Issues: (i) Whether the consideration received on transfer of shares could be assessed as unexplained cash credit under section 68 read with section 115BBE, or was taxable as capital gains. (ii) Whether the claim for deduction under section 54F required allowance on the basis of the accepted transfer and computation of capital gains.

Issue (i): Whether the consideration received on transfer of shares could be assessed as unexplained cash credit under section 68 read with section 115BBE, or was taxable as capital gains.

Analysis: The assessee supported the share transfer with the share purchase agreement, bank records, valuation material, audited financial statements and confirmations from the purchaser. The purchaser's funding trail was also examined, showing receipt of funds from its foreign holding company and issuance of fresh shares at premium. On these facts, the assessee had explained the source of receipt and the source of source. The addition was therefore not sustainable in the assessee's hands merely because the purchaser's internal funding structure was questioned. A genuine business transfer of shares could not be re-characterised as unexplained cash credit when the transaction itself was established and no material showed that the receipt was not sale consideration.

Conclusion: The addition under section 68 read with section 115BBE was deleted and the share-sale receipt was to be taxed as capital gains.

Issue (ii): Whether the claim for deduction under section 54F required allowance on the basis of the accepted transfer and computation of capital gains.

Analysis: Once the addition treating the sale proceeds as unexplained credit was deleted, the capital gains computation accepted by the assessee survived. The factual verification necessary for the deduction claim had not been carried out at the assessment stage, and the record was insufficient for a final adjudication of the eligibility and quantum of deduction. The proper course was to restore the matter for verification of the investment details and allow the claim in accordance with law.

Conclusion: The issue under section 54F was remanded to the Assessing Officer for verification and fresh decision.

Final Conclusion: The addition treating the share-sale consideration as unexplained credit was set aside, while the deduction claim under section 54F was restored for factual verification, resulting in relief to the assessee on the main issue and remand on the ancillary claim.

Ratio Decidendi: Where a bona fide share-transfer transaction is supported by contemporaneous documentary evidence and the assessee explains both the receipt and the purchaser's funding trail, the consideration cannot be taxed as unexplained cash credit in the assessee's hands under section 68 merely because the purchaser's own capital structure is questioned.

Issues: Whether revision under section 263 of the Income-tax Act, 1961 was justified where the Assessing Officer had made enquiries on cash sales and cash deposits, examined the relevant material, and adopted one of the possible views.

Analysis: The record showed that the assessee had responded to the assessment queries relating to cash sales, cash deposits, stock position, purchases, and supporting records. The assessment order had been passed after enquiry and verification, and the revision order proceeded on the view that the inquiry was inadequate and that the deposits ought to have been assessed differently. Since the Assessing Officer had taken a plausible view after making relevant enquiries, the mere absence of detailed discussion in the assessment order did not establish lack of enquiry. A revisionary jurisdiction under section 263 could not be exercised to substitute a different opinion for a view already taken on the basis of enquiry.

Conclusion: The invocation of section 263 was not sustainable and the revisionary order was quashed in favour of the assessee.

Ratio Decidendi: Where the Assessing Officer conducts enquiry and adopts one of two possible views, the order cannot be revised under section 263 merely because the Principal Commissioner prefers a different view.

Issues: Whether the addition of the entire amount of alleged bogus purchases was justified, or whether only an estimated profit element could be brought to tax when sales were accepted and the purchase claim was doubted.

Analysis: The Assessing Officer did not record a finding that no purchases were made, but only doubted the genuineness of the purchases. The accepted sales indicated that a complete disallowance of the purchase amount was not warranted. In such circumstances, the appropriate course was to estimate the profit embedded in the disputed purchases rather than treat the whole amount as income. On the facts, estimation at 8% of the total purchase value was considered justified.

Conclusion: The addition of 100% of the alleged bogus purchases was unsustainable, and the addition was restricted to 8% of the total purchase amount, in favour of the assessee.

Ratio Decidendi: Where purchases are doubted but corresponding sales are accepted, the entire purchase amount cannot be added as income and only the profit element can be estimated for taxation.

Issues: (i) whether deduction claimed under section 35(1)(ii) could be denied on the basis of a general investigation report and subsequent withdrawal of approval granted to the donee institution; (ii) whether the addition made under section 69C on the premise of a bogus donation and alleged commission payment could be sustained.

Issue (i): whether deduction claimed under section 35(1)(ii) could be denied on the basis of a general investigation report and subsequent withdrawal of approval granted to the donee institution.

Analysis: The donation was made through banking channels to an institution that held approval under section 35(1)(ii) at the time of payment, and the claim had been accepted in the original assessment. The reassessment was founded on a later investigation report, but no specific adverse material connecting the assessee's transaction to any bogus arrangement was brought on record. The statutory explanation to section 35(1) protects the deduction where approval is withdrawn after the payment has already been made, and the subsequent cancellation of approval cannot by itself defeat an otherwise allowable claim.

Conclusion: The denial of deduction under section 35(1)(ii) was unjustified and the assessee was entitled to the allowance.

Issue (ii): whether the addition made under section 69C on the premise of a bogus donation and alleged commission payment could be sustained.

Analysis: The addition rested on the same assumption that the donation was non-genuine. Once the disallowance of the deduction failed, the inference of unexplained commission also lost its basis. Independently, no cogent evidence was brought on record to establish actual commission payment by the assessee, and the addition was founded only on suspicion and adverse inference.

Conclusion: The addition under section 69C was not sustainable and was deleted.

Final Conclusion: The assessee succeeded on the substantive tax issues, resulting in deletion of the disallowance and the related addition, while the challenge to the reopening notice did not require adjudication.

Ratio Decidendi: A deduction under section 35(1)(ii) cannot be denied merely because the approval of the donee institution is withdrawn later, and a tax addition based only on a general investigation report without specific incriminating material linking the assessee to the alleged bogus transaction is unsustainable.

Issues: (i) Whether the assessment was vitiated for want of show-cause notice or draft assessment order before making additions; (ii) whether the contractual receipts reflected in Form 26AS were taxable in the year of receipt where the assessee followed the completed service contract method and claimed earlier recognition or adjustment through work-in-progress.

Issue (i): Whether the assessment was vitiated for want of show-cause notice or draft assessment order before making additions.

Analysis: The assessment record showed issuance of statutory notices and repeated opportunities, with the assessee responding to the requisitions. The assessment order also recorded the notices issued, replies received, and conclusions drawn. On that basis, no procedural lapse or denial of opportunity was established.

Conclusion: The challenge on procedural infirmity failed and was decided against the assessee.

Issue (ii): Whether the contractual receipts reflected in Form 26AS were taxable in the year of receipt where the assessee followed the completed service contract method and claimed earlier recognition or adjustment through work-in-progress.

Analysis: The dispute was only about the year of taxability, since the receipts themselves were taxable. The Tribunal noted that income under the Income-tax Act is governed by the method of accounting, and that receipts may be taxed either on cash basis or accrual basis depending on the assessee's accounting. On the facts, the assessee failed to substantiate that the disputed receipts had already been offered to tax in earlier years, and the materials on record did not support the claim that the amounts had been accounted for in the relevant earlier periods. The reflection of receipts and TDS in Form 26AS, coupled with the absence of convincing evidence of prior taxation, supported taxation in the year of receipt.

Conclusion: The addition of the contractual receipts in the year under consideration was upheld and the issue was decided against the assessee.

Final Conclusion: The Tribunal sustained the additions made on account of contractual receipts and rejected the procedural challenge, leaving the assessee with no relief in the appeal.

Ratio Decidendi: Where an assessee fails to prove prior taxation of contractual receipts and the evidence shows receipt during the relevant year, such receipts may be taxed in that year according to the applicable method of accounting.

Issues: Whether penalty under section 272A(1)(d) of the Income-tax Act, 1961 could be sustained for alleged non-compliance with notices under section 142(1) when the assessee sought adjournment, later furnished the required details, and the assessment was completed under section 143(3) without any addition.

Analysis: The record showed that notices under section 142(1) were issued during scrutiny assessment and, in respect of certain notices, the assessee sought adjournment on the ground that the information was under compilation. The required particulars were subsequently furnished and accepted by the Assessing Officer, who completed the assessment under section 143(3) at the returned income without any addition or disallowance. In these circumstances, the assessment was not framed under the best judgment procedure under section 144, and the record did not support treating the matter as one warranting penalty for non-compliance.

Conclusion: The penalty under section 272A(1)(d) was not sustainable and was quashed in favour of the assessee.

Ratio Decidendi: Where the assessee ultimately furnishes the information sought under section 142(1) and the assessment is completed under section 143(3) without resort to section 144, penalty for alleged non-compliance with the notice is not warranted.

Issues: (i) Whether the addition made on account of cash deposits during the demonetisation period could be sustained when the assessee produced cash book and quantitative stock details to explain the source of deposits; (ii) Whether the addition made on account of sale proceeds of small fixed assets could be sustained in the absence of supporting bills.

Issue (i): Whether the addition made on account of cash deposits during the demonetisation period could be sustained when the assessee produced cash book and quantitative stock details to explain the source of deposits.

Analysis: The assessee had opened two new retail outlets and maintained cash book entries and quantitative stock details to support cash sales. The books were not rejected, and no defect was found in the stock details. The deposits were traceable to cash sales already offered to tax as turnover. An estimate based on assumed average sales for earlier months could not displace the maintained books or justify treating the same turnover again as unexplained income.

Conclusion: The addition on account of cash deposits was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the addition made on account of sale proceeds of small fixed assets could be sustained in the absence of supporting bills.

Analysis: The amount represented proceeds from petty fixed assets such as household and office items, and the corresponding reduction was reflected in the fixed asset schedule. No depreciation had been claimed on those items, and the nature of the receipts did not justify an adverse inference merely because individual bills were not produced.

Conclusion: The addition on account of sale proceeds of fixed assets was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal was allowed by deleting both additions, resulting in complete relief to the assessee.

Ratio Decidendi: When books of account and supporting quantitative details are not rejected or found defective, a receipt already recorded as turnover cannot be taxed again as unexplained income, and minor fixed-asset sale proceeds reflected in the accounts cannot be disallowed merely for want of separate bills absent contrary material.

Issues: Whether the five disputed comparables had to be excluded from the transfer pricing exercise because the earlier remand by the Tribunal to the Dispute Resolution Panel was not complied with and the adjustment therefore required recomputation.

Analysis: The Tribunal held that, in an appeal where the assessing officer alone was the respondent, any remand direction had to be addressed to the assessing officer and not to the Transfer Pricing Officer or the Dispute Resolution Panel, since neither was a party before it. It further noted that the Dispute Resolution Panel's statutory role under the draft-assessment framework is activated through the assessee's objections, but in the present proceedings the five comparables directed to be reconsidered were ultimately not dealt with in accordance with the Tribunal's earlier remand. In these circumstances, the Tribunal found that the assessee's transfer pricing computation had suffered an irregularity requiring correction.

Conclusion: The five comparables were directed to be removed for computation of the arm's length price, and the software development services adjustment was ordered to be recomputed accordingly.

Ratio Decidendi: In set-aside transfer pricing proceedings, where a remand issue is not complied with in substance, the affected comparables must be excluded and the arm's length price adjustment recomputed.

Issues: (i) Whether the amount attributed to the assessee's share in the property transaction could be brought to tax as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Issue (i): Whether the amount attributed to the assessee's share in the property transaction could be brought to tax as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Analysis: The sale deed recorded that the consideration was paid in cash instalments over a long period and the agreement to sell and connected record supported that narration. The addition was made without establishing a fresh credit entry in the books for the disputed amount and without dislodging the documentary explanation regarding the timing and manner of payment. In the absence of proof of a sum credited in the books during the relevant year, the statutory condition for section 68 was not satisfied.

Conclusion: The addition under section 68 was unsustainable and the issue was decided in favour of the assessee.

Final Conclusion: The assessment addition relating to the property transaction could not be sustained on the basis adopted by the Revenue, and the assessee obtained full relief in the appeal.

Ratio Decidendi: Section 68 applies only where a sum is found credited in the assessee's books for the relevant year, and an addition cannot be sustained without establishing that foundational fact.

Issues: Whether the confiscation of the vehicle, redemption fine and penalty were sustainable when the Revenue failed to prove that the goods transported were of foreign origin and the goods were not notified under Section 123 of the Customs Act, 1962.

Analysis: The allegation was that the vehicle was used to transport green peas and yellow peas of foreign origin. No document or reliable evidence was produced to establish that the seized goods were of foreign origin. As the goods were not notified under Section 123 of the Customs Act, 1962, the burden remained on the Revenue to prove foreign origin, and that burden was not discharged. In the absence of proof of smuggled or foreign-origin goods, confiscation of the vehicle could not be sustained, and the consequential redemption fine and penalty also had no legal basis.

Conclusion: The confiscation of the vehicle, the redemption fine and the penalty were unsustainable and were set aside in favour of the appellant.

Issues: Whether the refund application filed before final determination of the eligibility to exemption was premature and not maintainable.

Analysis: The refund claim was filed while the dispute regarding entitlement to the exemption notification was still unsettled. The governing principle applied was that a refund cause of action arises only after the final dispute has been resolved in the assessee's own case. On that footing, the application filed before such final determination could not be entertained merely because the duty had been paid under protest. The subsequent favourable decision on merits did not validate a refund application that was premature when presented.

Conclusion: The refund application was rightly rejected as premature and not maintainable.

Ratio Decidendi: A refund claim under the Customs Act is maintainable only after the underlying dispute giving rise to the claim has attained finality in the assessee's own case; a pre-decisional refund application is premature even if duty was paid under protest.

Issues: Whether the rejection of the application for restoration of the company's name in the register was justified on the grounds that the company was allegedly inactive, had not shown sufficient proof of business operations, and had not made out a case for restoration under the statutory scheme.

Analysis: The application for restoration was examined in the context of the power to strike off and restore a company's name under the Companies Act, 2013. The record included balance sheets and other material relied upon to show that the company had assets and was carrying on business, while the objection from the Registrar proceeded on the basis of non-compliance and alleged absence of statutory filings. The impugned order was found to rest on a misappreciation of the material and a vague conclusion that the company was not operational. The statutory approach to restoration was treated as one that should favour revival where the circumstances and documents support continuation of the company's existence and operations.

Conclusion: The refusal to restore the company's name was set aside and the matter was remitted to the Tribunal for fresh consideration of the restoration application in accordance with law.

Issues: Whether a lessor can recover possession of leased premises occupied by the corporate debtor during moratorium under Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016, even where the lease was terminated before commencement of CIRP.

Analysis: Section 14(1)(d) bars recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. The protection is directed to the existing possession of the corporate debtor on the insolvency commencement date and is reinforced by the treatment of amounts due to affected persons as CIRP costs under Regulation 31(b) of the CIRP Regulations. The premises in question continued to be in the possession of the resolution professional for use by the corporate debtor, and the record showed that the premises were critical to the corporate debtor's operations as a going concern. The prior termination notice did not, by itself, permit restoration of possession to the lessor during moratorium.

Conclusion: The appellant was not entitled to recovery of possession during the moratorium, and the claim for delivery of the leased premises was rejected.

Final Conclusion: The appeal failed on the central question of restoration of possession during CIRP, and the moratorium protection under the insolvency code continued to bar eviction of the corporate debtor from the leased premises.

Ratio Decidendi: During moratorium, Section 14(1)(d) protects the corporate debtor's actual possession or occupation of property, and a lawful pre-CIRP termination of the lease does not by itself permit the lessor to recover such property while the premises remain in the corporate debtor's possession.

Issues: Whether the eviction order could be sustained while the application concerning the lease deed and the appellant's possession remained pending.

Analysis: The pending application centered on the legitimacy of the lease deed and the appellant's claimed possession over the property. Since that application had not yet been decided, a conclusion that the appellant was an encroacher could not be reached conclusively. Eviction during the pendency of that related proceeding would be inconsistent with the unresolved question regarding the appellant's right to occupy the property. The dispute over possession was therefore required to be examined together with the pending application.

Conclusion: The eviction order was set aside and the matter was remanded for consideration along with the pending application, with the appellant's possession to continue until those proceedings are decided.

Issues: (i) Whether the materials on record established a pre-existing dispute sufficient to defeat the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the impugned order rejecting the petition could be sustained in the absence of complete documentary material and a sufficiently reasoned finding.

Issue (i): Whether the materials on record established a pre-existing dispute sufficient to defeat the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The reply to the demand notice and the accompanying record disclosed allegations of supply of sub-standard material, failure of machines, lab testing, and communications said to have been made before the notice under Section 8 of the Insolvency and Bankruptcy Code, 2016. The record also indicated contemporaneous WhatsApp communications and a later debit note relevant to the disputed supplies. On the material placed before the appellate forum, the dispute was not shown to be a mere afterthought.

Conclusion: The existence of a prior dispute was not negatived on the available record.

Issue (ii): Whether the impugned order rejecting the petition could be sustained in the absence of complete documentary material and a sufficiently reasoned finding.

Analysis: The appellate forum found the impugned order cryptic and noted that certain crucial documents referred to by the parties, including the alleged communication and the lab report, were not available on the record. In the absence of those documents, a final adjudication on the controversy was considered unsafe, and the appropriate course was to remit the matter for fresh consideration with opportunity of hearing.

Conclusion: The impugned order was set aside and the matter was remanded for fresh decision.

Final Conclusion: The appeal succeeded, the rejection of the insolvency petition did not stand, and the proceedings were sent back for reconsideration by the adjudicating authority.

Ratio Decidendi: Where the record before the appellate forum is incomplete on material aspects bearing on a Section 9 insolvency dispute, and the impugned order is not supported by a sufficiently reasoned evaluation of the controversy, the proper course is to set aside the order and remit the matter for fresh adjudication.

Issues: (i) Whether the applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the corporate guarantors were barred by limitation or liable to be rejected for want of a stated date of default. (ii) Whether the existence of DRT orders and recovery certificates, together with CIRP proceedings against the principal borrower, was sufficient to sustain the Section 7 applications against the corporate guarantors.

Issue (i): Whether the applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the corporate guarantors were barred by limitation or liable to be rejected for want of a stated date of default.

Analysis: The applications were founded on final adjudication by the DRT and the consequential recovery certificates. Liability arising out of a recovery certificate constitutes a financial debt, and the holder of such certificate is entitled to initiate CIRP within three years from the date of issuance of the recovery certificate. The applications also referred to the DRT orders and the dates on which they were passed, which was sufficient to identify the relevant date of default for insolvency purposes. The omission to set out a separate standalone date of default in the form did not justify rejection when the substance of the application disclosed the debt, default, and the basis of liability.

Conclusion: The applications were not barred by limitation and were not liable to be rejected merely because a separate date of default was not pleaded in express terms.

Issue (ii): Whether the existence of DRT orders and recovery certificates, together with CIRP proceedings against the principal borrower, was sufficient to sustain the Section 7 applications against the corporate guarantors.

Analysis: The principal borrower had already been admitted into CIRP and subsequently liquidation on the same underlying debt. The corporate guarantors were jointly liable under the guarantee arrangements, and the DRT orders had already determined the liability and default. In such circumstances, the Adjudicating Authority's view that there was no material to show debt or default was contrary to the record. The impugned orders proceeded on an incorrect appreciation of the Section 7 application and overlooked the legal effect of the recovery certificates and the established default.

Conclusion: The Section 7 applications were maintainable on the basis of the adjudicated debt and recovery certificates, and the dismissal orders could not be sustained.

Final Conclusion: The dismissal orders were set aside and the insolvency applications were sent back for fresh consideration on their own merits without treating limitation or the absence of a separately pleaded date of default as a ground for rejection.

Ratio Decidendi: A liability crystallised by a recovery certificate is a financial debt, and a Section 7 application based on such certificate is maintainable if filed within three years from the certificate date; the absence of a separately pleaded date of default in the application does not defeat maintainability where the record otherwise discloses the debt and default.

Issues: (i) Whether the findings of professional misconduct recorded against the Resolution Professional and the consequential reference to the insolvency regulator called for interference in appeal.

Analysis: The impugned findings were based on the Resolution Professional's handling of the CIRP, including the manner in which a resolution applicant was treated as an investor and later sought to be brought in as a co-applicant, the alleged failure to ensure compliance with the statutory eligibility requirements for a valid resolution plan, and the fact that disciplinary proceedings had already culminated in a finding of contravention and imposition of penalty. The appellate forum also noted that the foundational order relied upon had already been affirmed by the Supreme Court, and that it would not be appropriate to take a contrary view on the same conduct once the misconduct had been established in disciplinary proceedings.

Conclusion: No interference was warranted with the adverse findings or the consequential reference for investigation. The appeal failed.

Final Conclusion: The appellate challenge to the remarks and findings against the Resolution Professional was rejected, and the dismissal of the appeal left the impugned findings and consequences undisturbed.

Ratio Decidendi: Where alleged professional misconduct is supported by prior binding findings and disciplinary action has already established the contravention, the appellate forum will not interfere with the consequential adverse observations or investigation reference.

Issues: Whether a subcontractor providing exempt works contract services for construction of roads and canals to a main contractor, who is ultimately serving governmental authorities, is denied exemption merely because the consideration was received from the sister concern of the main contractor instead of the service recipient.

Analysis: The admitted facts showed that the appellant was a subcontractor executing canal and road works for the main contractors, whose own services were exempt when supplied to governmental authorities. Entry 12 and entry 29(h) of Notification No. 25/2012-ST extended the exemption to such exempt works contract services and to subcontractors providing works contract services to a main contractor. Section 65B(44) of the Finance Act, 1994 defines service as an activity carried out for another for consideration, and does not require that consideration must necessarily come directly from the service recipient. The record contained a certificate from M/s Jain Irrigation Systems Limited confirming that the work was awarded to the appellant and that its sister concern, M/s ECP Housing (India) Private Limited, was authorised to make payments. No contrary evidence was produced by the Department, and the certificate was accepted as reliable proof of the payment arrangement and the exempt nature of the service.

Conclusion: The appellant remained eligible for exemption notwithstanding receipt of consideration from the sister concern of the main contractor, and the demand was unsustainable.

Issues: (i) Whether statements recorded under Section 14 of the Central Excise Act, 1944 could be relied upon without compliance with Section 9D of the Central Excise Act, 1944 and denial of cross-examination; (ii) Whether the alleged clandestine procurement of raw tobacco and clandestine manufacture and clearance of finished goods were established on the evidence; (iii) Whether penalty under Rule 26 of the Central Excise Rules, 2002 could be imposed in the absence of a finding that the goods were liable to confiscation.

Issue (i): Whether statements recorded under Section 14 of the Central Excise Act, 1944 could be relied upon without compliance with Section 9D of the Central Excise Act, 1944 and denial of cross-examination.

Analysis: Section 9D makes statements recorded during inquiry relevant only when the statutory procedure is followed. The person whose statement is relied upon must be examined as a witness before the adjudicating authority, and an opinion must be formed that the statement should be admitted in evidence in the interests of justice. Only thereafter can cross-examination arise. Since the department did not follow this procedure, the statements recorded under Section 14 could not be treated as admissible evidence for proving the allegations.

Conclusion: The reliance on such statements was impermissible and the challenge on this ground succeeded.

Issue (ii): Whether the alleged clandestine procurement of raw tobacco and clandestine manufacture and clearance of finished goods were established on the evidence.

Analysis: A charge of clandestine removal must rest on tangible and corroborative evidence, not on suspicion, assumptions, or untested statements. The record did not disclose reliable documentary support showing unaccounted procurement, excess production, excess consumption of inputs, or actual unrecorded removals. The alleged check-post discrepancies were explained as data-entry errors, and no excess stock or other independent material was found to substantiate clandestine manufacture or clearance.

Conclusion: The allegations of clandestine procurement and clandestine removal were not proved.

Issue (iii): Whether penalty under Rule 26 of the Central Excise Rules, 2002 could be imposed in the absence of a finding that the goods were liable to confiscation.

Analysis: Rule 26 applies only where a person deals with excisable goods knowing or having reason to believe that they are liable to confiscation. The impugned order did not record a substantive finding that the goods were liable to confiscation, and such liability cannot be inferred only while imposing penalty. Without that foundational finding, the precondition for Rule 26 penalty was absent.

Conclusion: The penalty under Rule 26 was unsustainable.

Final Conclusion: The demand of duty and the penalties were set aside, and the connected appeals were allowed.

Ratio Decidendi: Statements recorded during excise investigation are not admissible to prove the truth of their contents unless the mandatory procedure under Section 9D is followed, and penalty under Rule 26 cannot be sustained without a prior finding that the goods were liable to confiscation.

Issues: (i) Whether the panchnamas drawn at the searched premises were reliable and could be acted upon; (ii) Whether statements recorded under section 14 of the Central Excise Act, 1944 were admissible and could be relied upon without compliance with section 9D of the Central Excise Act, 1944 and without cross-examination; (iii) Whether the appellant was proved to be the manufacturer of the alleged clandestinely manufactured pan masala and gutkha, and whether the demand of duty, interest, penalty and confiscation could survive.

Issue (i): Whether the panchnamas drawn at the searched premises were reliable and could be acted upon.

Analysis: The search witnesses were not inhabitants of the locality in which the premises were situated, and the panchnamas did not record any reason why local respectable inhabitants were not available or unwilling to witness the search. The witnesses were also not examined, though their cross-examination was sought. The search procedure was held not to be in accordance with section 18 of the Central Excise Act, 1944 read with section 100(4) of the Code of Criminal Procedure, 1973. In these circumstances, the panchnamas were found unreliable and excluded from consideration.

Conclusion: The panchnamas were held to be unreliable and incapable of supporting the demand against the assessee.

Issue (ii): Whether statements recorded under section 14 of the Central Excise Act, 1944 were admissible and could be relied upon without compliance with section 9D of the Central Excise Act, 1944 and without cross-examination.

Analysis: The statements were recorded during inquiry, but the persons who made them were not examined before the adjudicating authority as required by section 9D. The statutory procedure under section 9D was treated as mandatory, and the absence of examination and cross-examination rendered those statements inadmissible for proving the truth of their contents. The private diary also could not independently sustain the case once the foundational statements were excluded.

Conclusion: The statements were held to be inadmissible and incapable of being relied upon against the assessee.

Issue (iii): Whether the appellant was proved to be the manufacturer of the alleged clandestinely manufactured pan masala and gutkha, and whether the demand of duty, interest, penalty and confiscation could survive.

Analysis: After excluding the panchnamas and the statements, there remained no reliable evidence establishing that the appellant financed, owned, controlled, or manufactured the goods at the unregistered premises. The material on record did not prove manufacture by the appellant within the meaning of section 2(f) of the Central Excise Act, 1944. Once the foundational evidence failed, the demand of duty, the consequential interest, the penalty, and the confiscation could not be sustained.

Conclusion: The appellant was not proved to be the manufacturer, and the demand, interest, penalty, and confiscation were set aside.

Final Conclusion: The adjudication order could not be sustained on the evidence relied upon, and the appellant succeeded while the departmental challenge failed.

Ratio Decidendi: Where search witnesses are not local inhabitants without recorded justification and the witnesses to relied-upon statements are not examined in accordance with the mandatory statutory procedure, the resulting panchnama and statements lose evidentiary value and cannot form the basis of a demand for duty, interest, penalty, or confiscation.