Subsequently, the AO added the legal cost and legal expenses of Principal and about Rs 4.91 Cr was brought to tax. On appeal, the CIT(A) directed the AO to allow the legal expenses which were imposed & that other legitimate expenses to be verified and allowed. On further appeal, the Tribunal upheld the order of the CIT(A).

On appeal, the High Court held that,

Whether any further liability can be said to arise from litigation initiated against an assessee by its principals where such liability has been settled by payment of amounts due to the principal - NO: HC

++ it has to be noticed that there is nothing to substantiate the contention raised by the assessee that out of the alleged waiver of five crores, three crores were towards legal expenses incurred by the assessee and two crores towards possible future claims. The terms of settlement between the principals and the assessee, as was noticed by the Tribunal, was never placed on record by the assessee. Though it is found that the legal expenses could be validly claimed to the extent evidenced, there is no reason to find the assessee holding any amounts in a fiduciary capacity. The contention is also belied by the action of the assessee in having offered the allegedly waived amounts, after making deductions, for assessment in the next year. This court agrees with the hypothetical situation narrated by the Tribunal in its order;

++ the amounts received by the assessee, after setting of the expenditure incurred on behalf of the Principal and satisfying that due to the Principal, is not kept in its hands in a fiduciary capacity and is income in its hands. Thus, the Tribunal was right in holding the amounts waived by the Principals; in accordance with a settlement arrived at with their agent as income in the hands of the assessee. Therefore, what is left with the assessee after settlement of accounts with the Principals and after deducting the expenses incurred on behalf of the Principals, constitute the character of commission received and are trading receipts of the assessee. Hence, there is no question of any further liability arising from the litigation initiated by the Principals of the assessee, since the same has been settled and amounts due to the Principals satisfied;

++ regarding the issue of disallowing deduction claimed in current AY of balance expense disallowed in preceeding AY, it is to be noticed that the expenditure claimed in the previous year was disallowed for reason of no deduction of TDS having been made. The assessing Officer would have to look at whether the assessee is entitled to the benefit available under the first proviso to Section 40(a)(ia). The Tribunal by a laconic statement dismissed the plea finding the dis-allowance of the earlier assessment year not arising in the subsequent one. The proviso speaks of payment in a subsequent year and the allowance being made in that subsequent year. The question hence is answered against the Revenue and in favour of the assessee, but the actual allowance being left to be decided by the Assessing Officer who has to verify the claim and decide accordingly.

Assessee's appeal partly allowed

Income Tax - Section 17(2).

Keywords: Long-term capital gain - Perquisite Stock option scheme.

The assessee, an individual, is an employee of Cognizant. in his return of income, the assessee admitted the income as special allowance under the head 'salary'. On being asked, the assessee contended that such special allowance was nothing but exempt amount of long term capital gain, which was earned by him by selling the shares under Employees Stock Option Scheme offered by the company. However, the AO noted that the assessee had not acquired any shares but, the Company in USA had sold the shares outside India and remitted the difference between the Sales Price and the Option Price, which alone was paid to the employees of the company as a special allowance and finds space as such in the Form XVI issued to the employee. Thus, the AO's case was that this amount should be treated as perquisite to the assessee in addition to his salary. On appeal, the CIT(A) upheld the view taken by the assessee and deleted the addition made by the AO. On further appeal by the Tribunal, the Tribunal remanded the matter back to the AO.

On appeal, the High Court held that,

Whether the Tribunal can straight away remand the issue to the AO, without adjudicating the dispute whether income arises on sale of so-called stock option scheme, where stock was not transferred in the name of the assessee, is to be charged as capital gains or perquisite - NO: HC

++ the Tribunal ought to have noted that the specific case of the Revenue was that the assessee has not acquired any shares but, the Company in USA has sold the shares outside India and remitted the difference between the Sales Price and the Option Price, which alone is paid to the employees of the company as a special allowance and finds space as such in the Form XVI issued to the employee. Thus, the Revenue's case was that this amount should be treated as perquisite to the assessee in addition to his salary. The Revenue's specific case was that the entire transaction took place abroad and it took place on one particular date. The stock was not transferred in the name of the assessee and what was paid to the assessee was in the nature of a special allowance and shown to be part of his salary;

++ the Tribunal did not consider the said aspect, rather referred to the decision of the Bangalore Tribunal in the case of Giridhar Krishna.M and remitted that matter to the lower authorities for a fresh decision and compute the capital gain by considering the date of allotment as the reckoning date for calculation of period. What was to be decided by the Tribunal was that whether it was a perquisite, which is in addition to the salary of the assessee or otherwise unless and until that question was decided by the Tribunal, the question of remanding the matter to the Assessing Officer does not arise. This so in the light of the specific plea raised by the Revenue before the Tribunal;

++ the matter should be first adjudicated on facts and the Tribunal should take a decision on the stand taken by the Revenue before it. This is called for because, the CIT(A) did not deal with the said issue while passing the order dated 30.01.2008. Though the CIT(A) states that he finds considerable force in the claim of the assessee, there is no reason to substantiate as to how the CIT(A) came to the conclusion that the stand of the assessee that the income relating to stock option should be charged as long-term capital gains merits acceptance. Thus, we find that there were no reasons assigned by the CIT(A) to come to the conclusion that it was a stock option scheme and chargeable as capital gains;

++ the onus is on the Tribunal to take a decision on merits and if the Tribunal was of the view that on facts the decision of the Bangalore Tribunal in Giridhar Krishna.M was applicable, it was required to be specifically stated so in the order. However, nowhere in the order there is such finding recorded by the Tribunal. Therefore, these are fit cases, where the matter should be remanded to the Tribunal to take a decision on the merits of the matter and then proceed to apply the correct legal principle. The appeals, filed against the orders deleting penalty also requires to be set aside because, if the Tribunal was of the view that the matter requires to be re-considered, then the issue could have been left open for the Assessing Officer to take a decision instead of deleting the penalty in toto.

Revenue's appeal allowed

Income tax - evasion of excise duty - reasons for reopening

The return of assessee company for the AY 2005-2006 was subjected to re-assessment, and on the basis of certain materials collected by the Excise Department prima facie suggesting evasion of excise duty, the AO carried out such re-assessment and made the additions. Eventually, Tribunal deleted the additions on appeal preferred by the assessee.

On appeal, the HC held that,

Whether reassessment can be carried out under Income tax Act, by solely relying on the show cause notices issued by Excise Department to the concerned taxpayer - NO: HC

++ it is noticed that previously also, the issue under present appeal had come up for consideration before this Court in Tax Appeal No. 82 of 2016, wherein it was observed that: "....the AO has not proceeded on the basis of show-cause notice taking the proposals contained in such show-cause notice as having achieved finality. He has put the assessees to notice with respect to the contents of such show-cause notice issued by the Excise department and also elicited assessee's response to the same. Thus, since the excise proceedings had not yet been finalized, the AO could not have passed the final order of assessment. However, as is well known, the adjudication proceedings under the Central Excise Act do not come with time barring provisions unlike as in the Income Tax Act. In fact, the Adjudicating authorities under the Central Excise Act, enjoy much wider time period even for issuance of show-cause notice in case of the alleged non payment or short payment of duty is for any reason of fraud or collusion or willful misstatement or suppression of facts or contravention of the provisions of the Act with intent to evade payment of duty. Under the circumstances, the AO cannot be expected to defer completion of assessment awaiting final order of adjudication in excise proceedings at the risk of his assessment getting time barred. Even otherwise, the material that may be brought on record in excise proceedings may be different from that which may form part of the assessment proceedings though the both may, to some extent, be common...." In the result, these Tax Appeals preferred by the Revenue Department are also dismissed.

Revenue's appeal dismissed

Income tax - Section 68

Keywords - failure to produce creditors - furnishing of PAN - satisfactory explanation - undisclosed income

During the year under consideration, the assessee's return showed total loss of Rs.77,01,919/- and the same was processed determining the total income at Rs.1,02,16,950/-. During the course of proceedings, the six entities from whom the assessee had borrowed sums without security, were selected for scrutiny. Though the AO had issued notices to these entities u/s 133(6), he found that there were no reply, or the notices were returned unserved and only one party confirmed the loan of Rs.5,00,000/-. In these circumstances, the AO doubted the transactions and added back Rs.1,45,00,000/- to the total income of assessee u/s 68. On appeal, the assessment so framed by AO stood confirmed by both the CIT(A) as well as the ITAT.

On appeal, the HC held that,

Whether mere production of PAN numbers & bank statements is sufficient enough to discharge the burden on taxpayer to escape the realms of Section 68 - NO: HC

++ it is seen that the Tribunal has extensively referred to the entities and the details in relation thereto provided by the assessee, and thereby concurred with the FAA that the burden on assessee has not been discharged by it. The assessee cannot simply provide some details such as PAN Number, business address, the account which was maintained and a Bank Statement, or a Company's Master Data maintained by the Registrar of Companies. The assessee is obliged to explain the surrounding circumstances and the backdrop in which the transactions took place;

++ in the case of five entities, the Tribunal referred to these details and concluded that the assessee has failed to discharge the burden. More so, three out of the five assessees could not be served and the rest did not either give a reply, or gave a reply which was not at all satisfactory. The reasons assigned under challenge do not suffer from such legal infirmity or perversity. They are concurrent findings of fact based on appreciation and appraisal of the evidence before the authorities. Therefore, there are no errors of law apparent on the face of the record, particularly in understanding the ambit and scope of Section 68.

Assessee's appeal dismissed

Cus - The question of law sought to be urged by assessee is that instead of deciding appeal as to the conditions with respect to provisional release, the Tribunal has relegated the matter entirely to Commissioner, with a direction that application should be decided in accordance with Circular No.35/2017–CUS. - That circular first mandates that provisional release of seized goods should be normally considered upon a request by owner of goods and that the bank guarantee or security deposited should cover the entire amount of duty/differential duty amount of fine to be levied in lieu of confiscation and also the nature of seized goods, duty and charges - The circular expressly states in para 4.1 that the observations of this court and of the Madras High Court are to be taken into account - This obviously meant that the conditions in paras 2.1 and 2.2 are merely guidance and cannot be treated as mandatory, in all circumstances - The Tribunal is directed to consider the matter afresh and pass an appropriate order having regard to the circumstances of the case, preferably within six weeks: HC

Appeal partly allowed

Cus - The goods in question, concededly are cosmetics items, various categories of skin shave gel in semi liquid form - These drugs are subject to regulations under the Drugs and Cosmetics Act, 1940 and Rules framed thereunder - The petitioner company used to import the concerned items at ICD Tughlakabad in the past - It relies upon a NOC issued by Assistant Drugs Controller of India, which permitted the importation of goods at ICD Dadri - It also relies upon a communication issued by CONCOR dated 16.5.2017 that it would henceforth not book the containers carrying hazardous cargo at ICD Tughlakabad - The importers were advised to land the goods at ICD Dadri - lthough, it was compelled to import the goods at ICD Dadri on account of CONCOR's decision, nevertheless, it cannot claim ignorance of Rules 43A/113 which continue as it were unamended - Consequently, the decision of Customs Authorities with respect to the lawfulness of imports at ICD Dadri per se cannot be faulted - At the same time, this Court is of the opinion that absolute confiscation without the option of redemption was not justified, having regard to the previous conduct of petitioner - Furthermore, the penalty imposed appears to be excessive - The impugned order to the extent it confiscates the goods without redemption as also penalty to the tune of 100% value is hereby set aside - The petitioner is at liberty to move the concerned Commissioner of Customs, Noida for appropriate orders to redeem the goods for the purposes of re-export: HC

Writ petition disposed of

Cus - The assessee was a salaried Director employed by M/s Atlas which imported certain quantity of goods from a Chinese supplier to fulfil its obligation with BSNL of which it was a franchisee - The equipments were broadly telecommunication networking equipments including supporting software - Somewhere after importation and filing of bill of entry, M/s Atlas sought to re-export the goods claiming that the consignee was its sister concern, which is said to have been carrying on its commercial activities in Slovakia - The Let Export Orders were issued on different dates in 2007 - At that stage, DRI suspected that the transaction was not genuine - In the meanwhile, the importer approached this court under Article 226 of the Constitution of India unsuccessfully urging that in the absence of SCN, the prolonged retention was illegal - The ensuing adjudication by Commissioner noticed that the Chinese company in the meanwhile had agreed to accept the goods for free - After overall appreciation of circumstances, the Commissioner confiscated the goods and imposed penalty on company and penalty to the tune of Rs.1 crore was inter alia imposed upon the assessee - Although, the BoE which signifies the importation of goods and the official record thereof undoubtedly occurred in 2005, the occasion for DRI to investigate the genuineness of transaction arose when the assessee sought to re-export the goods to a company which did not exist - In that sense, it was not the original importation but rather re-attempted importation upon its failure to clear the goods on account of apparently factors beyond its control, such as dispute with BSNL which rather strangely and lamely it omitted to pursue and let go of the claim of reimbursement of Rs.24 crores - In other words, the reexport application made sometime in 2007 and the order, which was issued upon it, constituted attempts that were successful on the assessee's part to claim a fraudulent or otherwise fictitious transaction, to be genuine - Imposition of penalty, which was in respect of the facts that took place after 13.07.2006, was justified: HC

Appeal dismissed

Cus - The assessee had imported duty free raw material against advance license - A search was conducted in the business premises of assessee and the benefit under DEEC scheme under various customs notifications sought to denied for having not fulfilled the conditions in notifications and also alleged misutilisation of raw material - The revenue cannot raise the contentions questioning the order passed by Tribunal, which has attained finality - Since the revenue did not challenge the said order by filing an appeal before this High Court, the contentions raised by assessee that the order is only an order of remand and therefore the department participated in de-novo adjudication cannot be sustained and court is not inclined to accept the other said submission on account of candid and pointed observations made by the tribunal as to the manner in which the adjudication order was required to be done de-novo - Thus, the order passed by tribunal dated 16.01.2002 was not an order of remand simplicitor but order with pointed observations and directions explicitly with regard to the stock of raw materials and finished goods in the factory premises - Thus, the revenue is stopped from raising any contentions challenging the validity of the order passed by the tribunal - After remand, the Commissioner took up the matter for de-novo adjudication and passed a very detailed order, in which the stock position has been taken into consideration and the findings recorded in order of Commissioner will clearly show that the Commissioner has, with due application of mind, analyzed the stock position and then came to the conclusion that the proposal made in SCN cannot be sustained - The order passed by Commissioner was tested by Tribunal at the instance of revenue and the Tribunal, after taking into consideration the submissions, found that there is absolutely no material in the appeal filed by the revenue - The impugned order passed by the tribunal is not a single line order, but the tribunal, while confirming the order of adjudication has assigned independent reasons - Thus, the entire issue revolves around facts, which has been considered by adjudicating authority and the Tribunal concurrently against the revenue and in favour of assessee, and as such, there is no question of law arising for consideration in this appeal much less a substantial question of law: HC

Appeal dismissed

ST - Tax involved in the instant case, which is in nature of wrong credit is Rs.25,57,945/- on the capital goods, which is less than the threshold limit fixed by Central Board of Indirect Taxes and Customs vide instruction dated 11.7.2018 - In fact, wherever cases are less than the monetary limit of Rs.50,00,000/-, in so far as High Courts are concerned, the Department has been directed not to pursue the appeal or even withdraw the same - The Original Authority sought to recover CENVAT credit availed by assessee to the tune of Rs.25,57,945/- together with interest while imposing penalty equivalent to the amount sought to be recovered as CENVAT credit availed - As the amount involved, being well below the amount fixed in the instruction dated 11.7.2018, Department cannot pursue this appeal: HC

CMA dismissed