TMI Tax Updates - e-Newsletter
December 3, 2020

Case Laws in this Newsletter:

GST Income Tax Customs Corporate Laws Securities / SEBI Insolvency & Bankruptcy Service Tax Central Excise Indian Laws

Articles

1. GST RATES ARE NOT CHALLENGEABLE

   By: DR.MARIAPPAN GOVINDARAJAN

2. Limitations to LIMITATION

   By: K Balasubramanian

News

1. ADB, India sign $50 million loan to boost West Bengal’s digital platforms for public finance reforms

Notifications

GST

1. 90/2020 - dated 1-12-2020 - CGST

Seeks to amend Notification No. 12/2017 – Central Tax, dated the 28th June, 2017 - the number of HSN digits required on tax invoice

GST - States

2. 31810-FIN-CT 1-TAX-0002/2020 - dated 1-12-2020 - Orissa SGST

Special procedure for making payment of 35% as tax liability in first two month of a quarter as per Section 39 of OGST Act,2017

3. 31803-FIN-CT 1-TAX-0002/2020 - dated 1-12-2020 - Orissa SGST

Notification of class of persons under proviso to section 39(1) of the OGST Act,2017

4. 31751-FIN-CT 1-TAX-0001/2020 - dated 27-11-2020 - Orissa SGST

Implementation of e-invoicing for the taxpayers having aggregate turnover exceeding ₹ 100 Cr from 01st January 2021

5. 31745-FIN-CT 1-TAX-0001/2020 - dated 27-11-2020 - Orissa SGST

Odisha Goods and Services Tax (Thirteenth Amendment) Rules, 2020

6. F.12(46)FD/Tax/2017-III-257 - dated 13-11-2020 - Rajasthan SGST

Seeks to notify class of persons under proviso to section 39(1) of RGST Act, 2017

7. F.12(46)FD/Tax/2017-III-256 - dated 13-11-2020 - Rajasthan SGST

Seeks to extend the due date for FORM GSTR-1

8. F.12(46)FD/Tax/2017-III-255 - dated 13-11-2020 - Rajasthan SGST

Rajasthan Goods and Services Tax (Thirteenth Amendment) Rules, 2020

9. F.1-11(19)-TAX/GST/2020 - dated 9-11-2020 - Tripura SGST

Seeks to prescribe the due date for furnishing FORM GSTR-1 for the quarters October, 20 to December, 2020 and January, 2021 to March, 2021 for registered persons having aggregate turnover of up to 1.5 crore rupees in the preceding financial year or the current financial year

10. F.1-11(19)-TAX/GST/2020(Part-V) - dated 6-11-2020 - Tripura SGST

Seeks to notify a special procedure for taxpayers for issuance of e-Invoices in the period 01.10.2020 to 31.10.2020.

Circulars / Instructions / Orders

SEBI

1. SEBI/HO/MIRSD/RTAMB/CIR/P/2020/236 - dated 2-12-2020

Operational guidelines for Transfer and Dematerialization of re-lodged physical shares

GST

2. Instruction No. 4/3/2020 - dated 27-11-2020

Standard Operating Procedure (SOP) for verification of taxpayers granted deemed registration

DGFT

3. 31/2015-2020 - dated 1-12-2020

Enlistment as designated port in Para 2.54(d)(iv) of Handbook of Procedure, 2015-2020

Companies Law

4. 38/2020 - dated 1-12-2020

Relaxation of additional fees and extension of last date of filing of CRA-4 (form for filing of cost audit report) for FY 2019-20 under the Companies Act, 2013

Highlights / Catch Notes

GST

• Court Upholds Assessment Orders; Petitioners Directed to File Appeals u/s 74 for Alternative Remedy.

  Case-Laws - HC : Validity of assessment order - Best Judgement Assessment - taking note of the non-filing of returns by the assessee, proceedings under Section 74 were initiated and completed through the passing of Exts.P2 to P4 assessment orders - Writ Petition is disposed off by dismissing the challenge against assessment orders and relegating the petitioners to their alternate remedy of filing statutory appeals against the said assessment orders before the first appellate authority. - HC
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• Court Denies Bail in Illegal Tax Credit Case; Investigation at Critical Early Stage to Maintain Integrity.

  Case-Laws - DSC : Grant of Bail - illegal input tax credit - The investigation is still pending and same is at initial stage. In this circumstances, this Court is of the opinion that granting concession of bail to the accused will prejudice the fair investigation. - DSC
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Income Tax

• CIT(A) uses Rule 46A(4) to gather evidence supporting assessee, bypassing obligation to consult Assessing Officer.

  Case-Laws - AT : Scope of enquiry by the CIT(A) - it was a clear case of exercise of overriding power by ld. CIT(A) in terms of Rule 46A(4) and it was not a case where the assessee on his own volition had furnished additional evidence or fresh document, which would have been subjected to sub-rule (1) to (3) of Rule 46A of the Rules. - the results of the enquiries thus conducted supported the case of the assessee and not that of the Revenue. However, the fact remains that such material was gathered by the ld. CIT(A) on his own motion, and therefore there was no requirement, in law for him, to consult the AO on the same. - AT
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• Jurisdiction u/s 153C of Income Tax Act requires incriminating evidence from Section 132 search; absence invalidates assumption.

  Case-Laws - HC : Assessment u/s 153C - in proceedings under Section 153C of the Act, in the absence of any incriminating documents or evidence discovered during the course of search under Section 132 of the Act in the case of searched person against the assessee, the jurisdiction under the provisions of Section 153C of the Act cannot be assumed. - HC
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• ITAT's dismissal of appeals due to non-appearance deemed unjustified; Rule 24 mandates decisions on merits.

  Case-Laws - HC : Whether the Tribunal was justified in dismissing the proceedings in limine - Substantial question is answered by holding that in view of language used in Rule 24, the ITAT was not justified in dismissing the appeals for absence of assessee in limine and it ought to have decided the appeals on merits even if the appellant or his representative was not present when the appeals were taken up for hearing. - HC
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• Court Rules Section 69 Inapplicable as Investment Properly Recorded in Books During Section 153A Search Proceedings.

  Case-Laws - AT : Assessment u/s 153A - Unexplained investment - It is common practice during search proceedings that the revenue seizes the books of account along with incriminating documents and even if the books of account are not seized, copies of the same are taken. In either situation, it would be impossible for the assessee to fabricate/fudge /doctor the entries in the books of account. Since the investment has been found duly recorded in the regular books of account, provisions of section 69 of the Act do not apply - AT
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• Assessing Officer's Error in Taxing Investments u/s 68: CIT(A) Criticizes Lack of Cash Flow Analysis.

  Case-Laws - AT : Addition u/s 68 - availability of source and application of fund - Cash in hand - AO ought to have made cash flow statement with opening cash balance, deposit and withdrawal and given due credit for the available sources. Instead, the AO chosen to tax the entire investments without giving credit for the available sources. No hesitation to agree with the view of the CIT(A) that the AO did not appreciate the issues properly. - AT
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• Pr.CIT's Attempt to Revise AO's SBI Interest Classification u/s 263 Rejected Due to Mere Opinion Difference.

  Case-Laws - AT : Revision u/s 263 - as per CIT-A interest on SBI constitute other income which was not properly verified by the AO - The present revision is on difference of opinion which the Pr.CIT intends to substitute his opinion in place of decision taken by the AO and revision u/s 263 is not permitted on difference of opinion - AT
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• Penalties for book entry loans before June 12, 2012, u/ss 271D and 271E deemed unjustified due to reasonable cause.

  Case-Laws - AT : Penalty imposed u/s 271D and 271E - the availing and re–payment of loan through book entries was prior to 12th June 2012. Therefore non–compliance to the provisions of section 269SS and 269T of the Act was due to a reasonable cause. Hence, imposition of penalty under section 271D and 271E of the Act in the facts of the present appeals is unjustified. - AT
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• Determining if Withdrawn Bank Funds Can Be Re-Deposited: Assessee Must Prove Funds Were Not Used Elsewhere.

  Case-Laws - AT : Undisclosed bank deposits - The withdrawal of the amount from the bank can be considered as a source for re-depositing if the assessee can fully satisfy the AO that the withdrawal made from the bank is not utilized for any other purposes being the purchases and other expenditures incurred by the assessee in the course of business as well as personal drawings. Therefore, to that extent all the facts and details are required to be properly verified. - AT
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Customs

• Court Rules on Priority of Claims in Auction Proceeds: Customs Duties First, Interest Claims Later.

  Case-Laws - HC : Adjustment / Appropriation of sale proceeds from sale of stored goods in auction sale - Priority of claim - Any claim other than customs duty, which comes under sub-section (2)(c), under the Act, can be settled only after the claim under section 150(2)(d) is settled - the claim for interest can come only under section 150(2)(e). - Even without the aid of the above clarification, section 150 can be understood only to mean that interest on customs duty cannot have precedence over the charges and rent due to the warehouse keeper. - HC
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IBC

• No Grounds to Challenge Financial Creditors' Decisions in Liquidation; 90-Day Revival Proposal Period per IBC and Companies Act.

  Case-Laws - Tri : Stay of liquidation application - the legislature has consciously not provided any ground to challenge the "commercial wisdom" of the individual financial creditor or their collective decision before the Adjudicating Authority - Needless to say, that even during the Liquidation process, subject to Section 29A of the IBC, 2016 and as per Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016, a 90 day time period is provided to the Applicant to submit a Scheme as contemplated under Section 230 of the Companies Act, 2013, and if the Applicant is otherwise found eligible can very well submit a Scheme for the revival of the Corporate Debtor. - Tri
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SEBI

• SEBI Tribunal Overturns Interim Order, Cites Lack of Urgency; Court Limits Precedent Use for Future Cases.

  Case-Laws - SC : Power of SEBI to pass an ex parte interim order - Tribunal was on the facts of the case correct in setting aside the ex-parte order of the Whole Time Member on the ground that no urgency has been made out to sustain such an order, it is necessary for this Court to clarify that the interpretation which has been placed by the Tribunal on the powers of SEBI, particularly in paragraph 9 of the impugned order, which has been extracted above, shall not be cited as a precedent in any other case. - SC
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• Expulsion from National Stock Exchange for Violating SEBI Regulations and Broker Code of Conduct, Clause 5, Schedule II.

  Case-Laws - SC : Expulsion against the appellant, from the membership of the National Stock Exchange of India Limited - Schedule­ II of the SEBI (Stock Brokers and Sub­ Brokers) Regulations, 1992 prescribes a “Code of Conduct” for the stock brokers and clause 5 thereof specifies that compliance with statutory requirements is a mandatory aspect of code of conduct of a stock broker. The appellant consistently failed to comply with the requirements and acted in a manner which was prejudicial to the sanctity of a Member­ Exchange relationship. - SC
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Service Tax

• Court Rules Rejection of Sabka Vishwas Application Unjust; Petitioner Can File Under Arrears Category.

  Case-Laws - HC : Rejection of application under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - amount in arrears (SVLDRS) - rejection of the declaration of the petitioner dated 8th January, 2020 by the Designated Committee on 14th February, 2020 is not justified. Accordingly the same is hereby set aside and quashed - petitioner No.1 is eligible to file declaration under the arrears category - HC
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Central Excise

• Extended Limitation Period Not Applicable: No Evidence of Willful Suppression by Assessees in Regular Audits.

  Case-Laws - AT : Extended period of limitation - Suppression of facts or not - The allegation of suppressing the facts from the department does not hold good in the event of periodic audit of both the appellant assessees. There is no other evidence in the impugned order to show that the appellants have willfully suppressed the facts from the department in order to evade payment of duty. As such extended period of limitation cannot be invoked in the present case - AT
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Case Laws:

• GST

• 2020 (12) TMI 58
  Validity of assessment order - Best Judgement Assessment - recovery of amounts covered by two sets of assessment orders for the assessment years in question - Section 74 of the CGST Act - HELD THAT:- Exts.P5 to P18 orders are best judgment assessment orders passed in terms of Section 62 of the GST Act for various months between April 2018 to May 2019, taking note of the non-filing of returns by the assessee. Exts.P19 to P32 are the summary of the orders passed as above. It is not in dispute that pursuant to the said assessment orders completed on best judgment basis there has been no payment effected by the petitioners, and it was therefore that proceedings under Section 74 were initiated and completed through the passing of Exts.P2 to P4 assessment orders - Under such circumstances, there cannot be any doubt that Exts.P2 to P4 orders passed under Section 74 of the GST Act are the assessment orders that will govern the assessment of the petitioners under the Act for the assessment years covered by them. Writ Petition is disposed off by dismissing the challenge against Exts.P2 to P4 assessment orders and relegating the petitioners to their alternate remedy of filing statutory appeals against the said assessment orders before the first appellate authority.

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• 2020 (12) TMI 57
  Grant of Bail - illegal input tax credit - issuance of fake invoices without supplying of goods - creation of bogus firms - Section 132 of GST Act - HELD THAT:- The contention of the applicant that there is nothing on record to show that he had received any kind of benefit from the alleged bogus firms is not sustainable for the simple reason that investigation is at initial stage and even then the investigation team has recovered fake transport-bilty books and the diary having cash entries in his hand writing - Admittedly, the offence alleged against the accused falls within the ambit of economic offence. The investigation is still pending and same is at initial stage. In this circumstances, this Court is of the opinion that granting concession of bail to the accused will prejudice the fair investigation. Further, the authorities relied on by the applicant are not squarely applicable to the facts in hand. Application dismissed.

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• 2020 (12) TMI 56
  Cancellation of GSTIN - Application for revocation of cancellation of registration was also rejected due to non submission of reply to the SCN within the time specified therein - HELD THAT:- The adjudicating authority has rejected/cancelled the registration of the appellant due to non filing of returns for the continuous period of six months and has also rejected the application for revocation of cancellation of registration for not submission of reply to the show cause notice dated 20.02.2020 within the specified period. The appellant has submitted that they could not submit answer to the show cause notice due to their old accountant has mentioned his own mobile number and email id so that they were not aware of any type of notice and also of time limit. The appellant was required to follow the procedure as prescribed under rule 23 of the CGST Rules 2017 as clarified vide circular No. 99/18/2019-GST dated 23.04.2019. Since, the jurisdictional authority has revoked the said registration and is active, the appeal has becomes infructuous and accordingly rejected.

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• Income Tax

• 2020 (12) TMI 55
  Disallowance u/s.14A read with Rule 8D - As contended by AR own funds available with the assessee during the financial year 2013-14 were sufficient to make the corresponding investments, and hence no interest bearing borrowed funds were utilized for making such investment - HELD THAT:- As relying on RELIANCE UTILITIES POWER LTD. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC BANK LTD. [ 2016 (3) TMI 755 - BOMBAY HIGH COURT] held that, where both interest-free funds and interest bearing funds (mixed funds) are available to an assessee and the interest-free funds are more than the investments made by the assessee, then the presumption that can be drawn is that the investment in the tax-free securities would have been made out of the interest-free funds available with the assessee. In the facts of the present case, we note that the interestfree funds of its own available with the assessee in the form of share capital and free reserves were substantially more than the corresponding investments made to earn the interest free income and therefore we are of the view that the interest disallowance made by the AO u/s 14A read with Rule 8D(2)(ii), was rightly deleted by the ld. CIT(A). Disallowance u/s 14A read with Rule 8D(2)(ii) on account of interest was involved in assessee s own case for A.Y. 2010-11 as noted that there was sufficient own funds available with the assessee to make the investments and, therefore upheld the ld. CIT(A) s deleting the said interest disallowance. Identical view was expressed by this Tribunal to delete similar interest disallowance made in assessee s own case for A.Ys. 2011-12 2012-13 in the order dated [ 2018 (1) TMI 1614 - ITAT KOLKATA] . Therefore, we uphold the impugned order of the ld. CIT(A) deleting the disallowance made by the Assessing Officer on account of interest under section 14A read with Rule 8D(2)(ii). Disallowance on account of common administrative expenses under section 14A read with Rule 8D(2)(iii) -The same was restricted by the ld. CIT(A) to the extent of exempt dividend income actually earned by the assessee during the year under consideration by following, the decision of the Hon ble Delhi High Court in the case of Joint Investment Limited vs.- CIT [ 2015 (3) TMI 155 - DELHI HIGH COURT] - no reason to interfere with the impugned order of the ld. CIT(A) restricting the disallowance made on account of the common administrative expenses to the amount of exempt dividend income actually earned by the assessee during the year under consideration. Disallowance u/s 14A of the Act read with Rule 8D while computing the book profits u/s 115JB - there is no enabling provision in clause (f) of Explanation 1 to Section 115JB for making any adjustment in respect of expenditure disallowed as per Rule 8D.The scope of clause (f) cannot be enlarged in order to bring within its ambit the provisions of Sub-Section (2) (3) of Section 14A of the Act and therefore the disallowance made by applying Rule 8D cannot also be imported. The Special Bench of this Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] has held that the computation mechanism provided under Rule 8D of the Rules cannot be applied for computing addition in terms of clause (f) of Explanation 1,for arriving at the book profit u/s 115JB of the Act. - CIT(A) has rightly deleted the addition by the AO u/s 14A read with Rule 8D, while computing book profit u/s 115JB. Addition u/s 80-IE - profits derived by its eligible Centply Unit in the State of Assam - case of the assessee was selected for regular scrutiny under CASS - HELD THAT:- When the assessee has placed the audited stand alone accounts of the Cent Ply unit at Assam before the AO and still if the AO was of the view that the profits of the units set up in backward areas should be lower than other units in developed areas, then the onus lay on the AO to establish the same with cogent material and corroborative evidence on at least find fault or infirmity in the books produced by the assessee. We however note that the AO clearly failed to do so. Nothing tangible was brought on record to support such reasoning. Instead the disallowance was made on the last ray of assessment purely on suspicion. According to us, the fact that high profits were earned by the eligible unit in comparison to other businesses by itself cannot lead to conclusion that the deduction claimed u/s 80IE was excessive. In this regard, it would first be relevant to examine the provisions of sub-section (10) of Section 80-IA of the Act which empowers the AO of the assessee having eligible business to scale down the profits which provision has been incorporated by sub-section (6) of section 80IE by virtue of which sub-section (5) and subsection (7) to (12) of section 80IA has been incorporated in to section 80IE. AO failed to show that there existed any arrangement between the assessee and its connected persons or other ineligible units, by which the transactions were so arranged as to produce more than the ordinary profits in the hands of the assessee. Since the AO was unable to show that there was any arrangement in terms of Section 80IA(10) of the Act, the AO could not have invoked the deeming provision and then estimated and scaled down the profits of the eligible unit of the assessee. Thus, the AO erred in estimating the profit of the eligible unit without satisfying the condition precedent as prescribed in section 80IE(6) read with section 80IA(10) of the Act. Inter-unit transactions were reported in Form 3CEB filed along with the return of income wherein the auditor had certified the same to be at arm s length. We note that the AO did not dispute the arm s length value of these goods transacted by the eligible unit with it depots. We also note that the AO also did not deem it fit to refer these specified domestic transactions for transfer pricing scrutiny. Hence, when the AO had not disputed the arm s length value of the transactions covered u/s 80IA(8),then his action of disputing the profitability of such eligible unit and holding it to be excessive, was clearly unsustainable in law as well as on facts. From the audit report issued Central Excise Audit for the relevant financial year 2013-14, it is noted that the Central Excise Department did not dispute the invoice rates at which the goods were transferred by the eligible Assam Unit to its depots, which also showed that the goods were cleared by the eligible Assam Unit at market value . We therefore note that, even on merits, the inter-unit transactions conducted by the eligible unit covered u/s 80IA(8) (10), were at arm s length and did not yield any more than ordinary profits to attract the rigors of Section 80IA(10) of the Act and enable the AO to estimate the profits of the eligible unit. Enhancement notice u/s 251 - Burden lay on the Revenue, to first demonstrate that the transactions between the assessee and the other related person were arranged with a view to produce more profit to the assessee carrying on eligible business, and not the other way round. It was on this principle reason that the ld. CIT(A) allowed the appeal of the assessee. The ld. CIT(A) further took note of the fact that the profitability of the eligible Assam Unit was comparable with earlier years and therefore the AO could not have resorted to estimation of profits without first rejecting the books of accounts u/s 145(3) of the Act. We note that it was with a view to further verify the averments of the assessee and in exercise of his co-terminus powers that the ld. CIT(A)had issued enhancement notice u/s 251 of the Act and, thereafter made suo moto enquiries in exercise of the powers vested in him u/s 250(4) of the Act. Hence, it was a clear case of exercise of overriding power by ld. CIT(A) in terms of Rule 46A(4) and it was not a case where the assessee on his own volition had furnished additional evidence or fresh document, which would have been subjected to sub-rule (1) to (3) of Rule 46A of the Rules. In the instant case, the explanations regarding the factors influencing the higher profitability of the eligible Assam Unit had come on the record of the ld. CIT(A), because he had decided to examine the facts of the case in depth and then adjudicate upon the matter on the basis of evidence and material, thus, gathered. We note that the ld. CIT(A) was empowered to do so under the provisions of section 250(4) of the Act. The result of such enquiry conducted by him could have either gone to further cement or enhance the case made out by the AO or help out the assessee against the findings of the AO. In the instant case, the results of the enquiries thus conducted supported the case of the assessee and not that of the Revenue. However, the fact remains that such material was gathered by the ld. CIT(A) on his own motion, and therefore there was no requirement, in law for him, to consult the AO on the same. Education Cess and the Secondary and Higher Education Cess incurred by the assessee is deductible while computing profits from business - We direct the AO to allow the deduction of the education cess in computing total income of the assessee company. Computation of book profit u/s 115JB - Subsidies received by the assessee for setting up new industries, by way of refund of VAT and excise dutyare liable to be excluded from the computation of book profit u/s 115JB

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• 2020 (12) TMI 54
  Assessment u/s 153C - necessity to establish the correlation the document-wise with the assessment years in question - CIT(A) and the Tribunal held that there was no material brought on record to prove the nexus between withdrawal of the amount from the bank account of the said Mr.T.John Rajasekhar and the deposits made in the bank accounts of Dr.Gurusankar, managing trustee of the assessee trust - HELD THAT:- Hon ble Supreme Court in the case of CIT-III, Pune Vs. Sinhgad Technical Education Society [ 2017 (8) TMI 1298 - SUPREME COURT] wherein held that where loose papers found and seized from the residence of the President of the assessee, an educational institution, indicating capitation fees received by various institutions run by the assessee did not establish correlation document-wise with the assessment years in question, the notice issued under Section 153C of the Act has to be quashed. If we examine the case on hand, we find that the entire case is completely factual. We also find that the CIT(A) has done the factual exercise elaborately and the substantial portion of the order passed by the CIT(A) has been referred to and quoted by the Tribunal in the impugned common order. CIT(A) and the Tribunal held that there was no material brought on record to prove the nexus between withdrawal of the amount from the bank account of the said Mr.T.John Rajasekhar and the deposits made in the bank accounts of Dr.Gurusankar, managing trustee of the assessee trust. Further, the CIT(A) and the Tribunal noted that the said Mr.T.John Rajasekhar had not admitted that money was paid back to the managing trustee of the assessee trust. Furthermore, on facts, it was found that the materials seized did not indicate any inflation of purchase by the assessee trust and that the deposits in the bank account of the said Dr.Gurusankar stood explained. Tribunal rightly took note of the decision in the case of Sinhgad Technical Education Society [ 2017 (8) TMI 1298 - SUPREME COURT] that in proceedings under Section 153C of the Act, in the absence of any incriminating documents or evidence discovered during the course of search under Section 132 of the Act in the case of searched person against the assessee, the jurisdiction under the provisions of Section 153C of the Act cannot be assumed. CIT(A) allowed the appeals filed by the assessee as confirmed by the Tribunal. We hold that no question of law much less substantial question of law arises for consideration in these appeals. - Decided against revenue.

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• 2020 (12) TMI 53
  Non prosecution of appeal - ITAT dismissed all three appeals by common order on the ground that none appeared on behalf of the assessee which means that assessee is not interested in prosecuting these appeals - Whether the Tribunal was justified in dismissing the proceedings in limine contrary to the provisions of Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963 ? - HELD THAT:- Taking into consideration the language used in Rule 24 of the Rules of 1963 and applying the principles laid down in S. Chenniappa Mudaliar[ 1969 (2) TMI 10 - SUPREME COURT ] we have no hesitation to come to the conclusion that the impugned order passed by the Tribunal thereby dismissing the appeals in limine for non-appearance of the appellant holding that the assessee is not interested in prosecuting the appeals is unsustainable. The Tribunal was duty bound to decide the appeals on merits after hearing the respondent Revenue as per mandate of Rule 24 and in terms of ratio in S. Chenniappa Mudaliar (supra). Substantial question is answered by holding that in view of language used in Rule 24, the ITAT was not justified in dismissing the appeals for absence of assessee in limine and it ought to have decided the appeals on merits even if the appellant or his representative was not present when the appeals were taken up for hearing. The impugned order therefore, being contrary to Rule 24 of the Rules of 1963 is unsustainable and the same is liable to be quashed and set aside. ITA allowed.

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• 2020 (12) TMI 52
  Computation of section 10A deduction - whether section 10A does not permit the assessee to reduce expenses incurred in foreign currency from both from export and total turnover? - HELD THAT:- Assessee submitted that the first substantial question of law, which has been framed by this Court has already been answered by the Hon ble Supreme Court in COMMISSIONER OF INCOME TAX CENTRAL-III NEW DELHI VS. HCL TECHNOLOGIES LTD. [ 2018 (5) TMI 357 - SUPREME COURT] The aforesaid legal position could not be disputed by learned counsel for the revenue. First substantial question of law is answered against the revenue and in favour of the assessee. Set of losses of 10A unit and non 10A units - HELD THAT:- Second substantial question of law is also answered in favour of the assessee by the decision of Hon ble Supreme Court in CIT vs. Yokogawa India Ltd. [ 2016 (12) TMI 881 - SUPREME COURT] . The aforesaid fact could not be rebutted by the learned counsel for the revenue. In view of the decision of the Hon ble Supreme Court in the Yokogawa India Ltd. (supra), the second substantial question of law framed by a bench of this Court is also answered against the revenue and in favour of the assessee. Disallowance u/s 14A - whether no expenses under section 14A of the Act could be attributed for maintenance/monitoring the investment in mutual funds? - Non appreciation of Notification in S.O.547(E) dated 24/3/2008 - HELD THAT:- Tribunal on the basis of meticulous appreciation of evidence held that no expenditure was incurred by the assessee directly or indirectly to earn the dividend and therefore, the claim of the assessee under Section 14A of the Act is allowed. The aforesaid finding is a finding of fact, which is based on meticulous appreciation of evidence on record. The aforesaid finding could not be demonstrated to be perverse. It is well settled principle of law that unless and until a finding of fact is demonstrated to be perverse, this Court in exercise of power under Section 260-A of the Act, would not interfere with the findings of the Court - HERO VINOTH (MINOR) VERSUS SESHAMMAL [ 2006 (5) TMI 478 - SUPREME COURT] - Third substantial question of law is also answered against the revenue and in favour of the assessee.

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• 2020 (12) TMI 51
  Exemption u/s 10A - payments made to sub contractors who have separately exported and have been issued foreign inward remittance certificate - whether the appellate authority were correct in holding that maintenance of separate accounts for STP units and non STP units was only directory and not mandatory in accordance with RBI conditions, Government Notification and Income Tax Act? - expenses like freight, telephone charges and insurance attributable to the delivery of articles or things on computer software outside India reduced from export turnover should be reduced from total turnover while computing deduction under Section 10A - HELD THAT:- Issue decided in favour of assessee as relying on own case [ 2020 (11) TMI 379 - KARNATAKA HIGH COURT] - Substantial questions of law Nos.1 to 3 are answered against the revenue and in favour of the assessee. Disallowance of bad debts written off - Whether the tribunal was correct in allowing the write off as bad debt in the facts and circumstances of the present case, when invoices were raised few months prior to the write off of the debtors were reputed companies including Government undertakings and business was continued with the debtors by the assessee without establishing the debt has become bad and recorded a perverse finding? - HELD THAT:- Once the assessee had written off debts as irrecoverable in his / its accounts, the assessee need not be required to prove that they have become bad etc. See LAWLYS ENTERPRISES P. LTD. VERSUS COMMISSIONER OF INCOME-TAX [ 2008 (7) TMI 373 - PATNA HIGH COURT] . Accordingly, we hold that the bad debts written off by the assessee in its books of account shall be allowed as a deduction. It is ordered accordingly. From perusal of the aforesaid relevant extract of the order passed by the tribunal, it is axiomatic that the tribunal has not recorded any specific finding whether the assessee has written off bad debt in the books of accounts as irrecoverable. Therefore, the order passed by the tribunal to the extent it records the finding with regard to the bad debts is hereby quashed and the matter is remitted to the tribunal to decide the issue afresh after recording a specific finding whether or not the assessee has written off the bad debt in the books of accounts as irrecoverable. Accordingly, substantial question of law Nos.4 and 5 are answered.

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• 2020 (12) TMI 50
  Assessment u/s 153A - unexplained cash receipts - HELD THAT:- In his enquiry report the AO has not disputed that the notings in the impugned seized documents are duly recorded in the books of account. However, in his enquiry report the AO stated that the appellant might have fabricated additional evidences and the books of account are forged/doctored. We do not find any merit in these allegations made by the AO. The transactions pertain to F.Y 2008 09. Search operations were conducted on 26.09.2014. Financials of F.Y 2008 09 were filed alongwith return of income of A.Y 2009 10. Therefore, there is no occasion for the assessee to doctor the accounts which were already filed with the revenue. Since the first appellate authority has thoroughly examined the entries in the regular books of account, therefore, we do not find any reason to interfere with the findings of the first appellate authority. Ground No. 1 is, accordingly, dismissed. Unexplained investment - HELD THAT:- Ledger account for purchase of land and ledger account of the parties from whom the land was purchased were duly examined by the ld. CIT(A). The allegation of the Assessing Officer that the books of account must have been prepared after the search operation is without any basis. It is common practice during search proceedings that the revenue seizes the books of account along with incriminating documents and even if the books of account are not seized, copies of the same are taken. In either situation, it would be impossible for the assessee to fabricate/fudge /doctor the entries in the books of account. Since the investment has been found duly recorded in the regular books of account, provisions of section 69 of the Act do not apply and, therefore, we decline to interfere with the findings of the ld. CIT(A). Ground No. 2 is, accordingly, dismissed. Unexplained cash payments - HELD THAT:- DR could not point out any factual error in the findings of the ld. CIT(A) and since the documentary evidences examined and verified by the first appellate authority show that the impugned transaction related to F.Y 2006 07 and, in our considered opinion, the same cannot be considered in the block period relating to the present search assessments. As no factual error or defect has been pointed out, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground No. 3 is accordingly, dismissed. Unexplained cash - CIT-A deleted addition - HELD THAT:- As carefully perused the factual findings given by the first appellate authority and no factual error has been pointed out before us by the ld.DR in the findings of the ld. CIT(A). Whereas the findings of the ld. CIT(A) clearly show that he has examined all the entries in the books of account of the appellant as well as Greenwell Mark Buildwell Pvt Ltd. Since the entries are duly recorded in the regular books of account, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground is dismissed. Addition of commission - HELD THAT:- On careful perusal of the impugned seized document exhibited elsewhere, no logical inference can be drawn and it is a fact that the word commission has not been mentioned anywhere. The notings are simply jottings of figures, from which no logical conclusion can be drawn, and therefore, the ld. CIT(A) has rightly treated the said document as dumb document. We do not find any reason to differ from the findings of the ld. CIT(A). Accordingly, Ground No.2 is dismissed. Addition on account of differences in parallel set of accounts - AO alleged that the assessee is maintaining two parallel set of books of accounts - HELD THAT:- Entire assessment order is silent about any such parallel set of books of account found and seized during the course of search proceedings. Trial balance is prepared from the books of account and it is always that the trial balance figures frequently change at the close of the accounting year, as necessary adjustments entries are passed at the close of the accounting year. There may be differences in the figures, but the fact of the matter is that, which trial balance was used for preparing the final set of profit and loss account and balance sheet, which is must most relevant. The Assessing Officer has nowhere mentioned this fact. We further find that before the ld. CIT(A), the difference in the two trial balances pertaining to some closing entries were duly reconciled and the ld. CIT(A) has examined the same. We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). Ground No. 3 is dismissed. Unexplained cash payments for the purchase of agricultural land - HELD THAT:- As the said cash payment has been found to be reflected in the cashbook which has been mentioned and verified by the first appellate authority and no factual errorhas been pointed out. In our considered opinion, once the transaction is found to be recorded in the regular books of account, provisions of section 69 of the Act do not apply and the ld. CIT(A) has rightly deleted the addition. Addition u/s 68 - identity, genuineness of the transaction, and capacity of the lender/depositor - HELD THAT:- The identity cannot be questioned because one of the applicants is assessed at the very same circle as the appellant and the other applicant is also a taxpayer, which is evident from the tax returns. Genuineness of the transaction cannot be doubted with as the transactions have been made through banking channels, duly recorded in the regular books of account. In so far as the capacity is concerned, the assessee s onus is to explain the capacity, prime facie,and which on the given facts of the case in hand, as discussed elsewhere, we are of the view that the assessee has successfully explained the capacity of the investor company. Merely because the director did not attend the proceedings would not justify the action of the Assessing Officer knowing the fact that one of the applicant is assessed in the same circle and the other applicant is also assessed and as mentioned elsewhere, the directors of the other applicant are directors of the appellant company, therefore, it cannot be said that the share applicant companies are strangers to the assessee. No merit in the additions made by the Assessing Officer and confirmed by the ld. CIT(A). Additions u/s 68 relates to share application money with share premium - HELD THAT:- Appellant has successfully discharged the onus cast upon it u/s 68 of the Act and do not find any merit in the impugned addition. Addition on the basis of surrender made - AO has made the addition only because in his statement recorded u/s 132(4) of the Act, the director has surrendered Rs. 10 crores - HELD THAT:- There was nothing to surrender and surrender was without any application of mind and the facts and circumstances clearly show that that was no undisclosed income which needed to be surrendered. Considering the facts of the case in totality in the light of the factsas discussed in the appeals of the A.Ys [supra] we do not find any merit in both the additions.

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• 2020 (12) TMI 49
  TP Adjustment - TPO rejected the CUP as MAM and conducted the independent economic study and separate analysis has been made and held that TNMM is most appropriate method for both purchase and sale transactions - HELD THAT:- The assessee had purchased the raw material from its AE and the AE has supplied the raw material to the tax payer on back to back basis without marking up for any costs or expenses or profit. AE has made purchases from third party vendor which is uncontrolled transaction and the supplies made by the AE to the taxpayer are controlled transaction. The price charged by the AE to the taxpayer is less or equal to the uncontrolled transaction. This fact was also demonstrated by the assessee in respect of purchases made from Saravana Spinning Mills by the assessee through the AE. AO has not demonstrated that the price charged in controlled transaction is more than the uncontrolled transaction with any proof or evidence. TPO also did not bring any material to show that the internal CUP is not acceptable or any restrictions are placed by the Income Tax Act to consider internal CUP as comparable. It is also undisputed fact that supplier of the material is not related party of the AE. No reason to reject the transfer pricing study of the assessee and to accept CUP as most appropriate method in respect of purchases. Accordingly, we set aside the orders of the lower authorities and direct the AO to adopt CUP as most appropriate method for purchases. Sale price charged by the assessee to its AE - In the instant case, sufficient data and information is available to show that the sale price charged by the assessee to its AE is comparable and internal comparables are available which were placed by the assessee before the TPO as well as the DRP. No valid reason was assigned for rejecting the method adopted by the assessee. The AO simply brushed aside the internal report with regard to sale price, without bringing any evidence to show that the sale price charged to the AE is incorrect. When the assessee has given complete documentation to the TPO / DRP, the burden shifts on AO/TPO to establish that the method adopted by the assessee is faulty. We observe that the sale price charged to AE is more or equal to Non AEs and the assessee has furnished the complete information before the AO/TPO. The Department has not brought on record to controvert the submission of the assessee to establish that the assessee has charged the less price than third party buyers. The assessee has relied on various decisions cited supra to support their contention with regard to CUP as MAM in respect of sales. Therefore, we, hold that CUP is most appropriate method for sales as well as purchases. We therefore, direct the AO to adopt CUP as most appropriate method and delete the additions made by the AO/TPO. The appeal of the assessee is allowed.

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• 2020 (12) TMI 48
  Addition u/s 68 - availability of source and application of fund - AR argued that the assessee s only source of income was house property, i.e. rents collected by the assessee, there was no other source of income - HELD THAT:- AO while making addition has not taken any support of Income Tax provisions i.e. either section 68 / 69 to make the additions. By not invoking the provisions itself, the additions made by the AO needs to be deleted. We find that the AO has taxed the sources and application of funds without giving any credit to the availability of sources. AO did not appreciate the information available before him properly. Though the assessee has furnished the evidence with regard to receipt of the money from late TMV Prasada Rao and got confirmed by the daughter of late TMV Prasada Rao, AO did not disprove the statement given by Y.Indira with proper evidence. In this case, the confirmation letter was given by Y.Indira. The assessee submitted that he has entered into agreement for sale of property consisting of 6000 sq.ft in Victory Complex, Peda Waltair, Visakhapatnam. Neither the sale agreement was disproved nor the existence of ownership of 6000 sq.ft at Victory Complex was disputed by the AO. Therefore, we do not find any reason to reject the contention of the assessee that he had received on money from late TMV Prasada Rao. Assessee is regularly assessed to wealth tax and as per the wealth tax returns, there was opening cash balance which was not disputed by the AO. The wealth tax returns are available with the AO, therefore, the availability of opening balance also was not disputed, hence the credit required to be given to the assessee, with regard to availability of opening balance. While taxing the deposits AO cannot ignore the withdrawals and opening cash balance available to the assessee and credit needs to be given to the source available from the application of funds. Though there was mismatch in dates with regard to deposits and withdrawals, the entire withdrawals cannot be brushed aside. AO ought to have made cash flow statement with opening cash balance, deposit and withdrawal and given due credit for the available sources. Instead, the AO chosen to tax the entire investments without giving credit for the available sources. No hesitation to agree with the view of the CIT(A) that the AO did not appreciate the issues properly. From the above discussion and the order of the CIT(A), it is clear that the assessee is having Rs. 2 crores of cash available to him and deposit made was Rs. 1,76,28,550/- and still there was some more cash balance which is available to the assessee to meet the investments or expenses. Therefore, we hold that the Ld.CIT(A) has rightly allowed the relief of Rs. 2,00,28,550/- comprising of opening balance and withdrawals from the bank account and confirmed the balance addition. Appeal of the revenue is dismissed.

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• 2020 (12) TMI 47
  Revision u/s 263 - as per CIT-A interest on SBI constitute other income which was not properly verified by the AO - HELD THAT:- Assessee explained that the same represent interest on deposits made by the assessee firm as margin money for obtaining bank guarantee. Therefore, argued that the other income mentioned in the profit and loss account is part of business income which was considered by the AO and taken a conscious decision that no separate addition is warranted on account of other income. Since it is apparent from the assessment record that the assessee had explained that the other income represents business income which was accepted by the AO and did not make any addition, after examining the issue in detail, AO has applied his mind and taken a conscious decision holding that the other income is business income and estimation of income @0.5% meets the ends of justice. This Tribunal also in the case of ABC Engineering Works Vs. DCIT, Circle-2(1), Vijayawada [ 2019 (8) TMI 1603 - ITAT VISAKHAPATNAM] viewed that write off of sundry creditors constitute business income and no separate addition is required in respect of sundry creditors balances written off. The present revision is on difference of opinion which the Pr.CIT intends to substitute his opinion in place of decision taken by the AO and revision u/s 263 is not permitted on difference of opinion. This view is supported by the decision of Spectra Shares and Scrips (P) Limited [ 2013 (6) TMI 173 - ANDHRA PRADESH HIGH COURT] -merely because of difference of opinion, Pr.CIT cannot invoke his powers u/s 263 - Once AO had taken a conscious decision and acted in accordance with law and made the assessment, the same could not be branded as erroneous by the Commissioner, simply because according to him, the Assessing Officer should have made further enquiries. See G.V.R. ASSOCIATES VERSUS INCOME-TAX OFFICER [ 2017 (4) TMI 393 - ITAT VISAKHAPATNAM] - Decided in favour of assessee.

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• 2020 (12) TMI 46
  Validity of re opening of assessment u/ 147 - as argued assessment under section 147 of the Act was made after expiry of four years - claim of depreciation on various categories of securities AND deduction claimed under section 36(1)(viia) - HELD THAT:- As regards the first reason, admittedly, no disallowance or addition has been made in the re assessment order. This, in other words, means the Assessing Officer himself was satisfied that there is no escapement of income on this issue. Claim of deduction under section 36(1)(viia) - specific allegation of AO that some of the branches in respect of which the assessee claimed deduction, did not qualify as rural branches as per Censes Department - It is a fact on record that while disposing off assessee s appeal, Commissioner (Appeals) has deleted the disallowance made by the AO - essentially, the dispute relating to assessee s claim of deduction under section 36(1)(viia) of the Act has attained finality after the decision of learned Commissioner (Appeals) on the issue arising out of the original assessment proceedings. Though, these events have happened much prior to the initiation of re assessment proceedings and, in effect, the original assessment order has merged with the order of learned Commissioner (Appeals), still the Assessing Officer went ahead to not only initiate the proceeding under section 147 of the Act on the very same issue, but has also passed an assessment order under the said provision. This, in our view, is contrary to the settled legal position. On a perusal of the objections raised by the assessee, a copy of which is at Page 70 of the paper book, it is noticed that one of the grounds raised by the assessee is, on the basis of a census report of 2004 which is not applicable to the impugned assessment year, it cannot be said that some of the branches have exceeded certain population limit, hence, would not qualify as rural branches. However, it is a fact on record that the objection filed by the assessee raising such a vital issue has not been disposed off by the Assessing Officer independently prior to completion of assessment under section 143(3) r/w section 147 of the Act - Decided in favour of assessee.

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• 2020 (12) TMI 45
  Penalty imposed u/s 271D and 271E - availing and re paying loan otherwise than by an account payee cheque/demand draft in violation of the provisions contained under section 269SS and 269T - reasonable cause for the assessee to receive and re pay loan through journal entries - HELD THAT:- Hon ble Jurisdictional High Court in CIT v/s Ajitnath High Tech Builders Pvt. Ltd. Ors., [ 2018 (2) TMI 603 - BOMBAY HIGH COURT ] held that, since, prior to the decision in Triumph International Finance India Ltd. [ 2012 (6) TMI 358 - BOMBAY HIGH COURT ] which was rendered on 12th June 2012, there was reasonable cause for the assessee to receive and re pay loan through journal entries because of various decisions of the Tribunal holding that receipt and re payment of loan through journal entries would not come within the purview of section 269SS and 269T of the Act, the non compliance to the provisions of section 269SS and 269T of the Act would certainly be a reasonable cause under section 273B of the Act for non imposition of penalty under section 271D and 271E. In the facts of the present appeal, admittedly, the availing and re payment of loan through book entries was prior to 12th June 2012. Therefore non compliance to the provisions of section 269SS and 269T of the Act was due to a reasonable cause. Hence, imposition of penalty under section 271D and 271E of the Act in the facts of the present appeals is unjustified. Accordingly, we delete the penalty imposed under section 271D and 271E - Decided in favour of assessee.

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• 2020 (12) TMI 44
  Penalty levied u/s 271(1)(c) - Defective notice - AO has not stricken out charge/fault which are not applicable in the case of assessee i.e. whether the assessee has concealed the particulars of its income or it has furnished inaccurate particulars of such income - HELD THAT:- AO has not stricken out the irrelevant portion of the fault/charge which would have spelt out the specific fault/charge against the assessee as per section 271(1) (c) of the Act. Since the proposed notice itself is defective, all subsequent proceedings are bad in law and the penalty imposed by the AO u/s. 271(1)(c) of the Act and confirmed by the Ld. CIT(A) should be cancelled. As relying on M/S SSA S EMERALD MEADOWS [ 2015 (11) TMI 1620 - KARNATAKA HIGH COURT] and M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, [ 2013 (7) TMI 620 - KARNATAKA HIGH COURT] took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. Imposition of penalty and subsequently confirmed by the Ld. CIT(A) in the present cases cannot be sustained and the same is hereby deleted. Therefore, the appeals of assessee are allowed.

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• 2020 (12) TMI 43
  Registration u/s 12AA rejected - non disclosing correct income in audited Income Expenditure Account and in the return of income could not qualify the assessee trust as genuine and its conduct / activities could not be treated as genuine - HELD THAT:- A perusal of the impugned order passed by the Ld.CIT(Exemptions), Pune shows that there was no doubt raised by him about the charitable nature of the objects of the assessee trust but raised doubts about the genuineness of the activities of the trust on the ground that the funds raised by the assessee trust for the purpose of acquiring fixed assets were not offered to tax and the said income was not reflected in the Income Expenditure Account of the assessee trust. As rightly contended by assessee by relying on the decision in the case of ITO (Exemptions) Vs. Serum Institute of India [ 2018 (2) TMI 103 - ITAT PUNE ] the said receipts representing contribution towards corpus funds were capital in nature and the same therefore, were not chargeable to tax. Similarly, the said receipts of capital in nature representing corpus funds were directly taken to the Balance Sheet by the assessee trust and there was no question of reflection of the same in its Income Expenditure Account. At the time of hearing before the Tribunal, the Ld. DR contended that no evidence was filed by the assessee to show that the said receipts were in the nature of corpus donations. However, as pointed out by the assessee from the submissions made before the Ld.CIT(Exemptions), details of corpus donations were furnished by the assessee before the Ld.CIT(Exemptions), Pune and even the utilization of the same for purchase of assets was also duly established. Keeping in view all these facts of the case, we are of the view that there was no justifiable reason for the Ld.CIT(Exemptions), Pune to doubt the genuineness of the activities of the trust and to deny it registration u/s 12AA of the Act. We therefore, set aside the impugned order passed by the Ld.CIT(Exemptions), Pune rejecting the application of the assessee for grant of registration u/s 12AA - Decided in favour of assessee.

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• 2020 (12) TMI 42
  Validity of revision order passed by PCIT u/s 263 - AO has not conducted the due enquiry in respect of the total deposit made by the assessee in the bank account and consequently determined total turnover of the assessee without considering the deposits made in the bank account - HELD THAT:- Assessment order was suffering from error which is factual in nature and not in respect of any view taken by the AO. There is no quarrel on the point that if the AO has taken one of the possible views, then the Commissioner is not permitted to invoke the provisions of section 263 merely because he does not agree with the view taken by the AO. Therefore, the decisions relied upon by the ld. A/R of the assessee on this point are not applicable to the facts of the present case where the ld. Commissioner has clearly pointed out the factual error in the assessment order and lack of enquiry on the part of the AO to verify the minimum required facts about the deposits made in the bank account during the year and consequential turnover of the assessee. Hence we do not find any substance or merit in the ground no. 1 challenging the validity of the revision order passed under section 263. Undisclosed bank deposits - HELD THAT:- Assessee has raised this plea that the entire deposits made in the bank account cannot be considered as turnover, however, when the assessee is not maintaining the books of account as required under section 44AA as well as the audit of the same under section 44AB, then the claim of availability of opening cash balance with the assessee cannot be accepted. The withdrawal of the amount from the bank can be considered as a source for re-depositing if the assessee can fully satisfy the AO that the withdrawal made from the bank is not utilized for any other purposes being the purchases and other expenditures incurred by the assessee in the course of business as well as personal drawings. Therefore, to that extent all the facts and details are required to be properly verified. No error or illegality in the impugned order of the ld. Commissioner to the extent that the order of the AO is erroneous and prejudicial to the interest of the revenue. However, the AO is directed to verify the availability of source of cash deposit in the bank account to the extent of cash withdrawals by the assessee.

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• 2020 (12) TMI 41
  Grant of registration u/s 12AA denied - assessee did not submit original documents regarding establishment of the Trust/Society and the assessee did not furnish complete details/evidence in respect of huge cash payment towards salary and wages - HELD THAT:- We find that the assessee has failed to comply with the directions of the ld. Commissioner (E) while processing the application of the assessee for seeking registration under section 12AA - assessment order passed by the AO cannot prevail over the decision of ld. Commissioner (E) and mitigate the requirement of verification and satisfaction of the ld. Commissioner (E) about the objects of the assessee being charitable and genuineness of the activities of the assessee. At the stage of granting the registration under section 12AA the ld. Commissioner (E) is not supposed to examine the correctness of the claim of expenditure but the requisite details of the employees of the assessee is a relevant information to arrive at the conclusion that the activities of the assessee are genuine. If the assessee is not having the requisite number of teachers and other staff required for running the schools and colleges, then it cannot be said that the activities of the assessee are genuine. Therefore, those decisions cannot restrict the scope of examination on the point of genuineness of the activities. Though the assessee has failed to produce the requisite details as well as the original documents for verification of the ld. Commissioner (E), however, in the interest of justice, we grant one more opportunity to produce the requisite information/details as well as the original documents before the ld. Commissioner (E) for examination and verification. Accordingly, the impugned order of the ld. Commissioner (E) is set aside and the matter is remanded to the record of the ld. Commissioner (E) for passing a fresh order after verification and consideration of the requisite information/details as well as the original documents to be produced by the assessee - Decided in favour of assessee for statistical purposes.

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• Customs

• 2020 (12) TMI 40
  Adjustment / Appropriation of sale proceeds from sale of stored goods in auction sale - Priority of claim - interest on customs duty - precedence over the claims of the warehouse keeper - quantification of customs duty - cum duty method - CBEC Circular No. 71/2001, dated November 28, 2001 - Whether the warehouse keeper is the custodian of goods under Chapter IX of the Customs Act, 1962? - HELD THAT:- Section 73A(1), when it says that all warehoused goods shall remain in the custody of the person who has been granted a licence under section 57 or 58 or section 58A until they are cleared for home consumption, clearly speaks about the period of custody. The said section, even though it was inserted only on May 14, 2016, clarifies the position that the warehouse keeper has custody of the goods which are warehoused - Decided in favour of the respondent and against the appellant. Whether the proceeds of auction sale conducted as ordered by the District Court under section 72 are to be appropriated as provided in section 150 of the Customs Act? - HELD THAT:- The section clearly provides for sale by public auction or by tender or with the consent of the owner in any other manner, of any goods not being confiscated goods and that too under any provision of the Act. section 72 deals with sale of goods which are warehoused. As such, sale of goods by invoking section 72 comes within the ambit of section 150 since it is not a sale of confiscated goods. Confiscation of goods and its consequences are dealt with in Chapter XIV of the Act - answered against the appellant and in favour of the respondent. Whether the quantification of customs duty is to be made by following cum-duty method? - HELD THAT:- As clearly stated by the Department itself, there can be no further doubt regarding the manner in which the customs duty has to be arrived at in case of sale of uncleared goods. In the case on hand, admittedly, the customs duty has not been arrived by following the cum-duty method. The finding of the Tribunal on the above question cannot be faulted in any manner - answered against the appellant and in favour of the respondent. Whether interest on customs duty can have precedence over the claims of the warehouse keeper? - HELD THAT:- The order of precedence contained in section 150(2) does not leave any room for doubt. Since the amount is received as a result of a public sale, the first priority is given as per section 150(2)(a) to the expenses for sale. The second priority is given, as per section 150(2)(b) to the expenses that were incurred prior to the goods coming into the custody of the warehouse keeper, i. e., freight, etc. The third priority is to the State for its claim towards customs duty as can be seen from section 150(2)(c). The fourth priority is for the dues to the warehouse keeper in the form of rent and charges as is seen from section 150(2)(d). What is most relevant is section 150(2)(e), which says that after the claim under sub-section (2)(d), the next priority is for the payment of any amount due from the owner of the goods to the Central Government under the provisions of this Act or any other law relating to customs. Any claim other than customs duty, which comes under sub-section (2)(c), under the Act, can be settled only after the claim under section 150(2)(d) is settled - the claim for interest can come only under section 150(2)(e). Even without the aid of the above clarification, section 150 can be understood only to mean that interest on customs duty cannot have precedence over the charges and rent due to the warehouse keeper. The clarification dated May 22, 1990 can be treated as a contemporaneous exposition - thus, interest on customs duty does not have precedence over the warehousing charges and rent - answered against the appellant and in favour of the respondent. Appeal dismissed.

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• Corporate Laws

• 2020 (12) TMI 39
  Approval of Scheme of Arrangement by way of Amalgamation - Sections 230-232 and 234 of Companies Act, 2013, and other applicable provisions of the Companies Act, 2013 read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - HELD THAT:- Various directions issued with respect to convening/holding or dispensing with the meetings of the Shareholders, Secured and Unsecured Creditors as well as issue of notices including by way of paper publication. The appointed date as specified in the Scheme is 23rd August 2019 subject to the directions of this Tribunal. Application disposed off.

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• 2020 (12) TMI 38
  Restoration of the name of the company to the Register of Companies maintained by the Registrar of Companies - section 252(3) of the Companies Act, 2013 - grievance of the Petitioner Company is that the Respondent Registrar of Companies struck off the name of the Petitioner Company from the Register of Companies maintained by them without issuing notice in Form STK-5 - Principles of Natural Justice - HELD THAT:- The name of the company was struck off due to failure on the part of the company to file the statutory documents for Financial Year 2015-16 and 2016-17, and also for not carrying on the business. The Bench observes that the Petitioner Company has generated Revenue from operations, has Non-Current Assets, Current Assets Long-Term Borrowings in its Books of Accounts. Therefore, it would be just, equitable and in the interest of justice to provide an opportunity to the company to rectify its defaults and continue the business. The Respondent Registrar of Companies, Maharashtra, Mumbai, is directed to restore the name of the Petitioner Company, to the Register of Companies subject to payment of a sum of Rs. 40,000/- as cost - Application allowed.

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• 2020 (12) TMI 37
  Approval of Scheme of Amalgamation - Sections 230 to 232 of the Companies Act, 2013 and other relevant provisions of the Companies Act, 2013 and the rules framed there under - HELD THAT:- The observations made by the Regional Director have been explained by the Petitioner Companies in Para 10 to 18 above. The clarifications and undertakings given by the Petitioner Companies are accepted by the Tribunal - The Official Liquidator has filed his report on 13th August, 2020 in the Consolidated Company Scheme Petition No. 952 of 2020, inter alia, stating therein that the affairs of the Transferor Companies have been conducted in a proper manner not prejudicial to the interest of the Shareholders of the Transferor Companies and that the Transferor Companies may be ordered to be dissolved by this Tribunal. The Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy - Since all the requisite statutory compliances have been fulfilled, Company Scheme Petition No. 952 of 2020 is made absolute in terms of clauses (a) to (c). The scheme is sanctioned - The Appointed Date is fixed as 1st April, 2019.

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• 2020 (12) TMI 28
  Application for withdrawal of petition - amicable settlement reached - removal of Directors from BOD and appointment of Directors - recovery of undue gains and secret profit made by respondent - regulate the conduct of affairs of the 1st Respondent -Company in future by superseding the present Board of Directors of the Company - maintaining of shareholding pattern - compulsory purchase by the Petitioner and his nominees of the shares, after due valuation. HELD THAT:- In view of the settlement agreement between the parties and the withdrawal memorandum filed by the petitioner to withdraw the petition, nothing survives for further consideration in this matter. Petition dismissed as withdrawn.

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• Securities / SEBI

• 2020 (12) TMI 36
  Power of SEBI to pass an ex parte interim order - allegation against the respondent was that being in possession of price sensitive information and being a connected person, he had sold the shares and had, thus, made a notional gain or averted a notional loss - appellant alleged that the reason for passing an ex-parte order was that there was a possibility of a diversion of the notional gain made by the respondent - HELD THAT:- Tribunal, in our view, was correct in coming to the conclusion that since the investigation was pending since 2017 and information had been supplied on 28 November 2019, there was no urgency for passing an ex-parte interim order of the nature that was issued by the Whole Time Member. It was, in this background, that the Tribunal, while affirming the power of SEBI to pass an ex parte interim order in appropriate cases, observed that this should be exercised only in extreme urgent matters Since we have come to the conclusion that the Tribunal was on the facts of the case correct in setting aside the ex-parte order of the Whole Time Member on the ground that no urgency has been made out to sustain such an order, it is necessary for this Court to clarify that the interpretation which has been placed by the Tribunal on the powers of SEBI, particularly in paragraph 9 of the impugned order, which has been extracted above, shall not be cited as a precedent in any other case. The order passed by the SEBI must necessarily be in accord with Section 11(4) of the SEBI Act. We affirm the view of the Tribunal on the facts as they have emerged. The appeals are accordingly disposed of.

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• 2020 (12) TMI 29
  Expulsion against the appellant, from the membership of the National Stock Exchange of India Limited - Validity of respondents decision of withdrawal of trading facility and subsequent action of closing out of open transactions - appellant has contended that since the trading facility itself was interdicted, it could not have been expected to keep up with various margins and deposits prescribed by the respondents as no trading was being permitted. Whether prior approval of SEBI/Central Government was essential for enforcing the circular dated 19.05.1997 against trading/clearing members? - HELD THAT:- Clause (5) of Chapter IX of the Byelaws uses the phrase the relevant authority may determine and announce the operational parameters. Both determination and announcement of such parameters is therefore, within the competence of the Exchange. Such announcement can be made by the Exchange by circulating a communication amongst the members, as it rightfully did in the present case by way of the subject circular. A similar clause has been inserted in Chapter VI of the Byelaws of the Clearing Corporation as well, thereby empowering the Clearing Corporation to issue operational parameters relating to trading limits and consequent actions in case of non compliance. Whether the circular is invalid as being in conflict with the Byelaws of the Exchange, particularly regarding the manner of closing out prescribed therein? - HELD THAT:- The circular provides for the effect of violation of the exposure limits and lays down that any such violation shall be treated as a violation of the Byelaws of the Clearing Corporation, without prejudice to the power of the Exchange to withdraw the trading facilities. This withdrawal is contemplated as an imminent action to protect the market from being exposed to unsecured financial exposure. Consequent thereto, closing out of open positions has been contemplated - The nature of action contemplated under clause 16 is in furtherance of the basic mandate laid down under Section 9 of the 1956 Act. For, section 9 of the Act clearly provides that all contracts/deals on the market are subject to the Byelaws (including Regulations, operational parameters etc. issued under the Byelaws) and Rules of the Exchange. One of the consequences of not acting in accordance with the Byelaws is provided under clause 16, apart from other provisions - on a comprehensive view of the scheme of closing out under the Byelaws of the Exchange, Byelaws of the Clearing Corporation and the circular, we are of the view that an action of forthwith closing out is permissible under the said scheme, particularly clause 18, and thus, the circular is not ultra vires clauses 17 and 18 of the Byelaws. Rather, the circular furthers the spirit underlying clause 18. Whether the appellant is legally bound by the subject circular which allows the withdrawal of trading facility and forthwith closing out of open positions? - HELD THAT:- It is clear that the scheme of 1956 Act enables the Exchange to resort to suspension and expulsion of the members, in accordance with its approved Byelaws and Rules. Section 3(2) of the Act specifies certain matters that must be appropriately covered in the Byelaws or Rules. Clause (c) of the said sub section expressly provides that matters of admission, qualification, exclusion, suspension, expulsion and re admission of members must be covered in the Byelaws/Rules. In the present case, it is not in dispute that the Interest Free Security Deposit to be maintained by the appellant actually fell short of the required margins during the relevant period. Therefore, we are neither on question of existence of power to expel nor on the factum of whether or not the deposits fell short of the prescribed margins. What falls for our examination, here, is the sole question as to whether the obligation of the appellant to keep up with the adequacy of deposits continued despite the withdrawal of its trading facility. An affirmative answer would justify the expulsion. Whether the appellant was obligated to maintain the prescribed Interest Free Security Deposit and other deposits, despite the withdrawal of its trading facilities, for continued membership of the Exchange? - HELD THAT:- Having observed that the appellant failed to maintain the requisite membership margins with the Exchange for a long period and refused to make up for the shortfalls when called upon to do so by the Exchange, there is nothing to deviate from the view taken by the Tribunal that the appellant acted in contravention of the Byelaws and Rules of the Exchange necessitating unto termination - Schedule II of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 prescribes a Code of Conduct for the stock brokers and clause 5 thereof specifies that compliance with statutory requirements is a mandatory aspect of code of conduct of a stock broker. The appellant consistently failed to comply with the requirements and acted in a manner which was prejudicial to the sanctity of a Member Exchange relationship. The Tribunal rightly confirmed the order of expulsion. Withholding of securities - vesting period - return of unrealised securities - recovery of unrealised securities - HELD THAT:- The following directions are issued for full and final settlement of all claims between the parties: (i) NSE to evaluate and get the remaining transferrable securities, if any, transferred in its favour and recover the remaining amount using the same evaluation criteria adopted in respect of other withheld securities of the appellant within 6 weeks. (ii) After realisation, the surplus amount be returned forthwith to the appellant along with interest at the rate of 12% P.A. from the date of determination of claim/date of vesting until the date of payment. (iii) Respondents to return the unrealised securities including those with outstanding objections to the appellant within 6 weeks from today. (iv) In case recovery is not possible from the remaining securities, for any reason whatsoever, the respondents may communicate the same to the appellant forthwith and the appellant shall then pay the amount so demanded (including interest, if any), to the respondents within 6 weeks from the date of receipt of such communication. (v) NSE is directed to oversee the evaluation and realisation of remaining securities, and settlement of claims. Appeal disposed off.

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• Insolvency & Bankruptcy

• 2020 (12) TMI 35
  Maintainability of application - initiation of CIRP - expiry of 10 days from the date of service of the demand notice, neither the Corporate Debtor disputed the debt nor paid the due amount to the Operational Creditor - non-appearance of Corporate Debtor inspite of sending repeated intimations - HELD THAT:- In the absence of Corporate Debtor, we have relied on Section 5 (20) and (21) of the Insolvency and Bankruptcy Code, 2016 to satisfy that the definition of Operational Creditor and Operational Debt. Further we relied on Section 9 (3) (a) (b) (c) of the Code to determine whether process for initiation of CIRP was followed by the Operational Creditor or not. On verification of records, it is noted that the claim amount in this application is Rs. 25,24,067/- and the cause of action arose before March 2020. Therefore, in all counts the instant Application deserves to be Admitted. This Tribunal is of the view that the present application is complete and the Applicant is entitled to claim its dues, which remain unpaid by the Corporate Debtor. Application admitted - moratorium declared.

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• 2020 (12) TMI 34
  Maintainability of application - initiation of CIRP - Corporate Debtor defaulted in making payment of dues - Existenc eof debt and dispute or not - HELD THAT:- It was held in the landmark judgement of Hon ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank and Anr. [ 2017 (9) TMI 58 - SUPREME COURT ] that the existence of a dispute or the record of the pendency of a suit or arbitration proceedings should be pre-existing-i.e. prior to demand notice or invoice received by the Corporate Debtor . The moment there is existence of dispute, the Corporate Debtor gets out of the clutches of the I B Code - In this case, this Tribunal did not come across any record which would show that a dispute that was pre-existing apart from that of a hypothetical or illusory dispute which has been raised by the Corporate Debtor . Hence, it is clear that the Corporate Debtor has not raised any dispute relating to debt nor raised any dispute relating to quality of service of goods. They merely shown the difference of the date on which the amount claimed and that they have already credited an amount of Rs. 3,00,000/- which is not shown in the extract of the bank statement provided in the application. Hence the Operational Creditor is indenting to grab money illegally from the Corporate Debtor claiming an exorbitant interest. The statement made by the Corporate Debtor cannot be termed as a pre-existing dispute or plausible dispute. The present application is complete in all respects and the applicant is entitled to claim its dues. The applicant succeeded in establishing the default in payment of the operational debt beyond doubt. In view of the above, the instant petition deserves to be admitted. Petition admitted - moratorium declared.

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• 2020 (12) TMI 33
  Stay of liquidation application pending disposal of the instant Application - Liquidation of Corporate Debtor - it was alleged that the Applicant is not cooperating with the RP for providing the details of the Corporate Debtor and the said Application is pending adjudication before this Tribunal - Power of Adjudicating Authority (NCLT) to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors - HELD THAT:- The Applicant has not put forth any concrete proposal of settlement before the 2nd Respondent, who is a Financial Creditor, and thereby making a statement that the Applicant has identified a financier/buyer who would provide financial assistance to the Corporate Debtor and the Applicant would want the 2nd Respondent to negotiate the terms with the said financier/buyer. Power of Adjudicating Authority (NCLT) to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors - HELD THAT:- The legislature has not endowed the Adjudicating Authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I B Code. Reliance can be placed in the case of COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS [ 2019 (11) TMI 731 - SUPREME COURT ], from where it is manifestly made clear that this Authority cannot venture in the commercial decision taken by the CoC and as such, the opinion to liquidate the Corporate Debtor is being made after due deliberations in the CoC meetings through voting, and hence the same is a collective business decision. As already stated in the Judgment, the legislature has consciously not provided any ground to challenge the commercial wisdom of the individual financial creditor or their collective decision before the Adjudicating Authority - Needless to say, that even during the Liquidation process, subject to Section 29A of the IBC, 2016 and as per Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016, a 90 day time period is provided to the Applicant to submit a Scheme as contemplated under Section 230 of the Companies Act, 2013, and if the Applicant is otherwise found eligible can very well submit a Scheme for the revival of the Corporate Debtor. Application dismissed.

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• Service Tax

• 2020 (12) TMI 32
  SVLDRS - Rejection of application under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - amount in arrears - allegation that petitioner No. 1 stood ineligible to file declaration under the arrears category - Stand taken by the respondents to justify rejection ofthe declaration of petitioner No.1 is that under section 125(1) (c) the final hearing in the case of petitioner No.1 who had been issued a show cause notice had taken place on 9th May, 2019 i.e. before 30th June, 2019. Therefore, petitioner No.1 was not eligible to make the declaration. HELD THAT:- It is true that petitioner No.1 had filed the declaration under arrears category with sub-categorization of appeal not filed or appeal having attained finality - When we talk about arrears or arrears category under the scheme, section 123 (e) has to be read together with section 121(c)(i). A conjoint reading of the two provisions would indicate that tax dues would mean the amount in arrears which in a given case like that of petitioner No.1 would be on account of no appeal having been filed by the declarant against an order or against an order in appeal before expiry of the period for filing appeal. In the present case, pursuant to the show cause notice though the final hearing had taken place on 9th May, 2019 before the cut off date of 30th June, 2019, the order in original was subsequently passed on 9th August, 2019. Against this order in original no appeal was filed by petitioner No.1 who filed the declaration under the arrears category on 8th January, 2020 by which time the limitation period for filing appeal against the order in original had expired. The Board clarified in circular dated 12th December, 2019 that since the main objective behind the scheme is to liquidate the legacy cases under central excise and service tax, it would be desirable that the tax payer is given an opportunity to avail its benefit - As per the answer given above by the department itself, in a case where show cause notice was issued and final hearing had taken place on or before 30th June, 2019, the declarant would not be eligible to make a declaration under the litigation category but once the order is passed the declarant can file a declaration under the arrears category provided no appeal against the order is filed or the appeal period is over. Thus, rejection of the declaration of the petitioner dated 8th January, 2020 by the Designated Committee on 14th February, 2020 is not justified. Accordingly the same is hereby set aside and quashed - petitioner No.1 is eligible to file declaration under the arrears category - the matter is remanded back to the Designated Committee to consider the declaration of petitioner No.1 dated 8th January, 2020 as a valid declaration and thereafter grant consequential relief in terms of the scheme after giving an opportunity of hearing to the petitioners. Petition allowed by way of remand.

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• Central Excise

• 2020 (12) TMI 31
  Clandestine removal - applicability of Standard Input Output Norms (SION) of DGFT Policy - SION norms as per proviso to condition 3(d) of Notification No. 52/2003-CUS as amended during the period 2012-13 to 2016-17, complied with or not - duty has been demanded on the basis of an audit objection on difference in production arrived by taking input output ratio @ 95% based on SION and that shown in their Form 3CD, ER-5 /ER-4 returns - extended period of limitation - suppression of facts or not - Scope of SCN. Scope of SCN - HELD THAT:- The Notification No. 52/2003-CUS has been issued in terms of sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and is an exemption notification. It does not prescribe any method/ procedure to determine quantum of production under Central Excise Act for demand of duty. Section 3 of the Central Excise Act being the charging section, stipulates that duty is to be charged on the goods produced or manufactured - It is found that no physical verification of input consumption qua finished goods manufactured thereto was carried out by the department. The duty has been demanded on the basis of audit objection without causing any investigation. The objection of audit cannot be the basis or reason to believe to further investigate the matter and cannot be the sole ground for holding clandestine manufacture and removal, in absence of any corroborative evidence. It is observed from records that neither investigation has been carried out from any buyer of finished goods nor from any transporter nor any flowback of funds was checked and neither any statement brought on record to substantiate clandestine removal without payment of duty. It is found that no SION number was given in the show cause notice while learned Adjudicating Authority has relied upon SION number C-460 C-514. Thus, he has travelled beyond the Show Cause Notice. The Tribunal in the case of M/S. SARADHA TERRY PRODUCTS LTD. AND SHRI K. JAYARAJ VERSUS CCE, SALEM [ 2015 (1) TMI 678 - CESTAT CHENNAI] held that in absence of evidence of removal of excess yarn or finished goods without payment of duty, duty demand not justified purely on basis of input-output norms (SION) without adequate and corroborative evidence of excess utilization of cotton yarn or diversion of yarn. In the present case, it is found that there is neither any corroborative nor any other evidence brought on record to substantiate clandestine removal without payment of duty. The deemed production arrived on presumption for demand of duty is not permissible under Section 3 of Central Excise Act, 1944. The learned Adjudicating Authority merely relied upon standard input-output norms (that too without disclosing any relevant SION SNo.) to confirm the demand of duty and to hold the charge of clandestine removal of goods without payment of duty. Thus, the same cannot be made basis for determining the duty liability, in absence of any evidence to justify the clandestine manufacture / clearances. Extended period of limitation - Suppression of facts or not - Section 11A of Central Excise Act, 1944 - HELD THAT:- The allegation of suppressing the facts from the department does not hold good in the event of periodic audit of both the appellant assessees. There is no other evidence in the impugned order to show that the appellants have willfully suppressed the facts from the department in order to evade payment of duty. As such extended period of limitation cannot be invoked in the present case - reliance can be placed in the case of COLLECTOR OF C. EX. VERSUS MALLEABLE IRON STEEL CASTINGS CO. (P) LTD. [ 1997 (12) TMI 123 - SUPREME COURT] . Appeal allowed - decided in favor of appellant.

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• Indian Laws

• 2020 (12) TMI 30
  Recruitment of Departmental Promotees (DPs) - filling of posts of Tax Assistants - the DPs were concededly appointed prior to the DRs, where the latter, as is argued by them appointed on the basis of merit in the same selection - Rule 27 of the Rajasthan Commercial Taxes Subordinate Services (General Branch) Rules, 1975 - HELD THAT:- The entire rule (Rule 27 [1] and the two provisos) what is evident is that (a) before the amendment of 2002, seniority of personnel appointed to the lowest categories of posts in any department was to be determined as from the date of appointment; however, for promotees, it was to be from the date of selection; (b) after the amendment of 2002, seniority has to be fixed (by reason of Rule 27 (1)) as on the date of appointment to the post or service; (c) however, in the case of pre-state integration of state (of Rajasthan) or pre-integration of services, seniority could be modified or altered by the Appointing Authority on an ad hoc basis - this clearly was meant to be a sunset clause, i.e. operative for a limited period; (d) the second proviso,- which is the one pressed into service by the DRs, states that seniority of those selected earlier will be determined over those selected latter. Plainly, the principal mandate of the rule is that seniority is determined on the basis of date of appointment ( shall be fixed from the date of their appointment ). Proviso (2) lists out two rules. The first is that those selected and appointed through a prior selection would rank senior to those selected and appointed through a later selection process. The High Court, in this case, was of the opinion that this rule (i.e. proviso) applied to selections from the same source, i.e. where two sets of direct recruits were appointed, those selected through a previous recruitment process, would rank senior to those recruited through a later recruitment process. This interpretation is, in this court s opinion, salutary. There may be various reasons why the ultimate appointment of one batch of recruits may be delayed: challenges to some part of the recruitment process (such as shortlisting, calling of candidates for interviews etc.), during which period, a subsequent recruitment may be undertaken. Keeping in mind that the advertisements (for filling the entire cadre, in both the quotas or streams of recruitment) were issued one after the other, and more importantly, that this was the first selection and recruitment to a newly created cadre, the delay which occurred on account of administrative exigencies (and also the completion of procedure, such as verification of antecedents) the seniority of the promotees given on the basis of their dates of appointment, is justified by Rule 27 in this case. Appeal dismissed.

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