TaxTMI Updates e-Newsletter
Nov 26,2019

Constitutional vires of statutory provisions - Composition and qualifications of members of a statutory tribunal - Appointment, tenure and conditions of service of tribunal members - Doctrine of separation of powers in appointments - Binding effect of Supreme Court precedents on subordinate statutes - Need for legislative amendment to cure constitutional infirmities

Binding effect of Supreme Court precedents on subordinate statutes - Need for legislative amendment to cure constitutional infirmities - The respondents are required to examine the implications of the Supreme Court decision in Rojer Mathew on the provisions of the CGST Act (Sections 109 and 110) and consider formulation of appropriate amendments so that those provisions do not remain inconsistent with the principles laid down by the Supreme Court. - HELD THAT: - The High Court observed that although the constitutionality of the CGST provisions was not directly before the Constitution Bench in Rojer Mathew, the majority decision deals with principles governing administration of tribunals, mode of appointment, qualifications, conditions of service and related safeguards which have a serious bearing on the challenge to Sections 109 and 110 of the CGST and corresponding provisions of the DGST. The decision of the Supreme Court is binding and must be given effect to. In view of this, the court directed respondent authorities to examine the position emerging from Rojer Mathew and to consider appropriate amendments to the CGST Act to ensure compliance with the principles enunciated by the Supreme Court. The respondents were also directed to take into account the specific infirmities raised by the petitioner regarding composition, qualifications, tenure and control over members when carrying out such examination and to place a status report on record after due application of mind. [Paras 8, 9, 13]

Respondents to examine applicability of Rojer Mathew to CGST/DGST provisions and consider legislative amendments; status report to be filed.

Constitutional vires of statutory provisions - Composition and qualifications of members of a statutory tribunal - Doctrine of separation of powers in appointments - The substantive challenges to the vires of Sections 109 and 110 of the CGST and corresponding provisions of the DGST were not finally adjudicated on merits and remain to be examined by the respondents in light of the Supreme Court decision; the matter is retained as part heard. - HELD THAT: - The petition raised multiple specific infirmities in the statutory scheme-inter alia, the numerical predominance of technical members over judicial members, eligibility criteria excluding advocates, qualification and tenure disparities between judicial and technical members, executive control over appointment, transfer and removal, and short judicial tenure. The court did not decide these contentions on merits. Instead, having noted the pendency of related jurisprudence and the binding impact of the Supreme Court's analysis in Rojer Mathew (and the earlier Madras High Court decision), the court directed that these matters be examined by the executive/legislature for corrective action and kept the writ petition part heard for further adjudication following the status report. No prejudice was visited upon the petitioner's entitlement to challenge the provisions on constitutional grounds; the questions remain for consideration in the course of further proceedings. [Paras 1, 10, 11]

Challenges to vires of Sections 109 and 110 not finally decided on merits; petition retained as part heard and respondents directed to examine issues and report.

Final Conclusion: The High Court did not decide the constitutional validity of Sections 109 and 110 of the CGST/DGST Acts on merits; it held that the Supreme Court's decision in Rojer Mathew is binding and directed the respondents to examine the GSTAT provisions in light thereof and consider appropriate legislative amendments, to place a status report on record; the matter is listed for further hearing and treated as part heard.

Owner of the goods - detention and penalty under section 129(1)(b) - release under section 129(1)(a) on payment of tax - tax invoice as referred to in section 31 - Circular No.76/50/2018-GST dated 31.12.2018 - appeal under section 107 - non-appealable orders under section 121 - writ jurisdiction and disputed facts

Appeal under section 107 - non-appealable orders under section 121 - writ jurisdiction and disputed facts - Maintainability of the writ petition and availability of statutory appeal remedy - HELD THAT: - The court held that the impugned order of detention and demand is amenable to appeal under the statutory appellate mechanism. Section 107 provides an appeal against decisions or orders passed by an adjudicating authority, and the matters excepted by section 121 do not cover the present case. Disputed factual issues regarding loading, place of supply and conformity of the invoice cannot be adjudicated in writ jurisdiction where the statute provides an alternative efficacious remedy. Consequently, the petitioner must be relegated to file the statutory appeal.

Writ petition not entertained on merits; petitioner relegated to file appeal under the Act (section 107) and rights are preserved.

Owner of the goods - detention and penalty under section 129(1)(b) - release under section 129(1)(a) on payment of tax - Circular No.76/50/2018-GST dated 31.12.2018 - tax invoice as referred to in section 31 - Whether the petitioner can be treated as the owner of the goods and entitlement to release on payment of 100% tax payable - HELD THAT: - The court observed that where an invoice or specified document accompanies a consignment and is genuine and in accordance with the Act, the consignor or consignee may be deemed the owner for the purposes of section 129(6), and that Circular No.76/50/2018-GST (31.12.2018) addresses this aspect. However, the investigation discloses disputed factual contentions (such as place of loading and conformity of the invoice with section 31) which are contentious and require adjudication by the Appellate Authority. These factual disputes are unsuitable for resolution in writ proceedings and must be examined in the appeal process to determine whether the petitioner is the owner and whether release upon payment of tax is permissible.

Issue remanded to the Appellate Authority for fresh consideration of factual disputes and application of the circular and statutory provisions; court did not decide merits on this question.

Final Conclusion: The writ petition is disposed of by relegating the petitioner to prefer the statutory appeal; if filed within two weeks from receipt of certified copy, the Appellate Authority shall consider the appeal on merits without objection to limitation and decide expeditiously, in any event within four weeks, leaving all contentions open.

Charitable activities u/s 2(15) - Cancellation of registration u/s (3) of Section 12AA - Secretary of the Society was getting lease rent for the land given to the Society for running the School or his wife who had requisite qualification was teaching in the school

The ITAT's order granting registration under Section 12A was upheld; the Revenue's appeal was dismissed, with the Court noting that the department retains the statutory remedy to seek cancellation under Section 12AA(3) if activities are later found not to be charitable as held by HC [2018 (11) TMI 1178 - PUNJAB AND HARYANA HIGH COURT]

HELD THAT:- SLP Dismissed.

Tax on distributed income on buy-back under Section 115QA - denies his liability to be assessed - appealable orders under Sections 246 and 246A - availability of alternate efficacious remedy - writ jurisdiction under Article 226 - maintainability of writ when statutory remedy available

Tax on distributed income on buy-back under Section 115QA - denies his liability to be assessed - appealable orders under Sections 246 and 246A - An appeal lies against a determination under Section 115QA and such determination falls within the scope of the expression "denies his liability to be assessed" appearing in the provisions dealing with appealable orders. - HELD THAT: - The Court examined the language of Sections 246(1)(a) and 246A(1)(a) and the expression "where the assessee denies his liability to be assessed under this Act." Relying on the comprehensive interpretation given in Kanpur Coal Syndicate, the Court held that a denial of liability includes denials arising outside the mechanics of assessment under Section 143(3). A determination under Section 115QA - whether about liability, computation or quantification of the additional tax on distributed income - falls within that expression and therefore is amenable to appeal under the statutory appellate scheme. The Court rejected the appellant's contention that tax under Section 115QA is sui generis and not an "assessment" within the meaning of Sections 246/246A, observing that confining the expression to Section 143(3) consequences in the absence of any appellate remedy for disputes under Section 115QA and would be inconsistent with the remedial structure of the Act. [Paras 8, 12, 13, 14]

An appeal is maintainable against a determination under Section 115QA; the expression "denies his liability to be assessed" in Sections 246/246A covers determinations under Section 115QA.

Availability of alternate efficacious remedy - writ jurisdiction under Article 226 - maintainability of writ when statutory remedy available - Whether High Court was justified in declining to entertain the writ petition under Article 226 because an adequate and efficacious alternative statutory remedy by way of appeal was available? - HELD THAT: - Applying settled principles that writ jurisdiction is discretionary and ordinarily should not be exercised where an efficacious statutory remedy exists, the Court upheld the High Court's refusal to entertain the petition. The Court observed that the rule against entertaining writs in the presence of alternative remedies is one of policy and discretion but firmly established; exceptions are limited and were not shown to apply. The earlier interim orders and admission of the petition did not preclude the High Court from considering the question of alternate remedy at the final stage. The recorded concessions by the Revenue and the availability of appeal before the Commissioner (Appeals) ensured that the appellant would have a full, adequate and efficacious remedy, removing the need for relief under Article 226. [Paras 15, 16, 17, 19]

The High Court correctly declined to entertain the writ petition and directed the appellant to avail the statutory appellate remedy.

Tax on distributed income on buy-back under Section 115QA - HELD THAT: - The Court expressly refrained from adjudicating the merits of the claim on liability or applicability of Section 115QA to the appellant's buy-back transactions, noting that these are matters to be gone into at the appropriate stages by the competent authorities and appellate forum. The appellant's appeal filed before the appellate authority was directed to be proceeded with in accordance with law. [Paras 18, 20]

Merits on liability under Section 115QA are left open for determination by the statutory authorities on appeal.

Final Conclusion: The appeal is dismissed. The Court holds that determinations under Section 115QA are appealable under the statutory scheme and that the High Court rightly declined to exercise writ jurisdiction in light of the available appellate remedy; the substantive questions on applicability and computation under Section 115QA remain to be considered by the appellate authorities and the appellant's appeal shall proceed in accordance with law.

Valuation of closing work-in-progress - project completion method of accounting - recognition of revenue on completion and sale of flats - treatment of purchases as closing stock versus inclusion in work in progress - estimation of income on unsold completed units - onus on assessing officer to appreciate project-wise accounting

Valuation of closing work-in-progress - project completion method of accounting - onus on assessing officer to appreciate project-wise accounting - Validity of the addition on account of alleged under-valuation of closing work-in-progress - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the assessee consistently followed the Project Completion Method and had prepared project-wise statements showing opening WIP, work done, general expenses apportioned, cost transferred to P&L on proportionate basis and resultant closing WIP. The Assessing Officer ignored the project-wise sales adjustments and applied an ad hoc 35% estimation of unsold flats to determine closing WIP; that approach was held untenable because it failed to appreciate the accounting treatment and the project-wise particulars supplied by the assessee. The Tribunal found no material to show deliberate understatement or inflation of cost and agreed with the appellate authority that the AO's factual errors and unsupported estimation could not be sustained. [Paras 14]

Addition on account of alleged under-valuation of closing work-in-progress deleted; Revenue appeal on this ground dismissed.

Treatment of purchases as closing stock versus inclusion in work in progress - project completion method of accounting - Sustainability of addition treating end of year construction material purchases as undisclosed closing stock - HELD THAT: - The Tribunal agreed with the CIT(A) that purchases of construction material at the fag end of the year were included by the assessee in the cost of construction and thereby reflected in closing WIP. The AO did not demonstrate that the material constituted an inflation of cost or that it was not properly accounted for; reclassifying the same as closing stock would merely produce an accounting re arrangement without changing profits. Consequently, the addition was held unsustainable. [Paras 15]

Addition on account of alleged undisclosed closing stock deleted; Revenue appeal on this ground dismissed.

Estimation of income on unsold completed units - recognition of revenue on completion and sale of flats - project completion method of accounting - Validity of CIT(A)'s estimated addition of profit attributable to unsold flats of completed projects - HELD THAT: - The Tribunal reversed the CIT(A)'s direction to add estimated profit attributable to unsold flats of completed projects. It held that under the Project Completion Method consistently followed by the assessee income is recognized to the extent of flats sold; unsold flats did not give rise to accrued or realized income in the year merely because the project was completed. The sale price and profit on unsold flats were ascertainable only when actual sales occurred in subsequent years; estimating profit for the earlier year would involve assumptions and could result in double taxation since such profits were offered to tax when actual sales occurred later. [Paras 16, 17]

Estimated addition of profit on unsold flats deleted and assessee's appeal allowed on this ground.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletions of the additions on account of alleged under-valuation of closing work-in-progress and alleged undisclosed closing stock, and allowed the assessee's appeal by deleting the CIT(A)'s estimated addition of profit on unsold flats; the Revenue's appeals were dismissed and the assessee's appeal was allowed.

Assessee-in-default under section 201(1)/201(1A) - tax deduction at source under section 194H - opportunity of hearing / principles of natural justice - remand for de novo adjudication - admission of additional evidence under Rule 29

Opportunity of hearing / principles of natural justice - assessee-in-default under section 201(1)/201(1A) - tax deduction at source under section 194H - remand for de novo adjudication - admission of additional evidence under Rule 29 - Whether the assessee was denied proper opportunity before the Assessing Officer and whether the matter should be remanded to the AO for de novo adjudication with liberty to admit additional distributor agreements. - HELD THAT: - The Tribunal examined the chronology: survey on 05.09.2016; notice under section 201 issued 28.09.2016; the assessee's detailed reply dated 17.01.2017 explaining the contractual relationship with distributors as principal-to-principal and referring to agreement clauses; no further queries from the AO for approximately two years; successor AO resumed proceedings on 11.01.2019 and passed order under section 201 on 07.03.2019. The assessee explained it had earlier pleaded the principal-to-principal relationship and that later distributorship agreements (dated 2014-2016) containing material changes were not placed before the AO or CIT(A) because they were not called for and, additionally, practical difficulties arose after the Vodafone-Idea merger. The Tribunal accepted that the 17.01.2017 reply put the AO on notice of the contractual contention and that the changed agreements were prima facie not an afterthought. The Tribunal found a failure on the part of the earlier authorised representative to produce the later agreements before the lower authorities, which would cause a denial of justice if the assessee were precluded from tendering them. Applying the principle that adjudicatory authorities should pursue the quest for truth and having regard to the procedural history and the affidavit supporting authenticity of the agreements, the Tribunal held that the CIT(A)'s confirmation could not stand in the face of these circumstances and that the AO should be given an opportunity to examine the additional agreements, test their genuineness, and decide the applicability of section 194H and any consequent liability under section 201 afresh. Reliance was placed on the Supreme Court decision in Tin Box to justify remand where opportunity was inadequate. The Tribunal therefore set aside the CIT(A) order and remanded the matters to the AO for de novo adjudication, permitting the assessee to produce the specified agreements and for the AO to verify their authenticity and decide in accordance with law. [Paras 16, 17]

Impugned order of the CIT(A) set aside; appeals allowed for statistical purposes and matters remanded to the AO for de novo adjudication with liberty to the assessee to produce the distributor agreements and for the AO to verify and decide in accordance with law.

Final Conclusion: The Tribunal allowed the appeals for statistical purposes, set aside the CIT(A) order, and remanded the matters to the Assessing Officer for de novo adjudication on the issues of applicability of TDS under section 194H and assessee's liability under section 201(1)/201(1A), permitting production and verification of the later distributorship agreements.

Admission of additional ground where question is pure question of law - Chargeability of interest under payment of advance tax and interest u/s.234B/C when entire income is subject to tax deducted at source - Right to claim credit for tax deducted at source and payer's liability where tax not deducted - Disallowance for failure to deduct tax at source under section 40(a)(ia) and scope of 'interest' in tax deduction provisions - Retrospective/curative effect of Finance Act, 2014 amendment limiting disallowance under section 40(a)(ia) to 30%

Admission of additional ground where question is pure question of law - Admission of the additional ground raising chargeability of interest u/s.234B/C - HELD THAT: - The Tribunal admitted the additional ground because it raised a pure question of law and required no further factual enquiry; reliance was placed on the decision in National Thermal Power Company Ltd. v. CIT. The Revenue did not seriously oppose admission and the Tribunal held that the ground arises out of the impugned order and therefore could be entertained during the pendency of the appeal. [Paras 5]

Additional ground admitted for consideration.

Chargeability of interest under payment of advance tax and interest u/s.234B/C when entire income is subject to tax deducted at source - Right to claim credit for tax deducted at source and payer's liability where tax not deducted - Whether interest under sections 234B/C is chargeable where the assessee's entire income is subject to tax deduction at source - HELD THAT: - The Tribunal accepted the legal proposition that if the assessee's whole income is subject to TDS and the payer was obliged to deduct tax at source, the assessee would ordinarily not be liable to pay advance tax and therefore interest under sections 234B/C should not be chargeable. The Tribunal observed that if tax legitimately due was not deducted by the payer, the payer would be the assessee in default under the relevant provisions and the payee's credit could be affected by the proviso to the provision governing tax credit. However, the assessing officer had not examined whether the assessee's entire income was in fact liable to TDS. Consequently, the Tribunal remitted the issue to the file of the AO for verification of whether the payments to the assessee were liable to TDS and, if so, to determine the consequent liability for interest. [Paras 6, 8]

Issue remitted to the Assessing Officer for verification and fresh consideration; interest u/s.234B/C not to be charged if entire income is found to be subject to TDS.

Disallowance for failure to deduct tax at source under section 40(a)(ia) and scope of 'interest' in tax deduction provisions - Retrospective/curative effect of Finance Act, 2014 amendment limiting disallowance under section 40(a)(ia) to 30% - Disallowance of interest debited to profit and loss account for non-deduction of TDS and applicability of the Finance Act 2014 amendment restricting disallowance to 30% - HELD THAT: - The Tribunal found that interest of Rs.16,76,232 was debited to the profit and loss account and thus constituted interest as defined under the tax deduction provisions, attracting the operation of disallowance under section 40(a)(ia). The Tribunal endorsed the view that such interest payments were covered by the definition of interest in the relevant provisions. Separately, on the assessee's alternative contention, the Tribunal followed precedents of co-ordinate benches which treated the Finance Act, 2014 amendment (restricting disallowance to 30%) as curative and retrospective; applying that reasoning, the Tribunal directed the AO to restrict the impugned disallowance to 30% of the relevant expenditure. [Paras 11, 12, 15]

Disallowance under section 40(a)(ia) upheld as to character of payment; relief granted by directing AO to limit the disallowance to 30% in view of the Finance Act, 2014 amendment treated as retrospective.

Disallowance for failure to deduct tax at source under section 40(a)(ia) and scope of 'supplier/contractor' classification - Retrospective/curative effect of Finance Act, 2014 amendment limiting disallowance under section 40(a)(ia) to 30% - Disallowance of large-scale expenses treated as payments to contractors/suppliers for which TDS was not deducted, and applicability of the 30% restriction - HELD THAT: - The Tribunal agreed with the AO and CIT(A) that the audited books indicated the payments were in the nature of payments to contractors/suppliers and hence liable to TDS; the disallowance under section 40(a)(ia) was therefore sustainable. However, invoking the same line of decisions cited earlier, the Tribunal held that the amendment effected by Finance Act, 2014 limiting disallowance to 30% is curative and retrospective in operation and directed the AO to restrict the disallowance to 30% of the expenditure. [Paras 16, 18, 20]

Disallowance sustained on characterisation grounds but relief directed by limiting the disallowance to 30% pursuant to the retrospective application of the Finance Act, 2014 amendment.

Final Conclusion: The appeal is partly allowed: the additional legal ground was admitted; the question of charging interest under sections 234B/C was remitted to the AO for verification whether the assessee's entire income was subject to TDS (in which case interest would not be chargeable); disallowances under section 40(a)(ia) were sustained as to character but the AO was directed to restrict the impugned disallowances to 30% in view of the Finance Act, 2014 amendment treated as having retrospective/curative effect.

Rejection of books of accounts and estimation of income - Allowability of outstanding wages payable and verification by subsequent year payments - TDS credit linked to year in which corresponding income is offered to tax

Rejection of books of accounts and estimation of income - Requirement of latent, patent or glaring defects before rejection - Validity of CIT(A)'s rejection of the assessee's books of accounts and adoption of net profit of prior year to estimate income - HELD THAT: - The Tribunal held that the learned CIT(A) erred in rejecting the assessee's books of accounts without examining them or calling for them and without pointing out any latent, patent or glaring defects. Where the assessing officer had accepted the books' results (subject only to an ad hoc 50% disallowance of an outstanding wages claim) and had not identified substantial defects in the books, the appellate authority could not legitimately reject the accounts and substitute an estimated net profit based on the prior year's rate. Rejection of books of accounts requires positive demonstration of significant infirmities; in their absence the step of estimating income by applying a previous year's profit rate was impermissible. The Tribunal therefore set aside the CIT(A)'s action on this ground and directed further proceedings consistent with its directions on the wages claim. [Paras 12]

CIT(A)'s rejection of books and estimation of income by adopting prior year's net profit rate is set aside.

Allowability of outstanding wages payable and verification by subsequent year payments - Admissibility of muster rolls, attendance registers and ledgers as evidence - Whether the ad hoc disallowance of 50% of outstanding wages is sustainable and the appropriate course for adjudication - HELD THAT: - The Tribunal found that the assessing officer made an ad hoc disallowance of 50% of the claimed outstanding wages without verifying whether those liabilities were discharged in the subsequent year and without confronting the assessee with specific evidentiary shortcomings. The assessee had produced muster rolls, attendance registers and ledger entries, and had a history of similar outstanding wage balances accepted in earlier assessments. Because the assessing officer had allowed labour expenditure in the profit and loss account, the determinative inquiry was whether the outstanding amounts were in fact paid in the subsequent year. Both parties conceded that payment in the subsequent year would preclude disallowance. In view of these facts and the absence of a thorough verification by the AO, the Tribunal set aside the addition and remanded the issue to the AO to examine whether the outstanding wages were discharged in the subsequent year, to allow the assessee to produce relevant documents, and then decide the claim in accordance with law, deleting the addition if payments are established or giving adequate opportunity if not. [Paras 12]

Issue remanded to the assessing officer for verification of payment of outstanding wages in the subsequent year; if payments are established, addition to be deleted; if not, AO to decide after granting opportunity.

TDS credit linked to year in which corresponding income is offered to tax - Entitlement to TDS credit on tax deducted on mobilization advance where the mobilization advance was not offered to tax in the assessment year - HELD THAT: - The Tribunal affirmed the CIT(A)'s conclusion that tax deducted at source is allowable as credit only in the year in which the income to which that TDS pertains is offered to tax. The mobilization advance in question was not shown by the assessee as income in the impugned assessment year; accordingly the claim for TDS credit in that year was not maintainable. The Tribunal found no infirmity in the appellate authority's treatment and dismissed the ground relating to TDS credit. [Paras 13]

Claim for TDS credit on mobilization advance rejected for the assessment year since the corresponding income was not offered to tax in that year.

Final Conclusion: Appeal partly allowed: CIT(A)'s rejection of books and estimation of income set aside; the addition relating to 50% of outstanding wages is remanded to the assessing officer for verification of payment in the subsequent year and fresh decision; claim for TDS credit on mobilization advance dismissed. Stay petition rendered infructuous.

Treatment as income from capital gains versus income from business or profession - date of transfer and computation of holding period for capital asset (operation of registered document) - classification as long-term capital asset where holding period exceeds 36 months - deemed full value of consideration under Section 50C and reference to Valuation Officer - deductibility of transfer-related expenses in computing capital gains under section 48 - credit for tax paid in a subsequent assessment year to avoid double taxation

Treatment as income from capital gains versus income from business or profession - Whether the profit from sale of the Khajrana plots is taxable as business income or as capital gain - HELD THAT: - The Tribunal examined the factual matrix and records, noting that the assessee failed to show a pre-existing business of purchase and sale of land, there was only a single transaction, no evidence of stock-in-trade treatment in earlier years, no tax-audit evidence of trading operations and other land sales were shown as capital gains. On this basis the Tribunal held that the sale proceeds cannot be treated as business income and directed that the gain be taxed as capital gain. [Paras 12]

The gain is to be treated as capital gain and not as business income; this issue is decided against the assessee.

Date of transfer and computation of holding period for capital asset (operation of registered document) - classification as long-term capital asset where holding period exceeds 36 months - Whether the capital gain is chargeable in Assessment Year 2010-11 or 2011-12 and whether it is short-term or long-term capital gain - HELD THAT: - Relying on Section 47 of the Registration Act and the factual dates recorded, the Tribunal accepted that the sale deed was executed on 31.03.2010 (date of transfer) and that possession was taken by the assessee on 26.03.2007 (date of acquisition). Counting from 26.03.2007 to 31.03.2010 yields a period in excess of 36 months. Consequently the incidence of tax falls in Assessment Year 2010-11 and the asset qualifies as a long-term capital asset, entitling the assessee to computation of long-term capital gain with applicable indexation and related adjustments. [Paras 15, 16, 17]

The transaction is chargeable in AY 2010-11 and the gain is long-term capital gain; Additional Ground No.2 is allowed.

Deemed full value of consideration under Section 50C and reference to Valuation Officer - Whether the Assessing Officer was justified in applying the stamp valuation authority value under Section 50C without referring the matter to the Valuation Officer - HELD THAT: - The Tribunal noted that the assessee disputed the higher value adopted by the stamp valuation authority. As the question of the correct valuation under Section 50C(2) had not been adjudicated by the lower authorities, the Tribunal directed that the matter be set aside to the file of the Assessing Officer with a direction to make the necessary reference to the Departmental Valuation Officer, observe the statutory safeguards and afford the assessee a reasonable opportunity of being heard; the AO is to apply the valuation ascertained by the DVO if it is lower than the stamp authority value. [Paras 21]

Issue remanded to the Assessing Officer for reference to the Departmental Valuation Officer under Section 50C(2); Additional Ground No.3 allowed for statistical purposes.

Deductibility of transfer-related expenses in computing capital gains under section 48 - Whether stamp duty, registration charges and brokerage incurred (though paid in AY 2011-12) are deductible against the capital gain to be taxed in AY 2010-11 - HELD THAT: - The Tribunal accepted that these expenses genuinely related to the transfer completed on 31.03.2010, their quantum was ascertainable as on that date, and their genuineness was not disputed. Having held that the incidence of tax is AY 2010-11, the Tribunal directed the Assessing Officer to allow deduction of stamp duty and registration charges and brokerage in computing the long-term capital gain for AY 2010-11. [Paras 24]

Deduction for stamp duty, registration and brokerage is to be allowed in computation of long-term capital gain for AY 2010-11; Additional Ground No.4 is allowed.

Credit for tax paid in a subsequent assessment year to avoid double taxation - Whether tax paid in AY 2011-12 on the profit (assessed and paid in that year) is to be credited against the tax liability arising in AY 2010-11 when the income is held taxable in AY 2010-11 - HELD THAT: - The Tribunal recognised that the assessee had been assessed and had paid tax in AY 2011-12 on the profit from the sale. Having reallocated the incidence of taxation to AY 2010-11 for the same transaction, the Tribunal directed that the Assessing Officer give appropriate credit for the tax already paid in AY 2011-12 against the tax liability for AY 2010-11, to prevent double taxation. [Paras 27]

Assessee is entitled to credit of taxes paid in AY 2011-12 against the tax liability arising for AY 2010-11; Additional Ground No.6 is allowed.

Final Conclusion: The appeal is partly allowed: the transaction is held to be a capital gain (not business income) chargeable in AY 2010-11 and qualifies as long-term capital gain; deduction for transfer-related expenses is to be allowed in AY 2010-11; the AO is directed to refer valuation to the Departmental Valuation Officer under Section 50C(2) and apply the valuation so ascertained; and the assessee shall get credit for tax already paid in AY 2011-12 against the liability for AY 2010-11.

Arm's Length Price - Transfer Pricing - comparability and TNMM - Interest on receivables as an international transaction per Explanation to section 92B - Working capital adjustment - Section 14A disallowance - Bad debts - revenue v. capital - Remand to Assessing Officer for verification - MAT credit - TDS credit on amalgamation

Section 14A disallowance - Deletion of disallowance made under section 14A where no exempt income was earned in the relevant year - HELD THAT: - The Tribunal examined the facts and authorities and found that the assessee had not earned any exempt dividend income during the relevant previous year. Applying binding and persuasive authorities, including decisions of coordinate benches and the Delhi High Court, the Tribunal held that no disallowance under section 14A is warranted when no exempt income was earned. Consequently the disallowance of the interest expenditure under section 14A was deleted.

Disallowance under section 14A set aside and ground no.6 allowed

Bad debts - revenue v. capital - Allowability of bad debts written off in respect of trade receivables from subsidiary - HELD THAT: - The Tribunal found that the amounts written off represented trade receivables arising from services rendered and were debited to profit and loss as bad debts following a board resolution. Although part of the debt was written off in connection with the sale of the subsidiary, the nature of the amounts remained receivables arising from the assessee's business. On the facts, the Tribunal concluded the write-off was of irrecoverable trade debts and not a capital loss, and therefore deductible under the relevant provision for business losses.

Bad debt disallowance deleted and ground no.5 allowed

TDS credit on amalgamation - Remand to Assessing Officer for verification - Admissibility of TDS credit reported in revised return where amalgamating company's TDS may be in question - HELD THAT: - The Tribunal found that relevant facts were on record but required verification whether the revised return included TDS of the amalgamating company. The parties agreed the matter needed factual verification. The Tribunal accordingly directed remand to the Assessing Officer to examine the assessee's claim and allow TDS credit if supported by law and records.

Ground no.23 remitted to AO for verification and treated as allowed for statistical purposes

MAT credit - Remand to Assessing Officer for verification - Claim for MAT credit pertaining to earlier assessment years - HELD THAT: - The assessee claimed MAT credit for earlier years which the AO had not allowed while computing tax payable. The Revenue did not oppose verification. The Tribunal remitted the matter to the AO to verify entitlement and allow MAT credit in accordance with law.

Grounds nos.21 and 22 remitted to AO for verification and treated as allowed for statistical purposes

Interest on receivables as an international transaction per Explanation to section 92B - Working capital adjustment - Remand to Assessing Officer for verification - Notional interest on outstanding receivables - computation and benchmark rate - HELD THAT: - The Tribunal accepted that, after insertion of the Explanation to section 92B, interest on receivables qualifies as an international transaction applicable to the assessment year. The Tribunal held that (i) interest should be computed only on receivables exceeding the contractual credit period agreed between the parties, and only where such receivables have not already been accounted for in the working capital adjustment; (ii) the period of delay must be ascertained from records; and (iii) notional interest for foreign currency receivables is to be benchmarked to LIBOR based rates (LIBOR + appropriate spread) rather than domestic SBI term deposit rates. The Tribunal therefore set aside the interest adjustment and directed the TPO/AO to compute interest in accordance with these principles.

Grounds nos.3, 18 and 19 set aside and remitted to the TPO/AO with directions to compute interest only on receivables beyond agreed credit period and to apply LIBOR based rate; additional grounds treated as allowed for statistical purposes

Reimbursement of expenditure - characterization - Remand to Assessing Officer for verification - Whether alleged reimbursements are receipts subject to TP adjustment or payables erroneously recorded - HELD THAT: - On review of the record and the company's notes, the Tribunal found conflicting entries and that the TPO had treated a sum as reimbursement receipts when the assessee contended it was reimbursement payables. The Revenue conceded verification was necessary. The Tribunal remitted the matter to the AO to verify whether the amount was a payment by the assessee (and not a receipt); if so, no TP adjustment should be made.

Grounds nos.4 and 17 remitted to AO for verification and allowed if verification establishes payment rather than receipt

Transfer Pricing - comparability and TNMM - Arm's Length Price - Working capital adjustment - Remand to Assessing Officer for verification - Comparables selection, employee cost/capacity adjustments and re computation of ALP under TNMM - HELD THAT: - The Tribunal reviewed the TPO's and DRP's handling of comparables, the assessee's objections on functional dissimilarity, and the claimed higher employee cost and under utilisation. Citing precedents of coordinate benches and higher courts on capacity/employee cost adjustments, the Tribunal concluded that differences likely to affect comparability must be addressed and appropriate adjustments made. Given the factual complexity and precedents, the Tribunal set aside the TP determination and remitted the matter to the TPO/AO to consider the precedents, re examine inclusion/exclusion of comparables, make necessary employee cost or capacity adjustments, and recompute the ALP in accordance with law.

TP adjustments on comparables and margins set aside and remitted to TPO/AO for fresh consideration with directions to apply precedents and make suitable adjustments; grounds partly allowed

Final Conclusion: The appeal is partly allowed: disallowance under section 14A is deleted and the bad debt write off is allowed as a revenue deduction; several factual and valuation issues (TDS credit, MAT credit, reimbursement characterization, interest on receivables and transfer pricing comparability/adjustments) are remitted to the Assessing Officer/ TPO for verification or fresh computation in accordance with the directions recorded by the Tribunal; the appeal is otherwise disposed of in part.

Allowability of revenue expenditure under section 37(1) of the Income Tax Act - transit loss of coal as revenue expense - normative transit loss versus actual transit loss - regulatory tariff allowance not determinative of taxable income - burden of proof and sufficiency of supporting records for claimed losses - principle of consistency in tax treatment across years

Transit loss of coal as revenue expense - allowability of revenue expenditure under section 37(1) of the Income Tax Act - normative transit loss versus actual transit loss - burden of proof and sufficiency of supporting records for claimed losses - regulatory tariff allowance not determinative of taxable income - principle of consistency in tax treatment across years - Deletion upheld of addition disallowing 50% of fuel related (coal) transit losses claimed by the assessee - HELD THAT: - The Tribunal accepted the finding of the CIT(A) that the coal transit losses, which arose annually in the normal course of the assessee's power generation business, were of revenue nature and legitimately claimed. The assessing officer made an adhoc 50% disallowance without furnishing a cogent basis for that proportion and without undertaking any enquiry to establish the correct loss. The assessee had maintained and produced weighment records showing loading and unloading weights, statutory auditors and C&AG scrutiny had not recorded adverse findings, and prior years' acceptances and regulatory allowances (HERC/CERC) showed that actual losses often exceeded the normative 0.8% figure. The Tribunal endorsed the CIT(A)'s conclusion that regulatory tariff reductions are for tariff setting purposes and do not automatically render genuinely incurred business losses non allowable for income tax purposes. In these circumstances, and since the AO's unilateral estimate lacked basis and was not rebutted by cogent evidence, the deletion of the addition was sustained. [Paras 14, 15, 16]

The addition disallowing 50% of claimed fuel related transit losses is deleted.

Renovation and modernization expenditure - revenue or capital character - application of prior binding tribunal decision in identical facts - Deletion upheld of addition treating renovation and modernization expenditure as capital; the issue was decided in the assessee's favour following the bench's earlier decision - HELD THAT: - The Tribunal applied its earlier decision in ITA Nos. 627-631/Chd/2018 (order dated 16/10/2018) dealing with identical facts and held that the assessing officer had not controverted the factual findings that the expenditure related to renovation/modernization of already commissioned projects and was to be treated as revenue in nature under the relevant provision. Relying on that precedent and on the absence of any distinguishing or contrary material placed by Revenue, the Tribunal followed the earlier decision and declined to interfere with the CIT(A)'s order deleting the addition. [Paras 19]

The addition disallowing renovation and modernization expenditure is deleted, following the Tribunal's prior decision on identical facts.

Final Conclusion: For the assessment years and appeals before the Tribunal the CIT(A)'s deletions of the additions in respect of (i) fuel related transit losses and (ii) renovation and modernization expenditure are sustained; the departmental appeals are dismissed.

Definition of "royalty" under DTAA - Article 3(2) domestic law meaning - ambulatory versus static interpretation of incorporated domestic law - Explanation 6 to Section 9(1)(vi) - make available doctrine for fees for technical services - business profits and permanent establishment

Definition of "royalty" under DTAA - Article 3(2) domestic law meaning - Explanation 6 to Section 9(1)(vi) - ambulatory versus static interpretation of incorporated domestic law - Payments made for bandwidth services to Reliance Jio Infocomm Pte Ltd, Singapore do not constitute "royalty" under Article 12 of the India-Singapore DTAA and hence no withholding under section 195 was required. - HELD THAT: - The Tribunal held that the India-Singapore DTAA contains a defined meaning of "royalties" and the word "process" thereunder is part of that definition rather than a freestanding treaty term to which Article 3(2) would import a domestic statutory definition. Article 3(2) operates only where a treaty term itself is undefined; it does not permit importing selective parts of a domestic definition to alter a treaty's defined term. Even if "process" were treated as an undefined term, the Tribunal rejected the revenue's reliance on Explanation 6 to Section 9(1)(vi) (which retrospectively includes transmission by satellite, cable, optic fibre etc. within domestic "process") for treaty application. The Tribunal explained that adopting a dynamic/ambulatory incorporation of a retrospective domestic amendment where it would reverse settled judicial interpretations and effectively permit a unilateral change in treaty effect would legitimize a unilateral treaty override and conflict with fundamental principles of treaty interpretation (including the Vienna Convention principle pacta sunt servanda). On the facts, bandwidth services involved only access to services and not access to equipment or a secret process; the process was a standard commercial industry process and not a "secret process" as contemplated by the DTAA definition. Consequently, the payments were business profits of the Singapore resident and, in absence of a PE or business connection in India, not taxable in India.

Dismissal of revenue's grounds: payment for bandwidth services is not "royalty" under the India-Singapore DTAA; Explanation 6 to section 9(1)(vi) cannot be invoked to alter the treaty definition via Article 3(2) in the circumstances of this case.

Make available doctrine for fees for technical services - business profits and permanent establishment - Article 12(4) fees for technical services - Payments made for operations and maintenance (O&M) services are not fees for technical services under Article 12(4) of the India-Singapore DTAA and hence are not taxable in India. - HELD THAT: - The Tribunal accepted the finding that O&M services constituted routine upkeep and maintenance of bandwidth infrastructure, did not transfer technology, know how or enable the Indian recipient to "apply the technology contained therein." Article 12(4)(b) requires that services make available technical knowledge, experience, skill, know how or processes so as to enable the recipient to apply the technology; routine repairs and maintenance that do not effect such transfer do not satisfy the "make available" test. Article 12(4)(a) is inapplicable because the main payment was not taxable as royalty. There was no contention or evidence of development and transfer of technical plans or designs under Article 12(4)(c). On the facts, RJIPL had no PE or business connection in India; therefore, the amounts constituted business profits not taxable in India under Article 7.

Dismissal of revenue's ground: payments for O&M services are not FTS under the DTAA and, absent a PE, are not taxable in India.

Final Conclusion: All appeals dismissed: the Tribunal affirmed the CIT(A)'s conclusions that (i) payments for bandwidth services are business profits and not "royalty" under the India-Singapore DTAA (Explanation 6 to s.9(1)(vi) does not alter the treaty meaning for this purpose), and (ii) payments for O&M services do not satisfy the "make available" test and are not fees for technical services; absent a PE of the Singapore resident, the amounts are not taxable in India.

Sanction for reopening of assessment - finality of sanction - reopening assessment under section 148 - requirement of authority specified by statute - non-compliance with section 151(2)

Sanction for reopening of assessment - finality of sanction - requirement of authority specified by statute - non-compliance with section 151(2) - Validity of the sanction for issuance of notice under section 148 and consequent validity of the reopening notice and order for assessment year 2014-15. - HELD THAT: - The communication of the Additional Commissioner dated 13 February 2019 expressing that he 'feel[s] that this is a fit case' did not constitute a final sanction because it expressly sought the approval of the Chief Commissioner and was therefore subject to that approval. The statute mandates that satisfaction required for issuing a reopening notice must be recorded by the authority specified in section 151(2); sanction cannot be validly supplied by an officer other than the one designated by the statute. The Chief Commissioner who ultimately granted approval is not the authority specified by section 151(2), and hence the statutory requirement was breached. Reliance on the established principle that an authority prescribed by statute must be the one to record satisfaction is consistent with earlier decisions of this Court. Because of this breach of section 151(2), the notice dated 26 February 2019 and the order rejecting objections dated 15 July 2019 cannot be sustained. [Paras 8, 9, 10]

The sanction is invalid for non-compliance with the statutory requirement in section 151(2); consequently the reopening notice dated 26 February 2019 and the order dated 15 July 2019 are quashed and set aside.

Final Conclusion: The petition is allowed; the impugned notice dated 26 February 2019 and the impugned order dated 15 July 2019 are quashed and set aside and the petition is disposed of accordingly.

Classification of unexplained cash credits under the heads of income - set off of brought forward losses and unabsorbed depreciation against income assessed under Section 68 - effect of Section 115BBE (as in force for assessment year 2013-2014) on allowance of deductions - legislative amendment to Section 115BBE excluding set off with prospective effect from 01.04.2017

Classification of unexplained cash credits under the heads of income - set off of brought forward losses and unabsorbed depreciation against income assessed under Section 68 - effect of Section 115BBE (as in force for assessment year 2013-2014) on allowance of deductions - Whether set off of brought forward losses and unabsorbed depreciation against undisclosed income assessed under Section 68 is permissible for assessment year 2013-2014 - HELD THAT: - The Court held that undisclosed sums credited in the books and assessed under Section 68 need not be treated as falling entirely outside the classifications of Section 14 and that, having regard to precedents and statutory scheme, such income can in appropriate circumstances be classified under a head (including income from other sources) for computation and set-off purposes. The Court noted that Section 115BBE, as introduced with effect from 01.04.2013, prohibited allowance of deductions but did not, as then worded, expressly exclude set off of losses. The legislative amendment by Finance Act, 2016 (effective 01.04.2017) later clarified that set off of any loss shall not be allowable against income referred to in Section 115BBE; the explanatory notes confirmed the amendment was to remove uncertainty prospectively. Consequently, for the assessment year 2013-2014 there was no statutory bar in Section 115BBE (as then in force) to the set off of carried forward unabsorbed depreciation under Section 32(2) read with Section 72(2). The Tribunal's conclusion that income under Section 68 could not be classified under any head of Section 14 and therefore was ineligible for corresponding deductions/set-off was held to be incorrect. Applying the principles in earlier decisions and the statutory scheme, the Court concluded that set off against the deemed income was permissible for the year in question. [Paras 10, 14, 15]

Set off of carried forward losses/unabsorbed depreciation against income assessed under Section 68 for AY 2013-2014 is permissible; the Tribunal's contrary conclusion is set aside.

Final Conclusion: Appeal allowed. The impugned order of the Tribunal is set aside; the original assessment order dated 30.03.2016 by the Assessing Officer is sustained and any coercive recovery based on the revised assessment is precluded.

Reopening of assessment - reason to believe that income has escaped assessment - use of seized material from group search for reassessment - invocation of section 153C versus section 147/148 - Explanation 2 to section 147 - four year reopening rule - modus operandi evidence and group linkage - addition as unexplained expenditure on account of interest paid on post-dated cheques - direction to recompute addition (six-month rule for PDC extension)

Reopening of assessment - reason to believe that income has escaped assessment - Explanation 2 to section 147 - four year reopening rule - use of seized material from group search for reassessment - invocation of section 153C versus section 147/148 - modus operandi evidence and group linkage - Validity of reopening the assessment under section 147/148 relying on seized material from a search of group concerns - HELD THAT: - The Tribunal upheld the reopening of assessment for AY 2006-07. The AO issued notice under section 148 within four years from the end of the relevant assessment year after post-search enquiries in the BPTP group revealed a consistent modus operandi of part payments by PDCs and cash payments of interest for extension periods. Explanation 2 to section 147 and its proviso permit reopening within four years even where there is no failure to disclose, if the AO has reason to believe income has escaped assessment. The material obtained from the group search, corroborated by post-search enquiries and the established group modus operandi, constituted prima facie material on which the AO could form such belief. The Tribunal followed precedent recognizing use of seized material and held that where seized papers show a general trend applicable to a group of companies, reassessment under normal provisions (section 147) is permissible rather than invoking section 153C or 153A limited to persons to whom documents belong. The Tribunal rejected the assessee's contention that seized papers belonged to others and were available at original assessment, noting absence of any reference to the modus operandi in the original record and that the post-search information was not available to the AO at the time of the original assessment. Consequently, reopening was valid. [Paras 9]

Reopening under section 147/148 was validly made within four years based on seized material and group modus operandi; reliance on section 153C was not decisive.

Addition as unexplained expenditure on account of interest paid on post-dated cheques - use of seized material from group search for reassessment - modus operandi evidence and group linkage - direction to recompute addition (six-month rule for PDC extension) - Sustainability and quantification of addition made for interest on PDCs and the CIT(A)'s direction for recomputation - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that seized vouchers and related papers establish payment of interest on extension of PDCs for the group, and that those findings justify additions in the assessee's case to the extent of the extension period. The CIT(A) directed recomputation of interest either precisely for the extended period where ascertainable, or, alternatively, on a conservative basis from six months after the date of sale (as a reasonable period for PDCs) where specific extension periods could not be worked out. The Tribunal found that the group linkage and corroborative statements justified applying the formula to the assessee and followed coordinate-bench authority which accepted the same approach. The Tribunal therefore sustained the recomputed addition and dismissed the assessee's challenge that vendors were not summoned or that section 69C was inapplicable, noting that seized material and group evidence gave prima facie basis for the addition; the Tribunal confirmed the small balance addition upheld by the CIT(A). [Paras 12, 15, 16]

Addition for interest on PDCs sustained subject to recomputation in accordance with the CIT(A)'s directions (extension period or six-month rule); assessee's challenge rejected.

Final Conclusion: The Tribunal dismissed the appeal. The reopening for AY 2006-07 under section 147/148 was held validly premised on seized material and group modus operandi, and the addition for interest on post-dated cheques was sustained subject to recomputation as directed by the CIT(A) (application of extension-period calculations or the six-month rule where extensions cannot be worked out).

Revisional jurisdiction under section 263 - Erroneous and prejudicial to the interests of revenue test - Duty of Assessing Officer as investigator and adjudicator - Requirement of independent enquiry by revisional authority - Verification of sundry creditors

Revisional jurisdiction under section 263 - Erroneous and prejudicial to the interests of revenue test - Verification of sundry creditors - Requirement of independent enquiry by revisional authority - Whether the Principal Commissioner of Income-tax validly exercised revisionary powers under section 263 by setting aside the assessment on the ground that the Assessing Officer failed to verify sundry creditors. - HELD THAT: - The Tribunal found that the Assessing Officer had issued notices under section 142(1) calling for party wise details including addresses and PAN, and that the assessee produced books of account and a complete list of sundry creditors amounting to Rs. 2,11,05,222/-. The assessment order records that the AO examined and made enquiries by issuing notices under section 133(6) on a test check basis. The revisional authority's initial criticism was an assumption that no enquiries were conducted; however, on hearing the assessee the Principal CIT accepted that enquiries had been made and confined the alleged non verification to creditors amounting to Rs. 96,46,987/-. The Tribunal held that where the AO has discharged his investigator role by making enquiries and then as adjudicator accepts the assessee's claim, the revisional authority cannot nullify the assessment merely on the basis that he is dissatisfied with the extent of the AO's enquiries unless he himself conducts an independent enquiry and records a clear finding that the AO's conclusion is unsustainable in law. The Tribunal relied on the twin conditions for invoking section 263 that the order must be both erroneous and prejudicial to revenue, and observed that the Principal CIT did not undertake or record any independent investigation to show that the AO's enquiries were legally unsustainable. Reference was made to the principle in Pr. CIT Vs. Delhi Airport Metro Pvt. Ltd. and Malabar Industrial Co. Ltd. Vs. CIT as applied in the impugned order. Because the revisional authority failed to perform the requisite independent enquiry and did not record an unambiguous finding that the AO's satisfaction was unsustainable in law, the exercise of jurisdiction under section 263 was held to be unjustified and liable to be quashed. [Paras 7, 9, 12, 14, 15]

Order under section 263 setting aside the assessment was quashed and the assessee's appeal was allowed.

Final Conclusion: The Tribunal allowed the appeal, quashed the Principal CIT's order under section 263 for want of jurisdiction because the revisional authority did not conduct an independent enquiry or record a clear finding that the Assessing Officer's enquiries regarding sundry creditors were legally unsustainable; consequently the assessment order was restored.

Allowability of deduction under section 43B on actual payment of employee welfare fund contributions - disallowance under section 36(1)(viia) as confirmed by appellate authority - disallowance for non-deduction of tax at source and applicability of section 40(a)(ia) - appellate authority's factual finding and scope of interference by Tribunal

Disallowance under section 36(1)(viia) as confirmed by appellate authority - appellate authority's factual finding and scope of interference by Tribunal - Whether the confirmation of disallowance of the claim under section 36(1)(viia) by the CIT(A) could be disturbed. - HELD THAT: - The CIT(A) considered the assessee's ground challenging the disallowance and after applying precedents confirmed the disallowance of the claim under section 36(1)(viia). The Tribunal noted the CIT(A)'s conclusion and, in the absence of any contrary finding or successful challenge by the revenue to the CIT(A)'s application of law and precedent, declined to interfere with that confirmation. [Paras 5, 6]

The confirmation of the disallowance under section 36(1)(viia) by the CIT(A) is upheld and the revenue's challenge is dismissed.

Allowability of deduction under section 43B on actual payment of employee welfare fund contributions - appellate authority's factual finding and scope of interference by Tribunal - Whether the deletion of the addition made on account of excess provision for gratuity and leave encashment was justified where the CIT(A) found that payments were actually made and deduction was claimed on payment basis. - HELD THAT: - The CIT(A) found on facts that the payments in respect of gratuity and leave encashment were actually made in the year under appeal and therefore allowable under section 43B(b), which permits deduction in the year of actual payment. The revenue did not controvert the factual finding that payments were made. The Tribunal accepted the CIT(A)'s factual conclusion and, given the statutory provision that allows deduction when payment is made, found no reason to interfere with the deletion of the addition. [Paras 10, 17, 19]

Deletion of the addition in respect of excess provision for gratuity and leave encashment is upheld.

Disallowance for non-deduction of tax at source and applicability of section 40(a)(ia) - appellate authority's factual finding and scope of interference by Tribunal - Whether the CIT(A) was justified in sustaining only a part of the addition under section 40(a)(ia) and reducing the A.O.'s disallowance. - HELD THAT: - The CIT(A) applied judicial pronouncements to the facts and allowed part of the assessee's claim, sustaining only a limited addition under section 40(a)(ia). The revenue failed to place any binding contrary decision of the jurisdictional High Court before the Tribunal. In these circumstances the Tribunal affirmed the CIT(A)'s approach and reduction of the addition. [Paras 11, 13]

The CIT(A)'s partial sustention of the addition under section 40(a)(ia), leaving only a limited disallowance, is affirmed.

Allowability of deduction under section 43B on actual payment of employee welfare fund contributions - appellate authority's factual finding and scope of interference by Tribunal - Whether the deletion of the large addition relating to provision of gratuity and leave encashment (claimed as pre-existing liability paid during the year) was correct where the CIT(A) recorded that payment was made and the claim was on payment basis. - HELD THAT: - The assessee produced records including tax audit report entries showing the amounts as pre-existing liabilities disallowed in earlier years and challans evidencing payment in the year under appeal. The CIT(A) found as a fact that the payments were made in the relevant year; applying section 43B, the CIT(A) allowed the deduction. The Tribunal reviewed the materials and the statutory provision and found no infirmity in the factual finding or in allowing the deduction under section 43B, therefore rejecting the revenue's contention that the CIT(A) had mechanically allowed the claim without verification. [Paras 14, 16, 17, 19]

The deletion of the addition relating to the provision for gratuity and leave encashment is sustained and the revenue's challenge is rejected.

Final Conclusion: The Tribunal, having accepted the CIT(A)'s factual findings and their application of law (notably the operation of section 43B in respect of payments made), dismissed the revenue's appeal in its entirety and affirmed the deletions and adjustments made by the CIT(A).

Redemption of confiscable goods on payment of fine - distinction between prohibited and restricted imports - application of Section 125 of the Customs Act - reassessment of assessable value under Customs Valuation Rules - reliance on Chartered Engineer certificate for valuation - penalty under Section 112(a) and Section 114AA of the Customs Act - temporal non-retroactivity of subsequent policy changes

Redemption of confiscable goods on payment of fine - distinction between prohibited and restricted imports - application of Section 125 of the Customs Act - Whether the imported used MFDs, though adjudged liable to confiscation for breach of import policy and certain conditions of the Hazardous and Other Waste Rules, 2016, were nonetheless entitled to release on payment of redemption fine instead of absolute confiscation. - HELD THAT: - The Tribunal found that the imports were of restricted items and not expressly prohibited. Relying on the reasoning in the approved Atul Automation decision, a harmonious reading of the Foreign Trade Act and Section 125 of the Customs Act requires distinguishing prohibited from restricted goods and permits release on redemption where imports are restricted but not prohibited. The earlier practice of allowing similar consignments to be cleared on payment of redemption fines and the absence of any change in law applicable to the date of import support allowing redemption rather than absolute confiscation. Consequently the Revenue's plea for absolute confiscation was dismissed. [Paras 6, 7]

Confiscation not to be absolute; goods to be eligible for release on payment of redemption fine in line with the Atul Automation ratio; Revenue's appeal for absolute confiscation dismissed.

Redemption of confiscable goods on payment of fine - penalty under Section 112(a) and Section 114AA of the Customs Act - Appropriate quantum of redemption fine and treatment of penalties imposed under Section 112(a) and Section 114AA. - HELD THAT: - Applying the Tribunal's established practice as approved by the Apex Court in Atul Automation, the court held that redemption fine and penalty must be moderate and objective so that the importer does not profit from illegal importation but is not unduly penalised. In that precedent approximate fines of 10% for redemption and penalties of 5% of assessable value were regarded as appropriate; penalties under Section 114AA were set aside where no material falsity was found. Following that reasoning, the Tribunal reduced redemption fine and the Section 112(a) penalty to 10% and 5% respectively, and set aside penalties imposed under Section 114AA. [Paras 6, 8, 10]

Redemption fine reduced to 10% of assessable value and penalty under Section 112(a) reduced to 5% of assessable value; penalties under Section 114AA set aside.

Reassessment of assessable value under Customs Valuation Rules - reliance on Chartered Engineer certificate for valuation - Whether the reassessment of the declared assessable value based solely on the Chartered Engineer's report was sustainable. - HELD THAT: - The impugned order re-determined value citing the Chartered Engineer's report but did not indicate the specific Rule of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 applied, and the report itself was found defective for failing to obtain current market value. In absence of adequate contemporaneous data and without a proper application of the Valuation Rules, the Tribunal held the re-assessment unsustainable and accepted the declared value. [Paras 9]

Revision of value on the basis of the Chartered Engineer certificate quashed; declared value accepted.

Temporal non-retroactivity of subsequent policy changes - Whether amendments to import policy made after the date of import could be relied upon to justify absolute confiscation or different treatment. - HELD THAT: - The Tribunal observed that the policy amendment relied upon by Revenue (Notification dated 07 May 2019) post-dated the imports (October-November, 2016) and therefore could not be applied retrospectively to affect the adjudication of the present consignments. Consequently, reliance on that subsequent change to seek absolute confiscation was rejected. [Paras 7]

Changes in policy made after the date of import have no bearing on the present proceedings; Revenue's reliance on such changes is dismissed.

Final Conclusion: The appeal by the importer is partly allowed: the goods are not to be absolutely confiscated and may be released on payment of redemption fine fixed at 10% of assessable value; penalty under Section 112(a) reduced to 5% of assessable value and penalties under Section 114AA set aside; reassessment of value based on the Chartered Engineer's report is quashed and the declared value accepted; Revenue's appeal for absolute confiscation and reliance on post-import policy amendments is dismissed.

Summary order. Notice issued to respondents; observations in paragraph 78 of the impugned judgment concerning the powers and jurisdiction of SEBI are stayed until the next date of hearing; respondents to file reply, if any, within two weeks; matter listed for the second week of December 2019.

Pre-deposit requirement under amended Section 35F of the Central Excise Act, 1944 - waiver of pre-deposit - financial hardship claim in support of pre-deposit relief - CESTAT's pre-deposit condition and abeyance of appeal

Pre-deposit requirement under amended Section 35F of the Central Excise Act, 1944 - financial hardship claim in support of pre-deposit relief - CESTAT's pre-deposit condition and abeyance of appeal - Application for permission to pay the mandated pre-deposit in two installments and for an order directing the Tribunal to keep the appeal in abeyance until full payment was made, together with the claim of financial inability to make the pre-deposit. - HELD THAT: - The petitioner sought permission to pay the required pre-deposit in two equal instalments and for the appeal before the CESTAT to be kept in abeyance pending full payment. The Court noted its earlier order granting time to deposit the sum before the CESTAT and observed that the pre-deposit sought to be paid represents 7.5% of the total duty demand arising from the Order in Original dated 31st October, 2017. The application contained only bare assertions of financial difficulty and was not supported by any financial statements, balance sheets or annexures demonstrating inability to pay. The Court further observed that, following the amendment to Section 35F, the statute effectively waives 92.5% of the demand and curtails discretionary waiver applications to avoid further litigation; the amendment and the resulting limitation on waiver applications have been upheld. In light of the absence of any documentary evidence of financial hardship and the statutory framework post-amendment, the Court found no basis to grant the instalment or abeyance relief sought. [Paras 5, 6, 7]

Application for payment in two instalments and for abeyance of the appeal dismissed.

Final Conclusion: The petition for permission to pay the pre-deposit in two instalments and for keeping the appeal in abeyance was dismissed for want of supporting evidence of financial hardship and having regard to the amended statutory scheme under Section 35F which limits waiver of the pre-deposit.

Subjective satisfaction of the Detaining Authority - preventive detention of a person already in judicial custody - imminent possibility of release on bail - non-supply/non-consideration of material relied upon (retraction petition) - right of effective representation under Article 22(5)

Preventive detention of a person already in judicial custody - imminent possibility of release on bail - subjective satisfaction of the Detaining Authority - Validity of detention orders passed against persons already in judicial custody where the Detaining Authority recorded an apprehension of imminent release on bail and propensity to re-offend. - HELD THAT: - The Court held that a detention order can validly be passed against a person already in custody provided the grounds of detention show awareness of the subsisting custody and record a reasoned subjective satisfaction, based on cogent material, that there is a real possibility of release on bail and that on release the person would probably indulge in prejudicial activity. The Detaining Authority's recital (para 7 of the grounds) explicitly recorded awareness of custody, immediate possibility of release and likelihood of continuing prejudicial activity; the Court found this to be a proper application of mind in light of settled precedents (including Kamarunnisa, Rameshwar Shaw, N. Meera Rani and Dimple Happy Dhakad). The subsequent grant of bail to the detenus on the date the High Court quashed the orders fortified the Detaining Authority's apprehension and weighed against interference. On these facts the High Court erred in setting aside the detention orders on the ground that the Detaining Authority failed to consider the imminent possibility of bail. [Paras 8, 9]

Detention orders were validly passed and the High Court erred in quashing them on the ground of alleged failure to consider imminent possibility of release on bail; appeal allowed and detention orders restored.

Non-supply/non-consideration of material relied upon (retraction petition) - right of effective representation under Article 22(5) - Whether non-supply or non-consideration of Anand's alleged retraction petition vitiated the detention orders. - HELD THAT: - The Court examined the record and official communications and concluded that when the detention orders were passed neither the Sponsoring Authority nor the Detaining Authority were aware of any retraction petition of Anand. The purported handwritten entry on the court order sheet lacked court stamp/signature and could not be relied upon. On the materials, the retraction petition was not placed before the Detaining Authority prior to passing the detention orders; accordingly its non-consideration did not vitiate the detention orders. The Court also noted factual aspects said to weaken the retraction and reliance on other corroborative material examined by the Detaining Authority. [Paras 10, 11]

Non-supply/non-consideration of Anand's retraction petition did not vitiate the detention orders; High Court erred in setting aside orders on that ground.

Subjective satisfaction of the Detaining Authority - Whether writ petitions seeking to read the disjunctive 'or' in Section 13 of COFEPOSA as 'and' (to limit protection to actions done in good faith) were maintainable and meritorious. - HELD THAT: - The petitioners under Article 32 sought a judicial declaration reinterpreting the disjunctive in Section 13 of the COFEPOSA Act. No substantive submissions were advanced in support during hearing. In light of the Court's conclusions in the civil/criminal appeals (allowing the Detaining Authority's appeal and restoring detention orders) the Court found no merit in the writ petitions and dismissed them.

Writ Petitions Nos. 204/2019, 206/2019 and 209/2019 were dismissed for lack of merit.

Final Conclusion: The Supreme Court allowed the appeal challenging the High Court's quashing of the detention orders, holding that the Detaining Authority had recorded a reasoned subjective satisfaction (including awareness of custody and imminent possibility of bail) and that non-consideration of Anand's retraction petition did not vitiate the orders; detention orders were restored and the related writ petitions seeking reinterpretation of Section 13 of COFEPOSA were dismissed.