TaxTMI Updates e-Newsletter
Nov 23,2019

Report of Inquiry - Directions of Court - Compliance with judicial directions - Examination of officers' action under Goods & Services Tax Act - Judicial criticism for inadequate inquiry

Report of Inquiry - Compliance with judicial directions - Examination of officers' action under Goods & Services Tax Act - Sufficiency of the inquiry report submitted by the Chief Commissioner of State Tax in compliance with this Court's directions and whether it addressed the examination of concerned officers' actions under the Goods & Services Tax Act. - HELD THAT: - The Court considered the report of inquiry tendered by the Chief Commissioner of State Tax pursuant to its earlier directions. On perusal, the report was held to be no better than an earlier report by the Assistant Commissioner and failed to meet the Court's directions in letter and spirit. The Court found that, instead of critically examining the conduct and actions of the concerned officers in the context of the relevant provisions of the Goods & Services Tax Act, the Chief Commissioner adopted a lenient and justificatory stance. The Court deprecated that approach and treated the report as inadequate for purposes of compliance with judicial directions. [Paras 2]

The report was held inadequate and did not comply with the Court's directions; the matter was adjourned for fresh compliance.

Final Conclusion: The inquiry report submitted by the Chief Commissioner was found inadequate for non-compliance with the Court's directions and for failing to critically examine officers' actions under the Goods & Services Tax Act; the Government Pleader was granted time and the matter was adjourned for further report on 11th December 2019.

Revisional jurisdiction under Section 263 - erroneous and prejudicial to the interests of the revenue - deeming provision Explanation 2 to Section 263 - taxability of foreign assignment allowance - place of receipt / deemed receipt under Section 5(2) - income deemed to accrue or arise in India under Section 9(1)(ii)

Revisional jurisdiction under Section 263 - erroneous and prejudicial to the interests of the revenue - deeming provision Explanation 2 to Section 263 - taxability of foreign assignment allowance - place of receipt / deemed receipt under Section 5(2) - income deemed to accrue or arise in India under Section 9(1)(ii) - Validity of the Commissioner's exercise of revisional jurisdiction under Section 263 in setting aside the assessment for disallowing exclusion of foreign assignment allowance - HELD THAT: - The Tribunal held that the Assessing Officer had made specific enquiries under Section 142(1), received detailed written explanations, employer certificate, bank/TCC statements and Swiss tax documents, and recorded findings that the assessee was non-resident and rendered services in Switzerland; on that basis the AO excluded the foreign assignment allowance from total income. Such enquiries and the AO's conclusion amounted to application of mind and a permissible view in law. Explanation 2 to Section 263 is a deeming provision and can operate only if the Commissioner records a factual opinion that one of the specific infirmities under Explanation 2(a)-(d) exists; that opinion must be based on correct facts and established law and cannot be an arbitrary preference for further inquiry. The Commissioner's reasoning - that the payment originated from an Indian bank account and therefore the point of receipt was India, that the allowance was denominated in INR, and that the allowance had not suffered tax abroad - was factually and legally unsustainable in the light of the material before the AO and established law, including the applicability of Section 9(1)(ii) which deems salary to accrue in India only if it is paid for services rendered in India. Coordinate Tribunal precedent on identical facts supported the AO's view. The Commissioner neither demonstrated lack of any enquiry nor established that the AO's view was unsustainable in law or prejudicial to revenue; instead he effectively directed a re-opening without discharging the twin conditions for invoking Section 263. In these circumstances the exercise of revisional jurisdiction was without jurisdiction and liable to be quashed. [Paras 13, 16, 24, 31]

The Commissioner's order under Section 263 setting aside the assessment is quashed; the AO's assessment accepting exclusion of the foreign assignment allowance is upheld.

Final Conclusion: The appeals are allowed: the order of the Commissioner under Section 263 (dated 29.03.2019) is quashed and the assessment sustaining exclusion of the foreign assignment allowance for AY 2014-15 is upheld; the stay applications are dismissed as infructuous.

Disallowance of purchases treated as bogus versus estimation of concealed income by profit element - assessment proceedings under 143(3) of the Income Tax Act, 1961 - application of gross profit rate to unverifiable/bogus purchases - rejection of purchases on the basis of non existent/untraceable suppliers - gross profit as the measure of taxable concealed income (not net profit)

Disallowance of purchases treated as bogus versus estimation of concealed income by profit element - application of gross profit rate to unverifiable/bogus purchases - rejection of purchases on the basis of non existent/untraceable suppliers - Whether additions for alleged bogus/unverifiable purchases should be made by disallowing the entire purchase amount or by estimating and taxing only the profit element. - HELD THAT: - The Tribunal examined the facts and found that the Revenue did not dispute the assessee's corresponding sales to Coal India Ltd. and its subsidiaries; the material indicated purchases from unregistered or non traceable suppliers. Relying on appellate authority and reasoning recognised by the High Court and Supreme Court precedents, the Tribunal held that where purchases are held unverifiable/bogus, the correct approach is to assess the profit element rather than disallow the entire purchase amount. Applying that principle, the CIT(A)'s restriction of the addition to the gross profit element on unverifiable purchases was upheld. The Tribunal noted analogous authority endorsing estimation of concealed income by applying gross profit rate in such circumstances and declined the Revenue's contention for restoration of the full disallowance. [Paras 5]

Addition limited to the profit element by applying gross profit rate; entire purchase disallowance declined.

Gross profit as the measure of taxable concealed income (not net profit) - assessment proceedings under 143(3) of the Income Tax Act, 1961 - Whether the taxable profit to be applied on unverifiable purchases is the gross profit or the net profit after deducting operative costs. - HELD THAT: - The assessee contended that net profit (after operative costs) should be adopted. The Tribunal, following the reasoning of higher authorities, held that the correct yardstick in cases of unverifiable/bogus purchases is the gross profit and not net profit. Consequently, the CIT(A)'s application of gross profit (and not net profit) for computing the addition was affirmed. [Paras 5]

Gross profit, not net profit, is the appropriate measure for the addition on unverifiable purchases.

Final Conclusion: Revenue's and assessee's cross appeals dismissed; CIT(A)'s orders restricting additions to the gross profit element on unverifiable/bogus purchases for assessment years 2013-14 and 2014-15 are affirmed.

Arm's length price - transfer pricing - benefit test - duplication/incidental/shareholders' services - burden of proof - Comparable Uncontrolled Price (CUP) method - most appropriate method - allowability of business expenditure - OECD guidelines

Arm's length price - benefit test - duplication/incidental/shareholders' services - burden of proof - CUP method - allowability of business expenditure - Whether the upward transfer pricing adjustments made by the AO/TPO and sustained by the CIT(A) in respect of administrative services and administrative & technical training services should be upheld where the Revenue found lack of evidence of tangible benefit and treated payments as duplicative, and whether such adjustments can be sustained without reference to uncontrolled comparables under the CUP method. - HELD THAT: - The Tribunal examined the factual record, the material placed before the TPO and CIT(A), and relevant authorities including the decision of the Hon'ble Delhi High Court in CIT v. EKL Appliances Ltd. The Revenue's primary basis for reducing ALP to nil was that the assessee did not need the services, the services were duplicative, and no tangible benefit had been shown. The Tribunal noted that some impugned services (treasury services) were already accepted by the CIT(A) and deleted by him, which the Revenue did not challenge on appeal, implying acceptance that certain services were received. Applying the principle reflected in EKL Appliances - that where expenditure has been shown to have been incurred for the purposes of business, the TPO has no authority to disallow it on extraneous grounds such as absence of perceived necessity or prudence - the Tribunal held that the approach of wholesale disallowance or reduction on the ground of lack of demonstrable tangible benefit was misplaced. The Tribunal observed that the TPO/CIT(A) had applied CUP as the most appropriate method without identifying comparable uncontrolled transactions or adequate basis for the selection and had emphasised duplicity and necessity in place of proper benchmarking. In view of the admitted incurrence of expenditure and the legal principle that necessity or tangible benefit is not a pre-condition to treat business expenditure as permissible for transfer pricing purposes, the Tribunal set aside the CIT(A)'s adjustment and directed deletion of the addition made by the AO/TPO. [Paras 9, 11]

The order of the CIT(A) sustaining the transfer pricing adjustment in respect of the administrative services and administrative & technical training services is set aside and the addition is directed to be deleted.

Final Conclusion: Following the reasoning in the cited precedent that demonstrated business expenditure cannot be disallowed by the TPO on extraneous grounds of necessity or lack of tangible benefit, the Tribunal allowed the assessee's appeal for AY 2008-09 and directed deletion of the transfer pricing addition.

Cash credits-identity, genuineness and creditworthiness test under section 68 - accommodation entries treated as income from undisclosed sources - remand for further inquiry under Section 250(4) of the Income tax Act - admission of additional evidence-requirements of Rule 46A of Income tax Rules - appellate authority's duty to cause/ensure further verification before allowing deletion of additions

Accommodation entries treated as income from undisclosed sources - appellate authority's duty to cause/ensure further verification before allowing deletion of additions - remand for further inquiry under Section 250(4) of the Income tax Act - Addition of Rs. 18,54,625/- on account of alleged accommodation entries was set aside by CIT(A) and remanded for further inquiry. - HELD THAT: - The Tribunal found that the first appellate authority had recorded that the Assessing Officer had not taken the enquiries to a logical conclusion and had directed further verification; having itself concluded that further verification was desirable, the CIT(A) ought to have caused such verification to be carried out under the powers of an appellate authority (including directing AO to make further inquiry) before deleting the addition. In view of the statutory scheme and binding precedent, the Tribunal set aside the CIT(A)'s deletion and directed that the matter be remitted to the CIT(A) to pass a fresh order after further enquiries in accordance with Section 250(4).

Order of CIT(A) deleting the addition on account of accommodation entries is set aside and remitted for further verification and fresh adjudication.

Cash credits-identity, genuineness and creditworthiness test under section 68 - appellate authority's duty to cause/ensure further verification before allowing deletion of additions - remand for further inquiry under Section 250(4) of the Income tax Act - Addition of Rs. 4,28,50,000/- under section 68 in respect of share capital was set aside by CIT(A) and remanded for further inquiry. - HELD THAT: - The Tribunal observed that CIT(A) accepted that deeper enquiry (including issuance of notices under section 133(6) or summons under section 131) was required, but did not ensure such enquiries were carried out during the appellate proceedings. Given that the appellate authority has power to make or direct further inquiries before disposing the appeal, the Tribunal held it was erroneous to delete the addition without ensuring those enquiries, and therefore set aside the CIT(A) order and remitted the issue for fresh adjudication after such enquiries in accordance with Section 250(4).

Order of CIT(A) deleting the addition under section 68 in respect of share capital is set aside and remitted for further verification and fresh adjudication.

Admission of additional evidence-requirements of Rule 46A of Income tax Rules - appellate authority's duty to allow opportunity to AO on admission of additional evidence - Deletion of addition of Rs. 1,19,63,549/- (unsecured loans) based on additional evidence admitted by CIT(A) was set aside for non compliance with Rule 46A. - HELD THAT: - The Tribunal found that the CIT(A) admitted additional evidence but failed to record reasons for admission as mandated by Rule 46A(2), and did not afford the Assessing Officer a reasonable opportunity to examine the evidence or cross examine witnesses as required by Rule 46A(3). That procedural breach vitiated the appellate order; accordingly the Tribunal set aside the CIT(A)'s deletion and directed the CIT(A) to pass a fresh order on this issue while ensuring full compliance with Rule 46A.

Order of CIT(A) deleting the addition relating to unsecured loans is set aside and remitted for fresh adjudication after strict adherence to Rule 46A.

Final Conclusion: The Revenue appeal is partly allowed for statistical purposes. The Tribunal set aside the CIT(A)'s deletions in respect of the accommodation entry addition, the share capital addition and the unsecured loans addition, and remitted all three issues for fresh adjudication: the first two for further verification under Section 250(4) and the third for reconsideration in compliance with Rule 46A of the Income tax Rules.

Assessment under Section 153A in case of search - Completed assessment reiteration versus reassessment - Requirement of incriminating material to disturb completed assessments - Scope of additions under Section 68 in reassessment proceedings - Abatement proviso to Section 153A and its effect on pending and completed assessments

Assessment under Section 153A in case of search - Requirement of incriminating material to disturb completed assessments - Abatement proviso to Section 153A and its effect on pending and completed assessments - Whether assessments already completed before the subsequent search can be disturbed in proceedings under Section 153A without incriminating material found in the subsequent search. - HELD THAT: - The Tribunal held that Section 153A proceeds from a search under Section 132 and, while it requires the AO to assess or reassess total income for six preceding years, the second proviso distinguishes between abated (pending) and completed assessments. For assessment years not pending on the date of the subsequent search (i.e., completed assessments), the AO's power to disturb those assessments in proceedings under Section 153A is circumscribed: completed assessments can be reopened/reassessed under Section 153A only if incriminating material is unearthed in the search (or requisition) that was not available to the AO earlier. In absence of such incriminating material, the completed assessment must be reiterated. The Tribunal relied on binding High Court precedents and earlier orders of the Tribunal to conclude that the AO could not simply repeat or improve upon an earlier addition in the second search proceedings where no fresh incriminating material had been found.

Completed assessments for the years in question cannot be interfered with in the Section 153A proceedings arising from the second search unless incriminating material relating to those years was found; in its absence the completed assessments are to be reiterated.

Scope of additions under Section 68 in reassessment proceedings - Completed assessment reiteration versus reassessment - Requirement of incriminating material to disturb completed assessments - Whether the additions made by the AO under Section 68 in respect of share capital and share premium (which had been made earlier and subsequently deleted by the Tribunal/High Court) were sustainable in the second set of Section 153A proceedings where no fresh incriminating material was found. - HELD THAT: - On the facts, the AO repeated the earlier addition under Section 68 in the assessment orders following the second search, but the Tribunal found no incriminating material seized during that second search to justify disturbing the earlier, finalised position. Statements recorded during assessment proceedings and an investigation report relied upon by the AO did not constitute incriminating material discovered in the course of the second search. The Tribunal noted that identical additions had earlier been deleted by the Tribunal and those deletions were affirmed by the High Court (and related SLP dismissed), so there was no fresh material to overturn the earlier final orders. Applying the principle that completed assessments can be reassessed under Section 153A only on the basis of incriminating material unearthed by the search, the Tribunal held the additions unsustainable and upheld the CIT(A)'s deletion.

The additions under Section 68 in respect of share capital and share premium were deleted in the Section 153A proceedings arising from the second search because there was no incriminating material seized in that search to justify disturbing the earlier concluded assessments.

Final Conclusion: All six departmental appeals were dismissed: the Tribunal upheld the CIT(A)'s deletion of the additions made under Section 68 in the Section 153A assessments arising from the second search because the assessments for the years under challenge were completed before that search and no incriminating material was found in the second search to justify disturbing the concluded assessments.

Arm's length price of corporate guarantee - international transaction under amended section 92B - application of judicial precedents in transfer pricing - allowability of business loss on sale of shares of wholly owned subsidiary - remand for verification of receipt of interest on income-tax refund - dismissal of grounds as not pressed / infructuous

Arm's length price of corporate guarantee - international transaction under amended section 92B - application of judicial precedents in transfer pricing - TP adjustment in respect of corporate guarantee given to an associated enterprise and the correct ALP to be applied - HELD THAT: - The Tribunal examined prior decisions including its own order for an earlier year and the Coordinate Benches' rulings which, after the retrospective legislative amendment to the definition of international transaction, treat bank/corporate guarantees to AEs as within the scope of TP provisions. The Tribunal accepted the precedential restriction of guarantee commission to 0.53% (as applied in Glenmark and followed by other Benches), noting that the Bombay Bench decision was upheld by the High Court and the Supreme Court dismissed SLP. The DRP's direction, which in principle accepted the lower rate but left liberty to the AO/TPO to maintain a higher adjustment, was held to be inconsistent with the Tribunal's and higher courts' rulings and constituted improper directions by a quasi judicial panel. Applying the settled precedents, the Tribunal directed recomputation of the TP adjustment at an ALP of 0.53%.

Addition on account of corporate guarantee restricted by applying ALP at 0.53%; ground No.2 allowed and ground No.1 dismissed insofar as DRP failed to give clear conforming direction.

Allowability of business loss on sale of shares of wholly owned subsidiary - application of final judgments of Tribunal and High Court - Claim of loss on sale of 100% shareholding in M/s Jewel Gems USA Inc. as business loss - HELD THAT: - The Tribunal relied on its earlier detailed finding for A.Y. 2012-13 that the USA subsidiary was set up to expand the assessee's retail business and the investment was made out of commercial expediency for business expansion. That finding was upheld by the jurisdictional High Court and the Department's SLP was dismissed by the Supreme Court, rendering the issue final. The DRP had noted those outcomes and, subject to verification of any SLP (which is dismissed), effectively allowed the claim. The AO's repetition of the disallowance in the final order was therefore unsustainable and had to be deleted.

Ground No.3 allowed; loss on sale of shares of the wholly owned subsidiary is allowable as business loss; ground No.4 rendered infructuous.

Dismissal of grounds as not pressed - Assessee's ground challenging disallowance under section 14A r.w. Rule 8D pressed or not - HELD THAT: - At hearing the assessee expressly declined to press the challenge to the small disallowance under section 14A read with Rule 8D and the Revenue raised no objection to treating the ground as not pressed.

Ground No.5 dismissed as not pressed.

Remand for verification of receipt of interest on income-tax refund - Whether interest on income-tax refund was taxable where the assessee contended no such interest was received - HELD THAT: - The DRP directed verification by the AO of whether interest on refund had actually been paid and, if so, computation under the correct statutory provision. A typographical error in the DRP order (wrong section number) led the AO to repeat the addition without verification. The Tribunal directed the AO to verify the fact of receipt, compute interest if paid (under the proper provision), and decide after giving the assessee an opportunity of hearing.

Matter remanded to the AO for verification of receipt of interest on refund and computation/decision after hearing the assessee.

Dismissal as infructuous following rectification/modification - Ground relating to set off of brought forward losses where rectification/modification granted by AO - HELD THAT: - The assessee informed the Tribunal that the AO, by rectification/modification, had allowed the claim earlier contested, rendering the ground academic. The Tribunal treated the ground as infructuous.

Ground No.7 dismissed as infructuous.

Final Conclusion: The appeal is allowed in part: the transfer pricing addition for corporate guarantee is to be recomputed applying an ALP of 0.53%; the loss on sale of the wholly owned USA subsidiary is allowed as business loss; the 14A ground is dismissed as not pressed; the interest on refund issue is remanded to the AO for factual verification and computation after hearing; another ground has become infructuous. Appeal allowed in part.

Time limit for notice under Section 149(1)(c) - reopening of assessment and time bar / vested right - retrospective operation of a fiscal amendment - clarificatory Explanation and its limited role - revival of a dead remedy by amendment

Time limit for notice under Section 149(1)(c) - reopening of assessment and time bar / vested right - retrospective operation of a fiscal amendment - Validity of reassessment notices issued on 16-02-2016 for AYs 2001-02 to 2005-06 in view of insertion of clause (c) in Section 149(1) by Finance Act, 2012. - HELD THAT: - The Tribunal held that prior to insertion of clause (c) in Section 149(1) the right to reopen assessments for the years up to AY 2005-06 had expired under the six year rule. Clause (c) was made operational with effect from 01-07-2012 and the legislative materials do not disclose an intention to revive proceedings which had already become time barred by that date. Procedural rules may operate retrospectively but an amending fiscal provision will not ordinarily be construed to revive a dead remedy or destroy a vested right unless such intent is clearly manifested. The Explanation appended to Section 149, being clarificatory, cannot be read so as to enlarge the scope of the principal provision or to override the substantive effect of making clause (c) effective only from 01-07-2012. The Tribunal applied settled authorities that an amendment enlarging limitation cannot revive proceedings already barred when the amending provision came into force, and relied on parallel decisions dealing with similar amendments in the Finance Act, 2012 to conclude that the reassessments for and up to AY 2005-06 were time barred. [Paras 12, 13, 14, 19, 25]

Reassessment notices issued on 16-02-2016 for AYs 2001-02 to 2005-06 were time barred and the assessments made under Section 147 are ab initio void; the Tribunal upholds the CIT(A)'s quashal of the reassessments.

Final Conclusion: All revenue appeals are dismissed; the cross objections of the assessee are dismissed as academic because the reassessment orders were quashed as time barred.

Characterisation of royalty and lump sum model fee as revenue or capital expenditure - enduring benefit test - distinction between formative years and post formation payments - binding effect of coordinate bench and High Court decisions in identical facts - application of precedent to assessment year 2009-10

Characterisation of royalty and lump sum model fee as revenue or capital expenditure - distinction between formative years and post formation payments - binding effect of coordinate bench and High Court decisions in identical facts - Royalty and lump sum model fee paid under the Technical Collaboration Agreement dated 01/04/2005 are revenue expenditure for Assessment Year 2009-10. - HELD THAT: - The Tribunal, after hearing rival contentions, proceeded on the undisputed factual premise that the assessee had commenced manufacturing over ten years prior to the 2005 agreement. The decision in the assessee's favour rests on two principal strands of reasoning adopted by the Court: (a) the Supreme Court decision relied upon by Revenue concerned payments made in the formative years when the technical collaboration was for setting up the manufacturing unit; that decision is distinguishable where, as here, the payments were made long after the assessee had become operational; and (b) coordinate decisions of the Tribunal and the Delhi High Court on identical facts for subsequent assessment years (notably the ITAT order dated 18.08.2017 and Delhi High Court order dated 13.05.2019) hold that payments under the 2005 TCA (model fee and running royalty) were for improving existing product lines and are revenue in nature. In the absence of any distinguishing factual or legal point for AY 2009-10, the Bench respectfully followed those coordinate and High Court decisions and declined to interfere with the CIT(A)'s deletion of the addition. The Tribunal therefore treated the payments as revenue expenditure applying the enduring benefit and formative years distinction drawn in the precedents.

Ground No.1 of Revenue's appeal is dismissed; the royalty and lump sum model fee are held to be revenue expenditure for AY 2009-10.

Final Conclusion: Following and applying the distinction between payments made during formative years and those made after commencement of operations, and having regard to binding coordinate bench and High Court decisions on identical facts, the Tribunal affirms that the royalty and model fee under the 2005 Technical Collaboration Agreement are revenue expenditure for Assessment Year 2009-10 and dismisses the Revenue's appeal on this ground.

Arm's length price - comparability analysis - transfer pricing - selection and exclusion of comparables - application of filters in comparables selection - TNMM as most appropriate method - deduction under Section 10A - apportionment of profits by export turnover to total turnover - remand for fresh verification

Transfer pricing - selection and exclusion of comparables - comparability analysis - arm's length price - Exclusion of Infosys Ltd. and Persistent Systems Ltd. from the final list of comparables for determining ALP of software development services - HELD THAT: - The Tribunal examined functional profiles and the record of coordinate-bench decisions. Infosys Ltd. was found to possess significant brand value, intangible assets, product development activities and a scale of operations materially different from the assessee; its profits are driven by premium branding and product-related activities, making it functionally dissimilar. Persistent Systems Ltd. was found to be engaged in a mix of product and outsource product-development activities with no reliable segmental breakup, rendering it not functionally comparable. The Tribunal relied on and followed earlier coordinate-bench findings to direct that both companies be excluded from the final set of comparables for testing ALP. [Paras 8]

Infosys Ltd. and Persistent Systems Ltd. are to be excluded from the final list of comparables for determination of ALP.

Transfer pricing - selection and exclusion of comparables - application of filters in comparables selection - remand for fresh verification - Inclusion of Akshay Software Technologies Pvt. Ltd. restored to the TPO's file for verification - HELD THAT: - The assessee sought inclusion of Akshay Software as functionally comparable and passing the TPO filters. The Tribunal noted that the TPO had not verified certain factual aspects relied upon by the assessee and that coordinate-bench authorities had accepted Akshay in similar circumstances. Given the absence of verification by the TPO/AO on disputed factual points, the Tribunal directed that Akshay be restored to the TPO file for examination and appropriate consideration. [Paras 9]

Akshay Software Technologies Pvt. Ltd. is restored to the TPO/AO for verification and fresh consideration as a comparable.

Transfer pricing - selection and exclusion of comparables - comparability analysis - arm's length price - Exclusion of four named comparables from the marketing services segment - HELD THAT: - The assessee objected to four marketing-segment comparables on grounds of functional dissimilarity. The Tribunal applied coordinate-bench precedent(s) which considered the business profiles and held those entities to be functionally different from the assessee's marketing support activities (e.g., exhibition organiser, HR/admn service provider, administrative services, trading/agency activities without relevant segmental information). On that basis the Tribunal directed the TPO to exclude the following from the final list of comparables: Asian Business Exhibition & Conferences Ltd., HCCA Business Services Pvt. Ltd., Hindustan Housing Company Ltd., and Killicks Agencies & Marketing Ltd. [Paras 10]

The four specified marketing-segment comparables are excluded from the final list of comparables for determination of ALP.

Deduction under Section 10A - apportionment of profits by export turnover to total turnover - remand for fresh verification - Service-tax refund treatment for computation of deduction under Section 10A remitted to Assessing Officer for fresh consideration - HELD THAT: - The Tribunal noted that the CIT(A) directed verification of the nature of the service-tax refund before treating it as profit of the undertaking for Section 10A purposes. The Tribunal found it appropriate to remit the issue to the AO for fresh consideration and allowed the assessee's ground for statistical purposes, thereby not finally deciding the matter on merits but requiring factual verification by the assessing authority. [Paras 11]

Issue of whether the service-tax refund constitutes profit of the undertaking for deduction under Section 10A is remitted to the Assessing Officer for fresh consideration.

Deduction under Section 10A - apportionment of profits by export turnover to total turnover - CIT(A)'s treatment of reduction (exclusion) of certain expenses from both export turnover and total turnover for computing Section 10A deduction upheld - HELD THAT: - The Tribunal applied and followed the Karnataka High Court decision in CIT v. Tata Elxsi Ltd., holding that elements excluded from the defined term 'export turnover' (such as freight, insurance, telecom where relevant) must also be excluded when the export turnover forms part of the total turnover in the denominator of the Section 10A apportionment formula. The Tribunal found no error in CIT(A)'s direction to reduce the expenditures from both export and total turnover and dismissed the revenue's grounds challenging that approach. [Paras 16]

The CIT(A)'s direction to exclude specified items from both export turnover and total turnover for computing deduction under Section 10A is upheld; the revenue's grounds on this issue are dismissed.

Transfer pricing - selection and exclusion of comparables - comparability analysis - Exclusion of ICRA Techno Analytics Ltd., Kals Information Systems Ltd., and Tata Elxsi Ltd. from the final list of comparables upheld - HELD THAT: - The Tribunal examined the functional profiles and prior coordinate-bench holdings. ICRA Techno Analytics Ltd. was found to have diversified activities (software development, consultancy, engineering services, web hosting, BPO) without suitable segmental detail, making it non-comparable. Kals Information Systems engaged in software products (with inventory) and services, lacking pure-services comparability and segmental clarity; thus it was not comparable. Tata Elxsi's business comprising product design, engineering and visual computing divisions was held to be product/design oriented and not comparable with a pure software development services provider. In each instance the Tribunal followed coordinate-bench precedent and did not interfere with the CIT(A)'s exclusions. [Paras 17, 18, 19, 21, 22]

ICRA Techno Analytics Ltd., Kals Information Systems Ltd., and Tata Elxsi Ltd. are excluded from the final list of comparables for determination of ALP; the revenue's challenge is dismissed.

Final Conclusion: The assessee's appeal is partly allowed for statistical purposes (with specified comparables excluded and one comparable restored to the TPO for verification, and the service-tax refund issue remitted for fresh consideration); the revenue's appeal is dismissed (CIT(A)'s treatment under Section 10A and exclusions of three comparables upheld).

Allowability of depreciation on motor car used for business - presumption of personal use not a ground for disallowance without evidence - admission of additional evidence under Rule 46A - treatment of cash receipts from sale of asset as explanation for bank deposits - addition on account of unexplained or low household withdrawals

Allowability of depreciation on motor car used for business - presumption of personal use not a ground for disallowance without evidence - Depreciation disallowed on the ground that the motor car was purchased and paid from the assessee's personal account was deleted and depreciation allowed. - HELD THAT: - The assessing officer disallowed depreciation because the car was purchased in the assessee's personal name and the payment was made from a personal account and no car-related expenses were debited to the profit and loss account. The Tribunal accepted that the assessee is an individual proprietor and it is natural for the car to be purchased in his name; payment from a personal account does not convert a business asset into a personal one. In the absence of any positive evidence that the car was not used for the business, the assessing officer's presumption of personal use could not sustain a disallowance. Accordingly the disallowance of depreciation was not sustainable and was directed to be deleted. [Paras 4]

Disallowance of depreciation of INR 65,522 on the car deleted; depreciation allowed.

Admission of additional evidence under Rule 46A - treatment of cash receipts from sale of asset as explanation for bank deposits - Addition of INR 90,000 as unexplained cash deposit was deleted on finding that the deposits were from sale of the old car supported by cash receipts. - HELD THAT: - The assessee explained that the cash deposited arose from sale of his old car and produced two cash receipts of INR 45,000 each. Although the CIT(A) declined to admit the evidence for want of an application under Rule 46A and therefore confirmed the addition, the Tribunal accepted the receipts as prima facie evidence that the deposits represented sale proceeds of the old car. The Tribunal held that the lower authorities erred in treating the deposits as unexplained when documentary evidence of the sale had been furnished and directed deletion of the addition. [Paras 5]

Addition of INR 90,000 as unexplained cash deposits deleted.

Addition on account of unexplained or low household withdrawals - presumption of personal use not a ground for disallowance without evidence - Addition of INR 50,000 on account of alleged low household withdrawals was deleted. - HELD THAT: - The assessing officer made an addition by comparing alleged family household expenditure with the assessee's withdrawals, treating withdrawals as insufficient and presuming undisclosed income. The Tribunal noted the assessee's family composition, that the children were independent and that the assessee lived in a low-cost colony. No expenditure outside books was found and there was no material to justify the estimating addition. The Tribunal concluded that the presumption of undisclosed expenditure could not be sustained and directed deletion of the addition. [Paras 6]

Addition of INR 50,000 on account of low household withdrawal deleted.

Final Conclusion: All additions/disallowances made by the assessing officer and confirmed by the CIT(A) - depreciation disallowance on the car, addition of INR 90,000 as unexplained cash deposit, and addition of INR 50,000 for low household withdrawals - were deleted and the appeal of the assessee allowed.

Purchase disguised as lease - finance lease characteristics - transfer of ownership at term, lease rentals covering fair value, and lessee's operational and maintenance obligations - section 40A(2)(b) not attracted to a public charitable trust - Explanation 3 to section 43(1) - requirement of recorded satisfaction by Assessing Officer that transfer was for reducing tax liability - actual cost for depreciation determined by agreement where Explanation 3 is not duly invoked - allowability of interest component under section 36(1)(iii)

Purchase disguised as lease - finance lease characteristics - transfer of ownership at term, lease rentals covering fair value, and lessee's operational and maintenance obligations - Characterisation of the transaction as purchase of asset rather than a revenue lease - HELD THAT: - The lease agreement unambiguously provided for transfer of ownership to the lessee at the end of the lease term without any option to refuse; lease payments matched or exceeded the fair value of the asset; and the lessee bore maintenance and insurance costs. These features are indicative of a finance/purchase transaction rather than an operating lease. The Tribunal examined the contractual terms rather than labels and concluded that the agreement had the trappings of a transaction effecting purchase of the asset disguised as a lease. [Paras 7, 8, 10]

The transaction is held to be a purchase of the asset in the garb of a lease; the assessee's ground challenging disallowance on this count is dismissed.

Section 40A(2)(b) not attracted to a public charitable trust - Whether provisions of section 40A(2)(b) applied to disallow the lease payments because the lessor is a charitable trust with trustees related to assessee's holding company - HELD THAT: - The Tribunal noted that clause (b) of section 40A(2) does not list 'trust' among the specified persons and relied on precedent that the provision is not attracted in respect of a public charitable trust registered under section 12A. Consequently the Revenue's contention based on relationship through trustees/directorships was rejected and did not support disallowance. [Paras 9]

The objection under section 40A(2)(b) is without merit and does not justify disallowance of the claim.

Explanation 3 to section 43(1) - requirement of recorded satisfaction by Assessing Officer that transfer was for reducing tax liability - actual cost for depreciation determined by agreement where Explanation 3 is not duly invoked - allowability of interest component under section 36(1)(iii) - Whether Explanation 3 to section 43(1) could be invoked to reduce the asset's cost and deny depreciation/interest claimed, and if not, whether depreciation and interest are allowable - HELD THAT: - Explanation 3 applies only where (i) the asset was previously used by another and (ii) the Assessing Officer records satisfaction that the main purpose of the transfer was to reduce tax liability by claiming depreciation on an enhanced cost. The AO did not record such satisfaction in the assessment order. Jurisprudence requires that the AO must record objective satisfaction before invoking Explanation 3 and determine actual cost with due procedure; an appellate authority cannot substitute its own opinion in the absence of that recorded satisfaction. Given that the AO did not record the mandatory satisfaction and did not determine actual cost under the Explanation, the Tribunal accepted the mutually agreed value in the agreement as the asset's cost for depreciation. Further, the interest component was held to be allowable under section 36(1)(iii). [Paras 11, 14, 15]

Explanation 3 to section 43(1) cannot be invoked in the absence of the AO's recorded satisfaction; depreciation on the agreed contractual value is allowable and the interest component is allowable under section 36(1)(iii). Ground allowing depreciation and interest is allowed.

Final Conclusion: The Tribunal held the arrangement to be a purchase disguised as a lease and rejected the section 40A(2)(b) objection to CARE being a trust; because the Assessing Officer did not record the satisfaction necessary to invoke Explanation 3 to section 43(1), the agreed contract value is accepted for depreciation and the interest component is allowable, resulting in the appeal being partly allowed.

Conditions for release of bank account - Requirement of cogent and justifiable reasons for coercive recovery measures - Stay of demand at the first appeal stage - Partial modification of Instruction No. 1914 - standard rate for stay (20% of disputed demand)

Conditions for release of bank account - Requirement of cogent and justifiable reasons for coercive recovery measures - Validity of the letter dated 12.09.2019 which required upfront and instalment payments as condition for release/defreezing of the assessee's bank account - HELD THAT: - The Court examined the impugned communication dated 12.09.2019 and found that the Deputy Commissioner imposed an upfront payment and monthly instalments as conditions for releasing the bank account. While an income-tax authority may impose conditions for release of a frozen bank account, such conditions must conform to applicable CBDT instructions and be supported by cogent and justifiable reasons. On the material before the Court the conditions were imposed without any cogent or justifiable reasons recorded in support. The Office Memorandum of 31.07.2017, which partially modified Instruction No. 1914 by prescribing a revised standard rate (20% of disputed demand) for stay at the first appeal stage, was noted; however, the impugned letter itself did not furnish the requisite reasoning or demonstrate conformity with applicable instructions. For these reasons the communication could not be sustained in law and was quashed.

The letter dated 12.09.2019 imposing payment conditions for release of the bank account is quashed for want of cogent and justifiable reasons.

Stay of demand at the first appeal stage - Partial modification of Instruction No. 1914 - standard rate for stay (20% of disputed demand) - Direction to the Assessing Officer to reconsider the petitioner's request and to take a fresh decision consistent with CBDT instructions - HELD THAT: - The Court directed that the concerned Assessing Officer should reconsider the writ petitioner's letter dated 22.08.2019 and take a fresh decision on the request for release/defreezing of the bank account. Any fresh decision must be supported by cogent and justifiable reasons and must conform to written instructions, circulars and guidelines issued by the CBDT, including the modified guidelines relating to stay at the first appeal stage. The Court prescribed an expeditious timeline for completion of this exercise (preferably within a fortnight but not later than three weeks from communication of a certified copy of the order). The matter was remitted for fresh consideration rather than finally adjudicated on the merits of the claim for release.

Assessing Officer to take a fresh decision after considering the petitioner's representation, supported by cogent reasons and in conformity with CBDT guidelines, within the stipulated short timeframe.

Final Conclusion: The communication of 12.09.2019 imposing upfront and instalment payment conditions for release of the assessee's bank account is quashed for lack of cogent reasons; the Assessing Officer is directed to reconsider the petitioner's representation and decide afresh in conformity with CBDT instructions (including the modified guidance on stay at the first appeal stage), recording justifiable reasons, within the prescribed short timeframe.

Charitable purpose including advancement of objects of general public utility - registration under Section 12AA of the Income Tax Act - pension as deferred payment / statutory right and not a charity - relevance of source of contribution to charitable character - clause (15) of Section 2 - general public utility test - review jurisdiction under Order XLVII Rule 1 CPC - mistake apparent from record

Charitable purpose including advancement of objects of general public utility - clause (15) of Section 2 - general public utility test - registration under Section 12AA of the Income Tax Act - pension as deferred payment / statutory right and not a charity - relevance of source of contribution to charitable character - The object of the assessee trust to establish a pension fund for GCDA employees is not a charitable purpose or an activity of general public utility entitling it to registration under Section 12AA. - HELD THAT: - The trust was constituted to operate a Pension Fund for the managerial, supervisory and other staff of the GCDA and was formed because the GCDA, while extending pension benefits under Part III of the Kerala Service Rules, would not incur expenditure from the Consolidated Fund. The Court applied the settled principle that pension is a deferred payment or a statutory right, not a charity or bounty, and that payment of pension in discharge of service rules is not a charitable activity. Consequently, an object limited to providing pensions to the employer's own employees does not fall within the scope of advancement of objects of general public utility under clause (15) of Section 2. The Court also held that the question whether contributions originate from employees or the employer is irrelevant to the legal characterisation for registration under Section 12AA; even if contributions were wholly by the employer, the object would not become charitable. The Court therefore agreed with the Tribunal's conclusion that the trust is not entitled to registration as a charitable trust under Section 12AA. [Paras 16, 17, 18, 19]

The assessee trust's object to provide pension to GCDA employees does not constitute a charitable purpose or an activity of general public utility; registration under Section 12AA is not warranted.

Review jurisdiction under Order XLVII Rule 1 CPC - mistake apparent from record - review is not an appeal in disguise - The review petition does not disclose a mistake apparent on the face of the record warranting review of the Court's earlier judgment. - HELD THAT: - The petitioner contended that the Court had proceeded on an erroneous assumption that employees contributed to the fund and that this amounted to a mistake apparent from the record. The Court restated the settled limits of review jurisdiction: review lies only to correct patent errors and not to re-open merits or substitute a different view where two views are possible. Given the legal conclusion that pension payments in discharge of statutory obligations are not charitable regardless of the source of contributions, the alleged factual error did not qualify as a mistake apparent on the face of the record. The Court therefore declined to exercise review jurisdiction. [Paras 10, 19, 20, 21]

The review petition is dismissed as it fails to demonstrate a mistake apparent from the record; the earlier judgment stands.

Final Conclusion: The review petition is dismissed and the judgment upholding the Tribunal's refusal to register the trust under Section 12AA is affirmed.

Rule of consistency - disallowance under the rule in section 36(1)(ii) - bogus purchases and partial disallowance - estimation of addition is a matter of fact - gratuity disallowance - insurance premium as revenue expenditure - allowability under section 31(ii) - application of Radhasoami principle

Rule of consistency - disallowance under the rule in section 36(1)(ii) - application of Radhasoami principle - Whether the Tribunal was justified in deleting additions made by the Assessing Officer treating commissions to director-shareholders as disallowable under section 36(1)(ii) in view of consistent allowance in earlier assessment years. - HELD THAT: - The Tribunal recorded that identical payments of commission to directors had been allowed continuously for five assessment years up to AY 2010-11 and that no change in facts or circumstances was shown for the impugned year. Applying the principle that, although res judicata strictly does not apply to income-tax, where a fundamental aspect permeates successive assessment years and the position has been allowed to stand, Revenue cannot change its view without material change, the Tribunal relied on settled authorities to uphold consistency. In those circumstances the Tribunal was justified in allowing the ground of appeal and deleting the addition; the appellate court found no substantial question of law arising from that conclusion. [Paras 3]

Tribunal correctly deleted the additions in respect of commission payments; no substantial question of law arises.

Bogus purchases and partial disallowance - estimation of addition is a matter of fact - Whether the Tribunal and Commissioner (Appeals) were right in restricting disallowance of purchases held to be from bogus entities to 3% of the purchases rather than disallowing the entire amount. - HELD THAT: - The Assessing Officer held certain purchases to be bogus but sales of jewellery manufactured from those diamonds were accepted by the authorities. The Commissioner (Appeals) examined books, stock records and material receipt registers and, having regard to the factual matrix and authorities where a limited percentage disallowance was held reasonable, estimated the over-invoicing at 3%. The Tribunal affirmed that estimate. This court observed that the determination of the quantum of disallowance when some purchases/sales are accepted is a question of factual estimation; precedents relied upon by Revenue did not convert the factual estimate into a question of law. Consequently, restricting the addition to 3% was a concurrent factual finding not warranting interference. [Paras 4]

Tribunal correctly confirmed 3% disallowance as a matter of factual estimate; no substantial question of law arises.

Gratuity disallowance - precedent concluding the controversy - Whether the Tribunal erred in deleting additions made on account of disallowance of gratuity expense. - HELD THAT: - The Revenue accepted that the controversy on gratuity disallowance is concluded by the Supreme Court decision cited in the impugned order. The learned counsel for Revenue fairly invited the court to note that the Supreme Court's ruling settles the issue. On that basis the court held that the questions raised do not give rise to any substantial question of law. [Paras 5]

Questions on gratuity disallowance answered against Revenue by application of the cited Supreme Court precedent; no substantial question of law.

Insurance premium as revenue expenditure - allowability under section 31(ii) - Whether insurance premium paid on purchase of a new motor car is revenue expenditure and allowable in the year incurred. - HELD THAT: - The Tribunal held that insurance premium paid to protect the vehicle against risk is a recurring revenue expense and is allowable under section 31(ii). The court agreed with the Tribunal's reasoning that such premium is incurred for revenue purpose and should not be treated as capital expenditure, and therefore the disallowance by the Assessing Officer and Commissioner (Appeals) was contrary to the statutory provision and was rightly set aside. [Paras 6]

Insurance premium on car is revenue in nature and allowable in the year of payment; Tribunal rightly allowed the claim.

Final Conclusion: All three appeals are dismissed: the Tribunal's deletions and reductions (in respect of director commissions, restricted bogus-purchase disallowance, gratuity and insurance premium) are affirmed as either fact-based estimates or correct applications of settled law and do not raise any substantial question of law warranting interference.

Penalty under section 271(1)(c) - rectification under section 154 - tax on book profits under section 115JB - Explanation 4 to section 271(1)(c) - amendment by Finance Act 2015 - mistake apparent from the record

Rectification under section 154 - penalty under section 271(1)(c) - mistake apparent from the record - Validity of rejection of the assessee's rectification petition under section 154 seeking cancellation of penalty levied under section 271(1)(c). - HELD THAT: - The Tribunal held that the Assessing Officer had initiated penalty proceedings under section 271(1)(c), issued show cause notice and, on failure of the assessee to file any explanation, levied the penalty. The Court found no apparent mistake on the face of the record warranting rectification under section 154. Whether penalty could be sustained required consideration of the factual and legal merits of concealment and the resultant tax effect under the then existing provisions; such debate could not be resolved in a section 154 rectification petition. Consequently the AO's rejection of the rectification petition was not interfered with. [Paras 7, 8]

Rejection of the section 154 petition upheld; no mistake apparent from the record to cancel the penalty.

Penalty under section 271(1)(c) - tax on book profits under section 115JB - Explanation 4 to section 271(1)(c) - amendment by Finance Act 2015 - Whether penalty under section 271(1)(c) could be levied for A.Y. 2003-04 where tax liability was determined under section 115JB and whether the 2015 amendment applied. - HELD THAT: - The Tribunal examined the pre-amendment language of section 271(1)(c) and Explanation 4, which defined the tax sought to be evaded with reference to the income and its potential tax effect. Prior to the Finance Act, 2015 amendment, decisions diverged, but the plain reading permitted levy of penalty where concealment was computed under general provisions even if tax for the year was determined under section 115JB. The amendment introduced by Finance Act, 2015 (and considered in the Finance Bill) was not applicable to A.Y. 2003-04. As the question involved substantial legal debate on the scope of concealment and tax effect under the pre-amendment regime, it could not be summarily resolved in a rectification proceeding; accordingly the pre-amendment position stood and the challenge failed. [Paras 7, 8]

Amendment by Finance Act 2015 does not apply to A.Y. 2003-04; penalty could not be struck down under section 154 on the ground of that amendment.

Final Conclusion: The Tribunal dismissed the appeal, upholding the Assessing Officer's rejection of the section 154 rectification petition and sustaining the levy of penalty under section 271(1)(c) for A.Y. 2003-04; the 2015 amendment was held inapplicable to that year and no mistake apparent from record was found to warrant cancellation of the penalty.

Consignment under Incentive Scheme not liable to customs duty - detention of imported goods and demand for bank guarantee - verification of certificate of origin / country of origin - release of goods renders writ petition infructuous

Consignment under Incentive Scheme not liable to customs duty - The consignment imported under the Incentive Scheme did not attract payment of any customs duty. - HELD THAT: - The Court recorded that the goods imported by the petitioner-proprietorship concern from Sri Lanka under the Incentive Scheme do not invite payment of any customs duty. This observation underpins the petitioner's fundamental grievance that the import should not have been subject to duty-related restraints.

Recorded that the consignment does not attract customs duty.

Detention of imported goods and demand for bank guarantee - verification of certificate of origin / country of origin - release of goods renders writ petition infructuous - The petition seeking release of detained goods and to challenge the demand for 100% bank guarantee was dismissed as infructuous because the goods had been released without seeking the bank guarantee. - HELD THAT: - The petitioner complained that the consignment was detained and that authorities were illegally demanding a 100% bank guarantee pending verification of the certificate of place of origin. The Court noted earlier directions in the connected matter requiring the departmental officer to file an affidavit stating the material for doubting the country of origin and the steps taken to verify the certificate. On the resumed hearing, counsel for the petitioner informed the Court that the detained goods had been released without the respondent seeking any bank guarantee. In view of the release, the relief sought in the present writ petition had become academic.

Writ petition dismissed as infructuous on account of release of the goods without requirement of the bank guarantee.

Final Conclusion: The Court recorded that the imported consignment under the Incentive Scheme did not attract customs duty and, since the detained goods have been released without any bank guarantee being demanded, the writ petition was dismissed as infructuous.

Removal of alert in Customs EDI System - Mandamus - Recovery of duty drawback and penalty - Personal bond as interim relief - Non-finality of liability pending revision - Export clearance impeded by administrative alert

Removal of alert in Customs EDI System - Personal bond as interim relief - Non-finality of liability pending revision - Petition for removal of the alert in the Customs EDI System obstructing export clearance, pending final adjudication of liability - HELD THAT: - The Court observed that the Order-in-Original confirming demand for duty drawback and imposing penalty has not attained finality because the petitioner's revision against the appellate dismissal is pending. The Revenue has realized the principal drawback amount and penalty but contends interest remains payable. In the circumstances the Court declined to adjudicate the merits of the underlying demand or the challenge to service of the show cause and OIO, and instead granted interim relief to protect the parties' interests. The relief was conditioned on the petitioner furnishing a personal bond for the amount representing the recovered principal (described in the order as Rs. 4,06,988/-) within two weeks, whereupon the respondents were directed to remove the alert in the EDI System immediately; the order was expressly without prejudice to contentions before the Revisional Authority.

Writ petition disposed by directing removal of the EDI alert on receipt of a personal bond for the specified sum, without prejudice to the pending revision.

Final Conclusion: The writ petition seeking mandamus to remove the Customs EDI alert is allowed on interim terms: upon the petitioner furnishing a personal bond for the stated sum within two weeks, the respondents shall remove the alert immediately; the order is without prejudice to the parties' rights in the pending revision.

Release of seized imported goods for re-export - safeguards to protect Revenue interests - requirement of show cause notice for confiscation or redemption - judicial relief by way of writ for release of goods

Release of seized imported goods for re-export - safeguards to protect Revenue interests - requirement of show cause notice for confiscation or redemption - Whether the consignments of gold granules seized by Customs could be released to the petitioner to enable re-export and whether conditions or safeguards should be imposed by the Court to protect Revenue interests in the absence of a show cause notice. - HELD THAT: - The Court recorded that no show cause notice had been issued in relation to the seized consignments. It accepted the Customs' contention that safeguards may be appropriate to protect Revenue interests but observed that, as no show cause notice for confiscation or for redemption on payment of fine had been issued, those interests were not then in jeopardy. On that basis the Court concluded there were no grounds to impose conditions on release for the purpose of re-export. The petition for amendment and relief was accordingly allowed and the authorities were directed to release the consignments so as to enable re-export. The Court declined to order any conditions or security measures in the circumstances presented and made no order as to costs. [Paras 5, 6, 7]

I.A. No.2 of 2019 allowed; writ petition allowed directing release of the two consignments to enable re-export, without imposing conditions, in view of absence of any show cause notice.

Final Conclusion: The High Court allowed the petition to permit release of the seized consignments of gold granules for re-export and refused to impose conditions or safeguards given that no show cause notice had been issued; miscellaneous petitions closed and no order as to costs.

Bailability of offence under Section 135 of the Customs Act - grant of bail on furnishing bonds and sureties - conditional bail and grounds for cancellation

Bailability of offence under Section 135 of the Customs Act - grant of bail on furnishing bonds and sureties - conditional bail and grounds for cancellation - Applicant entitled to be released on bail in case under Section 135 of the Customs Act and the bail is to be regulated by specified conditions. - HELD THAT: - The court accepted the uncontested position that the offence under Section 135 of the Customs Act, in the facts pleaded, attracts imprisonment up to three years and is therefore bailable. The applicant asserted false implication, denial of recovery and absence of criminal antecedents, and the prosecution did not dispute the bailability of the offence. Having considered the submissions and without adjudicating the merits, the court directed release on bail subject to the applicant furnishing a personal bond and two local sureties to the satisfaction of the concerned court. The release was made conditional on non-tampering with prosecution evidence, sincere cooperation in trial without seeking adjournments, and abstention from committing any criminal activity; breach of these conditions was made a ground for cancellation of bail. The court also required verification of identity, status and residence of the applicant and sureties before acceptance of bonds. [Paras 3, 5, 6]

Applicant released on bail on furnishing a personal bond and two local sureties in like amount, subject to conditions preventing tampering with evidence, requiring cooperation in trial, prohibiting further criminality, with verification of identity and with breach constituting ground for cancellation of bail.

Final Conclusion: Bail granted to the applicant in the case under Section 135 of the Customs Act on execution of a personal bond and two local sureties subject to specified conditions; verification of identity and sureties to be carried out and breach of conditions to invite cancellation of bail.

Appealability of administrative communication disposing complaints on SCORES platform - maintainability of appeal under Section 15T of the SEBI Act - treatment of investor complaints as market intelligence versus adjudicatory disposal - non-application of mind by regulator and duty under Section 11 to safeguard investors - remand for fresh consideration with requirement of a reasoned and speaking order

Appealability of administrative communication disposing complaints on SCORES platform - maintainability of appeal under Section 15T of the SEBI Act - The communication disposing the appellants' complaints on the SCORES platform is an appealable order and the appeal is maintainable under Section 15T of the SEBI Act. - HELD THAT: - The Tribunal held that a communication on SCORES which disposes of a complaint effectively decides the lis between the parties and therefore constitutes an order within the meaning of Section 15T. Administrative or computer-generated nature of the communication does not ipso facto place it outside appellate jurisdiction where it disposes of the complaint. Prior authorities holding that mere inaction or non-final administrative communications are not appealable were considered distinguishable on the facts. Having regard to the substance of the communication which purported to close the complaints on specified grounds, the complainants are persons aggrieved entitled to invoke the appellate jurisdiction of the Tribunal. [Paras 15]

Preliminary objection as to maintainability rejected; appeal under Section 15T is maintainable.

Treatment of investor complaints as market intelligence versus adjudicatory disposal - non-application of mind by regulator and duty under Section 11 to safeguard investors - remand for fresh consideration with requirement of a reasoned and speaking order - The SCORES disposal of the complaints was inadequate, exhibited non-application of mind, was set aside and the matter was remitted to SEBI for fresh consideration and decision by a reasoned and speaking order. - HELD THAT: - The Tribunal examined the SCORES communication and found it merely labelled the information as 'market intelligence' and confidential without addressing or adjudicating the substantive issues raised - incorrect promoter disclosure and alleged breach of minimum public shareholding norms. The communication's statements that information would be analysed confidentially and that SEBI would neither confirm nor deny investigations were inconsistent and failed to discharge the regulatory duty to safeguard investor interests under Section 11. The Tribunal concluded that such mechanical disposal over a prolonged period amounted to non-application of mind. Consequently, the SCORES disposal was set aside and the appellants were directed to file a consolidated representation; SEBI was directed to consider and decide the matter by a reasoned and speaking order within six weeks from presentation, with liberty to grant hearing if appropriate. [Paras 17, 18, 19, 20, 21]

SCORES communication set aside; matter remitted to SEBI to decide afresh by a reasoned and speaking order within the prescribed timeline after receipt of a consolidated complaint.

Final Conclusion: The Tribunal allowed the appeal, holding the SCORES communication to be an appealable order and maintainable under Section 15T; it set aside SEBI's mechanical disposal for non-application of mind and remitted the matter to SEBI with directions to consider a consolidated representation and decide by a reasoned, speaking order within six weeks, parties to bear their own costs.

Conflict of jurisdiction between Company Court and NCLT - appointment of Interim Resolution Professional and moratorium under Section 7 and Section 14 of the IBC - alternative remedy of appeal to NCLAT under Section 61 of the IBC - stay of NCLT order pending determination by the Company Court or NCLAT - avoiding parallel proceedings

Conflict of jurisdiction between Company Court and NCLT - avoidance of parallel proceedings - appointment of Interim Resolution Professional and moratorium under Section 7 and Section 14 of the IBC - Whether the NCLT order appointing an IRP and declaring a moratorium should be permitted to operate while the Company Court has a pending and reserved judgment on a revival scheme for the same company. - HELD THAT: - The Court found that the Company Court was fully seized of a revival scheme that had been formulated after extensive proceedings, had been taken on record and advertised, and in respect of which judgment had been reserved. Although the NCLT relied on precedent that pendency of winding up proceedings does not oust its jurisdiction, the High Court noted that such precedents also emphasise the need to avoid parallel proceedings. Given the risk that appointment of an IRP and declaration of a moratorium would defeat the multi year revival exercise before the Company Court and produce conflicting orders detrimental to creditors and other stakeholders, the High Court exercised its supervisory jurisdiction to keep the NCLT order in abeyance. The Court expressly did not adjudicate the merits of the revival scheme or the NCLT order, but directed a stay of the impugned NCLT order until either the Company Court pronounces judgment or the NCLAT finally decides the challenge, whichever is earlier. [Paras 16, 18, 19]

The NCLT order dated 10th October, 2019 appointing an IRP and declaring a moratorium was stayed until the Company Court pronounces judgment in Company Petition No.885/2015 and connected petitions, or until final decision by the NCLAT, whichever is earlier; the Court did not decide the merits.

Alternative remedy of appeal to NCLAT under Section 61 of the IBC - exercise of supervisory jurisdiction under Article 227 - Whether the writ petition was maintainable in view of the alternate remedy of appeal to the NCLAT and what procedural course should be directed. - HELD THAT: - The High Court acknowledged that an alternate remedy by way of appeal to the NCLAT exists and that ordinarily Article 227 jurisdiction may not be exercised where an alternative efficacious remedy is available. In the circumstances of this case, however, and to avoid conflicting orders affecting the company and its stakeholders, the Court directed that the petitioner be relegated to the NCLAT but, given the peculiarity of the facts, permitted the petitioner to approach the NCLAT within four weeks and ordered that the impugned NCLT order remain stayed pending the NCLAT's consideration. The NCLAT was directed to consider the entire matter including the Company Court orders and to permit intervenors and affected parties to be heard. [Paras 8, 19, 20]

Petitioner permitted to approach the NCLAT within four weeks; writ petition disposed of after keeping the NCLT order in abeyance and directing NCLAT to consider the matter in accordance with law.

Final Conclusion: The High Court stayed the NCLT order appointing an IRP and declaring a moratorium until the Company Court pronounces judgment in the pending revival petitions or until the NCLAT finally decides the challenge, permitted the petitioner to file an appeal to the NCLAT within four weeks, and disposed of the writ petition without expressing any opinion on the merits of the revival scheme or the NCLT order.

Remand for fresh consideration - Service tax on composite contract - CESTAT's remand to Adjudicating Authority for want of documents - Limitation of documentary reliance to materials referred to in the show cause notice - Judicial direction for expeditious disposal - Setting aside of impugned orders

Remand for fresh consideration - CESTAT's remand to Adjudicating Authority for want of documents - Setting aside of impugned orders - The appeal was remitted to the CESTAT for fresh consideration and the impugned CESTAT orders were set aside. - HELD THAT: - The Court found that the CESTAT had earlier remitted the matter to the Adjudicating Authority solely on the ground that the relevant agreements had not been produced for its perusal. The High Court observed that the contract and other relevant documents had been produced during the enquiry prior to issuance of the show cause notice and were available with the department. In view of the above and the department's assurance to produce the documents before the CESTAT, the High Court concluded that the matter should be placed back before the CESTAT for fresh consideration rather than be left remitted to the Adjudicating Authority. The Court therefore set aside the impugned orders and directed listing of the department's appeal for directions before the CESTAT. [Paras 4, 6]

Impugned CESTAT orders dated 17th May, 2018 and 25th January, 2019 set aside and the department's appeal remitted to the CESTAT for fresh consideration; appeal to be listed before the CESTAT on the date fixed by this Court.

Limitation of documentary reliance to materials referred to in the show cause notice - Right to make submissions on admissibility of documents - The question whether the Department may rely only on documents referred to in the show cause notice was left to the CESTAT, with liberty to the appellant to make submissions. - HELD THAT: - The Court recorded the appellant's submission that only documents referred to in the show cause notice ought to be permitted to be relied upon by the Department before the CESTAT. The Court noted the Department's assurance that the documents relied upon would be produced before the CESTAT on the date fixed. Rather than determining the evidentiary scope itself, the High Court left the admissibility and scope of documentary reliance to the CESTAT to decide upon hearing the parties, expressly permitting the appellant to make submissions on this point. [Paras 4]

CESTAT to decide the scope of documentary reliance; appellant permitted to make submissions regarding limiting reliance to documents referred to in the show cause notice.

Judicial direction for expeditious disposal - The CESTAT was requested to dispose of the appeal expeditiously, preferably within six months from the date fixed for listing. - HELD THAT: - Noting the protracted nature of the enquiry which began in 2007, the High Court directed that the CESTAT be requested to dispose of the matter at its earliest convenience and preferably within six months from the date fixed by this Court for listing of the appeal before it for directions. [Paras 5]

The CESTAT was requested to dispose of the appeal preferably within six months from the date fixed for listing before it.

Final Conclusion: The High Court set aside the impugned CESTAT orders and remitted the department's appeal to the CESTAT for fresh consideration, left the question of admissibility and scope of documents to the CESTAT (with liberty to the appellant to make submissions), and directed expeditious disposal of the appeal, preferably within six months.

Limitation as a defence to tax assessment - implied rejection of plea of limitation - remand for fresh consideration of issues - satisfaction of pre-requisites for time-barred assessment under Section 11AC read with Section 73(1) of the Finance Act, 1994

Limitation as a defence to tax assessment - implied rejection of plea of limitation - Whether the Tribunal was justified in treating the appellant's plea of limitation as having been impliedly rejected and refusing to decide it. - HELD THAT: - The Court held that a plea of limitation is an important defence in proceedings challenging tax liability and cannot be treated as having been impliedly rejected by a quasi judicial authority. Where limitation operates to bar assessment unless statutory pre requisites are satisfied, those pre requisites must be expressly considered; they cannot be disregarded by implication. The Tribunal's observation that the plea was impliedly rejected was impermissible. Having remitted the matter to the Assessing Officer for fresh consideration on taxability, the tribunal should not have foreclosed the appellant from pressing the limitation defence; instead the limitation issue can and should be decided on the remand. The Court therefore set aside the impugned order to the extent it treated the limitation plea as impliedly rejected and directed that the Assessing Officer decide the limitation point when hearing the matter on remand. [Paras 3, 4]

Impugned order of the Tribunal holding that the plea of limitation was impliedly rejected is set aside and the matter is remitted with direction that the Assessing Officer shall decide the limitation issue on remand.

Final Conclusion: The substantial question of law is answered by holding that a plea of limitation cannot be impliedly rejected; the Tribunal's order in that regard is set aside and the Assessing Officer is directed to decide the limitation issue while adjudicating the matter on remand.

Eligibility certificate issued by the competent Committee - power to cancel or revoke an eligibility certificate - extended period of limitation under the proviso to Section 11A(1) - recovery of refund as an "erroneous refund" under Section 11A - penalty under Section 11AC for wrongful availment - interest under Section 11AB - self-contained refund mechanism under Notification No.39/2001-CE

Extended period of limitation under the proviso to Section 11A(1) - recovery of refund as an "erroneous refund" under Section 11A - Validity of invoking the extended period for recovery of refunds claimed under Notification No.39/2001-CE for the period November 2003 to March 2007. - HELD THAT: - The Tribunal found that the Committee (Chief Commissioner of Central Excise and Principal Secretary, Government of Gujarat) issued eligibility certificates only after thorough verification and extended deliberation, during which the jurisdictional Commissioner had furnished his factual comments. Material facts relied upon by the Department were available to the issuing authorities prior to issuance of the certificates and no new facts were unearthed by DGCEI investigations that would justify invocation of the proviso to Section 11A(1). On these findings the extended period was held to have been improperly invoked and the demand based on that invocation is time-barred. [Paras 4]

Invocation of the extended period under the proviso to Section 11A(1) for recovery of refunds for November 2003 to March 2007 was not sustainable; the demand is time-barred.

Eligibility certificate issued by the competent Committee - power to cancel or revoke an eligibility certificate - self-contained refund mechanism under Notification No.39/2001-CE - Legality and retrospective effect of cancellation of the eligibility certificates issued under Notification No.39/2001-CE. - HELD THAT: - The Tribunal held that the eligibility certificates were validly issued by the Committee after verification and could not be casually cancelled by an authority not empowered to review or revoke them. Notification No.39/2001-CE does not provide an express power of review or cancellation by the Chief Commissioner; absent a statutory power to review, cancellation by another authority was invalid. Even if revocation were permissible, the Tribunal accepted that any revocation could operate only prospectively and not retrospectively. [Paras 4]

Cancellation of the certificates by the Chief Commissioner was not valid in law; at best revocation could have prospective effect and not defeat past clearances made under a valid certificate.

Penalty under Section 11AC for wrongful availment - interest under Section 11AB - Sustainability of penalties under Section 11AC and interest under Section 11AB where the demand for recovery of refund is held unsustainable. - HELD THAT: - Because the Tribunal concluded that the recovery of refund itself was not sustainable (on limitation and on invalidity of cancellation), the consequential imposition of penalty and demand of interest could not stand. The appellant had conceded non-contestation of the principal duty demand and had disclaimed any claim for refund; on the legal findings that the extended period invocation and retrospective cancellation were improper, the Tribunal set aside the penalty and interest imposed on the company and on the director. [Paras 4, 5]

Penalty under Section 11AC and interest under Section 11AB set aside; penalty on the director under Rule 26 is also set aside.

Final Conclusion: Appeal partly allowed: while the principal duty demand was not contested by the appellant, the Tribunal held the extended-period recovery unsustainable and the cancellation of eligibility certificates invalid; accordingly the penalty and interest imposed were set aside and the director's penalty was also quashed.

Validity of separate penalty order without assessment of tax - Assessing authority's jurisdiction to impose penalty by an independent order - Penalty under Section 27(3) of the Tamil Nadu Value Added Tax Act, 2006 - Requirement of an order of assessment with independent application of mind - Report of inspecting officials not being the sole basis for assessment

Validity of separate penalty order without assessment of tax - Assessing authority's jurisdiction to impose penalty by an independent order - Requirement of an order of assessment with independent application of mind - Whether the Assessing Officer had jurisdiction to levy penalty by a separate independent order without first passing an assessment order in respect of the tax component. - HELD THAT: - The Court found that enforcement officials' inspection revealed excess stock and the petitioner paid the tax demanded to the inspecting officials. Nevertheless, the Assessing Officer issued a notice proposing only penalty and thereafter confirmed penalty by a separate order without passing an assessment order evaluating the tax liability. The Court held that the report of inspecting officials may be a source of information but cannot be the sole basis for assessment; the Assessing Officer, acting as a quasi judicial authority, must apply independent mind and issue a proposal and pass an assessment dealing with both tax and penalty components. Prior decisions of this Court (including the decision in Deputy Commissioner (C.T.) Coimbatore v. V.S.R. Ramaswami Chettiar and Bros. and subsequent precedents) establish that the assessing authority has no jurisdiction to impose penalty by a separate and independent order. Applying that principle, the impugned order levying penalty alone was unsustainable and liable to be set aside. [Paras 7, 8, 11]

Impugned order imposing penalty alone set aside; penalty could not be levied by a separate independent order without an assessment order disposing of the tax component.

Final Conclusion: Writ petition allowed; the order dated 28.03.2018 imposing penalty under Section 27(3) by a separate independent order is set aside for want of jurisdiction, and connected miscellaneous petitions are closed.