ISSUES:

Whether income received by a statutory university from granting affiliation and recognition fees to colleges constitutes a taxable "service" under the Finance Act, 1994 (Service Tax law).Whether the activity of granting affiliation/recognition by a statutory university involves "activity carried out by a person for another for consideration" as defined under clause (44) of Section 65B of the Finance Act, 1994.Whether penalties and interest under Sections 75, 77, and 78 of the Finance Act, 1994 can be imposed for non-payment of service tax on affiliation fees collected by a statutory university.Whether the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 is invokable for recovery of service tax on affiliation fees.

RULINGS / HOLDINGS:

The income from affiliation and recognition fees collected by a statutory university does not constitute a taxable "service" under the Finance Act, 1994, as the activity is not an "activity carried out by a person for another for consideration" within the meaning of clause (44) of Section 65B.The act of granting affiliation/recognition is a statutory/public duty discharged under law without commercial elements and does not satisfy the "activity for consideration" requirement essential for service tax liability.Penalties and interest under Sections 75, 77, and 78 of the Finance Act, 1994 cannot be imposed for non-payment of service tax on such affiliation fees, as the underlying demand for service tax is not sustainable.The extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 is not applicable since the foundational tax demand is unsustainable.

RATIONALE:

The Court applied the definition of "service" under clause (44) of Section 65B of the Finance Act, 1994, which requires an "activity carried out by a person for another for consideration." The term "consideration" was interpreted with reference to Section 2(d) of the Indian Contract Act, 1872, emphasizing the necessity of a quid pro quo contractual relationship.It was held that statutory functions performed by a university under a special State Act, such as granting affiliation or recognition, are public law duties lacking commercial elements and do not constitute activities "for consideration" as required for service tax liability.Precedents from various tribunals and High Courts, including a detailed analysis by the Hon'ble Karnataka High Court in Rajiv Gandhi University of Health Sciences case, were relied upon to reject the taxability of affiliation fees.The Court noted the dismissal of the Special Leave Petition by the Supreme Court against the Karnataka High Court's ruling, reinforcing the settled position that such statutory functions are outside the service tax net.There was no dissenting opinion or doctrinal shift; the judgment reaffirmed established legal principles distinguishing sovereign/statutory functions from taxable services under the Finance Act.

1. ISSUES:

1.1 Whether the appellant is required to pay service tax on the entire amount collected as entry fee from non-resident guests or only on the share of the entry fee retained by the appellant after remitting the balance to the other party providing accommodation and restaurant services.

1.2 Whether the sharing of the entry fee between the appellant and the other party constitutes "consideration" for a "service" under Section 67 of the Finance Act, 1994.

1.3 Whether the appellant's act of collecting the entry fee on behalf of the other party amounts to providing a taxable service to that party.

2. RULINGS / HOLDINGS:

2.1 The appellant is liable to pay service tax only on the share of the entry fee retained by it and not on the entire amount collected, as the other party pays service tax on the accommodation and restaurant services provided to the non-resident guests.

2.2 The sharing of the profit under the agreement does not amount to "consideration" for the provisions of service between the appellant and the other party, as both act on a principal-to-principal basis and neither provides a service to the other.

2.3 The appellant's collection of the entry fee on behalf of the other party cannot be considered a "service" provided to the other party, and hence, no service tax liability arises on the entire amount collected by the appellant.

3. RATIONALE:

3.1 The Court examined the Revenue Sharing Agreement clauses which clearly delineate the rights and obligations of both parties, including the adjustment of entry fee against accommodation or restaurant services and the sharing of the entry fee accordingly.

3.2 The Court noted that the other party pays service tax on accommodation and restaurant services enjoyed by the non-resident guests, while the appellant pays service tax only on the amount retained by it, consistent with the agreed terms.

3.3 The Court emphasized that the Revenue cannot add terms to the agreement contrary to the parties' intention and that the contractual arrangement reflects a joint venture with mutual interests rather than a provider-recipient service relationship between the appellant and the other party.

3.4 The Court relied on the principle that "no consideration has been provisioned in favour of the appellant for collecting entry fee," negating the characterization of the appellant's collection activity as a taxable service to the other party.

3.5 The Court referred to a subsequent Commissioner (Appeals) decision upholding the same interpretation, which was not challenged by the Revenue, thereby reinforcing the settled position on the merits.

ISSUES:

Whether service tax is leviable on 'Ocean Freight' paid by an importer under the provisions of the Finance Act, 1994 and related Notifications.Whether the levy of service tax on ocean freight constitutes an extraterritorial tax beyond the taxable territory of India.Whether the Notifications issued by the Central Government imposing service tax on ocean freight are intra vires the Finance Act, 1994.

RULINGS / HOLDINGS:

The levy of service tax on 'Ocean Freight' paid by the importer is not sustainable as the service of sea transportation occurs beyond the land mass of India and is thus extraterritorial in nature.The provisions of the Finance Act, 1994, specifically Section 66B, Section 65B(52), and Section 64(1), restrict service tax to services provided and consumed within the taxable territory of India, and do not empower the Central Government to levy service tax on extraterritorial events.The impugned Notifications Nos. 15/2017-ST and 16/2017-ST, which seek to levy service tax on ocean freight by way of reverse charge on importers, are declared ultra vires the Finance Act, 1994.Consequently, no service tax liability can be fastened on the importer for ocean freight, and the demand for service tax on ocean freight is set aside.

RATIONALE:

The Court applied the legal framework under the Finance Act, 1994, particularly the charging Section 66B, the definition of "taxable territory" in Section 65B(52), and the territorial application under Section 64(1), which collectively limit service tax to events occurring within India.The Court relied on the constitutional principle that while Parliament may enact laws with extraterritorial effect subject to certain conditions, delegated legislation by the Executive (such as Notifications) cannot extend taxation beyond the territorial limits prescribed by the statute.The decision follows the precedent set by the Gujarat High Court, which held the Notifications imposing service tax on ocean freight as ultra vires, and is consistent with subsequent Tribunal and High Court rulings, as well as the Supreme Court's dismissal of Revenue's appeal in related matters.No dissenting or differing opinions were recorded; the judgment affirms a doctrinal position limiting service tax jurisdiction to within India's territorial boundaries and invalidating executive attempts to extend tax liability extraterritorially.

ISSUES:

Whether Show Cause Notices (SCNs) were validly issued prior to passing the impugned order under Section 73(9) of the State GST Act.Whether the determination of tax and the order attached to the Summary of the Show Cause Notice in GST DRC-01 and the Summary of the Order in GST DRC-07 can be considered as valid Show Cause Notice and Order respectively.Whether the impugned orders under Section 73(9) comply with Section 75(4) of the State GST Act and conform to the principles of natural justice, particularly regarding the opportunity of hearing.

RULINGS / HOLDINGS:

The Court held that the Summary of the Show Cause Notice issued in FORM GST DRC-01 does not substitute a proper SCN required under Section 73(1) of the Central and State GST Acts, and the attachment of tax determination to the summary cannot be treated as a valid SCN. The impugned orders were passed without a proper SCN, violating Section 73 and Rule 142(1)(a).The determination of tax and the order attached to the Summary in GST DRC-01 and GST DRC-07 respectively cannot be considered valid SCN or orders as they lack authentication by the Proper Officer, contrary to Rule 26(3) of the CGST Rules, 2017, which mandates issuance through digital signature or e-signature. Unsigned documents lose their efficacy and are invalid and unenforceable.The impugned orders contravene Section 75(4) of the Act, which mandates that an opportunity of hearing must be granted either upon a written request or when an adverse decision is contemplated. Passing adverse orders without granting a hearing violates statutory requirements and the principles of natural justice.

RATIONALE:

The Court applied the statutory framework of the Central Goods and Services Tax Act, 2017 and the corresponding State Act, particularly Sections 73 and 75, and Rules 26 and 142 of the CGST Rules, 2017. Section 73 mandates issuance of a proper SCN by the Proper Officer before passing an order for tax determination, interest, or penalty. Rule 142 requires a summary of the SCN to be issued electronically in FORM GST DRC-01, which supplements but does not replace the SCN.Rule 26(3) requires all notices, certificates, and orders to be electronically issued by the Proper Officer with digital or e-signature, ensuring authentication and validity. Although Rule 26 falls under Chapter III (Registration), judicial precedents have extended its applicability to Chapter XVIII (Demand and Recovery), filling a regulatory gap and ensuring enforceability of notices and orders.The Court relied on precedents from various High Courts which held that unsigned SCNs and orders are invalid and that summaries cannot replace proper SCNs. It also emphasized the mandatory nature of the opportunity of hearing under Section 75(4), interpreting the use of "or" in the provision to mean that hearing is required even if no written request is made when an adverse decision is contemplated.The Court recognized a procedural gap in the Rules regarding authentication of notices under Demand and Recovery but held that Rule 26(3) must be applied by default until specific rules are enacted. The Court also excluded the period between issuance of the defective Summary of SCN and service of the judgment from the limitation period under Section 73(10) to enable fresh proceedings.

ISSUES:

Whether valid Show Cause Notices (SCNs) were issued prior to passing the impugned order under Section 73(9) of the State GST Act.Whether the determination of tax and the order attached to the Summary of the Show Cause Notice in GST DRC-01 and Summary of the Order in GST DRC-07 respectively can be treated as valid Show Cause Notice and Order.Whether the impugned orders under Section 73(9) comply with Section 75(4) of the State GST Act and conform to the principles of natural justice, particularly regarding the opportunity for hearing.Whether the absence of authentication (digital or e-signature) on the Show Cause Notice, Statement, and Order violates Rule 26(3) of the CGST Rules, 2017 and affects their validity.Whether Rule 26(3) of the CGST Rules, 2017, though located under Chapter III (Registration), applies to notices and orders issued under Chapter XVIII (Demand and Recovery).

RULINGS / HOLDINGS:

The Court held that the Summary of the Show Cause Notice issued in FORM GST DRC-01 does not substitute the proper SCN required under Section 73(1) of both the Central and State GST Acts; a formal and duly authenticated SCN is mandatorily required to initiate proceedings under Section 73.The determination of tax and order attached to the Summary in GST DRC-01 and GST DRC-07 cannot be said to be the Show Cause Notice and Order respectively, as these attachments lack the required authentication and do not meet statutory requirements.The impugned orders under Section 73(9) violate Section 75(4) of the State GST Act and principles of natural justice by failing to provide an opportunity of hearing when an adverse decision was contemplated, especially since the date and time of hearing were left blank in the Summary of the Show Cause Notice.Rule 26(3) of the CGST Rules, 2017 mandates that all notices, certificates, and orders must be electronically issued with digital or e-signature by the Proper Officer or authorized officer; absence of such authentication renders the documents invalid and unenforceable.Despite Rule 26(3) being under Chapter III (Registration), the Court, following precedents, applied it to Chapter XVIII (Demand and Recovery) to fill the regulatory gap and ensure validity of notices and orders issued under the Act.

RATIONALE:

The Court relied on the statutory framework of Section 73 of the GST Act, which requires issuance of a proper SCN before passing any demand order, distinguishing clearly between a Show Cause Notice and a Statement of determination of tax.Rule 142 of the CGST Rules, 2017 mandates issuance of a summary of the SCN electronically in FORM GST DRC-01, but this summary is supplementary and cannot replace the requirement of a proper SCN under Section 73(1).Precedents from various High Courts (Telangana, Andhra Pradesh, Jharkhand, Karnataka, and Chhattisgarh) were followed, emphasizing the necessity of proper authentication of SCNs and orders and the mandatory nature of opportunity of hearing under Section 75(4).The Court identified a regulatory gap as Rule 26(3) is under Chapter III, while Demand and Recovery fall under Chapter XVIII, but held that Rule 26(3) must be applied by default to ensure legal validity until specific rules or notifications are issued.The Court underscored that Section 75(4) mandates an opportunity of hearing "when any adverse decision is contemplated," irrespective of whether the person chargeable requests it, aligning with the principles of natural justice and preventing procedural lapses.Failure to provide a hearing in such circumstances renders the impugned order violative of statutory provisions and natural justice, warranting interference and setting aside of the order.

ISSUES:

Whether disallowance under section 14A read with Rule 8D can be made without recording dissatisfaction under section 14A(2).Whether disallowance under section 14A is warranted when investments in exempt income yielding instruments are made from own funds or interest-free funds.Whether disallowance under section 14A applies while computing book profits under section 115JB in the absence of interest-bearing borrowings utilized for investments.

RULINGS / HOLDINGS:

The Assessing Officer cannot invoke Rule 8D(2)(ii) to enhance disallowance without recording "objective dissatisfaction" as mandated under section 14A(2).No disallowance under section 14A is called for where investments in exempt income yielding shares are made out of own funds or interest-free funds, as demonstrated by the assessee.The disallowance under section 14A is not applicable while computing book profits under section 115JB if there is no utilization of interest-bearing funds for such investments.The presumption arises, based on binding precedent, that investments are made from own funds when such funds exceed the investment amount, thereby excluding disallowance under section 14A.

RATIONALE:

The Court applied the statutory framework of section 14A of the Income Tax Act, 1961, and Rule 8D of the Income Tax Rules, emphasizing the requirement under section 14A(2) that the Assessing Officer must record dissatisfaction before making disallowance.Precedents from the Tribunal and the Hon'ble Jurisdictional High Court (CIT v. HDFC Bank Ltd.) establish that if own funds sufficiently cover investments, a presumption arises negating the applicability of section 14A disallowance.The Supreme Court's ruling in South Indian Bank Ltd. v. CIT was relied upon to affirm the principle that no disallowance arises absent interest-bearing borrowings used for investments generating exempt income.The Court noted the factual demonstration by the assessee that investments were made through amalgamation, gifts, and interest-free loans, with substantial own funds available, negating any presumption of interest-bearing fund utilization.No doctrinal shift or dissent was noted; the judgment follows established legal principles and consistent prior decisions of the Tribunal.

ISSUES:

Whether additions under section 69A of the Income-tax Act, 1961 can be made to a dissolved firm for unexplained cash and credit entries in its bank account post dissolution.Whether the assessee's claim of business conversion and filing returns under a new PAN absolves it from explaining transactions in the bank account of the dissolved firm.Whether the failure to disclose a bank account and associated transactions in the return of income of the successor firm justifies addition under section 69A.Whether judicial precedents concerning dissolution and successor entities apply to the facts of continued financial activity under the dissolved firm's PAN and bank account.

RULINGS / HOLDINGS:

Additions under section 69A were upheld as the appellant failed to provide "specific details regarding the source of funds, ledger A/c. and other supporting evidences" for cash and credit entries totaling Rs. 6,29,89,197/- in the bank account of the dissolved firm.The appellant's assertion that the business was converted and transactions were recorded under a new PAN was rejected because "mere assertion... without any supporting documentary evidence would in no way prove" the claim, and the impugned bank account was not disclosed in the successor firm's return or balance sheet.The failure to disclose the HDFC bank account number 50200024762393 in the successor firm's return of income and balance sheet was held to justify the addition under section 69A as unexplained money.The precedents relied upon by the appellant were distinguished on facts, as in this case "there are credit entities and cash deposits... well after 12 long years of its dissolution" and "no application was made to close the PAN, nor was the bank account closed," indicating continued business activity under the dissolved firm's name.

RATIONALE:

The legal framework applied includes section 69A of the Income-tax Act, 1961, which permits addition of unexplained money where the assessee fails to satisfactorily explain the source of credits in bank accounts.The court relied on the principle that "if a dissolved entity continues to carry out financial transactions in its own name, then the dissolution becomes a matter of form and not substance," thereby attracting tax liability despite claimed dissolution.The Hon'ble Supreme Court precedent in CIT vs. P. Mohankala was applied, affirming that failure to provide satisfactory explanation and evidence for credits justifies addition under section 68 (analogous to section 69A).The court distinguished prior case law concerning dissolution and successor entities on the ground that those cases involved complete cessation of business and proper transfer of assets and liabilities, unlike the instant case where the dissolved firm's bank account was actively used without disclosure.

ISSUES:

Whether mere rejection of the assessee's explanation or contentions can lead to the conclusion of concealment of material facts under section 271(1)(c) of the Income Tax Act, 1961.Whether a difference of opinion regarding non-deduction of TDS amounts to concealment of income or furnishing of inaccurate particulars under section 271(1)(c).Whether acceptance of the CIT(A)'s order by the department without further appeal negates the element of concealment necessary for levy of penalty under section 271(1)(c).Whether the element of mens rea (guilty mind) is essential for imposing penalty under section 271(1)(c).Whether addition to income or disallowance of a debatable claim necessarily implies concealment or furnishing of inaccurate particulars of income.Whether non-filing of appeal by the assessee against the orders of AO/CIT(A) renders section 271(1)(c) applicable.Whether the Assessing Officer can proceed with recovery proceedings pending disposal of the appeal against penalty under section 271(1)(c).

RULINGS / HOLDINGS:

The Court held that "mere Rejection of the explanation/contention raised by the assessee company cannot lead to the conclusion that there has been any concealment of material facts."The Court ruled that "the addition pertains to an amount on which there is a difference of opinion, not concealment," and "mere difference of opinion/taking a position contrary to the view taken by the AO cannot amount to the assessee company concealing facts material to the computation of income."The Court observed that since the department accepted the CIT(A)'s order and did not appeal further, "there was no concealment of income" and the department "accepted the technical nature of the transactions."The Court emphasized that "the element of mens rea (guilty mind) that is a must to levy penalty did not exist" in the present case.The Court held that "an Addition to income/rejection of claim for certain expenditure/disallowance of a debatable claim itself does not lead to an inference of concealment or furnishing of inaccurate particulars of income."The Court stated that "the mere fact that the assessee firm has not filed appeal with the Tribunal against the orders of the AO/CIT(A) will not render the provisions of section 271(1)(c) of the Act applicable to the case."The Court directed that the Assessing Officer be directed to stay the demand and "immediately stop recovery proceedings till disposal of this appeal."

RATIONALE:

The Court applied the provisions of section 271(1)(c) of the Income Tax Act, 1961, which imposes penalty for concealment of income or furnishing inaccurate particulars.The Court relied on the fact that Form 15CAs and Form 15CBs were duly filed, explicitly mentioning relevant provisions of the Income Tax Act and Double Taxation Avoidance Agreements (DTAAs), indicating transparency in the transactions.The Court noted that the transactions were technical and debatable in nature, as evidenced by the CIT(A)'s partial allowance and the absence of departmental appeal, demonstrating a genuine difference of opinion rather than concealment.The Court highlighted the introduction of the Equalization Levy under the Finance Act, 2016, as a legislative recognition that such online advertisement transactions fall outside the scope of Income Tax Act provisions for TDS, supporting the assessee's position.The Court underscored the necessity of mens rea (guilty mind) for penalty imposition, which was absent here, marking a doctrinal adherence to established penalty jurisprudence.

ISSUES:

Whether notional interest on loans advanced to Associated Enterprises (AEs) should be computed using LIBOR rate or LIBOR plus additional basis points.Whether notional interest on outstanding receivables from AEs constitutes an international transaction subject to transfer pricing adjustments for Assessment Year (AY) 2012-13 and subsequent years.Whether notional commission on corporate guarantees provided by the assessee to AEs is justifiable and at what rate such commission should be computed.Whether the absence of interest charged on delayed payments from Non-Associated Enterprises (Non-AEs) affects the applicability of notional interest adjustments on receivables from AEs.

RULINGS / HOLDINGS:

Notional interest on loans advanced to AEs for AY 2012-13 is to be computed at the LIBOR rate alone; the addition of 500 basis points by the Transfer Pricing Officer (TPO) was not upheld, and the appellate authority's direction to restrict to LIBOR rate is affirmed as there is "no infirmity in the order of Ld. CIT(A)."For AY 2012-13, notional interest on outstanding receivables does not constitute an international transaction under section 92B, as the provisions are prospective and applicable only from AY 2013-14 onwards; hence, no adjustment is warranted for AY 2012-13.For AYs 2014-15 and 2016-17, the notional interest on outstanding receivables from AEs is not sustainable because the assessee did not charge interest on delayed payments from Non-AEs, and it is a "settled position of law that if no interest has been charged from Non AEs then no adjustment qua outstanding receivables with AE can be made."The addition of notional commission on corporate guarantees is justified, and the appropriate rate for such commission is 1%; the matter is remanded to the Assessing Officer (AO) to compute the guarantee commission at 1%, following the precedent set by the Co-ordinate Bench.

RATIONALE:

The court applied the statutory framework under the Income Tax Act relating to transfer pricing, specifically section 92B and associated provisions governing international transactions and the arm's length principle.The prospective application of section 92B to notional interest on outstanding receivables was emphasized, relying on precedent that the provision applies from AY 2013-14 onwards, thereby excluding AY 2012-13 from its ambit.The principle of parity in treatment between Associated Enterprises and Non-Associated Enterprises was applied, holding that if no interest is charged to Non-AEs on delayed payments, the Department cannot attribute notional interest to AEs, consistent with established judicial precedents.The determination of corporate guarantee commission at 1% follows earlier decisions of the Co-ordinate Bench, reflecting a doctrinal consistency in quantifying guarantee fees in transfer pricing adjustments.

ISSUES:

Whether the ad-hoc disallowance of 90% of the revenue expenditure debited to the profit and loss account is justified when no revenue from the project has been recognized under the Percentage of Completion Method (POCM).Whether expenditure incurred and claimed as business expenditure, but related to ongoing real estate projects with no income recognized, should be capitalized as part of inventory/project cost or allowed as deduction under section 37 of the Income-tax Act, 1961.Whether the application of Accounting Standard 7 (AS-7) and the Guidance Note on Accounting of Real Estate Transactions issued by ICAI is determinative for the allowability of expenditure in such cases.

RULINGS / HOLDINGS:

The ad-hoc disallowance of 90% of the revenue expenditure was held to be arbitrary and unjustified as the expenditure was incurred "wholly and exclusively for the purpose of business" and the genuineness and business nexus of such expenditure were not doubted by the revenue.Expenditure debited to the profit and loss account, which is not directly related to the project cost and is in accordance with the AS-7 and Guidance Note on Accounting of Real Estate Transactions, is allowable as deduction even if no revenue is recognized during the year under POCM.The consistent accounting practice followed by the assessee and accepted by the revenue in other assessment years supports the allowability of the deduction of such expenditure.

RATIONALE:

The Court applied the legal framework under section 37 of the Income-tax Act, 1961, which allows deduction of expenditure "wholly and exclusively" for business purposes, irrespective of whether income has been earned during the year.The Court relied on Accounting Standard 7 (AS-7) on Construction Contracts and the Guidance Note on Accounting of Real Estate Transactions issued by the Institute of Chartered Accountants of India (ICAI), which prescribe the method of accounting for revenue and project expenses under the Percentage of Completion Method (POCM).The Court noted that the revenue did not dispute the genuineness or business nexus of the expenditure, nor reject the books of account under section 145(3) of the Act.Precedent from the Supreme Court recognizing the relevance of Accounting Standards and Guidance Notes for income recognition under the Income Tax Act was cited to support the approach.A coordinate bench's decision was followed, which held that expenditure not linked or attributable directly to the project is allowable as deduction.The Court found the AO's allowance of 10% of the expenditure as deduction inconsistent with the ad-hoc disallowance of 90%, deeming the latter arbitrary.The Court emphasized the consistent accounting treatment adopted by the assessee in previous and subsequent years, reinforcing the legitimacy of the claimed deductions.

ISSUES:

Whether disallowance under section 36(1)(iii) of the Income Tax Act is justified on interest paid on loans advanced to subsidiary companies when the assessee has sufficient own funds and loans are advanced on commercial expediency.Whether disallowance under section 14A read with Rule 8D can be made in absence of exempt income.Whether the Transfer Pricing Officer's adjustment on Advertising, Marketing and Promotion (AMP) expenses should be computed by applying the Advance Pricing Agreement (APA) methodology for non-APA years.Whether addition on account of excess remuneration paid to directors is justified when remuneration is approved by the Central Government prior to the end of the financial year.

RULINGS / HOLDINGS:

Disallowance under section 36(1)(iii) cannot be made where the assessee has "own sufficient funds" exceeding the amount advanced as loans to subsidiaries and where no material disproves that loans were advanced on "commercial expediency."Section 14A provisions cannot be invoked and no disallowance under section 14A read with Rule 8D shall be made if the assessee has "no exempt income" during the relevant assessment year.The Transfer Pricing Officer's adjustment on AMP expenses must be recomputed by applying the APA methodology, as endorsed by the CIT(A), even for non-APA years where facts and functional analysis remain unchanged, with the AO directed to allow a mark-up of 15% over the minimum AMP expenditure as per the APA approach.Addition on account of excess remuneration paid to directors is not justified where such remuneration is paid in terms of "approval granted by the Central Government" prior to the end of the financial year.

RATIONALE:

The Court applied statutory provisions under the Income Tax Act, specifically sections 36(1)(iii) and 14A read with Rule 8D, and relied on authoritative precedents including the Supreme Court's decision in CIT vs. Reliance Industries and Munjal Sales Corporation vs. CIT, which overruled earlier conflicting judgments, establishing that disallowance under section 36(1)(iii) requires demonstration that loans were not advanced on commercial expediency and that sufficient interest-free funds were unavailable.The Court followed binding precedents from the jurisdictional High Court and Supreme Court that section 14A disallowance is inapplicable where no exempt income is earned, mandating verification of exempt income before applying section 14A.The Court recognized the principle of extending APA methodology to non-APA years where there is no change in facts or functional analysis, as supported by various Tribunal decisions and the CBDT's approval, thereby endorsing a consistent and uniform approach to computing arm's length price adjustments on AMP expenses.Regarding director remuneration, the Court emphasized compliance with statutory requirements and prior Central Government approval as determinative, rejecting Revenue's contention where approval was timely obtained.

ISSUES:

Whether income earned from excess provisions written back and late payment surcharges qualifies for deduction under section 80IA of the Income Tax Act, 1961, given the requirement of a direct nexus with the eligible business activities.Whether the Commissioner of Income Tax (Appeals) erred in deleting the disallowance of deduction under section 80IA on such income despite the Assessing Officer's reliance on the Apex Court decision in Liberty India Vs. CIT regarding the necessity of direct nexus.Whether reliance on prior Tribunal orders in the assessee's own cases for AYs 2008-09 to 2015-16, which were under appeal before the High Court, was appropriate for deciding the deduction claim under section 80IA.Whether the order allowing deduction under section 80IA on late payment surcharges while simultaneously enhancing income by addition of late payment surcharge on accrual basis is perverse.

RULINGS / HOLDINGS:

The Tribunal upheld the Commissioner of Income Tax (Appeals) decision allowing deduction under section 80IA on income from excess provisions written back and late payment surcharges, emphasizing that such income is "part and parcel of profit derived from eligible enterprise" and thus qualifies for deduction.The Tribunal rejected the Revenue's contention based on the Liberty India decision, clarifying that the expression "derived from" requires a "direct and immediate nexus" and that excess provisions written back and late payment surcharges satisfy this requirement by directly emanating from the eligible undertaking.The Tribunal held that reliance on its own Coordinate bench decisions for AYs 2008-09 to 2015-16 was justified despite pending appeals before the High Court, as those decisions squarely covered the issue and supported the allowance of deduction under section 80IA.The Tribunal considered the issue of perversity regarding simultaneous allowance and enhancement on late payment surcharge academic and left it open, finding no need to interfere given the primary ruling on deduction eligibility.

RATIONALE:

The Tribunal applied the statutory framework of section 80IA(1) of the Income Tax Act, which allows a deduction of "an amount equal to hundred per cent of the profits and gains derived from such business" for eligible businesses.The Tribunal relied on authoritative interpretations by the Apex Court, particularly the Liberty India case, to distinguish between "derived from" (requiring direct nexus) and "attributable to" (broader connection), affirming that only income with a direct and immediate nexus qualifies for deduction.The Tribunal interpreted "excess provision written back" as a reversal of previously overstated deductible expenditure, thus constituting part of profits derived from the eligible business rather than separate income.Late payment surcharges were held to be part of sale consideration, and since deduction is allowable on sale consideration, these surcharges also qualify for deduction under section 80IA.The Tribunal followed precedent set by its Coordinate bench in the assessee's own cases, reinforcing doctrinal consistency and rejecting the Revenue's challenge despite ongoing High Court appeals, emphasizing judicial economy and settled position at the Tribunal level.

1. Whether depreciation claimed at 15% on plant and machinery used for less than 180 days is allowable under the Income-tax Act, 1961.

2. Whether additional depreciation under Section 32(1)(iia) of the Income-tax Act, 1961, can be allowed when not claimed in the original return of income.

3. Whether Explanation 5 to Section 32(1) mandates allowance of depreciation irrespective of claim in the return.

1. The court held that depreciation at 15% on plant and machinery used for less than 180 days is not allowable; only 7.5% is permissible, and the disallowance of excess depreciation is justified as the appellant admitted the bonafide mistake.

2. The court held that additional depreciation under Section 32(1)(iia) cannot be entertained if not claimed in the original return, as the Income Tax Act does not permit amendments during assessment without a revised return, consistent with the principle established in Goetze (India) Ltd. vs. CIT.

3. The court recognized the appellant's reliance on Explanation 5 to Section 32(1) that depreciation is mandatory and must be allowed irrespective of whether it was claimed in the return, and accordingly allowed the additional depreciation claim.

The court applied the statutory provisions of the Income-tax Act, 1961, particularly Section 32(1) and Explanation 5 thereto, and Section 143(1) relating to processing of returns. It relied on the principle from the Supreme Court ruling in Goetze (India) Ltd. vs. CIT that any modification to a return must be made by filing a revised return, not during assessment proceedings.

The court distinguished between the disallowance of excess depreciation claimed erroneously and the entitlement to additional depreciation which is mandatory under Explanation 5 to Section 32(1), thus allowing additional depreciation despite it not being claimed originally.

No dissent or doctrinal shift was noted; the decision aligns with established legal principles on depreciation claims and the procedural requirements for return amendments.

ISSUES:

Whether the addition of Rs. 36,29,000/- on account of sale consideration of agricultural land sustained under section 56(2)(vii)(a) of the Income-tax Act, 1961 is valid.Whether the reassessment order passed under section 147 of the Income-tax Act, 1961 is valid without issuance and service of notice under section 143(2).Whether the reasons recorded under section 147 are valid and sufficient for reopening the assessment.Whether penalty under section 271(1)(c) is justified in absence of taxable income.Whether interest charged under sections 234A, 234B and 234C is justified in absence of default in payment of advance tax or filing of return.

RULINGS / HOLDINGS:

The addition of Rs. 36,29,000/- sustained under section 56(2)(vii)(a) was not adjudicated upon as the reassessment proceedings were held invalid due to procedural defect.The reassessment order passed under section 147 without issuance and service of notice under section 143(2) is null and void, in view of binding precedents requiring mandatory issuance of such notice even in reassessment proceedings.The reasons recorded under section 147 were not examined on merits because the reassessment proceedings were quashed on procedural grounds.Penalty under section 271(1)(c) was not adjudicated as the reassessment proceedings themselves were invalidated.Interest under sections 234A, 234B and 234C was not adjudicated for the same reason.

RATIONALE:

The Court applied the mandatory procedural requirement under the Income-tax Act, 1961, that notice under section 143(2) must be issued and served even in reassessment proceedings initiated under section 147.Reliance was placed on binding Supreme Court precedent holding that non-issuance of notice under section 143(2) renders reassessment order invalid and void.The jurisdictional High Court decision was also cited to reinforce the mandatory nature of section 143(2) notice in reassessment cases.Due to this procedural defect, the Court did not proceed to examine substantive additions or penalties, rendering those issues academic.The Court granted liberty to the Revenue to approach the Tribunal afresh upon proof of valid issuance and service of notice under section 143(2).

ISSUES:

Whether anticipatory bail can be granted in cases involving allegations of undervaluation and misdeclaration under Sections 132 and 135 of the Customs Act, 1962.Maintainability of anticipatory bail applications before the High Court instead of the Sessions Court in cases involving customs offences.Effect and admissibility of a compounding application filed under Section 137(3) of the Customs Act, 1962 during the pendency of investigation.Appropriate conditions and safeguards to be imposed during investigation and interrogation, including presence of advocate and videography.Whether the filing of a compounding application and willingness to pay determined dues can be a ground for granting anticipatory bail.Assessment of risk factors such as tampering with evidence, absconding, or influencing witnesses in bail considerations.

RULINGS / HOLDINGS:

The Court held that anticipatory bail can be granted in cases involving allegations under Sections 132 and 135 of the Customs Act, 1962, particularly where the offence is compoundable and the evidence is primarily documentary.It was ruled that it is not mandatory to first approach the Sessions Court before seeking anticipatory bail before the High Court, especially where the High Court has concurrent territorial jurisdiction and complex jurisdictional facts exist; objections on maintainability were found to be devoid of merit.The compounding application filed under Section 137(3) of the Customs Act, 1962 during the investigation stage is admissible and not premature, consistent with the precedent that such applications can be filed "at any stage, either before or after institution of prosecution."The Court granted anticipatory bail subject to conditions including execution of PR bonds, furnishing sureties, cooperation with investigation, presence of advocates at a visible but not audible distance during interrogation, and videography of proceedings.The applicants' willingness to comply with compounding provisions and to deposit Rs. 5 Crores was recognized as a relevant factor favoring grant of anticipatory bail.The Court emphasized that applicants shall not tamper with evidence or influence witnesses, addressing concerns of the investigating agency regarding absconding and non-cooperation.

RATIONALE:

The Court applied the statutory framework of the Customs Act, 1962, particularly Sections 132, 135 (offences relating to undervaluation and misdeclaration), and Section 137(3) (compounding of offences), as well as relevant procedural provisions regarding bail.Precedents were relied upon to clarify that anticipatory bail applications are maintainable before the High Court notwithstanding the general rule favoring Sessions Court jurisdiction, citing decisions that reject rigid territorial limitations in complex jurisdictional situations.In interpreting Section 137(3), the Court followed the decision in Imran Latif Shirgawkar Vs. Directorate of Revenue Intelligence, which held that compounding applications during investigation are permissible and that such offences are bailable.The Court balanced the object of the compounding mechanism-to encourage voluntary compliance and avoid protracted litigation-with the need to protect the investigation from interference, by imposing conditions on bail.The reasoning acknowledged the documentary nature of evidence and absence of prior convictions, which reduced the risk of tampering or absconding, supporting the grant of anticipatory bail.Safeguards such as advocate presence at a visible but not audible distance and videography during interrogation were adopted following prior rulings to prevent coercion and ensure procedural fairness.

ISSUES:

Whether the dispute between parties concerning alleged rent arrears under a sub-lease agreement within a Special Economic Zone (SEZ) is arbitrable or falls under exclusive jurisdiction of rent control courts under the Kerala Buildings (Lease and Rent Control) Act, 1965 (KBLR Act).Whether the provisions of the Special Economic Zones Act, 2005 (SEZ Act), including its arbitration mechanism under Section 42 and overriding effect under Section 51, exclude or override the applicability of the KBLR Act to tenancy disputes arising within an SEZ.Whether the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (PPEUO Act) applies to eviction proceedings in the context of a private SEZ and the tenancy in question.Whether the rent control petition is maintainable in the absence of a designated court under Section 23 of the SEZ Act and non-appointment of an arbitrator under Section 42 thereof.Whether the dispute between the parties is one of landlord-tenant relationship governed by rent control legislation or a developer-entrepreneur relationship governed by the SEZ Act.

RULINGS / HOLDINGS:

The dispute concerning rent arrears under the sub-lease agreement is inherently arbitrable only if it does not fall under rent control legislation; however, since the tenancy here is incidental to the entrepreneur-developer relationship under the SEZ Act, the dispute is subject to the statutory arbitration mechanism under Section 42 of the SEZ Act. The Rent Control Court's finding of non-arbitrability was incorrect.The SEZ Act provisions, including the arbitration mechanism under Section 42 and the overriding clause under Section 51, apply to disputes between entrepreneurs and developers in the SEZ, and thus exclude the applicability of the KBLR Act to such disputes. There is no repugnancy or overriding effect of the SEZ Act over the KBLR Act in cases where tenancy is governed independently by rent control law, but here the tenancy is incidental to the SEZ Act governed relationship.The PPEUO Act does not apply to the tenancy in question as the premises are part of a private SEZ where the Central Government does not hold the requisite majority shareholding; thus, the premises do not qualify as "public premises" under the PPEUO Act.In the absence of a designated court under Section 23 of the SEZ Act and non-appointment of an arbitrator by the Central Government under Section 42, the statutory arbitration mechanism is the exclusive forum for dispute resolution; however, the Rent Control Court's jurisdiction is excluded in such circumstances.The relationship between the parties is not a pure landlord-tenant relationship governed by rent control legislation but is incidental to the entrepreneur-developer relationship under the SEZ Act, and therefore the dispute falls within the SEZ Act's scope and not the KBLR Act.

RATIONALE:

The Court applied the distinction between actions in rem and actions in personam as articulated in the Supreme Court's decision in Vidya Drolia & Others v. Durga Trading Corporation, noting that landlord-tenant disputes covered by rent control legislation are non-arbitrable due to exclusive jurisdiction conferred on specified courts, whereas disputes under the Transfer of Property Act are arbitrable.The Court examined the statutory scheme of the SEZ Act, particularly Sections 23, 42, and 51, which provide for designated courts or arbitration for civil disputes within SEZs and an overriding effect over inconsistent laws. The absence of designated courts and the mandate for arbitration by an arbitrator appointed by the Central Government under Section 42 make arbitration the sole dispute resolution mechanism between entrepreneurs and developers.The Court employed the doctrine of pith and substance and harmonious construction to determine that the tenancy agreement was incidental to the entrepreneur-developer relationship governed by the SEZ Act, and thus the KBLR Act does not apply to this dispute.The Court rejected the applicability of the PPEUO Act, relying on its definition of "public premises" requiring Central Government majority ownership, which was absent here, and on precedent distinguishing the scope of the PPEUO Act from rent control legislation.The Court noted that the SEZ Act's purpose is to promote exports and regulate SEZ activities, whereas the KBLR Act regulates landlord-tenant relationships and eviction under a social welfare legislation framework; since the SEZ Act does not contain eviction provisions, eviction under the SEZ regime would follow after cancellation of entrepreneur status and possibly under PPEUO Act if premises qualify as public premises.The Court distinguished the present case from typical rent control disputes by recognizing that the tenancy was a privilege contingent on entrepreneur status under the SEZ Act, making the dispute inherently linked to SEZ regulatory provisions and subject to arbitration as mandated by the SEZ Act.The Court acknowledged constitutional principles regarding the Union List and State List entries, noting that SEZ Act is a Union law under Entry 41 and KBLR Act is a State law under Entry 18, and that repugnancy arises only if both laws occupy the same field in the Concurrent List, which was not the case here.The Court relied on precedents holding that arbitration is excluded where statutes confer exclusive jurisdiction on specified courts to adjudicate special rights and obligations, and where arbitration cannot effectively enforce such rights.The Court found that the Rent Control Court's conclusion that the arbitration clause was waived due to non-invocation was misplaced, as the SEZ Act mandates arbitration in the absence of designated courts, making arbitration compulsory and exclusive.The Court concluded that the remedy of eviction under the KBLR Act was not available to the developer in this case, and that eviction, if any, would have to follow the procedure under the SEZ Act and potentially the PPEUO Act after cancellation of entrepreneur status, thereby dismissing the rent control petition as not maintainable.

ISSUES:

Whether statements recorded under section 108 of the Customs Act can be relied upon as substantive evidence for imposing penalty under section 114 of the Customs Act without following the procedure under section 138B of the Customs Act.Whether failure to comply with the mandatory procedure under section 138B of the Customs Act affects the admissibility and evidentiary value of statements recorded during inquiry.Whether the appellant's liability for penalty depends on the appeals filed or not filed by other noticees involved in the same show cause notice.

RULINGS / HOLDINGS:

The statements made under section 108 of the Customs Act cannot be relied upon as substantive evidence for imposing penalty under section 114 of the Customs Act unless the procedure under section 138B of the Customs Act is followed, including examination of the person as a witness before the adjudicating authority and forming an opinion to admit the statement in evidence.The provisions of section 138B of the Customs Act are mandatory, and failure to comply with them means that no reliance can be placed on the statements recorded under section 108 during inquiry or investigation.The appellant's right to relief and appeal is independent of whether other noticees have filed appeals or not; non-filing of appeals by others does not preclude granting relief to the appellant.

RATIONALE:

The Court applied the statutory framework under sections 108 and 138B of the Customs Act, which regulate the recording and admissibility of statements made during inquiry or investigation.Section 138B mandates that statements recorded under section 108 can be admitted as evidence only after the person making the statement is examined as a witness before the adjudicating authority and the authority forms an opinion that the statement should be admitted "in the interests of justice," followed by an opportunity for cross-examination.The Court relied on prior authoritative decisions interpreting analogous provisions under the Central Excise Act (sections 14 and 9D) and the Customs Act, emphasizing the mandatory nature of procedural safeguards to prevent coercion and ensure fairness.The Court rejected the department's argument that the absence of appeals by other noticees affects the appellant's entitlement to relief, affirming that each noticee's appeal is independent.This judgment reiterates and affirms the strict procedural requirements for admitting statements recorded during inquiry as substantive evidence for penalty imposition under the Customs Act, reflecting no doctrinal shift but consistent application of existing law.

ISSUES:

Whether the declared invoice value of imported goods should be accepted as the transaction value under the Customs Valuation (Determination of value of imported goods) Rules, 2007, or rejected in favor of a value based on an unsigned contract found in the importer's premises.Whether the principles of natural justice were observed, particularly regarding the appellant's right to receive a copy of the unsigned contract and to cross-examine witnesses under Section 138B of the Customs Act, 1962.Whether reliance on contemporaneous imports for re-determination of transaction value is permissible without establishing identity or similarity of goods.Whether penalties under Sections 112(a) and 114AA of the Customs Act, 1962 are justified in the absence of evidence of intention or knowledge of making false or incorrect declarations.Whether confiscation of goods is sustainable where no ground for enhancement of transaction value is found.

RULINGS / HOLDINGS:

The declared invoice value should be accepted as the transaction value under the Customs Valuation Rules since the department failed to prove that payment was made as per the unsigned contract, and the appellant submitted payment was made according to the declared invoice.The appellant was denied natural justice by not being served a copy of the unsigned contract and being refused the opportunity for cross-examination, violating procedural fairness under Section 138B of the Customs Act.The adjudicating authority erred by relying on contemporaneous imports without establishing that such imports were of identical or similar goods, and by traveling beyond the scope of the show cause notice.Penalties under Section 114AA are not warranted as there was no evidence of intention or knowledge of making false or incorrect declarations, consistent with the legislative purpose that Section 114AA penalizes exports which merely exist on paper.Confiscation of goods cannot be sustained in the absence of valid grounds for enhancement of transaction value.

RATIONALE:

The Court applied the Customs Valuation (Determination of value of imported goods) Rules, 2007, emphasizing that declared invoice value is the primary basis for transaction value unless rebutted by cogent evidence.The Court underscored the necessity of adherence to principles of natural justice, including the right to receive documents relied upon by the department and to cross-examine witnesses, as mandated by Section 138B of the Customs Act, 1962.The Court noted that the department's reliance on contemporaneous imports without establishing similarity contravenes established valuation principles and exceeds the scope of the show cause notice.In respect of penalties, the Court referenced precedent decisions and legislative intent, highlighting that Section 114AA targets fraudulent paper exports and not genuine transactions lacking intent to deceive.The decision reflects a doctrinal emphasis on procedural fairness and evidentiary standards in customs valuation and penalty imposition, setting aside orders based on unsigned contracts and unsubstantiated valuation adjustments.

ISSUES:

Whether the declared transaction value of imported PVC flex sheets can be rejected under Rule 4(2) of the Customs Valuation Rules, 1988 for alleged undervaluation.Whether the department's reliance on contemporaneous imports by other importers to determine assessable value is justified without establishing identity or similarity of goods and same supplier.Whether a retracted admission letter obtained under alleged duress can be relied upon as evidence of undervaluation.Whether the extended period of limitation is invokable in the absence of proven misdeclaration or suppression.Whether confiscation and penalty under Sections 111(m), 112, and 114A of the Customs Act, 1962 are sustainable in the facts of the case.

RULINGS / HOLDINGS:

The transaction value declared in the Bills of Entry cannot be discarded unless the conditions enumerated in Rule 4(2) of the Customs Valuation Rules, 1988 are satisfied, and the Assessing Officer must provide cogent reasons supported by material for such rejection.The department failed to establish that the goods imported by the appellant were identical or similar to those imported by other importers or that the supplier was the same; therefore, reliance on invoices from other importers for valuation is not sustainable.The letter dated 15.02.2008, which purportedly admitted undervaluation, was retracted by the appellant on 20.02.2008, stating it was given under duress; hence, it cannot be treated as voluntary or admissible evidence to prove undervaluation.The department has not discharged the burden of proof required to invoke the extended period of limitation as no suppression or misdeclaration has been established on the part of the appellant.Confiscation of goods and imposition of penalties under the Customs Act, 1962 are not sustainable as the department failed to prove undervaluation and misdeclaration beyond reasonable doubt.

RATIONALE:

The Court applied the statutory framework under the Customs Valuation Rules, 1988, particularly Rule 4(2), which allows rejection of declared transaction value only under specific circumstances such as related parties or higher contemporaneous import prices for identical or similar goods.Precedents emphasized include the requirement for the Assessing Officer to provide valid reasons for rejecting declared value and to ensure that documentary evidence submitted by the importer is not discarded mechanically or without due examination.The Court relied on the principle that the burden of proving undervaluation lies on the revenue, and mere assumptions or comparisons without establishing identity, similarity, or supplier commonality are insufficient.Confession or admission letters must be voluntary to be admissible; retracted statements made under pressure or duress are not reliable evidence, as supported by Supreme Court precedents on confessions.The Court distinguished the facts from cases where misdeclaration was established, noting that the present case lacked evidence of misdescription or concealment, thus negating the applicability of extended limitation and penalties.The decision aligns with a doctrinal emphasis on protecting bona fide importers and ensuring that valuation assessments are based on concrete evidence rather than conjecture or incomplete sampling.

ISSUES:

Whether refund claim of accumulated/unutilized CENVAT Credit on input services is barred by limitation under Section 11B of the Central Excise Act, 1944.Whether eligibility for CENVAT Credit and refund requires export of dutiable goods under bond or Letter of Undertaking (LUT).Whether refund of CENVAT Credit can be denied if the appellant was not registered under Service Tax at the relevant time.Whether refund of CENVAT Credit is admissible for exempted goods exported without execution of bond or LUT.Whether refund claims must be filed on a quarterly basis as per Notification No. 27/2012-CE (NT) dated 18th June, 2012.Whether the appellant complied with the condition to debit the claimed amount from CENVAT Credit account at the time of refund claim as per Notification No. 27/2012-CE (NT).

RULINGS / HOLDINGS:

The limitation period under Section 11B of the Central Excise Act applies to refund claims under Notification No. 27/2012-CE (NT), and the refund claim was rightly rejected as time barred. The contention that limitation does not apply to refund of CENVAT Credit is not acceptable.Eligibility for CENVAT Credit and refund under Rule 5 of CENVAT Credit Rules, 2004 requires that goods exported be dutiable and exported under bond or LUT; however, this requirement was held to be procedural and its violation does not disentitle the appellant from claiming refund where goods are exempted.Refund of CENVAT Credit and its availment cannot be denied merely because the claimant was not registered under Service Tax or Central Excise at the relevant time; registration is not mandatory for claiming refund.Refund of input duty/input service tax is admissible even when exempted goods are exported without execution of bond or LUT, as held by various High Courts and the Tribunal; denial of refund on this ground is not sustainable.Refund claims must comply with the conditions of Notification No. 27/2012-CE (NT), including filing within the prescribed period and on a quarterly basis; failure to do so may result in rejection of claim.Failure to debit the claimed amount from the CENVAT Credit account at the time of refund claim, as required by condition (h) of Notification No. 27/2012-CE (NT), is a valid ground for rejection of the refund claim.

RATIONALE:

The Court applied the provisions of Section 11B of the Central Excise Act, 1944, and Notification No. 27/2012-CE (NT) dated 18th June, 2012, which prescribe limitation and procedural conditions for refund claims of CENVAT Credit.Precedents from the Tribunal and High Courts were relied upon, including decisions holding that refund of CENVAT Credit cannot be denied solely on the ground of absence of registration or export of exempted goods without bond/LUT (e.g., CCE vs. Drish Shoes Ltd., Retro India Ltd. case, and Tribunal decisions in M/s. Kapu Gems vs. CCE & ST-Surat).The Tribunal recognized that execution of bond or LUT is procedural and its non-compliance should not bar refund claims where goods are exempted, marking a doctrinal clarification against strict procedural denial.The matter was remanded to the Adjudicating Authority for reprocessing the refund claim with verification of documents, reflecting a remedial approach consistent with settled legal principles.No dissenting opinion was noted; the decision aligns with evolving jurisprudence favoring substantive rights over procedural technicalities in refund claims under CENVAT Credit Rules.