TaxTMI Updates e-Newsletter
Nov 17,2020

Amendment of pleadings - discretionary power to allow amendments under Order VI Rule 17 CPC - necessity of amendment for determining the real question in controversy - change of nature and character of the suit - vires of proviso to Section 174(2)(c) of the Central Goods and Services Tax Act, 2017 - challenge to Notification No.21/2017-C.E. (rescindment of exemption notifications) - vested rights - promissory estoppel and legitimate expectation

Amendment of pleadings - discretionary power to allow amendments under Order VI Rule 17 CPC - necessity of amendment for determining the real question in controversy - change of nature and character of the suit - Whether the proposed amendments to the writ petition seeking to challenge the proviso to Section 174(2)(c) of the CGST Act and Notification No.21/2017-C.E. ought to be permitted under Order VI Rule 17 CPC. - HELD THAT: - Order VI Rule 17 CPC empowers the court to permit amendments in pleadings where necessary to determine the real question in controversy, and grants a discretionary power to allow alterations subject to just terms; however, amendments which would change the very nature and character of the proceeding or introduce an entirely different cause of action are not permissible. The petitioner sought to add grounds attacking the vires of the proviso to Section 174(2)(c) of the CGST Act and to challenge Notification No.21/2017-C.E., alleging deprivation of vested rights and invoking doctrines of promissory estoppel and legitimate expectation. The reliefs in the petition, as filed, were confined to claims for refund under the Budgetary Support Scheme (CGST and 50% IGST) or, alternatively, a direction to fix a special refund rate equivalent to the erstwhile regime. The court found that the statute and notification now sought to be assailed were not newly discovered nor raised without due diligence, and that permitting the proposed amendments would introduce an entirely different cause of action beyond the scope of the original prayers. Consequently, the court concluded that the amendments were not necessary for determining the real question in controversy and that it would not exercise its discretion to allow them. [Paras 11, 12]

Application to amend the writ petition under Order VI Rule 17 CPC is refused; the petition for amendment is rejected and dismissed.

Final Conclusion: The application to amend the writ petition to challenge the proviso to Section 174(2)(c) of the CGST Act and Notification No.21/2017-C.E. is declined because the proposed amendments would change the nature and character of the petition and are not necessary to determine the real question in controversy; the amendment application is rejected and the petition stands dismissed.

Income from undisclosed sources - Deeming provisions of section 69B - After thought explanations - Reallocation of income between spouses - Acceptance of corroborative evidence and examination on commission - Reliability of self serving affidavits from close relatives - Role of search and seizure material in making additions

Reallocation of income between spouses - Role of search and seizure material in making additions - Whether the portion of cash found from residence and locker amounting to Rs. 5,20,000/- was rightly deleted by the CIT(A) and reallocated between the assessee and her husband. - HELD THAT: - The Tribunal accepted that the CIT(A) had deleted an amount of Rs. 5,20,000/-, allowing a credit of Rs. 60,000/- and estimating Rs. 4,60,000/- as attributable to the husband, Sri Tribhuvan Singh. The Revenue did not appeal against the CIT(A)'s deletion/reallocation. In view of the absence of a revenue appeal, the Tribunal held that the deletion of Rs. 5,20,000/- must be given effect to and no adverse view could be taken on that portion. The Tribunal therefore granted relief to the assessee to the extent of Rs. 5,20,000/-, noting that the husband's appeal and related findings (including an order in the husband's case) do not alter the consequence of no appeal by the Revenue against the CIT(A)'s specific reallocation order. [Paras 23]

Rs. 5,20,000/- stands deleted as per the CIT(A)'s order and the assessee is given relief to that extent.

Income from undisclosed sources - Deeming provisions of section 69B - After thought explanations - Reliability of self serving affidavits from close relatives - Acceptance of corroborative evidence and examination on commission - Whether the balance cash of Rs. 15,90,000/- seized from the assessee (after deletion of Rs. 5,20,000/-) was rightly sustained as income from undisclosed sources. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion sustaining the addition of Rs. 15,90,000/-. The Tribunal agreed with the AO and CIT(A) that the explanations offered by the assessee - payments and gifts from relatives and receipts on social occasions - were invented post search and amounted to after thoughts. The assessee failed to produce independent corroborative evidence such as gift deeds, bank transactions, or jewellers to substantiate sale of jewellery relied upon in explanations; statements and confirmations from relatives were treated as self serving and contradictory. The Tribunal found no vitiation by the AO's reliance on CBI material, observing the AO applied his own mind. The absence of any reasonable documentary or transactional trail and the implausibility of all transactions being in cash led the Tribunal to concur with the CIT(A) that the amounts could be assessed as income from undisclosed sources under the deeming provisions. [Paras 22, 24]

Addition of Rs. 15,90,000/- as income from undisclosed sources confirmed.

Final Conclusion: The appeal is partly allowed: the Tribunal grants relief to the assessee by deleting Rs. 5,20,000/- (as held by the CIT(A)), but confirms the addition of Rs. 15,90,000/- as income from undisclosed sources for Assessment Year 2004-05; the appeal is accordingly partly allowed.

Validity of show cause notice under section 274 read with section 271AAB - requirement to specify charge/default in penalty notice - penalty under section 271AAB - necessity of meaningful opportunity of hearing - distinction between assessment proceedings and penalty proceedings - quashing of penalty for defective notice

Validity of show cause notice under section 274 read with section 271AAB - requirement to specify charge/default in penalty notice - quashing of penalty for defective notice - Whether the penalty orders under section 271AAB should be sustained where the show cause notice issued under section 274 r.w.s. 271AAB did not specify the charge or default on which penalty was proposed to be levied. - HELD THAT: - The Tribunal examined the show cause notices issued on 31.03.2015 and held they were vague and did not specify which limb of the penalty provision was invoked or identify the specific default or undisclosed income on which penalty was proposed. Relying on precedents of coordinate Benches and higher courts, the Tribunal applied the settled principle that a notice under section 274 must specifically state the grounds or default so that the assessee is given a meaningful opportunity to meet the charge; mere printed or generic forms listing possible grounds do not satisfy this requirement. The Tribunal further noted that penalty proceedings are independent of assessment proceedings and the assessee must be informed of the specific charge in the penalty notice. Applying these propositions to the facts, the Tribunal found the notices defective and concluded that consequential penalty orders could not be sustained. Since the decision was based on the legal infirmity of the notice, the Tribunal did not decide the merits of concealment or undisclosed income. [Paras 11, 12, 13]

Show cause notices under section 274 r.w.s. 271AAB were defective for not specifying the charge/default; penalties imposed under section 271AAB are quashed.

Final Conclusion: Penalty orders under section 271AAB for AY 2013-14 are set aside because the statutory show cause notices failed to specify the charge, and the appeals filed by the assessee are allowed.

Presumptive taxation under Section 44AD - addition of bank cash deposits as income from undisclosed sources - onus on assessee to prove source of deposits - tacit acceptance of return by assessing officer - acceptance of bank entries and VAT payments as corroboration of business activity

Presumptive taxation under Section 44AD - addition of bank cash deposits as income from undisclosed sources - acceptance of bank entries and VAT payments as corroboration of business activity - tacit acceptance of return by assessing officer - onus on assessee to prove source of deposits - Whether the addition of cash bank deposits aggregating to Rs. 13,61,300/- as income from undisclosed sources was justified, or the return declaring business income under Section 44AD ought to be accepted. - HELD THAT: - The Tribunal noted that the assessee filed a return in response to notice under section 148 declaring business income on presumptive basis under Section 44AD, and the Assessing Officer had accepted that return (tacitly) though later made an addition treating entire cash deposits as undisclosed income. While the onus to explain source of deposits lies on the assessee, the Tribunal examined the bank statement and observed regular cash deposits and withdrawals from various cities together with recurring entries evidencing payment of VAT. Payment of VAT and the pattern of deposits and withdrawals were taken as corroborative evidence of purchase and sale transactions and therefore of business activity. On the preponderance of probabilities the Tribunal concluded that some business was carried out by the assessee and that the Assessing Officer had effectively accepted the return. In view of these factors, the Tribunal set aside the addition and directed the Assessing Officer to accept the return showing business income of Rs. 1,79,200/-. [Paras 7, 8]

The addition is set aside and the Assessing Officer is directed to accept the return declaring business income of Rs. 1,79,200/- under Section 44AD.

Final Conclusion: Appeal partly allowed; direction issued to the Assessing Officer to accept the return of income declared as business income under Section 44AD for Assessment Year 2011-12.

Application of turnover filter in transfer pricing comparability - functional comparability for transfer pricing - recomputation of arm's length price by AO/TPO after exclusion of comparables - deduction of foreign currency satellite link charges from total turnover for computation of deduction under section 10A

Application of turnover filter in transfer pricing comparability - Validity of excluding high turnover companies from the comparable set by applying a turnover filter in transfer pricing analysis. - HELD THAT: - The Tribunal considered competing precedents and followed the coordinate bench view that size/turnover is a relevant criterion and companies with turnover materially higher than the assessee may be excluded for comparability. After reviewing earlier decisions and the reasoning in Autodesk India (P) Ltd. (which upheld exclusion of companies having turnover above the prescribed range), the Tribunal held that the CIT(A) was justified in excluding the five high turnover companies from the comparable set and sustained the exclusion made by the CIT(A). The Tribunal applied the principle that where two views exist, the one favourable to the assessee is to be followed and noted absence of a binding decision of the jurisdictional High Court to the contrary. The order of the CIT(A) excluding the five comparables on turnover grounds was therefore upheld. [Paras 12]

Upheld exclusion of the five high turnover comparables by application of the turnover filter; revenue's appeal dismissed on this point.

Functional comparability for transfer pricing - recomputation of arm's length price by AO/TPO after exclusion of comparables - Whether four specified comparables should be excluded on the ground of functional dissimilarity and consequent effect on ALP computation. - HELD THAT: - The Tribunal examined earlier decisions of the Bangalore bench (CGI Information Systems & Management Consultants and Net Devices) which had held that Bodhtree Consulting Ltd., Tata Elxsi Ltd., Exensys Software Solutions Ltd. and Thirdware Solutions Ltd. are functionally dissimilar to the assessee (a contract software service provider) for reasons including presence of product business, niche product/service mix, segmental diversity, extraordinary events affecting margins, and absence of appropriate segmental data. Having followed those coordinate bench findings on functional dissimilarity, the Tribunal directed exclusion of the four comparables and instructed the AO/TPO to recompute the arm's length price of the international transactions accordingly. [Paras 16]

Directed exclusion of the four specified comparables as functionally dissimilar and remitted the matter to the AO/TPO for recomputation of ALP.

Deduction of foreign currency satellite link charges from total turnover for computation of deduction under section 10A - Whether satellite link charges incurred in foreign currency must be deducted from total turnover as well as export turnover while computing deduction under section 10A. - HELD THAT: - Relying on the authoritative pronouncement of the Hon'ble Supreme Court in CIT v. HCL Technologies Ltd., the Tribunal held that expenses excluded from export turnover for the purpose of computing profit from export business must also be excluded from total turnover; otherwise the formula becomes unworkable. The same principle applies to expenses on technical services provided outside, including satellite/telecommunication charges in foreign currency. Applying that binding principle, the Tribunal upheld the CIT(A)'s order excluding such satellite link charges from total turnover as well as export turnover in computing deduction under section 10A. [Paras 18]

Upheld exclusion of foreign currency satellite link charges from total turnover as well as export turnover for computation of deduction under section 10A; assessee's plea on parity allowed.

Final Conclusion: The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal: it upheld exclusion of five high turnover comparables by applying the turnover filter, directed exclusion of four functionally dissimilar comparables and remitted ALP computation to the AO/TPO, and affirmed that foreign currency satellite link charges are to be excluded from total turnover (as well as export turnover) for computing deduction under section 10A.

Section 263 of the Income Tax Act - jurisdiction to revise assessment - Erroneous and prejudicial to the interests of the revenue - Section 54B deduction - investment in agricultural land purchased in name of family members - Distinction between lack of inquiry and inadequate inquiry - Possible view taken by the Assessing Officer - Application of mind in assessment proceedings

Section 263 of the Income Tax Act - jurisdiction to revise assessment - Erroneous and prejudicial to the interests of the revenue - Distinction between lack of inquiry and inadequate inquiry - Possible view taken by the Assessing Officer - Application of mind in assessment proceedings - Validity of invocation of Section 263 to set aside the assessment order on the ground that the assessing officer did not make requisite enquiries/verification - HELD THAT: - The Tribunal held that invocation of section 263 requires satisfaction of twin conditions: the order of the Assessing Officer must be erroneous and such error must be prejudicial to the interests of the revenue. An order passed after making inquiries and applying mind is not to be treated as erroneous merely because the Pr. CIT entertains a different view. The record shows that the assessee responded to notices, furnished sale and registry documents and other particulars during scrutiny and the AO accepted the claim after examination. Reliance was placed on the distinction between lack of inquiry and inadequate inquiry: where there has been inquiry (even if not elaborately recorded in the assessment order), section 263 cannot be invoked simply because another view is possible. In the facts of this case the Tribunal found the AO's conclusion to be one of the possible views supported by material on record and by binding precedent, and therefore the Pr. CIT was not justified in treating the assessment as erroneous and prejudicial and in setting it aside under section 263.

Order of Pr. CIT setting aside assessment under section 263 quashed; invocation of section 263 held not justified and set aside.

Section 54B deduction - investment in agricultural land purchased in name of family members - Purposive construction and accepted view - Availability of deduction under Section 54B where agricultural land purchased out of sale proceeds is registered in the names of the assessee's sons and daughter-in-law - HELD THAT: - On the merits the Tribunal observed that the claim for deduction under section 54B was supported by sale deed, registry entries for the lands purchased in the names of the assessee's sons and daughter-in-law and other documentary material placed before the AO during assessment. The Tribunal noted binding and persuasive judicial precedents permitting the benefit where the investment out of sale proceeds is made in the names of close family members (including sons and spouse) and applied purposive construction. As the AO had accepted the claim after examining material and the view taken was sustainable in law, the deduction was correctly allowed and cannot be disturbed by revision under section 263.

Deduction claimed under section 54B in respect of agricultural land purchased in the names of the assessee's sons and daughter-in-law upheld.

Final Conclusion: The appeal is allowed; the order passed by the Pr. Commissioner of Income Tax under section 263 is set aside and the assessment order for A.Y.2015-16, as made by the Assessing Officer (including allowance of deduction under section 54B), is restored.

Deduction under section 80IA(4) - infrastructure facility development, operation and maintenance - Explanation excluding "works contract" from 80IA(4) - Composite/turnkey/BOT contracts as infrastructure development contracts - Scope and limits of revisional jurisdiction under section 263 - error prejudicial to revenue and adequacy of enquiry

Deduction under section 80IA(4) - infrastructure facility development, operation and maintenance - Composite/turnkey/BOT contracts as infrastructure development contracts - Explanation excluding "works contract" from 80IA(4) - Assessee's eligibility to claim deduction under section 80IA(4) in respect of lift irrigation / lift water supply projects carried out under composite contracts - HELD THAT: - The Tribunal examined the nature of the contracts (composite contracts involving development and subsequent operation and maintenance for specified periods), the documents placed before the Assessing Officer and earlier findings in the assessee's own cases for preceding assessment years. It held that the projects were turnkey/BOT type infrastructure development contracts and not mere "works contracts" excluded by the Explanation to sub section (13) of section 80IA. The Assessing Officer had raised specific queries, considered the assessee's replies and contract documents, and arrived at a plausible conclusion allowing the deduction. Coordinate and other Tribunal decisions were relied upon to support that irrigation projects executed on turnkey/BOT basis fall within infrastructure facility for section 80IA(4). The PCIT did not point to any clause or distinguishing factual feature in the contracts to show they were not infrastructure development contracts. Consequently, the claim of deduction was held allowable for the year under consideration, subject to the general temporal and percentage conditions of section 80IA.

Claim for deduction under section 80IA(4) in respect of the cited lift irrigation / lift water supply projects upheld and allowed.

Scope and limits of revisional jurisdiction under section 263 - error prejudicial to revenue and adequacy of enquiry - Validity of the Principal Commissioner/Commissioner invoking revisional jurisdiction under section 263 to set aside the assessment order on the ground of inadequate enquiry into the claim under section 80IA - HELD THAT: - The Tribunal found that the Assessing Officer had made specific enquiries during assessment, considered the documentary evidence (including contracts and Form No.10CCB), and reached a plausible conclusion that the contracts constituted infrastructure development projects. The Principal CIT's order under section 263 did not identify any specific error in the AO's order nor point out what additional enquiry was required; it relied on suspicion without hard facts or distinguishing features. In this factual matrix, exercise of revisionary powers was held to be unjustified: a different but plausible view by the AO does not warrant interference under section 263 unless an error prejudicial to revenue is demonstrated. The Tribunal therefore quashed the revisional order.

Revisionary order passed by the Principal CIT under section 263 set aside; exercise of revisional jurisdiction held improper in the absence of a demonstrated error prejudicial to revenue.

Final Conclusion: The Tribunal allowed the assessee's appeal: the lift irrigation / lift water supply projects carried out under composite turnkey/BOT contracts qualify as infrastructure facility development eligible for deduction under section 80IA(4), and the revisional order passed under section 263 was quashed for want of any demonstrated error prejudicial to revenue.

Trading liability - capital loss - material loan in the form of silver - stock in trade - colourable device - mercantile system of accounting - revaluation of current liability - consistency in accounting treatment - deduction under section 37/28 of the Act - onus on assessing officer to prove colourable device

Trading liability - stock in trade - material loan in the form of silver - deduction under section 37/28 of the Act - revaluation of current liability - consistency in accounting treatment - Whether the loss of Rs. 6,14,20,769/- arising on repayment of material loan in the form of silver is a trading (business) loss deductible in computing business income or a capital loss not allowable as business deduction. - HELD THAT: - The Tribunal affirmed the view that the silver taken as a material loan was utilised for the assessee's trading business and was consistently treated as stock in trade in the books since inception. The loan entries were recorded in the trading account and corresponding liabilities were shown in creditors' ledgers; interest was paid and allowed earlier, and revaluation gains on similar loans were offered and taxed as business income. Applying the mercantile system of accounting and relevant precedents, the Tribunal held that the loss on account of increased market price at the time of repayment arose in the course of business and is deductible under the relevant provisions governing business expenditure. The revenue cannot accept the gain on revaluation in other years and disallow the contemporaneous loss; accounting consistency and business reality prevail over a technical reclassification as capital. The Tribunal also examined the McDowell doctrine and related authorities, concluding that absent proof of a colourable device the transactions could not be treated as a tax-avoidance subterfuge. On the facts the AO failed to discharge the onus of showing concealment, abnormality, illegality or variance from agreement terms and hence the addition was deleted. [Paras 3, 9, 11, 12, 13]

The addition of Rs. 6,14,20,769/- was correctly deleted by the CIT(A); the loss is a trading/business loss allowable in computing income and the Revenue's ground is dismissed.

Documents filed at the instance of the Bench - onus on assessing officer to prove colourable device - consistency in accounting treatment - Whether the documents filed by the assessee at the direction of the Tribunal are additional documents requiring remand to the AO, and whether the matter should be set aside for fresh adjudication. - HELD THAT: - The Tribunal held that documents produced pursuant to the Bench's direction cannot be treated as additional documents and that there were already sufficient records on file to adjudicate the issue. The Tribunal found no reason to remit the matter to the AO for fresh adjudication. It also observed that the AO had not established facts such as non-availability of stock or concealment; ledgers, opening stock acceptance and other evidence on record were adequate for decision. [Paras 6, 9]

The documents are not 'additional' in the sense warranting remand; no fresh adjudication is necessary and the Tribunal proceeds to decide the appeal on the record.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for A.Y. 2012-13, confirmed the CIT(A)'s deletion of the addition treating the loss as a trading/business loss allowable in computing income, and refused to remit the matter to the AO.

Best judgment assessment under section 144 - computation of business income by adopting reasonable profit percentage - treatment of unexplained sundry creditors and ad hoc disallowance of expenses - remand for verification of documentary evidence - valuation by District Valuation Officer and prohibition of double addition - treatment of marriage gifts and customary shagun - assessment of marriage expenses and evidentiary burden - pronouncement delay and exclusion of lockdown period under rule 34(5)

Best judgment assessment under section 144 - source of funds - encashment of fixed deposit as basis for capital introduction - Deletion of the addition of unexplained capital sustained to the extent of Rs. 1,12,500 - HELD THAT: - The Tribunal accepted documentary material on record showing encashment of an FDR and accrued interest, which was a plausible source to increase the assessee's cash balance during the year. The earlier conclusion by the CIT(A) that encashment would not increase cash flow was rejected; where a credible source for the introduced capital is demonstrated, the addition under the best judgment assessment is not sustainable. On this basis the addition of Rs. 1,12,500 sustained by the CIT(A) was deleted. [Paras 10]

Addition of Rs. 1,12,500 deleted

Computation of business income by adopting reasonable profit percentage - treatment of unexplained sundry creditors and ad hoc disallowance of expenses - section 44AD benchmark for reasonable profit - Reassessment of profits of proprietary businesses and deletion of additions relating to sundry creditors and ad hoc disallowances in commission business; travel business profit to be re-estimated at 10% - HELD THAT: - The AO's additions for travel business resulted in an unrealistically high profit percentage (27.45%) compared to the assessee's declared profit (7.79%) and established benchmarks (presumptive rate of 8% under section 44AD). The Tribunal held that only real and actual income can be taxed and that the AO's approach was overzealous. For the travel business the Tribunal directed the AO to adopt a reasonable profit of 10% (thereby sustaining only the difference between 10% and declared 7.79%). For the commission business, having examined the profit and loss and the nature of claimed expenses, the Tribunal found them reasonable and ordered deletion of the additions made for sundry creditors and the ad hoc disallowance, directing the AO to allow the expenses and accept declared profit. [Paras 11, 12]

Partly allowed: travel business profit to be fixed at 10% (sustain only 2.21% over declared); sundry creditors and ad hoc disallowance deleted for commission business

Remand for verification of documentary evidence - verification of purchase invoices for claiming depreciation - Remand of the depreciation claim for verification of purchase documents; allow depreciation if purchase bill is verified - HELD THAT: - Additional evidence for purchase of a vehicle was produced before the Tribunal. As this evidence was newly furnished, the Tribunal considered it appropriate to remit the issue to the AO for verification of the genuineness of the bill. If the AO finds the bill proper on verification, the depreciation claimed by the assessee is to be allowed. [Paras 13]

Issue remitted to AO for verification; depreciation to be allowed if documents found genuine

Agricultural income verification - No interference with the CIT(A)'s findings on agricultural income - HELD THAT: - No new material was placed before the Tribunal to alter the appellate authority's conclusions regarding agricultural income. In absence of fresh evidence or material warranting interference, the Tribunal declined to disturb the CIT(A)'s determination. [Paras 14]

Appeal on agricultural income dismissed

Treatment of marriage gifts and customary shagun - Deletion of addition made on account of marriage gifts - HELD THAT: - The assessee produced an affidavit from the mother in law confirming she gave shagun at the marriage. Recognising that receipt and giving of shagun is a common incident of Indian marriages, the Tribunal found no reason to sustain the addition and directed the AO to delete the addition relating to marriage gifts. [Paras 15]

Addition relating to marriage gifts deleted

Assessment of marriage expenses and evidentiary burden - Deletion of addition made by estimating excess marriage expenses - HELD THAT: - The AO had estimated marriage expenses at a higher figure and added the difference. The assessee stated that parents incurred the expenditure and produced limited supporting facts, including a withdrawal from a postal account. Considering the customary nature of familial support for marriages and absence of sufficient basis to sustain the estimate, the Tribunal directed deletion of the addition. [Paras 16]

Addition for marriage expenses deleted

Valuation by District Valuation Officer and prohibition of double addition - prohibition of double addition where reassessment accepted no addition - Deletion of addition based on DVO valuation difference for cost of construction - HELD THAT: - The AO relied on a DVO report (prepared two years after construction) to add a valuation difference. The Tribunal noted that a reassessment for the subsequent year had been completed without making any addition after verifying the same construction cost, indicating that the AO's action in this year resulted in double addition. The Tribunal held that where construction spanned two years and subsequent verification in reassessment accepted the declared cost, the DVO based addition in this assessment year cannot be sustained and should be deleted. [Paras 17]

Addition based on valuation difference deleted

Final Conclusion: The appeal is partly allowed: several additions sustained by the AO and confirmed by the CIT(A) were deleted (unexplained capital, marriage gifts, marriage expenses, valuation difference), issues concerning business profits were reworked (travel business fixed at 10% profit; deletions in commission business), depreciation claim remitted to AO for verification, and agricultural income findings upheld; order pronounced beyond 90 days by excluding lockdown period under rule 34(5).

Royalty - fees for technical services - double taxation avoidance agreement - non-exclusive non-transferable database access - binding precedent of the jurisdictional High Court - pronouncement of orders under rule 34(5) of the ITAT Rules - exclusion of lockdown/force majeure period for computation of time-limits

Royalty - double taxation avoidance agreement - non-exclusive non-transferable database access - Amounts received for providing non-exclusive, non-transferable online access to IMS database and reports are taxable as 'royalty' under section 9(1)(vi) read with Article 12(3) of the Indo-Swiss DTAA. - HELD THAT: - The Tribunal examined the nature of the IMS reports and the licence as a non-exclusive, non-transferable access to a standardized compilation of market data delivered electronically. It followed the approach in the Authority for Advance Ruling on comparable business information reports and the decision of the jurisdictional High Court in DIT v. Dun & Bradstreet Information Services India Pvt. Ltd., which held that sale or supply of such standardized business information reports is akin to sale of a book and does not amount to 'royalty' within the relevant treaty provision. Article 12(3) of the Indo-Swiss DTAA is materially identical to the provision considered by the AAR and the High Court; consequently the AAR's conclusions apply equally. As the assessee is not taxable under the DTAA, there is no occasion to invoke the domestic charging provision. No contrary binding decision of the jurisdictional High Court was shown, and the coordinate authorities below were distinguishable on facts or not binding on the Tribunal. [Paras 5, 6, 7, 8, 9]

Impugned addition treated as 'royalty' is deleted and the assessment addition is set aside.

Pronouncement of orders under rule 34(5) of the ITAT Rules - exclusion of lockdown/force majeure period for computation of time-limits - Whether the Bench's pronouncement of the order beyond 90 days from conclusion of hearing violated rule 34(5) of the ITAT Rules and whether the delay was excused by the Covid 19 lockdown. - HELD THAT: - Rule 34(5) ordinarily requires pronouncement within 90 days from conclusion of hearing, but the rule itself contemplates exceptional and extraordinary circumstances. The Tribunal recorded the nationwide and local lockdowns, governmental notifications treating the pandemic as a disaster/force majeure, and judicial orders extending limitation periods. In this context the Tribunal held that the lockdown period should be excluded for the purpose of computing the 90 day limit, and that the extraordinary disruption justified pronouncement beyond 90 days without penal consequence. The Tribunal observed that this pragmatic interpretation accords with the rule's language and the exceptional nationwide circumstances arising from Covid 19. [Paras 11, 12, 13, 14, 15]

Delay in pronouncement beyond 90 days is excused by exclusion of the lockdown/force majeure period; no infirmity is found in the timing of the order.

Final Conclusion: The appeal is allowed: the addition treating the subscription receipts as royalty is deleted for AY 2013 14, and the delay in pronouncement of the Tribunal's order beyond 90 days is held to be excused by exclusion of the Covid 19 lockdown/force majeure period.

Remand for de novo consideration - Computation of suppressed commission income - Admission of additional evidence under Rule 29 of the ITAT Rules - Proof of evaporation, pilferage, shortages and discounts as defence to additions

Remand for de novo consideration - Computation of suppressed commission income - Admission of additional evidence under Rule 29 of the ITAT Rules - Proof of evaporation, pilferage, shortages and discounts as defence to additions - Whether the addition on account of suppressed commission should be sustained or the matter should be remitted to the Assessing Officer for fresh consideration in view of apparent use of data belonging to another dealer and belated production of documents. - HELD THAT: - The Tribunal examined the record and noted that the Assessing Officer had relied upon information obtained from IOCL, BPCL and the Petroleum Planning & Analysis Cell to compute suppressed commission. The assessee subsequently produced documents before the Tribunal asserting that some of the data used by the AO pertained to a different retail outlet/dealer. Although the Tribunal observed that the assessee and her representatives had ample opportunity to point out this discrepancy during the assessment and first appellate proceedings and that the belatedness of the documents was unsatisfactory, it nonetheless found it inappropriate to uphold an addition if it was based on data that may belong to another assessee. In the interest of justice the Tribunal therefore exercised its discretion to remit the matter to the file of the Assessing Officer for de novo consideration so that the AO can verify the source and correctness of the data, admit or reject the newly produced material in accordance with law and re-compute the tax consequences after affording the assessee an opportunity to substantiate claims of discounts, shortages, evaporation and licence fee deductions. The Tribunal also admonished the assessee to be vigilant in earlier proceedings but did not decide the merits of the additions on record. [Paras 6, 7]

Matter remitted to the Assessing Officer for de novo consideration; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal remitted the assessment back to the Assessing Officer for fresh de novo consideration because the AO's computation may have adopted data belonging to another dealer; the appeal is allowed for statistical purposes.

Arm's length price - transfer pricing adjustment - comparability analysis and selection/exclusion of comparables - working capital adjustment in transfer pricing - risk adjustment in comparability analysis - use of information obtained under Section 133(6) of the Act - disallowance under section 14A and Rule 8D - deduction under section 80G - treatment of reimbursements as fees for technical services and TDS under section 195

Comparability analysis and selection/exclusion of comparables - arm's length price - Exclusion of Larsen & Toubro Infotech Limited, Persistent Systems Limited and Infosys Limited from the final comparable set for the software development services segment and direction to the TPO to exclude them. - HELD THAT: - The Tribunal examined functionality, presence of products/intangibles, segmental data, onsite activities, abnormal events and turnover disparities relied upon by the assessee and prior coordinate-bench decisions. On the facts and authorities before it for AY 2015-16, the Bench found these three companies functionally dissimilar or otherwise unsuitable as comparables and followed judicial precedent to direct their exclusion from the final comparable list for determination of ALP in the software development services segment.

L & T Infotech, Persistent Systems and Infosys are excluded from the comparable set; TPO to proceed accordingly.

Comparability analysis and selection/exclusion of comparables - use of information obtained under Section 133(6) of the Act - Restoration/remand to TPO/AO for examination and verification of three comparables sought for inclusion by the assessee (I2T2 India Limited, Evoke Technologies Limited and Melstar Information Technologies Limited). - HELD THAT: - The Tribunal found that the Assessing Officer/TPO should examine and verify the availabilty and reliability of required data (including information obtainable under statutory powers) before finally rejecting these companies. In view of the material and submissions, the matter of inclusion of these comparables is restored to the TPO/AO for verification and fresh consideration.

Comparables I2T2, Evoke Technologies and Melstar are sent back to TPO/AO for examination and verification.

Working capital adjustment in transfer pricing - comparability analysis - Direction to TPO/AO to compute and grant working capital adjustment (as per actuals) subject to verification and after considering final set of comparables. - HELD THAT: - Relying on OECD guidance and coordinate-bench precedent, the Tribunal held that where differences in working capital could materially affect net margins, reasonably accurate adjustments should be made. The Tribunal observed that if public-domain data on comparables is insufficient, revenue may invoke powers to obtain necessary information and denied absence of data cannot be a ground to withhold working capital adjustment. Accordingly, the TPO/AO is directed to compute working capital adjustment on actuals after appropriate verification.

TPO/AO to compute and allow working capital adjustment in accordance with guidelines and after verification.

Treatment of reimbursements as fees for technical services and TDS under section 195 - Secondment/FTS issue restored to DRP for examination and comments; assessee to be allowed to intervene in the Special Bench on the secondment question. - HELD THAT: - The Tribunal noted that the secondment/FTS contention has not attained finality and the DRP made no observations on this specific point. Given the pendency of wider adjudication and the existence of a Special Bench on the disputed issue, the Tribunal restored the matter to the DRP for consideration and allowed the assessee to be an intervener in that Special Bench proceeding.

Secondment/FTS/TDS issue remitted to DRP for examination; assessee permitted to seek intervention before the Special Bench.

Disallowance under section 14A and Rule 8D - Deletion of disallowance made under section 14A for the assessment year on the ground that no exempt income was earned in the year under consideration. - HELD THAT: - The Tribunal, following coordinate-bench precedents and relevant High Court authority, observed that where no exempt income arises in the relevant year, section 14A/Rule 8D cannot be applied to compute a disallowance. The assessee showed there was no exempt (dividend) income in the year, and the Tribunal directed deletion of the disallowance made under section 14A read with Rule 8D.

Addition under section 14A is deleted for the year as no exempt income was earned.

Deduction under section 80G - Restoration to Assessing Officer for fresh examination and verification of the claim for deduction under section 80G in respect of certain CSR-related contributions. - HELD THAT: - The Tribunal noted that CSR contributions are mandated under the Companies Act but that Section 80G contains specific exceptions which imply other CSR contributions may be eligible if statutory conditions for 80G are satisfied. The AO had disallowed the claim on a prima facie view that the payments were not voluntary; the Tribunal held that the AO had not fully examined the nature of contributions or documentary proof. Therefore the matter is remitted to the AO for fresh scrutiny and verification, with opportunity to the assessee to furnish evidence.

Claim under section 80G remitted to AO for fresh examination and verification.

Comparability analysis - treatment of persistently loss-making comparables - Remand to TPO/AO to verify/test comparables alleged to be loss-making for continuous years and to decide inclusion/exclusion after verification. - HELD THAT: - On contentions about excluding companies that reported losses for multiple years, the Tribunal held that factual verification is required. Citing precedents where only persistently loss-making entities were excluded, the Bench directed the TPO/AO to examine the continuity and nature of losses and decide the comparability after due verification.

Issue of persistently loss-making comparables remitted to TPO/AO for factual verification and fresh decision.

Final Conclusion: The appeal is partly allowed for statistical purposes. The Tribunal excluded three specified comparables from the SDS comparable set, directed verification/inclusion consideration of certain comparables, directed the TPO/AO to compute working capital adjustments and to verify loss-making comparables, deleted the section 14A addition for the year, and remitted the secondment/FTS issue to the DRP and the section 80G claim to the Assessing Officer for fresh examination and verification.

Extraterritorial jurisdiction - penalty under Section 112A of the Customs Act, 1962 - application of the Customs Act within India - misdeclaration enabling evasion of customs duty - conflicting tribunal and Supreme Court precedents

Extraterritorial jurisdiction - penalty under Section 112A of the Customs Act, 1962 - application of the Customs Act within India - misdeclaration enabling evasion of customs duty - Reference to a Larger Bench on whether penalty under Section 112A of the Customs Act, 1962 can be imposed for the period 2012-13 on an exporter located in Dubai, UAE, for misdeclaration of goods that enabled Indian importers to evade customs duty - HELD THAT: - The Tribunal recorded that penalties had been imposed on an overseas exporter located in Dubai for alleged misdeclaration of value which enabled Indian importers to evade customs duty. The learned counsel for the appellant relied on authorities holding that the Customs Act does not have extraterritorial operation and so personal penalties could not be imposed on persons beyond Indian territory. The Tribunal also noted earlier decisions and a contrary decision in the appellant's own case holding that the Customs Act could be applied extraterritorially. Given these conflicting views in the authorities, and the importance of the question whether the Customs Act extends to such overseas exporters for the relevant period, the Tribunal considered it appropriate in the interests of justice to refer the determinative legal question to a Larger Bench for authoritative decision. [Paras 15, 16]

Matter referred to a Larger Bench of the Tribunal to decide whether penalty under Section 112A can be imposed on an exporter in Dubai, UAE for misdeclaration during 2012-13.

Final Conclusion: Because of conflicting precedents on the extraterritorial application of the Customs Act to overseas exporters, the Tribunal referred the question whether a penalty under Section 112A could be imposed on an exporter located in Dubai for misdeclaration during 2012-13 to a Larger Bench for authoritative determination.

Classification of taxable service - Maintenance, Management and Repair service - charter hire of workover rigs - incidental repair or maintenance - taxability by subsequent legislative or classificatory inclusion - invocation of extended period of limitation - principles of natural justice and compliance with remand directions - invocation of Section 80 relief against penalty

Classification of taxable service - Maintenance, Management and Repair service - charter hire of workover rigs - incidental repair or maintenance - Whether the services rendered under the contract are classifiable as 'Maintenance, Management and Repair service' or constitute charter hire of workover rigs not taxable as repair/maintenance for the period in dispute. - HELD THAT: - The Tribunal examined the contract (Annexure III and scope of work) and the ONGC communication which described the arrangement as charter hire of workover rigs owned by the appellant for deployment at locations and depths designated by ONGC to perform development/exploratory and workover operations. The list of jobs in the contract, including occasional repair-related tasks, were found to be incidental to the principal obligation of hiring mobile workover units to carry out well completion, workover and related operations. The learned Commissioner's conclusion treating the service as maintenance/repair was held to be unsupported by reasons or evidence. The Tribunal held that the primary service is charter hire/workover operations and not a repair or maintenance service, and that such activities were later brought into the tax net under separate service categories after the period in dispute, which does not establish taxability under the earlier Maintenance, Management and Repair service classification. [Paras 7, 8, 9, 10]

The service is not taxable as 'Maintenance, Management and Repair service' for the period July 2003 to March 2006; the demand under that category is unsustainable.

Invocation of extended period of limitation - classification of taxable service - Whether invocation of the extended period of limitation was justified in confirming the service tax demand. - HELD THAT: - The Tribunal observed that the learned Commissioner did not assign positive evidence of deliberate suppression by the assessee; the sole basis recorded was non-intimation of rendering the service which the department considered taxable under Maintenance, Management and Repair service. Given that the determinative question related to classification and taxability (an issue of interpretation), and in absence of evidence of willful suppression, the extended period invocation failed to meet the legal test. The Tribunal therefore held that demands confirmed by invoking the extended period were not proper. [Paras 11]

Invocation of the extended period of limitation to sustain the demand was not justified; the demand based on extended limitation fails.

Principles of natural justice and compliance with remand directions - Whether the learned Commissioner complied with the Tribunal's remand directions and afforded adequate opportunity by providing relied documents and effective hearing. - HELD THAT: - The Tribunal noted that earlier remand directions required the documents relied upon to be provided to the assessee and a reasoned order to be passed after hearing. The impugned order was passed ex parte and the Commissioner failed to provide the contents of a report dated 23.02.2008 or the documents relied upon, resulting in lack of effective opportunity to the assessee. While the Tribunal ultimately decided the matter on merits and limitation, it recorded that the Commissioner had not complied with the remand instructions and had failed to afford adequate opportunity of hearing, contrary to principles of natural justice. [Paras 4, 8, 9]

Remand directions were not complied with and the impugned ex parte adjudication failed to afford adequate opportunity, amounting to breach of principles of natural justice.

Final Conclusion: The Tribunal set aside the demand of service tax and interest confirmed under 'Maintenance, Management and Repair service' for July 2003 to March 2006, held the extended period invocation to be unjustified, found non-compliance with remand and natural justice requirements by the adjudicating authority, allowed the appellant's appeal with consequential relief and rejected the Department's appeal.

Quashing of complaint under Sections 138 and 141 of the Negotiable Instruments Act - Vicarious liability under Section 141 of the Negotiable Instruments Act - Requirement of clear, specific and unambiguous averments in the complaint to fasten liability - Resignation of director/CEO and non-liability for acts after resignation - Proceeding ex parte where complainant, though duly served, elects not to appear - High Court's power under Section 482 Cr.P.C. to quash criminal proceedings

Proceeding ex parte where complainant, though duly served, elects not to appear - Court may proceed ex parte and adjudicate a petition under Section 482 Cr.P.C. for quashing when the complainant, despite being duly served, chooses not to contest. - HELD THAT: - Record established service on the complainant and repeated opportunities to appear were afforded. Precedents cited authorise the High Court to proceed ex parte and hear the accused where the complainant elects not to contest despite service. In those circumstances the Court heard the petition on merits without the complainant's presence. [Paras 9]

Proceedings were heard ex parte against the complainant and the petition was adjudicated on merits.

Resignation of director/CEO and non-liability for acts after resignation - Quashing of complaint under Sections 138 and 141 of the Negotiable Instruments Act - Petitioner who resigned as CEO prior to issuance of the cheque cannot be proceeded against under Section 141 for acts of the company occurring after her resignation. - HELD THAT: - Petitioner's resignation effective 15.06.2016 is evidenced by Form DIR-11 and the cheque was issued on 28.10.2016. The court held that a person must be in charge of and responsible for the conduct of the company's business at the time the offence was committed to be vicariously liable under Section 141. The undisputed public document showing resignation and absence of any pleading that she continued to control or direct company affairs after resignation demolished the foundation for imputing liability to the petitioner. [Paras 16, 29, 30]

Summons and complaint against the petitioner were unsustainable because she had resigned before the alleged offence and therefore could not be held vicariously liable.

Requirement of clear, specific and unambiguous averments in the complaint to fasten liability - Vicarious liability under Section 141 of the Negotiable Instruments Act - Complaint lacking specific averments about the petitioner's role in the transaction or day-to-day conduct of the company's business is liable to be quashed. - HELD THAT: - Authorities require that complaints invoking Section 141 must contain particularised facts showing how the accused was in charge of and responsible for company affairs or how the offence was with his/her consent, connivance or attributable to neglect. The complaint here merely repeated formulaic allegations, alleged an assurance without describing the underlying transaction, and did not aver any specific role of the petitioner. Such sketchy pleadings fail to satisfy the statutory requirement and cannot sustain criminal prosecution. [Paras 17, 21, 29]

The complaint was quashed insofar as it relied on bald, non-specific averments against the petitioner.

High Court's power under Section 482 Cr.P.C. to quash criminal proceedings - Quashing of complaint under Sections 138 and 141 of the Negotiable Instruments Act - Exercise of powers under Section 482 Cr.P.C. was appropriate to quash the summoning order and the complaint against the petitioner. - HELD THAT: - Given the undisputed resignation evidenced by public record and the absence of specific averments to fasten vicarious liability, the continuation of criminal proceedings would be an abuse of process and an injustice. The court applied established principles permitting quashing where documentary proof demolishes the foundation of the complaint and where the statutory ingredients are not prima facie made out. [Paras 31]

The summoning order dated 28.11.2016, the complaint CC No. 6573/2017 and all proceedings emanating therefrom were quashed as against the petitioner.

Final Conclusion: The petition under Section 482 Cr.P.C. is allowed: the High Court proceeded ex parte against the complainant, found that the petitioner had resigned before the cheque was issued and that the complaint lacked the specific averments required to fasten vicarious liability under Section 141, and accordingly quashed the summoning order, the complaint and all consequent proceedings against the petitioner.