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2026 (2) TMI 628 - ITAT MUMBAI Income Tax

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Issues: (i) Whether provision for leave encashment computed on actuarial basis is an ascertained liability and allowable deduction despite section 43B(f); (ii) Whether deduction under section 80G is allowable for donations forming part of CSR payments where statutory conditions of section 80G are met; (iii) Whether employees' contribution to Provident Fund is allowable where payment timing is in dispute; (iv) Whether addition of short-term capital gains under section 111A (on alleged under-reporting) is sustainable where same gains have been offered to tax under another head; (v) Whether credit/refund of Dividend Distribution Tax (DDT) and consequential interest under section 115P should be adjudicated though not addressed in assessment and first appellate orders; (vi) Whether short grant of TDS credit and consequential interest/refund computations require verification and correction by the Assessing Officer.

Issue (i): Whether provision for leave encashment computed on actuarial basis is an ascertained liability and allowable deduction despite section 43B(f).

Analysis: The Tribunal examined Supreme Court authority establishing that where a business liability has definitely arisen and is capable of reasonable estimation, it is an accrued liability allowable as deduction. The Bench considered co-ordinate Bench decisions in the assessee's group applying that principle to actuarial leave encashment provisions and distinguished the reliance on Exide Industries as not displacing the Bharat Earth Movers ratio.

Conclusion: In favour of the Assessee. The disallowance of Rs. 57,63,634/- is deleted and deduction is allowed.

Issue (ii): Whether deduction under section 80G is allowable for donations forming part of CSR payments where statutory conditions of section 80G are met.

Analysis: The Tribunal applied a co-ordinate Bench decision of the assessee on identical facts, held Explanation 2 to section 37(1) only precludes CSR as business expenditure but does not bar Chapter VI-A deductions, and noted specific statutory exclusions within section 80G are the only limits.

Conclusion: In favour of the Assessee. Deduction of Rs. 92,31,072/- under section 80G is allowed.

Issue (iii): Whether employees' contribution to Provident Fund is allowable where payment timing is disputed.

Analysis: The Tribunal applied binding authority and reviewed facts year-wise. For earlier years the assessee conceded or was bound by Supreme Court precedent adverse to the assessee; for A.Y. 2022-23 the Tribunal found documentary proof that payment was made before statutory due date and that the Assessing Officer improperly adopted a 143(1) intimation without adjudicating the evidence in 143(3).

Conclusion: Mixed. For relevant years where law or concession against the assessee applied, the ground is dismissed; for A.Y. 2022-23 the disallowance of Rs. 54,93,734/- is deleted (in favour of the Assessee).

Issue (iv): Whether addition of short-term capital gains under section 111A is sustainable where identical gains were offered to tax under another head.

Analysis: The Tribunal held that an admission is not conclusive and double taxation must be avoided; it found the Assessing Officer relied on an inadvertent admission without holistic verification and that the matter required reverification of returns, computations and supporting records.

Conclusion: In favour of the Assessee. The addition of Rs. 13,46,813/- is set aside and the matter is restored to the Assessing Officer for verification and deletion if gains were already taxed as longterm capital gains.

Issue (v): Whether credit/refund of Dividend Distribution Tax (DDT) and consequential interest under section 115P should be adjudicated though not addressed below.

Analysis: The Tribunal found the issues arise from assessment records, supporting documents (Tax Audit Report, Form 26AS) were on file, and the lower authorities failed to adjudicate them; precedent permits admission of additional grounds where facts are on record and no fresh evidence is required.

Conclusion: In favour of the Assessee. The Tribunal admitted the additional grounds and restored the matter to the Assessing Officer to verify payment of DDT and, if in order, grant credit of Rs. 10,17,96,378/-, refund of Rs. 81,10,486/-, and recompute consequent interest under section 115P.

Issue (vi): Whether short grant of TDS credit and consequential interest/refund computations require verification and correction by the Assessing Officer.

Analysis: The Tribunal observed these issues are factual, require reconciliation of Form 26AS/TDS certificates and recomputation of interest/refund, and that lower authorities had not undertaken detailed verification.

Conclusion: In favour of the Assessee. Relevant TDS credit and interest/refund issues are restored to the Assessing Officer for verification and correction (allowed for statistical purposes where indicated).

Final Conclusion: The Tribunal allowed substantial relief to the assessee on key substantive issues (allowing the leave encashment provision and section 80G deduction, deleting specified additions, and directing factual verification and grant of tax credits/refunds), while some grounds were dismissed or left for departmental verification; overall the appeals are partly allowed.

Ratio Decidendi: Where a liability has definitely accrued and is reasonably quantifiable (including actuarial provisions for leave encashment), it is an ascertained liability allowable as deduction despite timing provisions; procedural adoption of a section 143(1) intimation cannot preclude adjudication on merits in a section 143(3) assessment when documentary evidence on payment timing is on record, and admissions do not override objective verification that would otherwise prevent double taxation.

Tax treatment of actuarial leave encashment and CSR donations upheld, with refunds and credits remitted for verification.
An ascertained accrued liability arises where a business obligation is definite and reasonably quantifiable, so actuarial provisions for leave encashment are deductible notwithstanding timing rules; deduction disallowed earlier is restored. Donations classified as CSR do not lose Chapter VI-A relief if they meet statutory conditions for charitable donations, therefore section 80G relief is allowable. Employee provident fund contributions paid before the statutory due date merit deduction when documentary proof exists, though earlier years remain bound by adverse precedent. Additions for short term capital gains cannot stand where identical gains were taxed under another head and require reverification to avoid double taxation. TDS credit, DDT credit/refund and consequential interest are remitted for AO verification and correction.

Disallowance of employees’ contribution to provident fund - HELD THAT:- In view of the binding decision of Checkmate Services (P) Ltd [2022 (10) TMI 617 - SUPREME COURT (LB)] we find no infirmity in the action of the Assessing Officer in disallowing the employees’ contribution to provident fund and in the order of the CIT(A) in confirming the same. Decided against assessee. Disallowance of provision for leave encashment - assessee explained that the provision was made on actuarial valuation in accordance with AS-15 and under the mercantile system of accounting, the AO held that the liability had not crystallised during the year - As mere provision in the books is not allowable under the Act, the Assessing Officer disallowed the said amount and added it to the total income of the assessee - HELD THAT:- We find that the issue relating to allowability of provision for leave encashment made on actuarial basis is no longer res integra. As decided in Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT] has authoritatively laid down that where a business liability has definitely arisen in the accounting year, the same is allowable as deduction, notwithstanding that the liability is to be discharged at a future date. In the present case, the co-ordinate Benches in the assessee’s own group cases, after considering Bharat Earth Movers have consistently held that provision for leave encashment computed on actuarial basis represents an ascertained liability and is allowable as deduction. Decided against revenue. Non-granting of deduction claimed u/s 80G - as observed that the assessee had incurred CSR expenditure which was disallowed while computing business income - HELD THAT:- Section 80G itself contains specific exclusions in respect of certain CSR-related payments under sub-clauses (iiihk) and (iiihl) and that, save and except for those exclusions, there is no legislative embargo on allowing deduction under section 80G merely because the payment forms part of CSR obligation. It has also been held that to deny deduction under section 80G in such circumstances would result in double disallowance, which is neither contemplated by the statute nor intended by the Legislature. It has further been laid down therein that the character of a payment as a “donation” does not stand negated merely because the payment is made pursuant to a statutory mandate, so long as the payment is made without any material return or quid pro quo. In the present case, the Revenue has not alleged that the assessee made the donations with an intention to obtain any tangible benefit in return. The genuineness of the donations, the identity of the donees and the fact that the payments were made through banking channels are also not in dispute. Respectfully following the ratio laid down in Aditya Birla Sun Life AMC Private Limited [2025 (7) TMI 1974 - ITAT MUMBAI] and we hold that the assessee is entitled to deduction under section 80G of the Act in respect of the impugned amount. Non-granting of credit or refund of Dividend Distribution Tax (DDT) - levy of interest u/s 115P - We find merit in the submission of the learned Authorised Representative that the issue requires factual verification. In the interest of justice, we deem it appropriate to restore this issue to the file of the Assessing Officer with a direction to verify the claim of payment of DDT on the basis of the Tax Audit Report, Form 26AS and other relevant records. Disallowance u/s 40(a) - AO noticed that the assessee had created a year-end provision on ad hoc basis in respect of certain expenses and had claimed deduction thereof - HELD THAT:- We find from the record that the disallowance under section 40(a) was originally made in A.Y. 2017–18 on a protective basis in respect of a provision which stood reversed in the subsequent year. In A.Y. 2018–19, the assessee has reduced the corresponding amount from its income on account of such reversal. We further find that an identical issue has been accepted in principle by the Co-ordinate Bench in the assessee’s own case [2025 (7) TMI 1974 - ITAT MUMBAI] - Once the provision itself stands reversed and the income correspondingly reduced, there remains no justification for sustaining the disallowance in the year under consideration. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and direct the Assessing Officer to allow the deduction. This ground of appeal is allowed. Adjustment made under section 143(1) - Addition as employees’ contribution was deposited beyond the due date - HELD THAT:- The scope of section 143(3) is materially different from that of section 143(1). An intimation u/s 143(1) is a summary processing based on apparent adjustments, whereas an assessment u/s 143(3) is a quasi-judicial determination of total income after consideration of facts, evidence, and submissions. AO, therefore, cannot abdicate his statutory obligation u/s 143(3) by merely adopting the figures determined u/s 143(1), particularly when the assessee has demonstrated, with evidence, that the very basis of the adjustment is factually incorrect. In the present case, the disallowance rests entirely on the premise that the employees’ contribution was deposited beyond the due date. The assessee has categorically shown that the contribution was deposited on July 04, 2021, which is prior to the due date of July 15, 2021. This factual position has not been controverted by the lower authorities. Once the payment is made within the due date under the relevant welfare legislation, no disallowance under section 36(1)(va) of the Act is warranted. Pending application under section 154, it is well settled that the availability or invocation of rectification proceedings does not curtail the powers or obligations of the Assessing Officer while framing an assessment under section 143(3), nor does it bar the appellate authorities from adjudicating an issue on merits when it arises in appeal. The pendency of a rectification application merely provides an additional statutory remedy to correct an apparent mistake; it cannot be used as a ground to perpetuate an otherwise unsustainable addition or to deny adjudication on merits in assessment or appellate proceedings. Thus, the lower authorities erred in sustaining the disallowance merely on technical considerations relating to the stage at which the adjustment was made, without adjudicating the issue on merits. The approach adopted defeats the substantive rights of the assessee and is not in consonance with the scheme of assessment under the Act. Addition on account of Short Term Capital Gains under section 111A - Addition made by the Assessing Officer solely on the basis of an inadvertent admission made by the assessee during the course of assessment proceedings, without undertaking a holistic verification of the return of income, computation of capital gains, and the supporting records already available on file. It is well settled that an admission, though relevant, is not conclusive and cannot override the correct factual and legal position emerging from the record. Taxation has to be in accordance with law and on real income, and not merely on the basis of an erroneous or mistaken admission. We further find merit in the assessee’s contention that sustaining the impugned addition would lead to double taxation of the same capital gains, which is impermissible in law. CIT(A), instead of examining the issue on merits and verifying whether the income in question had already been offered to tax under section 112A of the Act, rejected the assessee’s claim primarily on procedural grounds and on the premise that the assessee had admitted the mistake during assessment proceedings. Such an approach, in our considered view, is not sustainable. On the facts of the present case, once it is demonstrated that the gains arising from the transfer of 5,00,000 units had already been offered to tax as long-term capital gains, no further addition could have been made by treating the same amount again as short-term capital gains under section 111A of the Act. The impugned addition, therefore, lacks factual foundation. We restore the matter to the file of the Assessing Officer with a direction to verify the assessee’s claim, after examining the return of income, computation of capital gains, and the supporting records, and to delete the addition made under section 111A of the Act, if it is found that the said income has already been offered to tax as long-term capital gains. Short grant of TDS credit - We find that the issue relating to grant of TDS credit is purely factual in nature and requires verification of Form 26AS, TDS certificates, and reconciliation with the income offered to tax. The lower authorities have not undertaken such verification in detail - the matter deserves to be restored to the file of the Assessing Officer for proper verification.

2026 (2) TMI 611 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH: NEW DELHI (LB) IBC

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Issues: (i) Whether an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 is maintainable against an order passed under Section 95/100 of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the Impugned Order dated 09.12.2024 admitting the Company Petition under Section 95/100 IBC is vitiated for violation of principles of natural justice on account of the Appellant's affidavit in reply not being taken on record; (iii) Whether the Appellant's substantive grounds (pre-existing dispute, defective invocation of guarantee, insufficient stamping, non-provision of complete statement of accounts, creditor-induced default) justify setting aside the Impugned Order and rejecting the petition under Section 95/100 IBC.

Issue (i): Whether the appeal under Section 61 IBC is maintainable against an order under Section 95/100 IBC.

Analysis: The Tribunal examined Section 60(1) and Section 61(1) of the Insolvency and Bankruptcy Code, 2016 together to determine the scope of appeal. Section 60(1) designates the Adjudicating Authority for corporate persons including personal guarantors; Section 61(1) provides the right of appeal to the Appellate Tribunal against orders of the Adjudicating Authority under that part. The sequence and purpose of these provisions were considered to assess whether personal guarantors are entitled to appeal under Section 61.

Conclusion: The appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 is maintainable in respect of orders passed under Sections 95 to 100 concerning personal guarantors; the Respondent's objection to maintainability is rejected.

Issue (ii): Whether the Impugned Order is vitiated for violation of natural justice because the Appellant's affidavit in reply (e-filed on 01.03.2024) was not formally taken on record by the Adjudicating Authority.

Analysis: The Tribunal reviewed the filing record, the NCLT Rules definition of 'filed' (Rule 2(14) of the National Company Law Tribunal Rules, 2016), the listing history, the report of the Resolution Professional under Section 99, and the fact that the Appellant had been heard in final arguments. The Appellate Tribunal noted that the affidavit was e-filed though not formally brought on record at the Adjudicating Authority; nonetheless the Appellant participated in hearings and argued on the basis of the reply. The Tribunal considered whether non-recording of formal filing amounted to denial of hearing and whether the grounds raised were in substance not considered.

Conclusion: There was no violation of the principles of natural justice sufficient to set aside the Impugned Order. The Appellant had the opportunity to be heard, the Resolution Professional's report recorded the Appellant's contentions, and the Appellate Tribunal itself considered the reply. The procedural omission of formally taking the e-filed affidavit on record does not vitiate the Impugned Order.

Issue (iii): Whether the substantive defenses raised by the Appellant (pre-existing dispute, defective invocation of guarantee, insufficient stamping, non-provision of complete account statements, creditor-induced default) preclude admission of the application under Section 95/100 IBC.

Analysis: The Tribunal examined the nature of Section 95/Section 7 admission jurisprudence and precedent (including the distinction between operational creditor and financial creditor regimes), the report of the Resolution Professional under Section 99, the evidence of invocation and demand (recall notice and demand notice), and the summary nature of proceedings under the Code. The Tribunal treated allegations of pre-existing disputes, stamp insufficiency and account completeness as matters that did not, on the material before the Adjudicating Authority and the RP's report, demonstrate absence of debt or default. The Tribunal observed that proceedings under Sections 95-100 are summary and focus on existence of debt and default; detailed documentary or contested evidentiary disputes were not shown to be decisive to defeat admission.

Conclusion: The Appellant's substantive grounds do not establish that debt and default are absent or that the petition under Section 95 should have been rejected. The contentions raised are insufficient to set aside the Impugned Order admitting the petition and initiating the insolvency resolution process against the Appellant.

Final Conclusion: The Appellate Tribunal finds no merit in the appeal: the appeal is maintainable, there is no fatal breach of natural justice in the procedural record as to vitiate the Impugned Order, and the substantive defenses do not negate debt and default on the material before the Adjudicating Authority; hence the Impugned Order is upheld and the appeal is dismissed.

Ratio Decidendi: Where the Adjudicating Authority and the Resolution Professional have, on the material before them, recorded existence of debt and default and the debtor/personal guarantor has had an opportunity to participate, procedural defects in formally placing an e-filed reply on record do not automatically vitiate admission under Sections 95-100 of the Insolvency and Bankruptcy Code, 2016; in summary admission proceedings, pre-existing commercial disputes, insufficiency of stamp or other documentary contests ordinarily do not prevent admission unless they demonstrate absence of a due and payable debt on the record before the Adjudicating Authority.

Personal guarantor insolvency proceedings: appeal maintainable; procedural e filing omission not vitiating admission; substantive defenses insufficient
Orders admitting petitions under the insolvency regime against personal guarantors are open to challenge by way of appeal under the appellate provision, and maintainability is affirmed. A procedural omission in formally placing an e filed affidavit on record does not, where the guarantor had opportunity to participate and the resolution professional recorded contentions, constitute a fatal breach of natural justice and will not void admission. In summary admission proceedings the tribunal will uphold admission when the material before the adjudicating authority and the resolution professional establishes existence of debt and default; asserted documentary or commercial disputes did not negate debt on the record.

Maintainability of appeal u/s 61 read with Section 60 - Initiation of Section 7 petition against the Corporate Debtor - summary adjudication u/s 100 - relevance of pre-existing dispute to admission under Part III (Section 95) - requirement of proof of debt and default for admission - treatment of insufficiently stamped instrument in summary IBC proceedings - role of the resolution professional's report u/s 99 - violation of the principles of natural justice - HELD THAT:- There was no violation of the principles of natural justice under Section 95 to Section 100 of the IBC as the Appellant-personal guarantor got the opportunity to participate in the process of the examination of the application by the RP under Section 99 of the IBC. The RP had asked for information/explanations from the debtor before filing the report and the information was provided by the personal guarantor and basis that the resolution professional had filed the report before the adjudicating authority. Till this stage the debtor had the opportunity to provide information/explanation to substantiate their contentions. We find that as per Section 100 of the Code strict timeline has been prescribed for the Adjudicating Authority to either admit or reject the application bases the report under Section 99 within 14 days. But in this case the matter lingered on for very long time as noted by us herein. The reply was only e-filed and never physically filed or never brought to the notice of the Adjudicating authority that it has been e-filed. In any case the personal guarantor was heard by the Adjudicating Authority and basis that only the order has been passed. The noting of the Adjudicating Authority in the impugned order to the extent that Appellant’s reply has not been filed doesn’t give any ground for the Appellant to claim that natural justice has been denied to him, particularly in the background that he was personally heard, all the grounds raised by him as personal guarantor are same as that of the Corporate Debtor and furthermore the same reply had been noted by us at Appellate stage and we don’t find merit in that. We find these are dilatory tactics and should be discouraged under IBC which provides strict timelines at all stages. Thus, we find that the appellant has been unduly delaying the proceedings and the Adjudicating Authority was well within rights to not treat the reply which was not properly filed. Initiation of Section 7 petition against the Corporate Debtor - claims that the application under Section 7 was not maintainable in view of the pre-existing dispute. - The Appellant has claimed that there is a commercial suit which is filed by the Corporate Debtor against R1-SBI which seeks alleged damages suffered by the Corporate Debtor. We also note that the matter relating to existence or non-existence of a pre-existing dispute is irrelevant for the purpose of admission of an Application under Section 7 or Section 95 of the Code and therefore such an argument is unsustainable and that too in Section 95 proceedings. Furthermore, during the hearing, it was informed to us by the Appellant that the suit in Hon’ble High Court of Bombay has since been dismissed. It was also brought to our notice this suit was filed subsequent to the initiation of Section 95 proceedings against the Appellant. Thus, the ground raised by the Appellant relating to a pending dispute is infructuous. Insufficient stamp duty on the guarantee deed - We note that the proceedings before· the Adjudicating Authority are summary in nature and the IBC, 2016 being a complete code in itself the provisions of the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872 do not strictly apply to the proceedings before the Adjudicating Authority while adjudicating an application u/s 95 IBC, 2016. Further, unlike a recovery forum where the court before decreeing a suit or a proceeding against the debtor in favour of the creditor has to examine the admissibility of documents is not requirement as such and the proceedings are limited to an aspect of ascertaining default on the part of the Personal Guarantor. We thus find that the ground relating to insufficient stamp duty on the guarantee deed is another frivolous ground which is untenable and is rejected. Requirement of proof of debt and default for admission - We find that the execution of a guarantee deed, disbursement of amounts and debt is admitted by the Appellant and the R1-SBI had issued a recall notice and thereafter issued a demand notice and thus, the contention of the Personal Guarantor that the amounts were payable on demand only and no demand was raised is untenable and we reject that argument. Appellant has also argued that the Respondent failed to specify the facility under which the Respondent has called upon the Appellant to pay the said amount, however it is clear from recall notice dated 31.10.2019 under which the Respondent No. 1 has called upon the Corporate Debtor to pay an amount Rs.140,73,58,277.59/-which was the outstanding amount as on 30.10.2019 and further invoking the guarantee deed for further payment of interest amounting to Rs. 85,86,61,167.45/- under Working Capital Credit Facilities within 7 days of receipt. The recall notice further stated that the total dues payable by the Corporate Debtor is Rs. 226,60,19,445/- which is the sum total of interest plus outstanding amount as on 30.10.2019. Thus, on the grounds that there was defect in the recall notice and initial demand notice, we find them to be untenable at this stage, particularly in the background that it was never raised at the initial stage when the appellant had the opportunity to provide information to the RP. Thus, we find that we conclude that the grounds raised by the Appellant do not justify to grant a relief for setting aside the order dated 09.12.2024 passed by the Adjudicating Authority. As we have gone through the affidavit and all the grounds raised by the Appellant have been noted and evaluated by us, we therefore, cannot allow NCLT to hear it afresh. Under these conditions, there is no justification left for the matter to be remanded back to the Adjudicating Authority. Orders Accordingly, the Appeal is dismissed.

2026 (2) TMI 610 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI (LB) IBC

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Issues: (i) Whether a Resolution Applicant who is an Operational Creditor and the sole member of the Committee of Creditors (holding 100% voting rights) can vote to approve its own resolution plan; (ii) Whether a single-member Committee of Creditors that is also a competing Resolution Applicant can fairly, objectively and independently assess and reject a competing resolution plan, particularly where a judicial direction required fresh consideration.

Issue (i): Whether an Operational Creditor, who is not a Financial Creditor, acting as a Resolution Applicant and sole voting member of the CoC can validly vote to approve its own resolution plan.

Analysis: Section 30(5) of the Insolvency and Bankruptcy Code, 2016 contains a proviso that a resolution applicant shall not have a right to vote at the CoC meeting unless such resolution applicant is also a financial creditor. The statutory scheme thus separates the role of a resolution applicant from the role of a voting decision-maker to prevent influence and conflict. In the factual matrix where the sole CoC member was an Operational Creditor who also submitted and approved its own plan, the statutory prohibition in Section 30(5) was breached. Such voting and approval by an Operational Creditor who is not a Financial Creditor directly defeats the purpose of the proviso and creates a material irregularity in the decision-making process.

Conclusion: Issue (i) answered in the negative. Approval of its own resolution plan by an Operational Creditor who is not a Financial Creditor and who held 100% voting rights in the CoC is void-ab-initio and amounts to a material irregularity.

Issue (ii): Whether the single-member CoC that was also a competing Resolution Applicant conducted a fair, objective and independent assessment of the competing resolution plans when the Adjudicating Authority had directed fresh consideration.

Analysis: The Adjudicating Authority directed the CoC to freshly consider the appellant's plan keeping relevant parameters including total plan value in view. The minutes of the 6th CoC meeting, however, show absence of an evaluation matrix, lack of comparative financial analysis, failure to invite the appellant to the meeting, non-sharing of relevant material (including PUFE information), and predetermined rejection based on internal discussion. The stark disparity in plan values (appellant's plan being significantly higher) heightened the obligation on the CoC and RP to undertake a structured, transparent comparative evaluation. The single-member CoC's rejection without meaningful evaluation, and the RP's failure to ensure compliance with Regulation 39 and the AA direction, constitute procedural infirmity, denial of a meaningful opportunity, and violation of principles of natural justice.

Conclusion: Issue (ii) answered against the CoC and RP. The decision-making process was vitiated by material irregularity, conflict of interest and denial of natural justice; the CoC's approval cannot be sustained.

Final Conclusion: The impugned orders approving the resolution plan of the sole CoC member and rejecting the appellant's plan are set aside due to material irregularity and violation of Section 30(5) and principles of natural justice; the Corporate Insolvency Resolution Process cannot be continued within the present framework and the Corporate Debtor is ordered to be liquidated.

Ratio Decidendi: Section 30(5) of the Insolvency and Bankruptcy Code, 2016 prohibits a resolution applicant who is not a financial creditor from voting at the CoC meeting; where a sole CoC member who is an operational creditor votes to approve its own plan and the process lacks a structured, transparent comparative evaluation and compliance with judicial directions, the approval is void-ab-initio and constitutes a material irregularity justifying judicial intervention including setting aside the approval.

Resolution applicant as operational creditor voting on its own plan found void; approval set aside and liquidation ordered.
Section 30(5) bars a resolution applicant who is not a financial creditor from voting at the CoC; where a sole-member CoC that was an operational creditor voted to approve its own plan, that approval breached the proviso and is void ab initio for material irregularity. Separately, a single-member CoC that also acted as a competing resolution applicant failed to conduct a structured, comparative evaluation, ignored a judicial direction and withheld material information, producing procedural infirmity and denial of natural justice; that rejection of a competing plan and the approval process are set aside and the corporate debtor ordered to be liquidated.

Operational Creditor - Corporate Insolvency Resolution Process - Conflict of interest - conduct of the Committee of Creditors - Section 30(5) of the Insolvency and Bankruptcy Code - commercial wisdom of the Committee of Creditors - maxim nemo judex in causa sua - material irregularity vitiating approval - principles of natural justice - maximisation of value under the Insolvency and Bankruptcy Code - role and duties of the Resolution Professional as institutional safeguard - HELD THAT:- In the present case the Resolution Applicant is an Operational Creditor and not a Financial Creditor. In such a situation it is clearly barred, from voting on its own Resolution Plan, submitted for resolution of Corporate Debtor. Such voting and approval of its own Resolution Plan by the Operational Creditor is in the face of express bar provided in Section 30(5) of the Code. The question of commercial wisdom of Committee of Creditors is meaningless in this situation, as the resolution plan approval by the CoC comprising of Resolution Applicant, who is also an OC is in express violation of Section 30(5) of the Code, and such approval of CoC is void-ab-initio. Thus, we hold that the conduct of the Committee of Creditors in the present case is in clear violation of Section 30(5) of the Insolvency and Bankruptcy Code. The said provision expressly prohibits the Resolution Applicant, who is not a Financial Creditor from voting on its resolution plan in the meeting of Committee of Creditors. In the present case, the sole Operational Creditor acted as a Resolution Applicant and, at the same time, exercised 100% voting rights to approve its own Resolution Plan. Such conduct is in face of the statutory bar provided by Section 30(5) of Code. Permitting a Resolution Applicant, who is not a Financial Creditor, to effectively vote on and approve its own Resolution Plan amounts to a material irregularity in the decision-making process. Accordingly, Issue No. 1 is answered in negative. We note from the minutes of the 6th meeting of the Committee of Creditors that the Resolution Professional placed on record the stark difference between the competing Resolution Plans. The Resolution Professional specifically informed the CoC that the Resolution Plan submitted by Respondent No.1 (Mahaveer Medicare) was of a value of Rs. 1 Lakh, whereas the Resolution Plan submitted by the Appellant, M/s Pragiti Constructions, was of a value of Rs. 20 Lakhs, out of which Rs. 10 Lakhs was proposed to be distributed to the operational creditor. The Resolution Professional further pointed out that the offer of Rs. 20 Lakhs was only an initial offer and that, if the Appellant’s Resolution Plan was taken up for review and competition, the value could be increased. It was also suggested by the Resolution Professional that consideration of the Appellant’s Resolution Plan would create a healthy competitive process. The maxim nemo judex in causa sua, that no person can be a judge in his own case, is not a mere technical rule but a foundational principle intended to preserve the integrity of adjudicatory and decision-making processes. When the same entity proposes a Resolution Plan, evaluates competing plans, rejects them, and finally approves its own plan, the process ceases to be fair, impartial, or credible. Even if actual mala fides are not expressly proved, the existence of a real likelihood of bias is sufficient to vitiate the process. Justice must not only be done but must also appear to have been done. We are satisfied that the rejection of the Appellant’s Resolution Plan is vitiated by material irregularity, violation of principles of natural justice, and non-compliance with binding judicial directions. Accordingly, we hold that the decision of CoC which comprised of a Resolution Applicant who was also an Operational Creditor and had 100% voting rights in CoC on the resolution plan of the appellant was vitiated by material irregularity. A single member of CoC who is also a Resolution Applicant would always have conflict of interest vis-a-vis another Resolution Applicant and his decision in such cases would be in violation of principles of natural justice. The second issue is decided accordingly. The Resolution Professional plays a pivotal role in proceedings under the Code. It is expected that RP would conduct the CIRP proceedings in accordance with the provisions of the Code including the Rules and Regulations thereunder. It was the duty of RP to highlight the provisions of Section 30(5) to the notice of Operational Creditor and the Adjudicating Authority. Had it been done on time, this proceeding would not have wasted so much of time and resources of NCLT and this Appellate Tribunal. A RP is supposed to be well versed in the relevant legal provisions of the Code. His failure to take note of Section 30(5) of the Code is viewed seriously. The matter is brought to the notice of IBBI for appropriate action against the RP. IBBI is further directed to take note of peculiar legal situation of the present case and initiate necessary amendments to the Insolvency and Bankruptcy Code. Adjudicating Authority correctly referred the resolution plan of appellant to the CoC vide its direction dated 10.09.2024, but it did not address the concerns arising from non-compliance with its directions i.e. whether the RP and CoC while evaluating the resolution plan of the appellant abided by the principles of natural justice and provisions of the Code. In our considered view, where the statutory framework is silent and a clear conflict of interest emerges, both the Resolution Professional and the Adjudicating Authority are required to act as institutional safeguards to prevent abuse of the process. Their failure to do so in the present case has materially affected the resolution process. We note that peculiar situation in the present case reflects a legislative vacuum, wherein the IBC which is a complete Code and provides legal mechanism for CIRP in all types of cases cannot throw light about the manner in which this type of case is to be resolved. As we have already held that the resolution plan suffers from material irregularity and is in express violation of Section 30(5) of the Code. The resolution of the Corporate Debtor is not possible within the current legislative framework and liquidation is the only solution in this case.

2026 (2) TMI 609 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH: NEW DELHI (LB) IBC

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Issues: (i) whether the section 7 application was within limitation and whether the settlement agreement amounted to acknowledgment of liability; (ii) whether the respondent fell within the expression financial service provider so as to bar section 7 proceedings; (iii) whether the loan claim stood subsumed in the settlement arrangement or otherwise failed to establish debt and default for admission under the Code.

Issue (i): whether the section 7 application was within limitation and whether the settlement agreement amounted to acknowledgment of liability.

Analysis: The period of three years was computed from the recall notice dated 24 June 2016, and the petition filed in June 2019 was treated as within time. The settlement agreement dated 1 July 2017 also contained an acknowledgment of the outstanding liability, which supported the plea that limitation stood saved. The reasoning proceeded on the basis that acknowledgment under the Limitation Act operated to preserve the claim.

Conclusion: The limitation objection was rejected, and the debt was treated as being within time.

Issue (ii): whether the respondent fell within the expression financial service provider so as to bar section 7 proceedings.

Analysis: The respondent was found to have been an NBFC and a financial service provider at the time of the underlying transactions. On that footing, proceedings under section 7 were held to be impermissible against it. The characterization of the respondent at the relevant point of time was treated as decisive for maintainability.

Conclusion: The respondent was held to be a financial service provider, and section 7 proceedings were held not maintainable against it.

Issue (iii): whether the loan claim stood subsumed in the settlement arrangement or otherwise failed to establish debt and default for admission under the Code.

Analysis: The loan transaction, the assignment, the recall notice, and the settlement agreement were viewed together as a complicated and intertwined commercial arrangement. The settlement was treated as an all-encompassing arrangement connected with wider disputes and recoveries, rather than a clean standalone case of debt and default. The pledge and other contractual rights were also held not to alter the result in favour of admission.

Conclusion: Debt and default were not treated as clearly established for admission under section 7.

Final Conclusion: The appeal failed because the insolvency petition was found not maintainable against the respondent and, independently, the materials did not warrant admission of the section 7 petition on the facts recorded.

Ratio Decidendi: Where the corporate debtor is found to be a financial service provider at the relevant time, a section 7 petition is not maintainable against it, and a settlement embedded in a complex transaction will not justify admission unless debt and default are clearly and independently established.

Limitation, acknowledgment, and financial service provider status shaped maintainability of section 7 insolvency proceedings under the Code
A section 7 application was discussed on limitation, acknowledgment of liability, financial service provider status, and the effect of a settlement arrangement on debt and default. The filing was treated as within three years from the recall notice, and the settlement agreement was taken as an acknowledgment preserving limitation. However, the respondent was characterised as an NBFC and financial service provider at the relevant time, making section 7 proceedings not maintainable against it. The loan, assignment, recall notice, and settlement were also viewed as part of an intertwined commercial arrangement, so debt and default were not clearly established for admission under the Code.

Maintainability of Section 7 petition against a financial service provider - limitation under Article 137 of the Limitation Act in Section 7 proceedings - relinquishment of rights by enforcement of security versus preservation of claim - effect of a settlement agreement on existence and enforceability of an antecedent financial debt - relevance of a 'deep and complex' dispute in a Section 7 petition - HELD THAT:- It is the case of the Appellant that the settlement agreement dated 01.07.2017 does not extinguish or waive the original debt and at best is a repayment arrangement thereby implying that the breach of settlement agreement revives the original cause of action. The Appellant also relies on clause 3.7 in the settlement agreement, which imposes a continuing obligation to repay the outstanding debt. It claims that since no payments have been made either under the loan agreement or under the settlement agreement despite express acknowledgment of liability obligation. Basis the provisions under the Code that “(5) Where the Adjudicating Authority is satisfied that--(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application” and settled judicial precedents, we could conclude that this is a fit case of admission of debt and default. To add strength to the arguments of the Appellant we find that in the related case under the same settlement agreement, on the petition of the FC against Perpetual, which is also one of the parties in the settlement agreement, NCLT Mumbai Bench passed admission order in Religare Finvest Limited against perpetual for defaulting. Adjudicating Authority has gone into the background and finds that loan claimed by the Financial Creditor is subsumed into the settlement agreement dated 01.07.2017 and it is not a stand-alone liability. The terms of settlement are all encompassing on its various terms. Therefore, the question of debt and default in a subsisting agreement which is alive even as of today would not partake the character of debt. It has come to a conclusion that it is a recovery process agreement, the question of default as pleaded by the petitioner does not arise. There is a fundamental question of the maintainability of the Section 7 petition. The Corporate Debtor had also provided a detailed account of the genesis of the debt, which is available on the material placed on record and at the relevant time its status as NBFC. Briefly speaking it was pointed out by the Respondent that the Financial Creditor had unconditionally and irrecoverably sold, transferred and assigned the loans granted to certain borrowers to the Respondent - SSCPL and Perpetual. Respondent claims that the loans granted to certain borrowers were sold to SSCPL as per the settlement agreement dated 01.07.2017. It also claims that the loans sold out turned out to be the related party’s transaction and a funds siphoning scheme adopted by the Financial Creditor. Upon unearthing the alleged fraud, multiple litigations ensued between the parties and which culminated into a suit before Hon’ble Bombay High Court Eleos Finvestia Acquisition Trust and in the above suit a settlement was arrived at and hence settlement agreement dated 01.07.2017 was entered into and enforced. We find that the petition itself is not maintainable as the Respondent, being a NBFC, is a Financial Service Provider (FSP) and the impugned transactions had taken place when the Respondent was NBFC. Moreover, there are deep and complicated transactions which are disputed. Furthermore, both parties willingly entered into such transactions, despite being fully aware that it is for purchase of share of ABG Shipyards. Furthermore, Respondent was being controlled by FC and it willingly entered into such transactions. We find both parties were colluding with each other and therefore we are not convinced to allow the admission of Section 7 petition. We also note that Section 7 petition against cannot be filed against Corporate Debtor being a Financial Service Provider. Accordingly, the appeal filed by FC is not maintainable and is liable to be dismissed. Apart from non- maintainability there are other counts also – noted by us herein earlier, which don’t allow admission of Section 7 petition. Thus, we find sufficient grounds to dismiss the Appeal and accordingly the Appeal is dismissed.

2026 (2) TMI 595 - CALCUTTA HIGH COURT GST

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Provisional attachment under Section 83 CGST loses effect after one year; bank must defreeze accounts.
Provisional attachment under Section 83, read with the one year ceiling in Section 83(2), ceases by efflux of time and becomes unenforceable; the court relied on higher authority confirming that expiry of the statutory one year period terminates the provisional attachment, so the attachment dated beyond one year cannot continue. Consequent to cessation, neither the tax authority nor the taxpayer's bank may lawfully continue freezing the taxpayer's property or bank accounts and the bank is obliged to defreeze funds. Writ petitions were partly allowed to that limited extent.

2026 (2) TMI 594 - DELHI HIGH COURT GST

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Quashing of ex parte demand order: conditional deposit ordered, fresh personal hearing and reasoned decision required thereafter.
Quashing of an ex parte demand order was contested on grounds of breach of natural justice and limitation; the court accepted that a reply had been filed and that failure to attend personal hearing arose from adviser and staff defaults, and noted the petitioner's limitation plea. The court permitted conditional deposit of the challenged amount within four weeks; on deposit the petitioner must file written submissions and attend a personal hearing on the fixed date, whereupon the authority must pass a fresh reasoned order within four weeks. If adverse, the authority shall not apportion the deposited amount for two weeks from service of that order.

2026 (2) TMI 593 - PUNJAB AND HARYANA HIGH COURT GST

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Wrongful availment of ineligible input tax credit via fake invoices: regular bail granted subject to furnishing bail bonds.
Wrongful availment of ineligible input tax credit through fake invoices was treated as a documentary-evidence prosecution; because investigation was complete and offences were triable by Magistrate, this supported grant of regular bail. The court relied on clean criminal antecedents and precedents extending bail where prosecution rests on documents and maximum sentence is limited, and therefore ordered admission to regular bail subject to furnishing bail/surety bonds. The court cautioned that observations do not decide merits and prohibited any attempt to influence prosecution witnesses, leaving trial and factual findings to the trial court.

2026 (2) TMI 592 - DELHI HIGH COURT GST

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GST registration restoration dispute premised on field verification; authority ordered to rehear and decide restoration within three months.
Whether orders rejecting amendment, denying restoration and cancelling GST registration should be set aside where field verification supported the applicant's documentary evidence. The court held that the verification report, owner confirmation and reconciliation of tax/ITC undercut the factual basis for cancellation and that procedural fairness required a hearing; consequence: the impugned orders were quashed and the authority ordered to grant personal hearing and to reconsider the restoration application. The authority must decide afresh on restoration effective from the original registration date within three months after hearing.

2026 (2) TMI 573 - DELHI HIGH COURT Income Tax

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Supply of relied upon agreements in transfer pricing assessment required to protect right to defend; redaction allowed.
Tax assessment under section 92CA(3) requires production of copies of relied upon agreements because denial impairs the assessee's right to a fair opportunity to defend. The court directed that where transfer pricing adjustments rest on third party or related party agreements, those agreements must be supplied to the taxpayer; confidentiality may be preserved by redaction of party names. Effect: the impugned assessment was set aside and the assessing officer ordered to provide the relied upon agreements by a specified date to enable effective defence.

2026 (2) TMI 544 - CUSTOMS AUTHORITY FOR ADVANCE RULINGS, MUMBAI Customs

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Plate-type heat exchangers used in vehicles stay classified under Chapter 84, not motor-vehicle parts.
Aluminium layered oil coolers used in motor vehicles were classified as plate-type heat exchange units under Heading 8419.50.92 because their essential character and principal function was indirect heat transfer between engine oil and coolant. Heading 8708 for motor-vehicle parts was treated as a residual entry and could not apply where Note 2(e) to Section XVII excludes machines or apparatus of Headings 84.01 to 84.79 from that section, except radiators. Rule 1 of the General Rules for Interpretation, and alternatively Rule 3(a), supported the more specific Chapter 84 classification.

Classification of the Aluminium Layered Oil Coolers/ Plate type heat exchanger unit - use in motor vehicles - General Rules of Interpretation (GRI) - Essential character test - General Rules of Interpretation (GRI) - HSN Explanatory Notes - Preference for specific sub-heading over residual heading - Whether the Aluminium Layered Oil Coolers imported by the applicant, for use in automotive vehicles for cooling of engine oil, are classifiable under Customs Tariff Sub- heading 84195092 as 'Heat Exchange Units - Plate Type', or under Heading 8708 as 'Parts and accessories of motor vehicles'. - HELD THAT:- It is evident that heat exchange units of the type under consideration are excluded from classification under Heading 87.08 by operation of Section XVII, Note 2(e). This exclusion applies notwithstanding the fact that the goods are identifiable for use with motor vehicles of Chapter 87. In accordance with the General Rules for the Interpretation (GRI)- Rule 1 of the Harmonized System, classification must be based on the terms of the headings and any relevant Section or Chapter Notes. Heading 8419 of the Indian Customs Tariff explicitly covers "Machine for the treatment of materials by a process involving a change of temperature", thereby providing a clear and direct basis for classification. Given the nature and intended function of the product under consideration, it squarely falls within the scope of Heading 8419, as it is designed to transfer heat from hot fluid to cold fluid within a system. Furthermore, in accordance with General Rule of Interpretation 3(a) of the Harmonized System, classification should be based on the heading that provides the most specific description which is in this case the subject product's description is more specifically covered under the sub-heading 8419.50.92 which states- "Heat Exchange Units - Plate type". The product does not fulfil two of the three essential conditions provided in Explanatory Notes to Section XVII, for an article to be classified thereunder. Therefore, the product is ousted from the scope of Section XVII and hence, from Heading 8708 by extension. On examination of the product description, technical specifications and explanatory material placed on record, find that the Aluminium Layered Oil Cooler is a plate-type heat exchanger comprising multiple thin aluminium plates brazed together so as to form alternating and sealed flow channels. the hot engine oil flows through one set of channels while a coolant flows through adjacent channels, thereby enabling indirect transfer of heat across the metallic plate surfaces without any intermixing of fluids. Further observe that cooling of the engine oil is achieved solely by the principle of thermal exchange based on temperature gradient. The product does not perform any propulsion-related, transmission- related, steering-related, braking-related or structural function of a motor vehicle. Accordingly, the principal function and essential character of the subject goods is that of a heat exchange unit, and not that of a motor vehicle part per se. The construction, operating principle and functional characteristics of the Aluminium Layered Oil Cooler correspond exactly with the description contained in the Explanatory Notes. Accordingly, the subject goods are specifically and unambiguously covered under Customs Tariff Sub-heading 8419.50.92. Without prejudice to the foregoing, further observe that even if the subject goods are considered prima facie classifiable under both Headings 8419 and 8708, Rule 3(a) of the General Rules for Interpretation mandates that the heading which provides the most specific description shall be preferred. the Sub-heading 8419.50.92 provides a precise, specific and technically accurate description of the subject goods as "Heat Exchange Units - Plate Type", whereas Heading 8708 is a general residual entry. On application of this principle also, classification under Heading 8419 is clearly warranted. Find support for the above view from the judgment of the Hon'ble Supreme Court in Commissioner of Central Excise v. Uni Products India Ltd. [2020 (5) TMI 63 - SUPREME COURT], wherein it was held that even if goods are specifically designed for motor vehicles, they cannot be classified under Heading 8708 when they are more specifically covered under another tariff heading and are excluded by the relevant Section Notes. The Tribunal, in Hero Motocorp Ltd. v. Commissioner of Customs [2021 (12) TMI 490 - CESTAT MUMBAI], held that goods falling under specific headings of Chapter 84 stand excluded from Chapter 87 by operation of the Section XVII Notes and are therefore not classifiable as motor vehicle parts. Also observe that international tariff practice supports the above interpretation. U.S. Customs and Border Protection, in CBP Ruling HQ 961660 and CBP Ruling H316373, classified engine oil coolers and heat exchangers used in automotive applications under Heading 8419 on the ground that their essential function is heat exchange. Though not binding in the Indian context, these rulings carry persuasive value and reflect a harmonised interpretation under the Harmonized System. Thus, the Aluminium Layered Oil Coolers imported by M/s. Modine Thermal Systems Private Limited are classifiable under Customs Tariff Sub-heading 8419.50.92 of the First Schedule to the Customs Tariff Act, 1975 as "Heat Exchange Units - Plate Type".

2026 (2) TMI 540 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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Issues: (i) Whether the section 7 application was barred by limitation or was saved by acknowledgment of debt in the corporate debtor's balance sheets and acknowledgment letters. (ii) Whether non-classification of borrowings in the balance sheets in terms of the ICAI guidance note invalidated the acknowledgment for limitation purposes.

Issue (i): Whether the section 7 application was barred by limitation or was saved by acknowledgment of debt in the corporate debtor's balance sheets and acknowledgment letters.

Analysis: The limitation dispute turned on the date of default and subsequent acknowledgments. The record showed that the corporate debtor had acknowledged the liability in its balance sheets for the relevant years and also by an acknowledgment letter dated 31.12.2021 signed by the suspended directors. The exclusion of time ordered in the suo motu limitation proceedings was also taken into account. On that basis, the filing of the section 7 application was held to be within limitation.

Conclusion: The issue was answered against the appellant and in favour of the respondent; the application was not barred by limitation.

Issue (ii): Whether non-classification of borrowings in the balance sheets in terms of the ICAI guidance note invalidated the acknowledgment for limitation purposes.

Analysis: The objection based on the accounting classification of borrowings was rejected. The absence of the suggested classification did not negate the admission of liability reflected in the balance sheets. The tribunal held that the accounting format could not override the substantive acknowledgment of debt, and the reliance placed on the cited accounting guidance did not assist the appellant.

Conclusion: The issue was answered against the appellant and in favour of the respondent; the acknowledgments remained valid for limitation purposes.

Final Conclusion: The impugned admission order was found free from error, and the appeal failed on both limitation and acknowledgment grounds.

Ratio Decidendi: An acknowledgment of financial debt in balance sheets and written acknowledgment letters can extend limitation for a section 7 insolvency application, and defects in accounting classification do not nullify such acknowledgment where liability is otherwise admitted.

Acknowledgment of debt in balance sheets and letters can extend limitation for insolvency claims despite accounting classification defects.
Acknowledgment of financial debt in balance sheets and in a signed acknowledgment letter was treated as sufficient to save a section 7 insolvency application from limitation, together with exclusion of time ordered in the suo motu limitation proceedings. The objection that borrowings were not classified in the balance sheets in line with the ICAI guidance note did not defeat the acknowledgment, because accounting presentation could not override the substantive admission of liability. The admission order was therefore not found erroneous on either limitation or acknowledgment grounds.

Limitation under the Insolvency and Bankruptcy Code - Date of Default as determinant of limitation - acknowledgement of debt in balance sheets as extending limitation - admission threshold u/s 7(5)(a) - inapplicability of ICAI guidance note Clause 8.3.1.2 to vitiate acknowledgment - Limitation - HELD THAT:- Section 7 application filed by the Respondent, the date of default was mentioned as 31.10.2019 which was based on the inspection conducted by RBI. We also take into consideration that the Corporate Debtor had acknowledged the debt of Respondent Bank in the letter of acknowledgement dated 31.12.2021, which was signed by the present Appellant along with Ms. Sweety Singh as Suspended Director of the Corporate Debtor i.e. by both the Suspended Directors of the Corporate Debtor. We shall take into consideration the relevant acknowledgements which have been made by the Corporate Debtor. We also need to note that the debt is also acknowledged in the balance sheet of the Corporate Debtor for the period ending 2019 to 2021 under the heading of short terms borrowing and long term borrowings. As per the Suo-moto judgement of the Hon’ble Supreme Court of India, the period from 15.03.2020 to 20.02.2020, stand automatically excluded for the purpose of limitation. The Section 7 petition was filed by the Respondent on 27.06.2023 which fall within limitation on the strength of acknowledgements of the debts by the Corporate Debtor in the balance sheets as discussed above. Thus, all six loans have been acknowledged by the Suspended Directors of the Corporate Debtor on 31.12.2021, thereby extending the limitation further. We are of the considered view that there was clear debt for which default took place and the same was duly acknowledged by the Corporate Debtor in their various balance sheets as well as the acknowledgement letters discussed and quoted above. Non-compliance of Clause 8.3.1.2 of the guidance note issued by ICAI - HELD THAT:- It is the case of the Appellant that since balance sheets did not provides the bifurcation of borrowing of the Corporate Debtor under proper heads as mandated by the guidance notes issued by the ICAI, the acknowledgement relied upto, for limitation purpose is perverse. On this issue, we do not find any merit in the contentions of the Appellant for the simple reason that it was for the Appellant to prepare the balance-sheet in according with the laid down Accounting standards and guidance note issued by the ICAI. The Appellant, having not complied with the same, if at all, cannot now take shelter of the same at this stage. Having said so, we do not find Clause 8.3.1.2 at all related to the controversy, the Appellant tried to raise in the pleadings before us and has brought out in the rejoinder reply. The purported claims of the Appellant regarding non classification of the borrowing into sub-classification as per guidance note, do not support the cause of the Appellant as the sub-classification is basically for secured creditors and unsecured creditors. In either case, any financial creditor, even being unsecured creditor, is within the right to file Section 7 petition in case default occurs. Since, the claim 8.3.1.2 of the guidance note itself is negated by us, there is no need for us to refer to the judgement quoted by the Appellant in this regard. However, for the sake of completeness, we shall refer to the said judgement of Collector of Central Excise [1999 (8) TMI 920 - SUPREME COURT (LB)] also. We are of considered view that the Apex Court judgement only confirms that the ICAI is the authoritative body in the matter of laying down the Accounting standards and the guidance notes. We do not find this issue at all applicable as the applicability of accounting standard is not an issue before us. Incidentally, the appeal was heard and was reserved for judgement on 19.01.2026 granting 07 days for submitting written submissions vide our order dated 19.01.2026. We are constrained to record that till date no written submissions have been submitted, hence we have decided the same, based on record available with us. In any case, written submissions perhaps would have only given same/similar details, as such no prejudice would have been caused to either of the parties. Thus, we do not find any error in the Impugned Order. The Appeal devoid of any merits stands rejected.

2026 (2) TMI 539 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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Approved resolution plan binds dissenting creditors and bars inconsistent recovery against guarantors' and promoters' assets.
An approved resolution plan that expressly extinguishes encumbrances, security interests and attachments over promoters' and guarantors' assets is binding on dissenting financial creditors. Where the plan settles claims and provides for release of covered assets, recovery or attachment proceedings inconsistent with that plan cannot continue in respect of the resolved debt. The tribunal held that restrictive observations limiting release only to mortgaged or specifically identified properties were contrary to the plan language and its finality, and set those observations aside while leaving the rest of the order intact.

Extinguishment and release of encumbrances, security interests and attachments by an approved resolution plan - binding effect of an approved resolution plan under the Insolvency and Bankruptcy Code - extinguishment of claims, rights and litigation against erstwhile promoters, directors and guarantors pursuant to plan clause C-13(7) - inability of dissenting financial creditors to continue enforcement or recovery once debt is resolved under an approved plan - irrelevance of pre-existing statutory attachments, including under the Maharashtra Cooperative Societies Act, where the approved plan extinguishes the underlying debt - HELD THAT:- Section 101 is the provision of recovery of certain sums and arrears due to certain societies as arrears of land revenue. When the enforcement action has been initiated by respondent Nos. 1 & 2 for recovery and any asset has been attached the said attachment is only with recovery of dues of the respondents No. 1 & 2 consequent to the financial credit extended to the corporate debtor. When entire debt of respondents No. 1 & 2 has been resolved by approval of the resolution plan in the CIRP of the corporate debtor, it is not open for respondents No. 1 & 2 to submit that it will keep the assets attached under Section 101 of the Maharashtra Cooperative Societies Act, 1960, for recovering its dues. When resolution plan is approved and all debt of the respondents No. 1 & 2 which was filed as a claim in CIRP has been resolved and dealt with in the plan, the submission on behalf of the respondents No. 1 & 2 that is has still some amount due to be recovered is fallacious and contrary of the scheme of the IBC. We thus do not find any substance in the submission of learned counsel appearing on behalf of respondents No. 1 & 2 that respondents No. 1 & 2 can keep third-party securities and securities of personal guarantors and promoters which were not covered by any mortgage and which were under attachment to recover the dues of respondent Nos. 1 & 2. It is relevant to notice that the respondents No. 1 & 2 who are dissenting financial creditor has been in very beginning after approval of the resolution plan has been objected for extinguishing of their securities against the personal guarantors and promoters which objections were overruled and did not find favour and the issues have already been finalized between the parties vide judgment of this Tribunal dated 24.11.2023 in Comp. App. (AT) (Ins.) No. 661-663/2023 which order has been affirmed by the Hon’ble Supreme Court. It is not open for the respondents No. 1 & 2 to raise the same submissions again and again to contend that it is entitled to retain third-parties securities and assets of the promoters to recover its dues. The action of respondents No. 1 & 2 is clearly contrary to the whole IBC proceedings and need to be deprecated. It is not open for the adjudicating authority to observe that personal properties of the guarantors which were attached under Maharashtra Cooperative Societies Act, 1960, pursuant to award has to be kept out. The enforcement action under Maharashtra Cooperative Societies Act, 1960 by the respondents No. 1 & 2 to recover its dues and attachment pursuant thereof shall stand released by virtue of Clause C-13(7) and it is not open for the respondents No. 1 & 2 to continue their recovery enforcement action relying on the attachments made. The respondents No. 1 & 2 cannot rely on any attachment prior to in the CIRP process and claimed that those attachments shall continue to entitle it to recovery its dues. When one of the prayers in the application was to restrain the respondents No. 1 & 2 from taking any steps of recovery or enforcement for the debt which was due and payable by corporate debtor and prayed for direction to respondents No. 1 & 2 to act in any manner in contravention of the resolution plan, the respondents are clearly bound by order passed by the adjudicating authority. We may also notice that one of the prayers made in I.A. i.e., prayer (a) was to refer the matter to IBBI for filing a complaint against respondents No. 1 & 2 under Section 236 of the Code for offence under Section 74(3) of the Code. We allow the appeal.

2026 (2) TMI 538 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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Issues: (i) Whether rights claimed under the collaboration-cum-redevelopment agreement and the assignment deed had crystallised into an enforceable monetary claim against the corporate debtor. (ii) Whether the letter dated 31.03.2021 constituted an enforceable corporate guarantee and acknowledged an admissible claim. (iii) Whether the resolution professional and the adjudicating authority were justified in refusing to update the information memorandum and in rejecting the claim.

Issue (i): Whether rights claimed under the collaboration-cum-redevelopment agreement and the assignment deed had crystallised into an enforceable monetary claim against the corporate debtor.

Analysis: The agreement made the assignee's rights contingent upon removal of the encumbrance over the subject property and return of the title deeds. Since the encumbrance was admittedly not removed and the redevelopment never materialised, no vested or crystallised right arose in favour of the assignor or its assignee. The assignment deed could transfer only such rights as the assignor actually possessed, and it did not create an independent claim for the underlying debt.

Conclusion: The claim based on the collaboration-cum-redevelopment agreement and the assignment deed was not enforceable.

Issue (ii): Whether the letter dated 31.03.2021 constituted an enforceable corporate guarantee and acknowledged an admissible claim.

Analysis: The letter was treated as a unilateral communication and not as a complete guarantee instrument binding on all necessary parties. It was neither duly stamped nor notarised, and it did not establish a concluded and enforceable guarantee within the meaning of contract law. In the absence of mutual assent and proper supporting material, the document could not sustain the claimed financial liability.

Conclusion: The letter did not amount to an enforceable corporate guarantee or a valid basis for admission of the claim.

Issue (iii): Whether the resolution professional and the adjudicating authority were justified in refusing to update the information memorandum and in rejecting the claim.

Analysis: The resolution professional was empowered to verify claims and was entitled to take into account the absence of crystallised rights, the unresolved encumbrance, the lack of supporting proof of debt, and the late assertion of contingent rights over the property. On those facts, there was no legal basis to direct alteration of the information memorandum or to interfere with the rejection of the claim.

Conclusion: The rejection of the claim and the refusal to update the information memorandum were upheld.

Final Conclusion: The appeal failed because the appellant did not establish any crystallised and enforceable right or debt against the corporate debtor, and the impugned order required no interference.

Ratio Decidendi: A contingent contractual entitlement that remains dependent on an unfulfilled condition precedent does not mature into an enforceable insolvency claim, and an assignee cannot acquire greater rights than those possessed by the assignor.

Contingent contractual rights and an incomplete guarantee were insufficient to establish an enforceable insolvency claim.
A contingent entitlement under a collaboration-cum-redevelopment agreement did not mature into an enforceable insolvency claim because the encumbrance over the property was never removed and the redevelopment never materialised. The assignment deed could transfer only the rights actually held by the assignor, so it did not create an independent monetary claim against the corporate debtor. A unilateral letter dated 31.03.2021 was also held insufficient to constitute an enforceable corporate guarantee, as it was not a completed, duly supported guarantee instrument and did not establish a concluded contractual liability. On that basis, refusal to update the information memorandum and rejection of the claim were upheld.

Enforceability of contingent contractual rights dependent on removal of encumbrances - Validity and enforceability of a corporate guarantee/ acknowledgment as contractually binding instrument - principle that an assignee cannot acquire greater rights than the assignor - verification of creditor claims by the Resolution Professional under IBBI regulations - acceptance or rejection of claims and updating of the Information Memorandum by the RP - Whether the impugned order of the Adjudicating Authority affirming the decision of the RP to reject the claim filed by the Appellant suffers from any infirmity. - HELD THAT:- While we are of the view that disputes involving authenticity and genuineness of contractual documents do not fall strictly within the remit of the RP, given the fact that Regulations 10, 12 and 13 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations,2016 enjoins upon the RP to verify claims submitted by creditors, there was nothing unusual on the part of the RP to take notice that there existed grounds for doubting the authenticity and bonafide of the documents basis which claims were raised. Be that as it may, we do not wish to comment on this aspect since records placed before us do not carry proof as to whether the RP had sought further clarifications from the concerned on this aspect while considering the claims of the Appellant to determine their authenticity and accuracy. Mere existence of documents like the Collaboration-cum-Redevelopment Agreement, Assignment Agreement or the Letter of Guarantee in itself cannot substantiate the claims of the Appellant when the claims were contingent and dependent on removal of encumbrances of the subject property by the Corporate Debtor. We do not find any material on record to substantiate the fact that the encumbrances had been removed and that the title deed of the subject property deposited with the Union Bank of India had been returned to the Corporate Debtor. Further in the present facts of the case when the Appellant has admitted that the Corporate Debtor had not yet fulfilled its obligations to cure the encumbrances over the subject property, though it had expressly undertaken to do so, we have no reasons to disagree with the Respondent-RP that there was no enforceable right enjoyed by RS International or their assignee over the subject property and hence the claim staked by the Appellant lacked foundational basis. It therefore, follows as a logical corollary that the rights of the Appellant still remaining nebulous, amorphous and indeterminate, such contingent rights did not acquire the character of a crystallised and enforceable right, basis which any claim could have been accepted by the RP. Additionally, we also find that Adjudicating Authority has taken cognisance of the fact that the RP while deciding on the acceptance had noticed that the CIRP of the Corporate Debtor was initiated by the Adjudicating Authority vide order dated 15.04.2021 but the Applicant had filed their claim belatedly almost after four years and that too by asserting their contingent rights over an encumbered subject property. Thus, we do not find any error on the part of the RP to not have updated the Information Memorandum in respect of the subject property or in rejecting the claim of the Appellant and for the Adjudicating Authority to have upheld these decisions of the RP in the impugned order. In result we do not find any merit in the Appeal. The Appeal is dismissed.

2026 (2) TMI 507 - GAUHATI HIGH COURT GST

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Issues: Whether the Summary of the Show Cause Notice in Form GST DRC-01 and the attached statement/determination can substitute for a Show Cause Notice issued under Section 73 of the Central Goods and Services Tax Act, 2017; whether attachments and orders lacking authentication of the Proper Officer and without providing opportunity of hearing under Section 75(4) are valid.

Analysis: Section 73(1) requires that a Show Cause Notice be issued when tax is not paid/short paid/erroneously refunded or input tax wrongly availed/utilised (for reasons other than fraud or willful misstatement). Section 73(3) provides for the statement of determination of tax and Section 73(9) for passing the order after considering representations. Rule 142(1)(a) of the Central Goods and Services Tax Rules, 2017 requires issuance of an electronic summary in FORM GST DRC-01 in addition to the notice under Section 73. Rule 26(3) prescribes authentication of notices, certificates and orders through digital signature or e-signature. Section 75(4) mandates opportunity of hearing when requested in writing or when an adverse decision is contemplated. The summary form and an attached statement of determination do not contain the particulars and mandate of a Show Cause Notice under Section 73(1) and therefore cannot substitute for issuance of a proper Show Cause Notice. Authentication by the Proper Officer is required and absence of authenticated signature renders the notice/statement/order ineffective. Where the statutory right to hearing exists and is invoked in the prescribed form, an adverse order cannot be passed without affording hearing.

Conclusion: The Summary in FORM GST DRC-01 and the attached statement/determination do not substitute for the Show Cause Notice required under Section 73(1) of the Central Goods and Services Tax Act, 2017. Notices, statements and orders in proceedings under Section 73 must be authenticated in the manner required and an opportunity of hearing under Section 75(4) must be afforded; failure to comply renders the impugned order invalid.

Show Cause Notice under Section 73 and GST DRC 01: court quashes order for lack of valid notice, allows fresh proceedings
Issuance of a summary in Form GST DRC-01 does not substitute the statutory requirement to issue a Show Cause Notice and a distinct Statement of determination under Section 73; those documents and any order under the same provision must be issued and authenticated by the Proper Officer as mandated and afford the taxpayer a personal hearing under Section 75(4). The impugned order was quashed for failure to comply with these requirements; the court permitted initiation of de novo proceedings, excluded the period from issuance of the summary notice to service of certified judgment for limitation reckoning, and directed defreezing of bank accounts.

Show Cause Notice - Summary of the Show Cause Notice in FORM GST DRC-01 - Statement of determination of tax under Section 73(3) - Authentication by the Proper Officer / digital signature - Opportunity of hearing under Section 75(4) - Initiation of proceedings under Section 73 - Limitation period for passing order under Section 73(10)Show Cause Notice - Summary of the Show Cause Notice in FORM GST DRC-01 - Statement of determination of tax under Section 73(3) - The Summary in FORM GST DRC-01 and the attached statement of determination cannot substitute for the Show Cause Notice required by Section 73(1). - HELD THAT: - The Court held that Section 73(1) mandates issuance of a Show Cause Notice specifying the reasons for invoking Section 73, and Section 73(3) requires a statement of determination; Rule 142(1)(a) only requires that a summary in FORM GST DRC-01 be served along with notices and statements. A conjoint reading of Section 73(1), (3) and Rule 142 shows the summary is additional and cannot replace the substantive Show Cause Notice. Therefore the attachment to the FORM GST DRC-01 in the present case, being only a statement of determination, did not put the provisions of Section 73 into motion and could not serve as the statutorily required Show Cause Notice. [Paras 13, 14, 15, 16, 27]Summary in FORM GST DRC-01 with the attached statement is not a valid Show Cause Notice under Section 73(1); initiation under Section 73 without a proper Show Cause Notice is invalid.Authentication by the Proper Officer / digital signature - Initiation of proceedings under Section 73 - Notices, statements and orders required under Section 73 must be authenticated by the Proper Officer as envisaged by Rule 26(3), and lack of such authentication renders them ineffective. - HELD THAT: - Rule 26(3) prescribes electronic issuance of notices, certificates and orders by the Proper Officer through digital signature or e-signature. Although Rule 26(3) expressly refers to Chapter III, the Court observed that the statutory mandate that Show Cause Notices, statements and orders be issued by the Proper Officer (Section 2(91) and Section 73) makes authentication by the Proper Officer imperative. In the absence of rules or Board notifications filling any void, the authentication standard of Rule 26(3) is to be applied to notices/statements/orders under Chapter XVIII so as to ensure validity. The attachments in the present case bore no proper authentication and thus lacked efficacy. [Paras 18, 19, 20, 21, 22]Unauthenticated notices/statements/orders that are required to be issued by the Proper Officer are ineffective; proper authentication as provided by Rule 26(3) must be applied.Opportunity of hearing under Section 75(4) - Where Section 75(4) mandates an opportunity of hearing on request, an adverse order cannot be passed without affording that opportunity; failure to grant hearing violated statutory mandate and principles of natural justice. - HELD THAT: - Section 75(4) requires that when a written request for hearing is received from a person chargeable with tax or penalty, or when an adverse decision is contemplated, an opportunity of hearing must be granted. The petitioner had indicated a request for personal hearing in the prescribed reply form but was not afforded any hearing; the summary attached only specified a date for submission of reply and left hearing particulars blank. The Court held that proceeding to pass an adverse order without granting the statutory hearing would render the protection under Section 75(4) nugatory and contravenes natural justice. [Paras 23, 24, 25, 26, 27]An adverse order passed without granting an available statutory opportunity of hearing under Section 75(4) is unlawful.Initiation of proceedings under Section 73 - Limitation period for passing order under Section 73(10) - Impugned order dated 29.08.2024 set aside; respondent authorities granted liberty to initiate de novo proceedings under Section 73 and the period from issuance of the FORM GST DRC-01 until service of certified copy of this judgment is excluded for computation under Section 73(10); bank accounts to be defreezed. - HELD THAT: - The Court quashed the impugned order because it was founded on procedural defects: absence of a proper Show Cause Notice, lack of authentication by the Proper Officer, and denial of statutory hearing. In the interest of justice the Court permitted the authorities to initiate fresh proceedings under Section 73 for the relevant financial year if they deem fit. The Court directed that the period from issuance of the FORM GST DRC-01 till service of certified copy of the judgment be excluded while computing the time limit under Section 73(10). It also ordered defreezing of the petitioner's bank accounts which had been frozen pursuant to the quashed order. [Paras 15, 27, 28, 29]Impugned order quashed; liberty to initiate de novo proceedings; prescribed period excluded for limitation computation; bank accounts to be defreezed.Final Conclusion: The writ petition was allowed: the order dated 29.08.2024 was quashed as proceedings under Section 73 had been initiated and adjudicated without a proper Show Cause Notice, without required authentication by the Proper Officer, and without granting the statutory opportunity of hearing; the authorities may initiate fresh proceedings under Section 73 if so advised, subject to the Court's direction excluding the period from issuance of the FORM GST DRC-01 until service of the certified copy of this judgment for computation under Section 73(10), and the petitioner's frozen bank accounts were ordered to be defreezed.

2026 (2) TMI 492 - ITAT DELHI Income Tax

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TDS liability on deductors where payees have not paid tax - certificate requirement may determine assessee in default status on remand.
Failure to deduct tax at source attracts liability on the deductor where payees have not themselves paid the tax; the Explanation to section 191 and the first proviso to section 201 require that a deductor must obtain and produce the prescribed certificate (Form 26A under Rule 31ACB) showing the payee paid tax, otherwise the deductor may be treated as an assessee in default. No material or certificate was found on record to show payees paid tax, so the matter is remanded to the assessing officer to examine payee tax payments and decide afresh on deeming the deductor an assessee in default.

2026 (2) TMI 455 - GUJARAT HIGH COURT Income Tax

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Issues: (i) whether proceedings under Section 201 of the Income-tax Act, 1961 could be sustained independently of the scrutiny assessment and DRP proceedings under Section 143(3) and Section 144C of the Income-tax Act, 1961; and (ii) whether the service charges paid to the Singapore entity were fees for technical services requiring deduction of tax at source under Section 195 of the Income-tax Act, 1961 read with Article 12(4) of the India-Singapore DTAA.

Issue (i): whether proceedings under Section 201 of the Income-tax Act, 1961 could be sustained independently of the scrutiny assessment and DRP proceedings under Section 143(3) and Section 144C of the Income-tax Act, 1961.

Analysis: Proceedings under assessment and TDS collection operate in different statutory spheres. The scrutiny assessment under Section 143(3) concerns computation of total income, while Section 201 addresses failure to deduct or deposit tax at source. The absence of a disallowance under Section 40(a)(i) in the assessment order did not, by itself, bar action under Section 201. The DRP also confined itself to transfer pricing objections and did not return any finding on the TDS issue. On that footing, the existence of earlier assessment or DRP proceedings did not oust the jurisdiction of the TDS authority.

Conclusion: the objection to jurisdiction on the ground of prior assessment and DRP proceedings was rejected, and the TDS authority was held competent to act under Section 201.

Issue (ii): whether the service charges paid to the Singapore entity were fees for technical services requiring deduction of tax at source under Section 195 of the Income-tax Act, 1961 read with Article 12(4) of the India-Singapore DTAA.

Analysis: To fall within Article 12(4), the services had to be managerial, technical or consultancy in nature and, in relevant cases, had to satisfy the make available condition. The petitioner had furnished Form 15CA and Form 15CB and had explained the nature of services and the agreement terms, including the contention that no technical knowledge, skill or know-how was made available so as to enable independent use by the recipient. The impugned order proceeded mainly on the alleged inadequacy of invoice descriptions and did not examine the make available requirement or the treaty position with sufficient depth. It also failed to properly address the earlier treatment of similar services and the material placed before it.

Conclusion: the payments were not validly brought to tax as fees for technical services for the purpose of withholding tax, and the order treating the petitioner as an assessee in default could not stand.

Final Conclusion: the writ petition succeeded and the TDS demand order was quashed, with the Court holding that the impugned finding of default under Section 201 could not be sustained on the merits.

Ratio Decidendi: where treaty protection applies, a payment is not taxable as fees for technical services unless the statutory and treaty conditions, including the make available requirement where applicable, are satisfied on a proper examination of the underlying services and evidence.

TDS proceedings and treaty-based fee-for-technical-services analysis require independent scrutiny; prior assessment does not bar Section 201 action.
Proceedings under Section 201 of the Income-tax Act can be maintained independently of scrutiny assessment and DRP proceedings under Sections 143(3) and 144C because assessment and TDS default operate in different statutory fields; the absence of a Section 40(a)(i) disallowance, by itself, does not bar action under Section 201. On the withholding issue, service charges paid to a Singapore entity were not automatically fees for technical services: Article 12(4) of the India-Singapore DTAA required the services to be managerial, technical or consultancy in nature and, where applicable, to satisfy the make available condition. A proper examination of the services and treaty position was required before treating the payer as an assessee in default.

TDS u/s 195 - service charges paid to Solvay Singapore are in the nature of “fees for technical services” as per Article 12(4) of the India–Singapore DTAA - powers of the AO u/s 142 and 143 of the Act and those of the AO (TDS) under Section 201 Whether the AO(TDS) can exercise his jurisdiction u/s 201 of the Act of holding the petitioner to be an “assessee in default” after the assessment order passed u/s 143(3) of the Act ? HELD THAT:- For attracting the provision of Section 201 of the Act, the assessee must be a person who has failed to deduct or pay TDS and is, therefore, deemed to be an “assessee in default”. The consequences of such failure include mandatory interest under Section 201(1A) of the Act and penalty u/s 221 of the Act. The limitation prescribed for these proceedings also differs. Thus, while a scrutiny assessment may trigger action u/s 201, it is not essential that merely because the AO failed to notice any incongruity relating to TDS, the TDS Officer would be precluded from invoking proceedings u/s 201 of the Act. Both proceedings are independent in nature. AO (TDS) can always exercise his jurisdiction relating to tax deducted at source and arrive at his own conclusion, independent of the view taken by the Assessing Officer who has passed the scrutiny assessment order under Section 143(3) of the Act. We, therefore, do not find substance in the argument advanced by the learned counsel for the petitioner that the Assessing Officer (TDS) cannot take a view different from that of the Assessing Officer who passed the order u/s 143(3) of the Act while exercising powers under Section 201 of the Act. Decided in favour of revenue. Effect of order passed by DRP u/s 144C on the order passed u/s 201 - AO(TDS) has precisely exercised his jurisdiction and powers for scrutinizing the aspect of compliance with the provisions of Section 40(a)(i) read with Section 195 and the subsequent order passed by the DRP will have no bearing on the order of the Assessing Officer (TDS). In the present case, it appears that there was a lack of coordination between the AO who conducted the scrutiny assessment and the AO (TDS), and both proceedings were conducted simultaneously. On an overall appreciation of the statutory scheme u/s 143(3), 195, and 201 of the Act, we are of the opinion that the Ao operated in different spheres of their respective jurisdictions. Merely because the assessment order passed by the Assessing Officer under Section 143(3) of the Act travelled to the DRP and culminated in an order, the same cannot, in any manner, impact the exclusive jurisdiction of the Assessing Officer (TDS) under Section 201 of the Act, unless the issue of TDS was assertively dealt and answered by DRP. Validity of order passed u/s 201 - impugned order by declaring the petitioner as an assessee in default, relies primarily on the alleged inadequacy of the invoice descriptions - Section 90(2) of the Income Tax Act mandates that DTAA provisions prevail if they are more beneficial to the assessee. The Supreme Court in the case of Union of India vs. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT] has confirmed that DTAA provisions take precedence over the Income Tax Act. Accordingly, the Assessing Officer (TDS) erred in holding the petitioner as an assessee in default. The respondents have also questioned the maintainability of the instant writ petition, on the ground of alternative remedy of appeal. We are not inclined to reject the writ petition, and relegate the writ petitioner to avail the remedy of appeal, since the petitioner has raised legal issues relating to interpretation of the statutory provisions governing the jurisdiction and powers of Assessing Officers under different Chapters. Moreover, we have also held that the impugned order dated 31.03.2024 also suffers from non-application of mind to vital aspects raised by the writ petitioner. The impugned order issued by the AO(TDS) u/s 201 and 201(1A) of the Income Tax Act is hereby quashed and set aside. Decided in favour of assessee.

2026 (2) TMI 450 - ITAT DELHI Income Tax

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Issues: (i) Whether the Netherlands-resident assessee constituted a Permanent Establishment (fixed place PE or dependent agent PE) in India such that its commission income is taxable in India under Article 5 and Article 7 of the India-Netherlands Tax Treaty; (ii) Whether reassessment proceedings under Sections 147/148 of the Income-tax Act, 1961 were validly initiated.

Issue (i): Whether the assessee had a Permanent Establishment in India and whether commission income received from Indian accommodations was attributable to such PE and taxable in India.

Analysis: The Tribunal examined the treaty test for fixed place PE (identification of a fixed place, availability of that place to the non-resident, and carrying on core business activities through that place) and the revenue burden to prove existence of PE. The material on record did not show any place of business, employees, personnel, equipment, or premises at the disposal of the assessee in India; the digital platform was hosted outside India; transactions were principal-to-principal between accommodations and bookers; and no dependent agents in India were established by evidence. The provisions and judicial standards for attribution and PE were applied to the facts. The Tribunal noted that SEP provisions were not operable for the relevant year and that treaty protections remained applicable.

Conclusion: The Tribunal concluded that the Revenue failed to prove existence of a fixed place PE or dependent agent PE in India and that the commission income was not attributable to any PE in India. The finding that the assessee constituted a PE is rejected in favour of the assessee.

Issue (ii): Whether reassessment proceedings under Sections 147/148 (and related notices under Sections 148A/149/151) were validly initiated.

Analysis: The Tribunal examined the recorded reasons for reopening and the linkage between the information relied upon (withholding details) and the formation of belief that income chargeable to tax had escaped assessment. The assessing officer did not demonstrate a sufficient connection or lead independent evidence to establish that income chargeable to tax had escaped assessment. Relevant legal standards governing initiation of reassessment proceedings were applied to the facts.

Conclusion: The Tribunal concluded that the reassessment proceedings were not sustainable to the extent they produced the impugned additions, and the assessment order based on those proceedings is set aside in favour of the assessee.

Final Conclusion: The appeal is allowed and the assessment order dated 15.01.2025 (pursuant to DRP directions) is set aside as the Revenue failed to establish a Permanent Establishment in India or validly attribute the commission income to India; consequential grounds were left open as academic.

Ratio Decidendi: Where the Revenue seeks to tax business profits of a treaty resident, it must establish, on evidence, the existence of a PE under the relevant treaty and a clear attribution of profits to that PE; absent such proof, reassessment and taxation under the treaty are not sustainable.

Taxability of digital platform profits and PE claims under DTAA; ITAT finds no fixed place or dependent agent PE.
A Netherlands resident digital platform operator challenged Indian tax claims that its commission income constituted business profits taxable in India via Permanent Establishment (PE). The tribunal reasoned that SEP in domestic law does not extend to treaty protected residents absent treaty amendment, so SEP did not apply to the appellant. The tribunal further found no fixed place PE or dependent agent PE: there was no identified or available place of business in India, no personnel, servers or dependent agents, and core business activities were not carried out from India. Consequently, commission income was not attributable to an Indian PE and the appeal was allowed.

Taxability of business profits of the Netherlands resident - DRP held Appellant constitutes a PE - "business connection" in India or not? - Fixed Place PE and Dependent Agent PE - Appellant, a Netherlands-based company eligible for benefits under the India-Netherlands DTAA ('the DTAA'), operates a Digital Platform for online Accommodations' reservations. HELD THAT:- Recognizing the need to tax the digital/ new age economy for which the existing tax framework was considered inadequate, the Government of India introduced the provisions of Significant Economic Presence ('SEP') from the subject AY. As per the provisions of Explanation 2A to section 9(1)(i) of Income-tax Act, 1961 ('the Act'), the significant economic presence of a non-resident in India is deemed to constitute "business connection" in India. Since SEP was enshrined under the Act with no corresponding amendment in the tax treaties, the enterprises governed by the tax treaties continued to remain outside its ambit since no consequential amendment was made in the tax treaties. Therefore, the Appellant also remained outside the purview of SEP. Existence of fixed place PE in India of the Appellant has not been established and any business thereof, no part of the commission income could be brought to tax in India. Assumption of jurisdiction under sections 147 / 148 - AO held assessee having fixed place PE in India in the form of dependant agents and accommodations - AO had no evidence on the record to establish constitution of fixed place PE. The assessee conducts its business of online reservations of accommodations through a digital platform hosted on servers located outside India, the assessee has no place of business, agent, personnel or equipment of India during the relevant previous year, no place/accommodation was made available to the assessee by any of the hotel or guest houses. Assessee does not have any dependant agent in India. The assessee transacts with the accommodation of principal to principal basis, there is no element of agency involved even if principal agent relationship is assumed between accommodation and the assessee considering the flow of funds by the accommodations to the assessee in the form of commission does constitute any agency. AO failed to discharge the onus of establishing assessee having fixed place PE in India and to attribute the earning of commission income to such alleged fixed placed PE in India. Hon’ble Supreme Court of India in the case of Formula One World Championship Limited [2017 (4) TMI 1109 - SUPREME COURT] has held for constituting fixed place PE (in India) the foreign enterprise must have (i) identified fixed place in India and ii) such fixed place must be at the disposal of the foreign enterprise and (iii) core business activities of the foreign enterprise must be carried out through such fixed place AO and DRP erred in holding that assessee constitute a fixed place PE and Agency PE without any basis and holding that third party accommodation in India from whom the assessee earns commission on booking of rooms by end user constitute PE in India under Article 5 of India Netherland Tax Treaty. Assessee appeal allowed.

2026 (2) TMI 449 - ITAT DELHI Income Tax

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Issues: (i) Whether the addition of Rs.1,83,50,000/- made under section 69A of the Income-tax Act, 1961 on account of alleged non-genuine accommodation entries is sustainable; (ii) Whether reassessment proceedings initiated under sections 147/148 are valid in the absence of independent application of mind and where the assessment under section 143(3) was completed more than four years earlier without failure to disclose all material facts.

Issue (i): Whether addition of Rs.1,83,50,000/- under section 69A (non-genuine accommodation entries) is sustainable.

Analysis: The question requires examination of whether the assessee was found to be the owner or in possession of money or other valuable articles not recorded in books as contemplated by section 69A. The decision under consideration applied judicial authority holding that invocation of section 69A requires ownership/possession and cannot be based solely on investigative reports or statements without establishing possession or ownership. The assessing authority acted on information from the investigation wing and statements rather than independent factual finding of ownership/possession; the appellate authority examined the law and facts and deleted the addition while confirming a commission income limited to the commission element.

Conclusion: The addition of Rs.1,83,50,000/- under section 69A is deleted; relief is in favour of the assessee on this issue.

Issue (ii): Whether reassessment proceedings under sections 147/148 are valid given the earlier completed assessment under section 143(3) and absence of independent application of mind and failure to demonstrate failure to disclose fully and truly all material facts.

Analysis: The validity of reopening beyond four years depends on satisfaction of the proviso to section 147, namely that income has escaped assessment by reason of failure to disclose fully and truly all material facts. The reasons recorded relied on the investigation wing's report without demonstrating independent application of mind by the assessing officer linking tangible material to formation of reason to believe. Precedents establish that reopening based on a mechanical adoption of investigation report or without independent consideration is impermissible. The record shows the original assessment under section 143(3) and no material establishing that the assessee failed to disclose relevant facts; accordingly the reassessment lacks the requisite foundation.

Conclusion: The reassessment proceedings initiated under sections 147/148 are quashed; relief is in favour of the assessee on this issue.

Final Conclusion: The appellate challenge by the Revenue is dismissed and the assessee's cross-objection is allowed; the net effect is deletion of the addition under section 69A and quashing of the reassessment initiated under sections 147/148.

Ratio Decidendi: Section 69A can be invoked only where the assessee is found to be owner or in possession of unexplained money or valuables not recorded in books; reopening under section 147 beyond four years requires demonstrable failure to disclose fully and truly all material facts and an assessing officer's independent application of mind to tangible material forming the reason to believe.

Reopening assessments and additions for non genuine entries: reliance on investigation reports quashes reassessment and deletes unexplained money additions
Addition for non genuine accommodation entries was treated as unexplained money and deleted because the assessing officer relied on statements and investigative inputs without sufficient basis; consequence: addition under unexplained money was overturned. Reopening of assessment was invalidated for being based solely on an Investigation Wing report without independent application of mind (borrowed satisfaction); consequence: reassessment proceedings quashed. Reopening beyond four years failed because the assessee had fully and truly disclosed material facts at original assessment, so the proviso precondition for extended reassessment was not satisfied; consequence: reassessment could not be sustained.

Addition u/s 69A - non-genuine accommodation entries - AO had relied on statements recorded u/s 131(1A) and on investigative inputs - HELD THAT:- In the present case the assessee was not found the owner of any money or other valuable articles but the AO acted upon the statement taken u/s 131(1A) of the Act. The assessee has already been assessed under section 143(3) by rejecting books of accounts after making the addition and estimated his profit @8% of the gross receipts. We find that Ld. NFAC has examined the issues in the correct perspective and rightly deleted the addition towards the addition on the non-genuine transaction and treated the same as unexplained money u/s 69A of the Act made by the AO. The reasoning and findings of the Ld. NFAC, while granting relief is on the proper appreciation of law expounded by the judicial dicta. Reopening of assessment - reasons to believe - link between the tangible material and the formation of the reason to believe that income has escaped assessment - ‘borrowed satisfaction’ - AR submitted that the reasons recorded by the AO are bad in law because the reasons was recorded without application of independent of mind - HELD THAT:- A perusal of the reasons for reopening of the case for the impugned assessment year shows that the re-opening was made on the basis of the report of the Investigation Wing and there is no independent application of mind by the AO for re-opening. In the cited cases, like Meenakashi Overseas Pvt. Ltd. [2017 (5) TMI 1428 - DELHI HIGH COURT], Insecticide (India) Ltd. [2013 (5) TMI 691 - DELHI HIGH COURT] and Signature Hotels (P) Ltd [2011 (7) TMI 361 - DELHI HIGH COURT] it was held that re-opening on the basis of the report of the Investigation Wing without independent application of mind by the AO is not valid. Accordingly, the reassessment proceedings which were based on the report of Investigation Wing and without independent application of mind by the AO have been held to be illegal. In this case the AO has reopened the assessment on the basis of report of the Investigation Wing and there appears to be no independent application of mind by the AO, hence, the reassessment is not proper. Accordingly, we hold that the reassessment proceedings initiated by Assessing Officer is illegal and thus quashed. Jurisdiction assumed by Ld. Assessing Officer beyond the limitation of 4 years - The power under section 147 of the Act have to be exercised after a period of four years only if there is a failure to disclose fully and truly all material facts and information, by the assessee. In the present case the case of assessee was re-opened beyond period four years where the original assessment has been completed u/s 143 (3) of the Act. The assessee had disclosed the fully and truly materials facts at the time of the original assessment. The Assessing officer has failed to show that escapement of income is due to failure on part of the assessee. Since the assessment had earlier been concluded under section 143(3) by order dated 30-03-2015 and assessee had fully and truly disclosed all material facts necessary for assessment, the pre-condonation for invoking the proviso to section 147 of the Act had not been satisfied. Decided in favour of assessee.

2026 (2) TMI 448 - ITAT DELHI Income Tax

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Reassessment notice validity and TOLA applicability: notices held time barred and reassessment quashed for lack of limitation
TOLA was held inapplicable to the relevant assessment year, so the regular limitation for issuing reassessment notices remained in force and expired on 31 March 2022; notices issued under the prior law between 1 April and 30 June 2021 therefore did not obtain an extended validity and were invalid. Following the Supreme Court precedent on limitation, an impugned notice issued after the extended due date was time barred; the notice and consequent reassessment were quashed, and the assessee's challenge on limitation grounds was allowed.

2026 (2) TMI 445 - CESTAT NEW DELHI Customs

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Issues: (i) Whether statements recorded during investigation can be admitted as evidence without following the procedure for admissibility; (ii) Whether burden under the statutory provision for seized goods shifts to the claimant in a town-seizure where gold lacks foreign marking and requisite purity; (iii) Whether seizure under the provision empowering seizure was supported by reasonable belief that goods were smuggled; (iv) Whether confiscation and penalties imposed could be sustained given findings on admissibility and burden of proof.

Issue (i): Admissibility of statements recorded during inquiry without following the statutory procedure.

Analysis: The statutory scheme requires that statements recorded before investigating officers acquire relevancy in proceedings only after the person making the statement is examined as a witness before the adjudicating authority and the adjudicating authority forms an opinion, for reasons recorded, that the statement should be admitted in the interests of justice; otherwise such statements are not relevant. Precedents applying parallel provisions in excise and customs underscore the mandatory nature of this two-step procedure and the need to afford opportunity for cross-examination once a statement is admitted.

Conclusion: Statements recorded during investigation were not admissible evidence because the mandatory procedure for examination and admission in adjudication proceedings was not complied with; reliance on those statements is impermissible (in favour of the assessee).

Issue (ii): Application of the statutory burden-shifting provision in a town-seizure where gold lacks foreign marking and requisite purity.

Analysis: The provision that casts the burden on the person from whose possession goods are seized applies where seizure is made under a reasonable belief of smuggling. For town seizures where goods lack foreign marking and do not meet the typical indicia of foreign-origin articles, established authority holds that the burden remains on the revenue to demonstrate reasonable belief of foreign origin; production of invoices after seizure can be permissible to discharge ownership or legitimate purchase.

Conclusion: The burden to prove the seized gold was smuggled did not fall on the claimant in the circumstances of a town seizure without foreign marking and with lower purity; invoices produced subsequently could be relied upon (in favour of the assessee).

Issue (iii): Legality of seizure under the provision authorising seizure based on reasonable belief.

Analysis: Seizure requires a reasonable belief, based on material or indicia, that goods are liable to confiscation as smuggled. Where goods lack foreign markings and no independent material establishes foreign origin or recent unlawful importation, authorities cannot rest seizure on mere speculation or absence of immediate documentary cover; precedents require objective bases for reasonable belief.

Conclusion: The seizure was not supported by reasonable belief of foreign origin and thus was not lawful (in favour of the assessee).

Issue (iv): Validity of confiscation and penalties imposed in light of inadmissibility of statements, burden allocation, and seizure validity.

Analysis: Confiscation under the statutory heads and imposition of penalties depend on admissible evidence and a lawful seizure. Where statements relied upon were inadmissible, the burden did not shift to the claimant in a town-seizure lacking foreign indicia, and the seizure itself lacked reasonable belief, there was no lawful basis to sustain confiscation or to impose penal consequences; penalties premised on alleged fabrication or complicity also could not be sustained absent admissible proof.

Conclusion: Confiscation and penalties set aside (in favour of the assessee).

Final Conclusion: The cumulative effect of the conclusions is that the impugned confiscation and penalties are unsustainable because material relied upon was inadmissible, the statutory burden did not shift in the circumstances of a town seizure lacking foreign indicia, and the seizure lacked reasonable belief; accordingly the appeal succeeds and the enforcement measures are set aside.

Ratio Decidendi: Statements recorded during investigation are admissible in adjudication proceedings only after the witness is examined before the adjudicating authority and the authority records a reasoned opinion admitting the statement in the interests of justice; in town seizures where goods lack foreign marking and requisite purity, the revenue must demonstrate reasonable belief of foreign origin before casting the burden on the claimant, and absent such admissible evidence and reasonable belief confiscation and penalties cannot be sustained.

Confiscation of gold bars and admissibility of summoned statements: appellate reversal where evidence fails to show foreign origin.
Admissibility of statements recorded under the customs summons power was rejected where mandatory conditions were not met, so those statements could not support a finding of smuggling and led to reversal of confiscation. In town-seizure circumstances with no foreign marking and sub standard purity, the evidential burden lies on the revenue to prove foreign origin; absent such proof, goods purchased domestically cannot be treated as illegally imported. Consequently, confiscation for prohibited import or unlawful unloading was unsustainable and attendant penalties based on that confiscation were held invalid.

Confiscation of gold bars and the bag and the vehicle used for concealment of gold bars - Admissibility of statements recorded u/s 108 read with section 138B - Relevance of documentary evidence produced after seizure - Application of burden of proof under section 123 in town seizures with no foreign marking and purity below 99.9% - Requirement of reasonable belief for seizure u/s 110 - Validity of confiscation u/s 111(d) and 111(h) - Imposability of penalties u/s 112(b)(i) and 114AA where confiscation is unsustainable - HELD THAT:- Section 108 of the Customs Act deals with power to summon persons to give evidence and produce documents. It provides that any Gazetted Officer of customs shall have the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making under the Customs Act. In Drolia Electrosteel [2023 (11) TMI 10 - CESTAT NEW DELHI] a Division Bench of the Tribunal examined the provisions of section 9D of the Central Excise Act and after placing reliance upon the decision of the Punjab and Haryana High Court in Jindal Drugs Pvt. Ltd. vs. Union Of India [2016 (6) TMI 956 - PUNJAB & HARYANA HIGH COURT] observed that if the mandatory provisions of section 9D(1)(b) of the Central Excise Act are not followed, the statements cannot be used as evidence in proceedings under Central Excise Act. Thus, the statements made by various persons under section 108 of the Customs Act could not have been relied upon by the Commissioner (Appeals) to record a finding that the appellant had smuggled 69 gold bars of foreign origin. In Om Prakash Shah, Director of M/s. Quilon Trade Commerce Pvt. Ltd. vs. Commissioner of Customs (Preventive) [2025 (5) TMI 1623 - CESTAT KOLKATA] the Tribunal held that as it was a case of town seizure and there was no foreign marking on the gold and the purity was less than 99.9%, the burden under section 123 of the Customs Act would not be on the appellant but on the Revenue to show that they had a reasonable belief why the gold was of foreign origin. As noticed, there is no evidence to substantiate that the gold bars in question were smuggled. The gold bars could not have been confiscated and, therefore, could not have been seized. Goods can be confiscated under section 111(d) of the Customs Act where any goods which are imported or attempted to be imported or are brought into India contrary to any prohibition imposed by or under the Customs Act. In the present case, the appellant had purchased the gold bars under invoice dated 20.03.2021. Goods can be confiscated under section 111(h) of the Customs Act where any dutiable or prohibited goods are unloaded or attempted to be unloaded in contravention of the provisions of section 33 or section 34 of the Customs Act. It is not the case of the department that the appellant had smuggled gold bars into India or such gold bars were attempted to brought into India. The appellant had, in fact, purchased the seized gold bars from domestic market, in which case, the burden shifted to the Revenue to show that the appellant had not purchased the seized gold bars. Thus, as the goods could not have been confiscated, penalties under section 112(b)(i) and section 114AA of the Customs Act could not have been imposed upon the appellant. The appellant had also not signed or used any document for alleged smuggling of gold bars into India. Penalty under section 114AA of the Customs Act could not have been imposed upon the appellant on the premises that M/s. S.R. & Co. provided backdated and fabricated invoice in the name of M/s. Pulak Ornament LLP to legitimate the gold bars under the directions of the appellant. Thus, penalty under section 114AA of the Customs Act could not have been imposed upon the appellant. Thus, the impugned order dated 11.10.2023 passed by the Commissioner (Appeals) so far as it rejects the appeal filed by the appellant against the order dated 09.09.2022 passed by the Additional Commissioner deserves to be set aside and is set aside. The appeal is, accordingly, allowed.

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1996 (1) TMI 395 - HC - VAT and Sales Tax

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Concessional CST purchase for manufacturing generating set upheld where use matched registration certificate and no misuse was shown.
Penalty under section 10-A of the Central Sales Tax Act was not attracted where a diesel generating set was expressly included in the registration ... Summary

Concessional CST purchase for manufacturing generating set upheld where use matched registration certificate and no misuse was shown.

Penalty under section 10-A of the Central Sales Tax Act was not attracted where a diesel generating set was expressly included in the registration certificate for use in manufacture and was purchased against form C at a concessional rate. Its use to generate electricity for running plant and machinery in production fell within the contemplated registered use, and there was no allegation of any unauthorised or different use, or any misstatement by the dealer. The distinction from the cited precedent was that it concerned refusal to include the item in the certificate, not misuse after inclusion. The dealer remained entitled to the concessional rate.

Issues: Whether penalty under section 10-A of the Central Sales Tax Act was leviable where a diesel generating set, mentioned in the registration certificate as an item for use in manufacture, was purchased against form 'C' at a concessional rate and used to generate electricity for running the plant and machinery used in production.

Analysis: Penalty under section 10-A read with section 10(d) is attracted only when goods purchased for the purposes specified in section 8(3)(b), (c) or (d) are not used for the very purpose for which they were acquired without reasonable excuse. The generating set was expressly included in the registration certificate, and the only use made of it was generation of electricity for running the manufacturing plant. That use was within the contemplation of both the dealer and the assessing authority when the certificate was granted. There was no allegation of any different or unauthorised use, nor any misstatement by the dealer. The earlier decision relied upon was distinguishable because it concerned refusal to include the item in the registration certificate, not misuse after such inclusion.

Conclusion: Penalty was not leviable, and the dealer was entitled to the benefit of purchase at the concessional rate for the said generating set.

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1996 (1) TMI 395 - HC - VAT and Sales Tax

Central Sales Tax Act, 1956

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Central Sales Tax Act, 1956

Concessional CST purchase for manufacturing generating set upheld where use matched registration certificate and no misuse was shown.

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