted the assessee's contention (and the AR's submission) that Ground No. 2 did not arise from the impugned CIT(A) order and appeared to be erroneously included in the Revenue's grounds. The Revenue did not controvert this position before the Tribunal, leading to dismissal of this ground. [Paras 3]

Ground No. 2 dismissed as not arising from the impugned order.

Pre-operative expenditure - capitalization of project-related expenses - commencement of business - binding effect of coordinate bench decision - The Ld. CIT(A)'s partial allowance and partial disallowance - directing capitalization of expenses directly attributable to the NTPC project while allowing other expenses as revenue - was confirmed for A.Y. 2014-15. - HELD THAT: - The Tribunal noted that the Assessing Officer had treated certain expenses claimed as revenue as pre-operative and directed their capitalization. The Ld. CIT(A) accepted that the assessee had set up and commenced its business generally, but held that expenses exclusively related to the NTPC project (legal expenses, community welfare expenses spent in the project area, and salaries of employees directly engaged on the project) were pre-operative and required capitalization, while other expenses related to running the business were revenue in nature. The Tribunal observed that identical issues for A.Y. 2012-13 and 2013-14 had been decided by a Coordinate Bench upholding the CIT(A)'s approach and confirming capitalization of project-related expenditures, and that the assessee had not pursued cross-objections in those appeals, thereby crystallizing that view. Being bound by the Coordinate Bench's decisions in the assessee's own earlier years, the Tribunal confirmed the CIT(A)'s order to identify and capitalize the specified project-related expenses and to allow other expenditures as revenue. [Paras 7, 8]

Impugned action of the Ld. CIT(A) confirmed; project-related expenses to be capitalized and other expenses allowed as revenue.

Final Conclusion: Being bound by the Coordinate Bench's decisions in the assessee's own earlier years and having dismissed the other grounds, the Tribunal confirmed the CIT(A)'s partial disallowance of NTPC project related expenses and dismissed the Revenue's appeal for A.Y. 2014-15.

Income recognition of interest on non-performing assets - Overriding effect of RBI prudential norms (Section 45Q of RBI Act) - Applicability of mercantile system versus RBI circulars for banks - Amortisation of premium on acquisition of government securities - CBDT Instruction No.17/2008 on assessment of banks - Disallowance under section 14A read with Rule 8D of the Income Tax Rules - Limitation of section 14A disallowance to the amount of exempt income - Classification of safes and fire resistant filing cabinets for depreciation

Income recognition of interest on non-performing assets - Overriding effect of RBI prudential norms (Section 45Q of RBI Act) - Applicability of mercantile system versus RBI circulars for banks - Whether interest accrued on assets classified as NPA could be recognised as income for tax purposes despite RBI directions not to recognise such income on accrual basis. - HELD THAT: - The Tribunal examined section 43D and Rule 6EA and the RBI's income recognition policy and held that prudential norms issued by the RBI under Chapter IIIB (Section 45Q) have overriding effect where inconsistent with other laws. Consequently, although the assessee follows mercantile accounting and the interest had accrued in the books, the RBI directions prohibiting recognition of income on NPA prevail and such interest could not be recognised as income for tax purposes. The Tribunal relied on precedents interpreting the overriding effect of RBI norms on income recognition and noted that the Revenue produced nothing to rebut applicability of section 45Q in the present case. [Paras 8]

Addition of interest on NPA deleted; revenue's ground dismissed.

Income recognition of interest on non-performing assets - Rule 6EA of the Income Tax Rules - Whether the question of whether the impugned interest was overdue for more than six months under Rule 6EA was to be decided by the Tribunal. - HELD THAT: - The Tribunal observed that the record and orders below were silent on whether the interest in question was overdue for six months as contemplated by Rule 6EA. Because that factual aspect was not addressed by the authorities below, the Tribunal refrained from making any finding on the six months overdue criterion. [Paras 8]

No finding on the six month overdue issue; matter left open for verification by appropriate authority.

Amortisation of premium on acquisition of government securities - CBDT Instruction No.17/2008 on assessment of banks - Whether amortisation of premium paid on acquisition of government securities (held to maturity) is allowable as an expense in computing income of a bank. - HELD THAT: - The Tribunal noted that RBI guidelines require premium paid in acquisition of HTM securities (where acquisition cost exceeds face value) to be amortised over the remaining period to maturity. CBDT Instruction No.17/2008 recognises this treatment in respect of banks. The Tribunal also relied on precedent of the Gujarat High Court holding that such amortisation as per RBI/CBDT instructions binds the Revenue. On the undisputed facts that the securities were HTM and amortisation was in accordance with RBI guidance, the Tribunal found no infirmity in the CIT(A)'s deletion of the disallowance made by the AO. [Paras 14]

Amortisation of premium on government securities allowed; revenue's ground dismissed.

Disallowance under section 14A read with Rule 8D of the Income Tax Rules - Limitation of section 14A disallowance to the amount of exempt income - Whether additional disallowance under section 14A read with Rule 8D beyond the amount already disallowed by the assessee was warranted. - HELD THAT: - The Tribunal recorded that the assessee earned dividend income which was exempt and had itself disallowed an amount equal to that exempt income. In the absence of contrary justification by the AO, and following judicial authority that an upper limit to disallowance exists (it cannot exceed the exempt income), the Tribunal upheld the CIT(A)'s deletion of the additional disallowance computed by the AO under section 14A r.w. Rule 8D. [Paras 20]

No further disallowance under section 14A r.w. Rule 8D; revenue's ground dismissed.

Classification of safes and fire resistant filing cabinets for depreciation - Whether safes and fire resistant filing cabinets used by the bank qualify as 'plant and machinery' (depreciable at higher rate) or as furniture and fittings. - HELD THAT: - The AO treated the safes and cabinets as furniture and fittings and allowed depreciation accordingly; the CIT(A) confirmed that view after rejecting the assessee's contention that such items were 'tools' or plant and machinery for the bank's business. The Tribunal noted that the appellate authority did not grant any benefit to the assessee and that the revenue had no grievance against the CIT(A)'s confirmation. Having found no infirmity in the reasoning below, the Tribunal dismissed the revenue's appeal on this point. [Paras 26]

Depreciation classification upheld as furniture and fittings; revenue's ground dismissed as not maintainable.

Final Conclusion: All grounds of the Revenue's appeal are dismissed: the addition of interest on NPA was deleted in view of overriding RBI prudential norms; amortisation of premium on HTM government securities was allowed as per RBI/CBDT guidance; no further disallowance under section 14A r.w. Rule 8D was warranted beyond the amount equal to exempt dividend income; and the classification of safes and cabinets as furniture and fittings for depreciation was upheld. One factual aspect (whether the interest was overdue for six months under Rule 6EA) was left undecided for verification.

Deduction under section 80IA for captive power generation - Computation of profits for deduction under section 80IA(5) and market value under section 80IA(8) - Requirement of separate industrial undertaking and tests for newly established unit - Allowability of revised claims at appellate stage (Goetze principle) - Allowability of club membership expenses as business expenditure under section 37(1)

Deduction under section 80IA for captive power generation - Requirement of separate industrial undertaking and tests for newly established unit - Whether the assessee's steam and cooling power generation undertakings qualify as eligible undertakings for deduction under section 80IA. - HELD THAT: - The Tribunal upheld the CIT(A)'s allowance of the assessee's claim under section 80IA, holding that the cooling and steam power generation units constituted separate and distinct undertakings though located within the same premises as the yeast manufacturing unit. The Tribunal applied established tests (investment of fresh capital, employment of labour, manufacture/production, profits attributable to the unit and separate identity) and precedent recognising that a new industrial unit set up as part of an existing establishment may nonetheless be a distinct undertaking. The Tribunal also observed there is no requirement under clause (iv) of section 80IA(4) for separate name or external approvals for power generation and that captive consumption of power does not preclude eligibility. The Assessing Officer's objections based on absence of separate name/address or on segment reporting under company law were rejected as immaterial to the statutory tests under section 80IA. [Paras 35, 36, 37, 38, 39]

The Tribunal sustained the CIT(A)'s finding that the assessee's steam and cooling power generation undertakings are eligible for deduction under section 80IA; Revenue's grounds on these points were dismissed.

Computation of profits for deduction under section 80IA(5) and market value under section 80IA(8) - Methodology for computing the quantum of deduction under section 80IA and direction to the Assessing Officer for recomputation. - HELD THAT: - The Tribunal directed the Assessing Officer to follow the Coordinate Bench's earlier directions for recomputation. It reiterated that section 80IA(5) requires profits of the eligible business to be computed as if it were the only source of income and therefore it is inappropriate to apply net profit percentages of the yeast manufacturing business to the power undertakings. The Coordinate Bench had specified that notional sale value should be based on State Electricity Board rates with conversion of refrigeration tonnes to kilowatts (1 RT = 3.5168525 kW, rounded) and that details may be verified by the AO. Given those binding precedents, the Tribunal directed the AO to verify the assessee's computation and recompute deduction in accordance with the bench's earlier order. [Paras 9, 10, 13, 14]

The Tribunal allowed the assessee's claim for deduction and remitted the matter to the Assessing Officer to recompute quantum in accordance with the Coordinate Bench directions and principles articulated in the order.

Allowability of revised claims at appellate stage (Goetze principle) - Whether the assessee's claim for payment (bonus/ex-gratia) not allowed by AO for want of a revised return could be entertained at the appellate stage. - HELD THAT: - The Tribunal agreed with the CIT(A) that the assessee's bona fide claim (payment allowable under clause 21(1)(a) of the tax audit report) could be considered at the appellate stage even though no revised return was filed. The Tribunal relied on the principle in Goetze (India) Ltd. that a legitimate revised claim may be entertained by the first appellate authority and found no reason to interfere with the CIT(A)'s allowing of the claim. [Paras 6, 7, 8]

The Tribunal sustained the CIT(A)'s allowance of the assessee's revised claim; Revenue's ground challenging that allowance was dismissed.

Allowability of club membership expenses as business expenditure under section 37(1) - Whether club membership and related club service expenses claimed by the assessee are deductible as business expenditure under section 37(1). - HELD THAT: - The Tribunal disagreed with the CIT(A)'s conclusion that the auditor had flagged the expenses as personal and that the assessee failed to prove business nexus. Observing that it is common business practice to use club facilities to meet clients and develop contacts, and having regard to judicial authority recognising club membership fees for employees and entertainment at clubs as business expenditure, the Tribunal found that the club expenses had sufficient nexus with business. On this basis it set aside the CIT(A)'s disallowance and directed the AO to allow the claimed club membership/service expenses. [Paras 16, 18, 19, 21]

The Tribunal allowed the club expenses claimed by the assessee as deductible business expenditure under section 37(1); grounds 1 and 2 of the assessee's appeal were allowed and ground 3 was dismissed as not pressed.

Final Conclusion: The Revenue's appeal for AY 2013-14 is dismissed; the assessee's appeals for AY 2013-14 are allowed (entitlement to deduction under section 80IA and remand for recomputation in accordance with Coordinate Bench directions; revised claim allowed on appeal). For AY 2014-15 the Tribunal partly allowed the assessee's appeal by directing allowance of club membership expenses under section 37(1).

Disallowance under section 14A - computation under Rule 8D - Annual Lettable Value of stock-in-trade - classification of lease rental income as business income - book profit under section 115JB not to be enhanced by section 14A disallowance - allowability of brokerage/commission as business expenditure

Disallowance under section 14A - computation under Rule 8D - Disallowance under section 14A to be restricted to the amount of exempt income earned during the year. - HELD THAT: - The Tribunal accepted the assessee's contention and followed consistent High Court and Tribunal precedents holding that disallowance under section 14A cannot exceed the exempt income actually earned in the year. Although the AO computed disallowance under Rule 8D and limited additional disallowance by giving credit for the suo-moto amount offered by the assessee, the Tribunal directed restriction of the disallowance to the dividend exempt income of Rs. 1,43,78,946, overruling the AO's higher computation and endorsing the approach that the disallowance cannot exceed exempt income earned. [Paras 8]

Disallowance under section 14A restricted to exempt dividend income of Rs. 1,43,78,946 for AY 2015-16; assessee's ground allowed.

Annual Lettable Value of stock-in-trade - Notional Annual Lettable Value (ALV) of unsold flats/shops shown as stock-in-trade cannot be assessed as income from house property. - HELD THAT: - The Tribunal examined conflicting High Court decisions and followed the view favouring the assessee (as per the Jurisdictional approach and earlier coordinate Bench precedents) that where property is held as stock-in-trade and is not let out, its notional ALV should not be brought to tax under the head 'Income from House Property'. Applying those precedents to the facts before it, the Tribunal held the AO's estimate of ALV and resultant addition under section 22/23 to be not permissible and deleted the notional income assessed as house property. [Paras 9, 10, 11]

Addition of notional ALV of Rs. 2,09,73,057 assessed as 'House Property' set aside and deleted; assessee's ground allowed.

Classification of lease rental income as business income - Lease rental income from Industrial Park/SEZ to be considered for reassessment as business income in light of CBDT Circular No. 16/2017 (set aside for fresh consideration). - HELD THAT: - The Tribunal admitted the additional ground and observed that CBDT Circular No. 16/2017, issued after the revised return, treats income from letting out buildings/developed spaces in Industrial Parks/SEZ as business income subject to conditions in the referenced schemes. The Tribunal declined to decide eligibility on the record and restored the issue to the AO for fresh consideration in light of the Circular, permitting the AO to examine satisfaction of the eligibility criteria and to afford the assessee an opportunity of hearing. [Paras 11, 12]

Issue restored to AO for consideration under CBDT Circular No.16/2017; additional ground allowed for statistical purpose and remanded for fresh adjudication on eligibility and classification.

Book profit under section 115JB not to be enhanced by section 14A disallowance - Disallowance under section 14A is not required to be added back to compute 'book profit' under section 115JB. - HELD THAT: - Relying on the Special Bench decision in ACIT v. Vireet Investments Pvt. Ltd., the Tribunal held that book profit under section 115JB is not to be enhanced by disallowance made under section 14A. The CIT(A)'s direction to delete addition of section 14A disallowance to book profit was accordingly upheld and the revenue's grounds on this point were dismissed. [Paras 14]

CIT(A)'s deletion of section 14A addition to book profit upheld; revenue's grounds dismissed.

Allowability of brokerage/commission as business expenditure - Commission and brokerage expenses paid for procuring tenants allowed in full where departmental practice in preceding and succeeding years accepted similar claims and no change in circumstances justified denial. - HELD THAT: - The AO treated the brokerage as related to house property and disallowed it; the CIT(A) apportioned part to business. The Tribunal found that identical claims had been accepted by the department in scrutiny assessments for preceding and succeeding years, and in absence of any material change there was no justification for taking a different view. Applying the principle that Revenue should not adopt inconsistent positions without material change, and citing Supreme Court authority, the Tribunal vacated the disallowance and allowed the brokerage/commission deduction for AY 2012-13. [Paras 22, 23]

Disallowance of brokerage/commission vacated and deduction allowed for AY 2012-13; assessee's appeal allowed.

Final Conclusion: For AY 2015-16 the Tribunal restricted the section 14A disallowance to the actual exempt dividend income and deleted the notional ALV addition for unsold stock-in-trade; it remitted the question of classification of lease rentals to the AO for decision under CBDT Circular No.16/2017. For AY 2012-13 the Tribunal allowed the brokerage/commission deduction on facts of consistent departmental acceptance. The revenue's challenge on adding section 14A disallowance to book profit was dismissed.

Reopening of assessment on ground of change of opinion - reassessment under section 147 read with section 143(3) - deduction under section 42 - deduction under section 80IB(9) - undertaking for tax incentives (treatment of each well as separate undertaking) - classification of oil wells as plant and machinery for depreciation - statutory explanation treating blocks under a single contract as a single undertaking

Reopening of assessment on ground of change of opinion - reassessment under section 147 read with section 143(3) - deduction under section 42 - Validity of reassessment initiated under section 147 read with section 143(3) for AY 2004-05 on the basis that the Assessing Officer had earlier formed an opinion during original assessment in relation to deduction claimed under section 42. - HELD THAT: - The Tribunal examined the material to determine whether the AO had formed an opinion during the original assessment proceedings. The AO had issued queries under section 142(1) specifically asking the assessee to justify the deduction under section 42 and the assessee replied with detailed submissions and annexures. On those facts the Tribunal held that the AO had applied his mind and allowed the deduction in the assessment under section 143(3); whether that view was right or wrong on merits is immaterial to the question of reopening. The concept of 'change of opinion' presupposes a prior formation of opinion; where such opinion is shown to have been formed by enquiries and acceptance, reopening under section 147 on the ground of change of opinion would amount to an impermissible review. The fact that proceedings were within four years did not validate a reopening that was in substance a review of a concluded opinion formed during the assessment. Accordingly the reassessment was held invalid and set aside. [Paras 9]

Reassessment framed under section 147 read with section 143(3) for AY 2004-05 set aside; assessee's ground allowed and consequential merits issues left infructuous.

Deduction under section 80IB(9) - undertaking for tax incentives (treatment of each well as separate undertaking) - statutory explanation treating blocks under a single contract as a single undertaking - Whether deduction under section 80IB(9) for AY 2006-07 should be computed treating each oil well/cluster as a separate undertaking or whether all blocks under a single contract constitute one undertaking; and related treatment in light of pending higher court decisions. - HELD THAT: - The Tribunal noted its earlier decision in the assessee's own case (ITA No.3988/AHD/2008) and examined judicial pronouncements including the Gujarat High Court reasoning that each development area/field (well or cluster of wells) can constitute an independent economic unit and thus an 'undertaking' for the purposes of section 80IB(9). Given identical facts and that Supreme Court adjudication on related explanation was pending, the Tribunal refrained from final adjudication on the substantive issue and directed that the matter be set aside to the file of the AO for fresh adjudication in accordance with the Tribunal's earlier order and awaiting the Apex Court decision. The appeal of the Revenue was therefore allowed for statistical purposes. [Paras 17]

Issue set aside to the file of the Assessing Officer for fresh adjudication in accordance with the Tribunal's earlier order and pending Supreme Court determination; Revenue's appeal allowed for statistical purposes.

Classification of oil wells as plant and machinery for depreciation - depreciation allowance - Whether oil wells drilled for production are part of building (eligible for lower rate of depreciation) or constitute plant and machinery (eligible for higher rate) for AY 2006-07. - HELD THAT: - Relying on the Tribunal's earlier decision in the assessee's own case and the reasoning of the jurisdictional High Court, the Tribunal held that oil wells are part of plant and machinery and not part of a building. The Tribunal observed that the facts in the present appeals were identical to those earlier decided in favour of the assessee and that there was no change in law or facts to warrant a different conclusion. Consequently, the addition based on treating wells as part of building was directed to be deleted. [Paras 23, 26]

Assessee's ground allowed; oil wells treated as plant and machinery and addition deleted; consequential claims dismissed as infructuous.

Final Conclusion: Two appeals of the assessee (AY 2004-05 and AY 2006-07) are partly allowed: reassessment for AY 2004-05 under section 147 read with section 143(3) quashed; for AY 2006-07 the Tribunal upheld classification of oil wells as plant and machinery and allowed the assessee's claim on that issue. The Revenue's appeal on section 80IB(9) is allowed for statistical purposes and the matter is set aside to the AO for fresh adjudication in light of the Tribunal's earlier order and pending Supreme Court determination.

Deduction under section 36(1)(va) for employees' contribution paid before filing return - non-application of Explanation 5 introduced by Finance Act, 2021 with retrospective effect - effect of binding decisions of the jurisdictional High Court on appellate authorities

Deduction under section 36(1)(va) for employees' contribution paid before filing return - non-application of Explanation 5 introduced by Finance Act, 2021 with retrospective effect - effect of binding decisions of the jurisdictional High Court on appellate authorities - Deletion of disallowance under section 36(1)(va)/operation of section 43B in respect of employees' contribution to EPF and ESI which was deposited after the statutory due date but before filing the return of income under section 139(1). - HELD THAT: - The Tribunal, following coordinate Bench decisions and the line of authority of the jurisdictional High Court, held that where employees' contribution to EPF/ESI is deposited after the due date prescribed under the respective statutes but prior to filing the return under section 139(1), the amount cannot be disallowed under section 43B read with section 36(1)(va). The Tribunal noted that Explanation 5 inserted by the Finance Act, 2021 has effect from 1.4.2021 and therefore is not applicable retrospectively to the assessment year(s) under consideration; consequently the amendment could not be invoked to sustain the disallowance for periods prior to its effective date. On the facts the impugned additions were identical to those in earlier decisions which were deleted, and the Tribunal respectfully followed those decisions to direct deletion of the disallowance. [Paras 9, 11, 12]

The additions disallowing employees' contribution to EPF and ESI (paid before filing return) are deleted; the appeal is allowed.

Final Conclusion: Following coordinate Tribunal precedents and the binding view of the jurisdictional High Court that payments of employees' contribution made before filing the return are deductible, and observing that the Finance Act, 2021 amendment (Explanation 5) is prospective from 1.4.2021, the Tribunal deleted the disallowance and allowed the appeal.

Deduction for employer's contribution to PF and ESI under section 36(1)(va) - disallowance under section 43B and its interplay with section 36(1)(va) - deposit of employees' contribution before filing return under section 139(1) - prospective application of the Finance Act, 2021 amendment (Explanation 2/5) - binding effect of jurisdictional High Court decisions on appellate authorities

Deduction for employer's contribution to PF and ESI under section 36(1)(va) - disallowance under section 43B and its interplay with section 36(1)(va) - deposit of employees' contribution before filing return under section 139(1) - prospective application of the Finance Act, 2021 amendment (Explanation 2/5) - binding effect of jurisdictional High Court decisions on appellate authorities - Whether disallowance of employer's PF and ESI contributions paid after the statutory due date but before filing the return of income under section 139(1) is sustainable for the assessment year(s) prior to the Finance Act, 2021 amendment. - HELD THAT: - The Tribunal held that where the employers' contributions to PF and ESI were deposited after the statutory deadline for those statutes but prior to filing the return under section 139(1), such amounts could not be disallowed under section 43B read with section 36(1)(va) for assessment years prior to the Finance Act, 2021 amendment. The Bench relied on coordinate decisions of various ITAT Benches and the binding precedent of the jurisdictional High Court which had consistently held that deposits made before filing the return are allowable for deduction. The Tribunal observed that the amendment introduced by the Finance Act, 2021 (Explanation 2/5) has been clarified to have prospective effect from 1.4.2021 and therefore could not be invoked retrospectively to deny the claim for the years under consideration. Applying these authorities and reasoning, the impugned additions arising from delayed deposit but antecedent to filing of the return were deleted. [Paras 10, 11]

Impugned disallowances in respect of employers' PF and ESI contributions paid before filing the return under section 139(1) are deleted; appeals allowed.

Final Conclusion: Following coordinate Tribunal decisions and binding jurisdictional High Court precedent, and noting that the Finance Act, 2021 amendment applies prospectively, the Tribunal deleted the additions/disallowances made for delayed employer PF/ESI deposits that were paid before filing the return and allowed the appeals.

Deductibility of employees' contributions under section 36(1)(va) - application of section 43B relating to deduction only on actual payment - effect of Finance Act, 2021 explanations as prospective (w.e.f. 1.4.2021) - binding effect of jurisdictional High Court decisions

Deductibility of employees' contributions under section 36(1)(va) - application of section 43B relating to deduction only on actual payment - effect of Finance Act, 2021 explanations as prospective (w.e.f. 1.4.2021) - binding effect of jurisdictional High Court decisions - Sustenance of additions disallowing deduction for employees' PF and ESI contributions deposited after the statutory due date but before filing the return under section 139(1) for AY 2019-20. - HELD THAT: - The Tribunal held that for the assessment year before it (AY 2019-20) the amendments and Explanations inserted by the Finance Act, 2021 (effective w.e.f. 01.04.2021) are prospective and therefore do not affect the year under consideration. The Tribunal applied binding decisions of the jurisdictional High Court and consistent decisions of various Benches of the Tribunal to conclude that where employees' contributions collected by the employer were deposited prior to the due date for filing the return under section 139(1), such deposits are not liable to be disallowed under section 43B read with section 36(1)(va). Having regard to the identical facts and the binding precedents in the Rajasthan jurisdiction and the Tribunal's own earlier orders, the additions made by the Assessing Officer and sustained by the CIT(A) were held not sustainable and were directed to be deleted. [Paras 8, 11, 12]

Additions disallowing employees' PF and ESI contributions (deposited before filing of return) deleted; appeals allowed.

Final Conclusion: For AY 2019-20 the Tribunal deleted the additions made for delayed deposit of employees' PF and ESI where such amounts were deposited before filing the return under section 139(1), applying binding jurisdictional precedents and holding that the Finance Act, 2021 amendments operate prospectively.

Power of review/re-assessment under Section 28 of the Customs Act - proper officer - jurisdiction of Additional Director General, DRI to issue show cause notice - survival of confiscation and penalty where duty demand fails - invalidity of proceedings initiated without authority of law

Power of review/re-assessment under Section 28 of the Customs Act - proper officer - jurisdiction of Additional Director General, DRI to issue show cause notice - invalidity of proceedings initiated without authority of law - Additional Director General, DRI did not have jurisdiction to issue the show cause notice under Section 28 and proceedings initiated by him are without authority of law. - HELD THAT: - The Tribunal applied and followed the Supreme Court's reasoning in Canon India that the power to recover duties which have escaped assessment under Section 28 is a power of administrative review that vests in "the proper officer" who originally assessed and cleared the goods (or his successor or an officer assigned the assessment function), and cannot be exercised by an officer of another department such as the Additional Director General, DRI. The Supreme Court held that the Additional Director General of DRI was not the proper officer and that the notification purporting to entrust Customs functions to DRI officers was issued without lawful authority, rendering proceedings initiated by the Additional Director General invalid. The Tribunal noted that this view was followed by the Supreme Court in Agarwal Metals and by various High Courts and Benches of the Tribunal, and concluded that the show cause notice dated 30.01.2009 issued by the Additional Director General, DRI was without jurisdiction and all consequential proceedings were without authority of law. [Paras 5, 6, 14]

Show cause notice issued by the Additional Director General, DRI under Section 28 is without jurisdiction; proceedings and the order dated 31.05.2012 based thereon are invalid.

Survival of confiscation and penalty where duty demand fails - invalidity of proceedings initiated without authority of law - Proposals for confiscation of goods and imposition of penalty cannot survive where the duty demand founded on the show cause notice fails for want of jurisdiction. - HELD THAT: - The Tribunal accepted the appellant's reliance on the Tribunal precedent in Bakeman's Home Products and related authorities which hold that proposals for confiscation and penalty are so interlinked with the demand of duty (for example, on alleged mis-declaration of value) that, if the demand fails, the proceedings for confiscation and penalty cannot be sustained. Applying this principle to the present case, where the foundational show cause notice was held to be issued without jurisdiction, the ancillary proposals for confiscation and penalty could not be segregated and therefore cannot survive. [Paras 16, 18, 19]

Proceedings for confiscation and imposition of penalty based on the invalid show cause notice do not survive and cannot be sustained.

Final Conclusion: The appeal is allowed; the order dated 31.05.2012 is set aside as the show cause notice issued by the Additional Director General, DRI was without jurisdiction and consequent demands and proposals for confiscation and penalty do not survive.

Jurisdiction of the Additional Director General, DRI to issue show cause notice under the Customs Act - meaning of "the proper officer" under Section 28(4) of the Customs Act - invalidity of proceedings initiated by an officer lacking statutory authority - inseparability of duty demand and proposals for confiscation and penalty

Jurisdiction of the Additional Director General, DRI to issue show cause notice under the Customs Act - meaning of "the proper officer" under Section 28(4) of the Customs Act - invalidity of proceedings initiated by an officer lacking statutory authority - The show cause notice issued by the Additional Director General, DRI under Section 28(4) of the Customs Act was without jurisdiction and the proceedings based on it are invalid. - HELD THAT: - The Tribunal applied the Supreme Court's reasoning in Canon India, holding that the power under Section 28(4) to recover duties which have escaped assessment is a power of administrative review conferred on "the proper officer", meaning the officer who made the original assessment or his successor or an officer specifically assigned assessment functions. An officer of DRI who has not been shown to be appointed as a Customs officer and entrusted with functions under Section 6 cannot be treated as "the proper officer". Consequently, initiation of recovery proceedings by the Additional Director General, DRI is without authority of law and liable to be set aside. The Tribunal noted subsequent affirmations of the same principle by the Supreme Court and several High Courts and Benches of the Tribunal, and applied those precedents to set aside the adjudication order founded on the impugned show cause notice. [Paras 5, 6, 14]

The show cause notice dated 30.01.2009 issued by the Additional Director General, DRI under Section 28 is without jurisdiction; all proceedings founded thereon are invalid and the adjudication order cannot be sustained.

Inseparability of duty demand and proposals for confiscation and penalty - Proposals for confiscation of goods and imposition of penalty cannot survive when the foundational duty demand fails for want of jurisdiction. - HELD THAT: - Relying on the Tribunal's decision in Bakeman's Home Products and consistent authorities, the Tribunal held that confiscation and penalty proposals are so interlinked with the demand for differential duty that they cannot be segregated and sustained independently when the demand is invalid. Since the show cause notice initiating the duty demand was invalid for want of jurisdiction, the ancillary proposals for confiscation and penalty also fail. [Paras 17, 18]

Proceedings for confiscation and imposition of penalty arising from the same invalid show cause notice cannot be sustained and must be set aside.

Final Conclusion: The adjudication order dated 31.05.2012 is set aside: the proceedings initiated by the Additional Director General, DRI under the impugned show cause notice are invalid for lack of jurisdiction, and consequential demands as well as proposals for confiscation and penalty founded on that notice cannot survive; the appeal is allowed.

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - limitation under the Limitation Act, 1963 - acknowledgement of debt refreshes period of limitation - one time settlement (OTS) as acknowledgement of debt - signed financial statements as admission/acknowledgement

Limitation under the Limitation Act, 1963 - acknowledgement of debt refreshes period of limitation - one time settlement (OTS) as acknowledgement of debt - signed financial statements as admission/acknowledgement - admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Whether the application under Section 7 of the IBC filed on 14.02.2019 was barred by limitation - HELD THAT: - The Tribunal found that although the Corporate Debtor's account was declared NPA with effect from 30.06.2014 and the Section 7 application was filed on 14.02.2019, documents placed on record amounted to acknowledgements of the debt within the period of limitation. The Respondent bank produced signed financial statements for the periods 01.04.2015 to 31.03.2016, 01.04.2016 to 31.03.2017 and the 2017-18 annual report, which were signed by the appellants. Further, the bank relied on a letter dated 04.01.2020 captioned as an "Offer for One Time Settlement (OTS)" signed by an appellant offering to settle dues jointly with the consortium banks. The Tribunal accepted that these documents, in particular the OTS letter and the signed financial statements, amount to an acknowledgement of liability that, following the law cited by the parties, operates to refresh the period of limitation and therefore the Section 7 application was not time barred. The Tribunal also noted that the insolvency process has progressed and that no interim stay had been granted by this Appellate Tribunal. The Tribunal relied on the principle in the cited Supreme Court authority that where the corporate debtor admits debt (including by signed balance sheets) an application under Section 7 may not be barred by limitation. [Paras 33, 34]

The Section 7 application filed on 14.02.2019 was not barred by limitation because the signed financial statements and the OTS letter constituted acknowledgment of debt, and therefore the Adjudicating Authority rightly admitted the petition.

Final Conclusion: The Appellate Tribunal upheld the NCLT order admitting the Section 7 petition; the appeal is dismissed and the admission of the insolvency petition is affirmed.

Money laundering as a serious economic offence - filing of charge-sheet not a material change of circumstance for bail - statutory bail under section 167 CrPC - pre-trial detention as an incident of fair trial - possibility of tampering with evidence and influencing witnesses

Filing of charge-sheet not a material change of circumstance for bail - money laundering as a serious economic offence - possibility of tampering with evidence and influencing witnesses - statutory bail under section 167 CrPC - pre-trial detention as an incident of fair trial - Whether the applicant/accused Raj Singh Gehlot is entitled to grant of regular bail - HELD THAT: - The Court recorded that the earlier bail application had been dismissed and that the only change of circumstance urged by the defence was filing of the prosecution charge-sheet. The Court held that mere filing of a charge-sheet does not lessen the allegations and is not, by itself, a material change warranting bail; filing of a charge-sheet may instead indicate that material has been found to place the accused on trial. The material on record, according to the Court, makes out a formidable case of money laundering and is supported by documentary transfers through the escrow account and a chain of transactions pointing to diversion of funds. Given the nature of the allegations and the evidence, the Court accepted the prosecution's contention that there exists a real possibility that the accused, by reason of his position, qualifications and close control over witnesses (many being family members/associates), could tamper with evidence or influence witnesses and thereby jeopardize a fair trial. The Court further held that pre-trial detention serves the purpose of safeguarding a fair trial and is not necessarily punitive; in appropriate cases it is indispensable for ensuring that the trial proceeds unhindered. Because the charge-sheet has been filed, the accused cannot claim the indefeasible right to statutory bail under section 167 CrPC. Applying these principles and having considered the totality of circumstances - nature and gravity of allegations, material relied upon by the prosecution, and risk to the fairness of trial - the Court concluded that the bail application lacked merit.

Bail application dismissed.

Final Conclusion: The application for regular bail is rejected; the court found that filing of the charge-sheet does not constitute a material change favouring bail, that a strong case of money laundering is made out, and that continued detention is necessary to prevent tampering with evidence and to ensure a fair trial.

Cenvat credit - input service - output service - entitlement to credit where input services are used in provision of output service - Rule 2(l) of Cenvat Credit Rules, 2004 - period of limitation / extended period of limitation - penalty not imposable where demand unsustainable

Cenvat credit - input service - output service - Rule 2(l) of Cenvat Credit Rules, 2004 - Entitlement of the appellant to Cenvat credit of service tax paid on input services utilised in relation to the project - HELD THAT: - The Tribunal found as a fact that the appellant provided taxable output services and paid service tax thereon, and that the services in question were used by the appellant in providing that taxable service. Applying the definition of input service in Rule 2(l) of Cenvat Credit Rules, 2004 and Rule 3 entitling a provider of taxable service to credit for input services used in providing an output service, the adjudicating authority erred in holding that derailment of the project precluded provision of any taxable service. The fact that work was in progress during April-2009 to March-2010 and subsequently completed with service tax discharged establishes that the services received were bona fide input services for provision of the appellant's taxable output service. Consequently the appellant was held entitled to take Cenvat credit of the claimed amount and the demand based on disallowance of such credit was unsustainable. [Paras 4]

Appellant entitled to Cenvat credit of the input services; demand based on disallowance of such credit is set aside.

Period of limitation / extended period of limitation - limitation barring recovery - penalty not imposable where demand unsustainable - Validity of the show cause notice issued beyond the normal period of limitation and consequential sustainment of interest/penalty - HELD THAT: - The Tribunal noted that the respondents were aware of the project's derailment and the appellant's availment of Cenvat credit as early as October 2011. The show cause notice dated 8.10.2014 invoking the extended period was therefore held to be barred by limitation. Since the demand founded on disallowance of credit was set aside, associated interest and penalty could not be sustained. The Tribunal accordingly found no justification for imposing penalty. [Paras 1, 4, 5]

Show cause notice issued beyond the normal period is barred by limitation; interest and penalty confirmed in impugned order cannot be sustained.

Final Conclusion: Impugned order set aside; appeal allowed - appellant entitled to Cenvat credit for April-2009 to March-2010, and the demand, interest and penalty based on disallowance are quashed as barred by limitation and unsustainable.

Interest on delayed payment - Section 75 of the Finance Act, 1994 - interest as consequence of default - one year limitation on demand unless fraud, mis representation, collusion or suppression alleged - requirement of penalty under Section 78 for extended period of demand

Interest on delayed payment - one year limitation on demand unless fraud, mis representation, collusion or suppression alleged - Section 75 of the Finance Act, 1994 - interest as consequence of default - Validity of the demand for interest for delayed payment of service tax for the period October, 2006 to September, 2010 where show cause was issued on 19.03.2012 - HELD THAT: - The Tribunal found that although Section 75 recognises interest as a natural consequence of default in payment of service tax, the department's power to demand tax (and consequential interest) for periods earlier than one year from the show cause date is restricted unless the show cause notice also alleges fraud, mis representation, collusion, suppression of facts or contravention warranting penalty under Section 78. The show cause issued on 19.03.2012 proposed interest for the period October 2006 to September 2010 but contained no allegation of wilful withholding, fraud, mis representation, collusion or suppression, nor did it propose penalty under Section 78. In the absence of such allegations or a Section 78 penalty proposal, the demand for tax/interest beyond the one year period could not be sustained. Applying this limitation principle to the facts, the confirmation of interest was held to be time barred and unsustainable. [Paras 5, 6]

Confirmation of the demand for payment of interest is set aside.

Final Conclusion: Appeal allowed; the Commissioner (Appeals) order confirming interest is quashed as the demand for interest relating to October, 2006 to September, 2010 (show cause dated 19.03.2012) was beyond the one year recoverable period and there was no allegation or penalty proposal under Section 78 to permit an extended demand.