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2026 (1) TMI 468 - ITAT DELHI Income Tax

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the amounts received from Indian airlines for access to and use of the assessee's hosted airline solutions/system constitute "royalties" within the meaning of Article 12(4) of the India-Netherlands DTAA and are therefore taxable in India.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Characterisation as "royalties" under Article 12(4) of the India-Netherlands DTAA

Legal framework (as discussed by the Tribunal): The Tribunal examined the treaty definition in Article 12(4), which confines "royalties" to consideration for the use of, or right to use, specified intellectual property (including a secret formula or process) or for information concerning industrial, commercial or scientific experience.

Interpretation and reasoning: On the contractual terms, the customer airlines were granted only a non-exclusive, non-transferable right to access and use the system for internal airline operations, with the system being hosted on servers outside India. The agreements emphasised retention of intellectual property with the provider and imposed restrictions preventing copying, sublicensing, reverse engineering, or otherwise exploiting the system beyond permitted access. The Tribunal treated these features as negating any positive conferral of "use" or "right to use" of intellectual property in the sense required by Article 12(4), because the customers obtained no effective control or dominion over the underlying process/technology; they merely derived a benefit from services delivered through infrastructure controlled and operated by the provider.

The Tribunal further held that the "secret formula or process" limb was not satisfied on facts because no secret process/formula was provided or made available to customers; only access to a hosted system was provided. It also rejected characterisation under the third limb ("information concerning industrial, commercial or scientific experience"), reasoning that the arrangement involved processing and providing outputs through the system rather than imparting the provider's own experience/technique/methodology or transferring knowledge or know-how to the customers.

Conclusions: The Tribunal conclusively held that the receipts from Indian airline customers do not constitute "royalties" under Article 12(4) of the India-Netherlands DTAA, and therefore were not taxable in India on that basis; the assessee was justified in not offering them to tax in India under the treaty definition of royalty.

Indian airline customer payments to Netherlands resident-whether "royalty" under DTAA Article 12-held not taxable in India.
The dominant issue was whether amounts received by a Netherlands tax resident from Indian airline customers constituted "royalty" taxable in India under s.9(1)(vi) and Article 12 of the India-Netherlands DTAA. The tribunal held that royalty under the DTAA required granting use or a right to use intellectual property or providing a secret process/formula to the Indian customers; on facts, no such rights or secret process were made available. It further held that expanded domestic-law definitions of royalty cannot be automatically imported into the DTAA, following HC precedent. Consequently, the receipts were not royalty under Article 12(4) and were not taxable in India, and the taxpayer was justified in not offering them to tax.

2026 (1) TMI 467 - ITAT DELHI Income Tax

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Issues: (i) Whether the transfer pricing adjustment on imports, trading transactions and service fee payments was liable to be sustained or deleted; (ii) Whether the disallowance out of foreign travel expenses was justified; (iii) Whether the disallowance under section 40(a)(i) for alleged non-deduction of tax at source on allocated expenses was sustainable.

Issue (i): Whether the transfer pricing adjustment on imports, trading transactions and service fee payments was liable to be sustained or deleted.

Analysis: The adjustment was tested against the methods adopted by the assessee and the Revenue's objections to the comparable data and method selection. The Tribunal noted that the assessee had furnished comparable prices and supporting invoices before the lower authorities. It also noted that in the immediately preceding year and in subsequent years the Revenue had accepted the assessee's benchmarking, and that the earlier remand proceedings had ended in acceptance of the arm's length computation. On these facts, the Tribunal applied the principle of consistency and rejected the Revenue's challenge to the rejection of the transfer pricing adjustment.

Conclusion: The deletion of the transfer pricing adjustment was upheld and the issue was decided against the Revenue.

Issue (ii): Whether the disallowance out of foreign travel expenses was justified.

Analysis: The assessee had not been specifically called upon to file complete details of the foreign travel expenditure, and the original disallowance was made on an ad hoc basis. At the same time, the record did not contain complete supporting details for the entire claim. Balancing these circumstances, the Tribunal held that a partial disallowance was warranted instead of full deletion or full sustenance of the amount disallowed by the Assessing Officer.

Conclusion: The disallowance was reduced to 10% of the total foreign travel and the issue was partly decided in favour of the Revenue.

Issue (iii): Whether the disallowance under section 40(a)(i) for alleged non-deduction of tax at source on allocated expenses was sustainable.

Analysis: The Tribunal followed its decision in the assessee's earlier year, where similar foreign currency expenditure had been deleted because the Revenue had not identified the payments actually accruing during the year and the assessee's explanation on non-deduction of tax had been accepted. Finding the facts to be identical and noting no change in the nature of payment or circumstances, the Tribunal held that the disallowance could not be sustained.

Conclusion: The deletion of the disallowance under section 40(a)(i) was upheld and the issue was decided against the Revenue.

Final Conclusion: The Revenue's challenge failed on the transfer pricing and section 40(a)(i) issues, but succeeded only to a limited extent on foreign travel expenses, resulting in a partly allowed appeal.

Ratio Decidendi: Where the same benchmarking or expenditure treatment has been consistently accepted in earlier and subsequent assessment years on identical facts, a divergent view should not ordinarily be taken, and an ad hoc disallowance cannot be sustained without proper factual basis.

Consistency in transfer pricing and identical facts defeated tax disallowance, while foreign travel expense relief was only partial.
Consistent acceptance of the assessee's transfer pricing benchmarking in earlier and later years led to deletion of the adjustment on imports, trading transactions and service fee payments, as the Tribunal applied the principle of consistency on identical facts. The foreign travel claim was not fully supported by complete details and the initial disallowance was ad hoc, so a partial disallowance of 10% was retained. The disallowance under section 40(a)(i) for allocated expenses was deleted because the Revenue had not identified the actual payments accruing during the year and the facts matched the assessee's earlier year position.

TP addition - Addition towards arm’s length price of international transaction with AE - selection of MAM - TNMM or CUP method - HELD THAT:- In the instant case, it is seen that Revenue has accepted the computation of arm’s length price of international transaction by assessee wherein CUP method was taken as MAM under manufacturing segment and RPM under trading and other segments in subsequent Assessment Years. In immediately preceding year i.e. in AY 2004-05 in assessee’s own case, coordinate bench of ITAT [2020 (8) TMI 353 - ITAT DELHI] has set aside the issue of determination ALP in all segments to the file of TPO where the TPO in remand proceedings has accepted ALP computed by assessee and no adverse inference was taken. As observed above, TPO has not made any adjustment and ALP computed by assessee under all segments by following CUP method and RPM respectively, stood accepted. It is also seen that in subsequent assessment years, ALP of the assessee stood accepted - The Hon’ble Supreme Court in case of Raddhasoami Satsang [1991 (11) TMI 2 - SUPREME COURT] held that principle of consistency should be followed. As assessee has filed all data of comparable prices with respect to the transactions of import under manufacturing segment and further filed sample copies of bills. We find that the observations of Ld. TPO in this regard are not correct since all such details were filed along with letter dated 17th April, 2008 before the TPO. Thus, by following the principle of consistency and further looking to the facts that all the details were available before the TPO, we hereby confirmed the order of Ld. CIT(A) in deleting the transfer pricing adjustment made on the international transactions of import of raw material under manufacturing segment as well under trading and the service segment also. Accordingly, the ground of appeal No.1 of Revenue is dismissed. Disallowance of foreign travel expenses - assessee has not provided details for foreign travel expenses - ad-hoc disallowance @ 20% was made by the AO which was deleted by CIT(A) - HELD THAT:- The assessee company has claimed total expenses under this head out of which 20% was disallowed by AO, however, in the final computation of total income, AO disallowed Rs.5,00,000/- out of foreign travel expenses. It is seen that the assessee was never asked to file details with respect to foreign travel undertaken by its employees. Looking to the facts and circumstances and further considering the fact that complete details of the traveling etc. are not available, in our considered opinion disallowance @ 10% of total expenses claimed would meet the end of the justice. This ground of appeal of the Revenue is thus partly allowed. TDS u/s 195 - Disallowance u/s 40(a)(i) - Expenses were debited under the head “Allocated Expenses” regarding payment to its AE in Singapore for incurring expenses on behalf of the assessee for uses of common facility - assessee claimed that TDS was made on the payment i.e. the amount paid towards information system and no TDS was deducted on remaining amount on sharing of expenses for functional guidelines support services and other related services - HELD THAT:- As decided in own case [2020 (8) TMI 353 - ITAT DELHI] CIT(A) deleted the addition on the ground that substantial amount of expenditure pertained to the year prior to the financial year 2003-04 and, therefore, the AO is not justified in disallowing the entire foreign exchange payment without identifying the payment pertaining to the actual accrual made during the year. Even otherwise, CIT(A) has threadbare analysed each and every item and given justification for deletion of the same, the operative para of which has already been reproduced in the preceding paras. The Id. DR could not point out any error in the order of the CIT(A) on this issue so as to take a contrary decision. Since the Ld. CIT(A) has given justifiable reasons for deleting the addition made by the AO - Decided against revenue.

2026 (1) TMI 435 - CESTAT NEW DELHI Customs

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether an import authorisation stating that import is "subject to" a specified concessional-duty customs notification conclusively mandates payment of duty under that notification and thereby bars availment of a separate duty-free exemption notification otherwise applicable to the goods.

(ii) Whether customs authorities can sustain a demand for short-paid duty, confiscation, redemption fine, and penalty on the basis of alleged breach of conditions of an import authorisation when the import authorisation remains valid and has not been cancelled or invalidated by the competent foreign trade authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Effect of import authorisation condition referencing a specific customs notification; availability of another exemption

Legal framework (as discussed): The Court examined the import authorisation condition requiring that the import is subject to the specified customs notification, in the context of the competing claim of exemption under a separate exemption notification granting nil duty/AIDC for eligible imports from least developed countries. The Court also considered the principle that, absent a bar, multiple exemption notifications may be availed.

Interpretation and reasoning: The Court held that the authorisation condition only states that the import is "subject to" the specified notification; it does not state that no other notification benefit can be claimed, nor does it impose an "if and only if" obligation to pay duty under the referenced notification. The Court reasoned that the importer may be required to comply with the referenced notification for the purpose of importability/authorisation, but if another valid exemption notification grants complete exemption from duty, there is no express prohibition in the authorisation condition preventing the importer from availing that exemption. The Court further found that the adjudicating authority's reading of a mandatory duty-payment requirement into the authorisation amounted to importing a condition not present on the face of the authorisation.

Conclusions: The Court concluded that the mere reference in the import authorisation that import is "subject to" the specified concessional-duty notification did not, by itself, bar the importer from claiming the separate duty-free exemption notification, where no express prohibition against availing another exemption was contained in the authorisation condition.

Issue (ii): Customs jurisdiction to raise duty demand and impose confiscation/penalty for alleged breach of import authorisation conditions when authorisation is not cancelled

Legal framework (as discussed): The Court considered the allocation of authority between the foreign trade regulator (competent to issue, interpret, suspend or cancel authorisations under the foreign trade regime) and customs authorities (duty assessment and recovery). It applied the principle that customs authorities cannot disregard or go behind a valid instrument issued by the foreign trade regulator unless the competent authority has adjudicated and invalidated/cancelled it.

Interpretation and reasoning: The Court treated the subsistence and non-cancellation of the import authorisation as decisive. It held that if the basis of the demand is alleged violation or infirmity relating to the authorisation/its conditions, customs cannot unilaterally determine such violation so as to deny benefits and recover duty, unless the competent foreign trade authority has first cancelled or declared the authorisation invalid. The Court reasoned that recognising a parallel power in customs to effectively negate an authorisation would create an impermissible duality of authority over the same instrument. It therefore held that only upon cancellation of the authorisation by the competent authority could customs proceed to recover duty on that footing.

Conclusions: Since the import authorisation was valid and subsisting and had not been cancelled, the demand of duty, and the consequential confiscation-related measures (redemption fine) and penalty premised on breach of authorisation conditions, were held unsustainable.

Result

The Court set aside the duty demand and, consequently, also set aside the associated interest liability, confiscation-related redemption fine, and penalty imposed in relation to the impugned import.

Gold dore bar imports under "subject to" licence condition: 2008 customs exemption allowed despite 2012 notification reference
The dominant issue was whether an import licence condition stating that import of gold dore bars was "subject to" a 2012 customs notification barred availing exemption under a 2008 customs exemption notification. The Tribunal held that "subject to" did not negate other otherwise-available exemptions, and the licence did not mandate duty payment "if and only if" under the 2012 notification; hence the importer could claim the 2008 exemption. Relying on SC authority, it further held that Customs could not deny exemption or raise duty demand on alleged licence infirmities unless the licensing authority had cancelled the licence. Consequently, the duty demand under s.28(1), penalty under s.112(a)(ii), and redemption fine were set aside and the appeal was allowed.

Availment of exemption of customs duty under N/N. 96/2008-Cus dated 13.08.2008 - import of gold dore bars from Tanzania in terms of the Import License dated 22.12.2020 issued by the Directorate General of Foreign Trade permitting imports subject to N/N. 12/2012-Cus dated 17.03.2012 - whether the appellant could have taken benefit of the 2008 Exemption Notification when the Condition of the License issued to the appellant provided that the import of gold dore bars is subject to the 2012 Notification? - HELD THAT:- A perusal of the said Condition shows that the import has been made subject to the 2012 Notification. It does not provide that the benefit of any other Notification, which otherwise would be available to the appellant, cannot be availed of by the appellant. The appellant may have had to discharge customs duty provided under the 2012 Notification, but if there is a Notification which exempts payment of customs duty than there is no bar in the appellant availing the benefit of the said Notification. The finding recorded by the Principal Commissioner that the Conditions of License can be fulfilled “if and only if” customs duty is paid in terms of the 2012 Notification is, therefore, not borne out from the Conditions of License. It needs to be noted that in Titan Medical [2002 (11) TMI 108 - SUPREME COURT], which was considered by the Delhi High Court in Designco [2024 (11) TMI 1150 - DELHI HIGH COURT], the Supreme Court observed that 'To be, noted that the licensing authority has taken no steps to cancel the licence. The licensing authority has not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the Customs Authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf.' Thus, it is only if the Import License issued by the DGFT was cancelled by the DGFT that the customs could have decided to recover the duty under section 28(1) of the Customs Act. The demand of customs duty from the appellant cannot be sustained nor can the imposition of penalty under section 112(a)(ii) of the Customs Act or imposition of redemption fine in lieu of confiscation be maintained. The impugned order is, accordingly, set aside - Appeal allowed.

2026 (1) TMI 430 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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1. ISSUES PRESENTED AND CONSIDERED

i. Whether the e-auctions conducted on 01.05.2025 were liable to be set aside on the ground that the bidder was prevented from submitting higher bids due to an alleged technical glitch on the e-auction portal.

ii. Whether the adjudicating forum erred in declining to order appointment of a technical expert / calling for further technical investigation, including examination of servers, when contemporaneous records indicated continued participation by the bidder.

2. ISSUE-WISE DETAILED ANALYSIS

Issue i: Setting aside the e-auctions on the plea of "technical glitch" preventing fair participation

Legal framework: The Court treated the governing mechanism of the e-auction as one where bidding continued with automatic extensions in five-minute windows after each last bid, and the sale concluded in favour of the highest bid when no higher bid was placed within the available extended time.

Interpretation and reasoning: The bidder's pleaded case was that after a stated time it suffered technical issues, could not submit enhanced bids, and contacted technical support. The Court examined the bid history/audit trail and found that, even after the alleged onset of glitch, the bidder placed multiple bids in the relevant lots and remained active up to its last bids. The Court further found no contemporaneous complaint, call record, or communication at the critical stage after the last competing bid-when a five-minute window existed for submitting a higher bid. The Court accepted that the bidder's inability to place a higher bid within the stipulated extension period, without proof of portal malfunction at that time, could not justify invalidating an auction conducted as per the announced process. The Court concluded that the narrative of technical failure was belied by the bidder's continued successful bidding activity and the absence of immediate corroboration when the decisive final bid was placed by the successful bidder.

Conclusions: The Court held that the bidder failed to prove any technical glitch affecting its participation at the material time. The e-auctions were not liable to be set aside merely because the bidder did not increase the bid within the available five-minute window; the challenge was treated as an afterthought and insufficient to disturb concluded auction results.

Issue ii: Refusal to appoint a technical expert / order technical examination of the platform

Legal framework: The Court approached expert appointment as contingent on a demonstrated factual foundation suggesting a real technical malfunction requiring technical determination, rather than on bare assertion.

Interpretation and reasoning: The Court held that, where records from the platform showed continuous bidding by the bidder after the claimed malfunction time, and where there was no contemporaneous proof that a higher bid was attempted but rejected by the portal during the decisive window, no basis existed to direct a further technical probe. The Court distinguished reliance placed on other decisions involving expert committees/forensic examination by noting that those matters turned on materially different facts, including contemporaneous actions evidencing an attempted submission or immediate grievance redressal steps; in the present facts, continued participation and lack of timely complaint undermined the need for expert inquiry. The Court therefore found no error in the adjudicating forum's view that appointing a technical expert was unwarranted.

Conclusions: The Court upheld the refusal to appoint a technical expert or order server examination, holding that the evidentiary record did not support the existence of a technical glitch and did not justify reopening the auction process through technical investigation.

E-auction bidding glitch claim after missed highest bid rejected; auction upheld as platform logs showed continuous participation and valid close.
The dominant issue was whether an e-auction should be set aside on the ground that the applicant was unable to submit the highest bid due to an alleged technical glitch on the auction platform. NCLAT held that the allegation was unsubstantiated because there was no contemporaneous complaint evidencing any system failure, and the platform records showed the applicant continuously participated and placed multiple competitive bids up to the last-but-one bid; the successful bidder then outbid by a marginal increment and, with no further bid within the prescribed five-minute window, the auction validly concluded. Consequently, the AA's refusal to quash the e-auction was affirmed and the appeals were dismissed.

Application filled for setting aside the e-auction - technical glitch encountered during the e-auction process - unable to submit the highest bid due to technical failure on the auction website - HELD THAT:- Appellant’s case is that after receiving the confirmation mail, the Appellant participated in the e-auction. There is no proof of any contemporaneous complaint/ call or email pointing about the glitch. Furthermore, when the Appellant was participating with the other bidder in both the Lots, the Appellant submitted last but one bid after 04:00 PM in both the Lots and after the last bid submitted by the Appellant, the other bidder has increased its bid by Rs. 10 lakhs and Appellant failed to increase its bid after five minutes and after expiry of five minutes, the auction stood confirmed in favour of the other bidder. When the Appellant has been submitting competitive bids, till the very end of auction, the theory setup by the Appellant that he faced technical glitch in submitting the bids, is belied from the materials on record. The allegations made by the Appellant in his applications and materials brought on record did not raise any ground for setting aside the e-auction. Appellant had fully participated in the bid and submitted the bid even after period of two hours was over. The Appellant submitted his last but one bid also. Last bid being of the Successful Auction Purchaser and there was no further bid submitted by the Appellant within five minutes, the bid of another Auction Purchaser was accepted as successful bid. Thus, in the present case, there was no Technical Glitch as alleged by the Appellant. We have already noticed submissions of the parties and facts and have come to the conclusion that the Appellant failed to prove any technical glitch, since he has successfully participated in auction of both the Lots and has given several bids, which have been noticed by the Adjudicating Authority and by us. From the facts brought on record, the Adjudicating Authority has carefully examined the relevant materials and the materials which were produced by the e-platform, which has conducted the auction, which indicate that the Appellant was continuously participating in the bid till the last but one bid and hence, the submission of the Appellant that he faced technical glitch is unsubstantiated. The Adjudicating Authority did not commit any error in rejecting the IAs filed by the Appellant for quashing the e-auction held with respect to assets of Waseem Ahmad Khan and Farah Khan. We, thus, do not find any error in the impugned order passed by Adjudicating Authority in these Appeal(s) warranting interference in exercise of appellate jurisdiction. In result, both the Appeal(s) are dismissed.

2026 (1) TMI 429 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the admitted application for initiation of insolvency proceedings against a corporate guarantor was not maintainable for want of the minimum default threshold, where the invoked guarantee allegedly capped the guarantor's total liability below the statutory limit.

(ii) Whether, on the materials in the application itself, the financial creditor had proceeded only on one guarantee (and not another), and the maintainability had to be tested accordingly.

(iii) Whether the appellate forum could examine the jurisdictional objection of maintainability based on the statutory threshold, even though it was not raised before the adjudicating authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Maintainability in light of statutory threshold vis-à-vis capped guarantee liability

Legal framework (as considered by the Court): The Court treated satisfaction of the minimum default amount under Section 4 as a condition precedent to initiation of proceedings under Section 7. The maintainability of the proceeding therefore depended on whether the "default amount" attributable to the corporate guarantor met the statutory minimum.

Interpretation and reasoning: The Court held that the liability of the guarantor must be determined strictly from the written terms of the guarantee deed, as it is a contractual document; the Court rejected any approach that would effectively rewrite or vary the bargain by invoking equity. The Court interpreted the guarantee clauses and placed decisive weight on: (a) the phrase "upto but not exceeding in the aggregate" coupled with the capped sum; (b) the construction of "and also of all moneys" as being read conjointly with the cap rather than as an addition beyond it; and (c) the use of "wholesome due... together with interest and charges" and "as aforesaid the said sum" as reinforcing that the cap governed the composite liability inclusive of interest and charges. On this reading, "aggregate" was treated as indicating a complete whole, so the cap applied to principal, interest, and charges merged into one unified ceiling.

Conclusions: The Court concluded that the guarantee deed imposed an impenetrable ceiling of the stated sum for the "wholesome due together with interest and charges thereon," leaving no scope to claim amounts beyond that cap from the guarantor. Since the capped liability was below the statutory minimum default threshold, the Section 7 application against the corporate guarantor suffered from a jurisdictional defect and could not be entertained; the admission order was therefore set aside and the corporate guarantor was released from insolvency proceedings.

Issue (ii): Whether the proceeding was founded only on the invoked guarantee of the capped amount

Legal framework (as considered by the Court): The Court examined the particulars of financial debt and default stated in the application to identify the basis of invocation and the relevant "default amount" for threshold purposes.

Interpretation and reasoning: On examining the particulars of default in the application, the Court found that the default was pleaded with reference to only one guarantee and not the other. Accordingly, the Court confined the maintainability analysis to the invoked guarantee forming the foundation of the application, and did not treat the uninvoked guarantee as contributing to the default amount for threshold satisfaction.

Conclusions: The Court held that maintainability had to be tested on the invoked guarantee which was the subject matter of the application, and on that basis the default amount attributable to the guarantor remained below the statutory minimum.

Issue (iii): Entertaining a threshold-based jurisdictional objection at the appellate stage

Legal framework (as considered by the Court): The Court accepted that an objection going to maintainability/jurisdiction may be examined even if not urged before the adjudicating authority, where it concerns the tribunal's competence to entertain the proceeding.

Interpretation and reasoning: Although the maintainability point had not been raised before the adjudicating authority, the Court treated the Section 4 threshold requirement as a jurisdictional precondition and proceeded to decide it on merits, based on the application record and the guarantee terms.

Conclusions: The Court entertained and upheld the jurisdictional objection, allowed the appeal, set aside the admission order, and terminated the insolvency process against the corporate guarantor.

Corporate guarantee capped at Rs. 75 lakh vs Rs. 1 crore IBC s.7 default threshold; admission set aside, CIRP ended.
A dominant issue was whether a s.7 IBC application against a corporate guarantor was maintainable despite s.4 IBC's Rs. 1 crore default threshold, given a guarantee deed capping liability at Rs. 75 lakhs. The NCLAT held that a guarantee deed must be construed strictly by its express terms, without invoking equity. Interpreting "not exceeding in the aggregate" and related phrases in Clauses 1 and 2, it found "aggregate" encompassed principal, interest, and all charges within a single ceiling of Rs. 75 lakhs, precluding any enlargement beyond that cap. As the capped default could not meet the Rs. 1 crore threshold, the s.7 admission suffered a jurisdictional defect; the appeal was allowed, the admission order set aside, and CIRP terminated against the corporate guarantor.

Jurisdictional defect in admission of the Section 7 application - threshold limit - capped the liability of the Corporate Guarantor - CIRP - suspended director of the Corporate Guarantor-Appellant - Interpretation of the two Clauses 1 and 2 of the Guarantee Deed - definition Of the word “aggregate” - Whether the Section 7 application as admitted by the Adjudicating Authority qua the Corporate Guarantor in terms of the Guarantee Deed which has been invoked by the Respondent is hit by maintainability in the context of the threshold limit of Rs. 1 Cr set out by Section 4 of IBC. - HELD THAT:- It is well settled that the liability of the Guarantor has to depend on the terms of the Guarantee Deed and in interpreting the terms of a Guarantee Deed, a plain and simple meaning as derived from the express provisions of the Guarantee Deed requires to be read into the same. A Guarantee Deed being a contractual document, its interpretation needs to be based strictly on its written terms. We also hasten to add here that there is no role for equity jurisdiction in looking at a Guarantee Deed for applying the principles of equity would lead to the vulnerability of rewriting or modifying or varying the express agreement of the parties which is beyond the jurisdiction of this Tribunal. Term “aggregate” appearing at Clause1 of the Guarantee deed - The word “aggregate” implies a sum or entity formed by accumulating and assembling of distinct units to create one composite unit. As the word “aggregate” refers to a sum or total, formed by combining multiple elements or items, extending the same meaning to the word “aggregate” in the context of quantifying any liability would cover the liability in its entirety. Applying this derivative to the facts of the present case, the “aggregate” sum would mean a complete whole including both the principal and interest amount. If the liability arising out of this Guarantee Deed was to be restricted only to the principal amount of Rs. 75 lakhs which was already a known and determinate amount, the usage of the word “aggregate” would not have been required to be inserted in the Guarantee Deed. Thus, we are inclined to agree with the Appellant that the word “aggregate” also included other elements i.e. interest and other charges apart from the principal amount within the amount of Rs. 75 lakhs. We further find that in Clause 1, two phrases have been used viz. “not exceeding in the aggregate the sum of Rs. 75 lakhs only” and “and also of all moneys”. - the aggregate ceiling limit of Rs. 75 lakhs was equally applicable to the term “all moneys”. Hence, the use of the term “all moneys” cannot be read to mean monies independent of the capped liability. When we read the expression “and also of all moneys” alongwith the phrase “upto but not exceeding in the aggregate” it clearly signifies that the ceiling of Rs. 75 lakhs was the upper limit for which the guarantee could be invoked and that this ceiling was sacrosanct and impenetrable. Moreover, the usage of the phrase “as aforesaid the said sum” in Clause 2 is a clear reference to the cap of Rs. 75 lakhs as spelt out in Clause 1. The term “as aforesaid” makes it clear that the same outer ceiling limit governed both the clauses. The express language of both Clause 1 and Clause 2 complement and affirm each other and are mutually explanatory and this aspect cannot be overlooked. In the present case, when Clause 1 and Clause 2 are read together, it is clear that the intent of the Guarantee Deed clearly espoused that the ceiling of Rs. 75 lakhs was on the wholesome due together with interest and charges thereon. We have therefore no hesitation in concluding that the aggregation of the wholesome due in terms of the Guarantee Deed amounted to merging of the various components of principal, interest and charges into one unified entity which cumulatively fell within the overarching ceiling of Rs. 75 lakhs. Thus, the entire liability fell within the capped sum of Rs. 75 lakhs and the Guarantee Deed precluded any scope for addition, expansion or enlargement of the said sum. The cap limit of Rs. 75 lakh provided in Clause 1 embraced the entire basket of liabilities including principal, interest, charges and even default interest. Since fulfilment of the condition of threshold of Rs. 1 Cr is a condition precedent for initiation of Section 7 proceedings and in the present case the default amount does not exceed Rs. 75 lakhs in terms of the Guarantee Deed, the Section 7 application clearly suffers from jurisdictional effect and cannot be entertained against the Corporate Guarantor. We find merit in IA and are of the considered view that the Section 7 application is not maintainable as it fails to meet the threshold level of default amount of Rs. 1 Cr. Accordingly the Appeal is allowed. The impugned order admitting the Section 7 application is set aside. The Corporate Guarantor is freed from the rigours of CIRP.

2026 (1) TMI 428 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the Adjudicating Authority could, under Section 60(5) of the IBC, direct occupants of the corporate debtor's premises to vacate and hand over possession to the liquidator and also direct payment of rent/licence fees and allied dues, notwithstanding contractual dispute, arbitration clause, or ordinary civil remedies.

(ii) Whether a fresh lease deed executed and registered after commencement of CIRP/moratorium, while an earlier lease arrangement was subsisting, was invalid and unenforceable so as to justify eviction and taking custody of the premises for the liquidation estate.

(iii) Whether an unregistered, merely notarised licence agreement in respect of the corporate debtor's premises was legally unenforceable (being compulsorily registrable under the applicable rent law), thereby rendering continued occupation unauthorised and warranting directions to vacate and hand over possession to the liquidator.

(iv) Whether recovery of rent/licence fees (and related charges) for continued occupation of the corporate debtor's premises was a matter "arising out of or in relation to" liquidation, enabling adjudication and consequential directions under Section 60(5) of the IBC.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (iv): Jurisdiction under Section 60(5) IBC to order eviction/possession and recovery of rent/licence fees during liquidation

Legal framework (as discussed by the Court): The Court examined Section 60(5) IBC (residuary jurisdiction over questions of law/fact arising out of or in relation to insolvency resolution or liquidation) and Section 35 IBC (liquidator's duty to take custody/control of assets and actionable claims, and to approach the Adjudicating Authority for necessary directions). The Court also noted the objective of a single forum for insolvency-related disputes, subject to the requirement of a direct nexus with insolvency/liquidation.

Interpretation and reasoning: The Court held that where premises admittedly belong to the corporate debtor and are required to be brought under the liquidator's custody as part of the liquidation estate, disputes concerning continued occupation and payment obligations have a direct nexus with liquidation. The liquidator's applications seeking possession and recovery of occupation charges were treated as integral to liquidation, not as independent civil disputes. The Court rejected the contention that invocation of Section 60(5) was an impermissible circumvention of civil remedies or arbitration, holding that the Adjudicating Authority can decide questions of law/fact connected with liquidation, provided the insolvency nexus exists.

Conclusions: The Court upheld the Adjudicating Authority's assumption of jurisdiction under Section 60(5) to (a) direct handing over of possession of the corporate debtor's premises to the liquidator, and (b) direct payment of rent/licence fees and allied dues, as these matters arose out of and related to liquidation and the liquidator's statutory duties under Section 35.

Issue (ii): Validity/enforceability of a lease executed and registered after commencement of moratorium

Legal framework (as discussed by the Court): The Court applied the moratorium consequences under the IBC, emphasising that after CIRP commencement there is prohibition on actions resulting in transfer/encumbrance/creation of legal rights or beneficial interests in the corporate debtor's assets during moratorium.

Interpretation and reasoning: The Court treated the timing and circumstances of execution/registration of the fresh lease as decisive. It found that the corporate debtor's management and the occupant (a subsidiary with commonality of management) proceeded to register a new long-tenure lease at a time when the admission order and moratorium were imminent/known and then in force, despite an earlier lease arrangement being subsisting. This conduct was held to lack transparency and to be in the teeth of the moratorium, indicating an attempt to keep the premises outside the liquidation estate.

Conclusions: The Court held the fresh lease deed executed/registered after the moratorium to be invalid and unenforceable. It affirmed the finding that it was an "eyewash" designed to keep the asset out of liquidation, and upheld the direction to vacate and hand over possession of the premises to the liquidator.

Issue (iii): Effect of an unregistered licence agreement for continued occupation of the corporate debtor's premises

Legal framework (as discussed by the Court): The Court considered that the relevant rent law required compulsory registration of the licence arrangement and that non-registration rendered the licence void and unenforceable. It also tied this to the liquidator's duty under Section 35 IBC to take possession of the corporate debtor's assets and to approach the Adjudicating Authority under Section 60(5)(c) for necessary orders.

Interpretation and reasoning: It was undisputed that the premises belonged to the corporate debtor and that the licence agreement was merely notarised and unregistered. Given the compulsory registration requirement, the Court held the licence agreement to be invalid, and therefore the occupant's continued possession could not be protected as a lawful right against the liquidation estate. The Court found that the liquidator's request to bring the premises under his control squarely arose from liquidation and justified consequential directions for vacant possession.

Conclusions: The Court upheld the Adjudicating Authority's conclusion that the unregistered licence agreement was void/unenforceable and affirmed directions requiring the occupant to vacate and hand over peaceful and vacant possession to the liquidator.

Final dispositive outcome (material to decision): The Court found no infirmity in the impugned directions requiring vacation/handing over of possession of both premises and payment of rent/licence fees and related dues, holding that the Adjudicating Authority properly exercised jurisdiction under Section 60(5) IBC in aid of liquidation and that the relied-upon occupation documents were invalid/unenforceable in the manner found. The appeals were dismissed.

Fresh lease signed during CIRP moratorium despite existing lease held invalid; tenants told to vacate and pay rent dues.
The dominant issue was whether a fresh lease executed after commencement of CIRP was valid despite the moratorium. Applying the moratorium bar on creating legal rights or interests in the corporate debtor's assets, the Appellate Tribunal held that execution/registration of a new lease during moratorium, while an earlier lease was subsisting, lacked transparency and was contrary to the IBC; the fresh lease was therefore invalid and unenforceable, justifying directions to vacate and for consequential recovery of rent/licence dues. A further issue was jurisdiction under s.60(5) IBC to decide disputes concerning lease/licence terms linked to liquidation. Relying on SC precedent, it held that such questions "arise out of" or "relate to" insolvency/liquidation; the impugned order was sustained and the appeals were dismissed.

Jurisdictional errors u/s 60(5) - contractual dispute arising out of operational terms of the lease deed and licence agreements and eviction from the subject premises and recovery of rent/licence fees - over-riding feature of IBC under Section 238 and the bar on the jurisdiction of the civil court in terms of Section 231 of IBC - wrongfully initiate coercive action of eviction - Corporate Insolvency Resolution Process (‘CIRP’) - Whether the directions of the Adjudicating Authority to both the Appellants to vacate the premises of the Corporate Debtor and recovery of rent/licence fees etc. from them is sustainable or not - HELD THAT:- We find that it is an undisputable fact that an unregistered lease agreement dated 29.09.2020 in respect of the Ahmedabad premises was already in place. It is also an admitted fact that the Adjudicating Authority had reserved its orders on the Section 7 application. There can be no reason to entertain any doubt that the Appellant inspite of being fully aware that the Adjudicating Authority had already admitted the Corporate Debtor into CIRP and moratorium had come into play, they still raced ahead with the registration of the fresh lease agreement and that too when the term of the existing lease agreement still remained unexpired. The explanation offered by the Appellant that it was sheer coincidence that the date of signing of the new lease agreement and the date of admission of the Corporate Debtor into CIRP had fused is therefore not as simple and honest as is sought to be portrayed. Once CIRP is commenced, there is complete prohibition on any action for transferring, encumbering, alienating or disposing of by the Corporate Debtor of any of its assets or creating any legal right or any beneficial interest therein. We are therefore of the view that the Corporate Debtor or the Appellant could not have executed the fresh lease agreement once CIRP was initiated and moratorium was ordered. The motive and intent of the Corporate Debtor and the Appellant with respect to the timing of the execution of the lease agreement and the tenure of the fresh agreement not only lacked transparency but was in the teeth of moratorium provisions of IBC. This by itself constituted sufficient basis for holding the fresh lease agreement to be invalid and unenforceable. There cannot be any dispute in the present case that application which was filed by the Liquidator to take possession of the assets of the Corporate Debtor arose out of insolvency/liquidation process against the Corporate Debtor. Since the issue of recovery of rent/other dues arose out of the liquidation proceedings initiated against the Corporate Debtor, it is the case of the Respondent that adjudication on this subject matter lay well within the jurisdiction of the Adjudicating Authority. The contention of the Appellant that the Adjudicating Authority lacked jurisdiction to decide the validity of the lease deed and licence agreement as well as breaches in the terms of the lease/licence agreement is without basis. As long as the residuary jurisdiction of the Adjudicating Authority is invoked in respect of a contract which has nexus with the insolvency/liquidation of the Corporate Debtor, the invocation of this jurisdiction cannot be questioned. We are guided by the judicial precedent laid down in the judgment of the Hon’ble Apex Court in the Gujarat Urja Vikas Nigam Limited vs Amit Gupta and Others [2021 (3) TMI 340 - SUPREME COURT] wherein it has held that the Adjudicating Authority may decide all questions of law or fact arising out of or in relation to insolvency or liquidation under the statutory framework of IBC. Section 60(5) of the IBC vests a wide jurisdiction on the Adjudicating Authority to decide any application by or against the Corporate Debtor on any question of priorities or any question of law or facts arising out of or in relation to the insolvency resolution of the Corporate Debtor. The expressions “relating to” and “arising out of” has to be interpreted to mean that it facilitates resolution of the Corporate Debtor or liquidation of the Corporate Debtor, as the case may be, in a manner that the speed in the resolution/liquidation process of the Corporate Debtor is not undermined nor the objective of preserving the maximum value of the assets of the Corporate Debtor is frustrated. Having said that in the present case, we do not find any infirmity in the decision of the Adjudicating Authority to allow the prayers contained in IA in exercise of its jurisdiction under Section 60(5) of the IBC. In this backdrop, we find no good reasons to interfere in the impugned order passed by the Adjudicating Authority. Both the Appeals are devoid of merit and stand dismissed.

2026 (1) TMI 427 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI IBC

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Issues: (i) Whether the operational creditor's claim, including interest and amounts said to arise under the MoU and the Sales and Marketing Agreement, satisfied the minimum threshold and constituted an admissible operational debt under the Insolvency and Bankruptcy Code, 2016. (ii) Whether there was a pre-existing dispute between the parties that barred admission of the Section 9 application.

Issue (i): Whether the operational creditor's claim, including interest and amounts said to arise under the MoU and the Sales and Marketing Agreement, satisfied the minimum threshold and constituted an admissible operational debt under the Insolvency and Bankruptcy Code, 2016.

Analysis: The monthly management fee under the Franchisee and Management Agreement was accepted only to the extent of the principal amount, while the claimed interest was found unsustainable because the agreement did not provide for interest on service fees. The claim under the MoU was rejected because the operational creditor was not a signatory and there was no privity of contract for that claim. The claim under the Sales and Marketing Agreement was also rejected because the operational creditor was not a party to that agreement. The invoices were found to be proforma invoices carrying GST particulars, but no supporting GST return or payment record was produced despite opportunity and the requirement under Regulation 2B.

Conclusion: The claim beyond the admitted principal amount was not maintainable, and the debt as pleaded did not cross the statutory threshold on a sustainable basis.

Issue (ii): Whether there was a pre-existing dispute between the parties that barred admission of the Section 9 application.

Analysis: The record disclosed complaints and communications regarding poor services, operational deficiencies, financial mismanagement, unauthorized cash transactions, revenue issues, and related counter-claims well before the demand notice. The materials also referred to a meeting held before the demand notice in which defects and deficiencies were raised. Although arbitration was invoked after the Section 9 filing, the earlier communications and contemporaneous material showed a real dispute existing prior to the insolvency action. The dispute was therefore not a mere moonshine defence.

Conclusion: A pre-existing dispute was established, and the Section 9 application was not maintainable.

Final Conclusion: The appeal failed because the impugned rejection of the insolvency application was sustained on both the maintainability of the claim and the existence of a prior dispute.

Operational debt and pre-existing dispute principles defeated a Section 9 insolvency claim on maintainability grounds.
An operational creditor's Section 9 insolvency claim was held unsustainable beyond the admitted principal amount because interest was not provided for in the governing agreement, the MoU claim lacked privity, and the Sales and Marketing Agreement claim could not be maintained by a non-party. The invoices were also treated as insufficiently supported in the absence of GST return or payment records despite opportunity. The record further showed complaints and communications about service deficiencies, financial mismanagement, unauthorized cash transactions and revenue issues before the demand notice, establishing a real pre-existing dispute rather than a moonshine defence. The insolvency application was therefore not maintainable.

Dismissal of the Section 9 application - pre-existing disputes - contractual agreements provided for arbitration clause - proforma invoices which contained a GST number - unsigned documents - failed to meet the minimum threshold requirement of Rs. 1 Cr. - deficiencies in the management of the property and business operations of the Respondent - HELD THAT:- When Section 9 application was filed on the basis of proforma invoices which contained a GST number, it was incumbent on the part of the Appellant to make GST payment. When the Adjudicating Authority gave reasonable opportunity to the Appellant to submit GST details and yet the latter failed to furnish the same, it gave sufficient basis for the Adjudicating Authority to doubt the validity of the claim. Since the Appellant failed to provide the GST details inspite of being given a chance by the Adjudicating Authority to do so, the Appellant cannot justifiably assert any infirmity in the impugned order on this count. When we look at the signatories of the SMA dated 10.06.2019, we find that the Appellant was not a signatory therein. The SMA was a tripartite agreement executed between LSMHPL, Corporate Debtor and IBFW with the Appellant clearly not being a party thereto. We, therefore, find substance in the contention of the Respondent that there was no privity of contract between the Appellant and the Respondent in respect of the SMA and hence the claim qua the SMA is misconceived as there was no contractual obligation on the Corporate Debtor. It is the case of the Appellant that the Corporate Debtor had been continuously availing the services from the Operational Creditor without raising any disputes contemporaneously. When there were no real- time disputes raised before the Section 8 Demand Notice it shows that the defence raised by the Corporate Debtor was feeble defence raised as an after- thought. If the disputes were genuine, it remains unexplained as to why the FMA was not terminated. Thus, at the point of time when the Appellant had raised a formal demand of outstanding debt under Section 9 of IBC, there was no record of dispute. Hence, the concerns raised by the Corporate Debtor on the quality of services rendered by the Operational Creditor and other deficiencies/ shortcomings/irregularities after the filing of the Section 9 application could not have been treated as pre-existing disputes as has been erroneously done by the Adjudicating Authority. It was also vehemently contended that not only were the agreements between the Appellant and Respondent not terminated but even the invocation of arbitration proceedings was done after the filing of the Section 9 application and hence cannot be treated as pre-existing dispute. The law on this aspect is well settled that in Section 9 proceedings, the Adjudicating Authority is not required to enter final adjudication with regard to existence of dispute between the parties regarding the operational debt but what has to be looked into is whether the defence has raised a plausible dispute which needs further adjudication by a competent court. Section 9 cannot be triggered for any debt which amount falls below threshold limits or for debts which are steeped in disputes. The stance taken by the Appellant that the Corporate Debtor was trying to manufacture disputes fails to pass muster for reasons discussed above. The defence raised by the Corporate Debtor cannot be held to be moonshine, spurious, hypothetical or illusory and for such disputed operational debt, Disputes pertaining to contractual issues are not to be resolved in Section 9 proceedings and hence in the present factual matrix, the Section 9 proceeding cannot be initiated at the instance of the Operational Creditor. In the given facts and circumstances, this is not a case where the Adjudicating Authority could have admitted the Section 9 application. We are of the considered view that the Adjudicating Authority has not committed any error in dismissing the Section 9 application filed by the Appellant.

2026 (1) TMI 423 - SC Order GST

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Writ challenge to consolidated GST adjudication order for multiple tax periods rejected; statutory appeal u/s107 directed
The dominant issue was maintainability of a writ petition challenging an adjudication order under the GST regime when an efficacious statutory appeal under s.107 of the CGST Act was available, including the contention that separate orders were required for a consolidated show cause notice covering multiple tax periods. The HC declined to entertain the writ on the ground of availability of the appellate remedy and relegated the petitioner to file an appeal under s.107. The SC dismissed the SLP as withdrawn and granted liberty to file the statutory appeal.

2026 (1) TMI 418 - SC Order Income Tax

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Unsecured loan cash credits and s.68 proof of identity, creditworthiness, genuineness-petition dismissed; deletion of additions upheld.
In a challenge to deletion of additions for unexplained cash credits/unsecured loans under s.68 of the Income-tax Act, the SC considered whether the assessee's onus to establish identity, creditworthiness, and genuineness raised any substantial question warranting interference. Holding that the matter did not merit exercise of discretionary jurisdiction under Art. 136 and finding no basis to disturb the HC's affirmation of the ITAT's order setting aside the first appellate authority's confirmation of the addition, the SC dismissed the petition, leaving the ITAT's deletion of the s.68 addition undisturbed.

2026 (1) TMI 417 - GUJARAT HIGH COURT Income Tax

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Issues: (i) Whether the jurisdictional Assessing Officer, upon receipt of incriminating material pertaining to an assessee from the Assessing Officer of the searched person, can reopen assessment under Sections 147/148 of the Income-tax Act, 1961 without any satisfaction recorded by the Assessing Officer of the searched person and without resort to Section 153C; (ii) Whether a searched person (under Section 153A) can be subjected to reopening under Sections 147/148 of the Income-tax Act, 1961 on the basis of incriminating material found during the search.

Issue (i): Whether jurisdictional AO can invoke Sections 147/148 solely on incriminating material transmitted from the AO of the searched person without a satisfaction note under Section 153C.

Analysis: The statutory scheme introduced search-specific provisions (Sections 153A153D) which begin with non-obstante clauses and create a distinct procedure for assessments arising from searches. Section 153C conditions assessment of a third person on the Assessing Officer of the searched person recording satisfaction about seized books/documents/ assets and transmitting material to the jurisdictional AO. Binding precedents and CBDT guidance require such satisfaction as a jurisdictional precondition. Where the jurisdictional AO relies exclusively on incriminating material sent by the AO of the searched person and no satisfaction note has been recorded, the special scheme governs and the jurisdictional AO cannot bypass it by invoking general reassessment provisions under Sections 147/148, unless the jurisdictional AO possesses material from independent sources (post-search) satisfying the requirements for reopening under Sections 147/148.

Conclusion: The jurisdictional Assessing Officer cannot reopen assessment under Sections 147/148 solely on the incriminating material transmitted without a satisfaction note; conclusion is in favour of the Assessee.

Issue (ii): Whether the searched person under Section 153A can be reopened under Sections 147/148 on the basis of incriminating material found during the search.

Analysis: Section 153A provides a special code for assessment of the searched person and contains an overriding clause excluding application of specified general provisions. The Supreme Court has held that where incriminating material is found the AO can proceed under Section 153A; where no incriminating material is found, Sections 147/148 may be resorted to subject to their conditions. Thus, for the searched person the special procedure of Section 153A applies to search-derived incriminating material and reopening under Sections 147/148 cannot be used to circumvent the search-specific framework unless independent material satisfying Sections 147/148 is available.

Conclusion: Reopening a searched person's assessment under Sections 147/148 on the basis of incriminating material found during search is impermissible in the absence of adherence to Section 153A; conclusion is in favour of the Assessee (searched person).

Final Conclusion: The special statutory mechanism for search-based assessments (Sections 153A153C) must be followed for matters arising from search material; jurisdictional Assessing Officers may resort to Sections 147/148 only when they have independent/post-search information or otherwise satisfy the statutory conditions for reopening. The Court applied these principles to the petition groups: petitions relying on independent post-search admissions/material were dismissed, whereas petitions where reopening relied solely on transmitted search material without a satisfaction note were allowed and reopening quashed.

Ratio Decidendi: Where assessment action is founded on material obtained from a search, the statutory scheme of Sections 153A153C (including the requirement of a recorded satisfaction note) governs and excludes resort to Sections 147/148 unless the jurisdictional Assessing Officer has independent material meeting the conditions for reassessment under Sections 147/148.

Third-party search seizures and reassessment notices: satisfaction note u/s153C required; reopening u/ss147/148 quashed without it
Where reassessment notices under ss.147/148 are founded on incriminating material seized in a search under ss.132/132A relating to a third party, the statutory scheme of ss.153A/153C (special provisions with overriding effect) governs. The HC held that recording of satisfaction by the AO of the searched person and transmission of such satisfaction with the seized material is a mandatory jurisdictional pre-condition for assumption of jurisdiction under s.153C; it is not a procedural formality. In the absence of such satisfaction, the AO of the "other person" cannot bypass s.153C and directly invoke ss.147/148 on the search material; such action is without jurisdiction and liable to be quashed. Reopening under ss.147/148 remains permissible only on independent, non-search material.

Validity of reopening of assessment provisions of Sections 147/148 based on material obtained during a search conducted u/s 132/132A without resorting to proceedings u/s 153A or 153C - principle of statutory interpretation - search u/s 132 was conducted on the entities, i.e. the searched persons u/s 153A and the information/material was derived/collected from such searches and forwarded to the jurisdictional Assessing Officers of the respective petitioners, i.e. the other persons under Section 153C, however, instead of recording satisfaction, the jurisdictional Assessing Officers proceeded to issue the impugned notices under Section 148 of the Act for reopening the assessments as submitted that Sections 153A and 153C are special provisions having non-obstante clauses for assessment or reassessment of income based on material seized during search proceedings u/s 132 and have an overriding effect on Sections 147/148 of the Act - whether it is mandatory in all such cases to invoke Section 153C? Recording of satisfaction u/s 153C and its impact on section 147/148 - HELD THAT:- The use of the expression “the Assessing Officer is satisfied” in Section 153C mandates the recording of satisfaction on the incriminating material sent to him/her by the Assessing Officer of the searched person. The law relating to the recording of satisfaction by the Assessing Officer of the searched person and its transmission to the jurisdictional Assessing Officer is no longer res integra. The Supreme Court in the case of Manish Maheshwari with Indore Construction (Pvt.) Limited [2007 (2) TMI 148 - SUPREME COURT] on a similar issue arising of non-recording of satisfaction note in the old provision of section 158BD(153C) as held that the AO has not recorded its satisfaction, which is mandatory; nor has it transferred the case to the AO having jurisdiction over the matter, we are of the opinion that the impugned judgments of the High Court cannot be sustained, which are set aside accordingly. The appeals are allowed. Unequivocally, the law mandates the recording of satisfaction by the Assessing Officer of the ‘searched person’ (u/s 153A of the Act) at the stage of transmission of seized material to the jurisdictional Assessing Officer of the ‘other person’ before assuming jurisdiction u/s 153C. The absence of satisfaction recorded by the AO of the searched person does not vest jurisdiction in the AO of the third person to directly invoke the provisions of Sections 147/148 of the Act on the incriminating material found during search, more particularly when the provisions of Section 153C of the Act are not followed. Such satisfaction is a statutory requirement and a jurisdictional pre-condition, and not a mere procedural formality. This position stands fortified by binding judicial precedents and the clarificatory Circular issued by the CBDT, which is binding on the Department. Scope of proceedings u/s 147/148, 153A, AND 153C r.w.s. 132 - HELD THAT:-We answer the issues by summarizing the observations as under: A) It is mandatory for the Assessing Officer of a “searched person” (Section 153A of the Act) to record satisfaction on the incriminating material found during the search under Sections 132/132A of the Act and communicate the same to the jurisdictional Assessing Officer of the “other/third person”. B) In the absence of any satisfaction note recorded by the Assessing Officer of the searched person, the jurisdictional Assessing Officer of the other person cannot assume jurisdiction u/s153C of the Act solely on the basis of material sent to him by the Assessing Officer of the searched person. In other words, the “other person” cannot be subjected to assessment/ reassessment under Section 153C of the Act on the material received by him sans a satisfaction note; hence, such an approach would be illegal, without jurisdiction, and liable to be quashed. C) The jurisdictional Assessing Officer of the “other/searched person” (Section 153C) can invoke the provisions of Sections 147/148 of the Act only on the basis of material available to him from other sources, other than the incriminating material sent to him. In case a satisfaction note is recorded on the incriminating material and transmitted to him/her, then the only recourse available to the jurisdictional AO is to proceed under Section 153C of the Act and not under Sections 147/148 of the Act. D) In the case of assessees who are subjected to reassessment under the provisions of Section 153A of the Act, the Assessing Officer cannot switch over or invoke the provisions of Sections 147/148 of the Act on the basis of incriminating material found during the search and seizure conducted under Sections 132 or 132A of the Act. However, the Revenue cannot be restricted, barred, or left remediless from invoking the provisions of Sections 147/148 of the Act, subject to fulfillment of the conditions mentioned therein, and the assessment can be reopened on the basis of material collected post-search from any other independent source.

2026 (1) TMI 414 - ITAT DELHI Income Tax

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Issues: (i) Whether the assessee's supply of KD parts constituted offshore sales with title, risk and rewards passing outside India; (ii) Whether the assessee had a supervisory permanent establishment in India through seconded employees; (iii) Whether the assessee had a fixed place permanent establishment in India through the Indian subsidiary's premises; (iv) Whether the addition made in the final assessment order survived.

Issue (i): Whether the assessee's supply of KD parts constituted offshore sales with title, risk and rewards passing outside India.

Analysis: The relevant invoices, bills of lading, insurance material and affidavit evidence showed that the goods were supplied on a principal-to-principal basis and that the transfer of title and risk occurred outside India. The inspection clause in the supply arrangement did not, by itself, establish that the sale was completed in India. The documentary material supported the assessee's claim that the transaction was an offshore supply.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether the assessee had a supervisory permanent establishment in India through seconded employees.

Analysis: The decisive inquiry was whether the seconded employees were carrying on the business of the foreign enterprise or were working for the Indian entity. The material on record, including the secondment terms, job profiles and surrounding facts, indicated that the employees were working for the Indian company and that the Revenue had not established operational control by the assessee over the Indian company's business. Mere reporting, information sharing or reimbursement of salary on cost-to-cost basis was held insufficient to establish supervisory PE.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether the assessee had a fixed place permanent establishment in India through the Indian subsidiary's premises.

Analysis: A fixed place PE requires a place of business at the disposal of the foreign enterprise through which its business is carried on. The Revenue failed to show that the Indian subsidiary's premises were to the assessee for carrying on its own core business or that the assessee exercised such control over the premises as to satisfy the disposal test. The assembly/manufacturing operations of the Indian subsidiary, without more, did not convert that unit into the assessee's fixed place PE.

Conclusion: The issue was decided in favour of the assessee.

Issue (iv): Whether the addition made in the final assessment order survived.

Analysis: Once offshore supply was accepted and both supervisory PE and fixed place PE were negated, there was no basis to attribute the disputed income to a PE in India. The consequential addition could not stand.

Conclusion: The addition was deleted.

Final Conclusion: The assessee succeeded on the substantive PE and offshore supply disputes, and the impugned addition was set aside, leaving only the minor procedural grounds to be dealt with separately.

Ratio Decidendi: A foreign enterprise is taxable on business profits in India only if the Revenue establishes, on cogent material, that it has a place at its disposal through which its own business is carried on or that seconded personnel are in fact performing the enterprise's business in India; mere subsidiary operations, salary reimbursement or internal communications are insufficient.

Offshore supply and permanent establishment rules: seconded employees and subsidiary premises did not create taxable Indian presence.
Offshore supply of KD parts was treated as completed outside India because invoices, bills of lading, insurance material and affidavit evidence showed principal-to-principal transfer of title and risk abroad; the inspection clause did not alter that result. A supervisory permanent establishment was not established because the seconded employees were found to be working for the Indian company, and reporting, information sharing or cost-to-cost salary reimbursement did not prove operational control by the foreign enterprise. A fixed place permanent establishment was also rejected because the subsidiary's premises were not shown to be at the foreign enterprise's disposal for its own business. With no PE and no taxable offshore supply connection, the attributed income addition could not stand.

Addition on supply of goods by the assessee to its subsidiary - income attributable to the PE of the assessee in India - India China DTAA - attribution of profits on offshore supply - Action of the Assessing Officer in determining Permanent Establishment (PE) of the Assessee in India by way of supervisory PE and Fixed Place PE - assessee SAIC Motor Corporation Limited is a tax resident of the Republic of China engaged in the business of research, production and sale of passenger cars and commercial vehicles. It is engaged in Automobile business under the brand "MG" - AO in the DAO held that the receipts from offshore supply are taxable in India as per the provisions of the Act and as per the provisions of the India- China DTAA - DRP held that the sales conducted by the assessee were offshore sales wherein the title and risk of the goods sold were transferred outside India and held that the findings of the AO in respect of the assessee not having conducted the offshore sales are contrary to facts. Supervisory PE in India - seconded employees arrangement - secondment of employees which may consist of technically trained personnel or persons with experience - HELD THAT:- AO referred to the employment agreement wherein the job profile assigns “supervisory responsibilities” but did not bring on record any material/ findings of the search conducted by the Investigation Wing to show that the seconded employees were engaged in the supervisory activity by the assessee company. The evidence on record does not show that the activities carried out by the six seconded employees were such nature to establish the supervisory PE of the Assessee.Thus, we hold that the assessee does not have a supervisory PE in India. Ground No. 6 to 6.1 of the Appeal are allowed. AO in view of the facts stated in DAO held that the Assessee had a Fixed Place PE of the assessee in India in the assembly unit owned by MFIPL - In this case, the assessee company supplied the goods in KD condition which is assembled/manufactured in India and sold to the Indian customers. This is an arrangement which generally speaking is followed by all the multinationals who set up their shop/subsidiary companies to sell their products in India. Again, generally speaking, these multinationals start manufacturing their products in India by procuring materials locally. Thus, it is an arrangement which is followed by a multinational to set-up its base in a country where it sells its products in India and / or export it to other countries. Such an arrangement cannot be termed as ‘Fixed Place PE’ unless it is established by the Revenue that the assessee has a fixed place of business in India which is at disposal where the assessee has the right to use the said place and has control thereupon. No such evidence has been brought on record either by the Assessing Officer or in the Ld. DRP proceedings that the assessee satisfied the said conditions as held in the case of One World Championship Ltd [Formula One World Championship Ltd vs CIT(International Taxation) [2017 (4) TMI 1109 - SUPREME COURT] (a) existence of fixed place of business and ; (b) through that place business of an enterprise is wholly or partly carried out As already held by us that the assessee has no Supervisory PE in India through the six seconded employees. Therefore, the submissions of the Ld. CIT(DR), that Fixed Place PE of the case of the assessee is linked to Supervisory PE through its personnel and the Assessee Company through its six seconded employees got access to the office premises of MGMIPL is not acceptable. In view of these facts, the decision relied by the Ld. CIT(DR) does not support the case of the assessee. Merely the fact that the manufacturing activity of KD products by its subsidiary cannot amount to Fixed Place PE without satisfying the above two conditions. No evidence was brought on record by the Revenue that the Assessee had an access to it i.e., business premises of MGMIPL from where the business of the assessee company was carried out. DRP in its order had taken note that an affidavit was also submitted by the Deputy Managing Director of MGMIPL on a Non-Judicial Stamp Paper that even though, the agreement provided for the procedure of inspection of the KD Parts there were no employees or other personnel of the SMCL present in India for the FY 2021-22 and hence no inspection was conducted by any employee/personnel of the SMCL during the subject year. Therefore, this fact does not support the case of the Assessing Officer that designated personnel of the assessee company will have a permanent place in the office in Gurgaon to fulfil his duties in India as described above because without which the contracts could not get competed because no such inspection by the assessee company was carried out during the year. We are afraid that if the view of the revenue that the assessee company earns income, when the car is assembled in India to establish a Fixed Place PE is acceptable, then, it will create huge disruptions in the taxability of the incomes of the parent/subsidiary set-up in a multinational set-up driven economies in the entire world wherein such an arrangement like in the case of the assessee is the norm. We hold that the assessee company does not have a Fixed Place PE in India as held by the Assessing Officer and confirmed by the Ld. DRP. Ground No. 7 to 7.4 of the appeal are allowed. Also, we hold that there is no permanent establishment of the assessee in India either by way of Supervisory PE or Fixed Place PE. Hence, Ground No. 5 of the Appeal is also allowed.

2026 (1) TMI 413 - ITAT MUMBAI Income Tax

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, for the purposes of applying section 56(2)(vii)(b) in respect of purchase of an immovable property, the relevant stamp-duty/ready-reckoner value should be taken as on the date of allotment (booking/allotment letter) or as on the date of registration of the sale agreement, where consideration (or part thereof) was paid through banking channels before registration.

(ii) Whether any addition under section 56(2)(vii)(b) could survive in the impugned year when the stamp-duty/ready-reckoner value as on the relevant earlier date (allotment) was lower than the actual purchase consideration, even though the stamp-duty value as on the registration date was higher than the stated consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Relevant date for adopting stamp-duty value (allotment vs registration)

Legal framework (as discussed by the Tribunal): The Tribunal examined the provisos to section 56(2)(vii)(b), which permit adoption of stamp-duty value as on the date of the agreement (where agreement date and registration date differ), with the further condition that consideration, or part thereof, must have been paid by a mode other than cash on or before the date of the agreement.

Interpretation and reasoning: The Tribunal found, on facts, that the flat was booked in an earlier financial year and an allotment letter was issued in that year, and that payments were made through banking channels. On this basis, it held that the stamp-duty/ready-reckoner value is required to be adopted as on the date of allotment (i.e., in the earlier financial year), rather than taking the valuation as on the registration date in the impugned year.

Conclusion: The Tribunal concluded that, in the given facts where allotment occurred earlier and consideration was paid through banking channels, the stamp-duty valuation relevant for section 56(2)(vii)(b) was the value as on the date of allotment (earlier year), not the value as on the date of registration.

Issue (ii): Sustainability of addition under section 56(2)(vii)(b) in the impugned year

Interpretation and reasoning: After adopting the stamp-duty/ready-reckoner value as on the allotment year, the Tribunal noted that the ready-reckoner value for that earlier year was lower than the actual purchase consideration paid by the assessee. Since section 56(2)(vii)(b) is attracted only where the stamp-duty value exceeds the consideration (beyond the statutory threshold), the Tribunal held that no addition could be made when the consideration was higher than the relevant stamp-duty/ready-reckoner value. Consequently, the addition computed in the impugned year by comparing registration-year stamp-duty value with stated consideration was held to be unsustainable.

Conclusion: The Tribunal set aside the appellate order and quashed the addition made (including the amount allocated to the assessee's joint ownership share), holding that the addition under section 56(2)(vii)(b) did not arise on the correct adoption of stamp-duty/ready-reckoner value as on the allotment date.

Property booking and allotment date vs registration stamp value for s.56(2)(vii)(b) addition; tax addition deleted.
The dominant issue was whether an addition under s.56(2)(vii)(b) could be made by comparing the purchase consideration with the stamp-duty valuation as on the year of registration, despite an earlier allotment. The Tribunal held that where the assessee booked the property earlier, received an allotment letter in that year, and paid consideration through banking channels, the relevant stamp-duty/ready-reckoner value is that prevailing on the allotment date. On facts, the ready-reckoner value in the allotment year was lower than the actual consideration, rendering any differential computation impermissible. Accordingly, the addition made for the assessee's 50% share was deleted and the appeal was allowed.

Addition u/s 56(2)(vii)(b) - assessee purchased the said flat with joint ownership but during the impugned assessment year the stamp duty valuation of the property was more - difference amount was treated as the contravention of section 56(2) - assessee adopted the stamp-duty/ ready-reckoner value applicable in F.Y. 2016-17 - Considering the 50% share of the assessee, half of the amount was added back with the total income of the assessee HELD THAT:- In the present case, the assessee entered into an agreement for purchase of the property, pursuant to which an allotment letter was duly issued by the promoter. The consideration was paid through proper banking channels. Accordingly, the stamp-duty valuation of the property is required to be adopted as on the date of allotment, i.e., Financial Year 2016-17. On perusal of the ready-reckoner value applicable for F.Y. 2016-17, it is observed that the stamp-duty valuation of the property was Rs. 4,19,98,028/-, whereas the actual purchase consideration paid by the assessee was Rs. 4,50,00,000/-, which is significantly higher than the ready-reckoner value. Consequently, the addition being 50% representing the difference between the stated consideration and the stamp-duty valuation, is unsustainable in the impugned assessment year. As undisputed fact that the assessee purchased the flat jointly with her husband for a total consideration of Rs. 4,50,00,000/-. The stamp-duty valuation of the property in the year of registration was Rs. 4,55,55,939/-. However, the documentary evidence placed on record clearly establishes that the assessee had booked the flat during F.Y. 2016-17 and the allotment letter was duly issued during the said financial year. The assessee has rightly adopted the stamp-duty/ ready-reckoner value applicable in F.Y. 2016-17, wherein the valuation of the property was Rs. 4.19 crore, which is lower than the actual cost of acquisition. In view of the provisions of section 56(2)(vii)(b) of the Act, where the consideration has been paid through banking channels and the allotment has taken place in an earlier year, the stamp-duty valuation as on the date of allotment alone is relevant. Therefore, the observations and conclusions drawn by the Ld. AO as well as the Ld. CIT(A) are contrary to the statutory provisions of section 56(2)(vii)(b) of the Act. AR has rightly placed reliance on the decision of Awadhnarayana Bhagwanta Singh [2025 (12) TMI 1423 - ITAT MUMBAI] wherein it was held that the stamp-duty valuation as on the date of allotment is to be adopted. Also see Manjulaben Himmatlal Jain [2024 (11) TMI 688 - ITAT MUMBAI] Assessee appeal allowed.

2026 (1) TMI 412 - ITAT GUWAHATI Income Tax

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the confirmed addition under section 69A in respect of cash deposits could be sustained when the assessee claimed, for the first time at the appellate stage, that a substantial portion of the cash deposited belonged to a company (debtor collections) and the balance represented past savings/opening balance, requiring verification by the Assessing Officer.

(ii) Whether penalty under section 271B was justified where the assessee admittedly did not get accounts audited despite turnover exceeding the statutory threshold, and contended that exemption under section 10(26) relieved him from maintaining books and audit compliance.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustenance of section 69A addition for part of cash deposits vs. remand for verification

Legal framework (as discussed): The Court examined the addition made under section 69A on the basis that large cash deposits in bank accounts remained unexplained for want of satisfactory source explanation and supporting evidence, particularly where the assessee conceded non-maintenance of books of account.

Interpretation and reasoning: The Court noted that the assessee deposited substantial cash in bank accounts and, despite opportunities, did not satisfactorily explain the source during assessment. The appellate authority had deleted a major portion but confirmed a balance addition. Before the Court, the assessee asserted that the confirmed portion comprised (a) cash collected on behalf of a company from its debtors and deposited into the assessee's bank account, and (b) past savings/opening balance, and emphasized that these factual explanations were not presented before the Assessing Officer and were not properly appreciated.

Conclusions: In the interests of justice, and because the explanations relied upon required factual verification and were not examined by the Assessing Officer, the Court remitted the matter relating to the confirmed section 69A addition back to the Assessing Officer for fresh examination on merits in accordance with law, after granting reasonable opportunity. The assessee was directed to substantiate the source with cogent documentary evidence, and cautioned against unnecessary adjournments.

Issue (ii): Validity of penalty under section 271B despite claim of exemption under section 10(26)

Legal framework (as discussed): The Court considered the interrelation of sections 44AA (maintenance of books), 44AB (audit requirement), and 271B (penalty for failure to get accounts audited), and addressed the assessee's contention that exemption under section 10(26) negated these compliance obligations.

Interpretation and reasoning: The Court found that the assessee admitted non-maintenance of books and also did not obtain audit, while turnover (excluding GST) exceeded the prescribed limits. It rejected the argument that exemption under section 10(26) dispensed with the obligation to maintain books and obtain audit under the Act. The Court further held that failure to maintain books under section 44AA and failure to get accounts audited under section 44AB are separate and independent defaults, governed by different statutory conditions. It also held that section 271B does not require, as a pre-condition, that penalty for non-maintenance of books be levied first, nor does absence of such penalty bar penalty for non-audit.

Conclusions: The Court upheld the confirmation of penalty under section 271B, finding no infirmity in the appellate authority's decision, since turnover exceeded the threshold and the assessee failed to comply with audit requirements, and the "exempt income" contention did not provide a valid basis to avoid statutory audit compliance in the circumstances.

Cash deposits explained as debtor collections and past savings/opening balance; s.69A addition remanded, s.271B audit-penalty upheld.
Addition under s.69A for cash deposits was contested on the ground that the deposits comprised debtor collections received from a third party and past savings/opening balance, which were allegedly not properly placed before the AO and not duly appreciated by CIT(A). Holding that these factual explanations required fresh verification on merits, the ITAT remitted the issue to the AO for de novo examination and decision as per law. Separately, penalty under s.271B for failure to get accounts audited was upheld: the Tribunal held that obligations under s.44AA (maintenance of books) and s.44AB (audit) are distinct, and levy of penalty for non-maintenance does not bar penalty for non-audit; consequently, the assessee's appeal on penalty was dismissed.

2026 (1) TMI 411 - ITAT DELHI Income Tax

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether the international transactions relating to (i) Annual Maintenance/Trading of spare parts (AMC-related activity) and (ii) Agency & Marketing Support Services were required to be benchmarked segment-wise on the basis of the assessee's segmental accounts, or could be aggregated and benchmarked on an entity-wide basis by treating both as one composite segment for determining the arm's length price.

2. Whether the amount paid as non-compete fee was to be treated as revenue expenditure in light of the later Supreme Court ruling, and what consequential treatment was to be given to the depreciation already claimed by the assessee on such non-compete fee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Segment-wise vs. aggregated benchmarking for transfer pricing (AMC segment and Agency & Marketing Support Services segment)

Legal framework (as discussed by the Tribunal): The Tribunal proceeded on the basis that determination of arm's length price had to be tested in accordance with the transfer pricing provisions, including application of the tolerance range under the proviso to section 92C(2), and that benchmarking had to be performed in a manner consistent with the functional segregation accepted on record.

Interpretation and reasoning: The Tribunal held that the transfer pricing controversy was effectively governed by the findings in the assessee's own earlier years, where the business activities were accepted as comprising two different segments. Relying on the approach reflected in the extracted prior-year reasoning, the Tribunal accepted that the functional, asset and risk profile of the AMC-related activity differed from that of Agency & Marketing Support Services, and therefore the entity-wide aggregation adopted by the TPO/AO was not to be maintained. The Tribunal also adopted the principle that where segmental accounts exist, benchmarking is to be carried out segment-wise, subject to verification of the segmental accounts and comparables and after granting opportunity to the assessee.

Conclusions: The Tribunal restored the arm's length price determination to the AO/TPO with directions to (i) treat the assessee's operations as comprising two segments as presented, (ii) conduct benchmarking separately for each segment, (iii) analyze the assessee's submissions and comparables and pass an order after hearing the assessee, and (iv) test whether the resulting margins fall within the tolerance range contemplated under the proviso to section 92C(2); if within range, no adjustment would be warranted.

Issue 2: Treatment of non-compete fee and consequential handling of depreciation already claimed

Legal framework (as applied by the Tribunal): The Tribunal applied the later Supreme Court decision on the tax treatment of non-compete fee, and issued consequential directions to give effect to that ruling in the assessment, including addressing the downstream impact on depreciation already claimed.

Interpretation and reasoning: The Tribunal noted that the appellate authority had earlier followed the then-prevailing High Court view to deny depreciation, inter alia on the reasoning that the payment was capital/personal in nature. However, since the Supreme Court had subsequently settled the treatment of non-compete fee as revenue expenditure, the Tribunal held that the assessment must be aligned with that binding position. Given that the assessee had already claimed depreciation by treating the non-compete fee as part of depreciable assets, the Tribunal considered it necessary for the AO to recompute the correct tax treatment consistent with the Supreme Court's ruling, with the assessee's assistance, rather than mechanically sustaining the earlier depreciation disallowance.

Conclusions: The Tribunal directed the AO to (i) treat the non-compete fee as revenue expenditure in accordance with the Supreme Court ruling, and (ii) work out the appropriate treatment for the depreciation already claimed by the assessee on the non-compete fee, using (as an aid for implementation) the portion of the earlier High Court reasoning that dealt with depreciation, insofar as it could assist in giving effect to the Supreme Court's order.

Transfer pricing benchmarking for indenting/marketing support vs spare parts trading segments, plus non-compete fee treatment; remanded for recomputation.
On TP adjustment under s.92, the Tribunal held that combining the indenting/marketing support segment with the trading of spare parts (AMC) segment was improper where the assessee had presented distinct segments; accordingly, the AO/TPO was directed to accept the two-segment characterization, redo benchmarking segment-wise after considering the assessee's comparables and submissions, and re-test the ALP within the proviso to s.92C(2) tolerance range, with the ALP issue remanded. On characterization of non-compete fee, in light of the latest SC ruling settling the law, the AO was directed to treat the non-compete fee as revenue in nature and to rework consequential depreciation treatment already claimed, applying the relevant guidance, resulting in remand for recomputation.

TP Adjustment - addition to the returned income of the Appellant made by AO / TPO by re-computing the arm’s length price of the international transactions u/s 92 - treating Indenting / Marketing support segment and Trading of spare parts (AMC) segment as single business segment - HELD THAT:- We direct the AO/TPO to consider the two segments of the business as presented by the assessee. Thereafter, the Bench marking has to be done with respect to the two segments of business. TPO would analyze and consider the submissions of the assessee, including the details of comparables provided by him, and thereafter pass an appropriate order on the segmental aspects of the assessee’s business. Secondly, the TPO would also test his conclusions on the parameters and conclusions arrived at by the assessee and see if the same are within the tolerance level provided in the proviso to section 92C(2) of the Act. Accordingly, with these directions the issue of working out ALP is restored to the file of the Ld.TPO/AO Nature of receipt - revenue or capital receipt - non-compete fee receipt - HELD THAT:- We find that the CIT(A) was right at that point in time to follow the Hon’ble Delhi High Court in the Sharp Business System case [2012 (11) TMI 324 - DELHI HIGH COURT]. However, with the latest judgment of the Hon’ble Supreme Court [2025 (12) TMI 1235 - SUPREME COURT] the issue is now settled regarding the treatment to be given to non-compete fees and respectfully following the same, we direct the Ld. AO as under: 1. The AO must follow the said judgment in treating noncompete fees as a revenue expenditure. 2. The Ld. AO must, with the help of the assessee, work out the treatment to be given to the said asset now in the light of the Apex Court’s judgment, with regard to the depreciation already claimed by the assessee. In this regard the portion pertaining to depreciation issue in the Delhi High Court’s Judgment (supra) can also be utilized for giving effect to the Hon’ble Apex Court’s order.

2026 (1) TMI 407 - CESTAT NEW DELHI Customs

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the re-imported goods qualified for the exemption under Notification No. 94/96-Cus (Sl. No. 2) on the requirement that "the goods are the same which were exported", despite absence of "marks and numbers" on the goods.

(ii) Whether, upon establishing eligibility to the said exemption, the re-determination of value and the consequential confiscation, redemption fine, and penalty could be sustained.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Satisfaction that the re-imported goods were the same as the exported goods for purposes of Notification No. 94/96-Cus (Sl. No. 2)

Legal framework: The Court considered Section 20 of the Customs Act, 1962 (re-imported goods to be treated as imported goods), and the exemption under Notification No. 94/96-Cus (Sl. No. 2), which limits duty to the duty leviable on the fair cost of repairs (including materials, insurance, and freight both ways). The notification's proviso requires the proper officer to be satisfied that (a) the goods are re-imported within the prescribed period, and (b) "the goods are the same which were exported" (and, for Sl. No. 2, no change in ownership).

Interpretation and reasoning: The Court identified the sole dispute as whether sufficient evidence existed to establish identity of the re-imported goods with the exported goods. It found that the notification does not specifically mandate "marks and numbers" as the only method of identification. While the lower authorities denied the exemption because the goods lacked marks and numbers, the Court held that identity can be established through documentary linkage. It relied on the consistent chain of documents connecting export for repair and re-import after repair: the re-import invoice referenced an order confirmation; the airway bill also referred to the same confirmation; the export commercial invoice described sending defective parts of the relevant machine for repair on returnable basis; and a certificate from the foreign repairer certified that the specified parts dispatched under the re-import invoice were re-export after repair and had been received earlier under the export invoices. On this basis, the Court was satisfied that the exported and re-imported goods were the same.

Conclusion: Documentary evidence established the required link between export and re-import; therefore, the appellant was entitled to the benefit of Notification No. 94/96-Cus dated 16.12.1996.

Issue (ii): Sustainability of re-determined value, confiscation, redemption fine, and penalty after holding the exemption applicable

Interpretation and reasoning: The re-determination of value and the punitive measures were founded on denial of the exemption (premised on lack of marks and numbers and alleged failure to establish identity). Once the Court concluded that identity was established and the exemption applied, the basis for re-determining the value on a non-exemption footing and for treating the declaration as warranting confiscation and penal consequences did not survive.

Conclusion: The re-determination of value, confiscation, redemption fine, and penalty were held unsustainable and were set aside along with the impugned order; the appeal was allowed with consequential relief.

Customs exemption for re-imported repaired parts without identification marks upheld, based on invoices, airway bills, repairer certificate.
The dominant issue was whether exemption under Not. No. 94/96-Cus for re-imported goods after repairs could be denied for lack of physical identification marks. The Tribunal held that, despite absence of marks and numbers, the identity link between exported defective parts and re-imported repaired parts was sufficiently established through contemporaneous documentary evidence, including commercial invoices, airway bills, and the repairer's certificate; therefore, the exemption was allowable. Consequentially, re-determination of value, confiscation, redemption fine, and penalty-premised on denial of exemption-were unsustainable, the appellate order was set aside, and the appeal was allowed with consequential relief.

2026 (1) TMI 406 - CESTAT NEW DELHI Customs

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Classification of pressure relief valves under Heading 8481 upheld over parts of diesel engine heading 8409
Pressure relief valves imported for a common rail fuel injection system were classifiable under Heading 8481 as safety or relief valves because they were complete valves in themselves, designed to relieve excess pressure by spring actuation. Heading 8481 continues to apply even where such valves are specialised for a particular machine or vehicle, and Section Note 2 to Section XVI requires goods covered by a specific heading to be classified there rather than as machine parts. They could not be shifted to Heading 8409 merely because they were used in a diesel engine system, so classification under Heading 8481 was upheld.

Classification of "pressure relief valves" used in a common rail fuel injection system - function of valves described in the HSN Explanatory Notes - classifiable as "Safety or relief valves" under CTI 8481 40 00, or as "parts suitable for use solely Or principally with diesel engines for motor vehicles" under CTI 8409 99 41 - HELD THAT:- It would be seen that machinery parts which are complete valves in themselves are not excluded from the scope of CTH 8481. The goods involved in the present appeal are complete valves and are not machinery parts incorporating a valve. The goods are also not machinery parts performing the function of valve. It also needs to be noted that they do not regulate the flow of any fluid, since they only relieve excess pressure, when required. It will now be appropriate to examine whether the goods are classifiable under CTI 8409 99 41. It is seen that CTH 8409 covers parts suitable for use solely or principally with the engines of heading 8407 or 8408. CTI 8409 99 41 covers goods which are parts suitable for use solely or principally with the diesel engines for motor vehicles. Section Note 2 to Section XVI can be taken note of as it lays down provisions to classify parts of goods of Chapter 84 and 85. In the present case, the goods are covered under Section Note 2(a) as there is a specific heading for valves, which are specifically covered under CTI 8481 40 00. The Commissioner (Appeals) has recorded a finding that CTH 8409 is excluded from the purview of Section Note 2(a). To examine this, it will be necessary to examine HSN Explanatory Note to Part-II for Section Note 2 of Section XVI. It clearly provides that parts which constitute a part are to be classified in their own respective heading even if it is specifically designed to work as part of a specific machine. The HSN Explanatory Notes to Section XVI explain the scope of Section Note 2 and provide that valves are classifiable under CTH 8481 even if it is a ‘part’. Only if parts cannot be classified as per Section Note 2(a), recourse has to be made to Section Note 2(b) which states that parts other than those covered by Section Note 2(a), if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in CTH 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. The Commissioner (Appeals) has also held that the appellant had only quoted partial HSN Explanatory Notes to CTH 8481 and if the complete Note is read, machinery parts which regulate flow in a machine, though not complete valves in themselves are to be classified as part of a machine. It would be seen that machinery parts which are complete valves in themselves are not excluded from the scope of CTH 8481. The goods involved in the present appeal are complete valves and are not machinery parts incorporating a valve. The goods are also not machinery parts performing the function of valve. It also needs to be noted that they do not regulate the flow of any fluid, since they only relieve excess pressure, when required. Thus, the pressure relief valves imported by the appellant cannot not be classified under CTI 8409 99 41. Thus, the pressure relief valves imported by the appellant were correctly classified by the appellant under CTI 8481 40 00. The Commissioner (Appeals) committed an error in classifying them under CTI 8409 99 41. Appeal is, accordingly, allowed.

2026 (1) TMI 405 - CESTAT NEW DELHI Customs

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether penalties could be sustained on the premise that restricted rough marble was cleared for home consumption without valid licence coverage, when the department relied only on electronic Bill of Entry data and licence details, without producing assessed Bills of Entry, adjudication orders, or evidence of clearance without adjudication/redemption.

(ii) Whether, in the absence of evidence showing collusion/negligence of Customs officers or release by the custodian without "out of charge", the Court should presume regularity of official acts and accept that disputed clearances likely occurred only after adjudication/redemption fine/penalty (or licence amendment), thereby defeating the foundation for confiscation-based penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustainability of penalties where the department lacked assessed records/adjudication orders and proceeded on assumptions from ICES and licence data

Legal framework (as discussed by the Court): The Court examined the pre-self-assessment import clearance process under the Customs Act, including filing of Bill of Entry under section 46, assessment/examination under section 17, and clearance for home consumption under section 47. It also noted that if restricted goods were imported without adequate licence coverage, they would be liable to confiscation under section 111 and penalty under section 112, typically after show cause notice and adjudication, with release often on payment of redemption fine under section 125.

Interpretation and reasoning: The Court treated it as undisputed that the commodity was restricted and that in some Bills of Entry the import quantity exceeded the quantity indicated in the corresponding licence or lacked full coverage. However, the Court found that the department's case rested on an inference drawn merely from comparing (a) Bills of Entry data available in the electronic system and (b) licence quantities issued by the licensing authority. The Court held this comparison was incomplete because it did not establish what occurred after filing of the Bill of Entry-particularly whether the consignments were subjected to offline adjudication and released on payment of redemption fine/penalty (or covered by licence amendments), a practice which statements of the importer, its agent, and Customs officers indicated had occurred. The Court emphasised that the department could not produce adjudication orders or assessed Bills of Entry reflecting manual adjudication entries and redemption particulars, and that it was therefore impermissible to presume, solely from missing old records, that goods were cleared without licence and without adjudication.

Conclusions: The Court concluded that the show cause and the impugned orders proceeded on assumptions unsupported by positive evidence of unauthorised removal/clearance without adjudication. Consequently, the penalties imposed could not be sustained on merits.

Issue (ii): Presumption of regularity in Customs clearance; absence of evidence of collusion/negligence or custodian release without "out of charge"

Legal framework (as discussed by the Court): The Court analysed the multi-officer clearance architecture for the relevant period: assessment by the appraising officers, physical examination, and issuance of "out of charge" under section 47 only upon satisfaction that duty was paid and goods were not prohibited. The Court also considered the role of the custodian, who releases goods only upon production of requisite documents including the Bill of Entry with the Customs "out of charge".

Interpretation and reasoning: The Court reasoned that, given the structured clearance process involving multiple Customs functionaries and the custodian, it was not plausible that restricted goods could be removed from the Customs area without either (a) a valid licence or (b) adjudication leading to confiscation with an option of redemption and consequent payment of fine/penalty, followed by "out of charge". Accepting the department's conclusion would necessarily imply that, across the disputed Bills of Entry, all officers involved (and/or the custodian) had either colluded or acted negligently; the Court found there was no evidence whatsoever to support such an implication. In the absence of evidence to the contrary, the Court held it must be presumed that clearances occurred through regular official process, including adjudication/redemption where licence shortfall existed, consistent with confirmations recorded during investigation. The Court also held that if adjudication had already been done for the same goods, initiating another proceeding again proposing confiscation/fine/penalty on the same basis was unsustainable.

Conclusions: The Court declined to accept the department's theory of clearance without licence/adjudication, held the foundational factual premise for penalties was unproven, and set aside the penalties not only on the importer entity but also on the other noticees whose penalties were based on the same impugned findings.

Final outcome applied to all issues: On merits, the Court set aside the impugned orders and allowed all appeals. Having decided in favour of the appellants on merits, the Court did not examine limitation.

Rough marble imports under SIL licences challenged as restricted; penalties u/s112 and confiscation u/s111 set aside
The dominant issue was whether penalties under s.112 could be sustained for import of restricted rough marble allegedly in excess of, or without, valid SILs under the Foreign Trade Policy, rendering the goods liable to confiscation under s.111. The Tribunal held that the DRI's case rested on presumptions because adjudication orders, records of fines/penalties, and complete Bills of Entry details were unavailable, and no adverse inference could be drawn against the importers when Customs had cleared the goods with "out of charge" in the normal course. In the absence of affirmative evidence of unauthorised importation without licence coverage, penalties and confiscation proposals were unsustainable. The impugned orders were set aside and all appeals allowed.

Confiscation for import without licence - confiscation and penalty for non-compliance with import licensing restrictions - onus on revenue to prove clearance without adjudication - presumption of regularity of official acts - requirement of positive evidence of unauthorized removal of goods - availability and production of adjudication records in show cause proceedingsConfiscation for import without licence - onus on revenue to prove clearance without adjudication - presumption of regularity of official acts - availability and production of adjudication records in show cause proceedings - Whether the impugned orders holding goods liable to confiscation and imposing penalties could be sustained when the department relied on ICES data showing mismatch between SILs and Bills of Entry but did not produce adjudication orders or other positive evidence that the goods were cleared without licence or adjudication. - HELD THAT: - The Tribunal found it undisputed that restricted goods were imported and that some Bills of Entry showed quantities exceeding the corresponding SILs. However, during the relevant period assessment and clearance involved multiple officers (appraiser, assistant commissioner, examining officer and the out-of-charge officer) and the custodian; it is implausible that goods would be cleared without the out-of-charge unless there was collusion or negligence by all these officers. The DRI, having access only to ICES entries and DGFT licence data, could not locate or produce adjudication orders, records of redemption fines or manual entries that would show that adjudication did not occur; many adjudication records were not part of ICES and were unavailable due to age. The Tribunal held that where the department issues a show cause notice alleging unauthorized clearance or absence of adjudication, it must first investigate and produce positive evidence to support that inference; an adverse inference cannot be drawn merely from a mismatch between electronic Bills of Entry and licences without evidence of what transpired after filing the Bill of Entry. In the absence of any material showing that goods were removed without out-of-charge or that officers colluded/neglected their duties, the presumption of regularity in official acts favours the importer and precludes sustaining confiscation and penalties. The Tribunal therefore resolved the controversy on merits in favour of the appellants and did not examine the question of limitation. [Paras 23, 24, 26, 27, 28]Impugned orders holding the goods liable to confiscation and imposing penalties are set aside; appeals allowed.Final Conclusion: The Tribunal, on the merits, allowed all six appeals, set aside the impugned orders of confiscation and penalties because the department failed to produce positive evidence that goods were cleared without adjudication or licence and the presumption of regularity of official acts favoured the appellants; limitation was not decided.

2026 (1) TMI 404 - CESTAT NEW DELHI Customs

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether import of restricted gold dore bars under an import licence stating that the import is "subject to" a specified customs exemption notification conclusively bars the importer from claiming another, otherwise applicable, exemption notification providing a NIL rate of duty.

(ii) Whether customs authorities can sustain a demand for duty on the premise of violation/misuse of import licence conditions where the import licence remains valid and has not been cancelled or invalidated by the competent authority under the foreign trade law framework.

(iii) Whether, upon failure of the duty demand, consequential confiscation-based action (confiscation liability, redemption fine, and penalty) can be maintained.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Effect of licence condition "subject to" a specified notification on availability of another exemption (NIL duty) notification

Legal framework (as discussed by the Court): The Court examined the 2008 exemption notification granting exemption (including NIL basic customs duty and AIDC) to specified goods originating from listed least developed countries, and the notification referenced in the licence (issued in 2012 and later superseded in 2017) prescribing concessional duty for gold dore bars subject to stated conditions.

Interpretation and reasoning: The Court held that the licence condition stating that the import is "subject to" the specified notification does not, by itself, impose a bar on availing another exemption which otherwise applies to the imported goods. The Court found that the licence condition did not expressly stipulate that no other exemption could be claimed, nor did it mandate that duty must be paid at the rate indicated in the referenced notification "if and only if" the importer complied with that payment. The Court rejected the adjudicating authority's construction that the licence conditions were satisfied only upon payment of duty under the referenced notification.

Conclusion: The Court concluded that, on the terms of the licence as issued, the importer was not prohibited from claiming the 2008 exemption notification merely because the licence referenced the 2012 notification; therefore, denial of the 2008 exemption solely on that basis was unsustainable.

Issue (ii): Jurisdiction of customs authorities to raise duty demand premised on licence-condition violation when the licence remains valid

Legal framework (as discussed by the Court): The Court considered the institutional allocation of authority between the foreign trade administration (licensing authority) and customs, and applied the principle that the validity and continuation of a licence/instrument issued under the foreign trade law framework is for the competent licensing authority to examine and determine.

Interpretation and reasoning: The Court held that customs could proceed to recover duty on the footing of licence-condition breach only if the licence had been cancelled/invalidated by the licensing authority. Since the import licence was valid and subsisting, and there was no determination by the licensing authority cancelling it, customs could not sustain a duty demand by effectively treating the licence as unusable or violated in a manner that defeats the benefit flowing from it.

Conclusion: The Court concluded that, absent cancellation/invalidity of the licence by the competent authority, the duty demand under the customs law provisions on the asserted licence-condition violation could not be sustained.

Issue (iii): Sustainability of confiscation liability, redemption fine, and penalty once duty demand fails

Interpretation and reasoning: The confiscation liability, redemption fine in lieu of confiscation, and penalty had been founded on the premise that the importer wrongly claimed the 2008 exemption and thereby violated licence conditions rendering the goods liable to confiscation. Since the Court held that the duty demand itself could not stand (both because the 2008 exemption was not barred by the licence terms as construed, and because customs could not sustain the demand without licence cancellation), the confiscation-based consequences could not survive.

Conclusion: The Court set aside the duty demand and, consequentially, also set aside the penalty and redemption fine; the impugned order was therefore entirely set aside and the appeal was allowed.

Gold dore bar imports under "subject to" licence clause: earlier customs duty exemption allowed; duty demand set aside
The dominant issue was whether an import licence condition stating that import of gold dore bars is "subject to" a later exemption notification barred the importer from claiming a separate, earlier customs duty exemption. The Tribunal held that "subject to" did not exclude other available exemptions; absent an express prohibition, an importer may avail any notification granting exemption, and the Commissioner's "if and only if" reading was unsupported by the licence terms. It further held, applying the HC's harmonised interpretation of the Customs Act and FTDR framework, that Customs could question duty liability on the basis of licence invalidity only if the DGFT had cancelled the licence. Consequently, duty demand, penalty, and redemption fine were set aside and the appeal was allowed.

Availing exemption of customs duty under N/N. 96/2008-Cus dated 13.08.2008 on import of gold dore bars from Tanzania in terms of the Import License dated 16.09.2021 issued by the Directorate General of Foreign Trade permitting imports subject to N/N. 12/2012-Cus dated 17.03.2012 - whether the appellant could have taken benefit of the 2008 Exemption Notification when the Condition of the License issued to the appellant provided that the import of gold dore bars is subject to the 2012 Notification? - HELD THAT:- A perusal of the Condition shows that the import has been made subject to the 2012 Notification. It does not provide that the benefit of any other Notification, which otherwise would be available to the appellant, cannot be availed of by the appellant. The appellant may have had to discharge customs duty provided under the 2012 Notification, but if there is a Notification which exempts payment of customs duty than there is no bar in the appellant availing the benefit of the said Notification. The finding recorded by the Principal Commissioner that the Conditions of License can be fulfilled “if and only if” customs duty is paid in terms of the 2012 Notification is, therefore, not borne out from the Conditions of License. In M/s. Designco and others vs. Union of India [2024 (11) TMI 1150 - DELHI HIGH COURT], the Delhi High Court examined the provisions of the FTDR Act alongside the Foreign Trade Policy as well as the Foreign Trade (Regulation) Rules, 1993 and held that 'A harmonious interpretation of the two statutes, namely, the Customs and the FTDR Acts leads us to the inescapable conclusion that the law neither envisages nor sanctions a duality of authority inhering in a separate set of officers and agents simultaneously evaluating and adjudging the validity of an instrument which owes its origin to the FTDR Act alone.' Thus, it is only if the Import License issued by the DGFT was cancelled by the DGFT that the customs could have decided to recover the duty under section 28(1) of the Customs Act. The demand of customs duty from the appellant cannot be sustained nor can the imposition of penalty under section 112(a)(ii) of the Customs Act or imposition of redemption fine in lieu of confiscation be maintained - The impugned order is, accordingly, set aside and the appeal is allowed.

2026 (1) TMI 403 - CESTAT NEW DELHI Customs

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ISSUES PRESENTED AND CONSIDERED

1) Whether import of gold dore bars under an import licence stipulating that the import is "subject to" a specified concessional-duty customs notification bars the importer from claiming a separate duty-free exemption notification otherwise applicable to goods originating from least developed countries.

2) Whether customs authorities can sustain a demand of duty (with interest) and impose penalty for alleged violation of import licence conditions when the licence remains valid and has not been cancelled or invalidated by the competent authority under the foreign trade law framework.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Effect of the import licence condition referring to a specific customs notification on availability of another exemption

Legal framework (as discussed by the Court): The Court examined the import licence condition stating that import is "subject to" a particular customs notification providing a concessional rate for gold dore bars, and contrasted it with the separate exemption notification granting duty-free treatment (including AIDC exemption) for eligible goods imported from listed least developed countries.

Interpretation and reasoning: The Court held that the licence condition, on its plain terms, only makes the import subject to the referenced notification; it does not state that the benefit of any other notification otherwise available cannot be availed. The Court rejected the view that licence conditions are met "if and only if" duty is paid at the concessional rate under the notification named in the licence. The Court further held that, absent an express bar, the licence condition did not prohibit simultaneous availment of more than one exemption notification, and the importer could discharge liability under the referenced notification unless a separate notification granted a complete exemption. The Court distinguished reliance placed on another decision on the basis that, in that case, the imported goods did not satisfy the relevant specification, whereas here there was no finding that the importer was ineligible for the least-developed-country exemption on merits.

Conclusions: The Court concluded that the mere reference in the import licence to the concessional-duty notification did not bar the importer from claiming the duty-free exemption notification, and the contrary interpretation adopted in the impugned order was unsustainable.

Issue 2: Jurisdiction of customs authorities to raise demand/penalty based on alleged licence-condition violation when the licence remains valid

Legal framework (as discussed by the Court): The Court relied on the principle that instruments/licences issued under the foreign trade regulatory framework are to be administered by the designated competent authority, and customs authorities cannot go behind such an instrument or treat it as invalid absent action by that competent authority. The Court applied the proposition that if misrepresentation/violation is alleged, it is for the licensing authority to cancel or question the licence; till then, customs cannot refuse benefits or proceed on the footing that the licence is ineffective.

Interpretation and reasoning: The Court held that customs could have proceeded to recover duty on the premise of licence invalidity/violation only if the import licence had been cancelled by the competent authority. Since the licence was valid and subsisting and there was no cancellation, the foundation for the duty demand premised on licence-condition violation was missing. Consequently, the associated penalty, which was imposed on the basis of the same alleged contravention and resultant liability to confiscation, also could not stand.

Conclusions: The Court concluded that, with the import licence remaining uncancelled, the duty demand could not be sustained and the penalty imposed under the Customs Act was also unsustainable; the impugned order was set aside and the appeal allowed.

Import licence "subject to" later customs notification: earlier duty exemption allowed; duty demand and penalty u/s28(1)/112(a)(i) set aside
The dominant issue was whether an importer could claim customs duty exemption under an earlier notification notwithstanding an import licence condition stating that imports were "subject to" a later notification. The Tribunal held that the licence condition merely subjected the import to the later notification's regime and did not expressly bar availing any other otherwise-applicable exemption; hence the adjudicating authority's "if and only if" reading was untenable, and the exemption could be claimed. Relying on HC authority on the primacy of the DGFT under the FTDR framework, it further held that Customs could not treat the licence as invalid or demand duty unless the DGFT had cancelled the licence; consequently, the duty demand under s. 28(1) and penalty under s. 112(a)(i) were set aside and the appeal was allowed.

Correctness of availing exemption of customs duty under N/N. 96/2008-Cus dated 13.08.2008 on import of gold dore bars from Tanzania in terms of the Import License dated 13.06.2022 issued by the Directorate General of Foreign Trade permitting imports subject to N/N. 12/2012-Cus dated 17.03.2012. Whether the appellant could have taken benefit of the 2008 Exemption Notification when the Condition of the License issued to the appellant provided that the import of gold dore bars is subject to the 2012 Notification? - HELD THAT:- A perusal of the said Condition shows that the import has been made subject to the 2012 Notification. It does not provide that the benefit of any other Notification, which otherwise would be available to the appellant, cannot be availed of by the appellant. The appellant may have had to discharge customs duty provided under the 2012 Notification, but if there is a Notification which exempts payment of customs duty than there is no bar in the appellant availing the benefit of the said Notification. The finding recorded by the Principal Commissioner that the Conditions of License can be fulfilled “if and only if” customs duty is paid in terms of the 2012 Notification is, therefore, not borne out from the Conditions of License. In M/s. Designco and others vs. Union of India [2024 (11) TMI 1150 - DELHI HIGH COURT], the Delhi High Court examined the provisions of the FTDR Act alongside the Foreign Trade Policy as well as the Foreign Trade (Regulation) Rules, 1993 and held that 'A harmonious interpretation of the two statutes, namely, the Customs and the FTDR Acts leads us to the inescapable conclusion that the law neither envisages nor sanctions a duality of authority inhering in a separate set of officers and agents simultaneously evaluating and adjudging the validity of an instrument which owes its origin to the FTDR Act alone. It is these factors, as well as the role assigned to the DGFT which perhaps weighed upon courts to acknowledge its position of primacy when it come to the interpretation of policy measures referable to the FTDR Act as well as issues of classification emanating therefrom.' Thus, it is only if the Import License issued by the DGFT was cancelled by the DGFT that the customs could have decided to recover the duty under section 28(1) of the Customs Act. The demand of customs duty from the appellant cannot be sustained nor can the imposition of penalty under section 112(a)(i) of the Customs Act be maintained. The impugned order is, accordingly, set aside - Appeal allowed.

2026 (1) TMI 400 - Supreme Court Companies Law

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1. ISSUES PRESENTED AND CONSIDERED

1) Whether the Company Law Board (a quasi-judicial body) had jurisdiction to condone delay in filing an appeal under Section 58(3) of the Companies Act, 2013, including by invoking the Limitation Act, 1963 or by applying the "principles" underlying Section 5 of the Limitation Act, 1963, or by relying on inherent powers under the CLB Regulations.

2) Whether Section 433 of the Companies Act, 2013 (making the Limitation Act applicable to proceedings/appeals before the NCLT/NCLAT) could be applied retrospectively or otherwise used to validate condonation of delay by the CLB for a Section 58(3) appeal filed before the constitution of the NCLT/NCLAT.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: CLB's power to condone delay under Section 58(3) of the Companies Act, 2013

Legal framework (as discussed by the Court): The Court examined that, during the relevant period, the CLB's powers as a "court" were limited to those expressly enumerated under the then-governing provision conferring CPC-type powers, and there was no provision empowering the CLB to apply the Limitation Act, 1963 or to extend limitation for filing a statutory appeal under Section 58(3). The Court also examined the distinction between (i) statutory inclusion of Limitation Act powers, and (ii) attempting to import "principles" of limitation without such statutory conferral.

Interpretation and reasoning: The Court held that the Limitation Act, 1963 applies to courts and not to quasi-judicial bodies unless the statute expressly provides otherwise. The CLB, being a quasi-judicial body and only a "court" in a restricted sense for specified purposes, could not assume Section 5 power. Further, the Court rejected the argument that "principles" underlying Section 5 could be applied by analogy, distinguishing Section 5 (extension of limitation through discretionary condonation) from provisions like Section 14 (exclusion of time), whose principles have been applied in limited contexts because exclusion does not involve discretionary enlargement of the limitation period itself. Because condonation under Section 5 depends upon discretionary enlargement of time-an attribute that must be specifically conferred-the Court ruled that such power cannot be inferred for the CLB. The Court also held that Regulation 44 (inherent powers) could not be used to override or circumvent a statutory limitation period for instituting the proceeding itself, as there is no inherent power to extend limitation absent legislative authorization.

Conclusions: The CLB lacked authority to condone delay in filing a Section 58(3) appeal. Neither Section 5 of the Limitation Act nor its underlying principles could be invoked, and inherent powers under the CLB Regulations could not be used to extend a statutory filing period. The limitation period in Section 58(3) was treated as mandatory and not merely directory.

Issue 2: Retrospective application or pendency-based application of Section 433 of the Companies Act, 2013 to validate CLB condonation

Legal framework (as discussed by the Court): The Court considered the phased commencement of the Companies Act, 2013 provisions and noted that Section 433 came into force when the NCLT/NCLAT were constituted. It addressed whether this later provision could retrospectively empower the CLB or be applied because an appeal was pending.

Interpretation and reasoning: The Court held that Section 433 could not be "borrowed" to confer Limitation Act powers on the CLB, because the applicability of limitation provisions is institution-specific and depends on express legislative conferral. The timing of Section 433's commencement alongside the creation of NCLT/NCLAT showed a conscious legislative choice not to clothe the CLB with such power earlier. Additionally, on the facts, the Court found the remedy had already become time-barred even under the prior regime before Section 58(3) itself came into force; therefore, a later change empowering a different forum could not revive a dead remedy or defeat accrued rights.

Conclusions: Section 433 was not retrospectively applicable to the CLB and could not validate condonation of delay for a Section 58(3) appeal filed before the NCLT/NCLAT framework. The change in law could not revive an already time-barred remedy.

CLB power to condone delay in company share-transfer refusal appeals u/s58(3), before s.433 began-rejected
The dominant issue was whether the CLB, while exercising jurisdiction under s.58(3) of the Companies Act, 2013 between 12.09.2013 and 01.06.2016, had power to condone delay by applying s.5 of the Limitation Act, 1963, including by giving retrospective operation to s.433 of the 2013 Act. The SC held that, in that interregnum, no provision authorised the CLB to apply the Limitation Act; s.433 was consciously brought into force only with the constitution of NCLT/NCLAT and could not be retrospectively extended to the CLB. Neither the CLB's limited "court" status nor its regulations implied a power to enlarge statutory limitation. Consequently, condonation of 249 days was without jurisdiction; the HC's affirmance was set aside and the appeal was allowed.

Condonation of delay of 249 days in filing the appeal under Section 58(3) of the Companies Act, 2013 - power of CLB, being a quasi-judicial body to condone the delay in filing an appeal under Section 58(3) of the Act, 2013 - Section 433 of the Act, 2013 which was brought into force on 01.06.2016 in order to empower the NCLT and NCLAT respectively, to apply the provisions of the Act, 1963, could be given retrospective effect such that it applied to the CLB as well. The implementation of the provisions of the Act, 2013 in phases and the powers conferred upon the CLB in the period between 12.09.2013 and 01.06.2016 - HELD THAT:- It is deemed necessary to reemphasize that there was no provision either akin to or corresponding to Section 433 of the Act, 2013 which empowered the CLB to apply the Act, 1963 during this period between 12.09.2013 and 01.06.2016. The legislature had very consciously timed the coming into force of Section 433 of the Act, 2013 with that of the creation of the NCLT and NCLAT respectively, which unambiguously revealed their intention to not confer the CLB with any power insofar as the issue of limitation was concerned. Whether the CLB, being a quasi-judicial body, could be said to have the power to condone the delay in filing an appeal under Section 58(3) of the Act, 2013? - HELD THAT:- Section 433 of the Act, 2013 which specifically empowers the NCLT and the NCLAT respectively to apply the provisions of the Act, 1963 to proceedings or appeals before itself, must be given retrospective effect such that it applies to the CLB as well. Decisions of this Court as regards the application of Section 5 of the Act, 1963 to quasi-judicial bodies or tribunals - HELD THAT:- In the light of the ratio of Officer on Special Duty [1996 (2) TMI 538 - SUPREME COURT] and Prakash H. Jain [2003 (9) TMI 771 - SUPREME COURT] it can be seen that the CLB was also to be treated as a court but for very limited purposes which were enumerated under Section 10E(4C) of the Erstwhile Act. Therefore, the powers conferred under Section 10E(4C) must neither be conflated with nor extended to encompass the powers which a court would otherwise exercise under Section 5 of the Act, 1963. Whether the principles underlying certain provisions of the Act, 1963 could be made applicable to quasi-judicial bodies or tribunals? - HELD THAT:- Although the provisions of the Act, 1963 per say have been made inapplicable to applications or appeals before quasi-judicial bodies, yet the principles underlying the provisions of the Act, 1963, more specifically Section 14 thereof, have been made applicable to applications or appeals made before quasi-judicial bodies. This aspect of applying the principles underlying Section 14 of the Act, 1963 was discussed in Parson Tools [1975 (2) TMI 86 - SUPREME COURT] - Although the decision in Parson Tools did not apply the principles underlying Section 14 of the Act, 1963 to the facts of their case, based on how the concerned provision i.e., Section 10 of the U.P. Sales Tax Act, 1948, was phrased, yet it left open the possibility for future decisions to apply the said principles where a contrary intention could not be inferred or culled out from the provision to which the principles underlying Section 14 was sought to be applied. The difference between the principles underlying Sections 5 and 14 of the Act, 1963 respectively - HELD THAT:- The term “sufficient cause” under Section 5 must not be subject to undue rigidity and must be construed in a manner such that it can be contextualised in the facts and circumstances of each case. In other words, it must be kept sufficiently flexible and not be subject to an exhaustive set of circumstances or reasons. Courts must adopt a liberal and justice-oriented approach in assessing whether sufficient cause is made out. While there exists some outer boundaries within which the term “sufficient cause” must be construed, yet it is no doubt true that a significant amount of leeway is given to courts which are faced with an application under Section 5 of the Act, 1963 to ascertain whether the reasons assigned qualify the subjective test of the words “sufficient cause”. There are certain well-defined pre-requisites that must be satisfied for a party to take benefit of Section 14. Section 14(2) deals with computing the period of limitation for an application and the following are its requisite conditions – First, both the earlier and the subsequent proceedings must be civil proceedings; Secondly, both the earlier and the subsequent proceedings must be before a court; Thirdly, they must be between the same parties; Fourthly, they must be for the same relief; Fifthly, the previous proceedings must have been incapable of being entertained owing to a defect of jurisdiction or any other cause of a like nature; Lastly, the earlier proceedings must have been prosecuted with good faith and due-diligence. The argument that the principles underlying Sections 6 or 14 of the Act, 1963 respectively, could be applied to quasi-judicial bodies is not sufficient reason to hold the same insofar as Section 5 of the Act, 1963 is concerned. Whether the CLB Regulations confer any discretionary power to the CLB to extend time or condone delay under Section 5 of the Act, 1963? - HELD THAT:- Regulation 25 deals with the discretion given to the CLB to grant additional time on an altogether different aspect. It deals with granting time, upon showing that sufficient cause existed, for the ‘adjournment’ of a hearing of the petition or application, as the case may be. One must not conflate this with the power to enlarge or extend time for the filing of the petition or application itself with is dealt with by the Act, 2013 - when the question is as regards the “extension of time” in the filing of an appeal or application itself, before a quasi-judicial body, we must be careful to not overread between the silences and instead, must look at whether there is any express indication to that effect. Whenever and wherever the legislature deemed it fit, it has granted either a limited or an unlimited power to extend time. How Section 58(3) of the Act, 2013 which is a simpliciter provision prescribing a limitation period, must be construed? - HELD THAT:- Section 58(3) of the Act, 2013 uses the expression “The transferee may appeal to the Tribunal”. As elucidated in Fairgrowth [2004 (10) TMI 328 - SUPREME COURT] the use of this word does not directly give rise to any inference that the limitation period prescribed therein is only directory - the respondent herein must have preferred his appeal under Section 58(3) of the Act, 2013 before the CLB, strictly within the time-limit prescribed therein. Whether Section 433 of the Act, 2013 must be made retrospectively applicable or the change in law during the pendency of the appeal must be taken into account in the facts and circumstances of the present case? - HELD THAT:- Section 433 of the Act, 2013 was brought into force w.e.f 01.06.2016 i.e., from the same date on which the NCLT and the NCLAT respectively came to be constituted. In the phased manner of implementation of the provisions of the Act, 2013, such a decision to time the coming into force of Section 433 in a way that coincides with the creation of the NCLT and NCLAT respectively, was clear and conscious. This, by itself, is a good indication to steer away from the retrospective application of Section 433 in favour of the CLB. It is concluded that the High Court could be said to have committed an error in dismissing the statutory appeal filed under Section 10F of the Erstwhile Act and thereby, affirming the order of the CLB condoning the delay of 249 days in filing the appeal under Section 58(3) of the Act, 2013. The impugned judgement and order of the High Court is set-aside - appeal allowed.

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2021 (11) TMI 376 - AT - Income Tax

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Tribunal upholds capitalization of NTPC project expenses, citing consistency with prior judgments.
The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to allow expenses related to the NTPC project to be capitalized. The ... Summary

Tribunal upholds capitalization of NTPC project expenses, citing consistency with prior judgments.

The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to allow expenses related to the NTPC project to be capitalized. The Tribunal's ruling was based on consistency with previous judgments in the assessee's own case for A.Y. 2012-13 and 2013-14, where similar issues were addressed and decided in favor of capitalization of project-related expenses.

Issues:
1. Dismissal of general ground in appeal
2. Allowing adjustment of carry forward business losses with current year income
3. Allowing expenses related to NTPC project incurred prior to business setup

Analysis:

Issue 1: Dismissal of General Ground in Appeal
The Revenue appealed against the order of the Ld. CIT(A)-18, Kolkata for A.Y. 2014-15. The Tribunal noted that while the Revenue raised three grounds of appeal, Ground No. 3 was a general ground and thus needed to be dismissed.

Issue 2: Allowing Adjustment of Carry Forward Business Losses
Regarding Ground No. 2, the Tribunal observed that the appeal against allowing adjustment of carry forward business losses with current year income did not stem from the Ld. CIT(A)'s order. The Tribunal dismissed this ground as the Revenue failed to provide sufficient evidence to support their claim.

Issue 3: Allowing Expenses Related to NTPC Project
The primary issue revolved around the action of the Ld. CIT(A) in allowing expenses related to the NTPC project, which the Assessing Officer (A.O.) deemed as pre-operative expenses. The A.O. contended that the business had not commenced, and thus, the expenses were not considered as revenue expenditures. The Ld. CIT(A) partially allowed the assessee's appeal, holding that expenses directly related to the NTPC project should be capitalized. The Tribunal upheld this decision based on previous rulings for A.Y. 2012-13 and 2013-14, where the Ld. CIT(A) directed the capitalization of expenses related to the NTPC project. As the assessee did not challenge this decision, the Tribunal confirmed the partial relief granted by the Ld. CIT(A) in this case as well.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to allow expenses related to the NTPC project to be capitalized. The Tribunal's ruling was based on consistency with previous judgments in the assessee's own case for A.Y. 2012-13 and 2013-14, where similar issues were addressed and decided in favor of capitalization of project-related expenses.

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Tribunal upholds capitalization of NTPC project expenses, citing consistency with prior judgments.

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