TaxTMI Updates e-Newsletter
Nov 27,2021

Provisional attachment under Section 83 of the CGST Act - requirement of formation of opinion based on tangible material - necessity to protect interest of government revenue - adequacy of reasons in attachment orders - power to pass fresh order in accordance with law

Provisional attachment under Section 83 of the CGST Act - adequacy of reasons in attachment orders - requirement of formation of opinion based on tangible material - Impugned communication of provisional attachment dated 1.2.2021 is legally unsustainable and must be quashed for being laconic and inadequate. - HELD THAT: - Applying the principle in M/s Radha Krishan Industries that the power to provisionally attach property including bank accounts is draconian and must be exercised only after the Commissioner forms an opinion, based on tangible material, that attachment is necessary to protect government revenue, the court found the impugned communication to contain only bare statutory recital without any factual material or reasoning. For want of such formation of opinion and absence of adequate reasons demonstrating necessity to protect revenue, the provisional attachment cannot be sustained and is set aside. The petitioner's bank account is to be released forthwith.

Impugned communication dated 1.2.2021 is quashed and the petitioner's bank account is directed to be released from attachment forthwith.

Power to pass fresh order in accordance with law - necessity to protect interest of government revenue - Authority is permitted to pass a fresh order, but only after complying strictly with the legal requirements laid down for provisional attachment. - HELD THAT: - The court expressly left open the statutory power of respondent no.2 to pass a fresh provisional attachment order. Any fresh order must be preceded by formation of an opinion grounded on tangible material demonstrating that attachment is necessary to protect the interest of the government revenue, and must record adequate reasons instead of merely reciting statutory language. The scope of leave is limited to compliance with the law as noted by the court.

Respondent no.2 may pass a fresh order strictly in accordance with law and the requirements identified by the court.

Final Conclusion: Writ petition allowed; impugned attachment order dated 1.2.2021 set aside and the bank account released; liberty granted to the revenue to pass a fresh order only after complying with the legal requirements for provisional attachment.

Violation of principles of natural justice - ex parte non-speaking order - judicial review of administrative orders notwithstanding availability of statutory remedy - quashing and remand for fresh decision on merits - interim deposit as condition for relief - restraint on coercive recovery measures during pendency - direction to pass speaking order after affording opportunity of hearing

Violation of principles of natural justice - ex parte non-speaking order - judicial review of administrative orders notwithstanding availability of statutory remedy - Impugned assessment and appellate orders were quashed on account of ex facie violation of the principles of natural justice and absence of discernible reasons in ex parte orders. - HELD THAT: - The High Court found that the orders impugned were ex parte in character and did not afford the petitioner sufficient opportunity to present its case; further, the orders did not disclose sufficient reasons to show how the amount said to be due was determined. The Court held that where an order is ex facie bad in law by reason of denial of a fair hearing and lack of reasons, judicial intervention is permissible notwithstanding the existence of statutory remedies. On this short ground the Court set aside both the assessing authority's orders and the appellate orders which rejected appeals on the ground of non-receipt of certified copies.

Impugned orders set aside and quashed for denial of natural justice and absence of speaking reasons.

Quashing and remand for fresh decision on merits - direction to pass speaking order after affording opportunity of hearing - interim deposit as condition for relief - restraint on coercive recovery measures during pendency - Matter remanded to the Assessing Authority for fresh adjudication on merits with directions; interim reliefs and conditions for the petitioner were specified. - HELD THAT: - The Court remitted the matter to the Assessing Authority to decide afresh on merits after affording adequate opportunity of hearing and after permitting the parties to place on record relevant documents. The Court directed that the Assessing Authority must pass a speaking order assigning reasons and do so expeditiously. As a condition of relief the petitioner was directed to deposit twenty per cent of the demand within four weeks; the deposit was to be without prejudice to parties' rights and refundable if found excessive. The Court further ordered de-freezing/de-attaching of the petitioner's bank accounts (if attached in relation to these proceedings) and restrained the tax authorities from taking coercive recovery steps during the pendency of the remand proceedings. Timelines and cooperation obligations were imposed to facilitate expeditious disposal.

Proceedings remanded for fresh decision on merits with directions to afford hearing, pass a speaking order, interim deposit of twenty per cent, release of attached bank accounts, and prohibition on coercive action during pendency.

Final Conclusion: The High Court quashed the assessing officer's and appellate orders for denial of a fair hearing and lack of reasons, remitted the matter for fresh adjudication on merits with directions to afford opportunity, pass a speaking order and decide expeditiously, and granted interim reliefs including conditional deposit, release of bank accounts and restraint on coercive recovery during pendency.

Entry No.66 of Notification No.12/2017 - exemption for services relating to admission to or conduct of examination - definition of "educational institution" for limited purpose of conduct of examination (2(y) and Explanation (iv)) - exemption for services provided to educational institutions relating to admission to or conduct of examination - classification of printing services under Heading 9989 where content is supplied by the recipient - treatment/process on goods belonging to another under Heading 9988 - CBIC clarification on scope of Entry No.66 (Circular No.151/07/2021) - CBIC clarification on classification of printing services (Circular 11/11/2017)

Entry No.66 of Notification No.12/2017 - exemption for services relating to admission to or conduct of examination - definition of "educational institution" for limited purpose of conduct of examination (2(y) and Explanation (iv)) - CBIC clarification on scope of Entry No.66 (Circular No.151/07/2021) - Exemption under Entry No.66 for printing of pre- and post-examination material and for scanning/processing of OMRs and answer sheets when supplied to educational institutions as defined in the Notification. - HELD THAT: - Sl. No. 66 of Notification No.12/2017 grants exemption to services provided to, and services by, educational institutions in relation to admission to, or conduct of, examinations. The definition of "educational institution" in the Notification and the Explanation (iv) treat Central and State Educational Boards as educational institutions for the limited purpose of conduct of examinations. The CBIC Circular dated 17.06.2021 clarifies that input services relating to admission or conduct of examinations - including printing of notification, admit cards, question papers, online testing, result publication - are covered by Sl. No. 66(b)(iv). Applying these principles, the Authority held that printing of pre-examination material (question papers, OMR sheets, answer booklets, hall tickets etc.), printing of post-examination material (rank cards, mark sheets, certificates etc.), and services of evaluation/scanning/processing of results amount to services in relation to the conduct of examination and are exempt under Entry No. 66, provided they are supplied to educational institutions as defined in the Notification.

Printing of pre- and post-examination material and scanning/processing of answer sheets supplied to educational institutions as defined are exempt under Entry No.66 of Notification No.12/2017.

Classification of printing services under Heading 9989 where content is supplied by the recipient - printing services where physical inputs belong to the printer - Heading 9988 - services by way of treatment or process on goods belonging to another - CBIC clarification on classification of printing services (Circular 11/11/2017) - Classification and applicable GST rate for printing of cheque books produced per bank specifications, dependent on whether the printer uses its own physical inputs or the client supplies the paper. - HELD THAT: - Although Notification No.2/2017 lists cheques under an exempt HSN, the factual matrix is that banks (the recipient) supply the content and own the usage rights to the intangible input; the applicant prints cheque books as per banker directions. The CBIC Circular dated 20.10.2017 and the amendment to Notification No.11/2017 distinguish printing where content is supplied by the recipient and physical inputs (paper) belong to the printer (treated as supply of service under Heading 9989). The Authority held that where the applicant uses its own physical inputs (paper/ink) while the banker supplies the content, the activity is a printing service falling under Heading 9989 (ii) and taxable at 9% CGST and 9% SGST. Conversely, where the paper (physical input) is supplied by the client/banker, the activity falls under the provision for treatment/process on goods belonging to another (Heading 9988 (ii)(a)) and is taxable at 6% CGST and 6% SGST.

If the printer uses its own paper while the banker supplies the content, printing of cheque books is classified under Heading 9989 (taxable at 9% CGST and 9% SGST); if the client supplies the paper, the activity falls under Heading 9988 (taxable at 6% CGST and 6% SGST).

Final Conclusion: The Authority ruled that (a) printing of examination-related pre/post materials and scanning/processing of answer sheets supplied to educational institutions as defined are exempt under Entry No.66 of Notification No.12/2017; and (b) printing of cheque books is a taxable printing service whose classification and rate depend on whether the printer uses its own physical inputs (Heading 9989 at 9%+9%) or the client supplies the physical inputs (Heading 9988 at 6%+6%). The application is disposed accordingly.

Concessional rate under Notification No.39/2017-C.T.(Rate) - classification as Fortified Rice Kernel (FRK) / Premix - food preparations put up in unit containers intended for free distribution - amendment by Notification No.11/2021-C.T.(Rate) dated 30.09.2021 - condition of production of certificate evidencing distribution to economically weaker sections - end-use based eligibility for tax concession

Concessional rate under Notification No.39/2017-C.T.(Rate) - food preparations put up in unit containers intended for free distribution - end-use based eligibility for tax concession - Applicability of Notification No.39/2017-C.T.(Rate) (as originally worded) to the applicant's supply of Fortified Rice Kernels for the period upto 30.09.2021. - HELD THAT: - The Authority examined the description and conditions in Notification No.39/2017-C.T.(Rate) as it stood prior to amendment and found that the concessional rate applied to 'food preparations' put up in unit containers and 'intended for free distribution to economically weaker sections' under a government programme, subject to production of a certificate evidencing distribution within the stipulated period. The applicant's FRK was held to be goods constituting a premix which is not directly supplied to economically weaker sections but is blended with rice at designated rice mills before distribution. On the plain reading of the unamended notification and having regard to the fact that FRK per se could not be consumed as such and the applicant did not itself effect free distribution to beneficiaries, the concessional entry as originally worded did not extend to the applicant's supplies for the period upto 30.09.2021. [Paras 9]

Notification No.39/2017-C.T.(Rate) is not applicable to the applicant's manufacture and supply of FRK for the period upto 30.09.2021.

Amendment by Notification No.11/2021-C.T.(Rate) dated 30.09.2021 - classification as Fortified Rice Kernel (FRK) / Premix - condition of production of certificate evidencing distribution to economically weaker sections - Effect of the amendment by Notification No.11/2021-C.T.(Rate) dated 30.09.2021 on eligibility of the applicant's supply of FRK from 01.10.2021 onwards. - HELD THAT: - The Authority noted that the amendment expressly inserted 'Fortified Rice Kernel (Premix) supply for ICDS or similar scheme' in the description and replaced the term 'food preparations' by 'goods' in the condition, thereby bringing FRK (premix) within the concessional entry effective 01.10.2021. Since the applicant's supplies satisfy the characterisation as FRK (Premix) and are made for a scheme approved by the Central/State Government, the applicant becomes eligible for the concessional rate with effect from 01.10.2021, provided the supplier complies with the end-use condition in column (4) of the notification, including production of the requisite certificate within the prescribed period or such extended period as may be allowed by the competent officer. [Paras 8, 10]

With effect from 01.10.2021, Notification No.39/2017-C.T.(Rate) as amended by Notification No.11/2021-C.T.(Rate) is applicable to the applicant's supply of FRK (Premix), subject to fulfillment of the conditions specified in the notification.

Final Conclusion: The Authority rules that the concessional entry in Notification No.39/2017-C.T.(Rate) did not cover the applicant's supplies of FRK for the period upto 30.09.2021, but by virtue of the amendment effected by Notification No.11/2021-C.T.(Rate) effective 01.10.2021, the applicant's supply of FRK (Premix) for the approved scheme is eligible for the concessional rate from 01.10.2021 onwards, subject to the notification's stipulated conditions.

Composite supply - Pure service - Exemption under Notification No. 12/2017 for services to local authority - Divergence of opinion between Members - No ruling issued under Section 101(3) of the CGST/TNGST Act

Composite supply - Pure service - Exemption under Notification No. 12/2017 for services to local authority - Divergence of opinion between Members - Whether an advance ruling could be pronounced on whether the appellant's supply of operation and maintenance (O&M) services for RO plants to the Greater Chennai Corporation is a pure service eligible for exemption under Notification No. 12/2017 or constitutes a composite/works contract not eligible for exemption, and whether a ruling should be issued on that question. - HELD THAT: - The two Members reached conflicting conclusions on the determinative question. The State/SGST Member concluded that where supply and O&M have distinct times of supply and separate payment terms, they are distinct supplies (not a composite or mixed supply), and the O&M component is a pure service falling within SI.3 of Notification No.12/2017 and therefore exempt. The CGST Member held that the contract obligations are in conjunction (joined by 'and'), that the supplies are composite (and, in many respects, works contracts involving transfer of property in goods such as RFID cards), and that the O&M component cannot be treated as a pure service eligible for exemption. Because the Members' views are divergent and determinative of the question, the Appellate Authority did not resolve the issue on merits; instead, it declined to pronounce a definitive advance ruling under Section 101(3). [Paras 10]

No advance ruling is issued on the question; the issue is left unanswered due to divergence of opinion between the Members.

Final Conclusion: The Appellate Authority did not pronounce a definitive advance ruling on whether the appellant's O&M services constitute a pure service eligible for exemption under Notification No.12/2017 because the two Members recorded divergent, irreconcilable opinions; accordingly, no ruling is issued under Section 101(3).

Works contract - eligibility for input tax credit under Section 17(5)(c) - inputs for construction of immovable property on own account (Section 17(5)(d)) - definition of works contract in Section 2(119) - deeming fiction treating construction for sale as service (Paragraph 5, Schedule II) - distinction between taxation entry in Schedule II and ITC exclusions in Section 17

Deeming fiction treating construction for sale as service (Paragraph 5, Schedule II) - distinction between taxation entry in Schedule II and ITC exclusions in Section 17 - Clause 5(b) of Schedule II and Section 17(5)(c) are distinct provisions and one cannot be read to alter the scope of the other. - HELD THAT: - Paragraph 5 of Schedule II is a specific charging entry treating certain transactions involving construction for sale as a taxable service under Section 7. That specific characterization for charging GST does not alter or enlarge the scope of other provisions of the Act. Section 17, which governs entitlement and exclusions for input tax credit, operates in its own field and contains express exceptions. A taxation entry in Schedule II therefore cannot be extended to defeat or limit the exclusions enacted in Section 17 unless so stated. Consequently, the existence of a separate entry in Schedule II does not prevent Section 17(5)(c) from applying to works contract services. [Paras 7, 8]

Clause 5(b) of Schedule II and Section 17(5)(c) are different and distinct provisions.

Works contract - definition of works contract in Section 2(119) - eligibility for input tax credit under Section 17(5)(c) - The expression 'works contract services when supplied for' in Section 17(5)(c) must be understood with reference to the definition of works contract in Section 2(119). - HELD THAT: - Section 17(5)(c) excludes ITC in respect of works contract services when supplied for construction of an immovable property (other than plant and machinery) except where used as input service for further supply of works contract service. The term 'works contract' is defined in Section 2(119) and that definition covers contracts involving construction where transfer of property in goods is involved. Section 17(5)(c) is therefore to be applied to transactions falling within the statutory definition of works contract under Section 2(119). [Paras 7, 8]

Section 17(5)(c) is enacted with reference to works contract as defined in Section 2(119).

Works contract - eligibility for input tax credit under Section 17(5)(c) - Purchase of an under-construction commercial immovable property under an indivisible contract without explicit itemisation of goods/services falls within the scope of works contract for the purposes of Section 17(5)(c). - HELD THAT: - The definition in Section 2(119) embraces construction contracts wherein transfer of property in goods is involved, irrespective of whether the contract explicitly itemises goods or services. The statutory scheme distinguishes certain entries for charging GST but does not carve out such transactions from the scope of 'works contract' for the purpose of Section 17. Therefore a purchase of an under-construction property under an indivisible agreement is within the ambit of works contract services covered by Section 17(5)(c), and the exclusion on ITC applies. [Paras 7, 8]

Such purchase falls within the scope of Section 17(5)(c) and is not eligible for ITC.

Inputs for construction of immovable property on own account (Section 17(5)(d)) - eligibility for input tax credit under Section 17 - Section 17(5)(d) concerns inputs on which ITC is not available for any taxable person and applies when goods or services are received for construction of immovable property on one's own account; its reference is to input receipts, not to output supplies. - HELD THAT: - Section 17(5)(d) was interpreted as addressing the availability of ITC on inputs received where those inputs are used for construction of immovable property on the taxable person's own account. The provision governs inputs and their ineligibility for credit and does not denote output supplies such as leasing. Where a taxable person receives goods or services for construction on his own account, Section 17(5)(d) will exclude ITC in the circumstances specified. [Paras 7, 8]

Section 17(5)(d) refers to inputs received and excludes ITC where goods/services are for construction on one's own account.

Distinction between taxation entry in Schedule II and ITC exclusions in Section 17 - executive clarifications and contemporanea expositio - The Authority is not precluded by alleged departmental clarifications or notifications from taking the view that Section 17(5)(c) and (d) exclude ITC; the applicant did not place specific notifications or clarifications before the Authority. - HELD THAT: - The applicant contended that prior clarifications and notifications entitled him to ITC and that the Authority should be bound by such executive constructions. The Authority observed that no specific clarifications or notifications were brought to its notice. Absent production of particular executive instruments relied upon, the Authority did not treat such general contentions as displacing the statutory exclusions in Section 17. Executive constructions cannot be applied to override the clear statutory exclusion without being specifically identified and shown to be applicable. [Paras 7, 8]

No; the Authority is not precluded and found no specific clarifications put before it that would alter the statutory position.

Eligibility for input tax credit under Section 17(5)(c) - The applicant is not eligible to claim input tax credit of GST paid on purchase of the under-construction commercial immovable property for offset against GST on leasing of that property. - HELD THAT: - Applying the statutory definition of works contract and the exclusions contained in Section 17(5)(c), the Authority concluded that the tax paid on purchase of an under-construction building under an indivisible contract is not available as ITC to a purchaser who uses the property for leasing. Section 17(5)(c) specifically answers the question of flow of ITC in such circumstances and disallows the claim. [Paras 7, 8]

The applicant is not entitled to claim ITC on the purchase of the under-construction commercial immovable property.

Final Conclusion: The Advance Ruling holds that the Schedule II entry treating construction for sale as a service does not alter the exclusions in Section 17; works contract is to be understood by reference to Section 2(119); purchases of under-construction immovable property under indivisible contracts fall within the scope of works contract for the purposes of Section 17(5)(c)/(d); and accordingly the applicant is not entitled to claim input tax credit on the purchase for the purpose of leasing the property.

Service of assessment order - initiation of recovery proceedings - period of three months under Section 78 - notice under Section 79(1)(c) - reasons to be recorded for premature recovery - interim stay subject to deposit

Service of assessment order - period of three months under Section 78 - notice under Section 79(1)(c) - reasons to be recorded for premature recovery - Validity of the notice under Section 79(1)(c) issued on 01.10.2021 when the assessment order(s) dated 12.2.2021 and 18.8.2021 were not shown to have been served and recovery was initiated before the lapse of three months prescribed under Section 78. - HELD THAT: - The Court examined Annexure P-10 and the sequence of departmental action. Under the statutory scheme, recovery proceedings under Section 78 follow service of the order of assessment determining tax, interest and penalty, and a three-month period is prescribed for payment before initiating recovery. The record did not show service of the assessment order upon the petitioner and, in two notices (Recovery No.34 and No.35 of 2021), the order date was 18.8.2021 while the Section 79 notice was issued on 01.10.2021, i.e., within three months. The respondents did not record any specific reasons in writing for initiating recovery before the lapse of three months as contemplated by the proviso to the relevant provision. In these circumstances the issuance of the recovery notice without service of the assessment order and without recorded reasons for premature initiation was open to challenge. The petitioner also placed on record a deposit already made towards the payable tax, and the factual dispute as to service was asserted by the petitioner.

The Court stayed the effect and operation of the notice dated 01.10.2021 (Annexure P-10) as an interim measure, subject to the petitioner depositing 50% of the total payable tax within three weeks (after adjusting the amount already paid); matter listed for the week commencing 6th December 2021.

Final Conclusion: Interim stay granted on Annexure P-10; stay subject to petitioner depositing 50% of the total payable tax within three weeks (adjusting amounts already paid); matter posted to the week commencing 6th December 2021.

Deduction under Section 57(iii) of the Income Tax Act, 1961 - nexus between expenditure and income - purpose test for expenditure under "income from other sources" head - scope of appellate tribunal's jurisdiction in making disallowance - excessive disallowance of interest expenditure by appellate authority

Deduction under Section 57(iii) of the Income Tax Act, 1961 - nexus between expenditure and income - purpose test for expenditure under "income from other sources" head - Assessee entitled to deduction of interest expenditure under Section 57(iii) of the Act against income from other sources. - HELD THAT: - The Court held that Section 57(iii) permits deduction of any expenditure (not being capital) laid out or expended wholly and exclusively for the purpose of making or earning income under the head 'income from other sources'. The provision does not require that the expenditure must have resulted in actual income; it is sufficient that the expenditure was incurred for the purpose of earning such income. Therefore, a nexus between the expenditure and the income-earning purpose must be ascertained, and on the facts the assessee was entitled to the deduction under Section 57(iii).

Deduction under Section 57(iii) is allowable to the assessee.

Scope of appellate tribunal's jurisdiction in making disallowance - excessive disallowance of interest expenditure by appellate authority - The Income Tax Appellate Tribunal exceeded its jurisdiction in disallowing the entire interest expenditure and its adverse findings were perverse; such disallowance could not stand. - HELD THAT: - The Court observed that the tribunal's power is confined to the subject matter of the appeal and it could not validly disallow the entire interest expenditure where the material and legal tests (including purpose and nexus) supported allowance under Section 57(iii). The tribunal's conclusion that the deduction was not allowable either in excess of interest over interest earned or in respect of the entire interest outgo was found to be unjustified and perverse on the record. Accordingly, the tribunal's order was quashed to the extent it denied the deduction and made the excessive disallowance.

Tribunal's disallowance of the entire interest expenditure set aside; tribunal exceeded its jurisdiction and its findings are quashed.

Final Conclusion: The appeal is allowed; the order of the Income Tax Appellate Tribunal is quashed, the assessee is held entitled to deduction under Section 57(iii) for Assessment Year 2009-10, and the tribunal's excessive disallowance is set aside.

Faceless assessment - principles of natural justice - service of draft assessment order - show-cause notice for prejudicial variation - request for personal hearing under faceless assessment - mandatory nature of procedural requirements under Section 144B - assessment rendered non-est for non-compliance with procedure

Service of draft assessment order - show-cause notice for prejudicial variation - principles of natural justice - faceless assessment - Whether failure to serve the draft assessment order and thereby not issuing a show-cause notice and providing hearing under the faceless assessment procedure vitiates the assessment. - HELD THAT: - Section 144B prescribes the faceless assessment procedure whereby a draft assessment order proposing any variation prejudicial to the assessee must be the subject of a show-cause notice so that the assessee may respond; thereafter the assessment unit must consider the response and may revise the draft. The statutory scheme further permits a request for personal hearing in specified circumstances. Sub section (9) of Section 144B makes clear that an assessment not made in accordance with the procedure laid down in Section 144B shall be non-est. In the present case it is undisputed that the draft assessment order was not served on the petitioner, that the proposed variation was prejudicial to the petitioner, and that no show cause notice in the prescribed form was issued; consequently the mandatory procedural safeguards under Section 144B were not complied with. Having regard to the legislative purpose of faceless assessment - transparency, accountability and improved quality of assessment - the court holds that the prescribed procedure is mandatory and its breach renders the assessment non est. [Paras 7, 8, 11]

The assessment is vitiated for failure to serve the draft assessment order and provide the statutorily mandated opportunity to the assessee; the assessment is non-est.

Mandatory nature of procedural requirements under Section 144B - assessment rendered non-est for non-compliance with procedure - faceless assessment - Remedy to be granted where assessment is held non-est for non-compliance with Section 144B. - HELD THAT: - The court, applying its earlier decision in Multiplier Brand Solutions Pvt. Ltd., concluded that the appropriate relief is to quash the impugned assessment order and notice of demand and to remit the matter for fresh completion in accordance with Section 144B. The remand is limited to completion of assessment proceedings by following the procedure contemplated by Section 144B so that the assessee is afforded the required show cause opportunity and, if applicable, personal hearing in accordance with the statutory scheme. The court directed that the reassessment exercise be completed within a fixed time frame. [Paras 12, 13]

Impugned assessment order and demand notice quashed; matter remanded to respondent to complete assessment strictly in accordance with Section 144B within the time directed by the court.

Final Conclusion: The impugned assessment order dated 26/04/2021 and the notice of demand dated 26/04/2021 are quashed for failure to comply with the mandatory faceless assessment procedure under Section 144B (notably non service of the draft assessment order and absence of statutorily mandated opportunity), and the matter is remanded to the assessing authority for completion of proceedings in accordance with Section 144B within the period directed by the Court.

Cancellation of registration under Section 12AA(3) - genuineness of activities - activities not being carried out in accordance with the objects of the trust - amendment of trust deed and its effect on registration - violation of Section 13(1)(c) - commercialization of education/public policy - power to review earlier registration

Cancellation of registration under Section 12AA(3) - genuineness of activities - activities not being carried out in accordance with the objects of the trust - Validity of cancellation of the assessee's registration under Section 12AA(3) on the grounds recorded by the DIT (Exemption). - HELD THAT: - The Court restated that cancellation under Section 12AA(3) can be exercised only if two twin conditions are satisfied: (i) the activities of the trust are not genuine, and (ii) such activities are not being carried out in accordance with the objects of the trust. The Tribunal examined the materials relied upon by the DIT (E) - including allegations of commission payments, generation of surplus, acquisition of property, purchase of a BMW, cash loans/repayments and accounting deficiencies - and found that those reasons did not establish either of the twin conditions necessary for cancellation. The High Court, after reviewing authorities and the Tribunal's factual appraisal, declined to interfere with the Tribunal's conclusion that the reasons assigned were insufficient to justify cancellation; factual findings about genuineness and conformity with objects were left undisturbed. [Paras 5, 20, 21, 32]

The cancellation of registration under Section 12AA(3) was quashed; the Tribunal's allowance of the assessee's appeal is upheld.

Amendment of trust deed and its effect on registration - Whether amendments to the trust deed without prior approval of the Department justified cancellation of registration. - HELD THAT: - The Tribunal compared the original trust deed with the amended deed and found that the amendments were in furtherance of the charitable objects and did not alter the charitable character or remove the foundational basis on which registration was granted. The High Court agreed with the Tribunal's factual conclusion that there was no finding by the authorities that the amendments rendered the trust non charitable; therefore amendment per se was not a valid ground for cancelling registration under Section 12AA(3). [Paras 24, 31]

Amendment of the trust deed did not constitute a ground for cancellation as it did not make the trust non charitable or remove the foundation of registration.

Violation of Section 13(1)(c) - commercialization of education/public policy - payments to trustees - Whether alleged commercialization, collection of hefty fees, payment of commission to brokers, and remuneration/benefits to trustees justified cancellation of registration under Section 12AA(3) as contraventions of Section 13(1)(c) and public policy. - HELD THAT: - The Tribunal made factual findings that payments to certain trustees were not disproportionate to services rendered. The High Court noted authority holding that incidental surplus or commercial receipts do not by themselves disentitle an educational trust to exemption and that contraventions of Section 11(5)/Section 13 lead to taxation of the relevant income or part thereof, not necessarily to denial of exemption for the entire income. The Court observed that if payments to trustees are found unreasonable, the assessing officer can treat such amounts as taxable, but such matters, even if constituting contraventions, do not ipso facto justify cancellation of registration under Section 12AA(3). [Paras 26, 27, 28, 31]

Allegations of commercialization, fees/commission and payments to trustees did not justify cancellation of registration; tax consequences, if any, are a matter for assessment, not for cancelling registration.

Power to review earlier registration - Whether the Commissioner has power to review or cancel an earlier registration granted under Section 12A. - HELD THAT: - The Court observed (and the parties conceded) that the granting authority has power to cancel registration; this question was answered in favour of the Revenue. However, the Court held that this legal proposition was academic in the present case because the Tribunal's conclusions on the merits (that the twin conditions for cancellation were not satisfied) determined the outcome. The Court therefore did not grant relief to the Revenue despite recognising the authority's power to review earlier registrations in appropriate cases. [Paras 10, 32]

Acknowledged that the Commissioner has power to review/cancel registration, but the point is academic here and does not assist the Revenue.

Final Conclusion: The High Court declined to interfere with the Tribunal's factual and legal conclusions that the DIT (Exemption) had not established the twin conditions required for cancellation under Section 12AA(3); amendments to the trust deed and allegations of commercialization or payments to trustees did not justify cancellation. The substantial questions of law were answered largely in favour of the assessee and the Revenue's appeal is dismissed.

Characterisation of sale of software with embedded programme as 'royalty' - sale of goods doctrine in relation to software supplied under EULA/distribution agreements - deduction of tax at source under Section 195 linked to chargeability under Section 9 - applicability of DTAA royalties definition to EULAs/distribution agreements

Characterisation of sale of software with embedded programme as 'royalty' - deduction of tax at source under Section 195 linked to chargeability under Section 9 - applicability of DTAA royalties definition to EULAs/distribution agreements - Whether amounts received by the assessee on sale of software with support services to Indian customers constitute 'royalty' taxable in India and attract obligation to deduct tax at source. - HELD THAT: - The Tribunal held that the issue is squarely covered by the decision of the Hon'ble Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. v. CIT. The Supreme Court examined the nature of licences in the EULAs/distribution agreements and concluded they do not grant any interest in the copyright in the sense contemplated by the Copyright Act but instead impose limited rights to use software embedded in a physical object or supplied under restricted licence terms. The Supreme Court treated such transactions as sale of goods (or sale of a product containing an embedded programme) rather than grants of rights to reproduce or exploit copyright and, having regard to the definition of 'royalties' in the relevant DTAAs and the charging provision, held that such receipts do not constitute royalty liable to tax in India and therefore no obligation under Section 195 arises to deduct TDS. Applying that ratio, and following the Supreme Court's observations in paragraphs 27, 47, 52, 168 and 169, the Tribunal concluded that the receipts from sale of software with support services are not taxable as royalty and the CIT(A)'s treatment to the contrary was incorrect. [Paras 7, 8]

Receipts from sale of software with support services are not royalty taxable in India and no obligation to deduct tax at source arises; grounds of the assessee allowed.

Final Conclusion: Appeal partly allowed: receipts from sale of software with support services for A.Y. 2017-18 are not to be treated as royalty and the demand based on such characterisation is set aside; additional grounds not pressed are not admitted.

Arm's Length Price - Transfer Pricing adjustment - Bright line test - Profit Split Method - existence of international transaction - de novo consideration - depreciation on intangible assets - written down value - allowability of education cess as deduction - admission of additional ground

Arm's Length Price - Transfer Pricing adjustment - Bright line test - Profit Split Method - existence of international transaction - de novo consideration - Determination of ALP of AMP expenses and the transfer pricing adjustment was remitted to the AO/TPO for fresh examination. - HELD THAT: - The Tribunal observed that the TPO applied the bright line test, split AMP into routine and non-routine components and adopted the Profit Split Method, combining royalty and AMP while determining residual profit to be shared with the AE. Relying on the Tribunal's earlier order in the assessee's own case and authority rejecting the bright line approach and requiring separate establishment of existence of international transaction in AMP, the Tribunal held that the issue requires fresh examination by the AO/TPO. Consequently, the matter of benchmarking AMP expenses and any related transfer pricing adjustments is restored to the file of the AO/TPO for de novo consideration after affording the assessee a reasonable opportunity of hearing. [Paras 3]

Issue of ALP determination for AMP expenses remitted to AO/TPO for fresh adjudication in accordance with law.

Depreciation on intangible assets - written down value - allowability of depreciation - Allowability of depreciation on intangible assets (design and technical knowhow; vendor network relationship) was accepted in favour of the assessee. - HELD THAT: - The Tribunal followed the consistent view of co-ordinate Benches in the assessee's earlier years and held that the intangible assets in question fall within the block of intangible assets eligible for depreciation. The Tribunal noted that depreciation on these assets had been claimed and accepted in prior years and that the opening written down value carried forward cannot be disputed in the absence of any action under section 147. Applying the principle that expenses or assets incurred for business cannot be disallowed on nomenclature grounds and relying on prior Tribunal findings reproduced in the order, the Tribunal directed deletion of the disallowance and allowed depreciation for the year under appeal. [Paras 4]

Assessee entitled to depreciation of Rs. 1,35,90,554 on the specified intangible assets; disallowance deleted.

Allowability of education cess as deduction - admission of additional ground - Whether education cess and secondary higher education cess paid should be allowed as a deduction under section 37(1) - admitted and allowed. - HELD THAT: - The Tribunal admitted the additional ground as the issue was a pure question of law. Having considered judicial pronouncements and administrative guidance cited in the record, the Tribunal accepted the view that 'cess' is not encompassed by the disallowance under the relevant provision relied upon by the Revenue and that education cess is therefore allowable as an expenditure while computing business income. On this basis the Tribunal allowed the claim and admitted the additional ground for adjudication. [Paras 5]

Education cess and secondary higher education cess are allowable as deduction; additional ground admitted and allowed.

Final Conclusion: The appeal is partly allowed: the transfer pricing issue relating to AMP expenses is remitted to the AO/TPO for fresh consideration; depreciation on specified intangible assets is allowed in favour of the assessee; and the claim for deduction of education cess is admitted and allowed.

Arm's Length Price - transfer pricing - quasi-equity - Comparable Uncontrolled Price (CUP) method - international transaction - comparability adjustments under Rule 10B - remand for recomputation

Transfer pricing - international transaction - Arm's Length Price - quasi-equity - Whether upward adjustment on account of interest on loan to Associated Enterprise should be sustained or deleted and the matter remitted for recomputation. - HELD THAT: - The Tribunal examined earlier coordinate-bench decisions in the assessee's own case (notably for A.Y. 2008-09, 2010-11 and 2011-12) which treated the advances as being in the nature of quasi-equity and held that such transactions are materially different from ordinary loans for purposes of determining Arm's Length Price. Having regard to the factual matrix and the Tribunal's prior findings that the structure involved a special-purpose vehicle, repatriation of funds and redemption of preference shares (making the transaction akin to quasi-equity), the Bench concluded that the TPO/AO erred in making an upward interest adjustment under CUP without applying the appropriate comparability analysis and consideration of the substance of the integrated transactions. The Tribunal therefore directed the AO/TPO to follow the coordinate-bench rulings and re-compute the interest adjustment accordingly, effectively deleting the impugned adjustment as made and remitting the computation to the assessing authorities for conformity with the earlier Tribunal orders. [Paras 6]

Upward adjustment on interest to AE deleted; AO/TPO directed to re-compute interest adjustment in conformity with Tribunal's earlier orders (A.Y. 2008-09, 2010-11 and 2011-12).

Transfer pricing - Comparable Uncontrolled Price (CUP) method - remand for recomputation - Whether grounds 2 to 6 (challenging various additions, characterization of share transfers/gifts, capital loss and book profit under section 115JB) required adjudication. - HELD THAT: - The authorised representative conceded that grounds 2 to 6 were covered by adverse decisions in the assessee's earlier years and therefore these grounds were not pressed for fresh adjudication. The Tribunal recorded that these grounds are dismissed as covered by precedent and need no further decision in the present appeal. [Paras 2]

Grounds 2 to 6 dismissed as covered by earlier orders; no fresh adjudication undertaken.

Final Conclusion: The appeal is partly allowed: grounds 2-6 are dismissed as covered by earlier decisions; grounds 7 and 8 are allowed by deleting the impugned interest adjustment and directing the AO/TPO to re-compute the interest adjustment in accordance with the Tribunal's earlier orders for the assessee (to be followed for AY 2012-13).

Unexplained investment treated as income - addition on account of margin money for purchase of assets - capitalisation of cost of a capital asset versus treatment as income - assessment enhancement by CIT(A) without show cause under section 251(2) - consideration of additional evidence and remand report under Rule 46A

Addition on account of margin money for purchase of assets - unexplained investment treated as income - Confirmation of addition of the unexplained margin money claimed in the bank loan proposal. - HELD THAT: - The Tribunal examined discrepancies between the invoices/quotations submitted to the bank (showing a higher total cost and an undertaking by the assessee to pay margin money) and the invoices produced before the Assessing Officer which reduced the total cost to match the loan amount. The bank's records corroborated that the assessee had represented a higher total cost and undertaken to pay margin money which was not accounted for by the assessee except for a small cash payment. In the absence of a satisfactory explanation for the balance margin money, the amount was correctly treated as unexplained and added to the assessee's income. The Tribunal therefore confirmed the addition of the margin money made by the Assessing Officer. [Paras 6, 7]

Addition on account of unexplained margin money is confirmed.

Capitalisation of cost of a capital asset versus treatment as income - payments evidenced through banking channel - Deletion of the addition treated as income in respect of alleged excess payments to the fabricator M/s. Spark Engineers. - HELD THAT: - The Tribunal found that the disputed payments were shown as part of the capital cost of the two LPG tankers and were made through banking channels. Since these amounts were capitalised to the cost of the asset and not claimed as revenue expenditure, and the source of payment was not in dispute, the Assessing Officer's treatment of the disputed amount as income was unwarranted. The Tribunal accepted that while the correctness of the asset's total capital cost may be a matter of determination, the excess payment could not be treated as income merely because invoices differed. [Paras 5]

Addition of the amount alleged to be bogus in respect of M/s. Spark Engineers is unwarranted and deleted.

Assessment enhancement by CIT(A) without show cause under section 251(2) - Validity of the CIT(A)'s enhancement of addition without issuing a show cause notice under section 251(2). - HELD THAT: - The Tribunal observed that the CIT(A) enhanced the aggregate addition beyond the figures originally made by the Assessing Officer without issuing the statutory show cause notice mandated by section 251(2). The Tribunal held that such enhancement in the absence of the required show cause process is not sustainable and liable to be set aside. [Paras 6]

Enhancement made by the CIT(A) without issuing show cause under section 251(2) is not sustainable.

Consideration of additional evidence and remand report under Rule 46A - Whether the CIT(A) ignored additional evidence filed by the assessee under Rule 46A. - HELD THAT: - The Tribunal noted that the CIT(A) forwarded the assessee's documents and contentions to the Assessing Officer and called for a remand report, and that the impugned order was rendered after consideration of that remand report. Given the contradictory records filed by the assessee, the Tribunal held that the CIT(A) had not passed the order without considering the additional evidence and that the additional evidence would not have aided the assessee in view of the inconsistencies. [Paras 8]

CIT(A) did consider the additional evidence by seeking a remand report; complaint of non-consideration is rejected.

Final Conclusion: Appeal partly allowed: the Tribunal deleted the addition relating to alleged bogus invoices from M/s. Spark Engineers, confirmed the addition in respect of unexplained margin money, and held that the CIT(A)'s enhancement without issuing the show cause notice under section 251(2) is not sustainable; CIT(A) had, however, considered the additional evidence by obtaining a remand report.

Education as a charitable purpose within the meaning of section 2(15) - applicability of the proviso to section 2(15) to activities of general public utility - incidental business carried on in furtherance of charitable objects (subsection 11(4A)) - deductibility of corpus donations under section 11(1)(d) - failure to press a ground at hearing and dismissal of that ground

Failure to press a ground at hearing and dismissal of that ground - Ground challenging validity of assessment framed under section 143(3) read with section 147 was not argued and therefore dismissed as not pressed. - HELD THAT: - The assessee did not advance any argument on the contention that the assessment framed under section 143(3) read with section 147 was void. The Tribunal accordingly declined to adjudicate the technical ground and dismissed it as not pressed. [Paras 4]

Ground challenging validity of reassessment dismissed as not pressed.

Education as a charitable purpose within the meaning of section 2(15) - applicability of the proviso to section 2(15) to activities of general public utility - burden of establishing nexus between activities and objects - Providing hostel accommodation to students is part of educational activity and thus qualifies as 'charitable purpose' under section 2(15); consequently the proviso to section 2(15) is not attracted. - HELD THAT: - The Tribunal relied on its earlier decision in the assessee's own case for AY 2013-14 and on reasoning that hostel life forms an integral and essential component of education - facilitating residence, learning, and character development - and that the assessee's objects and activities remained unchanged since registration. The proviso to section 2(15) is intended to apply to the fourth limb (advancement of other objects of general public utility) and does not apply where the primary object is education. Having examined the factual matrix and precedents, the Tribunal held there was sufficient nexus between the hostel activity and the educational objects of the trust and allowed the claim of exemption under section 11 in respect of the hostel receipts. [Paras 22, 23, 24]

Hostel facility constitutes educational activity; proviso to section 2(15) not applicable; exemption under section 11 allowed for hostel receipts.

Incidental business carried on in furtherance of charitable objects (subsection 11(4A)) - deductibility of corpus donations under section 11(1)(d) - requirement of separate books for ancillary commercial activity - Receipts from letting out a hall for social functions are ancillary to the trust's educational objects and do not change its charitable status; the assessee is eligible for deduction of corpus donations under section 11(1)(d). The Revenue's contention about non-maintenance of separate books under section 11(4A) was not adjudicated by the authorities below and was not entertained by the Tribunal. - HELD THAT: - The Tribunal found the hall-rental activity to be incidental to and in support of the primary educational purpose; educational institutions are permitted to carry on incidental commercial activities to further their main objects. As a result, the proviso to section 2(15) does not apply to the trust on account of hall rentals. Having held that the trust's activities are educational in nature, the Tribunal also held that amounts treated as corpus donations qualify for deduction under section 11(1)(d). The Revenue's submission regarding non-compliance with the bookkeeping requirement under section 11(4A) was not considered by the lower authorities and the Tribunal declined to entertain that contention at the hearing. [Paras 26, 28, 30]

Hall rentals treated as ancillary (incidental) activity - do not affect charitable status; corpus donation allowable under section 11(1)(d); bookkeeping objection under section 11(4A) not decided.

Final Conclusion: Both appeals for AY 2014-15 and AY 2015-16 are allowed: the Tribunal set aside the findings of the authorities below, held the hostel activity to be educational (proviso to section 2(15) not attracted), allowed the corpus donation deduction under section 11(1)(d), and directed deletion of the additions; the technical ground challenging reassessment was dismissed as not pressed.

Exemption from payment of fee - indigent person - dismissal of appeal for non-rectification of defect - non-appearance and ex-parte assessment - reopening of assessment on information

Exemption from payment of fee - indigent person - dismissal of appeal for non-rectification of defect - non-appearance and ex-parte assessment - Claim for exemption from payment of requisite appellate fee on grounds of indigency and consequence of non-payment leading to dismissal of the appeal - HELD THAT: - The Tribunal considered the assessee's request to be treated as an indigent person and thereby be exempted from payment of the requisite fee for filing the appeal. The assessee averred that his day-to-day sustenance was provided by his son and therefore he could not pay the fee, but produced no documentary evidence such as bank statements or proof that the house he resides in belongs to his son. The record showed non-appearance before the Assessing Officer and repeated non-appearance before the CIT(A) despite numerous adjournments and opportunities; the assessment had been completed ex parte under the relevant provision after the assessee failed to respond. In these circumstances, and having regard to the assessee's conduct and failure to furnish particulars substantiating indigency, the Tribunal held that exemption could not be granted. The Tribunal further held that as the defect (non-payment of fee) was not rectified, the appeal must be dismissed. The decision also records that the case law relied upon by the assessee was inapplicable to the facts before the Tribunal. [Paras 2, 7, 8]

Request for exemption from payment of the requisite fee on grounds of indigency rejected; appeal dismissed for non-rectification of the defect.

Final Conclusion: The assessee's claim of indigency was not supported by evidence and was rejected; because the requisite fee was not paid and the defect was not remedied, the appeal relating to Assessment Year 2013-14 is dismissed.

Capital asset - agricultural land within eight kilometres - shortest road distance for measurement of 8 km - deeming fiction under Section 50C - reference to Determining Officer/Valuation Officer under Section 50C(2)/(3)

Capital asset - agricultural land within eight kilometres - shortest road distance for measurement of 8 km - Characterisation of the land as a capital asset under the inclusive clause of Section 2(14)(iii) for the assessment year 2008-09 - HELD THAT: - The Tribunal examined competing certificates and route charts from land revenue and survey authorities showing three road routes from the municipal limits to the subject plots. For the assessment year 2008-09 the legally relevant mode of measurement is the shortest road distance (the aerial-distance amendment being prospective with effect from AY 2014-15). The report dated 14.12.2012, signed by the survey team, Tehsildar, Lekhpal and SDM Karchana, identified the shortest route via the Main Mirzapur Road and showed Aarazi No. 327 at 7.200 km and Aarazi No. 318 at 7.800 km from the municipal limits. The Tribunal accepted the land revenue/survey authorities' consolidated report and maps as credible evidence, rejected the assessee's reliance on alternative longer routes, and held that the land falls within 8 km of the municipal limits and hence is excluded from the definition of 'agricultural land' and included within the definition of 'capital asset' in Section 2(14) for the year in question.

Land held to be within 8 kms by shortest road route and therefore a capital asset under Section 2(14); issue decided against the assessee.

Deeming fiction under Section 50C - reference to Determining Officer/Valuation Officer under Section 50C(2)/(3) - Applicability of Section 50C to determine full value of consideration and the course when stamp valuation exceeds declared sale consideration - HELD THAT: - The Tribunal observed that where the value adopted by the stamp valuation authority exceeds the consideration stated in the sale deed, Section 50C operates by deeming that stamp duty value to be the full value of consideration for the purposes of computing capital gains. The aggregate stamp valuation exceeded the recorded sale consideration, therefore Section 50C is attracted. However, Section 50C(2)/(3) provides a mechanism to challenge the stamp valuation by obtaining a determination of fair market value from the valuation authority. In fairness to both parties and in accordance with those statutory provisions, the Tribunal remanded the matter to the Assessing Officer for limited purpose of referring the valuation dispute to the valuation authority (DVO) to determine fair market value and to proceed in accordance with Sections 50C(2) and 50C(3).

Section 50C held applicable; matter remanded to AO to refer the property to the valuation authority for determination of fair market value under Section 50C(2)/(3).

Final Conclusion: Appeal partly allowed in part: characterisation issue decided against the assessee (land held to be a capital asset within 8 km by shortest road distance) and Section 50C held attracted; the quantum/valuation aspect remanded to the Assessing Officer for referral to the valuation authority (DVO) for determination of fair market value in accordance with Section 50C(2)/(3).

Arm's length principle - transfer pricing adjustment - comparability analysis - benefit test - Comparable Uncontrolled Price method - Transactional Net Margin Method - remand for fresh benchmarking analysis - allowability of revenue share based license fee as revenue expenditure - tax deduction at source applicability on lease line charges - allowability of provisions/accruals under mercantile system - deductibility of education cess as business expenditure

Transfer pricing adjustment - Transactional Net Margin Method - arm's length principle - Adjustment in respect of intra group services availed from Associated Enterprises - HELD THAT: - The Tribunal found the factual matrix identical to prior years in which it had accepted benchmarking under TNMM for intra group services and deleted the TP adjustment. Applying the same parity and reasoning, the Tribunal accepted the assessee's claim in the year under appeal and allowed the claim of the assessee in respect of intra group services. [Paras 5]

The transfer pricing adjustment in respect of intra group services is deleted and the assessee's claim is allowed.

Transfer pricing adjustment - Comparable Uncontrolled Price method - comparability analysis - remand for fresh benchmarking analysis - benefit test - Adjustment made in respect of royalty payments to Associated Enterprises - HELD THAT: - Although earlier years of the assessee were treated differently, the Tribunal held that the benefit test should not be applied to determine ALP for the royalty payments (following its prior view). However, because the TPO/DRP had applied CUP and produced a differing ALP without satisfying comparability and disclosure requirements, the Tribunal did not adjudicate the ALP on merits but remitted the matter to the TPO/AO. The remand directs the TPO to carry out fresh comparability and benchmarking analysis, to disclose and confront the search/process and comparables used, and to afford the assessee a reasonable opportunity of hearing before concluding the issue. [Paras 8, 9]

Matter remitted to Assessing Officer/ TPO for fresh comparability/benchmarking analysis and determination of ALP after affording the assessee opportunity of hearing; benefit test not to be applied for this purpose.

Allowability of provisions/accruals under mercantile system - allowability of provisions/accruals under mercantile system - Disallowance of circuit accruals (provisions for bandwidth/last mile services) - HELD THAT: - The Tribunal noted that the assessee consistently followed a recognized, automated and scientific mercantile accounting method to estimate and accrue circuit charges and that identical issues had been decided in favour of the assessee by the Tribunal in earlier assessment years. Applying the same parity of reasoning, the Tribunal held that the accruals were allowable business expenditure and accordingly the disallowance was not sustained. [Paras 10]

Disallowance of circuit accruals deleted and the accruals allowed as business expenditure.

Allowability of provisions/accruals under mercantile system - Disallowance of year end accruals representing normal business expenditure - HELD THAT: - The Tribunal observed that the assessee followed a systematic method of making year end accruals and debited the expense when paid or reversed in subsequent years. Relying on its earlier decisions in the assessee's case, the Tribunal held that such year end accruals are allowable and dismissed the disallowance. [Paras 11]

Disallowance of year end accruals deleted and such accruals held allowable.

Support services - remand for fresh benchmarking analysis - comparability analysis - Disallowance of support service expenditure paid to group company - HELD THAT: - The Tribunal noted that the assessee incurred support service expenses necessary for its business and that evidence of availment was placed before the authorities. However, consistent with prior years, the Tribunal did not finally adjudicate the genuineness/allowability on the papers alone and remitted the issue to the Assessing Officer with directions to verify the evidences filed by the assessee and decide in accordance with earlier directions, after affording opportunity of verification/hearing. [Paras 12]

Issue remitted to Assessing Officer to verify evidences of availment of support services and decide in accordance with law and earlier directions.

Allowability of revenue share based license fee as revenue expenditure - arm's length principle - Treatment of annual revenue share based license fee (share based license fee / license fee) as revenue expenditure - HELD THAT: - Relying on the coordinate decisions of the Tribunal in the assessee's earlier years and the judgment of the jurisdictional High Court in CIT v. Bharti Hexacom Ltd., the Tribunal held that the recurring revenue share based license fee incurred towards maintenance and usage of the telecom licence is revenue expenditure allowable under Section 37(1) and not capital expenditure amortisable under Section 35BB/35ABB. In the absence of any change in facts or law, the Tribunal directed deletion of the addition. [Paras 15]

Addition on account of annual revenue share based license fee deleted; such fee held to be allowable revenue expenditure.

Tax deduction at source applicability on lease line charges - Alleged requirement to deduct TDS under section 194I on lease line charges - HELD THAT: - The Tribunal examined the nature of lease line services and, following its reasoning in earlier years of the assessee, concluded that there was no requirement to deduct tax at source under section 194I and that the assessee's treatment (withholding under section 194J) was acceptable for the facts of the case. Consequently, the disallowance on this ground was not sustained. [Paras 16, 18]

No requirement to deduct TDS under section 194I on the lease line charges; disallowance on that ground not sustained.

Deductibility of education cess as business expenditure - allowability of provisions/accruals under mercantile system - Allowability of education cess as a deductible business expense under section 37 - HELD THAT: - The Tribunal considered CBDT Circular No. 91/58/66 ITJ(19), statutory provisions including the treatment of cess in the Act and relevant judicial precedents. It observed that 'cess' is distinguishable from 'tax' and that education cess proceeds are credited to a separate non lapsable fund; therefore the cess cannot be equated with income tax for the purpose of disallowance under section 40(a)(ii). Applying section 37 and applicable precedent, the Tribunal held that education cess paid by the assessee is an allowable business deduction. [Paras 24, 29, 36]

Education cess held deductible as business expenditure under section 37; the assessee's claim allowed.

Final Conclusion: The appeal is allowed in part: TP adjustment in respect of intra group services, circuit accruals, year end accruals, revenue share based license fee and education cess are allowed in favour of the assessee; the royalty and support service issues are remitted to the Assessing Officer/ TPO for fresh comparability/verification and determination after affording the assessee a hearing; the TDS contention on lease line charges is decided in favour of the assessee. The stay application is dismissed as infructuous.

Revisionary jurisdiction under section 263 requires the assessment order to be both erroneous and prejudicial to the interests of revenue - twin conditions for exercise of power under section 263 - limitation for invoking section 263 when issue was not subject matter of earlier proceedings runs from the original assessment - clause (c) to Explanation 1 to section 263 bars revision of matters already under appeal - interpretation of clause (iii) of Explanation 1 to section 115JB(1) regarding set-off of the least of brought forward losses or unabsorbed depreciation - scope of revision under section 263 does not permit substitution of the Assessing Officer's judgment where there has been application of mind

Revisionary jurisdiction under section 263 requires the assessment order to be both erroneous and prejudicial to the interests of revenue - twin conditions for exercise of power under section 263 - scope of revision under section 263 does not permit substitution of the Assessing Officer's judgment where there has been application of mind - Validity of the Principal CIT's exercise of power under section 263 in respect of the assessment order dated 30.03.2013. - HELD THAT: - The Tribunal held that section 263 can be invoked only where the Principal CIT is satisfied that the assessing officer's order is erroneous and prejudicial to the revenue; both conditions must coexist. Mere disagreement with the AO's conclusion, or an omission that does not amount to an erroneous order (i.e., assessment made without due application of mind, incorrect application of law, or wrong assumptions of fact), is not enough to exercise revisionary power. Where the AO has examined an issue and applied mind (even if the Principal CIT would have taken a different view), section 263 cannot be used to substitute the AO's judgment. Applying these principles to the facts, the Tribunal found that the AO had considered and applied mind to the disputed matters in original and consequential proceedings; therefore the Principal CIT's invocation of section 263 was not justified. [Paras 11, 12, 18]

Assumption of jurisdiction by the Principal CIT under section 263 was improper; the revision order dated 26.03.2015 is quashed on this ground.

Interpretation of clause (iii) of Explanation 1 to section 115JB(1) regarding set-off of the least of brought forward losses or unabsorbed depreciation - limitation for invoking section 263 when issue was not subject matter of earlier proceedings runs from the original assessment - Whether the assessing officer allowed excess set-off of brought forward loss / unabsorbed depreciation while computing book profit under section 115JB, thereby rendering the assessment erroneous and prejudicial to revenue. - HELD THAT: - The Tribunal examined the assessment history: original assessment, CIT(A) order, AO's giving effect order, subsequent 263 proceedings and the AO's 30.03.2013 order. It found that the AO had considered the set-off issue in original and consequential proceedings and the CIT(A) later deleted certain additions, resulting in a recomputed book profit that could legitimately be set off against the brought forward losses as per books. The Principal CIT's numeric finding that excess set-off was allowed was incorrect on the material on record. Consequently, there was no error or prejudice in the AO's order on this issue. [Paras 13]

Assessment order on set-off of brought forward losses/unabsorbed depreciation is neither erroneous nor prejudicial; the Principal CIT's direction on this issue is set aside.

Scope of revision under section 263 does not permit substitution of the Assessing Officer's judgment where there has been application of mind - clause (c) to Explanation 1 to section 263 bars revision of matters already under appeal - Whether the AO's treatment of expenditure claimed as premium on redemption of debentures/FCCB was erroneous and prejudicial to revenue such as to justify revision under section 263. - HELD THAT: - The Tribunal observed that the AO had examined the claim (and again in consequential proceedings pursuant to earlier 263 directions) and concluded no disallowance was required. The expenditure claimed was debited to profit & loss and simultaneously credited from share premium, resulting in no net deduction claimed; further, the matter had been subject of appeal before the CIT(A), which allowed the claim. The Principal CIT therefore lacked jurisdiction to re-examine an issue already considered by the AO and pending/finalised before the appellate authority under clause (c) to Explanation 1 to section 263. The Tribunal relied on precedents and statutory interpretation to hold that re-opening on this basis would amount to substituting the AO's judgment. [Paras 14, 16]

The AO's treatment of premium on redemption of debentures/FCCB was not erroneous or prejudicial; the Principal CIT's direction on this issue is quashed.

Limitation for invoking section 263 when issue was not subject matter of earlier proceedings runs from the original assessment - Whether the Principal CIT could validly take up, in 2015, the question of investments in M/s. Janani Infrastructure Pvt. Ltd. when information was received after the AO's giving effect order. - HELD THAT: - The Tribunal noted that this investment issue was not part of the original assessment or the earlier round of section 263 proceedings and therefore the limitation period for initiating revision under section 263 runs from the date of the original assessment. Applying this rule, the Tribunal found the Principal CIT's show-cause dated 09.02.2015 was beyond the statutory limitation period for revising the original assessment and thus barred. Consequently the Principal CIT could not validly assume jurisdiction to revise the assessment on this ground. [Paras 17]

Assumption of jurisdiction by the Principal CIT on the investment issue is barred by limitation and is quashed.

Final Conclusion: The Tribunal allowed the appeal, quashed the Principal CIT's revision order dated 26.03.2015, and held that the assessing officer's order dated 30.03.2013 (passed under section 143(3) r.w.s.263) was neither erroneous nor prejudicial to the revenue in respect of the matters impugned; further, the Principal CIT's action on the investment issue was time-barred.

Commercial wisdom of the Committee of Creditors - judicial review of CoC commercial decision - fraud and collusion vitiating resolution process - compliance of a resolution plan with Sections 30 and 31 and Regulations 38 and 39 - role of the Adjudicating Authority in approval of a resolution plan

Commercial wisdom of the Committee of Creditors - fraud and collusion vitiating resolution process - judicial review of CoC commercial decision - Validity of the CoC's rejection of the appellant's resolution plan and the Adjudicating Authority's refusal to interfere with that decision. - HELD THAT: - The CoC rejected the appellant's resolution plan with 100% voting in the meeting dated 04.06.2019. The appellant alleged collusion between a CoC member holding 22.4% voting share and the successful resolution applicant. The Tribunal applied the principle that the commercial decision of the CoC, especially where supported by unanimous voting, is entitled to deference and is not ordinarily susceptible to judicial interference. While fraud or collusion, if proved, would vitiate the process, the appellant's allegations were bald and unsupported by material. The Adjudicating Authority considered the submissions and found no material to establish fraud or collusion; the Appellate Tribunal found no error in that conclusion and held that the CoC's unanimous commercial decision did not warrant interference on the basis of unsubstantiated allegations. [Paras 11]

The rejection of the appellant's resolution plan by the CoC was valid and the Adjudicating Authority rightly dismissed the challenge thereto.

Compliance of a resolution plan with Sections 30 and 31 and Regulations 38 and 39 - role of the Adjudicating Authority in approval of a resolution plan - Whether the Adjudicating Authority rightly approved the resolution plan submitted by the successful resolution applicant. - HELD THAT: - After the appellant's plan was rejected, the CoC approved the resolution plan of 'Kals Distilleries Private Limited' with 100% votes. The Adjudicating Authority examined the plan for compliance with the requirements of Sections 30 and 31 of the Code and Regulations 38 and 39 of the CIRP Regulations. Having recorded findings (in paragraphs 14 to 24 of the Adjudicating Authority's order) that the plan met statutory and regulatory requirements and no grounds for rejection were made out, the Adjudicating Authority approved the plan. The Appellate Tribunal found that those findings were properly recorded and that there was no basis to interfere with the approval. [Paras 12]

The approval of the successful resolution applicant's plan by the Adjudicating Authority was proper and is upheld.

Final Conclusion: Both appeals are dismissed; the Adjudicating Authority's orders rejecting the challenge to the CoC's rejection of the appellant's plan and approving the successful resolution applicant's plan are affirmed.

Restoration of company petition - bar on representing company - compliance with interim order of High Court - appellate remedy under Section 421 of the Companies Act, 2013 - order passed on merits - condonation of delay - non-prosecution dismissal

Restoration of company petition - bar on representing company - compliance with interim order of High Court - appellate remedy under Section 421 of the Companies Act, 2013 - order passed on merits - Restoration Application No. 01/KOB/2021 seeking restoration of TCP/13/KOB/2019 was dismissed. - HELD THAT: - The Tribunal found that by order dated 30.12.2019 in TIA/9/KOB/2019 the applicant (Mr. D. Asokan) was barred from representing the company until disposal of TCP/13/KOB/2019. The Hon'ble High Court granted only an interim suspension limited to remittance of fine and afforded the petitioners a 30 day window to approach the appellate authority under Section 421 of the Companies Act, 2013; it did not lift the bar on representing the company. Despite that, the same barred person filed a Restoration Petition seeking revival of the company petition. The Tribunal held that the earlier TIA order was passed after hearing both sides and on merits, and that the applicant should have complied with the High Court direction and availed the appellate remedy instead of filing the restoration. In view of these circumstances, the restoration application was found unsustainable and dismissed. [Paras 6, 7, 8]

Restoration Application No. 01/KOB/2021 dismissed as unsustainable because the applicant was barred from representing the company and had not complied with the High Court direction to seek the appellate remedy.

Condonation of delay - bar on representing company - IA (C/Act)/13/KOB/2021 seeking condonation of delay in filing the restoration application was dismissed. - HELD THAT: - The Tribunal held that since the applicant was barred from filing any application before the Tribunal by the order dated 30.12.2019 in TIA/9/KOB/2019, the question of condoning delay and accepting any application filed by him did not arise. Consequently, the application for condonation of 272 days' delay was dismissed on the ground of the bar imposed by the TIA order. [Paras 9]

IA (C/Act)/13/KOB/2021 dismissed because the applicant, being barred from filing applications by the earlier TIA order, could not be permitted condonation of delay.

Final Conclusion: The Tribunal dismissed the restoration application and the application for condonation of delay: the restoration was unsustainable because the petitioner (a person barred from representing the company) did not comply with the High Court direction to pursue the appellate remedy, and condonation was refused as the bar precluded acceptance of any application by him.

Liquidation under Section 33 of the Insolvency and Bankruptcy Code, 2016 - Appointment of Company Liquidator and vesting of powers - Ceasing of moratorium on commencement of liquidation - Bar on institution of suits and legal proceedings during liquidation subject to exceptions - Liquidator's duties, powers and entitlement to fees under the Code and Liquidation Regulations

Liquidation under Section 33 of the Insolvency and Bankruptcy Code, 2016 - Order for liquidation of the corporate debtor M/s. Growthways Trading Private Limited was passed. - HELD THAT: - The Tribunal, after recording the CIRP steps taken, the constitution and decisions of the Committee of Creditors including approvals for liquidation in COC meetings (7th and 11th COC), and other processes carried out by the Resolution Professional, exercised the powers under Sub Clauses (i)(ii) and (iii) of Clause (a) of Sub Section (1) of Section 33 of the Code to pass a liquidation order. The Tribunal proceeded to order liquidation in the manner prescribed by Chapter III of Part II of the Code. [Paras 18, 19]

Liquidation of the Corporate Debtor was ordered and IA 4304/2021 was allowed.

Appointment of Company Liquidator and vesting of powers - Mr. Sunil Kumar Agrawal was appointed as Company Liquidator and all powers of board/KMP were vested in him. - HELD THAT: - The Tribunal appointed the Resolution Professional as Company Liquidator and directed that all powers of the board of directors and key managerial personnel shall cease and be vested in the Liquidator. The Liquidator was directed to exercise powers and duties enumerated in the Code (Sections 35 to 50, 52 to 54) and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. [Paras 18]

Appointment of Mr. Sunil Kumar Agrawal as Company Liquidator and vesting of management powers in him was ordered.

Ceasing of moratorium on commencement of liquidation - The moratorium under Section 14 ceases to have effect from the date of the liquidation order. - HELD THAT: - The Tribunal declared that the moratorium earlier operative during CIRP shall cease from the date of the liquidation order, aligning the legal position with the commencement of liquidation and enabling the Liquidator to proceed as prescribed under the Code. [Paras 18]

Moratorium under Section 14 was held to cease with effect from the liquidation order.

Bar on institution of suits and legal proceedings during liquidation subject to exceptions - No suit or other legal proceedings shall be instituted by or against the Corporate Debtor, subject to Section 52 and specified exceptions; Liquidator may institute proceedings with prior approval of the Tribunal. - HELD THAT: - The Tribunal ordered a general bar on initiation of suits or legal proceedings by or against the Corporate Debtor during liquidation, qualified by Section 52 of the Code and an express carve out for transactions notified by the Central Government in consultation with financial sector regulators. It further permitted the Liquidator to institute proceedings on behalf of the Corporate Debtor with the Tribunal's prior approval. [Paras 18]

Institution of suits by or against the Corporate Debtor was restrained subject to statutory exceptions and Tribunal approval for Liquidator initiated proceedings.

Notice of discharge to officers, employees and workmen during liquidation - The liquidation order shall operate as notice of discharge to officers, employees and workmen, except where business is continued by the Liquidator. - HELD THAT: - The Tribunal declared that the order of liquidation shall be deemed a notice of discharge to personnel of the Corporate Debtor, while preserving the exception that discharge will not apply if the Liquidator continues the business during liquidation. [Paras 18]

Order deemed to be notice of discharge to officers, employees and workmen, subject to the stated exception.

Liquidator's entitlement to fees under Liquidation Regulations - The Company Liquidator is entitled to charge fees and expenses in proportion to the value of liquidation estate as specified under the Liquidation Regulations. - HELD THAT: - The Tribunal affirmed the Liquidator's entitlement to fees and liquidation expenses, to be charged in the manner and proportion set out in Regulation 4(2) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. [Paras 18]

Liquidator permitted to charge fees and expenses as per the Liquidation Regulations.

Direction for communication to Registrar of Companies and other authorities - Registry was directed to communicate the liquidation order immediately to the concerned Registrar of Companies, RD, OL, registered office of the Corporate Debtor and the Company Liquidator. - HELD THAT: - To ensure statutory and administrative compliance, the Tribunal directed immediate communication of the order to the relevant Registrar of Companies, regulatory authorities and the Corporate Debtor's registered office and the appointed Liquidator. [Paras 18]

Registry directed to communicate the order to the specified authorities and the Liquidator.

Final Conclusion: The Tribunal allowed IA 4304/2021 and ordered liquidation of M/s. Growthways Trading Private Limited under Section 33 of the IBC, appointed the Resolution Professional as Company Liquidator, declared the cessation of the moratorium from the date of liquidation, vested management powers in the Liquidator, imposed the statutory bar on suits subject to exceptions, treated the order as notice of discharge to personnel (with exception), affirmed the Liquidator's entitlement to fees under the Liquidation Regulations, and directed communication of the order to the concerned authorities.

Grant of interest under Section 35FF - interest from date of deposit till date of refund - enhancement of interest rate to 12% following Sandvik - pre-deposit made during investigation - inapplicability of interest under Section 11BB to pre-deposit refund claim

Grant of interest under Section 35FF - interest from date of deposit till date of refund - inapplicability of interest under Section 11BB to pre-deposit refund claim - Entitlement to interest on the refundable pre-deposit and the applicable statutory provision and period for computing such interest. - HELD THAT: - The Tribunal held that Section 35FF is the applicable provision for grant of interest on amounts deposited under Section 35F which are refundable consequent to a successful appellate order. Section 35FF mandates payment of interest on the refundable amount from the date of payment/deposit until the date of refund, without discrimination. The Commissioner (Appeals) erred in relying upon Section 11BB; interest under Section 11BB having been paid does not preclude application of Section 35FF where the refund arises from a pre-deposit under Section 35F. The Tribunal further noted precedent treating pre-deposits made during investigation and directed enhancement of the rate of interest to 12% per annum following the reasoning in Sandvik Asia Ltd., as applied in this Tribunal's Division Bench decision in Parle Agro (P) Ltd., thereby applying the higher rate to such refundable pre-deposits.

Section 35FF governs the claim for interest on the refundable pre-deposit; interest is payable from date of deposit until date of refund, and the appropriate rate is 12% per annum.

Enhancement of interest rate to 12% following Sandvik - pre-deposit made during investigation - Rate of interest payable on the refundable pre-deposit. - HELD THAT: - Relying on a Division Bench pronouncement of this Tribunal which followed the Apex Court's decision in Sandvik Asia Ltd., the Tribunal directed that interest on pre-deposits made during investigation be enhanced from the statutory notified 6% to 12% per annum. The adjudicating authority was directed to grant interest at 12% per annum from the date of deposit till the date of refund and to effect payment within 45 days of receipt/service of the order.

Interest on the refundable pre-deposit is to be paid at 12% per annum from date of deposit till date of refund, to be granted within 45 days.

Final Conclusion: The appeal is allowed: refund already ordered is to carry interest under Section 35FF from date of deposit until date of refund, at the rate of 12% per annum, and the adjudicating authority is directed to grant the interest within 45 days of receipt/service of this order.

CENVAT Credit reversal - attribution of input service - advertisement service as input service - traded goods versus traded capital goods - remand for fresh consideration

CENVAT Credit reversal - advertisement service as input service - attribution of input service - Whether turnover of traded packaging machinery could be included for calculating reversal of CENVAT credit attributable to advertisement services when the advertisement related only to traded packaging material - HELD THAT: - The Tribunal found on the record that the advertisement papers showed promotion only of packaging material and did not indicate promotion of traded packaging machinery. Since the advertisement service was not used for trading of packaging machines, inclusion of the value of packaging machines in computing the reversal of CENVAT credit for advertisement services was prima facie incorrect. The Tribunal further observed that this specific contention had not been raised before or considered by the adjudicating authority and therefore required fresh consideration by that authority. [Paras 5]

Impugned demand insofar as it includes CENVAT credit attributed to packaging machinery is prima facie wrong and the matter is remanded to the adjudicating authority for reconsideration in light of the Tribunal's observations.

Final Conclusion: The appeal is allowed by way of remand; the impugned order is set aside to the extent indicated and the adjudicating authority is directed to reconsider the inclusion of packaging machinery turnover in the reversal of CENVAT credit for advertisement services in accordance with the Tribunal's observations.

Definition of dealer - proviso excluding person selling own agricultural produce from dealer - seizure under Section 48(5) of the U.P. Value Added Tax Act, 2008 - reliance on revenue records (Khasara and Khatauni) and committee report - question of law under Section 58

Definition of dealer - proviso excluding person selling own agricultural produce from dealer - Whether the opposite party falls within the definition of "dealer" in Section 2(h) of the Act or is excluded by the proviso as a person selling agricultural produce grown by himself. - HELD THAT: - The Court examined the definition of "dealer" in Section 2(h) and its proviso which expressly excludes a person (not being a body corporate) who sells agricultural or horticultural produce grown by himself or on land in which he has an interest. The material on record, including the order of seizure and the first appellate order, did not reflect consideration of this proviso by the authorities. On that basis the Court concluded that this primordial aspect had not been taken into account and that the question of classification required recognition of the statutory exclusion. The Court found no basis for framing a question of law under Section 58 in the present proceedings in light of the omission to apply the proviso.

The proviso to the definition of "dealer" excluding a person selling his own agricultural produce was not considered by the authorities; no question of law under Section 58 arises on the facts, and the revision fails on this ground.

Seizure under Section 48(5) of the U.P. Value Added Tax Act, 2008 - reliance on revenue records (Khasara and Khatauni) and committee report - Whether the Tribunal correctly allowed the second appeal by relying on the committee report and on the material placed before it (including photocopies of revenue records), and whether the revision succeeds in challenging that allowance. - HELD THAT: - The revisionist challenged the Tribunal's reliance on the District Magistrate's committee report and on photocopies of revenue records such as Khasara and Khatauni, contending they could not have been the basis for allowing the appeal. The Court noted that the Tribunal allowed the second appeal relying upon the committee's report and that the first appellate authority had not taken that report into account. Given the overarching failure of the authorities to address the statutory proviso excluding persons selling their own agricultural produce from being treated as dealers, the Court did not find merit in the revisionist's challenge sufficient to displace the Tribunal's order. The Court therefore dismissed the revision without remanding the matter for fresh consideration on these specific evidentiary points.

The challenge to the Tribunal's allowance of the second appeal-despite reliance on the committee report and photocopies of revenue records-does not succeed in the revision; the revision is dismissed.

Final Conclusion: The revision is dismissed. The Court found that the statutory proviso excluding persons who sell their own agricultural produce from being "dealers" was not considered by the authorities, and no question of law under Section 58 was made out; the Tribunal's order allowing the second appeal therefore stands for the reasons given.