TaxTMI Updates e-Newsletter
Dec 10,2024

Escrow Agreement - priority of payments under an escrow arrangement - breach of escrow agreement - bank's duty to make statutory payments from escrow - control and right to operate escrow account - maintainability of writ petition despite parallel recovery proceedings - GST compliance - inability to file GSTR-3B and resultant restriction on GSTR-1 - impact of bank adjustments on statutory liability and input tax credit

Maintainability of writ petition despite parallel recovery proceedings - Escrow Agreement - Writ petition is maintainable notwithstanding related recovery proceedings before the Debts Recovery Tribunal. - HELD THAT: - The Court held that the present dispute concerns alleged breach of the Escrow Agreement regarding order of withdrawals and priority of payments, which is distinct from the monetary recovery proceedings instituted later by the Bank before the Debts Recovery Tribunal. The writ petition was instituted earlier (13.05.2022) than the recovery application (filed 11.03.2023) and thus is not ousted by subsequent DRT proceedings. Non-impleadment of the GST authorities did not render the petition incompetent because the core grievance pertains to the Bank's conduct in contravention of the Escrow Agreement rather than a direct claim against the tax authority. [Paras 13]

Writ petition held maintainable and not barred by pending recovery proceedings; non-joinder of GST authority does not defeat maintainability of this challenge to the Bank's compliance with the Escrow Agreement.

Breach of escrow agreement - priority of payments under an escrow arrangement - bank's duty to make statutory payments from escrow - impact of bank adjustments on statutory liability and input tax credit - GST compliance - inability to file GSTR-3B and resultant restriction on GSTR-1 - Adjustments by the Bank of receivables in the Escrow Account in preference to taxes/statutory payments constituted a breach of the Escrow Agreement. - HELD THAT: - The Escrow Agreement expressly ranks 'Taxes & Statutory payments' as the first priority of disbursement from the Project Escrow Account, with 'Debt Repayment' ranked lower. The Court rejected the Bank's reliance on subsequent statutory developments favouring secured creditors for recovery, observing that the present dispute is not a liquidation or apportionment of assets but a contractual complaint about non-adherence to the agreed order of withdrawals. The Bank's adjustment of receivables towards loan repayment resulted in the petitioner being unable to comply with GST filing and payment obligations (including filing of GSTR-3B and consequential restrictions on GSTR-1), adversely affecting input tax credit flow and contributing to financial deterioration. On these grounds the Bank's conduct was held to be a breach of the Escrow Agreement and the Bank liable for that breach to the extent of facilitating statutory compliance. [Paras 14, 15, 16, 17]

Bank's adjustments from the Escrow Account in contravention of the contractually agreed priority amount to a breach of the Escrow Agreement; Bank held liable and required to take remedial steps to facilitate statutory compliance.

Control and right to operate escrow account - bank's duty to make statutory payments from escrow - Petitioner did not have control or operational rights over the Escrow Account; the account was maintained and operated by the Bank subject to the Escrow Agreement and standing instructions for statutory payments. - HELD THAT: - The Escrow Agreement envisaged operation of the Project Escrow Account by the Bank. The Bank's affidavit admitted it maintained and operated the account and adjusted amounts since 2017, asserting entitlement to make adjustments for service and debt repayment while stating that statutory payments would be effected on standing instruction/mandate and on receipt of invoices/returns for proper provisioning. Requests by the petitioner for viewing rights and permission to operate the account were on record, but operational control remained with the Bank. The Court accepted that the petitioner lacked unilateral operational control, which informed the limited nature of relief. [Paras 18, 19]

Petitioner had no control or right to operate the Escrow Account; the account was maintained and operated by the Bank subject to contractual standing instructions for statutory disbursements.

Final Conclusion: The writ petition is allowed in part: the Court finds the Bank breached the Escrow Agreement by not adhering to the contractual priority to make statutory payments (including GST), the petition is maintainable despite related DRT proceedings, and the petitioner lacked operational control of the Escrow Account. Relief is limited to directing the Bank to take corrective measures to facilitate filing of GST returns and payment of statutory liabilities from 2017 onwards so as to enable statutory compliance; full monetary restoration was not granted in view of non-joinder of GST authorities and the limited nature of the findings.

Jurisdiction of CAG/CERA to audit private entities - use of departmental audit observations to initiate proceedings against taxpayers - quashing of show cause notice and scope of judicial interference - exhaustion of alternate statutory remedies - invocation of extended period of limitation for suppression under the CGST scheme - principles of natural justice and opportunity to be heard

Jurisdiction of CAG/CERA to audit private entities - use of departmental audit observations to initiate proceedings against taxpayers - Whether the impugned show cause notice was vitiated because the CERA/CAG audited the Petitioner or because the CERA/CAG lacks jurisdiction to audit private entities - HELD THAT: - The Court found on the record that the CERA/CAG did not audit the Petitioner but audited the Respondents' department and obtained departmental records, including returns filed by the Petitioner, in that exercise. The Coordinate Bench decision in Kiran Gems related to a circumstance where CERA/CAG proposed or undertook an audit of a private entity; its ratio that CAG's powers do not extend to private entities therefore does not apply to the present facts. The Court held that examination of a taxpayer's returns in the course of auditing a Government department does not convert a departmental audit into an audit of the taxpayer; departments remain entitled to initiate proceedings where discrepancies in returns are noticed. The impugned show cause notice thus cannot be set aside on the ground that it was solely based on a CERA/CAG audit of the Petitioner or on Kiran Gems being applicable. (paras 15-21, 23-25, 29-30) [Paras 21, 23, 24, 29, 30]

The challenge that the show cause notice is ultra vires because it was based on a CERA/CAG audit of the Petitioner is rejected; Kiran Gems is inapplicable on these facts and the show cause notice is not vitiated on that ground.

Quashing of show cause notice and scope of judicial interference - principles of natural justice and opportunity to be heard - Whether the impugned show cause notice should be quashed at the threshold on the basis that it was issued with a pre-determined mindset or without considering the Petitioner's explanations - HELD THAT: - The Court noted that a show cause notice expresses a prima facie opinion and is not a final adjudication. Mere allegation of a pre-determined mind without concrete material is insufficient to quash a notice. The impugned notice records consideration of the Petitioner's reply and audit observations and reflects independent application of mind by the adjudicating authority. Sharing audit observations with the Petitioner was treated as compliance with natural justice to enable explanations. Consequently, absence of a full adjudicatory analysis at the notice stage does not warrant quashing the notice. (paras 5, 25, 29-31) [Paras 5, 25, 29, 30, 31]

The petition to quash the show cause notice on the ground of pre-determination or non-consideration of explanations is dismissed.

Invocation of extended period of limitation for suppression under the CGST scheme - Whether invocation of the extended period of limitation in the impugned show cause notice was improper at the present stage - HELD THAT: - The Court observed that the show cause notice contains specific allegations of suppression and non-declaration and refers to Explanation 2 to Section 74 of the CGST Act; at the prima facie stage the invocation of the extended period was therefore not shown to be unsustainable. The Court declined to adjudicate the correctness of those allegations at the threshold and left it open for the Petitioner to contest the invocation during adjudication. The decision in Akhila Sujith was found not attracted on these facts. (paras 6, 32-33) [Paras 6, 32, 33]

Invocation of the extended limitation period is not set aside at this stage; sufficiency of the allegations can be tested during adjudication.

Exhaustion of alternate statutory remedies - quashing of show cause notice and scope of judicial interference - Whether the High Court should entertain the petition challenging the show cause notice without the Petitioner exhausting alternate statutory remedies - HELD THAT: - Applying precedent, the Court reiterated that the High Court's jurisdiction is subject to the self-imposed rule of exhausting alternative remedies. Exceptions permitting immediate interference-enforcement of fundamental rights, breach of natural justice, or proceedings wholly without jurisdiction-were not made out by the Petitioner. The Court found no basis to depart from the usual requirement of pursuing statutory remedies and thus declined to exercise extraordinary writ jurisdiction to stay or quash the notice at this stage. (paras 35-36) [Paras 35, 36]

The petition is not entertained on the ground of bypassing alternate remedies; no exceptional circumstance to restrain proceedings is found.

Final Conclusion: The writ petition is dismissed with costs; the impugned show cause notice is not quashed at the threshold, the Petitioner is granted four weeks to file a reply to the show cause notice and the adjudicating authority must afford an opportunity of hearing; costs are directed to be paid to K.E.M. Hospital.

Confiscation of goods and vehicles - penalty imposed under confiscation provisions - availability of alternative statutory appellate remedy (appeal under Section 107 of the Uttarakhand GST Act, 2017) - service of order and departmental practice of uploading orders on GST common portal under Section 169 - dismissal of writ petition where alternative remedy is available

Availability of alternative statutory appellate remedy (appeal under Section 107 of the Uttarakhand GST Act, 2017) - dismissal of writ petition where alternative remedy is available - Maintainability of the writ petition in view of the statutory appeal remedy against an order of confiscation and penalty under the Uttarakhand GST Act, 2017. - HELD THAT: - The Court observed that the Proper Officer's order of confiscation of vehicles and goods and imposition of penalty is appealable before the Appellate Authority by virtue of the statutory remedy provided under Section 107 of the Act of 2017. In light of the existence of this alternate, adequate and efficacious remedy, the High Court declined to entertain the writ petition and relegated the petitioner to pursue the remedy of appeal before the Joint Commissioner (Appeal). The Court therefore dismissed the writ petition on the ground of availability of the statutory appeal, while permitting the petitioner to avail that remedy. [Paras 5, 8]

Writ petition dismissed; petitioner relegated to file appeal under Section 107 of the Uttarakhand GST Act, 2017.

Final Conclusion: The writ petition challenging confiscation of goods and vehicles and the penalty is dismissed in view of the availability of the statutory appeal remedy; the petitioner is directed to avail the appellate remedy before the Joint Commissioner (Appeal).

Special procedure for rectification of order - wrong availment of input tax credit - availability of input tax credit under sub-section (5) or (6) of section 16 - no coercive action pending disposal of rectification application - manual acceptance of rectification application - expeditious processing and disposal of rectification application

Special procedure for rectification of order - availability of input tax credit under sub-section (5) or (6) of section 16 - Petitioner to avail the special rectification procedure notified on 08.10.2024 and file the rectification application before the competent authority within two weeks. - HELD THAT: - The Court noted the Notification dated 08.10.2024 which notifies a special procedure for rectification of orders issued under the Act where input tax credit earlier treated as wrongly availed is now available under the provisions of sub-section (5) or (6) of section 16, and where no appeal has been filed. The respondents produced the Notification and the petitioner concurred with its applicability. In view of this development the Court directed the petitioner to invoke the said special procedure by filing the rectification application before the competent authority within a period of two weeks, expecting the respondents to process the application thereafter and dispose of it expeditiously. [Paras 2, 4]

Rectification application to be filed within two weeks under the notified special procedure and to be processed and disposed of expeditiously by the respondents.

No coercive action pending disposal of rectification application - Respondents shall not take any coercive action against the petitioner until the rectification application is disposed of. - HELD THAT: - The Court, in the exercise of its supervisory jurisdiction and in view of the petitioner availing the notified rectification mechanism, stayed any coercive measures by the respondents pending disposal of the rectification application, thereby protecting the petitioner from enforcement while the remedy is pursued. [Paras 5]

No coercive action shall be taken by the respondents against the petitioner until disposal of the rectification application.

Manual acceptance of rectification application - expeditious processing and disposal of rectification application - The rectification application may be accepted manually by the authorities and the prayer for manual acceptance is allowed. - HELD THAT: - The petitioner sought that the rectification application be accepted manually in case of portal-related issues. The Court acceded to this request and directed that the authorities accept the application manually if necessary, reinforcing the expectation that the application will thereafter be processed and disposed of without undue delay. [Paras 6, 7]

Application for rectification may be accepted manually by the authorities; prayer allowed.

Final Conclusion: The petition is disposed of by directing the petitioner to file a rectification application under the Notification dated 08.10.2024 within two weeks; respondents to process and dispose of it expeditiously; no coercive action to be taken pending disposal; manual acceptance of the application permitted.

Mandatory nature of Section 75(4) of the GST Act - requirement of opportunity of hearing before passing assessment order - quashing of assessment and appellate orders for non-compliance with mandatory hearing - remand for fresh adjudication with opportunity of hearing - limitation prescribed under Section 73(10) of the GST Act

Mandatory nature of Section 75(4) of the GST Act - requirement of opportunity of hearing before passing assessment order - quashing of assessment and appellate orders for non-compliance with mandatory hearing - Assessment order dated 11.12.2023 and appellate order dated 25.09.2024 were quashed for failure to grant the mandatory opportunity of hearing under Section 75(4) of the GST Act. - HELD THAT: - The Court accepted the petitioner's contention that no opportunity of hearing had been granted prior to passing the assessment order and relied on the Division Bench's pronouncement that the provisions of Section 75(4) are mandatory. Without adjudicating the question of limitation, the Court found non-compliance with the mandatory hearing requirement to be a sufficient ground to set aside the impugned orders. Consequently both the assessment order under Section 73 and the appellate order were quashed and the matter was remitted for fresh consideration in accordance with law after affording the petitioner an opportunity of hearing. [Paras 3, 4, 5]

Petition allowed; both impugned orders quashed and matter remitted for fresh adjudication after affording opportunity of hearing.

Limitation prescribed under Section 73(10) of the GST Act - remand for fresh adjudication with opportunity of hearing - Question of limitation under Section 73(10) was not decided on merits and was left open for the Assessing Authority to consider on remand. - HELD THAT: - The Court expressly refrained from deciding the petitioner's contention that the assessment was time-barred under Section 73(10). By setting aside the impugned orders for failure to grant hearing, the Court permitted the petitioner to raise the limitation defence before the Assessing Authority during the fresh proceedings. The appellate dismissal for being beyond limitation was quashed but the substantive question of limitation is to be addressed afresh by the authority on merits. [Paras 5]

Limitation objection left open; petitioner liberty granted to raise limitation before the Assessing Authority on remand.

Final Conclusion: The petition was allowed; both the assessment order dated 11.12.2023 and the appellate order dated 25.09.2024 were quashed for failure to afford the mandatory hearing under Section 75(4) of the GST Act, and the matter was remitted for fresh adjudication after giving the petitioner an opportunity of hearing, with liberty to raise the limitation defence under Section 73(10) before the Assessing Authority.

Cancellation of GST registration for non-existence of business - Insufficiency of inspection report and Panchnama as evidence - Requirement to supply inspection report with show-cause notice - Restoration of registration on payment of up-to-date dues - Interim restoration on deposit of percentage pending challenge to assessment

Insufficiency of inspection report and Panchnama as evidence - Requirement to supply inspection report with show-cause notice - Cancellation of GST registration for non-existence of business - Cancellation of registration could not be sustained because the inspection material was deficient and was not supplied with the show-cause notice - HELD THAT: - The Court found that the show-cause notice and the cancellation order contained no particulars of the inspection and that the Inspection Report relied upon did not disclose date, time, attendance of witnesses or adequate reasoning but only recorded suspicion and closure of premises. The Panchnama produced later was unsigned by the officer, and the identities and particulars of the panchas were not properly recorded. The Inspection Report was not furnished to the petitioner along with the show-cause notice. For these reasons the Court held that the material on which cancellation was based was unreliable and procedurally deficient, rendering the cancellation orders unsustainable. [Paras 7, 8, 9]

Cancellation set aside for being founded on inadequate and unsupplied inspection evidence

Restoration of registration on payment of up-to-date dues - Interim restoration on deposit of percentage pending challenge to assessment - Registration to be restored on payment of up-to-date dues (or on compliance with deposit condition where an appeal to assessment is desired), in view of the Government circular permitting resumption on payment - HELD THAT: - Having quashed the cancellation, the Court observed that a Government circular permitted resumption of cancelled registrations upon payment of up-to-date dues. The petitioner asserted that dues had been paid; alternatively the petitioner was directed to pay outstanding dues within one month and to appear before the Assessing Officer on the specified date with proof. Where the petitioner wished to challenge the assessment order and dues remained unpaid, the Court allowed restoration on the petitioner furnishing an undertaking to prosecute the appeal and depositing 10% of the total amounts as directed. The writ petition was allowed subject to these conditions. [Paras 10, 11, 12]

Registration to be restored on payment of up-to-date dues or on complying with the deposit and undertaking conditions; writ petition allowed accordingly

Final Conclusion: The Court quashed the cancellation of the petitioner's BGST registration because the inspection material was procedurally and substantively deficient and was not supplied with the show-cause notice; the registration is ordered restored on payment of up-to-date dues (or, if contesting the assessment, on furnishing the required undertaking and deposit), and the writ petition is allowed on those terms.

Interpretation of limitation provisions and condonation of delay - applicability of Section 5 of the Limitation Act, 1963 to appeals under Section 107 of the GST Act, 2017 - liberal approach to limitation in cases of genuine hardship - principles of natural justice in adjudication proceedings - quashing of summary dismissal of appeals for delay and remand for merits consideration

Interpretation of limitation provisions and condonation of delay - liberal approach to limitation in cases of genuine hardship - Whether the Appellate Authority ought to have considered the petitioner's application for condonation of delay on merits instead of rejecting the appeal solely on the ground of delay. - HELD THAT: - The Court held that statutory provisions on limitation must be interpreted liberally where genuine hardships are shown. Having examined the petitioner's explanation for delay (attributable to the tax consultant's negligence and COVID-19 constraints) and in view of relevant precedent, the Court found the summary dismissal of the appeal on delay alone to be arbitrary. The appellate order rejecting the appeal on the sole ground of delay was quashed and the matter was remitted to the Appellate Authority to consider the condonation application on its merits and, if acceptable, to admit and decide the appeal on merit.

Appellate Authority's rejection of the appeal solely for delay quashed; matter remitted to Appellate Authority to consider condonation of delay on merits and thereafter decide the appeal.

Applicability of Section 5 of the Limitation Act, 1963 to appeals under Section 107 of the GST Act, 2017 - Whether Section 5 of the Limitation Act, 1963 is available to extend the period for filing an appeal under Section 107 of the GST Act, 2017. - HELD THAT: - Relying on the Division Bench decision in S. K. Chakraborty & Sons, the Court accepted that Section 107 of the GST Act does not expressly or impliedly exclude the applicability of Section 5 of the Limitation Act, 1963. The Court endorsed the view that the prescribed 30-day period and the discretionary 30-day period are not necessarily final and that the Appellate Authority has power to extend time in appropriate cases. Consequently, the appellate forum must entertain an application for extension under Section 5 where sufficient cause is shown.

Section 5 of the Limitation Act, 1963 is applicable to appeals under Section 107 of the GST Act, 2017 and the period for filing an appeal can be extended by the Appellate Authority in appropriate cases.

Principles of natural justice in adjudication proceedings - quashing of summary dismissal of appeals for delay and remand for merits consideration - Whether the adjudication order suffered from procedural infirmity by failing to furnish specific details or evidence and thereby violating principles of natural justice. - HELD THAT: - The Court observed that the adjudication order raised demand without providing specific details or evidence of the alleged discrepancies, which impinged on the petitioner's right to fair adjudication. Coupled with the procedural irregularity of a summary appellate dismissal, the Court found the petitioner's grievance meritorious. In consequence, the Court set aside the appellate order and directed fresh consideration of condonation and, if condoned, of the appeal on merits.

Adjudication proceedings were found to suffer procedural irregularity; appellate order set aside and the case remitted for fresh consideration consistent with principles of natural justice.

Final Conclusion: Writ petition allowed; the appellate order dated July 9, 2024 is quashed. The Appellate Authority is directed to consider the petitioner's application for condonation of delay on merits and, if the explanation is accepted, to admit and decide the appeal on merits. No order as to costs.

Condonation of delay under Section 5 of the Limitation Act - Applicability of the Limitation Act to appeals under Section 107 of the CGST Act - Principles of natural justice - opportunity of personal hearing - Remand for fresh consideration of condonation and merits by the Appellate Authority

Applicability of the Limitation Act to appeals under Section 107 of the CGST Act - Condonation of delay under Section 5 of the Limitation Act - Whether the Appellate Authority was obliged to consider the petitioners' application for condonation of delay under Section 5 of the Limitation Act in respect of an appeal filed under Section 107 of the CGST Act, and whether the appellate rejection on limitation grounds alone could stand. - HELD THAT: - Relying upon the Division Bench decision in S. K. Chakraborty & Sons, the Court held that Section 107 of the CGST Act does not expressly or impliedly exclude the applicability of Section 5 of the Limitation Act. The Court accepted the principle that the prescribed appellate period is not final and that the Appellate Authority has jurisdiction to extend time in appropriate cases where sufficient cause is shown. Given the petitioners' documented difficulties and the absence of a finding that Section 5 was excluded, the appellate order rejecting the appeal solely on limitation grounds could not be sustained. The Court therefore quashed the appellate order and directed the Appellate Authority to re-examine the condonation application on merits and, if delay is condoned, to hear and decide the appeal on merits. [Paras 8, 9, 10]

The appellate order dated September 30, 2024, rejecting the appeal solely on limitation grounds is quashed; the Appellate Authority is directed to consider the condonation application under Section 5 of the Limitation Act on merits and thereafter decide the appeal.

Principles of natural justice - opportunity of personal hearing - Remand for fresh consideration of condonation and merits by the Appellate Authority - Whether the petitioners were denied principles of natural justice by issuance and uploading of the Show Cause Notice and orders without an effective opportunity for personal hearing, and whether this procedural lapse warranted intervention. - HELD THAT: - The Court found that the Show Cause Notice and subsequent adjudication steps were uploaded in the portal without affording the petitioners (who relied on their accountant and lacked technical expertise) an effective personal hearing, and that the petitioners had made a partial payment and produced medical evidence of incapacity during the relevant period. Treating these procedural irregularities and the surrounding circumstances as material, the Court concluded that the petitioners' case was meritorious. In exercise of writ jurisdiction the Court did not finally set aside the adjudication order but intervened to ensure that the appellate process give a fair opportunity to consider condonation and the appeal on merits. [Paras 3, 4, 5, 8, 10]

Procedural lapse in providing an effective opportunity of personal hearing was recognised; the matter is directed back to the Appellate Authority to consider condonation and to decide the appeal on merits after affording appropriate opportunity.

Final Conclusion: Writ petition allowed; the appellate order dated September 30, 2024 is quashed. The Appellate Authority is directed to consider the petitioners' application for condonation of delay under Section 5 of the Limitation Act on merits and, if delay is condoned, to hear and dispose of the appeal on merits. No order as to costs.

Leviability of GST on import of services - Judicial interference with pre-notice administrative action absent breach of natural justice - Maintainability of writ challenging quasi-judicial show cause notice - Mala fides and jurisdictional challenge

Maintainability of writ challenging quasi-judicial show cause notice - Judicial interference with pre-notice administrative action absent breach of natural justice - Writ petition challenging show cause notice on ground that GST is not leviable on import of services is not entertained on merits at pre-show-cause stage; petitioner granted liberty to file reply and the authority directed to decide after due application of mind. - HELD THAT: - The Court declined to enter into the substantive question of leviability of GST on import of services at the threshold. In the absence of any allegation of breach of principles of natural justice, mala fides or lack of jurisdiction, the appropriate course is for the petitioner to file a reply to the show cause notice and for the assessing authority to examine and decide the contentions on merits. The Court observed that mechanical issuance of the notice, without consideration of circulars or orders, was canvassed by the petitioner, but this did not justify judicial determination of the tax liability before the administrative process is completed. Accordingly, the petition was not entertained on merits and was dismissed with liberty to the petitioner to pursue departmental remedies. [Paras 4, 5]

Petition dismissed; liberty granted to file reply to show cause notice and authority directed to consider all grounds and decide in accordance with law.

Mala fides and jurisdictional challenge - No case of lack of jurisdiction or mala fides was found to exist such as would permit immediate judicial intervention. - HELD THAT: - The Court recorded that the present matter did not involve any challenge to the jurisdiction of the authority nor any established mala fides. Because those jurisdictional or mala fide grounds were absent, the Court refrained from exercising exceptional jurisdiction to quash the show cause notice at the pre-decisional stage. The proper remedy remains departmental adjudication followed by statutory appeals, if any. [Paras 4]

No interference with the show cause notice on grounds of jurisdiction or mala fides; departmental process to be followed.

Final Conclusion: Writ petition dismissed; petitioner permitted to file reply to the show cause notice and the authority directed to consider all grounds and decide the matter in accordance with law; Court declined to adjudicate the leviability of GST on import of services at this stage in the absence of jurisdictional defect, mala fides or violation of natural justice.

Exhaustion of alternate remedies - jurisdictional challenge to show cause notice based on absence of Document Identification Number - misleading and suppressive averments in writ petition - costs for abuse of process - liberty to pursue statutory appeal

Exhaustion of alternate remedies - liberty to pursue statutory appeal - Whether the writ petition could be entertained despite an available statutory appellate remedy to CESTAT. - HELD THAT: - The OrderinOriginal expressly provided that appeal lay to the Customs Excise & Service Tax Appellate Tribunal and the particulars of the appellate authority were stated. The petitioner nonetheless averred that no alternative or efficacious remedy was available. The Court held that such averment was misleading and that a contention premised on absence of a Document Identification Number in the show cause notice did not justify bypassing the requirement to exhaust alternate remedies. Applying the principle that writ jurisdiction should not be invoked where an efficacious statutory remedy exists, the petition was declined. The Court nevertheless granted liberty to the petitioner to pursue the already instituted appeal. [Paras 4, 5, 6, 11]

Petition not entertained for want of exhaustion of alternate statutory remedy; petitioner given liberty to pursue the instituted appeal.

Misleading and suppressive averments in writ petition - abuse of process - costs for abuse of process - Whether the petitioner's incorrect and misleading averments warranted imposition of costs. - HELD THAT: - The Court found that the petitioner made incorrect and misleading averments in the petition, including denial of other remedies and suppression of the fact that an appeal had been filed once recovery proceedings began. The conduct amounted to taking chances before the Court and wasting court time. For this abuse of process and suppression, the Court imposed costs on the petitioner payable to Tata Memorial Hospital and required a compliance report of payment within four weeks. The Court considered enhancing costs but left it at the specified amount. [Paras 2, 3, 7, 9, 10]

Costs of Rs. 50,000 awarded against the petitioner to Tata Memorial Hospital; compliance report to be filed within four weeks.

Final Conclusion: Writ petition dismissed for want of exhaustion of alternate statutory remedy; costs awarded for misleading and suppressive averments, with liberty to pursue the instituted appeal and requirement to file compliance regarding payment of costs.

Place of supply under Section 12(3) of the IGST Act - Residuary rule of Section 12(2)(a) of the IGST Act - Apportionment of place of supply where immovable property is located in more than one State - Intra State supply in proportion to works executed in each State - Tax deduction at source (TDS) and compulsory registration of deductor under Section 24(vi) / Section 51 - Refund of excess TDS under Section 49(6) / Section 54 - entitlement subject to proof of discharge of tax in other State

Place of supply under Section 12(3) of the IGST Act - Residuary rule of Section 12(2)(a) of the IGST Act - Application of Section 12(3) of the IGST Act and not Section 12(2)(a) to the works contract for construction of barrage spread across two States. - HELD THAT: - The Court held that the petitioner's contract is a works contract within the meaning of Section 2(119) and therefore the specialised rule in Section 12(3) applies. Section 12(2)(a) is residuary and applies only where the service does not fall under Sections 12(3)-(14). The appellate authority's conclusion that Section 12(3) governs the project was not challenged and is accepted. In consequence, the place of supply must be determined as provided in the explanation to Section 12(3) when the immovable property is located in more than one State. [Paras 10, 11, 12]

Section 12(3) of the IGST Act governs the place of supply; Section 12(2)(a) is not applicable to the works contract in question.

Apportionment of place of supply where immovable property is located in more than one State - Intra State supply in proportion to works executed in each State - Section 7(3) and Section 8(2) - inter state versus intra state characterization subject to place of supply - Characterisation of supply as intra state or inter state and the effect of proportionate allocation of place of supply between Telangana and Maharashtra. - HELD THAT: - Applying the explanation to Section 12(3), the Court held that where construction is carried out in more than one State the place of supply is to be treated as made in each respective State in proportion to the value of services attributable to each State. Once so apportioned, the portion of supply relating to each State is an intra state supply for that State under Section 8(2), and tax liability must be discharged in each State to the extent of the works executed there. The Court observed that determination of the precise proportion requires evidence of actual works executed and terms of the contract and could not be resolved on writ jurisdiction in the absence of such material. [Paras 12, 13, 14, 15, 16]

Place of supply shall be apportioned between Telangana and Maharashtra in proportion to work executed; the apportioned supplies are intra state for the respective States and tax liability must be discharged separately in each State.

Tax deduction at source (TDS) and compulsory registration of deductor under Section 24(vi) / Section 51 - Collection of tax at source entries reconciliation under Section 52 and GSTR 3B / GSTR 7A matching - Refund of excess TDS under Section 49(6) / Section 54 - Validity of TDS deduction and remittance by the contractee and maintainability of refund claim where TDS was remitted entirely to Telangana though work was spread over two States. - HELD THAT: - The Court found that respondent No.4 deducted TDS on the entire value of invoices (including value attributable to work in Maharashtra) and remitted the entire amount to Telangana, resulting in excess electronic cash ledger balance in Telangana. Section 24(vi) requires persons obliged to deduct tax under Section 51 to be registered; respondent No.4 was not registered as a deductor in Maharashtra, and the proviso to Section 51 forbids deduction where location of supplier and place of supply are in different States. Applying Section 52, discrepancies between GSTR 3B and GSTR 7A must be matched and communicated; unrectified discrepancies may be added to output tax liability. The Court observed that the TDS deduction in respect of bills for work executed in Maharashtra was improper and that the appellate authority's reasons rejecting refund were unsustainable. However, the petitioner did not place evidence on record to prove discharge of tax liability in Maharashtra or the proportion of work executed by JV partners, and a writ court cannot resolve these disputed factual matters. [Paras 19, 20, 21, 22, 23]

Deduction and remittance of TDS by the contractee in respect of work executed in Maharashtra to Telangana was improper; petitioner's refund claim cannot be allowed on writ record but petitioner is permitted to approach the adjudicating authority with cogent evidence to substantiate discharge of tax in Maharashtra and seek refund.

Final Conclusion: The High Court held that Section 12(3) of the IGST Act governs the place of supply for the inter State works contract and that the place of supply must be apportioned between Telangana and Maharashtra in proportion to the value of works executed in each State; the apportioned supplies are intra state for the respective States and tax must be discharged separately. The Court found the contractee's deduction and remittance of TDS for Maharashtra work into Telangana to be improper but declined to grant relief on writ record for lack of evidentiary material; the petitioner is permitted to approach the adjudicating authority with appropriate, cogent documents proving discharge of tax in Maharashtra, upon which the authority shall consider and pass orders on the refund claim after hearing the parties.

Dismissal for non-prosecution in administrative appeal - Duty to decide reserved appeal on merits where memorandum of appeal is on record - Distinction between administrative appeals and proceedings before regular courts regarding non-prosecution - Setting aside non-prosecution dismissal and remand for decision on merits

Dismissal for non-prosecution in administrative appeal - Distinction between administrative appeals and proceedings before regular courts regarding non-prosecution - Validity of the appellate authority's order dismissing the appeal for non-prosecution - HELD THAT: - The High Court held that the appellate authority's dismissal of the appeal for non-prosecution was not in conformity with law. The court observed that administrative appeals call for a different approach from regular courts. Where the memorandum of appeal containing all submissions and grounds was on the file and the matter had been reserved, the appellate authority was obliged to examine the appeal on merits rather than dismiss it subsequently for non-prosecution. Although if the appellant had been absent on the date the matter was reserved, the authority could have dismissed the appeal for non-prosecution on that date, once it chose to reserve the matter it was bound to decide on merits rather than later dismissing for non-prosecution.

Order of dismissal for non-prosecution set aside as not in conformity with law.

Duty to decide reserved appeal on merits where memorandum of appeal is on record - Setting aside non-prosecution dismissal and remand for decision on merits - Relief and further course of action after setting aside the dismissal - HELD THAT: - The court directed that the appellate authority's order dated 02.01.2024 be set aside and remanded the matter to the appellate authority to decide the appeal on merits. The petitioner was permitted to appear before the authority if he so chose; alternatively the authority was free to decide the appeal on merits in the petitioner's absence. The remand is for fresh adjudication on merits and not for quantification or limited verification only.

Matter remitted to the appellate authority to be decided on merits; petitioner may appear or authority may decide in absence of the petitioner.

Final Conclusion: Writ petition allowed: the appellate order dismissing the appeal for non-prosecution is set aside and the matter is remitted to the appellate authority for decision on merits; petitioner may appear before the authority, otherwise the authority shall proceed to decide the appeal on merits.

Right to hearing under Section 107(8) of the KGST Act - Rejection of belated appeal and condonation for delay - Quashing of appellate endorsement and order for want of notice - Power to initiate ancillary/criminal proceedings subject to pending statutory appeal

Right to hearing under Section 107(8) of the KGST Act - Rejection of belated appeal and condonation for delay - Endorsement dated 20.08.2024 did not constitute a hearing notice as required by Section 107(8) and thus was deficient. - HELD THAT: - The Appellate Authority issued an endorsement notifying that the appeal was belated and inviting reasons within seven days why the appeal should not be rejected, but did not fix or notify any date of hearing. The court observed that once an appeal is filed the Appellate Authority is obliged to give an opportunity of hearing as contemplated by Section 107(8) of the KGST Act before taking further steps. The endorsement's failure to notify a hearing date or to follow the statutory hearing requirement rendered the subsequent rejection procedurally flawed. [Paras 8, 9, 10]

The endorsement dated 20.08.2024 was quashed for failure to comply with the hearing requirement under Section 107(8).

Quashing of appellate endorsement and order for want of notice - Rejection of belated appeal and condonation for delay - Order dated 31.08.2024 rejecting the appeal was vitiated by the defective endorsement and was quashed. - HELD THAT: - Because the Appellate Authority proceeded on the basis of the endorsement which did not notify a hearing, the subsequent order rejecting the appeal was founded on a procedurally improper step. The court held that the appellate order could not stand where the statutory opportunity of hearing had not been afforded. Accordingly, the order dated 31.08.2024 was set aside and the Appellate Authority was directed to conduct further proceedings in accordance with law after affording hearing. [Paras 9, 10, 11, 12]

The order dated 31.08.2024 in Appeal No. GST-165/2024-25/B-338 is quashed and the Appellate Authority directed to afford hearing and proceed in accordance with law.

Power to initiate ancillary/criminal proceedings subject to pending statutory appeal - Quashing of appellate endorsement and order for want of notice - Proceedings in Crl.Misc.No.73/2024 initiated consequent to the endorsement and order are quashed, with liberty to initiate appropriate proceedings after conclusion of the appeal. - HELD THAT: - The court found that actions taken pursuant to the defective endorsement and the impugned appellate order, including the initiation of criminal miscellaneous proceedings, could not be allowed to stand. In the interest of preserving the statutory appeal process, those ancillary proceedings were set aside, while expressly leaving the respondents free to take appropriate action in accordance with law following the determination of the appellate proceedings. [Paras 11, 12]

Proceedings in Crl.Misc.No.73/2024 are quashed; liberty reserved to initiate appropriate proceedings after conclusion of the appeal.

Final Conclusion: Writ petition partly allowed: the endorsement dated 20.08.2024 and the appellate order dated 31.08.2024 are quashed for failure to afford the hearing mandated by Section 107(8) of the KGST Act; the criminal miscellaneous proceedings arising therefrom are quashed; petitioner directed to appear before the Appellate Authority on the fixed date and the Authority to conduct further proceedings in accordance with law.

Cancellation of GST registration - revocation of GST registration - opportunity of hearing - submission of pending GST returns - show cause notice - imposition of costs

Opportunity of hearing - show cause notice - Sufficiency of opportunity of hearing afforded to the petitioner in cancellation proceedings - HELD THAT: - The Court examined the procedural chronology and documents annexed to the petition and observed that a show cause notice for cancellation was issued on 08.05.2023, to which the petitioner replied on 09.06.2023; a further show cause notice was issued on 08.08.2023 and an order cancelling registration was passed on 22.08.2023. On this factual foundation the Court held that the petitioner had been afforded opportunity of hearing and the contention that no hearing was given was rejected.

Finding that sufficient opportunity of hearing was provided to the petitioner; the plea of denial of hearing is rejected.

Cancellation of GST registration - revocation of GST registration - submission of pending GST returns - Validity of the cancellation orders and remedial direction for consideration of revocation upon compliance - HELD THAT: - Although the Court found that hearing was afforded, it considered the petitioner's representation about adverse personal circumstances and the public interest in re-integrating a taxpayer into the formal economy. In exercise of writ jurisdiction the Court set aside the impugned orders dated 22.08.2023 and 29.02.2024 and directed that if the petitioner submits all pending GST returns, particularly for the period when registration was cancelled, the authority shall consider the petitioner's case for revocation of registration afresh. The order is expressly made in the peculiar facts and circumstances of the case.

Impugned cancellation and appellate orders set aside; authority directed to consider revocation afresh upon submission of pending returns.

Imposition of costs - Levy of costs for default in compliance with statutory obligations - HELD THAT: - The Court noted that the petitioner had committed default in filing returns and, while directing remedial consideration, imposed a monetary cost to reflect the default and as a condition of relief. The petitioner was directed to pay the specified cost to the department along with the pending GST returns before the authority proceeds on revocation.

Petitioner directed to pay costs as a precondition to consideration for revocation; payment to be made to the department along with pending returns.

Final Conclusion: The writ petition is allowed: the cancellation and appellate orders are set aside; the petitioner is permitted to submit pending GST returns (including for 2022-23) and, upon such submission, the authority shall consider revocation of registration afresh; the petitioner must pay the directed cost to the department as a condition of relief.

Limits on confirming demand to grounds specified in the Show Cause Notice - interpretation of Section 75(7) regarding limits of demand to grounds specified in the notice - setting aside orders which traverse beyond the grounds in the notice - treatment of an assessment order as a Show Cause Notice and requirement of fresh opportunity of hearing - lifting of provisional attachments pending fresh adjudication - affording a reasonable opportunity of hearing before confirming a tax demand

Limits on confirming demand to grounds specified in the Show Cause Notice - setting aside orders which traverse beyond the grounds in the notice - interpretation of Section 75(7) regarding limits of demand to grounds specified in the notice - Impugned assessment order traversed beyond the Show Cause Notice and therefore could not be sustained. - HELD THAT: - The Court found that the assessment order recorded discrepancies between GSTR-3B and GSTR-2A/GSTR-2B which were not the subject matter of the Show Cause Notice. Reliance was placed on the statutory principle that no demand may be confirmed on grounds other than those specified in the notice. Because the order sought to confirm a demand on matters not raised in the notice, the order travelled beyond the scope of the notice and could not be upheld. The impugned order was therefore set aside on this ground. [Paras 3, 4, 6]

Impugned order set aside insofar as it confirms demand on grounds not specified in the Show Cause Notice.

Treatment of an assessment order as a Show Cause Notice and requirement of fresh opportunity of hearing - affording a reasonable opportunity of hearing before confirming a tax demand - lifting of provisional attachments pending fresh adjudication - Impugned order to be treated as a Show Cause Notice, the petitioner to be given opportunity to file objections, and prior provisional attachments to be released pending fresh adjudication. - HELD THAT: - In view of the discrepancies between the notice and the order, the Court directed that the impugned order be regarded as a Show Cause Notice. The petitioner was permitted to file objections with supporting documents within four weeks from receipt of the order; the respondents were directed to consider any objections, afford a reasonable opportunity of hearing, and pass orders in accordance with law. Because recovery proceedings had been initiated and bank accounts attached pursuant to the impugned order, the Court ordered the attachment to be lifted forthwith pending the fresh consideration directed. [Paras 5, 6]

Impugned order to be treated as a Show Cause Notice; petitioner to file objections in four weeks; respondents to reconsider and pass fresh orders after hearing; bank attachment lifted forthwith.

Final Conclusion: Writ petition disposed of by setting aside the impugned order to the extent it confirms demand on grounds not specified in the Show Cause Notice; the order is treated as a Show Cause Notice, the petitioner granted time to file objections, the respondents directed to reconsider after hearing, and the bank attachment ordered to be lifted forthwith.

Charitable purpose - cancellation of registration under Section 12AA(3) - prospective versus retrospective operation of statutory amendment - entitlement to exemption under Section 11 - incidental activities in furtherance of charitable objects - setting apart of funds under Section 11(2)

Cancellation of registration under Section 12AA(3) - prospective versus retrospective operation of statutory amendment - Validity of the Commissioner's order cancelling the society's registration with retrospective effect from 2004-2005 - HELD THAT: - The Court held that the power to cancel registration under the provision inserted by the Finance Act (Section 12AA(3)) is prospective and could not be exercised with retrospective effect to 2004-2005 when such power did not exist. On facts the CIT's order dated 24.10.2013 cancelling registration with effect from 2004-2005 was therefore without jurisdiction and unlawful. The Court further found on the record that the assessee's objects (including the post-2009 addition) and the setting apart of funds for establishment of hospitals and medical colleges fell within charitable purposes and did not justify retrospective cancellation. The ITAT's order setting aside the cancellation therefore did not call for interference. [Paras 24, 26, 27, 28, 31]

Order cancelling registration with effect from 2004-2005 set aside; cancellation held unlawful and without jurisdiction

Entitlement to exemption under Section 11 - incidental activities in furtherance of charitable objects - setting apart of funds under Section 11(2) - Whether the assessee-society was entitled to exemption under Section 11 for periods during which construction and development of the medical institute occurred and for later assessment years challenged - HELD THAT: - The Court found that the construction of buildings and related development undertaken by the society were incidental and necessary to the advancement of its charitable object of providing medical relief. The assessee had set apart funds in terms of the statutory provision governing earmarking of funds and the monies received were applied towards the ultimate goal of establishing the medical college and hospital. Similarly, MOUs entered into with other State institutions for development and revenue-sharing were held to be arrangements between State organisations and the additional receipts were applied for promoting health activities; such activities were within the scope of charitable purpose as defined and did not disentitle the society to exemption. Accordingly appeals granting exemption for the relevant assessment years were allowed and the ITAT orders disallowing exemption were set aside. [Paras 24, 33, 34, 35]

Assessee entitled to exemption under Section 11 for the challenged years; appeals in favour of the assessee allowed

Penalty under Section 271C - consequential effect of cancellation of registration - Whether penalty proceedings under Section 271C were sustainable once cancellation of registration was set aside - HELD THAT: - Because the Court set aside the cancellation of registration as unlawful, the foundation for imposition of penalty did not survive. The Court held that the provisions relating to imposition of penalty could not be applied where the cancellation was found to be without jurisdiction and accordingly the appeals against deletion of penalty were dismissed. [Paras 32]

Penalties not sustainable; revenue appeals against deletion of penalty dismissed

Final Conclusion: The High Court set aside the cancellation of registration purportedly effective from 2004-2005, held the assessee entitled to exemption under Section 11 for the challenged years (including 2006-07 and 2015-16), and dismissed the Revenue's appeals (including those seeking upholding of penalties), with consequences to follow.

Levy of late fee under section 234E for defaults prior to 01-06-2015 - Consequential interest under section 220(2) - Processing of TDS statements and intimation under section 200A

Levy of late fee under section 234E for defaults prior to 01-06-2015 - Processing of TDS statements and intimation under section 200A - Levy of late fee under section 234E for TDS statements filed for periods prior to 01-06-2015 is unsustainable. - HELD THAT: - The Tribunal examined the levy of fee under section 234E imposed by CPC-TDS for belated furnishing of TDS statements relating to quarters before 01-06-2015. Although section 234E was inserted with effect from 1 July 2012, the enabling provision authorising raising of demand in the intimation under section 200A(1)(c) was inserted w.e.f. 01-06-2015. In absence of that enabling processing provision for periods prior to 01-06-2015 the levy of fee was treated as without authority. The Bench followed consistent decisions of Coordinate Benches of the Tribunal (including Dhairyasheel Pralhad Pawar and Dadasaheb Vittalrao Urhe) and relevant High Court observations cited therein, holding that fee under section 234E can be validly levied only for defaults committed on or after 01-06-2015. No contrary material was shown by Revenue before the Tribunal; accordingly the impugned demands for periods prior to 01-06-2015 were set aside. [Paras 9, 10]

Demand of late fee under section 234E raised for periods prior to 01-06-2015 is deleted.

Consequential interest under section 220(2) - Levy of late fee under section 234E for defaults prior to 01-06-2015 - Interest charged under section 220(2) consequential to the deleted section 234E demand is not sustainable and is deleted. - HELD THAT: - The Tribunal noted that the interest under section 220(2) was computed consequential to the latefee demand under section 234E. Since the primary demand of late fee for periods prior to 01-06-2015 was held to be without authority and directed to be deleted, the consequential interest chargeable on that latefee demand could not subsist. Applying this principle, the Tribunal directed deletion of the interest computed by CPC-TDS. [Paras 9, 10]

Interest under section 220(2) consequential to the deleted section 234E demand is deleted.

Final Conclusion: The appeals of the assessee (ITA Nos. 2049 to 2062/PUN/2024) are allowed: the Tribunal set aside the levy of late fee under section 234E for periods prior to 01-06-2015 and directed deletion of the consequential interest under section 220(2).

Computation of disallowance under section 14A read with Rule 8D - no disallowance under section 14A where no exempt income was earned (pre-A.Y. 2022-23) - exercise of revisional power under section 263 invalid where assessment is not shown to be erroneous or prejudicial

Computation of disallowance under section 14A read with Rule 8D - no disallowance under section 14A where no exempt income was earned (pre-A.Y. 2022-23) - exercise of revisional power under section 263 invalid where assessment is not shown to be erroneous or prejudicial - Validity of invoking section 263 to direct disallowance under section 14A read with Rule 8D where the assessee did not earn any exempt income in the year - HELD THAT: - The Tribunal found on the material on record that the assessee had not earned any exempt income during A.Y. 2018-19 and had specifically answered the Assessing Officer's query on applicability of section 14A in the assessment proceedings. Relying on the settled position in the Delhi High Court decision referred to by the PCIT that the Explanation to section 14A applies from A.Y. 2022-23, the Tribunal held that no disallowance under section 14A read with Rule 8D could be made for a year in which no exempt income was earned. Since the underlying assessment did not fail to consider the question of section 14A applicability and there was no error prejudicial to the revenue in concluding the returned income, the exercise of revisional jurisdiction under section 263 to direct an addition was impermissible. The PCIT's initiation of revision solely to compute and direct a disallowance in these circumstances was therefore held to be invalid. [Paras 15, 16]

The invocation of section 263 to direct disallowance under section 14A read with Rule 8D for A.Y. 2018-19 was invalid and the revision order is set aside.

Final Conclusion: The assessee's appeal is allowed; the order passed under section 263 directing disallowance under section 14A read with Rule 8D for A.Y. 2018-19 is quashed.

Reopening of assessment under section 147 - treatment of Joint Development Agreement as transfer under section 2(47) - de novo assessment with opportunity of hearing - penalty for failure to comply with notice under section 271(1)(b) - non-compliance with notice issued under section 142(1)

Reopening of assessment under section 147 - treatment of Joint Development Agreement as transfer under section 2(47) - de novo assessment with opportunity of hearing - Whether the addition made by treating the Joint Development Agreement as a transfer and the reopening of assessment should be sustained or the matter remanded for fresh adjudication. - HELD THAT: - The Tribunal, noting that a Coordinate Bench in the appeal of a co-owner set aside the assessment and restored the matter to the Assessing Officer for de novo adjudication after giving the assessee an opportunity to present his case, followed that view. In light of the Coordinate Bench's order and the assessee's contention that the JDA did not mature (possession not handed over and income neither received nor accrued), the Tribunal considered it appropriate in the interests of justice to set aside the impugned orders and restore the issue to the file of the Assessing Officer for fresh adjudication and hearing. The Tribunal did not decide the merits on whether the JDA constitutes a transfer under section 2(47) but required the Assessing Officer to re-adjudicate the matter afresh. [Paras 6, 7]

Impugned orders set aside and matter restored to Assessing Officer for de novo assessment; appeal treated as allowed for statistical purposes.

Penalty for failure to comply with notice under section 271(1)(b) - non-compliance with notice issued under section 142(1) - Whether the penalty under section 271(1)(b) for non-compliance with the notice should be quashed. - HELD THAT: - The assessee neither appeared before the Assessing Officer nor replied to questionnaires issued under the notice, for which a notice under section 142(1) had been issued. The assessee, an employee familiar with filing obligations, provided no plausible explanation for non-compliance and alternatively contended that the notice was uploaded on the portal. The Tribunal found no sufficient justification for non-compliance and upheld the levy of penalty under section 271(1)(b)

Penalty under section 271(1)(b) confirmed and the appeal dismissed.

Final Conclusion: The appeal concerning the reopening and capital gain addition is set aside and restored to the Assessing Officer for de novo adjudication after hearing; that appeal is treated as allowed for statistical purposes. The appeal against the penalty under section 271(1)(b) is dismissed and the penalty is confirmed.

Deduction under section 80G - Corporate Social Responsibility (CSR) expenditure - Explanation 2 to section 37(1) - voluntariness of donation - Chapter VIA - binding precedent

Deduction under section 80G - Corporate Social Responsibility (CSR) expenditure - Explanation 2 to section 37(1) - voluntariness of donation - Chapter VIA - binding precedent - Donations/payments forming part of CSR are allowable as deduction under section 80G for AY 2020-21 notwithstanding disallowance of CSR as business expenditure under Explanation 2 to section 37(1). - HELD THAT: - The Tribunal held that Parliament's insertion of Explanation 2 to section 37(1) disallows CSR expenditure as a business deduction but does not extinguish the assessees' entitlement to relief under Chapter VIA. CSR expenditure, being an application of income, remains part of the computation of total income; section 80G operates after computation of gross total income and permits deduction of eligible donations in accordance with its terms. The mandatory/penal character of CSR under the Companies Act does not negate the philanthropic nature or the absence of reciprocal benefit required for a donation; thus the mandatory nature of CSR does not, by itself, preclude claim under section 80G where the other statutory conditions of section 80G are satisfied. The Tribunal followed coordinate-bench precedents on identical facts and set aside the orders of the authorities below, deleting the disallowance sustained by the CIT(A).

The disallowance of the claimed deduction under section 80G was deleted and the appeal allowed.

Final Conclusion: Appeal allowed: the Tribunal, following coordinate-bench authority, held that CSR-related payments that satisfy the conditions of section 80G are deductible under Chapter VIA despite disallowance under Explanation 2 to section 37(1) for AY 2020-21.

Penalty under section 271G for failure to furnish information or documents required for transfer pricing - maintenance and furnishing of documents under section 92D(3) read with Rule 10D(1)(g) - arm's length price adjustment as determinative for imposition of penalty - reliance on prior appellate decision in the assessee's own case

Penalty under section 271G for failure to furnish information or documents required for transfer pricing - maintenance and furnishing of documents under section 92D(3) read with Rule 10D(1)(g) - arm's length price adjustment as determinative for imposition of penalty - reliance on prior appellate decision in the assessee's own case - Whether the penalty under section 271G levied for AY 2012-13 was correctly deleted where no transfer pricing adjustment was made and the assessee did not furnish certain documents claimed to be required under section 92D(3) and Rule 10D(1)(g). - HELD THAT: - The Tribunal examined the TPO's finding that no adjustment was made in the Transfer Pricing study and noted that the only adjustments related to domestic tax. The Assessing Officer had levied penalty under section 271G for alleged failure to furnish documents as required under section 92D(3) read with Rule 10D(1)(g). The CIT(A) deleted the penalty after considering the nature of the diamond business, the assessee's submissions and reliance on the assessee's own earlier appellate proceedings (ITA No.2643/Mum/2017 for AY 2011-12) where penalty was deleted and the ITAT had dismissed the revenue's appeal. The Tribunal found no breach of section 92D in conjunction with Rule 10D(1) because the TPO made no transfer pricing adjustment and the facts were materially similar to the earlier appellate outcome relied upon by the assessee. On that basis the Tribunal upheld the CIT(A)'s deletion of the penalty and declined to interfere with the appellate findings.

Penalty under section 271G for Assessment Year 2012-13 deleted; revenue's appeal dismissed.

Final Conclusion: The revenue's appeal is dismissed; the penalty levied under section 271G for Assessment Year 2012-13 stands deleted as there was no transfer pricing adjustment and no breach of the maintenance and furnishing requirements, the Tribunal upholding the CIT(A)'s reliance on the assessee's earlier appellate decision.

Comparability of comparable entities for transfer pricing - Transactional Net Margin Method (TNMM) - Determination of Arms Length Price (ALP) - Functional comparability and risk profile in transfer pricing - Bench-marking under Section 92CA and Rule 10B(1)(e)

Functional comparability and risk profile in transfer pricing - Comparability of comparable entities for transfer pricing - The inclusion of Accentia Technologies Ltd. and Eclerx Services Ltd. as comparable entities was not justified and the ITAT correctly excluded them from the benchmarking study. - HELD THAT: - The ITAT found Accentia Technologies to be functionally dissimilar because it engaged in diversified activities such as medical transcription, medical coding, billing and receivable management, which differ significantly from the assessee's callcentre services to its associated enterprise. Eclerx Services was found to be a KPO providing specialised services including data analytics and bespoke industry solutions, and thus its functional profile and valuedrivers differed from the routine captive callcentre services of the assessee. On this factual and functional analysis the learned ITAT's exclusion of Accentia Technologies and Eclerx Services as comparables was upheld by this Court as there was no infirmity in treating them as functionally dissimilar for the purposes of determining ALP under the TNMM benchmarking exercise. [Paras 6, 7, 8]

Upheld exclusion of Accentia Technologies Ltd. and Eclerx Services Ltd. as comparables.

Functional comparability and risk profile in transfer pricing - Comparability of comparable entities for transfer pricing - Infosys BPO Ltd. was correctly excluded as a comparable entity by the ITAT for the purposes of the benchmarking analysis. - HELD THAT: - This Court accepted the ITAT's conclusion that Infosys BPO Ltd., being a business process management provider across a wide range of industries, had materially different value of intangibles and a markedly different risk profile compared to the assessee, which was a routine captive service provider rendering 100% of services to its associated enterprise. The differences in intangible value and enterprise risk meant Infosys was not functionally comparable for the TNMMbased determination of ALP, and the ITAT's exclusion was therefore sustained. [Paras 9, 10]

Upheld exclusion of Infosys BPO Ltd. as a comparable.

Bench-marking under Section 92CA and Rule 10B(1)(e) - Determination of Arms Length Price (ALP) - The High Court correctly examined the comparability questions on merits under Section 92CA read with Rule 10B(1)(e), and was entitled to decide the matter rather than treating it as excluded from consideration under the substantial question of law threshold. - HELD THAT: - The Court recorded that it had examined comparability on merits in accordance with the statutory framework under Section 92CA of the Act read with Rule 10B(1)(e). Reference was made to the Supreme Court's clarification in the batch decision (SAP Labs India Private Ltd. v. ITO) that examination of comparables by the High Court was not excluded where the High Court proceeds to consider the matter; this Court also relied on its subsequent reiteration in Principal Commissioner v. Evalueserve.com (P.) Ltd. Accordingly, the High Court's adjudication of the comparability issues on merits and its upholding of the ITAT's conclusions were held to be appropriate. [Paras 11, 12, 13]

High Court's onmerits examination under Section 92CA/Rule 10B(1)(e) and its conclusion upholding the ITAT were appropriate.

Final Conclusion: The appeal is disposed of by upholding the ITAT's exclusion of Infosys BPO Ltd., Accentia Technologies Ltd. and Eclerx Services Ltd. as comparable entities for the TNMM benchmarking exercise; the High Court's onmerits consideration under Section 92CA and Rule 10B(1)(e) was proper and the ITAT's conclusions are sustained for AY 2009-2010.

Section 263 assessment erroneous and prejudicial to interest of Revenue - borrowed satisfaction - Explanation to section 263 - requirement of satisfaction founded on AO's own findings - reopening under section 147 - verification and inquiry by Assessing Officer - adequate opportunity of hearing to assessee on verification

Section 263 assessment erroneous and prejudicial to interest of Revenue - borrowed satisfaction - Explanation to section 263 - requirement of satisfaction founded on AO's own findings - Validity of the Principal CIT's initiation of proceedings and order under section 263 setting aside the reassessment order. - HELD THAT: - The Tribunal held that initiation of proceedings under section 263 must be founded on the findings recorded by the Assessing Officer in the assessee's own assessment order and cannot be based on findings recorded in the assessment of a third person (i.e., 'borrowed satisfaction'). The impugned section 263 order merely relied on an addition made in the assessment of another labour contractor and did not record any specific satisfaction or pinpoint any defect in the AO's own assessment order; nor did it explain how that assessment was erroneous and prejudicial to the revenue. For these reasons the Tribunal found the foundation of the section 263 proceedings fallacious and set aside the section 263 order. [Paras 8, 9, 10]

Section 263 order set aside as the PCIT relied on borrowed satisfaction and failed to record specific findings showing the AO's order was erroneous and prejudicial to the revenue.

Reopening under section 147 - verification and inquiry by Assessing Officer - adequate opportunity of hearing to assessee on verification - Whether there was lack of inquiry by the Assessing Officer in reassessment proceedings under section 147. - HELD THAT: - On examination of the record the Tribunal found that the AO had issued notices and specific queries under section 142(1) in respect of the suspicious credits, and the assessee had filed detailed replies and supporting documents including bank statements, ledger confirmations, tax audit report and Form 26AS. The AO, after taking these submissions into account, finalized the reassessment without making additions. The Tribunal concluded that the case record demonstrated that necessary inquiries were made and the AO had taken a legally plausible view; consequently the assessment order could not be said to be erroneous and prejudicial to the revenue on the ground of lack of inquiry. [Paras 6, 11]

Assessment order upheld as not being erroneous or prejudicial for lack of inquiry; section 263 order set aside on this ground as well.

Final Conclusion: The section 263 orders setting aside the reassessment were quashed and the appeals of the assessees allowed, the Tribunal holding that the PCIT impermissibly relied on findings from a third person's assessment (borrowed satisfaction) and that the AO had carried out requisite enquiries in the reassessment proceedings.

Carry forward and set off of business losses - return filed within due date under section 139(3) - return filed under section 139(4) - prohibition in section 80 on carry forward of undetermined losses - interest under section 234B and 234C

Carry forward and set off of business losses - return filed within due date under section 139(3) - prohibition in section 80 on carry forward of undetermined losses - entitlement to set off brought forward business losses from earlier assessment years against income of AY 2023-24 - HELD THAT: - The Tribunal held that there is no requirement under section 80 that the return for the assessment year in which the loss is to be set off must itself be filed within the due date. What matters for carry forward and set off is that the losses were determined in pursuance of returns filed in accordance with subsection (3) of section 139 for the years in which the losses arose. The returns for A.Ys. 2021-22 and 2022-23 having been filed within the due/extended due dates, the assessee is entitled to carry forward those losses and set them off against the income of AY 2023-24 even though the return for AY 2023-24 was filed under section 139(4). The Revenue did not contest that a return filed under section 139(4) precludes set off where earlier years' returns were validly filed within the due date. [Paras 4, 5]

Allowed the claim to set off brought forward losses against income of AY 2023-24 provided the returns for the years in which the losses arose were filed within the due date specified under section 139(3).

Return filed within due date under section 139(3) - verification of filing date of return for A.Y. 2021-22 - HELD THAT: - The Tribunal noted that the appellate order did not specify which of the earlier years' returns was alleged to be outside the due date. The return for A.Y. 2022-23 was recorded as filed within the due date. Therefore the AO is directed to verify the date of filing of the return for A.Y. 2021-22; if that return too was filed within the due date specified under section 139(3), the brought forward losses for both years must be allowed to be carried forward and set off for AY 2023-24. This issue is remanded to the AO for factual verification of the filing date of A.Y. 2021-22 and consequent action. [Paras 5]

Remanded to the AO to verify the filing date of the return for A.Y. 2021-22 and, if within section 139(3) due date, to allow set off of brought forward losses.

Interest under section 234B and 234C - charging of interest under sections 234B and 234C as consequential to the income determined after allowing set off - HELD THAT: - The Tribunal treated the charge of interest under sections 234B and 234C as consequential to the final income determination. It directed that the AO should recompute the interest, if necessary, after allowing the set off of brought forward losses following verification of filing dates. No standalone adjudication on the applicability of interest was made apart from this consequential direction. [Paras 6]

Directed recomputation of interest under sections 234B and 234C consequential to the recomputation of income after set off of losses.

Final Conclusion: The appeal is allowed subject to verification by the AO of the filing date of the return for A.Y. 2021-22; if that return was filed within the due date under section 139(3), the AO shall allow the carry forward and set off of the brought forward losses from A.Ys. 2021-22 and 2022-23 against AY 2023-24 and recompute interest under sections 234B/234C consequentially.

Disallowance under section 40(a)(ia) for failure to deduct TDS - Restriction of disallowance to 30% by amendment (Finance Act, 2014) - Precedential application of coordinate-bench ITAT decisions

Disallowance under section 40(a)(ia) for failure to deduct TDS - Restriction of disallowance to 30% by amendment (Finance Act, 2014) - Precedential application of coordinate-bench ITAT decisions - Whether the disallowance of interest under section 40(a)(ia) for non-deduction of TDS should be restricted to 30% of the amount in view of the amendment effected by the Finance Act, 2014 and following coordinate-bench decisions. - HELD THAT: - The Tribunal examined the assessment officer's disallowance of interest paid on loans for failure to deduct TDS and the appellate sustainment of that disallowance. Noting that identical factual and legal questions were considered by coordinate benches of the ITAT (including Smt. Kanta Yadav v. ITO and Priyamda Media & Infotainment Pvt. Ltd.), the Tribunal applied those precedents which treated the amendment effected by the Finance Act, 2014 as warranting restriction of the disallowance to 30% of the amount. Relying on the reasoning and outcome of the cited coordinate-bench decisions, and finding the facts of the present appeal to be identical, the Tribunal directed that the Assessing Officer restrict the disallowance under section 40(a)(ia) in respect of interest on loans to 30% of the interest amount. [Paras 6, 7]

Disallowance under section 40(a)(ia) in respect of interest on loans is restricted to 30% of the interest; appeal allowed.

Final Conclusion: The Tribunal followed coordinate-bench ITAT precedents and directed that the disallowance made under section 40(a)(ia) in respect of interest on loans for AY 2012-13 be restricted to 30% of the interest; the appeal is allowed.

Condonation of delay - requirement of speaking and reasoned order under section 250(6) - remand for de novo adjudication - limited scrutiny on cash deposits during demonetization

Condonation of delay - Condonation of 438 days' delay in filing the appeal with the Tribunal was allowed. - HELD THAT: - The assessee filed the appeal belatedly by 438 days beyond the period prescribed under section 253(3), but had deposited the appeal fee within the limitation period. The delay was attributed to the chronic illness of the assessee's counsel and was supported by medical certificates and a statement that the appeal papers were ready. The Revenue did not press serious objection to condonation. In balancing technicalities against substantial justice, and finding no mala fides on the part of the assessee, the Tribunal held that the delay constituted a reasonable and sufficient cause and therefore condoned it, relying on established principles favouring advancement of substantial justice. [Paras 4]

Delay of 438 days in filing the appeal is condoned.

Requirement of speaking and reasoned order under section 250(6) - remand for de novo adjudication - limited scrutiny on cash deposits during demonetization - The order of the Commissioner of Income-tax (Appeals) was set aside for being non-speaking and the matter was remitted to the CIT(A) for fresh adjudication on merits after affording opportunity to the parties. - HELD THAT: - The Tribunal found that the CIT(A) had dismissed the appeal in limine without exercising independent application of mind or issuing a reasoned order as required by section 250(6). The CIT(A) merely upheld the Assessing Officer's additions and did not examine or record findings on the assessee's contentions that the cash deposits during the demonetization period were from past earnings, marriage gifts and advances for purchase of land; nor did the CIT(A) call for assessment records or make enquiries. Both parties agreed that the matter could be remitted for fresh consideration and the Revenue raised no objection to restoration. In view of the statutory obligation to state points for determination, decision and reasons, and to enable effective appellate review, the Tribunal set aside the CIT(A)'s order and remitted the appeal to the CIT(A) to decide the issues afresh on merits in accordance with law after giving opportunities to both parties. The Tribunal did not express any view on the merits of the additions or applicability of the provisions invoked by the AO. [Paras 8]

Appellate order of the CIT(A) is set aside and the appeal is remitted to the CIT(A) for de novo adjudication on merits after giving opportunity to both parties.

Final Conclusion: The Tribunal condoned the delayed filing of the appeal and set aside the non-speaking order of the CIT(A), restoring the matter to the file of the CIT(A) for fresh, reasoned adjudication on the merits; the appeal is allowed for statistical purposes.

Characterisation of income - business income versus income from other sources - relevance of memorandum and articles of association to source of income - absence of statutory registration not determinative of income character - consistency of past treatment and estoppel in income tax assessments - allowability of expenses wholly and exclusively for business

Characterisation of income - business income versus income from other sources - relevance of memorandum and articles of association to source of income - absence of statutory registration not determinative of income character - consistency of past treatment and estoppel in income tax assessments - Interest income received by the assessee is business income and not income from other sources. - HELD THAT: - The Tribunal held that the assessee had established that financing was its business activity by reference to its Memorandum and Articles of Association and by consistent return of similar interest receipts as business income in earlier years which had not been disturbed by the Revenue. The absence of an NBFC registration with the RBI does not alter the character of income; registration relates to legality of carrying on the activity but does not convert the nature of receipts. The Tribunal also accepted the assessee's explanation, supported by balance sheet entries, for the losses in the impugned year (a large advance becoming doubtful), and found no material on record by the Department to controvert these facts. On these bases the Tribunal concluded that the interest income arose from the assessee's business of financing and must be taxed as business income, directing the Assessing Officer to treat it accordingly. [Paras 6]

Interest income to be treated as business income; Assessing Officer directed to tax it as business income.

Allowability of expenses wholly and exclusively for business - consistency of past treatment and estoppel in income tax assessments - business income versus income from other sources - Expenses claimed against the interest receipts are allowable as business expenses. - HELD THAT: - Following the conclusion that the interest receipts are business income, the Tribunal held that expenses incurred wholly and exclusively for the business of financing are allowable against such business receipts. The assessee had presented detailed break up of expenses and demonstrated that these were incurred in the course of its financing and investment activities. The Tribunal further relied on the consistent historical treatment of such receipts and expenditures and the absence of any departmental finding undermining the genuineness of the expenditure. Consequently, denial of expenses by the lower authorities was held incorrect and the Assessing Officer was directed to allow the claimed expenditures against the business income. [Paras 6]

Claimed expenses to be allowed against the business (interest) income; Assessing Officer so directed.

Final Conclusion: The appeal is allowed: the Tribunal directs that the interest income for AY 2016-17 be treated as business income and the claimed business expenses be allowed accordingly; the Assessing Officer is to give effect to these directions.

Penalty under section 270A - under-reporting of income - misreporting of income - bona fide and inadvertent error as defence to penalty - reopening of assessment under section 147 - adjustment of refund against outstanding demand - acceptance of return without addition

Penalty under section 270A - under-reporting of income - misreporting of income - Validity of levy of penalty under section 270A for non-disclosure of interest on income-tax refund - HELD THAT: - The Tribunal found as an admitted fact that the assessee did not disclose interest on income-tax refund in the original return but disclosed it in the return filed in response to notice under section 148. The Faceless Assessing Officer levied penalty under section 270A, which was sustained by the CIT(A). The Tribunal examined whether the assessee fell within the circumstances enumerated in sub-section (2) of section 270A that characterize 'under-reported income'. From the record and AO's system report it was established that neither an intimation under section 143(1) nor an assessment order under section 143(3) had been passed in respect of the original return. In absence of such intimation/assessment, the factual criteria in clauses (a) to (g) of section 270A(2) did not apply and, accordingly, the assessee could not be said to have under-reported income for purposes of section 270A. Having held that under-reporting did not arise, the Tribunal concluded that the misreporting limb could not be invoked to sustain the penalty. [Paras 8]

Penalty under section 270A cannot be sustained as the assessee did not fall within the categories of under-reported income in section 270A(2).

Bona fide and inadvertent error as defence to penalty - adjustment of refund against outstanding demand - acceptance of return without addition - Whether non-disclosure amounted to a bona fide and inadvertent error disentitling penalty - HELD THAT: - The Tribunal accepted the assessee's case that the refund and interest were adjusted by the Department against earlier outstanding demands and no amount was actually received by the assessee in its bank account. Given this circumstance, the omission to disclose the interest was treated as an inadvertent and bona fide error. The Tribunal relied on the principle that a bona fide inadvertent error does not attract penalty (as recognised in the cited Supreme Court authority), and having held that there was no under-reporting under section 270A(2), concluded that penalty under section 270A should be deleted. The Tribunal therefore set aside the appellate authority's confirmation of penalty and directed deletion by the Assessing Officer. [Paras 8, 9]

Omission to disclose interest on refund was a bona fide inadvertent error; penalty held not leviable and directed to be deleted.

Final Conclusion: The appeal is allowed; the penalty imposed under section 270A is set aside and the Assessing Officer is directed to delete the penalty.

Classification of rural branch for deduction under Section 36(1)(viia) - use of census data for determining rural status - provisional versus final census figures - village-wise population data requirement - rectification under section 154

Classification of rural branch for deduction under Section 36(1)(viia) - use of census data for determining rural status - provisional versus final census figures - village-wise population data requirement - rectification under section 154 - Whether the assessing officer was justified in invoking section 154 to reclassify five branches as non-rural by relying on provisional/district-wise 2011 Census figures and disallowing deduction under Section 36(1)(viia). - HELD THAT: - The Tribunal accepted the reasoning of the CIT(A) that the AO erred in invoking section 154 to disallow deduction by relying on district-wise provisional figures of Census 2011. The assessee had applied village-wise population figures and, having obtained a communication from the Registrar General confirming absence of village-wise 2011 data and variation between provisional and final totals, legitimately relied on the 2001 Census for classification. The final population figures of Census 2011 were released only after the relevant date (after 01.04.2012) and therefore could not be used under the statutory explanation which requires use of figures published before the first day of the previous year. The Tribunal observed that the AO's reliance on district-wise provisional data in place of village-wise data available to the assessee was incorrect, and that the rectification thus effected under section 154 lacked merit. Distinguishing earlier decisions relied upon by revenue, the Tribunal found the factual matrix different and endorsed the appellate finding deleting the addition and directing recomputation accordingly. [Paras 4, 6]

The addition made by the AO under section 154 on account of classification of five branches as non-rural is deleted; the CIT(A) order allowing the assessee to adopt 2001 Census village-wise figures is upheld and the revenue appeal is dismissed.

Final Conclusion: The ITAT dismisses the revenue appeal, upholds the CIT(A)'s deletion of the addition made by way of rectification under section 154, and affirms the assessee's entitlement to claim the deduction under Section 36(1)(viia) using the 2001 Census village-wise figures for AY 2013-14.

Deduction under section 80IC - filing of Form 10CCB before completion of assessment u/s 143(1) - procedural compliance and condonation of delayed filing of statutory audit return - distinction between exemption provisions and deduction provisions - precedential weight of coordinate Bench decisions on timely filing of Form 10CCB

Deduction under section 80IC - filing of Form 10CCB before completion of assessment u/s 143(1) - procedural lapse - distinction between exemption and deduction provisions - Whether the assessee was entitled to deduction under section 80IC despite filing Form 10CCB after filing the return but before completion of assessment under section 143(1). - HELD THAT: - The Tribunal found that the assessee had obtained the audit report (Form 10CCB) prior to filing the return but uploaded the Form on 05.11.2018, after filing the return on 23.10.2018. The Form 10CCB, however, was filed before completion of assessment proceedings under section 143(1). Relying on coordinate-Bench authority that allowed deduction where the requisite form was filed before finalisation of assessment, the Tribunal treated the delayed upload as a procedural lapse which did not extinguish the assessee's entitlement to deduction under section 80IC so long as the form was filed before completion of the 143(1) assessment. The Tribunal distinguished the decision relied upon by Revenue (relating to exemption under section 10B) on the ground that exemption provisions and their procedural regime differ from deduction claims under section 80IC, and therefore the Wipro decision was not determinative of the present deduction claim. In these circumstances and on the factual finding that Form 10CCB was filed before completion of the 143(1) proceedings, the Tribunal accepted the assessee's claim and allowed the deduction. [Paras 8, 9, 10, 11]

The assessee's claim for deduction under section 80IC was allowed because Form 10CCB was filed before completion of assessment under section 143(1); the appeal is allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal for Assessment Year 2018-19, holding that filing Form 10CCB before completion of assessment u/s 143(1) entitles the assessee to deduction under section 80IC despite the form having been uploaded after filing the return.