ISSUES:

Whether the service of repair and maintenance provided free of cost during the warranty period constitutes an exempted service under the Finance Act, 1994.Whether the sale of own manufactured goods by a branch office constitutes trading and thus qualifies as exempted service.Whether CENVAT credit can be availed on inputs and input services used in providing taxable services when exempted services are also rendered, in compliance with Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules, 2004.Whether penalties can be imposed in absence of deliberate misconduct in availing CENVAT credit.

RULINGS / HOLDINGS:

Repair and maintenance services provided free of cost during the warranty period are not exempted services; they constitute taxable services under Section 65(105)(zzg) of the Finance Act, 1994, and the absence of charges does not render them exempt.The sale of goods manufactured by the appellant's head office and transferred to its branch office for sale does not amount to trading; hence, the branch office is not engaged in exempted trading activity.The appellant was entitled to avail CENVAT credit on input services attributable to the branch office providing taxable services, consistent with prior Tribunal rulings and compliance with CENVAT Credit Rules, 2004.Penalties cannot be imposed where there is no deliberate misconduct in availing CENVAT credit, as supported by precedent.

RATIONALE:

The Court applied the statutory definition of taxable services under Section 65(105)(zzg) of the Finance Act, 1994, noting that repair and maintenance services have been taxable since 01.07.2003 and were never exempted by notification.The Court relied on the principle that free provision of a taxable service does not convert it into an exempted service.The Court distinguished between manufacturing and trading activities, holding that selling own manufactured goods does not constitute trading under the relevant tax laws.The Court referenced Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules, 2004, governing credit apportionment when both taxable and exempted services are provided, and upheld prior Tribunal decisions allowing credit.The Court endorsed the principle from Hindustan Steel Ltd. that penalties require deliberate misconduct, which was absent in this case.No dissent or doctrinal shift was indicated; the decision reaffirmed existing legal principles and prior Tribunal rulings.

ISSUES:

Whether the demand of service tax for the period April 2005 to September 2010, including the extended period, is tenable.Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, can be invoked in the absence of positive evidence of wilful suppression or intent to evade payment of service tax.Whether penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994, are sustainable given the facts of partial payment and financial hardship.Whether the demand for the period prior to the last date of filing the return (October 2008 to August 2009) is barred by limitation in the second show cause notice issued after the due date.Whether the penalty under Section 78 can be sustained without proof of wilful suppression or evasion.Whether the penalty under Section 76 imposed for the second show cause notice can be set aside considering financial hardship.

RULINGS / HOLDINGS:

The demand of service tax for the normal period is upheld, but the invocation of the extended period of limitation is unsustainable due to absence of "positive evidence of any wilful misstatement or suppression of facts with intent to evade payment of duty."The extended period of limitation under the proviso to Section 73(1) cannot be invoked without evidence of wilful suppression; hence, the demand beyond the normal period is barred.Penalties under Section 78 are not sustainable in the absence of ingredients necessary for invoking the extended period of limitation, specifically wilful suppression or evasion.The demand for the period October 2008 to August 2009 under the second show cause notice is barred by limitation as the notice was issued after the last date for filing the return, which is the relevant date for limitation under Section 73(6)(i)(b).Penalties under Section 77 for failure to file returns within the prescribed period are upheld as reasonable for both periods.Penalty under Section 76 imposed for the second show cause notice is set aside invoking Section 80 of the Finance Act due to uncontroverted financial hardship and peculiar facts of the case.

RATIONALE:

The Court applied the statutory framework under the Finance Act, 1994, particularly Sections 73, 76, 77, 78, and 80, and the Service Tax Rules, 1994 (Rule 7(1) and 7(2)) governing filing of returns and limitation periods.Precedents establishing that extended limitation periods require "positive or deliberate act" of suppression or evasion were relied upon, including decisions affirming that mere delay or partial payment without wilful intent does not justify extended limitation or penalty under Section 78.The relevant date for limitation was interpreted in line with the statutory provision Section 73(6)(i)(b), fixing it as the last date on which the return ought to have been filed, not the actual date of filing, consistent with recent Tribunal decisions.The Court recognized financial hardship as a mitigating factor warranting relief under Section 80, leading to the setting aside of penalty under Section 76 for the second show cause notice period.The Court emphasized adherence to principles of natural justice in remitting the matter for de novo adjudication of duty liability within a specified timeframe.

ISSUES:

Whether the demand of excise duty confirmed in the impugned order is correct, particularly when based solely on income tax and sales tax documents without other corroborative evidence'Whether the demand of duty is barred by limitation considering the period involved and the date of issuance of the Show Cause Notice'Whether denial of Cenvat Credit on inputs (kraft paper) was justified in light of statutory amendments and the evidence produced'Whether penalty under Rule 26 of the Central Excise Rules, 2002 is sustainable against the managing partner of the firm?

RULINGS / HOLDINGS:

The demand of excise duty confirmed solely on the basis of documents maintained under Income Tax and Sales Tax laws is unsustainable, as "income reported for the purpose of income-tax may not attract Central Excise duty per se" and reliance on such documents without other evidence is improper.The demand is not hit by limitation only if suppression with intention to evade duty is established; however, the allegation of suppression with such intention "does not arise" in the present case, and thus the demand must be limited to the normal period.The denial of Cenvat Credit was improper because the Adjudicating Authority failed to discharge the burden of disproving the Appellant's claim and incorrectly applied the amendment restricting credit period retrospectively; the Appellant had discharged its burden by producing proper cenvatable invoices.Penalty under Rule 26 of the Central Excise Rules, 2002 against the managing partner is deleted as there is "no merit warranting levy of penalty" on him.

RATIONALE:

The Court applied the principle that Direct Tax and Indirect Tax operate on different platforms with distinct purposes and that "Central Excise Levy is on the manufacture or removal of the manufactured goods but not on the sales of the same," thereby rejecting the approach of treating income tax returns as turnover for excise duty.The legal framework includes Rule 4 of the Cenvat Credit Rules, 2004 and its amendment effective 01.09.2014, which restricts the period for availing credit to six months; the Court held that the amended rule cannot be applied retrospectively to periods prior to its commencement.The Court emphasized the statutory burden of proof on the Revenue to disprove the Appellant's claim of proper procurement of inputs, noting the Adjudicating Authority's failure to verify or examine the evidence properly.The decision reflects a doctrinal adherence to the principle that penalty and extended limitation apply only upon proof of suppression with intent to evade duty, and absent such proof, demands must be confined to the normal limitation period.

ISSUES:

Whether non-mention of the transporter's name on the e-way bill constitutes sufficient ground for detention, seizure, and penalty under section 129(3) of the GST Act.Whether the goods were in lawful transit from Delhi to Delhi as per accompanying documents despite the alleged discrepancy in the driver's statement.Whether there was any intention to evade payment of tax justifying penalty proceedings under section 129 of the GST Act.Whether the impugned orders detaining and seizing goods and imposing penalty under section 129(3) of the GST Act can be sustained in absence of evidence of tax evasion or improper destination declaration.

RULINGS / HOLDINGS:

The court held that "merely on a technical ground of breach for not mentioning the name of the transporter," detention and seizure under section 129(3) of the GST Act cannot be justified without evidence of intention to evade tax.The court found that the goods were transported from Delhi to Delhi with requisite documents including tax invoice, e-way bill, and GR, and that the alleged discrepancy in the driver's statement regarding destination was explained by the common practice of transporting goods via transport godowns located between Delhi and Ghaziabad.In absence of any finding regarding intention to evade payment of tax, penalty proceedings under section 129 of the GST Act "cannot be attracted and therefore, the same cannot be justified."The impugned orders of detention, seizure, and penalty under section 129(3) of the GST Act were quashed as unsustainable in law.

RATIONALE:

The court applied the statutory provisions of section 129(3) of the GST Act concerning detention, seizure, and penalty for improper transit of goods.The court relied on the principle that penalty under section 129 requires a finding of intention to evade tax, referencing precedents including a High Court decision and the Supreme Court judgment in Assistant Commissioner (ST) v. M/s. Satyam Shivam Papers Pvt. Ltd.The court emphasized that a mere technical or procedural lapse, such as omission of the transporter's name on the e-way bill, without evidence of tax evasion or misdeclaration of destination, does not justify punitive action under section 129.The judgment recognized the practical realities of transportation logistics, noting that transport godowns located in no man's land between Delhi and Ghaziabad explain the routing and destination declarations.

The Supreme Court, through Justices M. M. Sundresh and Aravind Kumar, rejected the application for oral hearing and condoned the delay. Upon review of the petition and the Criminal Appeal record, the Court found "no error apparent warranting its reconsideration." Consequently, the Review Petition was dismissed, and all pending applications were disposed of.

ISSUES:

Whether an intimation under section 143(1) of the Income Tax Act, 1961 can be quashed on jurisdictional grounds including violation of natural justice and absence of prior show cause notice.Whether denial of Foreign Tax Credit (FTC) on the ground of belated filing of Form 67 is justified under the Income Tax Act, 1961.Whether filing of Form 67 is a mandatory or directory requirement for claiming FTC under the Income Tax Act, 1961 and allied Rules.Whether the Assessing Officer is bound to allow FTC if Form 67 is filed belatedly but within the relevant assessment year, in light of CBDT notifications and Tribunal precedents.

RULINGS / HOLDINGS:

The intimation under section 143(1) was not quashed as the grounds raised were not found to violate the mandate of the Act or principles of natural justice in the context presented.The denial of Foreign Tax Credit solely on the ground that Form 67 was filed belatedly is erroneous; the Tribunal held that filing of Form 67 is a "procedural/directory requirement and is not a mandatory requirement."Rule 128(9) of the Income Tax Rules does not provide for disallowance of FTC in case of delay in filing Form 67; hence, the claim for FTC cannot be denied on this basis.The Assessing Officer is directed to allow the Foreign Tax Credit after due verification, notwithstanding the belated filing of Form 67, consistent with the CBDT notification and Tribunal precedents.

RATIONALE:

The Tribunal relied on the statutory framework under section 143(1) and section 139(1) of the Income Tax Act, 1961, and Rule 128(9) of the Income Tax Rules as amended by CBDT Notification No. 100/2022.Precedents from coordinate benches were followed, including decisions holding that Form 67 is a directory requirement, not a mandatory condition for claiming FTC, thereby overriding any contrary view.The Tribunal emphasized that denial of FTC on procedural grounds alone, without substantive non-compliance, is not warranted, and that the Double Taxation Avoidance Agreement (DTAA) provisions override inconsistent domestic rules.No dissenting opinion was recorded; the ruling reflects a consistent doctrinal approach favoring substantive compliance over procedural technicalities in FTC claims.

ISSUES:

Whether disallowance under section 14A read with Rule 8D can be made on investments that do not yield any exempt income.Whether disallowance under section 14A can be made in the absence of any expenditure incurred for earning tax-free income.Whether the Assessing Officer is required to record satisfaction before making disallowance under section 14A.Whether the disallowance under Rule 8D(2)(ii) should be restricted based on availability of interest-free funds for investments yielding exempt income.Whether the disallowance under section 14A can exceed the amount of exempt income earned during the year.

RULINGS / HOLDINGS:

The disallowance under section 14A read with Rule 8D cannot be made on the basis of investments that do not yield any exempt income; the Assessing Officer is directed to consider only income-yielding investments for disallowance under Rule 8D(2)(iii).Disallowance under section 14A can be made even if no suo moto disallowance is made by the assessee, provided the Assessing Officer records satisfaction that expenditures have been incurred in relation to exempt income; mere absence of suo moto disallowance by the assessee does not preclude the AO from making disallowance.The Assessing Officer must record satisfaction regarding the reasonableness and justification for disallowance under section 14A before making such disallowance; in the present case, the AO recorded dissatisfaction with the assessee's submissions, thus satisfying this requirement.Disallowance under Rule 8D(2)(ii) relating to interest expenses should be examined in light of whether sufficient interest-free funds were available for making investments yielding exempt income; if interest-free funds exceed such investments, no disallowance is warranted.The disallowance under section 14A should not exceed the amount of exempt income earned during the year; the Commissioner of Income Tax (Appeals) correctly restricted the disallowance to the exempt income of Rs. 2,29,417/- as against the higher disallowance made by the Assessing Officer.

RATIONALE:

The Court applied the provisions of section 14A of the Income Tax Act, 1961, and Rule 8D of the Income Tax Rules, 1962, which govern disallowance of expenditure incurred in relation to exempt income.Precedents cited include the Hon'ble Bombay High Court decision holding that the Assessing Officer is bound to determine expenditure related to income not forming part of total income, and the Hon'ble Delhi High Court rulings emphasizing the necessity of recorded satisfaction before disallowance under section 14A.The Tribunal distinguished the present facts from earlier decisions where no suo moto disallowance was made by the assessee, noting that here the AO recorded dissatisfaction after examining audited financials and replies, thus fulfilling the requirement of satisfaction.The Court emphasized that disallowance must be proportionate and linked to actual exempt income earned, reflecting a doctrinal adherence to limiting disallowance to the extent of exempt income.Directions were given to reassess the disallowance considering the opening and closing balances of investments, and availability of interest-free funds, ensuring a fact-specific and legally compliant determination.

The Appellate Tribunal (ITAT Delhi) in ITA Nos. 5645 to 5648/Del/2024 for AYs 2015-16 to 2017-18 and 2019-20 addressed whether the assessee was an "assessee in default" under section 201(1) of the Income-tax Act, 1961, for non-deduction of tax at source under section 194C on External Development Charges (EDC) paid to Haryana Urban Development Authority (HUDA). The Tribunal noted that pursuant to a survey under section 133A, the TDS wing found EDC payments made without TDS deduction. The Assessing Officer initiated proceedings under sections 201(1)/201(1A), treating HUDA as a taxable entity and EDC as income liable to TDS. The issue was governed by the Delhi High Court's decision in Puri Construction (159 taxmann.com 444), which held that section 194C applies to EDC payments by real estate developers to HUDA. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s order, which followed the High Court ruling, confirming the assessee as "assessee in default" under section 201(1) and liable for interest under section 201(1A). The Tribunal found no infirmity in the CIT(A)'s decision and dismissed all grounds raised by the assessee. Accordingly, all appeals were dismissed. The order was pronounced on 30/07/2025.

ISSUES:

Validity and legality of reopening assessment by issuing notice under Section 148 of the Income-tax Act, 1961.Whether addition of Rs.17 lacs on account of alleged unexplained cash credit under Section 68 of the Act is justified.Whether the addition of Rs.73,53,000/- by disallowance of salaries paid to employees is sustainable.

RULINGS / HOLDINGS:

Reopening of assessment under Section 148 was held valid as the Assessing Officer followed the procedure laid down in the Income-tax Act, including issuance of notice under Section 148A(b) with prior approval of the competent authority, and gave opportunity of being heard; thus, the reopening was not illegal or bad in law.The addition of Rs.17 lacs as unexplained cash credit under Section 68 was not sustained because the assessee discharged the burden of proof by furnishing evidences including sale bill, bank statements, share certificates, audited accounts, and valuation report; neither the Assessing Officer nor the appellate authority commented on or disputed these evidences, and the addition was based on mere presumption and surmises.The disallowance of salaries amounting to Rs.73,53,000/- was set aside as the assessee employed employees on a regular basis and paid salaries consistently in earlier years; the tax authorities lacked any basis to interfere with the business decision on number of employees or salary payments, and no defect in payments was pointed out; the addition was held unjustified.

RATIONALE:

The Court applied the procedural safeguards under Sections 148, 148A(b), and 148A(d) of the Income-tax Act, 1961, emphasizing the necessity of prior approval and opportunity to the assessee before reopening assessment; the Court found no infirmity in the procedural compliance by the Assessing Officer.The legal framework under Section 68 requires the assessee to prove the identity, creditworthiness, and genuineness of the parties and transactions relating to unexplained cash credits; the Court noted that the assessee provided comprehensive documentary evidence satisfying this burden, and the authorities below failed to critically examine or rebut such evidence.The Court relied on established principles that tax authorities cannot substitute their judgment for legitimate business decisions regarding employment and salary payments; reference was made to the Apex Court decision in S.A Builders v. CIT (Appeals), affirming that the quantum and reasonableness of salary payments are within the business domain and not for tax authorities to question absent irregularity.

ISSUES:

Whether reassessment proceedings under Section 147 of the Income Tax Act, 1961 can be initiated beyond four years from the end of the relevant assessment year without any new or fresh material.Whether payment of External Development Charges (EDC) to a State Development Authority without deduction of Tax Deducted at Source (TDS) under Section 194C of the Act is liable to TDS.Whether the proviso to Section 147 of the Act bars reopening of assessment where there is no failure to disclose fully and truly all material facts.Whether Circulars or Office Memoranda issued by CBDT can be applied retrospectively to completed assessments to justify reopening.Whether the assessee can be held as an "assessee in default" under Section 201(1) of the Act for non-deduction of TDS on EDC payments to a State Development Authority.Whether principles of natural justice were violated by not providing opportunity to the assessee to submit written submissions during appellate proceedings.

RULINGS / HOLDINGS:

The reassessment proceedings initiated beyond four years from the end of the assessment year without any new or fresh material are impermissible and constitute a "mere change of opinion," which is not allowed in law.Payments of External Development Charges (EDC) to the State Development Authority without deduction of TDS are exempt from TDS obligations under Section 196 of the Act, as such payments are effectively made to the State Government.The proviso to Section 147 prohibits reopening of assessment unless there is failure to disclose fully and truly all material facts, which was not the case here; hence, reassessment is invalid.CBDT Circulars and Office Memoranda, including the one dated 23.12.2017, cannot override judicial interpretation or be applied retrospectively to assessments already completed.The assessee is not an "assessee in default" under Section 201(1) because the payment was made to a State Development Authority and was exempt from TDS deduction obligations.The appellate order confirming the addition without allowing the assessee time for written submissions violates the principles of natural justice.

RATIONALE:

The Court applied the statutory provisions of Sections 143(3), 147, 148, 194C, 196, and 201(1) of the Income Tax Act, 1961, and the proviso to Section 147 restricting reassessment beyond four years without failure to disclose material facts.Precedents such as CIT Vs Kelvinator of India Ltd. established that reassessment cannot be based on mere change of opinion.CBDT Circulars are binding on the department but cannot override judicial rulings or be applied retrospectively, as held in Suchitra Components Ltd. Vs CCE and CIT Vs SIL Investments Ltd.Judicial decisions in DLF Homes Panchkula (P) Ltd. and BPTP Ltd. confirmed the illegality of reassessment in similar circumstances, with Supreme Court dismissing Special Leave Petitions, reinforcing the binding nature of these rulings.The Court emphasized that payments to State Development Authorities are effectively payments to the State Government, invoking Section 196 exemption from TDS obligations.The principle of natural justice requires providing reasonable opportunity to the assessee to make submissions, which was not observed in the appellate proceedings.

ISSUES:

Whether the addition made under Section 68 of the Income-tax Act, 1961 for unexplained loan received can be sustained when the assessee proves identity, creditworthiness, and genuineness of the creditor and repayment of the loan in subsequent years.Whether the disallowance of interest paid on unsecured loans under Section 69C of the Act is justified when the principal loan is held to be genuine.Whether the entire amount of bogus purchases can be added to the income of the assessee or only the profit element embedded therein can be disallowed.

RULINGS / HOLDINGS:

Section 68 addition for unexplained loan cannot be sustained where the assessee has proved the "identity, creditworthiness and genuineness of the creditor" by filing necessary evidence, the loan was received through banking channels, repaid subsequently, and interest was paid after tax deducted at source; thus, the addition was rightly deleted.The disallowance of interest paid under Section 69C is not justified when the principal loan is held genuine, and the interest payment is supported by evidence; hence, the deletion of interest disallowance was upheld.In cases of bogus purchases, the entire purchase amount cannot be added to income; only the "profit element embedded in the said purchases" can be disallowed, and a reasonable disallowance of 5% on the bogus purchases was correctly applied.

RATIONALE:

The Court applied the provisions of Section 68 of the Income-tax Act, 1961, which treats unexplained cash credits as income unless the assessee proves the identity, genuineness, and creditworthiness of the lender. The Court relied on the principle that "once the repayment of loan has been established based on the documentary evidences then the credit entries cannot be looked in isolation after ignoring the debit entries," following precedent from the jurisdictional High Court and coordinate benches.Regarding interest disallowance under Section 69C, the Court reasoned that since the principal loan was accepted as genuine and the interest payments were substantiated, the disallowance of interest was unwarranted.For bogus purchases, the Court referred to established coordinate bench decisions holding that when bogus bills are used for purchases, the assessee gains by saving VAT and other expenses, thereby earning excess profits. Therefore, only the profit element (reasonably quantified at 5%) embedded in such purchases should be disallowed, not the entire purchase amount, especially when bills and vouchers are produced and the goods are consumed in manufacturing.

ISSUES:

Whether the appellate authority erred in admitting additional evidence when conditions prescribed under Rule 46A were not satisfied.Whether the income exclusion method of elimination of double taxation under the India-USA DTAA was correctly applied instead of the tax credit method.Whether the appellate authority erred in adjudicating taxability of credits in account under other provisions of the Income-tax Act based on explanations furnished by the assessee.Whether the appellate authority erred in accepting the assessee's plea without obtaining running ledgers and examining taxability of each credit entry.Whether provisions of sections 68 and 69 of the Income-tax Act apply when no satisfactory explanation on sources of credits is furnished by the assessee.

RULINGS / HOLDINGS:

The appellate authority did not err in admitting additional evidence as it considered the submissions and remand report, despite the Assessing Officer's objection under Rule 46A.The income exclusion method under the India-USA DTAA was appropriately applied, considering the assessee's foreign income was taxed in the USA and relevant documentation was furnished.The appellate authority rightly adjudicated on the taxability of credits after considering explanations and evidence such as foreign bank statements and US tax returns.The appellate authority's acceptance of the plea without running ledgers was justified since the explanations and evidences sufficiently accounted for the credits.The provisions of sections 68 and 69 were wrongly invoked by the Assessing Officer; the appellate authority held that the addition under section 68 was not justified as the credits related to earlier years and were satisfactorily explained with documentary evidence including Form 16 and tax returns filed in the USA.

RATIONALE:

The court applied the procedural requirements under Rule 46A of the ITAT Rules regarding admission of additional evidence, balancing the Assessing Officer's objections with the appellant's submissions and remand report.The legal framework under the India-USA Double Tax Avoidance Agreement (DTAA) was interpreted to allow income exclusion where foreign income was taxed abroad, supported by relevant foreign tax documentation.Sections 68 and 69 of the Income-tax Act, 1961, dealing with unexplained credits and unexplained investments, were examined in light of the assessee's explanations and evidence showing prior taxation of the credits, relying on precedents that additions under section 68 cannot be made for amounts credited in preceding years.The appellate authority relied on established case law to affirm that once tax is paid on income in prior years, subsequent credits related thereto cannot be treated as unexplained credits under section 68.No dissent or doctrinal shift was noted; the court upheld the well-reasoned findings of the appellate authority dismissing the Revenue's appeal.

ISSUES:

Whether the Assessing Officer (AO) can reject the valuation report of a registered valuer without referring the matter to the Departmental Valuation Officer (DVO) under section 55A of the Income Tax Act, 1961.Whether the AO/Dispute Resolution Panel (DRP) can determine the fair market value (FMV) of property by relying on circle rates or Land & Development Office (L&DO) conversion rates without technical valuation or DVO report.Whether L&DO conversion rates can be treated as FMV or circle rates for the purpose of determining cost of acquisition of property as on a specified date.Whether the AO/DRP erred in not considering supplementary comparable sale deeds submitted by the assessee to substantiate FMV.Whether penalty proceedings under section 270A of the Act can be initiated without satisfaction of mandatory statutory ingredients and where the impugned addition is legally unsustainable.

RULINGS / HOLDINGS:

The AO cannot reject the valuation report of a registered valuer without referring the matter to the DVO as mandated under section 55A of the Act; the valuation report has a "rebuttable evidentiary value" and cannot be brushed aside on bald allegations.The AO/DRP's suo-moto determination of FMV based on circle rates or L&DO conversion rates, without obtaining a DVO report or technical analysis, is "not what the Act expects" and is legally unsustainable.L&DO land conversion rates are "neither the circle rates nor the FMV of the property" but are rates to determine unearned increase and transfer charges payable to L&DO; thus, they cannot be used as a benchmark for FMV or cost of acquisition.The AO erred in ignoring supplementary comparable sale deeds submitted by the assessee, which corroborated the valuation report of the registered valuer.Penalty proceedings under section 270A are not sustainable where the addition is legally unsustainable and mandatory statutory ingredients are not satisfied.

RATIONALE:

The legal framework under section 55A of the Income Tax Act mandates that if the AO does not accept the valuation report of a registered valuer, the matter must be referred to the DVO for determination of FMV. This procedure ensures that valuation disputes are resolved through expert technical analysis rather than arbitrary or suo-moto computations.Precedents from various High Courts and coordinate Benches of the Tribunal establish that the valuation report of a registered valuer has significant evidentiary value and cannot be discarded without material contrary evidence or proper inquiry.The DRP's direction to use L&DO conversion rates was found erroneous, as these rates pertain to transfer charges and unearned increment calculations, not FMV or circle rates, and thus cannot replace expert valuation.Judicial decisions cited emphasize that the AO's rejection of a registered valuer's report without referral to DVO is invalid, and the valuation must be accepted unless contradicted by evidence.The approach taken by the AO and DRP in relying on interpolation/extrapolation of circle rates or L&DO rates without expert valuation represents a doctrinal shift away from the prescribed statutory valuation mechanisms and is therefore unsustainable.

ISSUES:

Whether the notice issued under section 148 of the Income Tax Act, 1961 was validly issued based on a proper "reason to believe" for reopening the assessment.Whether the addition of Rs. 8,00,000 made under section 69A of the Income Tax Act, 1961 as unexplained cash deposit was justified.Whether the addition of Rs. 13,07,642 on account of estimated profit on suppressed purchases based on Tax Collected at Source (TCS) was justified.Whether the principle of natural justice was violated by giving only one-day time to respond to the show cause notice.Whether the assessing officer properly appreciated the submissions and documentary evidence furnished by the assessee during assessment and appellate proceedings.

RULINGS / HOLDINGS:

On the validity of notice under section 148: The Court held that the reopening notice was valid as it was issued within four years from the end of the assessment year and the reasons recorded, particularly regarding cash deposits during the demonetization period, provided a sufficient "reason to believe." The contention regarding incorrect gross turnover figures was rejected.On addition under section 69A of Rs. 8,00,000: The Court found that the source of the cash deposit was satisfactorily explained by "details placed before me" including opening cash balance and cash sales during demonetization period, and therefore deleted the addition.On addition of Rs. 13,07,642 on suppressed purchases: The Court held that the assessing officer erred in relying solely on TCS figures to estimate suppressed purchases, as the assessee furnished a reconciliation statement and demonstrated consistent accounting practices including apportionment of purchases, supported by prior and subsequent assessment orders. The addition was deleted.On violation of natural justice: No separate adjudication was required as the additions challenged were deleted on merits.On appreciation of submissions: The Court found that the assessing officer and CIT(A) failed to properly appreciate the documentary evidence and consistent accounting practices of the assessee, leading to erroneous additions.

RATIONALE:

The Court applied the statutory framework under the Income Tax Act, 1961, particularly sections 147 (reassessment), 148 (notice for reassessment), and 69A (unexplained money). The validity of reopening depends on existence of "reason to believe" which here was supported by cash deposit details during demonetization.The Court emphasized the importance of documentary evidence and consistent accounting practices in explaining cash deposits and purchases, rejecting mechanical reliance on TCS figures for estimating suppressed purchases.The Court recognized the principle that reopening must be based on credible reasons and that additions must be supported by cogent evidence, applying precedents that require proper appreciation of assessee's submissions.No dissent or doctrinal shift was indicated; the decision follows established principles regarding reassessment validity and evidentiary standards for unexplained cash and purchases.

The Appellate Tribunal (ITAT Delhi) addressed the assessee's appeal against the Assessing Officer's order for AY 2021-22 concerning transfer pricing adjustments on support services rendered to its associated enterprise (AE). The key issue pertained to the Transfer Pricing Officer's (TPO) inclusion of Madhya Pradesh Today Media Company as a comparable for benchmarking the Arm's Length Price (ALP) of the support services segment amounting to Rs. 1,30,25,598/-. The assessee contended that this comparable was functionally dissimilar, being engaged in newspaper business unlike the assessee's contract development and support services. The Tribunal concurred, holding that Madhya Pradesh Today Media Company was "not functionally similar" and directed the TPO to exclude it from the comparable set and recompute the ALP. If the recomputed margins fall within the prescribed range, "no adjustment is called for." Consequently, the appeal was allowed on this basis.

ISSUES:

Whether penalty under section 271(1)(c) of the Income Tax Act can be levied when the Assessing Officer has not recorded satisfaction in the assessment order for initiation of penalty proceedings.Whether penalty under section 271(1)(c) is sustainable when the penalty notice does not specify the appropriate limb of the section under which penalty proceedings are initiated.Whether levy of penalty under section 271(1)(c) is justified on the ground that the assessee claimed interest expenditure as revenue expenditure which was disallowed and treated as pre-operative (capital) expenditure by the Assessing Officer.

RULINGS / HOLDINGS:

The penalty under section 271(1)(c) was deleted because the Assessing Officer "has not recorded its satisfaction in the assessment order for initiation of penalty proceedings," and the penalty notice "has not specified the limb of section 271(1)(c) for initiating penalty proceedings," thereby rendering the penalty not sustainable.The penalty could not be sustained on merit as the disallowance of interest expenditure was a mere denial of the claim and did not amount to furnishing "inaccurate particular of income."Following the Hon'ble Karnataka High Court decisions in CIT v. Manjunatha Cotton & Ginning Factory and CIT v. SSA's Emerald Meadows, the penalty was rightly deleted for procedural non-compliance regarding specification of the appropriate limb of section 271(1)(c).The Hon'ble Supreme Court ruling in CIT v. Reliance Petro Products (P.) Ltd. was applied to hold that "no penalty can be levied in respect of any claim made which has been denied by the revenue," supporting deletion of penalty on merits.

RATIONALE:

The legal framework applied includes section 271(1)(c) of the Income Tax Act which mandates that penalty for furnishing inaccurate particulars can only be levied after the Assessing Officer records satisfaction and specifies the correct limb of the section in the penalty notice.The court relied on precedents from the Hon'ble Karnataka High Court emphasizing procedural compliance in penalty initiation, specifically the necessity of recording satisfaction and specifying the limb of section 271(1)(c) in the penalty notice.The Supreme Court precedent clarified that mere denial of a claim by the revenue does not constitute furnishing inaccurate particulars, hence no penalty under section 271(1)(c) can be imposed for such denial.No dissent or doctrinal shift was noted; the decision affirms established procedural safeguards and substantive limits on penalty imposition under section 271(1)(c).

ISSUES:

Whether the vehicle imported under the ATA Carnet Scheme and exempted from duty under Notification No. 157/90-Cus is liable to confiscation under section 111(o) of the Customs Act for failure to re-export within the prescribed time.Whether the redemption fine under section 125 of the Customs Act is properly imposed in respect of the vehicle.Whether penalty under section 112(ii) of the Customs Act can be imposed for non-compliance with conditions of exemption.Whether penalty under section 117 of the Customs Act is imposable when penalty under section 112 is already imposed.Whether the non-observance of conditions for exemption can be sanctioned by the proper officer, thereby negating liability for confiscation and penalty.The scope and exercise of discretion vested in the adjudicating authority under sections 111 and 112 regarding confiscation and penalty.

RULINGS / HOLDINGS:

The vehicle is not liable to confiscation under section 111(o) because the non-observance of the condition of re-export within time is sanctioned by the proper officer in view of the exceptional circumstances, including the war and transport disruption. The Court held: "we sanction the non-observance of the condition of the exemption notification as per section 111(o). Consequently, we hold that the imported goods are not liable to confiscation under section 111."The redemption fine under section 125 is not sustainable as confiscation itself is not justified.Penalty was imposed only under section 112(ii) and not as a composite penalty under clauses (a), (b), and (ii). The penalty under section 112(ii) is not imposable once confiscation is negated by sanctioning non-observance of conditions.Penalty under section 117, being a residuary provision, cannot be imposed when penalty under section 112 is already imposed. The Court stated: "no penalty under section 117 is imposable" where penalty under section 112 applies.The "proper officer" who assesses the Bill of Entry is empowered to sanction non-observance of conditions attached to exemption notifications, and such sanction removes liability for confiscation under section 111(o). The Court emphasized that the adjudicating authority "must take a decision to sanction the non-observance of the condition or not" during adjudication.The expressions "shall be liable to confiscation" and "shall be liable to penalty" in sections 111 and 112 confer discretion on the adjudicating authority to decide judicially whether to confiscate or impose penalty, and such discretion must not be exercised arbitrarily. The Court cited precedent holding that discretion must be exercised "judicially and not arbitrarily."

RATIONALE:

The Court applied the statutory framework of the Customs Act, specifically sections 111(o), 112(ii), 117, and 125, and interpreted the phrase "liable to confiscation" as conferring discretion rather than mandating automatic confiscation.It relied on the definition of "proper officer" under section 2(34) and the linked powers under section 17 (assessment of Bill of Entry) and section 111(o) to hold that sanctioning non-observance of conditions is within the proper officer's authority, including during adjudication.The Court recognized exceptional factual circumstances (war and transport disruption) rendering re-export impossible within prescribed time, justifying sanction of non-observance of conditions.Precedents from the Delhi High Court and Madras High Court were cited to establish that the adjudicating authority's discretion under sections 111 and 112 must be exercised judicially and not arbitrarily, and that confiscation is not automatic upon finding liability but subject to judicial discretion.The Court noted that penalty under section 117 is a residuary provision and cannot be imposed where penalty under a specific provision (section 112) applies.This judgment clarifies the interplay between exemption conditions, sanctioning powers of the proper officer, and the adjudicating authority's discretion in confiscation and penalty matters under the Customs Act.

ISSUES:

Whether services involving training for courses affiliated with recognized universities constitute taxable "Commercial Training or Coaching Centre Services" under Section 65(26) and 65(27) of the Finance Act, 1994.Whether exemption notifications and circulars apply to institutions providing coaching for university-recognized degrees/diplomas/certificates.Whether the levy of service tax on parallel colleges or similar institutions is violative of Article 14 of the Constitution of India due to discriminatory treatment.Whether the value of goods/materials sold along with coaching services is liable to service tax when not separately indicated.Whether extended period of limitation and scope of show cause notices were properly invoked.

RULINGS / HOLDINGS:

The services provided by institutions imparting education for courses leading to recognized degrees, diplomas, or certificates issued by universities do not constitute taxable "Commercial Training or Coaching Centre Services" under Section 65(26) and 65(27) of the Finance Act, 1994.Exemption notifications (Notification No.10/2003-ST and Notification No.33/2011-ST) and Circular No.59/8/2003-ST clarify that institutes issuing certificates, diplomas, or degrees recognized by law are outside the purview of "Commercial Training or Coaching Centre" for service tax purposes, even if they provide training for competitive examinations.The levy of service tax on parallel colleges or similar institutions, while exempting regular colleges offering the same curriculum and recognized degrees, is "patently discriminatory and violative of Art. 14 of the Constitution of India."The value of goods and materials sold by the service provider to the recipient of service shall not be liable to service tax, provided there is documentary proof specifically indicating the value of such goods and materials, per Notification No.12/2003-ST.Since the appeal is allowed on merits, the questions regarding the scope of the show cause notice and invocation of the extended period are not adjudicated.

RATIONALE:

The Court applied the legal framework under Sections 65(26), 65(27), and 65(105)(zzc) of the Finance Act, 1994, along with relevant exemption notifications and circulars issued by the Central Board of Excise and Customs (CBEC).The Court relied heavily on the Kerala High Court decision in Malappuram District Parallel College Association, which held that parallel colleges imparting education for recognized degrees are exempt from service tax and that taxing them while exempting regular colleges violates Article 14.Subsequent decisions of various Benches of the Tribunal reiterated and followed the principle that institutions imparting education for recognized university qualifications are not liable to service tax under the "Commercial Training or Coaching Centre Services" category.The Supreme Court's dismissal of appeals without interfering with the Kerala High Court's decision was noted, emphasizing that the ruling applies to parties before the Court and does not constitute a universal declaration, leaving room for independent examination of other cases.The Court interpreted Circular No.59/8/2003-ST and Notifications No.10/2003-ST and 33/2011-ST as maintaining exemption for coaching centers providing courses leading to recognized degrees despite changes in the definition of "Commercial Training or Coaching Centre."The Court distinguished cases where students pay fees directly to coaching centers without recognized certification authority, noting that such facts differ from the present case where recognized universities award degrees.The Court emphasized that the value of goods supplied along with services is exempt from service tax if properly documented, aligning with Notification No.12/2003-ST.No dissenting or concurring opinions were noted.

ISSUES:

Whether remuneration paid to whole-time Directors of a company constitutes a "service" liable to Service Tax under reverse charge mechanism.Whether the relationship between the company and its whole-time Directors qualifies as an employer-employee relationship excluding such remuneration from Service Tax liability under Section 65B(44)(b) of the Finance Act, 1994.Whether payment of remuneration including salary, allowances, commission on profits, and other variable pay to Directors attracts Service Tax under reverse charge mechanism.Whether the issuance of Form 16 and deduction of TDS under Section 192 of the Income Tax Act establishes the employer-employee relationship for Service Tax purposes.Whether the demand of Service Tax, interest, and penalty on remuneration paid to whole-time Directors is sustainable in law.

RULINGS / HOLDINGS:

Remuneration paid to whole-time Directors who have entered into employment agreements with the company and are subject to TDS under Section 192 of the Income Tax Act is excluded from the definition of "service" under Section 65B(44)(b) of the Finance Act, 1994, as it constitutes "a provision of service by an employee to the employer in the course of or in relation to his employment."The whole-time Directors, being "key managerial personnel" under the Companies Act and responsible for compliance under the same Act, are employees of the company, and their remuneration is not liable to Service Tax under the reverse charge mechanism.The presence of variable pay components such as commission on profits or performance-related bonuses does not alter the employer-employee relationship or attract Service Tax liability.The issuance of Form 16 certifying TDS under Section 192 of the Income Tax Act on the remuneration paid to Directors reinforces the employer-employee relationship and supports exclusion from Service Tax liability.The demand of Service Tax, interest, and penalty confirmed by the adjudicating authority on remuneration paid to whole-time Directors is not tenable and is set aside.

RATIONALE:

The Court applied the statutory framework under the Finance Act, 1994, particularly Section 65B(44)(b), which excludes services provided by an employee to the employer from the definition of taxable service.The Court relied on employment agreements explicitly stating the employer-employee relationship, the Companies Act provisions recognizing whole-time Directors as key managerial personnel and officers in default, and the fact that TDS was deducted under Section 192 of the Income Tax Act with issuance of Form 16.The Court referred to binding Board Circular No. 115/09/2009-ST clarifying that remuneration paid to Managing Directors/Directors who are whole-time employees is not liable to Service Tax.The Court considered precedent decisions from various Tribunals holding that remuneration paid to whole-time Directors as employees, including commission and profit-based pay, is excluded from Service Tax under reverse charge mechanism.The Court rejected the argument that variable pay or commission converts the relationship into a taxable service, emphasizing the primacy of the employer-employee relationship as established by statutory provisions and tax treatment under the Income Tax Act.No dissenting or differing opinion was recorded; the judgment affirms established legal principles without doctrinal shift.

ISSUES:

Whether cenvat credit on the service portion in execution of works contract and construction services used for laying foundation or making structures for support of capital goods is irregularly availed.Whether service tax is payable on lease rental income arising from internal sharing of premises among divisions of the same legal entity.Whether non-reversal of cenvat credit as per Rule 6(3) of the Cenvat Credit Rules, 2004, in respect of specified exempted services, is justified.Whether irregular availment of abatement with respect to repair and maintenance service under works contract is sustainable.Whether extended period of limitation can be invoked in absence of suppression of facts with intent to evade service tax.Whether penalty can be imposed despite absence of reasonable cause for failure to pay service tax.

RULINGS / HOLDINGS:

On cenvat credit irregularity: The input service credit relating to laying of foundation or making of structures for support of capital goods is excluded from credit except when the output service is one or more of the specified services; since erection and commissioning services are specified services, the cenvat credit claim is justified.On lease rental income: The demand for service tax is unsustainable as the sharing of rent among divisions of the same legal entity constitutes an internal arrangement and does not amount to rendering of service.On non-reversal of cenvat credit under Rule 6(3): Following CBIC Circular No.213/3/2019-ST dated 05.07.2019, reversal under Rule 6(3) is not required for services covered by notification 26/2012-Service Tax unless both inputs and input services are restricted; thus, the demand for reversal is set aside.On abatement for repair and maintenance services: Rule 2A(ii)(C) applies to maintenance and repair of immovable property, requiring service tax on 60% of total contract value; since the appellant discharged duty accordingly, demand for irregular abatement is unsustainable.On invocation of extended limitation period: In absence of suppression of facts with intent to evade tax, invocation of extended period is not justified.On penalty imposition: Penalty cannot be imposed where no reasonable cause for failure to pay service tax is shown, and provisions of Section 80 should apply.

RATIONALE:

The Court applied the definition of "input service" under Rule 2(1)(A) of the Cenvat Credit Rules, 2004, including amendments effective from 01.07.2012, which exclude service portions used for laying foundation or structures supporting capital goods except when the output service is specified under clause (b) of Section 66E of the Finance Act.The Tribunal relied on precedents holding that internal sharing of rent between divisions of the same legal entity does not constitute a taxable service, referencing authoritative decisions including a Supreme Court ruling affirming such principle.The Court followed CBIC Circular No.213/3/2019-ST clarifying that services specified in notification 26/2012-Service Tax do not automatically become exempted services necessitating reversal under Rule 6(3) unless both inputs and input services face restrictions, thereby overruling the demand for reversal.Valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006, was interpreted strictly according to the nature of works contract; maintenance and repair services attract service tax on 60% of contract value, which was complied with by the appellant.The extended limitation period under Section 73(1) of the Finance Act, 1994, requires proof of suppression of facts with intent to evade tax; absence of such evidence negates its applicability.Penalty provisions require demonstration of willful default or suppression; absence of reasonable cause and failure to consider Section 80 provisions renders penalty imposition unsustainable.