TaxTMI Updates e-Newsletter
Dec 23,2020

Services to Government under notified exemption - Training programme exemption - Requirement of expenditure borne by Government - Beneficiary body corporate versus Government - Composite supply - Supply of goods under Schedule II(1)(c)

Services to Government under notified exemption - Beneficiary body corporate versus Government - Requirement of expenditure borne by Government - Whether the supplies made by the appellant to Odisha Knowledge Corporation Limited (OKCL) qualify as services provided to the State Government so as to attract Entry No.72 exemption. - HELD THAT: - The Authority for Advance Ruling and the Appellate Authority examined whether OKCL, a body corporate incorporated under the Companies Act, can be treated as the State Government for the purpose of Entry No.72. Relying on the statutory meaning of 'Government' and on constitutional distinctions (Articles 299 and 300), the authorities found OKCL to be a separate juristic entity capable of contracting and suing in its own name and not identical with the State. The appellant did not produce documentary evidence to show that the services were rendered to the Government rather than to OKCL, nor rebutted the finding that OKCL disburses payments to the appellant under the contract. Consequently, the primary prerequisite that the supply be a service to the Central/State/Union Territory administration under the notification is not satisfied. [Paras 4]

Supplies to OKCL do not qualify as services to the State Government; Entry No.72 exemption is not available on this ground.

Composite supply - Supply of goods under Schedule II(1)(c) - Whether the contract works amount to a composite supply and whether the unconditional transfer of infrastructure at the end of the BOOT contract amounts to a supply of goods under Schedule II(1)(c). - HELD THAT: - The Appellate Authority observed that the contract encompassed multiple elements-supply and installation of hardware, maintenance/repair services and provision of computer education-so that the transaction is not limited to a pure training service. The agreement provided for unconditional transfer of title in the infrastructure to the School and Mass Education Department at zero value upon expiry of the contract. Applying Schedule II(1)(c), an agreement under which property in goods passes at a future date upon payment of consideration (even if the transfer value is zero at the end) constitutes a supply of goods. The appellant's contention that goods (if any) were merely ancillary and that only training was the principal supply was not supported by quantification or documentary evidence; the appellant also admitted the composite nature of the supply but failed to apportion value. [Paras 4]

The transaction includes composite elements and, in view of the unconditional transfer of infrastructure after the contract period, the arrangement falls within Schedule II(1)(c) as a supply of goods (in addition to services).

Final Conclusion: The Appellate Authority upholds the AAR ruling: the supplies made to OKCL are not services to the State Government for the purpose of Entry No.72 and the contract comprises composite supplies including a transfer of goods under Schedule II(1)(c); the appeal is rejected and the Advance Ruling affirmed.

Supply of services - consideration for supply - agreement to do an act - classification under SAC 999792 - place of supply - export of services - zero-rated supply

Supply of services - consideration for supply - agreement to do an act - Financial assistance received by the applicant is consideration for supply and the activity constitutes supply of services under Section 7 of the GST Act. - HELD THAT: - The Authority found that the draft Service Contract treats the applicant as service provider and Prettl GmbH as service recipient and that the applicant has agreed to undertake a defined gamut of activities in pursuance of that contract. The amount described as financial assistance is given in lieu of those services and is therefore consideration. Reliance on Schedule II (Sr. No. 5(e)) shows that agreeing to do an act amounts to supply of services; consequently the activities under the contract are supply of services and the receipts are consideration for such supply. [Paras 5]

Answered in the affirmative: the financial assistance is consideration and the activity is a supply of services.

Classification under SAC 999792 - other services nowhere else classified - The supply of services by the applicant is classifiable under SAC 999792 (agreeing to do an act). - HELD THAT: - The Authority held that the applicant has agreed under the contract to perform specific acts and obligations on the directions of Prettl GmbH. The activity does not amount to education in the sense of normal schooling and is not the running of an educational institution. Given the nature of the agreed acts, the supply falls under the residual description for agreeing to do an act and is therefore classifiable under SAC 999792. [Paras 5]

Supply is classifiable under SAC 999792.

Place of supply - export of services - zero-rated supply - The supply is not an export of services / zero-rated supply because the place of supply is in India. - HELD THAT: - For a supply to qualify as export of services the place of supply must be outside India. The contract requires the applicant to construct a training centre and perform the gamut of services in India; such event-based services have their place of supply where the event is actually held. As the activities will be performed in India, the condition in clause (iii) of the IGST definition of export of services (place of supply outside India) is not satisfied, and therefore the transaction cannot be treated as export of services or zero-rated. [Paras 5]

Answered in the negative: not a zero-rated export of services.

Final Conclusion: The Authority ruled that the amounts payable under the proposed service contract are consideration for supply and the applicant is supplying services (agreeing to do an act) classifiable under SAC 999792; consequently the receipts are taxable as domestic supplies and do not qualify as export/zero-rated supplies because the place of supply is in India.

Pure services - Exemption under Entry No. 3 of Notification No. 12/2017 (CT Rate) - Functions entrusted to a Municipality under Article 243W - Functions entrusted to a Panchayat under Article 243G - Municipality as a "local authority" - Government Entity - Composite supply of works contract - GST rate amendment under Notification No. 20/2017

Functions entrusted to a Municipality under Article 243W - Municipality as a "local authority" - Whether the services provided by the applicant fall under Clause 1 & 2 of the Twelfth Schedule to Article 243W - HELD THAT: - The Authority examined Clauses 1 and 2 of the Twelfth Schedule (urban planning; planning of land-use and construction of buildings) and the work orders submitted. Only supplies made to Amravati Municipal Corporation qualify as supplies to a municipality. The services actually supplied to AMC by the applicant (manpower for cleaning, collecting rent from hawkers, collecting parking fees) do not, on their face, constitute activities of urban planning or planning of land-use and construction of buildings as envisaged by Clauses 1 and 2. Supplies to MSEDCL and Maharashtra Jeevan Pradhikaran are not supplies to a municipality and therefore cannot fall under Clauses 1 or 2. Consequently, the subject activities do not fall within Clause 1 & 2 of the Twelfth Schedule to Article 243W. [Paras 5]

Answered in the negative.

Pure services - Exemption under Entry No. 3 of Notification No. 12/2017 (CT Rate) - Government Entity - Functions entrusted to a Panchayat under Article 243G - Functions entrusted to a Municipality under Article 243W - Whether the applicant's supplies qualify for exemption under Entry No. 3 of Notification No. 12/2017 as pure services provided to a Government/Local Authority in relation to functions entrusted under Articles 243G/243W - HELD THAT: - Entry No. 3 requires (i) pure services (excluding works contracts/composite supplies involving goods), (ii) supply to Government/Central/State/Union territory/local authority/governmental authority or Government Entity, and (iii) the service must be an activity in relation to functions entrusted under Article 243G (Panchayats) or Article 243W (Municipalities). The Authority found that MSEDCL and Maharashtra Jeevan Pradhikaran qualify as Government Entities. Most supplies by the applicant are pure manpower services, but certain contracts include material and thus are composite supplies and not pure services. Examining the nature of services, activities supplied to MSEDCL (meter checking, meter replacement, bill printing, technicians, HT/LT operations) are not in relation to the scheduled functions (for example rural electrification) insofar as they are rendered in both urban and rural areas or relate to bill processing, and thus do not qualify. Supplies to Maharashtra Jeevan Pradhikaran (meter reading, water bill printing, attending water complaints) were held not to be activities in relation to water supply functions in the schedules. For AMC, collection of rent from hawkers is commercial and not a scheduled function, whereas provision of manpower for collecting vehicle parking fees is in relation to Clause (q) (public amenities including parking lots) and therefore qualifies for exemption under Entry No. 3. Provision of staff for cleaning public washrooms/restrooms would qualify if supplied to the municipality, but the applicant's submissions do not establish that such cleaning of public conveniences was supplied to AMC; therefore exemption is not available for that item on the record. [Paras 5]

Except for manpower supplied to Amravati Municipal Corporation for collecting vehicle parking fees (eligible for exemption under Entry No. 3), the other services do not qualify for exemption.

Composite supply of works contract - GST rate amendment under Notification No. 20/2017 - Whether the services supplied by the applicant fall within works contract services taxable at the amended rate under Notification No. 20/2017 - HELD THAT: - Notification No. 20/2017 applies to composite supply of works contract as defined and to specified categories of construction/installation/commissioning etc. The Authority reviewed the contracts and found only a couple of contracts where material was supplied along with manpower. However, those supplies do not constitute a "works contract" as there is no contract for construction, erection, installation or similar activity involving transfer of property in goods in execution of an immovable property contract. On the facts, there is no works contract within the meaning used in the notification; hence the reduced/altered rates under Notification No. 20/2017 are not applicable. [Paras 5]

Answered in the negative.

Final Conclusion: The Authority ruled that the applicant's activities do not fall under Clauses 1 & 2 of the Twelfth Schedule to Article 243W; only the supply of manpower to Amravati Municipal Corporation for collecting vehicle parking fees is eligible for exemption under Entry No. 3 of Notification No. 12/2017; and the supplies do not qualify as works contract services attractable to the rates amended by Notification No. 20/2017.

Constitutional validity of sub-section (4) of Section 16 of the Central Goods and Services Tax Act, 2017 - Arbitrariness and discrimination under Article 14 - Infringement of Article 19 - Deprivation of property without authority under Article 300A - Notice to the Attorney General of India - Interim restraint on coercive recovery proceedings - Prima facie absence of show-cause or assessment proceedings

Constitutional validity of sub-section (4) of Section 16 of the Central Goods and Services Tax Act, 2017 - Arbitrariness and discrimination under Article 14 - Infringement of Article 19 - Deprivation of property without authority under Article 300A - Notice to the Attorney General of India - Challenge to the constitutional validity of sub-section (4) of Section 16 of the Central Goods and Services Tax Act, 2017 is entertained and notice ordered to be issued to the respondents and to the Attorney General of India. - HELD THAT: - The writ petition assails the vires of sub-section (4) of Section 16 of the CGST Act, 2017 as arbitrary, discriminatory and violative of Articles 14, 19 and 300A of the Constitution. The Court directed issuance of notice to the respondents for adjudication of these constitutional challenges and, because the challenge raises substantial constitutional questions, ordered that the Attorney General of India be served with notice so that the Union may be represented on these constitutional facets. The direction is interlocutory and for notice and does not decide the merits of the constitutional challenge. [Paras 2]

Notice to the respondents and to the Attorney General of India issued returnable on 24.02.2021 for adjudication of the constitutional challenge to sub-section (4) of Section 16, CGST Act, 2017.

Interim restraint on coercive recovery proceedings - Prima facie absence of show-cause or assessment proceedings - Whether coercive recovery proceedings pursuant to the recovery order dated 20.10.2020 should be stayed pendente lite. - HELD THAT: - The Court observed prima facie that the impugned recovery order dated 20.10.2020 appears to have been issued without any antecedent show-cause or assessment proceedings. In view of this prima facie finding and pending consideration of the writ petition, the Court granted interim relief by restraining coercive recovery action pursuant to that recovery order until the next date of hearing. This restraint is provisional and limited to the period before the subsequent hearing. [Paras 3]

No coercive recovery proceedings shall be initiated pursuant to the recovery order dated 20.10.2020 until the next date of hearing.

Final Conclusion: Notice issued returnable 24.02.2021, including service on the Attorney General of India, in respect of the constitutional challenge to sub-section (4) of Section 16, CGST Act, 2017; interim restraint granted on coercive recovery under the recovery order dated 20.10.2020 until the next hearing; matter directed to be heard along with connected Special Civil Applications.

Cancellation of GST registration - Show-cause notice under Rule 22(1) of the Central Goods and Services Tax Rules, 2017 - Non-speaking order - Failure to record reasons and findings - Right to fair hearing / due process - Application for revocation under Section 30 of the GST Act

Cancellation of GST registration - Show-cause notice under Rule 22(1) of the Central Goods and Services Tax Rules, 2017 - Non-speaking order - Right to fair hearing / due process - Validity of the order dated 25th February 2020 cancelling the petitioner's GST registration. - HELD THAT: - The Court found the impugned order to be a non-speaking order passed without application of mind. The cancellation order simultaneously refers to the petitioner's reply and yet records that no reply was received; it contains no reasons, no factual findings, and gives no discussion of the petitioner's submissions. The show-cause notices that preceded the cancellation were devoid of material particulars and, in at least one instance, an attachment sheet referred to in the notice was not furnished despite a specific request, undermining the petitioner's ability to make an effective reply. The sequence of issuing, dropping and re-issuing show-cause notices-including issuance of a subsequent notice on the very day earlier proceedings were dropped-further demonstrated procedural irregularity and lack of coherent decision-making. The Court also noted that an application for revocation under Section 30 of the Act remained pending and unattended. For these reasons, the order of cancellation could not be sustained and required quashing on grounds of want of reasoned decision-making and denial of effective opportunity to be heard.

The order dated 25th February 2020 cancelling the petitioner's GST registration is quashed and set aside; the writ petition is allowed.

Final Conclusion: The writ-application is allowed and the order of cancellation dated 25th February 2020 is quashed as a non-speaking order passed without reasons and in breach of procedural fairness; ancillary pending statutory revocation application noted as unattended.

Certificate for deduction at lower rate - Assessing Officer's duty to pass reasoned order - Requirement to furnish copy of the order to the assessee - Rule 28AA - factors to determine existing and estimated tax liability - Revisional jurisdiction under Section 264

Certificate for deduction at lower rate - Assessing Officer's duty to pass reasoned order - Requirement to furnish copy of the order to the assessee - Validity of the impugned certificates dated 07.08.2020 issued at rates higher than nil rate - HELD THAT: - Section 197 contemplates that an application for deduction at lower or no tax culminates in an order by the Assessing Officer which must disclose reasons and demonstrate application of mind. Rule 28AA prescribes the factors to be considered in determining existing and estimated liability. Absent a contemporaneous reasoned order communicated to the assessee, the issuance of certificates at rates other than those sought vitiates the exercise of power because the assessee cannot effectively challenge the decision (quasi judicial nature). In the present case the reasons for refusing nil rate were not available to the petitioner and no copy of any such order was placed on record or furnished to the petitioner; consequently the certificates cannot stand. [Paras 20, 21, 22, 23]

Impugned certificates dated 07.08.2020 are set aside for want of a reasoned and communicated order under Section 197 and Rule 28AA.

Rule 28AA - factors to determine existing and estimated tax liability - Requirement to furnish copy of the order to the assessee - Revisional jurisdiction under Section 264 - Remedial direction for fresh consideration and issuance of consequential certificates - HELD THAT: - Following the settled law that an Assessing Officer must pass a reasoned order under Section 197 after applying the statutory factors in Rule 28AA, and that such orders are amenable to revision under Section 264, the matter is remanded for fresh decision. The Assessing Officer must consider the statutory factors, give the petitioner an opportunity of hearing, record reasons in a contemporaneous order and furnish the same to the petitioner so that revisional remedies, if any, remain available. The Court directed completion of the exercise within a fixed short time frame to avoid prejudice arising from delay. [Paras 24]

Matter remanded to respondent No.1 to pass a fresh reasoned order and issue consequential certificates in accordance with Rule 28AA after affording opportunity of hearing; exercise to be completed within four weeks.

Final Conclusion: Writ petition allowed to the extent of quashing the impugned certificates dated 07.08.2020; respondents directed to pass a fresh reasoned order and issue consequential certificates under Section 197 in compliance with Rule 28AA after hearing the petitioner within four weeks; no order as to costs.

Deduction for bad debts under Section 36(1)(vii) of the Income tax Act - Requirement of writing off in books of account under Section 36(2) - Existence of debt as a condition for bad debt deduction - Perverse finding and appellate interference with findings of fact - Effect of prior acceptance of identical claim in earlier assessment year and consequence of not challenging that order

Deduction for bad debts under Section 36(1)(vii) of the Income tax Act - Requirement of writing off in books of account under Section 36(2) - Claim for deduction of bad debts of Rs. 3,33,79,791/- for AY 2010-11 where the amount had been written off in books and earlier offered to tax. - HELD THAT: - The Court held that Section 36(1)(vii) read with Section 36(2) requires that the debt be written off in the assessee's accounts and does not compel the assessee to further prove irrecoverability beyond the statutory requirement of write off. The assessee had credited amounts as income earlier, offered them to tax, and thereafter written off the amounts in its books when the foreign customers refused payment. The Assessing Officer did not dispute that the write off was reflected in the books. Reliance on the principles laid down by the Supreme Court in decisions such as VIJAYA BANK LTD. and TRF LTD. supports the proposition that a proper book entry of write off satisfies the condition for deduction under Section 36(1)(vii). Applying these principles, the Court concluded that the statutory pre requisites for claiming the bad debt deduction were complied with and the Tribunal's disallowance on this ground was unsustainable. [Paras 6]

Deduction under Section 36(1)(vii) allowed as the bad debts were duly written off in the books in terms of Section 36(2).

Existence of debt as a condition for bad debt deduction - Perverse finding and appellate interference with findings of fact - Validity of the Tribunal's finding that no debt ever existed and consequent denial of deduction. - HELD THAT: - The Court found the Tribunal's conclusion-that the amount written off was never a debt-to be perverse in light of the material showing that debit notes were raised, the amounts were credited as income and offered to tax in earlier years, and subsequently written off when payment was refused. Given those facts, the Tribunal's factual finding was set aside. The Court emphasised that where the statutory condition of write off is met and the Assessing Officer does not dispute the book entries, a contrary finding of non existence of debt cannot be sustained. [Paras 6, 7]

Tribunal's finding of non existence of debt quashed as perverse; deduction cannot be denied on that basis.

Effect of prior acceptance of identical claim in earlier assessment year and consequence of not challenging that order - Whether the revenue could take a different view in AY 2010-11 when an identical claim arising from the same facts for AY 2009-10 had been accepted by the appellate authorities and not challenged by the revenue. - HELD THAT: - While res judicata strictly does not apply to assessment proceedings, the Court applied the principle reflected in RADHASOAMI SATSANG that when a fundamental aspect recurring across assessment years has been adjudicated one way and the revenue has allowed that position to stand by not challenging the order, it is not appropriate to take a different view in a subsequent year. The assessee's identical claim for the earlier year was accepted by the CIT(A) and the Tribunal, and the revenue did not appeal further; consequently, the Tribunal in the present year could not permissibly adopt a contrary stance. This consideration reinforced that the Tribunal's disallowance should be quashed. [Paras 7, 8]

Prior acceptance of the identical claim in the earlier year, not challenged by the revenue, precluded taking a contrary view in the subsequent assessment; supports allowing the deduction.

Final Conclusion: Substantial questions of law framed were answered in favour of the assessee; the Tribunal's order to the extent it disallowed the bad debt claim is quashed and the appeal is allowed.

Rate of depreciation - classification of dumpers for depreciation - precedential effect of coordinate Bench decision - substantial question of law

Rate of depreciation - classification of dumpers for depreciation - precedential effect of coordinate Bench decision - Whether the Appellate Tribunal was in error in confirming CIT(A)'s grant of higher depreciation rate on dumpers and whether that raised a substantial question of law. - HELD THAT: - The Assessing Officer had allowed depreciation on dumpers at 15%; the assessee challenged this before the CIT(A), which deleted the addition and effectively allowed depreciation at the higher rate of 30%; the Appellate Tribunal affirmed the CIT(A)'s decision. The Court noted that an identical question had been considered and decided against the Revenue by a coordinate Bench of this Court in Tax Appeal No. 414 of 2018 dated 1st May, 2018. Having regard to that coordinate Bench decision and the facts of the present case, the Court held that the question of law raised does not constitute a substantial question of law warranting intervention. No fresh legal principle contrary to the coordinate Bench decision was established that would justify disturbing the ITAT's affirmation of the CIT(A).

Appeal dismissed; the proposed question of law is not a substantial question of law and the ITAT's confirmation of the CIT(A) is upheld.

Final Conclusion: The Revenue's appeal is dismissed; the ITAT's affirmation of the CIT(A)'s grant of higher depreciation on dumpers stands, in view of the coordinate Bench decision and absence of any substantial question of law.

Assessment under Section 153A in the absence of incriminating material - requirement of incriminating documents/evidence recovered in search or requisition - assessment of total income for assessment years under Section 153A - distinction between assessments under Section 143(1) and Section 143(3)

Assessment under Section 153A in the absence of incriminating material - requirement of incriminating documents/evidence recovered in search or requisition - Validity of framing assessment under Section 153A where incriminating documents or evidence were not found during search/requisition. - HELD THAT: - The Tribunal relied on this Court's decision in PCIT v. Saumya Construction and held that framing of assessment under Section 153A in respect of concluded proceedings required consideration of incriminating materials recovered during the search or requisition. Having regard to the facts of this case, the High Court held that the Tribunal's reliance on Saumya Construction was justified and that the Revenue's challenge on this preliminary point could not succeed. Consequently the Tax Appeal was dismissed on this ground. [Paras 3, 4]

Tribunal's conclusion, relying on Saumya Construction, that assessment under Section 153A could not be sustained in the absence of incriminating material, is upheld and the Tax Appeal is dismissed.

Assessment of total income for assessment years under Section 153A - scope of the term total income as defined in Section 2(45) read with Section 5 - Whether the Tribunal erred in ignoring the express provisions of Section 153A concerning assessment of 'total income' for relevant assessment years and the scope of 'total income'. - HELD THAT: - The Revenue contended that Section 153A mandates assessment/reassessment of total income for the six assessment years specified and that the Tribunal ignored this mandate and the definition of 'total income'. The High Court, having accepted the Tribunal's reliance on Saumya Construction for the facts before it, did not disturb the Tribunal's approach and dismissed the Revenue's challenge. The Court therefore did not accede to the submission that the Tribunal's treatment of 'total income' warranted interference in this appeal. [Paras 1, 4]

The Tribunal's approach to assessment under Section 153A and its treatment of 'total income' is not disturbed; the Revenue's challenge fails.

Distinction between assessments under Section 143(1) and Section 143(3) - Correctness of the Tribunal's observation that there is no differentiation in legislative intent between assessments originally framed under Section 143(1), Section 143(3) or Section 147. - HELD THAT: - The High Court observed that the Tribunal's statement in paragraph 11 that there is no differentiation in legislative intent between assessments under Section 143(1), Section 143(3) or Section 147 is not a correct proposition of law. The Court accepted the Revenue's submission that Sections 143(1) and 143(3) are independent and differ in nature. However, the Court found that this erroneous observation had no bearing on the dismissal of the Tax Appeal on the primary questions of law and therefore did not alter the result. [Paras 5, 6]

Tribunal's observation denying any differentiation between assessments under Sections 143(1) and 143(3) is incorrect in law, but the error is immaterial to the outcome of this appeal.

Final Conclusion: The High Court, applying its precedent in PCIT v. Saumya Construction, dismissed the Revenue's appeal for A.Y. 2006-07; while it disagreed with a categorical observation of the Tribunal equating the nature of assessments under Sections 143(1) and 143(3), that disagreement did not affect the dismissal of the appeal.

Agricultural income - compensation for compulsory cutting of trees - capital receipt - income from other sources - trading stock / stock-in-trade - regeneration of trees - classification of receipts as revenue or capital

Agricultural income - compensation for compulsory cutting of trees - trading stock / stock-in-trade - capital receipt - Nature of compensation of Rs. 10.14 lakhs received for cutting of trees - whether agricultural income, capital receipt, or income from other sources/trading operations - HELD THAT: - The Tribunal examined the material facts that the assessee was engaged in plantations and extraction of essential oils and that trees on its land were cut to make way for high-tension power lines, for which the assessee received compensation. It accepted that the assessee carried on activities on the land from which revenue was derived, and that the cut trees were disposed of in the ordinary course and constituted trading operations or stock-in-trade of the assessee. The Tribunal applied the principle that where trees are capable of regeneration, receipts on cutting and sale of their trunks or timber are revenue in nature rather than capital, relying on the reasoning in V. Venugopala Varma Rajah that receipts from sale of parts of trees which leave stumps capable of regeneration are income. The Tribunal also noted the assessee's business context and observed that the compensation for loss of trees is analogous to compensation for loss of trading stock and therefore falls within revenue classification. It rejected the alternative characterization as a capital receipt, observing that the trees cut and sold were linked to the assessee's revenue-generating operations and that regeneration potential and business usage point to revenue treatment. The Tribunal accordingly held that the compensation is to be treated as agricultural income in the hands of the assessee (given that the income was earned from trees) and not as a non-agricultural capital receipt or taxable only under income from other sources. [Paras 5, 6]

Compensation of Rs. 10.14 lakhs is not a capital receipt or merely income from other sources but is revenue in nature and, being income earned from trees capable of regeneration in the assessee's business of plantations, constitutes agricultural income; appeal allowed.

Final Conclusion: Appeal allowed: addition of Rs. 10.14 lakhs deleted by treating the compensation for cutting trees as revenue/ agricultural income linked to the assessee's plantation/trading operations rather than a capital receipt.

Addition under section 68 of the Income-tax Act relating to unexplained credit - disallowance for non-payment of statutory dues (VAT, TDS, Service Tax) - disallowance of business expenses for want of documentary evidence - interest under sections 234B and 234C as consequential on assessment additions - principles of natural justice - remand for fresh adjudication

Addition under section 68 of the Income-tax Act relating to unexplained credit - principles of natural justice - remand for fresh adjudication - Validity of the addition made under section 68 confirmed by the CIT(A) in absence of evidence and whether the matter should be remanded. - HELD THAT: - The Assessing Officer and the CIT(A) found that the assessee failed to produce required particulars and corroborative documents regarding creditors/trade payables despite specific directions and opportunities. The Tribunal noted non-appearance of the assessee before it but, treating Income-tax law as welfare legislation and in the interest of protecting the taxpayer's rights, held that a final opportunity must be given. The order of the CIT(A) confirming the addition was set aside and the matter restored to the file of the CIT(A) for de novo consideration in compliance with the principles of natural justice, with a direction to the assessee to furnish relevant details and evidence to substantiate its case. [Paras 6]

Order confirming addition under section 68 set aside and remanded to the CIT(A) for fresh adjudication after affording opportunity to the assessee.

Disallowance for non-payment of statutory dues (VAT, TDS, Service Tax) - remand for fresh adjudication - Sustainability of disallowance of statutory payments for alleged non-deposit and absence of records and whether the matter should be remanded. - HELD THAT: - The Assessing Officer relied on the auditor's report that statutory liabilities remained unpaid for more than six months. The assessee claimed those amounts related to earlier years but did not produce supporting evidence before either the AO or the CIT(A). The CIT(A) upheld the disallowance for lack of evidence. Applying the Tribunal's earlier observation that the assessee must be given a final opportunity to produce evidence, the Tribunal set aside the CIT(A)'s order on this issue as well and restored the matter for re-adjudication so that the assessee may substantiate its claim. [Paras 8, 9]

Disallowance in respect of statutory payments set aside and remanded to the CIT(A) for fresh consideration upon production of evidence by the assessee.

Disallowance of business expenses for want of documentary evidence - remand for fresh adjudication - Whether disallowances of claimed expenses (rent, advertisement, legal & professional fees) for lack of supporting details were sustainable, and whether the matter requires re-adjudication. - HELD THAT: - Both the AO and the CIT(A) disallowed the expenses because the assessee failed to discharge the onus of proving the claimed expenditures by producing requisite details and evidence. The Tribunal, invoking the same reasoning applied to earlier grounds and in the interest of justice, set aside the CIT(A)'s order and restored the issue to the CIT(A) for fresh adjudication, enabling the assessee to substantiate the claims on merits. [Paras 10, 11]

Disallowances of the specified expenses set aside and remanded to the CIT(A) for fresh adjudication upon production of supporting evidence.

Interest under sections 234B and 234C as consequential on assessment additions - remand for fresh adjudication - Whether interest under sections 234B and 234C should be sustained given that the substantive additions were remanded. - HELD THAT: - The liability to interest under sections 234B and 234C was entirely consequential upon the additions made by the AO and upheld by the CIT(A). Since the Tribunal has set aside and remanded the substantive additions for fresh consideration, it also set aside the order on interest and restored that issue to the CIT(A)'s file for adjudication in accordance with law and after compliance with principles of natural justice. [Paras 12]

Order on interest under sections 234B and 234C set aside and remanded to the CIT(A) for reconsideration consequent to the remand of substantive issues.

Final Conclusion: The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s confirmations on the contested additions and consequential interest, and remanded all such issues to the file of the CIT(A) for fresh adjudication after affording the assessee a final opportunity to produce relevant evidence in accordance with the principles of natural justice.

Reopening of assessment under section 147/148 - use of seized documents and presumption under section 292C - rebuttable presumption arising from documents found in search - weight of corroborative evidence to connect seized documents to assessee - assessment adjustments on unexplained bank deposits

Reopening of assessment under section 147/148 - use of seized documents and presumption under section 292C - Validity of reassessment proceedings initiated by recording reasons on the basis of seized material even though an earlier assessment based on the same seized material was quashed and revenue's appeal was pending - HELD THAT: - The Tribunal held that the Assessing Officer was justified in recording reasons for reopening the assessment on 28.03.2013 on the basis of seized material found during the search. The fact that the earlier assessment framed on the same material was quashed on technical grounds (non-service of notice under section 143(2)) and an appeal by the Department was pending did not preclude the AO from exercising the statutory power to reopen within the limitation period. The Tribunal relied on the view in Krishna Developers & Co. and subsequent dismissal of the SLP, and observed that failure to record reasons would have led to expiry of the limitation period, thereby prejudicing revenue. Following those precedents and applying them to the facts, the Tribunal found no illegality in the reopening and dismissed the grounds challenging initiation of reassessment. [Paras 9]

Grounds 1 to 9 dismissed; reopening under section 147/148 held valid.

Rebuttable presumption arising from documents found in search - weight of corroborative evidence to connect seized documents to assessee - Sustainability of addition on account of alleged unrecorded sales based on entries in seized diary (Annexure A) and application of gross profit rate - HELD THAT: - The Tribunal accepted that the presumption under section 292C is discretionary and rebuttable. On the facts, the assessee consistently denied ownership of the seized diary and there was no confrontation of the documents at the time of search; handwriting verification and corroborative enquiries were not carried out. The Tribunal noted that identical additions based on the same seized material were deleted by the Tribunal for the preceding year and that authorities below had no cogent material to show the assessee dealt in gold jewellery. In absence of corroborative, correlating or circumstantial evidence linking the diary to the assessee, the additions founded on the diary were held to be based on surmise and conjecture and therefore unsustainable. Consequently the addition based on alleged unrecorded sales was deleted. The question as to the correctness of the 18% gross profit rate became infructuous as the addition itself was removed. [Paras 13]

Ground No.10 allowed; addition on unrecorded sales deleted; Ground No.11 rendered infructuous.

Rebuttable presumption arising from documents found in search - Addition of Rs. 20,000 on basis of loose paper relating to a birthday function - HELD THAT: - The Tribunal observed that the seized paper did not indicate that the assessee incurred the expenditure and in fact referred to the assessee's son as the person who held the party. There was no enquiry of the banquet owner or other persons named in the seized paper to establish liability of the assessee. Given the familial relationship and absence of evidence that the grandfather bore the expense, the addition was found to be based on presumption without supporting material and therefore unsustainable. [Paras 17]

Ground No.12 allowed; addition of Rs. 20,000 deleted.

Assessment adjustments on unexplained bank deposits - Extent of addition sustained in respect of bank deposits of Rs. 2,89,500 - HELD THAT: - The Tribunal accepted that deposits of Rs. 2,89,500 were made in the assessee's bank account during the year, and that the assessee claimed they arose from brokerage income. Noting that the return disclosed business income and other income, the Tribunal held that part of the deposits could be explained from declared income and accumulations from earlier years. Applying this approach, and in absence of evidence to displace the assessee's explanation entirely, the Tribunal restricted the addition to the unexplained portion and sustained an addition of Rs. 1,58,859 only. [Paras 21]

Ground No.13 partly allowed; addition restricted to Rs. 1,58,859.

Final Conclusion: The appeal is partly allowed: reassessment initiation under section 147/148 sustained; additions based on the seized diary and the loose paper deleted; addition on bank deposits restricted to the unexplained portion and reduced to the amount specified by the Tribunal.

Deduction under Section 54F - single residential house versus multiple residential units - admission of additional ground - remand for quantification and verification of evidence

Admission of additional ground - Admission of the assessee's additional ground seeking deduction under Section 54F was permitted. - HELD THAT: - The Tribunal, relying on precedent, exercised its discretion to admit the additional ground raised by the assessee concerning deduction under Section 54F despite it being filed subsequently and observed that the claim arose from the orders of the lower authorities and did not require further investigation of facts. The Revenue's objection to admission was therefore overruled and the ground admitted for adjudication. [Paras 6]

Additional ground relating to deduction under Section 54F admitted for consideration.

Deduction under Section 54F - single residential house versus multiple residential units - In principle, the assessee is entitled to claim deduction under Section 54F for investment made in multiple flats within a single building, treating the building as one residential house for the purposes of Section 54F. - HELD THAT: - The Tribunal agreed with the assessee's contention that a building comprising multiple residential units may, for the purposes of Section 54F, be regarded as a single residential house so long as it is a residential building and not a commercial structure. The Tribunal relied on earlier reasoning that the expression 'a residential house' in the statute does not mean a single unit and that physical subdivision into independent units does not ipso facto negate the character of the property as a residential house. Accordingly, the assessee is entitled in principle to the deduction under Section 54F in respect of the investment in the impugned property, subject to satisfaction of the statutory conditions. [Paras 7]

Assessee entitled in principle to deduction under Section 54F for investment in multiple flats in the same building, treating the building as one residential house.

Remand for quantification and verification of evidence - Deduction under Section 54F - The matter of quantification and verification of the claim under Section 54F was remanded to the Assessing Officer for production of evidence and satisfaction of statutory conditions. - HELD THAT: - Although entitlement in principle was recognised, the Tribunal found that the assessee had not produced the relevant evidence before the Assessing Officer to establish the cost of the new residential asset and fulfil other conditions of Section 54F. Citing analogous findings in prior Tribunal orders, the Tribunal directed that the assessee produce all relevant evidence before the Assessing Officer and that the Assessing Officer verify compliance with the conditions of Section 54F and quantify the allowable deduction accordingly. The remand was for verification and computation and not for re-adjudication of the admitted legal principle. [Paras 7, 8]

Issue remitted to the Assessing Officer for verification of evidence, satisfaction of statutory conditions and quantification of deduction under Section 54F.

Final Conclusion: The Tribunal admitted the additional ground concerning Section 54F, held that investment in multiple flats within a single residential building may qualify in principle as investment in 'a residential house' for Section 54F, and remitted the matter to the Assessing Officer to verify evidence, satisfy statutory conditions and quantify the deduction; the appeal is allowed for statistical purposes.

Validity of notice under section 143(2) of the Income Tax Act - Jurisdiction of the Assessing Officer - Assessment void ab initio - Transfer of proceedings and effect on jurisdiction

Validity of notice under section 143(2) of the Income Tax Act - Jurisdiction of the Assessing Officer - Assessment void ab initio - Whether the assessment framed by ITO, Ward 5(1), New Delhi is void for want of jurisdiction because the notice under section 143(2) was issued beyond time by the transferring officer and the subsequent notice by the correct AO was time-barred. - HELD THAT: - The Tribunal found that the assessee filed the return for AY 2013-14 on 29.8.2013 and an initial notice under section 143(2) was issued on 04.09.2014 by DCIT, Circle 3(1). The file was thereafter transferred to ITO, Ward 5(1), New Delhi pursuant to CBDT instructions relating to jurisdiction. The ITO, Ward 5(1) issued a notice under section 143(2) dated 08.9.2015 which was beyond the statutory time limit. Applying the principle that a notice under section 143(2) must be issued by the assessing officer vested with jurisdiction, the Tribunal held that the assessment completed by the ITO, Ward 5(1) was without jurisdiction and therefore void ab initio. The Tribunal relied on precedents addressing identical facts where assessments were quashed where the initial proceedings were not validly initiated by the correct jurisdictional officer and subsequent notices by the proper AO were time-barred. Having quashed the assessment on this legal ground, the Tribunal held that other grounds raised became academic and need not be adjudicated. [Paras 5, 6]

Assessment framed by ITO, Ward 5(1), New Delhi quashed as void ab initio for want of jurisdiction; appeal allowed.

Final Conclusion: The assessment order for AY 2013-14 passed by ITO, Ward 5(1), New Delhi is quashed as void ab initio for want of jurisdiction because the notice under section 143(2) by the correct assessing officer was time-barred; consequently the appeal is allowed and the remaining grounds are rendered academic.

Jurisdiction to pass final assessment order - reference to Dispute Resolution Panel - mandatory procedure under section 144C - time for filing objections under section 144C(2) - time limit for Assessing Officer to pass final order under section 144C(4) - binding nature of Dispute Resolution Panel directions - final assessment order void for want of jurisdiction

Jurisdiction to pass final assessment order - reference to Dispute Resolution Panel - time for filing objections under section 144C(2) - time limit for Assessing Officer to pass final order under section 144C(4) - binding nature of Dispute Resolution Panel directions - Validity of the Assessing Officer's final assessment order dated 27.01.2020 when the assessee filed objections with the Dispute Resolution Panel on 24.01.2020 after receiving the draft order on 28.12.2019. - HELD THAT: - Section 144C constitutes a self-contained code: after the AO forwards a draft order the assessee has thirty days to either accept the draft or file objections before the DRP and intimate the AO. If objections are filed within that period the DRP takes cognisance and issues directions under section 144C(5), which are binding on the AO; only upon receipt of those directions may the AO complete the assessment under section 144C(13). Separately, where no objection is filed or the draft is accepted, section 144C(4) prescribes the time window within which the AO may pass the final order - namely one month from the end of the month in which the acceptance is received or the objection period expires. In the present case the draft order was forwarded on 28.12.2019 and the assessee filed objections before the DRP on 24.01.2020 (within thirty days) and informed the AO on 27.01.2020. Between 24.01.2020 and the DRP's directions the DRP was seized of the matter and the AO was divested of jurisdiction to pass a final order. The AO nonetheless passed the final assessment order on 27.01.2020, prior to the expiry of the statutory window under section 144C(4) and while the DRP had already been placed in seisin by the assessee's objection. This was contrary to the statutory scheme and resulted in the AO acting without jurisdiction; consequently the final assessment order and the consequential demand were null and void. [Paras 6, 8]

The final assessment order dated 27.01.2020 passed by the AO is quashed as having been framed without jurisdiction because the assessee had filed objections before the DRP within the statutory period and the AO failed to await DRP directions.

Final Conclusion: The assessee's appeal is allowed: the AO's final assessment order dated 27.01.2020 (and the demand issued thereunder) is quashed as having been passed without jurisdiction because the DRP had been validly seised of the objection filed by the assessee within the period prescribed by section 144C.

Arm's length principle - Transfer Pricing Officer jurisdiction - Application of methods under Section 92C(1) - Transactional Net Margin Method (TNMM) as Most Appropriate Method - Comparable Uncontrolled Price (CUP) method - Explanation to Section 73-speculative transactions - Admission of additional evidence under Rule 46A - Government/RBI approval and its bearing on arm's length

Government/RBI approval and its bearing on arm's length - Admission of additional evidence under Rule 46A - Allowability of one-third of SEBI merchant banking registration fee in A.Y. 2003-04 pursuant to earlier appellate direction for A.Y. 2001-02 - HELD THAT: - The Tribunal examined the CIT(A)'s earlier direction in the assessee's A.Y. 2001-02 order directing allowance of one-third of the one-time SEBI registration fee in each of A.Y. 2002-03 and A.Y. 2003-04. The Assessing Officer allowed the amount for A.Y. 2002-03 but not for A.Y. 2003-04; the CIT(A) sustained the disallowance without cogent reasons. Having regard to the clear and unequivocal direction recorded by the CIT(A) in the earlier appeal, the Tribunal found no justification for the non-compliance and directed the AO to allow the deduction of Rs. 1,66,666 (1/3rd) in A.Y. 2003-04, setting aside the CIT(A)'s contrary view. [Paras 8]

Allowance directed for the SEBI merchant banking license fee of 1/3rd in A.Y. 2003-04; CIT(A)'s contrary conclusion set aside.

Explanation to Section 73-speculative transactions - Characterisation of loss from 'error trades' and related proportionate expenses as business loss rather than speculative loss - HELD THAT: - The Tribunal considered the nature of the assessee's business (share and stock broking) and the factual matrix showing that purchase and sale of shares arose incidentally and under compulsion (honouring client transactions) rather than from a trading intent to earn profit. Relying on precedents and CBDT guidance, the Tribunal held that losses on error trades executed on behalf of clients are integral to the broker's business and do not attract the 'Explanation' to Section 73. Consequentially, the ad hoc disallowance of proportionate expenditure attributed to alleged speculation was also deleted. [Paras 10]

Loss from error trades and the attributed expenses (aggregate disallowance) deleted and allowed as business loss.

Arm's length principle - Transactional Net Margin Method (TNMM) as Most Appropriate Method - Comparable Uncontrolled Price (CUP) method - Government/RBI approval and its bearing on arm's length - Validity of TPO/AO determination of ALP at nil for royalty/branding fees paid to CLSA BV (Netherlands) - HELD THAT: - The Tribunal noted that the identical issue had been examined by a coordinate bench for A.Y. 2002-03 where TNMM was accepted as the Most Appropriate Method and the royalty was held at arm's length. The TPO/AO had applied an internal/external CUP approach and set ALP at nil despite absence of reliable comparable data. The Tribunal followed the earlier decision, observed that RBI approval for the payments supported their conformity with regulatory norms, and accepted that government approval has weight in assessing reasonableness. On these bases the Tribunal found the determination at nil unsustainable and vacated the TP adjustment. [Paras 12]

TPO/AO determination of ALP at nil for royalty/branding fees set aside; payment accepted as at arm's length.

Arm's length principle - Transfer Pricing Officer jurisdiction - Application of methods under Section 92C(1) - Transactional Net Margin Method (TNMM) as Most Appropriate Method - Admission of additional evidence under Rule 46A - Validity of TPO/AO determination of ALP at nil for referral fees paid to CLSA Ltd., Hong Kong and admissibility/effect of additional evidence - HELD THAT: - The Tribunal reviewed the voluminous documentary material admitted by the CIT(A) under Rule 46A and found it established the rendition of referral services and tangible business benefits. The TPO's remand reports did not produce material disproving these facts. Separately, the Tribunal held that on a reference under Section 92CA the TPO is obliged to determine ALP by applying one of the methods in Section 92C(1) and cannot fix ALP at nil by ad hoc inferences. Since the TPO had determined ALP at nil without applying any prescribed method, that approach was held invalid. The assessee's TNMM-based study therefore could not be displaced by the TPO's nil valuation. [Paras 16, 19]

TPO/AO determination of ALP at nil for referral fees vacated; additional evidence admitted and assessee's TNMM-based position upheld for furtherance of appeal.

Transfer Pricing Officer jurisdiction - Application of methods under Section 92C(1) - Disposition of general grounds challenging TPO/AO/CIT(A) orders as void and rejection of TP analysis (grounds 1-5) - HELD THAT: - The assessee's general grounds alleging jurisdictional invalidity and rejection of its transfer pricing analysis were considered but were not pressed before the Tribunal. The Tribunal therefore declined to adjudicate those general contentions. [Paras 20]

General grounds 1-5 dismissed as not pressed.

Final Conclusion: The Tribunal allowed the appeal in part. It directed allowance of the SEBI merchant banking fee instalment for A.Y. 2003-04, held the error-trade loss and related expenses to be business loss (deleting the speculative disallowances), and set aside the TPO/AO determinations of ALP at nil for both the royalty/branding fees and the referral fees-finding the TPO erred in not applying any method under Section 92C(1) and accepting the assessee's evidence and/or earlier Tribunal view where applicable; general TP challenges not pressed were dismissed.

Assessment passed in name of non-existent / merged entity - rectification under section 292B of the Act - valuation of shares and income under section 56(2)(viib) - valuation by DCF and chartered accountant's certificate - independence and reliance on valuer's certificate - status as a Venture Capital undertaking under section 10(23FB) - remand for fresh consideration and verification of evidence

Assessment passed in name of non-existent / merged entity - rectification under section 292B of the Act - effective date of merger - Validity of assessment order passed in the name of the transferor company after its merger and whether such order is void or rectifiable. - HELD THAT: - The Tribunal found that notice under section 143(2) was issued to the transferor company prior to sanction of the merger and that the merger was approved during the pendency of assessment. The assessee filed replies after sanction of the merger but did not promptly or separately bring the change of existence/name to the direct attention of the Assessing Officer. The factual matrix therefore differed from precedents relied upon by the assessee. On these facts the Tribunal held that the assessment having been passed in the name of the transferor company amounted to an irregularity susceptible of rectification under section 292B of the Act rather than a nullity void ab initio; the Assessing Officer was directed to take necessary steps to rectify the order. [Paras 7]

Additional ground that assessment was passed on a non-existent merged entity dismissed; assessment error treated as rectifiable under section 292B and AO directed to rectify.

Valuation of shares and income under section 56(2)(viib) - valuation by DCF and chartered accountant's certificate - independence and reliance on valuer's certificate - status as a Venture Capital undertaking under section 10(23FB) - remand for fresh consideration and verification of evidence - Whether the addition under section 56(2)(viib) on account of alleged undervaluation of share premium is sustainable and whether the Chartered Accountant's valuation certificate filed by the assessee is admissible and reliable. - HELD THAT: - The Tribunal noted that the authorities below had not examined the available material on record on merits. CIT(A) had rejected the valuation certificate on the basis that the report stated it was prepared from information supplied by management and contained disclaimers, and therefore was not an independent verification. Rather than finally adjudicating the controversy, the Tribunal remanded the matter to the Assessing Officer for fresh consideration. The assessee was directed to file all necessary documents and evidence to substantiate its claim, including materials to establish its status as a Venture Capital undertaking and to support the valuation method (eg. DCF) adopted. The AO was directed to consider the issue afresh in the light of documents filed, grant proper opportunity to the assessee and decide in accordance with law. [Paras 8, 9]

Addition under section 56(2)(viib) remanded to AO for fresh adjudication after verification of documents and evidence; grounds on merits allowed for statistical purposes.

Final Conclusion: The appeal was partly allowed: the objection that assessment was framed in the name of a merged/non-existent entity was dismissed as an irregularity rectifiable under section 292B and AO directed to rectify; the substantive dispute on addition under section 56(2)(viib) was remanded to the AO for fresh consideration after the assessee files supporting evidence, and the merits were left open (grounds allowed for statistical purposes).

Most appropriate method - resale price method - transactional net margin method - arm's length price - profit level indicator - inclusion of after sales/expatriate costs in cost of goods sold under RPM - penalty initiation premature

Inclusion of after sales/expatriate costs in cost of goods sold under RPM - profit level indicator - Whether expatriate/after sales costs must be included in computation of the Profit Level Indicator (PLI) when the Resale Price Method (RPM) is applied - HELD THAT: - The Tribunal examined the job profiles of the expatriate employees and the nature of services (warranty, after sales support, training, coordination for spare parts and technical support) and held that the sales price charged by the assessee already embedded consideration for such services. Accordingly, corresponding expenses linked to those promised after sales services are properly includible when computing the gross profit margin under the resale price method pursuant to the rule governing RPM computation. The Tribunal found no infirmity in the conclusions of the TPO and CIT(A) that these costs are closely linked with distribution functions and must be taken into account in PLI computation under RPM. On that basis Grounds 3 to 5 were dismissed. [Paras 8]

Expatriate and after sales service costs are to be included in cost of goods sold for computing the PLI under RPM; Grounds 3-5 dismissed.

Most appropriate method - resale price method - transactional net margin method - Whether the transactional net margin method (TNMM) adopted by the TPO should be sustained or resale price method (RPM) selected by the assessee and accepted by the CIT(A) is the most appropriate method - HELD THAT: - The Tribunal noted that the Assessing Officer did not challenge the CIT(A)'s finding that the resale price method is the most appropriate method (MAM) and that the assessee had adopted RPM as its MAM. Consequently, the only live controversy before the Tribunal related to computation of the PLI under RPM. Given the absence of challenge to the selection of RPM by the AO and the CIT(A)'s acceptance, the Tribunal proceeded on the basis that RPM is the appropriate method for the distribution function in the facts of this case. [Paras 8]

Resale Price Method stands as the most appropriate method for the assessee's distribution function; the TNMM selection by the TPO was not sustained as a locus of dispute before the Tribunal.

Penalty initiation premature - Whether penalty proceedings under section 271(1)(c) could be adjudicated at this stage - HELD THAT: - The Tribunal observed that the challenge to initiation of penalty proceedings was premature in the present proceedings. Grounds attacking the general validity of the order (including alleged failure to record reasons for referral to TPO and onus under clause (a)-(d) of Section 92C(3)) and the initiation of penalty proceedings were not entertained on merits and were dismissed accordingly. [Paras 9]

Grounds 1, 2 and 6 are dismissed as general or premature.

Final Conclusion: The appeal is dismissed. The reseller price method as accepted by the CIT(A) is treated as the appropriate method for the distribution function and the expatriate/after sales costs are to be included in computing the PLI under RPM; Grounds 3-5 are dismissed on merits and Grounds 1, 2 and 6 are dismissed as general or premature.

Defective show cause notice under Section 274 of the Income-tax Act, 1961 - penalty under Section 271(1)(c) of the Income-tax Act, 1961 - concealment of particulars of income - furnishing inaccurate particulars of income - benefit of conflicting judicial views in favour of the assessee

Defective show cause notice under Section 274 of the Income-tax Act, 1961 - penalty under Section 271(1)(c) of the Income-tax Act, 1961 - concealment of particulars of income - furnishing inaccurate particulars of income - Whether penalty under Section 271(1)(c) can be sustained where the show cause notice under Section 274 does not specify whether proceedings are for concealment of particulars of income or for furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal found that the show cause notice issued to the assessee did not strike out or otherwise specify which limb of Section 271(1)(c) - concealment of particulars of income or furnishing inaccurate particulars of income - was being invoked. Relying on the coordinate-bench reasoning in Jeetmal Choraria (which follows the view of the Hon'ble Karnataka High Court in Manjunatha Cotton & Ginning Factory), the Tribunal observed that where the notice is a standard pro forma and the inappropriate portions are not deleted, the notice is vague and indicative of non-application of mind. Noting conflicting authorities from other jurisdictions, the Tribunal applied the settled rule that where two judicial views exist, the view favourable to the assessee should be followed. For these reasons the Tribunal held that the penalty could not be sustained because the statutory show cause notice failed to specify the charge for which penalty was proposed, and accordingly the penalty was deleted.

Penalty under Section 271(1)(c) deleted as the show cause notice under Section 274 was defective for not specifying the charge.

Final Conclusion: The appeal is allowed; the penalty imposed under Section 271(1)(c) is set aside because the show cause notice under Section 274 failed to specify whether proceedings were for concealment of income or for furnishing inaccurate particulars, and the view favourable to the assessee on this conflict of authority was followed.

Validity of notice under section 143(2) of the Income-tax Act in relation to a revised return - Revised return replacing the original return - Assumption of jurisdiction by the assessing officer upon issuance of notice u/s 143(2) - Disallowance under section 14A of the Income-tax Act read with Rule 8D(2)(ii) - interest disallowance - Remand for fresh examination in light of judicial precedent (Micro Labs Ltd.)

Validity of notice under section 143(2) of the Income-tax Act in relation to a revised return - Revised return replacing the original return - Assumption of jurisdiction by the assessing officer upon issuance of notice u/s 143(2) - Whether the Assessing Officer was required to issue a fresh notice under section 143(2) in respect of the revised return filed by the assessee. - HELD THAT: - The Tribunal held that once the Assessing Officer validly assumes jurisdiction by issuing a notice under section 143(2) within the prescribed time, there is no requirement to issue a further notice in respect of a subsequently filed revised return because jurisdiction need not be assumed afresh. It is a settled principle that a revised return filed within the prescribed time replaces the original return; where the notice under section 143(2) was issued after the revised return was filed, the notice must be treated as issued against the revised return which was then the operative return. Applying these propositions to the facts, the notice issued by the AO was treated as against the surviving (revised) return and the AO's adoption of figures from the original return was addressed by the First Appellate Authority directing adoption of the revised return figures. The Tribunal therefore rejected the contention that a separate notice was mandatory in respect of the revised return. [Paras 6, 7, 8, 10]

The contention that a fresh notice under section 143(2) was required in respect of the revised return is rejected; the notice issued is to be treated as against the operative return and no separate notice was necessary.

Disallowance under section 14A of the Income-tax Act read with Rule 8D(2)(ii) - interest disallowance - Remand for fresh examination in light of judicial precedent (Micro Labs Ltd.) - Whether disallowance under section 14A read with Rule 8D(2)(ii) out of interest expenditure should be sustained or requires fresh examination. - HELD THAT: - The assessee contended, relying on the Karnataka High Court decision in Micro Labs Ltd., that no disallowance of interest under section 14A/Rule 8D(2)(ii) is warranted where interest-free/own funds exceed the value of investments. The Revenue submitted that the claim must be examined with reference to the assessee's financial statements. The Tribunal considered that the contention turns on a factual and accounting examination of the assessee's available interest-free funds vis-a -vis investments and that such examination should be undertaken by the Assessing Officer in the light of the Micro Labs Ltd. decision. Consequently the Tribunal set aside the appellate order on this issue and remanded the matter to the AO for fresh consideration and computation in accordance with the cited precedent. [Paras 11, 13]

Disallowance under section 14A/Rule 8D(2)(ii) is remitted to the Assessing Officer for fresh examination and computation in accordance with the Micro Labs Ltd. precedent.

Final Conclusion: The appeal is partly allowed for statistical purposes: the challenge to the absence of a fresh notice under section 143(2) is dismissed, while the question of disallowance under section 14A/Rule 8D(2)(ii) is remanded to the Assessing Officer for fresh adjudication in accordance with the Karnataka High Court decision in Micro Labs Ltd.

Entry of goods by presenting electronically on the customs automated system - Power to allow alternative manner of presentation when not feasible - Warehousing of imported goods under section 46(1) - Sale of goods in custody under section 48 - Right to opportunity of hearing and requirement of a speaking order - Interim restraint on action under section 48 pending administrative decision under section 46

Entry of goods by presenting electronically on the customs automated system - Power to allow alternative manner of presentation when not feasible - Warehousing of imported goods under section 46(1) - Right to opportunity of hearing and requirement of a speaking order - Respondent authorities are required to decide the petitioners' prayer for warehousing of the imported consignments under section 46(1) of the Customs Act after granting an opportunity of hearing and to record the decision in a speaking order. - HELD THAT: - Section 46(1) mandates presentation of bills of entry electronically on the customs automated system for entry of imported goods, while the proviso permits the Principal Commissioner or Commissioner to allow presentation in another manner where electronic presentation is not feasible. The court concluded that a decision by the authority under section 46 is necessary in the circumstances of these petitions and that the petitioners must be afforded due opportunity of hearing before such decision is taken. The court did not express any opinion on the merits of the warehousing request; it directed that the decision be rendered as a speaking order and communicated to the petitioners within seven days from receipt of the order. [Paras 12, 13, 16, 17, 18]

Respondent Nos.2 and 3 to take a decision on the prayer for warehousing under section 46(1) after granting hearing and to pass a speaking order within seven days.

Sale of goods in custody under section 48 - Interim restraint on action under section 48 pending administrative decision under section 46 - Custodians are restrained from selling the imported goods under section 48 of the Customs Act until the authorities decide the petitioners' warehousing application under section 46 and communicate the decision. - HELD THAT: - Section 48 permits sale of imported goods not cleared or warehoused within the prescribed period, subject to notice and permission of the proper officer. The court held that, in the absence of a decision under section 46 on the petitioners' request for warehousing, it would be unjust to permit custodians to proceed with sale under section 48. Accordingly, the court stayed any action to sell the goods under section 48 until the section 46 decision is taken and communicated. [Paras 14, 15, 16, 19]

No action shall be taken by the respondents for selling the goods under section 48 until the section 46 decision is taken and communicated.

Final Conclusion: The writ petitions are disposed of by directing respondent Nos.2 and 3 to decide the petitioners' applications for warehousing under section 46(1) after hearing and by restraining any sale under section 48 until such decision is communicated; merits are left open and the decision must be a speaking order communicated within seven days.

Adjudication of show cause notice - time-bound adjudication - direction to adjudicating authority - liberty to file appropriate proceedings - other issues left open for appropriate forum

Adjudication of show cause notice - time-bound adjudication - direction to adjudicating authority - The adjudicating authority was directed to decide the show cause notice dated 31.12.2014 in a time-bound manner. - HELD THAT: - The High Court, on the petitioner's request, directed the concerned authority (Joint/Additional Commissioner of Customs, Customs Commissionerate, Noida) to adjudicate the show cause notice dated 31st December, 2014 in accordance with law, rules, regulations and Government policies and on the basis of evidence on record. The Court imposed a preference for expedition and articulated a specific timeline, namely preferably within 12 weeks from the date of receipt of the order, thereby mandating time-bound disposal while leaving the adjudicatory exercise to be conducted on merits by the statutory authority.

The adjudicating authority is directed to adjudicate the show cause notice dated 31.12.2014 as expeditiously as possible, preferably within 12 weeks from receipt of the order.

Liberty to file appropriate proceedings - other issues left open for appropriate forum - The petitioner was granted liberty to challenge any adverse adjudication and other contested reliefs were left open for determination in appropriate proceedings. - HELD THAT: - The Court expressly reserved the petitioner's right to seek remedies before the appropriate forum if aggrieved by the order passed upon adjudication of the show cause notice. Further, the Court declined to adjudicate other reliefs sought in the writ petition, including the claims for refund and challenges to earlier orders, leaving those contentions open to be raised in the proper statutory or appellate proceedings in accordance with law.

Liberty granted to the petitioner to approach the appropriate forum against any adverse order; all other issues, including refund claims and earlier orders, are left open for determination in appropriate proceedings.

Final Conclusion: Writ petition disposed of by directing the Customs adjudicating authority to decide the show cause notice dated 31.12.2014 in accordance with law and preferably within 12 weeks; petitioner given liberty to challenge any adverse order and other contested issues were left open for adjudication before the appropriate forum.

Exemption from Special Additional Duty under Notification No.45/2005 - proviso excluding exemption where goods when sold in DTA are exempted from sales tax/VAT - clearance by way of stock transfer as distinct from sale - Circular cannot curtail scope of an exemption notification - liability to countervailing duty on DTA clearance of SEZ goods - limitation and extended period under Section 28 of the Customs Act

Exemption from Special Additional Duty under Notification No.45/2005 - proviso excluding exemption where goods when sold in DTA are exempted from sales tax/VAT - clearance by way of stock transfer as distinct from sale - Circular cannot curtail scope of an exemption notification - Benefit of Notification No.45/2005 is available for blanks cleared from the SEZ unit to the appellant's DTA unit by way of stock transfers where the proviso condition (VAT/Sales Tax exemption on sale in DTA) is not attracted. - HELD THAT: - The Notification exempts all goods cleared from a SEZ and brought to any other place in India; the body of the Notification does not qualify the nature of clearance. The proviso only operates where such goods, when sold in the DTA, are exempted from payment of sales tax/VAT. In the present case the clearances were undisputedly stock transfers and the goods were not exempt from VAT (VAT was shown to apply at 5%). Therefore the proviso did not apply and the SAD exemption under Notification No.45/2005 could not be denied. A Circular cannot be used to narrow the scope of an exemption notification or to impose conditions not contained therein; the tribunal applied the principle that exemption notifications are to be interpreted on their own terms and relied upon precedents and the AAR decision cited by the appellant as supporting this construction. [Paras 6]

SAD exemption under Notification No.45/2005 allowed for the SEZ to DTA stock transfers; proviso not attracted.

Liability to countervailing duty on DTA clearance of SEZ goods - Circular cannot curtail scope of an exemption notification - The impugned order's attempt to recover countervailing duty (CVD) travels beyond the scope of the show cause notice, and on the merits the demand for CVD is unsustainable in view of the statutory scheme as interpreted in the authority relied upon. - HELD THAT: - The adjudicating order sought recovery of CVD by invoking the proviso to Section 5A of the Central Excise Act, thereby exceeding the scope of the SCN. The tribunal noted authorities which explain that legislative and scheme changes in relation to SEZs alter the incidence and recovery of CVD and observed that the impugned demand for CVD could not be sustained on the bases relied upon by the adjudicator. Accordingly the recovery of CVD was held to be beyond the notice and not maintainable in the circumstances. [Paras 7, 8]

The CVD demand travelled beyond the SCN and cannot be sustained on the reasoning in the impugned order.

Limitation and extended period under Section 28 of the Customs Act - clearance by way of stock transfer as distinct from sale - Demand was time-barred; extended period could not be invoked because BOEs were countersigned and assessed by SEZ customs officers and there was no suppression or wilful misstatement warranting extended limitation. - HELD THAT: - The bills of entry were filed and countersigned by the customs officer at the SEZ and assessed on that basis. The tribunal found that the matter concerned interpretation of a notification and there was no suppression or deliberate misstatement to attract invocation of the extended period. The normal period of limitation for the imports in issue expired prior to the amendment increasing the period from one year to two years; the Finance Act amendment effective 14-5-2016 was not retrospective and could not revive demands already time-barred. Consequently show cause proceedings issued after expiry of the original limitation could not be sustained. [Paras 9, 10]

Show cause notice and demand are barred by limitation; extended period inapplicable.

Final Conclusion: The appeal is allowed; the impugned order confirming SAD demand (and associated CVD demand insofar as it exceeded the SCN) is set aside on merits and on limitation, with consequential reliefs as applicable.

Transaction value - related-party transactions - examination of the circumstances under Rule 3(a) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - onus to prove influence on price - rejection of declared transaction value - use of contemporaneous market data (Chemical Weekly) as comparable evidence - requirement of test report to determine quality/description - speaking and reasoned order - remand for fresh consideration

Transaction value - related-party transactions - examination of the circumstances under Rule 3(a) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - onus to prove influence on price - Whether the transaction value declared by the importer could be rejected merely because buyer and seller are related, and where the burden of proof lay. - HELD THAT: - The Tribunal held that the original authority and the appellate authority proceeded incorrectly by treating relatedness as sufficient to reject the declared transaction value. Under Rule 3(a) the transaction value shall be accepted where examination of the circumstances indicates that the relationship did not influence the price. The authorities failed to make any reasoned finding that the relationship had in fact affected pricing; absent such a finding the onus does not shift to the importer. The authorities also did not record reasons for rejecting the contemporaneous comparative material placed on record by the appellant, nor did they apply the proviso regarding adjustments for commercial level, quantity and other relevant factors before arriving at an enhanced value.

Findings of the original and appellate authorities on rejection of declared transaction value for reason of relatedness were legally incorrect and require fresh consideration.

Use of contemporaneous market data (Chemical Weekly) as comparable evidence - requirement of test report to determine quality/description - rejection of declared transaction value - Whether reliance on the Chemical Weekly report and enhancement of value without testing or proper comparability analysis was justified. - HELD THAT: - The Tribunal found that the authorities relied on Chemical Weekly data without demonstrating that the items cited were comparable in quality, quantity and period to the imports under consideration. The original authority recorded that no test report was submitted by the importer but itself did not obtain testing to determine quality or specification; yet proceeded to adopt minimum values from the weekly report and apply arbitrary quantity discounts. The appellants had placed comparative import data and price statements which were not dealt with in the impugned orders. In these circumstances the Tribunal concluded that reliance on the magazine data, without establishing comparability or giving reasons for rejecting the appellant's material, was unsustainable.

The adoption of Chemical Weekly figures and the enhancement of value without proper testing or reasoned comparability analysis was unsupportable and must be re-examined by the original authority.

Speaking and reasoned order - remand for fresh consideration - Whether the appellate order was sufficient in terms of reasons and whether the matter should be remanded for fresh adjudication. - HELD THAT: - The Tribunal observed that the Commissioner (Appeals) gave only brief, cryptic findings and did not address or record reasons for rejecting the specific submissions and annexures filed by the appellant. Both the original and appellate authorities failed to apply the correct legal tests and did not produce a reasoned order explaining the basis for rejecting the declared value or the appellant's comparative evidence. Having regard to these deficiencies and the need for a proper application of law, the Tribunal directed that the matter be remanded to the original authority for fresh consideration and a speaking, reasoned order after affording opportunity to the parties.

Appeal allowed by way of remand; the original authority to reconsider all submissions and pass a reasoned order.

Final Conclusion: The appeal is allowed for the limited purpose of remand. The appellants are directed to file all evidence before the original authority within four weeks; the original authority shall re-examine the declared transaction value, the comparability of Chemical Weekly data, the need for testing, and the appellant's submitted material and then pass a speaking and reasoned order within twelve weeks of receipt of the submissions.

Sanction of scheme of amalgamation under Sections 230-232 of the Companies Act, 2013 - Appointed Date - Amalgamation reserve and restriction on use of capital reserve - Acceptance of Regional Director's observations and statutory accounting compliances - Dissolution of transferor companies without winding up - Filing of certified copy of NCLT order with Registrar and stamping for adjudication

Sanction of scheme of amalgamation under Sections 230-232 of the Companies Act, 2013 - Appointed Date - Sanction of the Scheme of Amalgamation of Kripa Trading Pvt. Ltd. and Purica Foods Pvt. Ltd. with Roop Commercials Pvt. Ltd., and fixation of the Appointed Date. - HELD THAT: - The Tribunal, after hearing the authorised representative and noting that there were no objectors, examined the material on record including the affidavits of compliance and the reports placed before it. The Scheme was found to be fair and reasonable, not violative of law and not contrary to public policy. The Tribunal accepted the petitioners' undertaking that the Scheme will be effective from the Appointed Date and accordingly sanctioned the Scheme and fixed the Appointed Date as 1st April, 2019. The sanction is given in terms of the prayers in the Company Petition. [Paras 8, 12, 14, 15, 16]

Scheme sanctioned and Appointed Date fixed as 1st April, 2019.

Acceptance of Regional Director's observations and statutory accounting compliances - Amalgamation reserve and restriction on use of capital reserve - Responses and undertakings by the petitioner companies to the observations made by the Regional Director were accepted by the Tribunal. - HELD THAT: - The Regional Director's report raised specific matters relating to compliance with accounting standards, definition and operation of the Appointed Date/Effective Date, compliance with section 232(3)(i) regarding fee set-off on authorised capital, and treatment of any capital reserve arising on amalgamation. The petitioners furnished specific undertakings: to make necessary accounting entries to comply with applicable accounting standards; to make the Scheme effective from the Appointed Date and to comply with the Ministry's circular; to comply with Section 232(3)(i) on fee set-off; and to show any capital reserve as an amalgamation reserve and not use it as free reserve. The Tribunal recorded these clarifications and accepted the undertakings. [Paras 9, 10, 11, 12]

Tribunal accepted the petitioners' clarifications and undertakings in respect of the Regional Director's observations.

Dissolution of transferor companies without winding up - Dissolution of the transferor companies consequent to the sanction of the Scheme. - HELD THAT: - The Official Liquidator reported that the affairs of the transferor companies had been conducted properly and recommended dissolution. In view of the sanctioned Scheme and the Official Liquidator's report, the Tribunal ordered that the transferor companies be dissolved without undergoing a formal winding up process. [Paras 13, 16]

Transferor companies to be dissolved without winding up.

Filing of certified copy of NCLT order with Registrar and stamping for adjudication - Directions as to administrative compliances following sanction of the Scheme. - HELD THAT: - The Tribunal directed the petitioner companies to file a copy of the Order along with the Scheme with the Registrar of Companies electronically in E-Form INC-28 within thirty days from issuance of the certified copy. The petitioners were also directed to lodge a certified copy of the Order with the concerned Superintendent of Stamps for adjudication of stamp duty within sixty days from receipt of the certified copy. Further, all regulatory authorities were directed to act on the certified copy and the form of minutes certified by the Joint Registrar of the Tribunal. [Paras 17, 18, 19]

Petitioners directed to file certified copy with ROC in E-Form INC-28 and to lodge certified copy with Superintendent of Stamps; regulatory authorities to act on certified copy.

Final Conclusion: The Tribunal sanctioned the Scheme of Amalgamation, fixed the Appointed Date as 1st April, 2019, accepted the petitioners' undertakings to address the Regional Director's observations and accounting compliances, ordered dissolution of the transferor companies without winding up, and issued directions for filing the certified order with the Registrar of Companies and for stamp duty adjudication.

Affidavits of shareholder consent - service of notice to secured and unsecured creditors - requirement of acknowledged hand delivery to secured creditors - publication of notice in newspapers - notice to statutory authorities and regulators - filing of compliance affidavits before hearing

Affidavits of shareholder consent - Revised affidavits of consent from all equity shareholders of the two petitioner companies for the amended scheme have been procured and placed on record. - HELD THAT: - The Tribunal recorded that Petitioner No.1 produced revised affidavits from all seven equity shareholders (Exhibits S-1 to S-7) and Petitioner No.2 produced revised affidavits from all seven equity shareholders (Exhibits U-1 to U-7), each holding the entire issued share capital of the respective petitioner company, providing approval and consent to the amended scheme. The Bench accepted production of these affidavits as compliance with the earlier order directing revised shareholder affidavits to be filed along with the company petition. [Paras 5, 6]

Revised shareholder affidavits accepted as compliance with the earlier direction.

Service of notice to secured and unsecured creditors - requirement of acknowledged hand delivery to secured creditors - Whether transmission of notices to secured and unsecured creditors by private courier (Blue Dart) satisfied the earlier directions and the manner in which notices must be served upon secured creditors. - HELD THAT: - The Tribunal examined the compliance report and accompanying courier certificate showing dispatch of notices to secured and unsecured creditors by Blue Dart. Having noted the use of private courier and a uniform payment certificate, the Bench concluded that, given the stage of the petition, fresh personal service by hand delivery with formal acknowledgements is required for secured creditors. The Tribunal directed that notices with a copy of the proposed scheme be hand-delivered to each secured creditor and that the petitioner obtain an acknowledgement identifying the dealing officer (name, designation, email and correspondence address). The requirement for obtaining consents or NOCs from secured creditors, wherever loan/security documentation so provides, was reiterated and an affidavit proving service and consents was ordered to be filed in advance of the next hearing. [Paras 8, 9, 10, 14]

Courier transmission alone was not treated as sufficient; petitioners must hand-deliver notices to secured creditors, obtain specified acknowledgements and, where applicable, secure consents/NOCs and file affidavit proof before the next hearing.

Publication of notice in newspapers - notice to statutory authorities and regulators - filing of compliance affidavits before hearing - Compliance with directions to publish notice in specified newspapers and to serve specified statutory authorities and regulators, and the requirement to publish hearing-date notice and upload notices on the petitioners' websites. - HELD THAT: - The Tribunal recorded that the notice of filing and the order were published in the Free Press Journal and Loksatta (Marathi) as directed, and that notices were transmitted to the listed statutory authorities (Regional Director, ROC, Income Tax authorities, SEBI, RBI, Official Liquidator and stock exchanges and, additionally, National Housing Bank / BSE as applicable). The compliance report dated 18th August 2020 was taken on record and no representations were received from those authorities. The Bench further directed that the petitioners publish the notice of the date of hearing in the same newspapers at least ten clear days before the hearing and upload the notice on their websites, if any, and file proof of such publication on affidavit at least three days prior to the hearing. [Paras 7, 11, 12, 13, 14]

Publication and service on statutory authorities accepted as complied-with; petitioners must additionally publish the hearing-date notice and upload it on their websites and file proof on affidavit at least three days before the hearing.

Final Conclusion: Petitions admitted; revised shareholder affidavits accepted; compliance with publication and service to statutory authorities recorded; however, petitioners directed to effect fresh hand delivery to secured creditors with specified acknowledgements and to file affidavits proving service and any required consents at least three days prior to the next hearing, and to publish and upload the hearing-date notice at least ten days before the hearing.

Scheme of Arrangement - Amalgamation on a going concern basis - Dispensing with meetings of shareholders and creditors - Service of notice on creditors and statutory authorities - Appointment of advisor to assist Official Liquidator - Appointed Date

Dispensing with meetings of equity shareholders - Consent affidavits of all shareholders - Meetings of equity shareholders of all applicant companies were dispensed with. - HELD THAT: - The Tribunal recorded that each applicant company had procured consent affidavits from all its equity shareholders (Annexures F1 to F5) and, accordingly, in view of unanimous consent, the statutory requirement to hold meetings of equity shareholders under the Scheme of Arrangement was dispensed with. The factual basis for dispensing with such meetings is the presence of consent affidavits from all equity shareholders of each applicant company. [Paras 7, 8, 9, 10, 11]

Meetings of equity shareholders of all the applicant companies are dispensed with.

Dispensing with meetings of creditors - No compromise or arrangement with creditors - Meetings of creditors were dispensed with insofar as there is no compromise or arrangement with creditors and creditors' rights are not affected for certain companies; limited notice directions given where creditors may exist. - HELD THAT: - The Tribunal accepted the applicants' submissions that (a) there are no secured creditors in the First, Second, Third and Fifth applicant companies and (b) there are no unsecured creditors in the Third and Fifth applicant companies, and that the Scheme constitutes an arrangement with shareholders only under section 230(1)(b) as no sacrifice by creditors is called for. Consequently, for companies where no creditors exist the meetings were dispensed with. For the First, Second and Fourth applicants the Tribunal directed issuance of notices to all creditors at their last known addresses/email and permitted representations within thirty days, thereby ensuring creditors' rights to object where applicable. [Paras 12, 13, 14]

Meetings of creditors dispensed with where creditors do not exist or are not affected; First, Second and Fourth applicant companies to issue notice to their creditors with a 30-day period for representations.

Service of notice on statutory authorities - Right to submit representations - Applicants directed to serve notice of the application and enclosures on specified statutory authorities with 30 days to file representations. - HELD THAT: - The Tribunal directed service of the present application and its enclosures upon the concerned Income Tax Authorities for each applicant company, the Regional Director (Western Region), Ministry of Corporate Affairs, the concerned Registrar of Companies, and the Reserve Bank of India (in view of First applicant's NBFC/Core Investment Company registration). The authorities were granted 30 days from receipt of such notice to submit any representations to the Tribunal, failing which it would be presumed they have no representations. [Paras 15]

Notices to statutory authorities to be issued and authorities given 30 days for representations.

Service of notice on Official Liquidator - Inspection of books by advisor to Official Liquidator - Rule 8 compliance - Transferor companies directed to serve notice upon the Official Liquidator and Tribunal appointed an advisor to assist the Official Liquidator in scrutinising books for the last five years. - HELD THAT: - Pursuant to section 230(5) and Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, the Tribunal directed service of the application on the Official Liquidator. The Tribunal appointed M/s Kamlesh Mehta & Co., Chartered Accountants to assist the Official Liquidator in scrutinising the transferor companies' books of accounts for the preceding five years and submit a report/representation to the Tribunal. The appointed advisor's fees were fixed to be paid by the companies (amount stated in the order), and if no response is received within thirty days it will be presumed the Official Liquidator has no objection. [Paras 16]

Notice to Official Liquidator; appointment of advisor to assist Official Liquidator and direction for report within 30 days or presumption of no objection.

Appointed Date - Board approval of Scheme - Board approvals recorded and Appointed Date of the Scheme fixed. - HELD THAT: - The Tribunal recorded that the Boards of Directors of the applicant companies approved the Scheme at meetings held on 19 September 2020 and that the Scheme's Appointed Date is 1 April 2020, as stated in the application. These factual findings form part of the record supporting the proceedings under the Companies Act, 2013. [Paras 4, 5]

Board approvals noted and Appointed Date fixed as 1 April 2020.

Filing of compliance report - Dispensation of customary affidavit of service due to lockdown - Applicants directed to file a compliance report regarding service of notices in lieu of customary affidavit of service. - HELD THAT: - Recognising difficulties posed by the prevailing lockdown, the Tribunal permitted filing of a compliance report with the registry to prove service of notices to regulatory authorities instead of the usual affidavit of service, and directed the applicants to report compliance to the Tribunal that the notices have been duly served. [Paras 17]

Applicants to file compliance report evidencing service of notices in lieu of customary affidavit and report compliance to the Tribunal.

Final Conclusion: The Tribunal directed dispensing with shareholder meetings (on record of unanimous consents), dispensed with creditors' meetings where creditors do not exist or are unaffected while requiring notices to creditors of specified companies, directed service of notice on statutory authorities and Official Liquidator, appointed an advisor to assist the Official Liquidator for limited scrutiny, fixed the Appointed Date as 1 April 2020, and ordered the applicants to file a compliance report regarding service of notices.

Duty of suspended directors to cooperate with the liquidator - production of books of account during liquidation - liquidator's entitlement to inspect subsidiary records for effective liquidation - forensic audit and appointment of registered valuers in liquidation

Duty of suspended directors to cooperate with the liquidator - production of books of account during liquidation - Suspended directors of the Corporate Debtor were directed to provide the complete books of account of the Corporate Debtor for the past four years from the liquidation commencement date. - HELD THAT: - The Tribunal found that despite requests and repeated reminders the suspended directors had not taken serious efforts to make available the books of account and other documents to the Liquidator. The explanations offered-blaming a former employee, alleging server corruption and data loss, and asserting that available transaction records had been provided-were treated as evasive and insufficient. The Tribunal noted that absence of the books would hamper the liquidation process and that the suspended directors are bound to extend all assistance to the Liquidator. On that basis the Tribunal directed production of the complete set of books of account for the four years from the liquidation commencement date and imposed a two week compliance timeline from receipt of the order. [Paras 14, 15]

Direction issued to the suspended directors to produce complete books of account of the Corporate Debtor for the past four years from 19.02.2020 within two weeks.

Liquidator's entitlement to inspect subsidiary records for effective liquidation - production of subsidiary's books of account - The Board of Directors of the subsidiary company Sabkaa Payments Limited were directed to provide the complete books of account of the subsidiary for the financial years 2016-17 and 2018-19 to the Liquidator. - HELD THAT: - The Liquidator had sought the subsidiary's books for specific financial years and alleged non cooperation by directors who were common to both the Corporate Debtor and its subsidiary. The Tribunal observed that non production of the subsidiary's records would impede the liquidation and therefore directed the board members (naming the directors as in the record) to make available the complete set of books for the specified years within two weeks from receipt of the order. The direction proceeded notwithstanding the suspended directors' assertions regarding digital data loss and prior disclosures to the Liquidator. [Paras 8, 15]

Direction issued to the Board of Sabkaa Payments Limited to produce complete books of account for 2016-17 and 2018-19 within two weeks.

Final Conclusion: MA/145/KOB/2020 was disposed of by directing (i) suspended directors of the Corporate Debtor to furnish complete books of account for the four years from the liquidation commencement date (19.02.2020) within two weeks, and (ii) the Board of Sabkaa Payments Limited to furnish complete books for 2016-17 and 2018-19 within two weeks.

Settlement through Memorandum of Understanding - Withdrawal of Section 9 application - Dismissal of insolvency application as withdrawn - Enforceability of settlement terms - Right to initiate fresh proceedings under the Insolvency and Bankruptcy Code

Settlement through Memorandum of Understanding - Withdrawal of Section 9 application - Dismissal of insolvency application as withdrawn - Enforceability of settlement terms - Application under Section 9 of the Insolvency and Bankruptcy Code withdrawn by the Operational Creditor pursuant to a memorandum of understanding; court disposal of the proceeding. - HELD THAT: - The Operational Creditor filed a withdrawal memo dated 1.12.2020 enclosing a memorandum of understanding recording a full and final settlement between the parties and a mutually agreed repayment schedule, together with post-dated cheques and a personal guarantee. The Tribunal noted that the parties had settled the dispute and the Operational Creditor sought withdrawal of the IBA. In view of the withdrawal memo supported by the MOU, the Tribunal found that no substantive controversy remained for adjudication and that the proceedings could be brought to an end. The Tribunal therefore accepted the withdrawal and dismissed the IBA as withdrawn, while directing both parties to strictly adhere to the conditions of the MOU. The MOU also preserved the Operational Creditor's right to initiate fresh proceedings under the Code in the event of default, which the order records as part of the contractual understanding between the parties. [Paras 4]

IBA/29/KOB/2020 dismissed as withdrawn; parties directed to comply with the terms of the Memorandum of Understanding.

Final Conclusion: The Tribunal accepted the settlement recorded in the Memorandum of Understanding, allowed the Operational Creditor's withdrawal of the Section 9 application and dismissed the IBA as withdrawn, while directing strict compliance with the MOU and noting the Operational Creditor's preserved right to initiate fresh proceedings in case of default.

Res judicata - scope of appellate directions - maintainability of interlocutory application under Rule 11 - affidavit undertaking by Resolution Applicant - limits of reliefs enforceable pursuant to appellate order

Scope of appellate directions - limits of reliefs enforceable pursuant to appellate order - affidavit undertaking by Resolution Applicant - Whether the reliefs claimed in the application fall within the directions given by the NCLAT and, if so, whether this Tribunal may grant those reliefs. - HELD THAT: - The NCLAT's operative directions were limited to two aspects: (i) an affidavit from the Resolution Applicant undertaking to implement the Resolution Plan irrespective of any set-off under the Income Tax Act, and (ii) issues relating to payment of licence fee and inclusion of certain costs in CIRP costs. The appellate order did not direct repayment of the amounts claimed by the applicant nor did it direct release of personal guarantees or mortgaged properties. The Resolution Applicant has filed the affidavit as directed by the NCLAT and the same has been taken on record by this Tribunal. Consequently, the present application seeks substantive monetary and proprietary reliefs which were not within the limited scope of the NCLAT's directions and therefore cannot be sustained before this Tribunal. [Paras 11, 12]

Reliefs sought do not fall within the NCLAT directions and cannot be granted by this Tribunal.

Res judicata - maintainability of interlocutory application under Rule 11 - Whether the application is barred by principles of res judicata and thus maintainable. - HELD THAT: - The Tribunal finds that the claims and contentions raised in the present application were previously raised before the NCLAT and were rejected except insofar as the limited directions recorded in the appellate order. Having considered the operative tenor of the NCLAT order and the fact that the specific monetary and proprietary claims were not remanded or allowed, the applicant is precluded from re-agitating the same cause of action before this Tribunal. On that basis the application is hit by res judicata and is not maintainable. [Paras 13, 14]

Application is barred by res judicata and is not maintainable; accordingly dismissed.

Final Conclusion: The application is without merit; the Resolution Applicant's affidavit required by the NCLAT has been filed and the substantive reliefs claimed by the applicant fall outside the appellate directions and are barred by res judicata, hence M.A.114/KOB/2020 is dismissed.

Necessary party - appointment of liquidator under IBC and vesting of powers - non-joinder - liquidator stepping into the shoes of the corporate debtor - provisional attachment under PMLA vis-a -vis liquidation under IBC - Section 32A(2) of the Insolvency and Bankruptcy Code

Necessary party - appointment of liquidator under IBC and vesting of powers - liquidator stepping into the shoes of the corporate debtor - non-joinder - Whether the liquidator appointed by the NCLT after the liquidation order is a necessary party to the application challenging attachment of corporate assets and whether the application could be decided without impleading the liquidator. - HELD THAT: - The Tribunal found that the NCLT, by its order dated 17.03.2020, appointed a liquidator who, by virtue of that appointment, stepped into the shoes of the corporate debtor and vested with powers to manage the liquidation process. The liquidator thus became the proper representative of the corporate debtor for matters affecting disposal of its assets, and his presence is necessary for effective adjudication of any application which bears on those assets. The appellant filed the present interim application after the liquidation order and did not make the liquidator a party; nor had the appellant sought to implead the liquidator despite that development. The Tribunal relied on the nature of the NCLT order appointing the liquidator and on the statutory functions/powers of the liquidator (including instituting or defending legal proceedings on behalf of the corporate debtor) to hold that non-joinder of the liquidator was fatal to the application being decided on merits. Consequently the Tribunal rejected the application on the ground of non-joinder and procedural impropriety in seeking relief without impleading the liquidator, while noting that the liquidator is a necessary party to an effective adjudication on the questions raised.

Application rejected for non-joinder of the liquidator; liquidator held to be a necessary party and must be impleaded before the Tribunal decides the merits.

Section 32A(2) of the Insolvency and Bankruptcy Code - provisional attachment under PMLA vis-a -vis liquidation under IBC - Whether the question of law on applicability of Section 32A(2) of the IBC to PMLA attachment orders could be decided in the present application without impleading the liquidator. - HELD THAT: - The Tribunal did not decide the merits of the controversy concerning the interplay between Section 32A(2) of the IBC and provisional attachment/PAO under the PMLA. Given the subsequent appointment of the liquidator and his statutory role in liquidation proceedings, the Tribunal held that the instant application was not the appropriate vehicle to determine the question of law in the absence of the liquidator as a party. The appellant was granted liberty to file an appropriate application to implead the liquidator and to raise the substantive question regarding Section 32A(2) and the release of attached assets at the time of hearing of the appeal on merits.

Substantive question on Section 32A(2) and PMLA attachment not decided; appellant granted liberty to implead the liquidator and raise the issue before the Tribunal on the hearing of the appeal.

Final Conclusion: The interim application is dismissed for non-joinder of the liquidator, who was appointed by the NCLT and is a necessary party; the appellant is granted liberty to implead the liquidator and to raise the question on the applicability of Section 32A(2) of the IBC to PMLA attachment orders when the appeal is heard. The appeal is listed for further hearing on 26th February, 2021.

Summary order. Notice issued to respondents returnable on 18.12.2020; petitioner to furnish a set of the paper-book to the Additional Solicitor General; respondents to consider petitioner's contention of a technical error on the ICEGATE portal and to take instructions on whether extension of time under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 can be granted; matter to be notified among the first ten on the returnable date.

Option to pay prescribed percentage under Rule 6(3)(i) - Payment of credit attributable under Rule 6(3)(ii) and Rule 6(3A) - Non-maintenance of separate accounts and consequent option selection - Cenvat credit reversal by proportionate method - Limitation on recovery to credit attributable to exempted goods or services

Payment of credit attributable under Rule 6(3)(ii) and Rule 6(3A) - Option to pay prescribed percentage under Rule 6(3)(i) - Cenvat credit reversal by proportionate method - Limitation on recovery to credit attributable to exempted goods or services - Whether Revenue can demand payment under Rule 6(3)(i) (5%/6% of exempted turnover) when the assessee has reversed the actual credit attributable to exempted services by applying Rule 6(3)(ii) read with Rule 6(3A). - HELD THAT: - The assessee did not maintain separate accounts and therefore could choose any one of the alternatives in sub-rule (3). On detection of the omission, the assessee reversed the proportionate common credit attributable to input services used for exempted services in terms of Rule 6(3)(ii) read with Rule 6(3A) and paid interest. Once the actual credit attributable to exempted services is reversed, that reversal constitutes non availment of the credit for exempted services and there is no scope to insist on the alternative option of paying the prescribed percentage under Rule 6(3)(i). The underlying purpose of Rule 6 is to ensure that credit is not availed in respect of inputs or input services used for exempted goods or services; recovery cannot exceed the credit attributable to such exempted use. The Tribunal relied on precedent treating compliance by reversal under sub rule (3)(ii) as fulfilling the statutory requirement and disallowing any further demand in excess of the actual attributable credit. Applying that principle to the facts, the demand under Rule 6(3)(i) was unsustainable after proportionate reversal under Rule 6(3)(ii)/(3A). [Paras 13, 14, 15]

Demand under Rule 6(3)(i) set aside where assessee reversed the actual credit attributable to exempted services under Rule 6(3)(ii)/(3A); appeal allowed.

Final Conclusion: The Tribunal set aside the impugned demand and allowed the appeal, holding that once the assessee reversed the proportionate common Cenvat credit attributable to the exempted services under Rule 6(3)(ii) read with Rule 6(3A), Revenue could not insist on levy under Rule 6(3)(i); consequential benefits, if any, to follow.

Cenvat credit admissibility for capital goods - eligibility of inputs used in manufacture of capital goods - effect of Explanation 2 to the definition of "input" (insertion w.e.f. 7 July 2009) - user test for classification as capital goods - judicial weight of expert/chartered engineer certificate in input eligibility

Cenvat credit admissibility for capital goods - eligibility of inputs used in manufacture of capital goods - Portion of the disputed Cenvat credit corresponds to items that are squarely capital goods and the demand cannot be sustained to that extent. - HELD THAT: - The adjudicating authority failed to consider item-wise details and the invoices placed on record which traceable to the summary produced during adjudication demonstrate that goods classifiable under Chapters 84, 85 and 90 formed part of the disputed amount. A Chartered Accountant certificate dated 23 August 2016 certified that Rs. 2,42,79,485 of the claimed credit pertained directly to plant, machinery, equipment and other items covered by the definition of capital goods under Rule 2(a). In view of these documents and the omission of the Adjudicating Authority to take cognisance of them, the demand insofar as it relates to that certified amount cannot be sustained. [Paras 7]

Cenvat credit of Rs. 2,42,79,485 being attributable to capital goods covered by Rule 2(a) is allowable and the demand recorded against that amount does not survive.

Effect of Explanation 2 to the definition of "input" (insertion w.e.f. 7 July 2009) - eligibility of inputs used in manufacture of capital goods - judicial weight of expert/chartered engineer certificate in input eligibility - user test for classification as capital goods - Cenvat credit on cement and steel items is not per se barred by Explanation 2; where such items are used in fabrication of storage tanks (capital goods), credit is allowable and the Chartered Engineer's certificate supporting such use could not be ignored without contradiction. - HELD THAT: - There is no absolute prohibition under Explanation 2; it excludes credit only when cement, angles, channels, TMT/CTD bars and similar items are used for construction of factory sheds, buildings, foundations or making structures for support of capital goods. The Appellant produced a Chartered Engineer certificate (dated 1 June 2015) attesting that the disputed cement and steel items were used in fabrication of storage tanks within the factory. The Adjudicating Authority did not rebut or make independent enquiries to contradict that certificate and merely followed the audit objection. Following the reasoning in SLR Steels (as set out in paras 7-8 of that decision) and applying the user-test, cement and steel used in manufacture of storage tanks qualify as inputs for which Cenvat credit is admissible; credit is only excluded when such items are used for construction/ support works specifically covered by Explanation 2. [Paras 8]

Credit on cement and steel items used in fabrication of storage tanks is allowable; the adjudication's blanket disallowance under Explanation 2 is set aside insofar as such use is established by the expert certificate and supporting documents.

Final Conclusion: The appeal is allowed on merits: (i) the demand is set aside to the extent of Rs. 2,42,79,485 as attributable to capital goods covered by Rule 2(a); and (ii) Cenvat credit on cement and steel items used in fabrication of storage tanks is held admissible, the adjudicating authority having erred in disregarding the expert certificate without contradiction. Consequential relief, if any, shall follow.

Clandestine clearance requires positive evidence - shortages detected in stock-taking may be notional and spread over production period - captively consumed recycled goods eligible for exemption under Notification No. 67/95-CE - extended period for demand cannot be invoked without grounds for deliberate suppression

Clandestine clearance requires positive evidence - The department failed to prove clandestine clearance of finished goods. - HELD THAT: - The Tribunal held that clandestine clearance is a serious allegation which must be established by positive and clinching evidence. The department had not identified any buyer, transporter, supplier of unaccounted raw material, cash trail or recorded inculpatory statements; essential inquiries such as panchnama of stock-taking and verification of raw material receipts were not conducted. In these circumstances the charge of clandestine clearance could not be sustained and the authorities' presumptions were insufficient to maintain the demand. [Paras 9]

Allegation of clandestine clearance rejected for want of positive evidence.

Shortages detected in stock-taking may be notional and spread over production period - The shortages detected on stock-taking were not actual but only notional and therefore did not attract differential duty. - HELD THAT: - The appellants explained that no periodic stock-taking had been done since commencement of production, and minor weighment and recording errors had accumulated over years. Comparison of shortages with cumulative production showed the shortages to be nominal in percentage terms. The Tribunal accepted that such nominal differences are to be expected given the nature of the products and weighment tolerances, and observed that the department did not controvert the production-based comparisons. Consequently, the shortages were held to be notional and no duty was payable. [Paras 11]

Shortages held to be notional; no differential duty payable.

Captively consumed recycled goods eligible for exemption under Notification No. 67/95-CE - Rejected DI pipes recycled and captively consumed qualified as 'inputs' under Notification No. 67/95-CE and were exempt from duty. - HELD THAT: - The Tribunal found the adjudicating authority's view that the notification applied only to 'inputs' as distinct from 'finished goods' to be legally unsustainable. The notification's definition of 'input' was held to cover virtually all excisable goods, including the DI pipes in question. The appellants had recorded recycled/damaged pipes in the scrap account and ER-1 returns and had captively consumed them for remelting; therefore the recycled DI pipes were within the ambit of the notification and not liable to duty. [Paras 12]

Recycled DI pipes held to be exempt under Notification No. 67/95-CE.

Extended period for demand cannot be invoked without grounds for deliberate suppression - The demand was time-barred and the department had not justified invocation of the extended period. - HELD THAT: - The shortages were detected in December 2012 while the show cause notice was issued on 15-09-2016. The Tribunal found no material to demonstrate deliberate mis-statement or suppression of facts that would justify application of the extended limitation period. The department's case at best disclosed improper record-keeping or notional shortages, which do not constitute grounds for extending the period of limitation. [Paras 13]

Demand barred by limitation; extended period not attracted.

Final Conclusion: The impugned order confirming duty and imposing penalties was set aside: clandestine clearance not proved, shortages held notional, recycled DI pipes covered by Notification No. 67/95-CE, and the demand found time-barred; appeals allowed.

Application of Rule 6(3) of the Cenvat Credit Rules, 2004 to trading of goods - removal of inputs on payment of excise duty under Rule 3(5) - irregular Cenvat credit and reversal of common credit - trading of goods being treated as an exempted service - invocation of extended period of limitation

Application of Rule 6(3) of the Cenvat Credit Rules, 2004 to trading of goods - removal of inputs on payment of excise duty under Rule 3(5) - irregular Cenvat credit and reversal of common credit - Whether Rule 6(3) of the Cenvat Credit Rules, 2004 is attracted where goods cleared after having suffered payment of excise duty are treated as trading of goods requiring reversal of Cenvat credit. - HELD THAT: - The Tribunal held that Rule 6 applies to trading activity only where goods are purchased and sold without taking credit and without payment of duty, thereby constituting an exempted service. Where removals are made under Rule 3(5) on payment of excise duty and that duty has been accepted by the department, such clearances cannot be characterised as trading attracting Rule 6(3). The Tribunal relied on its earlier decision in SUYASH AUTO PRESS COMPONENTS AND ASSEMBLIES PVT LTD, which rejected application of Rule 6 where the goods were cleared on payment of duty, and applied the same reasoning to set aside the demand for reversal of Cenvat credit in the present case. [Paras 9, 10]

Rule 6(3) does not apply to goods cleared on payment of excise duty; therefore the demand for reversal of Cenvat credit on that ground is not sustainable.

Invocation of extended period of limitation - trading of goods being treated as an exempted service - Whether the department could invoke the extended period of limitation to sustain the demand when it was previously aware of the appellant's activities and had earlier issued proceedings in respect of the same transactions. - HELD THAT: - The Tribunal found on the record that the department was aware of the appellant's activities from the earlier show cause notice dated 01/04/2015 concerning recovery of Cenvat credit on the imported pipes cleared after payment of duty. Since the present proceedings are on the same footing and the department had prior knowledge of the transactions, invoking the extended period of limitation to sustain the demand could not be justified. Accordingly, the demand was also unsustainable on limitation grounds. [Paras 11]

Extended period of limitation cannot be invoked where the department had prior knowledge of the appellant's activities; the demand is unsustainable on limitation grounds.

Final Conclusion: The appeal is allowed: the demand for reversal of Cenvat credit under Rule 6(3) is set aside because the goods were cleared on payment of excise duty and therefore not trading attracting Rule 6, and the demand is also not maintainable on limitation grounds given the department's prior knowledge; consequential benefits, if any, to follow.

Summary order. Application for early hearing allowed; Registry directed to list the appeal for hearing on 02/12/2020.