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2023 (12) TMI 1216 - CESTAT MUMBAI Service Tax

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Refund claim for amount paid during investigation but not appropriated by department cannot be rejected on limitation grounds under Section 11B
CESTAT Mumbai held that refund claim for amount paid during investigation but not appropriated by department cannot be rejected on limitation grounds under Section 11B of Central Excise Act, 1944. The amount paid was not tax under Finance Act, 1994 but payment under mistake of law. Since retention by department lacks legal authority, limitation provisions don't apply. Constitutional Article 265 mandates tax collection only by legal authority. Following precedents including Mafatlal Industries v. Union of India, statutory limitation periods don't apply to amounts paid under mistake of law. Appeal allowed.

Refund of amounts paid under mistake of law - applicability of limitation under Section 11B of the Central Excise Act, 1944 - characterisation of a deposit versus tax (no appropriation) - retention without authority of law and Article 265 of the ConstitutionRefund of amounts paid under mistake of law - applicability of limitation under Section 11B of the Central Excise Act, 1944 - characterisation of a deposit versus tax (no appropriation) - retention without authority of law and Article 265 of the Constitution - Whether the refund claim of the appellant for an amount deposited during investigation but not appropriated as service tax is barred by limitation under Section 11B of the Central Excise Act, 1944. - HELD THAT: - The Tribunal found that the amount paid by the appellant was deposited under a mistaken belief and, in the absence of appropriation or any order confirming it as service tax liability, did not acquire the character of tax. Consequently, the statutory limitation under Section 11B, which governs refund of duties/taxes, is not applicable to refund claims where the amount was never payable as tax. The authority's retention of such an amount without lawful authority would contravene Article 265 of the Constitution, and therefore limitation under Section 11B cannot be invoked to deny refund. The Tribunal relied on a line of decisions (including KVR Constructions and subsequent affirmations and Tribunal/High Court precedents) establishing the test whether the department could have lawfully recovered the amount had it not been paid; if recoverability is absent, the payment remains a deposit refundable notwithstanding the formal limitation period. The cases cited by the revenue were treated as distinguishable on the ground that those involved appropriation of tax, which is not the position here. Following this reasoning, the appeal was allowed and consequential relief directed as per law. [Paras 10, 11, 19, 20, 21]Refund claim cannot be rejected as time barred under Section 11B because the amount paid was not a tax (no appropriation) and retention without authority violates Article 265; appeal allowed with consequential relief.Final Conclusion: The Tribunal allowed the appeal, holding that the amount paid under a mistake of law and not appropriated as service tax is a refundable deposit not governed by the one year limitation in Section 11B of the Central Excise Act; the department cannot retain such amount without authority of law and the appellant is entitled to consequential relief.

2023 (12) TMI 1181 - ALLAHABAD HIGH COURT Customs

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Customs detention bars demurrage for the protected period where a detention certificate and final appellate relief support waiver.
When goods are detained by customs, the custodian or customs cargo service provider cannot levy demurrage for the period of detention if a detention certificate directs waiver and the appellate order on the detention has attained finality. The Court applied the settled position that detention by customs bars demurrage for the protected period, and held that contrary authorities did not assist the respondents on these facts. The petitioner was therefore entitled to clear the goods without paying demurrage, subject only to other charges accruing after the detention certificate until actual clearance.

Demurrage charges - detention of goods by customs - custodian's authority under Section 45 - prohibition on charging demurrage during certified period of detention under Regulation 6(1) of the Regulations of 2009 - effect of appellate order confirming transaction value on liability to demurrageDemurrage charges - detention of goods by customs - prohibition on charging demurrage during certified period of detention under Regulation 6(1) of the Regulations of 2009 - effect of appellate order confirming transaction value on liability to demurrage - Whether the custodian (Container Corporation of India Limited) was entitled to charge demurrage/rent for the period during which the goods remained detained by the customs authorities despite issuance of a detention certificate directing that no rent or demurrage be charged - HELD THAT: - The Court found that the appellate order dated 23.5.2019 accepting the petitioner's declared transaction value attained finality and the petitioner thereafter deposited duty. A detention certificate dated 17.9.2019 was issued directing the custodian not to charge rent or demurrage for the period of detention. Relying on the Division Bench decision in M/s Continental Carbon India Ltd. and consistent authorities from other High Courts, the Court held that a customs cargo service provider appointed under Section 45 read with the Regulations of 2009 is prohibited from charging demurrage on goods seized or detained by the customs department for the certified period. The Court distinguished precedents relied upon by respondents (earlier Supreme Court decisions concerning different statutory regimes) as inapplicable on the facts. Applying Regulation 6(1) and the reasoning in Continental Carbon, the Court concluded that the custodian had no authority to demand demurrage for the period of detention certified by customs and therefore could not lawfully refuse release of goods on that ground. The relief was confined to waiver of demurrage up to the certified date, subject to payment of other charges accruing after that period. [Paras 9, 10, 14, 15]Petitioner entitled to clear the goods without payment of demurrage charges for the period of detention certified by customs (detention certificate dated 17.9.2019); demurrage cannot be charged for that period, subject to payment of other charges accruing after the certified detention period.Final Conclusion: Writ petition allowed to the extent that the petitioner may clear the goods without payment of demurrage/rent for the period of detention certified by customs (subject to payment of charges accruing after that period); otherwise disposed of.

2023 (12) TMI 1180 - CESTAT NEW DELHI Customs

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Issues Involved:

1. Whether the appellant is liable to pay court fees on all 4191 appeals in terms of Section 129A (6) of the Customs Act, 1962.
2. Whether the present appeal pertains to the classification of goods or is a case of refund of excess duty deposited by the appellant.

Summary:

Issue 1: Liability to Pay Court Fees Under Section 129A (6)
The Tribunal examined whether the appellant is required to pay court fees on the 4191 appeals under Section 129A (6) of the Customs Act, 1962. The appellant argued that Section 129A (6) is applicable only where "duty and interest is demanded" and since there was no demand raised by the customs department, it is a case of refund of excess duty deposited. The appellant relied on previous Tribunal decisions, asserting that no fees are envisaged for refund claims. Conversely, the revenue contended that any appeal where the demand has been disputed requires payment of court fees, and the appellant's case involved a demand of differential duty due to reassessment, thus attracting the provisions of Section 129A (6).

Issue 2: Nature of the Appeal - Classification vs. Refund
The Tribunal needed to determine whether the appeal was related to the classification of goods or a simple refund case. The Tribunal noted that the appellant had categorically stated in Form CA-3 that the issue pertains to the classification of battery covers and the consequent demand of differential duty. The Tribunal observed that the appeal memorandum and grounds of appeal primarily challenged the classification concluded by the respondent and not a refund claim. The Tribunal concluded that the challenge in the present appeals relates to the issue of classification and the consequent demand of duty, not a refund claim.

Conclusion:
The Tribunal held that the provisions of Section 129A (6) make it mandatory for the appellant to deposit court fees where the demand has been disputed or challenged arising out of assessment or reassessment. The Tribunal agreed with the revenue's submission that the appellant's payment of enhanced duty under protest implies a disputed demand, thus making the appellant liable to pay court fees. The Tribunal directed the appellant to deposit the requisite court fees within two weeks from the date of the order.

Customs classification appeals require court fees under section 129A(6) when challenging assessment orders, not simple refund cases
The CESTAT NEW DELHI held that appellant's 4191 appeals challenging customs classification were not simple refund cases but disputed classification matters requiring court fees under section 129A(6) of Customs Act, 1962. The tribunal found that appellant challenged assessment orders regarding goods classification, explaining manufacturing processes and cover purposes, indicating classification dispute rather than refund claim. No refund application was filed. The tribunal ruled that when duty is paid under protest and challenged through appeal, it constitutes disputed demand requiring mandatory court fees payment, with limited exceptions under the proviso. Appellant was directed to deposit requisite court fees within two weeks.

Liability to pay court-fees under section 129A(6) of the Customs Act, 1962 - classification versus refund distinction in appeals - effect of payment "under protest" on existence of demand - interpretation of "duty and interest demanded" for triggering fee liability - proviso/exceptions to section 129A(6)Liability to pay court-fees under section 129A(6) of the Customs Act, 1962 - classification versus refund distinction in appeals - effect of payment "under protest" on existence of demand - interpretation of "duty and interest demanded" for triggering fee liability - proviso/exceptions to section 129A(6) - Appellant is liable to pay court fees under section 129A(6) for the 4191 appeals challenging classification and the consequent demand of duty. - HELD THAT: - The Tribunal found on the record (Form CA-3 Para 10 and the memorandum of appeal) that the appeals challenge classification of phone covers and the consequent differential duty, not a standalone refund application. The grounds of appeal and factual averments concerning use, manufacture and tariff classification demonstrate that the dispute concerns classification and resultant demand of duty. The appellant had paid the enhanced duty at clearance "under protest", which the Tribunal held amounted to a dispute against a deemed demand; payment under protest does not extinguish the demand but evidences that a demand existed and is being contested. The proviso to section 129A(6) exempts only appeals referred to in subsection (2) or memoranda under subsection (4); those exceptions do not apply here. Reliance on earlier decisions holding that no fee is payable for pure refund/rebate appeals was distinguished because the present appeals do not arise from refund/rebate proceedings but from challenged assessments/reassessments. Applying the statutory language and the factual characterisation of these appeals, the Tribunal concluded that section 129A(6) is attracted and court fees are payable. [Paras 6, 7, 12, 14]Objection on deficient court-fees sustained; appellant directed to deposit the requisite court fees under section 129A(6) within two weeks.Final Conclusion: The appeals concern classification and a disputed demand (paid under protest); therefore section 129A(6) applies and the appellant must deposit the prescribed court-fees for the 4191 appeals within two weeks.

2023 (12) TMI 1174 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI Insolvency and Bankruptcy

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Issues Involved:
The appeal challenges the order allowing liquidation and the requirement of Form-G for liquidation decision by the Committee of Creditors.

Liquidation Decision and Form-G Requirement:
The appeal was filed against the order allowing liquidation and directing for liquidation. The Committee of Creditors (CoC) passed a resolution for liquidation based on reasons such as lack of business activity, no employees, and no financial transactions. The appellant argued that the Insolvency and Bankruptcy Code does not mandate the issuance of Form-G before the CoC can decide on liquidation. The Resolution Professional published Form-G after an interim order but received no Expression of Interest (EOI). The Tribunal noted that the CoC's decision for liquidation was based on objective considerations and upheld the decision, emphasizing that the CoC has the authority to decide on liquidation after its constitution.

Validity of CoC Decision and Judicial Review:
The Tribunal referred to a judgment highlighting the wide powers of the CoC to decide on liquidation, emphasizing that decisions must be reasoned and not arbitrary. The CoC's decision in this case was deemed valid due to the lack of business activity and other factors. The Tribunal dismissed the appeal, stating that decisions for liquidation are subject to judicial review based on individual case facts. The respondent cited a judgment where the absence of claims led to the closure of the Corporate Insolvency Resolution Process (CIRP), emphasizing that a CoC cannot be constituted with a single Operational Creditor. However, the Tribunal clarified that the cited judgment did not address the issue of constituting a CoC with a single Operational Creditor.

Pending Curative Petition and Subsequent Application:
The respondent mentioned a pending Curative Petition against the admission order of Section 9. Despite the subsequent application for liquidation filed by the Resolution Professional after the Form-G issuance, the Tribunal found the application to be infructuous due to the appeal decision. The appeal was allowed, setting aside the Adjudicating Authority's order and directing for liquidation, appointing a Liquidator for the Corporate Debtor's liquidation proceedings. Each party was directed to bear its own costs.

Committee of Creditors has power under Section 33(2) IBC to decide corporate debtor liquidation with objective reasons
The NCLAT held that the Committee of Creditors (CoC) has the power under Section 33(2) of the IBC to decide on liquidation of a corporate debtor after proper constitution. The CoC's decision to liquidate was found valid as it provided objective reasons including absence of employees, business operations, registered office, annual filings since 2011, returns, and transactions since 2017. The tribunal emphasized that while CoC decisions must be reasoned and not arbitrary, the present case demonstrated objective consideration. The Adjudicating Authority's order dated 31.08.2023 was set aside and the appeal was allowed.

Power of the Committee of Creditors under Section 33(2) of the Insolvency and Bankruptcy Code to decide liquidation - requirement that the Committee of Creditors give reasons for a decision to liquidate - publication of Form G and invitation for expression of interest (EOI) in the CIRP process - effect of a dismissed SLP/review and pending curative petition on continuation of insolvency proceedingsPower of the Committee of Creditors under Section 33(2) of the Insolvency and Bankruptcy Code to decide liquidation - requirement that the Committee of Creditors give reasons for a decision to liquidate - Validity of the Committee of Creditors' resolution dated 27.09.2022 to liquidate the corporate debtor - HELD THAT: - The Tribunal examined the CoC resolution of 27.09.2022 which recorded objective reasons (absence of employees, business, registered office, filings and banking transactions) for proposing liquidation. The scheme of the IBC, as reflected in Section 33(2) and its Explanation, vests the CoC with wide power to decide liquidation any time after its constitution and before confirmation of a resolution plan. While such decisions must be supported by reasons and are amenable to judicial review, on the facts before the Tribunal the CoC applied objective considerations and its decision was not arbitrary. The Adjudicating Authority erred in rejecting the RP's application and, on scrutiny of the CoC record, the Tribunal found grounds to allow liquidation and direct appointment of a liquidator. [Paras 11, 12, 20]The CoC's decision to liquidate was upheld; the impugned Adjudicating Authority order of 31.08.2023 was set aside and liquidation was directed with appointment of a liquidator.Publication of Form G and invitation for expression of interest (EOI) in the CIRP process - Effect of publication of Form G and absence of any EOI received after publication - HELD THAT: - The Tribunal noted that the Resolution Professional published Form G after the interim direction of this Tribunal, but no EOI was received. The subsequent separate application filed by the RP after issuance of Form G was rendered infructuous by the Tribunal's decision in the appeal and therefore was to be closed. The absence of EOIs post-publication did not preclude the Tribunal from directing liquidation where the CoC decision and surrounding facts warranted it. [Paras 18, 19]The subsequent application filed by the RP after issuance of Form G is rendered infructuous and to be closed.Effect of a dismissed SLP/review and pending curative petition on continuation of insolvency proceedings - Whether pending curative petition or earlier dismissed SLP/review petitions preclude adjudication or adjournment of the appeal and related steps - HELD THAT: - The Tribunal observed that the SLP and review petitions had been dismissed and that a curative petition was pending. It held that dismissal of SLP and review by the Supreme Court is binding on the Tribunal and the Adjudicating Authority and that the pendency of a curative petition did not warrant adjournment of the hearing. The appeal could not be deferred merely because a curative petition was filed. [Paras 7, 17]Pending curative petition did not justify adjournment; proceedings and adjudication of the appeal proceeded.Final Conclusion: Appeal allowed; order of the Adjudicating Authority dated 31.08.2023 set aside; IA No. 543/JPR/2022 allowed and liquidation directed with appointment of a liquidator; parties to bear their own costs.

2023 (12) TMI 1169 - CESTAT MUMBAI Customs

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EOU wins appeal against duty recovery for alleged PVC resin diversion without proof of actual misuse
CESTAT Mumbai allowed the appeal of a 100% EOU against recovery of customs duty, central excise duty, interest and penalty for alleged diversion of PVC resin. The tribunal held that standard input output norms (SION) cannot be stretched to presume misuse of exemption without evidence of actual diversion. Recovery of duty for non-conformity with SION on post-procurement evaluation requires mathematical precision not inherent in the norms. The Commissioner failed to prove that PVC resin was diverted to unauthorized users or used excessively beyond prescribed limits. No valid grounds existed for duty recovery.

Similar goods - standard input output norms (SION) - duty foregone - onus of proof for intended use - evidentiary value of statements and seized electronic records - limits of adjudication beyond show cause noticeSimilar goods - limits of adjudication beyond show cause notice - Whether goods cleared to the domestic tariff area (DTA) were dissimilar to goods exported and thereby disentitle the assessee to concessional treatment. - HELD THAT: - The Tribunal held that the finding of dissimilarity in the adjudicating order was founded on speculation and admissions taken out of context rather than an evaluation of facts or product examination. Mere absence of embossing/printing did not demonstrate that the goods acquired a different character or usage; comparison must be grounded in product descriptions and, where samples are lacking, accepted descriptions should be juxtaposed for factual assessment. The Tribunal also disapproved the adjudicating authority's substitution of a detriment (denial of concessional rate) that was not the consequence expressly contemplated in the show cause notice. Applying these principles, the Tribunal concluded that the domestically cleared plain goods were not dissimilar to the embossed/printed exported goods and that the denial of concessional treatment in the impugned order was improper. [Paras 19, 20, 21, 22, 23]Goods cleared to the DTA were held to be similar to exported goods; the denial of concessional rate for such clearances in the impugned order was improper.Standard input output norms (SION) - duty foregone - onus of proof for intended use - Whether deviation from SION can, by itself, support a presumption of diversion and justify recovery of duty foregone on procured raw materials (notably PVC resin). - HELD THAT: - The Tribunal analysed the origin and purpose of SION and concluded that SION operate as ceilings or monitoring benchmarks and were not designed to furnish mathematical precision for post procurement presumptions of diversion. Absent evidence of movement to an alternate user/trader or other verifiable destination, non conformity with norms may indicate inefficiency but does not suffice to establish diversion with penal consequences. Consequently, recovery of duty foregone solely on the basis of alleged deviations in SION, or by relying on intra material ratios (e.g., PVC resin to plasticizer), was unsustainable. The Tribunal emphasised that a finding of diversion must reference movement/destination of goods; where that is absent, the proposed recoveries premised only on norms fail. [Paras 49, 50, 51, 52, 53]Deviation from SION alone does not justify presuming diversion or recovering duty foregone; the claim for duty on PVC resin based solely on norms was rejected.Evidentiary value of statements and seized electronic records - onus of proof for intended use - Admissibility and weight of statements recorded during investigation and of data from seized USB/pen drives in supporting the allegation of diversion. - HELD THAT: - The Tribunal declined to place evidentiary weight on statements and related materials that were inseparably connected to proceedings before the Settlement Commission or that had been retracted or were otherwise unreliable. Statements of co noticees and transporters drawn from the prior Settlement Commission context were treated as not disentanglable and thus unacceptable. As to data from pen drives and hard disks, the Tribunal noted absence of forensic authentication and observed that the information from these devices had not been used for computation of duty but only to allege record manipulation; accordingly, such materials were of limited relevance and could not sustain the demand. The Tribunal therefore upheld the adjudicating authority's rejection of those materials as reliable evidence for proving diversion. [Paras 36, 37, 38]Statements tied to earlier Settlement Commission proceedings and un forensically authenticated data from seized electronic media were rejected as unreliable and insufficient to prove diversion.Limits of adjudication beyond show cause notice - Whether the adjudicating authority was entitled to transgress the boundaries of the show cause notice by substituting or imposing other consequences not pleaded in the notice. - HELD THAT: - The Tribunal criticised the adjudicating authority for substituting a different consequence (denial of concessional treatment and assessment under section 3) in place of the specific recoveries pleaded in the show cause notice. It reiterated that an adjudicatory outcome must remain within the compass of the notice, and disapproved the practice of converting or enlarging the relief sought without appropriate notice. The Tribunal found such substitution improper and disapproved the adjudicating authority's approach to the extent it altered the nature of the demand beyond what was proposed in the notice. [Paras 13, 14, 15, 24]Adjudication transgressing the scope of the show cause notice by imposing unpleaded consequences was improper and disapproved.Final Conclusion: The Tribunal allowed the appeal of the assessee (M/s Responsive Industries Ltd) and dismissed the appeals of the Commissioner of CGST & Central Excise, Palghar, holding that the domestically cleared goods were similar to exported goods, that deviation from SION alone cannot be the basis for presuming diversion and recovering duty foregone (absent evidence of movement/destination), and that statements and un forensically authenticated electronic records could not sustain the alleged diversion. The adjudicating authority's excursion beyond the scope of the show cause notice was also disapproved.

2023 (12) TMI 1162 - ITAT VISAKHAPATNAM Income Tax

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Issues Involved:
1. Benchmarking of the interest rate on Non-Convertible Debentures (NCDs)
2. Mistake in computing total income and tax thereon
3. Computation of interest under sections 234B and 234D
4. Initiation of penalty under section 270A

Summary:

Benchmarking of the Interest Rate on NCDs:
The primary issue revolves around the appropriate benchmarking of the interest rate on NCDs issued by the assessee. The assessee argued that the NCDs were unsecured, justifying a higher interest rate of 13%. The Transfer Pricing Officer (TPO) initially accepted the Comparable Uncontrolled Price (CUP) method but disputed the comparables selected by the assessee, ultimately determining an Arm's Length Price (ALP) interest rate of 8.95%. The assessee challenged this, arguing that the TPO failed to apply filters distinguishing between secured and unsecured debt instruments and did not consider industry-specific factors. The Tribunal agreed with the assessee, noting that higher risk associated with unsecured loans justifies a higher interest rate. Citing precedents, the Tribunal concluded that the interest rate charged by the assessee was at arm's length, allowing grounds 1 and 2 of the appeal.

Mistake in Computing Total Income and Tax Thereon:
The assessee contended that the Assessing Officer (AO) erred in computing the total taxable income and tax. This issue was deemed consequential and did not require separate adjudication as it depended on the resolution of the primary issue regarding the interest rate on NCDs.

Computation of Interest Under Sections 234B and 234D:
The assessee argued that the AO incorrectly computed interest under sections 234B and 234D. This issue was also considered consequential and did not require separate adjudication.

Initiation of Penalty Under Section 270A:
The assessee challenged the AO's initiation of penalty proceedings under section 270A. Like the previous issues, this was deemed consequential and did not require separate adjudication.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the interest rate on NCDs was at arm's length. The other issues raised were deemed consequential and did not require separate adjudication. The appeal was pronounced in open court on 22nd December, 2023.

Tribunal upholds 13% interest rate on unsecured NCDs as arm's length after TPO used incorrect secured debenture comparables
The ITAT Visakhapatnam held that the assessee's 13% interest rate on unsecured NCDs was at arm's length. The TPO incorrectly selected comparables with secured debentures and companies outside the solar power sector. The tribunal found that when proper filters for unsecured instruments and relevant sector companies were applied, the 65th percentile rate was 14.25%, exceeding the assessee's rate. Following precedents from ITAT Surat and Bangalore, the tribunal concluded the interest rate was appropriate given the higher risk of unsecured debt, allowing the assessee's grounds.

2023 (12) TMI 1156 - CESTAT NEW DELHI Customs

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Issues: (i) whether foreign-origin gold recovered without import documents or proof of duty payment fell within the definition of prohibited goods and smuggled goods and was liable to confiscation under the Customs Act, 1962; (ii) whether absolute confiscation could be sustained and provisional release under the Customs Act, 1962 was available as of right; (iii) whether the appellant was liable to penalty and whether the objections based on denial of cross-examination and retesting of the gold had merit.

Issue (i): whether foreign-origin gold recovered without import documents or proof of duty payment fell within the definition of prohibited goods and smuggled goods and was liable to confiscation under the Customs Act, 1962

Analysis: The recovered gold was of foreign marking and the appellant did not produce any valid import document or proof of payment of customs duty. The statutory definitions of prohibited goods, dutiable goods and smuggling, together with the confiscation provision, were applied to hold that import restrictions and conditions for lawful import must be complied with. Goods imported in violation of those conditions are treated as prohibited goods, and once duty is unpaid and lawful import is not established, the goods become smuggled goods liable to confiscation.

Conclusion: The issue was decided against the appellant and in favour of the Revenue.

Issue (ii): whether absolute confiscation could be sustained and provisional release under the Customs Act, 1962 was available as of right

Analysis: The discretion under the confiscation and release provisions was held to depend on the nature of the goods, the surrounding circumstances, and the conduct of the person in possession. Since the gold was treated as prohibited goods and the appellant failed to establish lawful import or compliance with the import regime, the authorities were justified in declining provisional release and ordering absolute confiscation. The absence of a specific proposal for absolute confiscation in the notice did not defeat the adjudicating authority's discretion in the facts of the case.

Conclusion: The issue was decided against the appellant and in favour of the Revenue.

Issue (iii): whether the appellant was liable to penalty and whether the objections based on denial of cross-examination and retesting of the gold had merit

Analysis: The appellant's own statement admitting possession of foreign-marked gold without documents, together with the surrounding circumstances and supporting statements, established liability for penal action. The plea regarding cross-examination was rejected because the statement was not retracted and no timely request was shown. The request for retesting was also rejected because a certified appraiser had already tested the gold at the spot and the challenge was viewed as lacking substance.

Conclusion: The issue was decided against the appellant and in favour of the Revenue.

Final Conclusion: The confiscation and penalty findings were upheld, and the challenge to the denial of release failed in full.

Ratio Decidendi: Foreign-origin gold imported or possessed without lawful import documents, duty payment, and compliance with import restrictions is treated as prohibited and smuggled goods, attracting confiscation and penalty, while release or redemption remains subject to adjudicatory discretion rather than any absolute entitlement.

Foreign-origin gold without import proof treated as smuggled goods, sustaining confiscation, penalty, and denial of provisional release.
Foreign-origin gold found without import documents or proof of customs duty payment was treated as prohibited and smuggled goods under the Customs Act, making it liable to confiscation. The text notes that lawful import conditions must be satisfied, and where lawful import is not shown, absolute confiscation may be sustained; provisional release is not available as of right and remains subject to adjudicatory discretion based on the nature of the goods and surrounding circumstances. It also states that penalty may follow from possession of foreign-marked gold without documents, while objections based on denial of cross-examination and retesting were rejected where the statement was not retracted and a spot appraisal had already been made.

Prohibited goods - dutiable goods - smuggling - confiscation under Section 111(d) - onus of proof under Section 123 - discretion under Section 125 and provisional release under Section 110A - penalty under Section 112(b) - admissibility of statement recorded under Section 108 - relevance of expert opinion on purityProhibited goods - dutiable goods - Foreign marked gold recovered without documentary proof falls within the definition of 'prohibited goods' and is a 'dutiable good'. - HELD THAT: - The Tribunal, applying precedent and a conjoint reading of Section 2(33) and Section 11, held that goods imported in violation of prescribed conditions or regulatory notifications (including DGFT/RBI prescriptions relating to gold) fall within the ambit of 'prohibited goods'. Gold is also a 'dutiable good' and, in the absence of documents showing lawful import and payment of duty, the foreign marked gold in the appellant's possession could not be treated as lawfully imported. The appellant admitted absence of bills and the alleged supplier denied sale; on these materials the Tribunal accepted that the statutory conditions for lawful import were not satisfied and classified the seized items accordingly. (para 14, para 15, para 22(a)-(b)) [Paras 14, 15, 22]The seized foreign origin gold is 'prohibited goods' and also 'dutiable goods'.Smuggling - onus of proof under Section 123 - confiscation under Section 111(d) - Seized foreign marked gold, not supported by lawful import documents and fitting the statutory definitions, amounts to smuggled goods and is liable to confiscation under Section 111(d). - HELD THAT: - Having found the goods to be prohibited/dutiable and noting the appellant's failure to produce supporting import documentation (and admissions in his Section 108 statement), the Tribunal concluded that the transaction amounted to smuggling as defined in Section 2(39). Relying on statutory definitions and judicial precedents, the Tribunal held that goods imported contrary to prohibitions or conditions are liable for confiscation under Section 111(d). The appellant's inconsistent explanations and the denial by the alleged supplier reinforced the finding that the goods were not lawfully procured. (paras 15, 17, 22(c)-(d)) [Paras 15, 17, 22]The seized gold amounts to smuggled goods and is liable to confiscation under Section 111(d).Discretion under Section 125 and provisional release under Section 110A - Adjudicating authority properly exercised discretion to refuse provisional release and to order absolute confiscation in the facts of the case. - HELD THAT: - The Tribunal reviewed authorities establishing that release/redemption of prohibited goods is discretionary and not automatic. Considering the appellant's failure to discharge the statutory onus, the prima facie case of smuggling, inconsistent statements, non cooperation in investigation and absence of documents, the Tribunal held that denial of provisional release under Section 110A and imposition of absolute confiscation under Section 125 was a lawful exercise of discretion. Distinguishing cases where import documents were produced, the Tribunal found those authorities inapplicable. (paras 16-18, 22(e)) [Paras 16, 17, 18, 22]Refusal of provisional release and order of absolute confiscation was justified and within the adjudicating authority's discretion.Admissibility of statement recorded under Section 108 - The appellant's statement recorded under Section 108 is admissible and, in the absence of any request for cross examination during his lifetime, his later complaint about denial of opportunity is unsustainable. - HELD THAT: - The Tribunal noted that the appellant repeatedly failed to appear before the investigating agency, had not sought cross examination when alive, and never retracted his Section 108 statement. Relying on settled law that admissions need not be proved and are admissible, the Tribunal rejected the contention that denial of cross examination vitiated the adjudication. The appellant's non cooperation weighed against him. (para 19, para 22(f)) [Paras 19, 22]The Section 108 statement is admissible; the plea of denial of opportunity/cross examination is rejected.Relevance of expert opinion on purity - On spot testing by a certified jewellery appraiser using the touchstone method was acceptable; the request for retesting by melting purity was not a tenable ground to stall proceedings. - HELD THAT: - The Tribunal recorded that a certified jewellery appraiser tested the recovered gold on the spot by touchstone method in the presence of independent witnesses and issued a certificate. Noting that no definite tests are prescribed by law and that expert opinion is relevant under evidence law, the Tribunal treated the retest request as an attempt to delay adjudication and declined it. (para 20) [Paras 20]The touchstone test report was acceptable; the request for retesting was refused.Penalty under Section 112(b) - The appellant is liable to penalty under Section 112(b) for his acts of omission and commission in relation to the smuggled gold. - HELD THAT: - Having upheld that the seized gold constituted smuggled/prohibited and dutiable goods and having considered the appellant's conduct, admissions and failure to produce lawful import documents, the Tribunal concluded that penal consequences under Section 112(b) follow. The finding on confiscation and the appellant's role were the basis for imposing penalty. (para 21, para 22(f)) [Paras 21, 22]The appellant is liable to penalty under Section 112(b).Final Conclusion: The Tribunal affirmed the orders below: the foreign marked gold recovered without lawful import documentation was held to be prohibited and dutiable, smuggled and liable to confiscation under Section 111(d); provisional release was rightly refused and absolute confiscation upheld; the appellant's Section 108 admissions and the touchstone expert test were accepted; and penalty under Section 112(b) was sustained. The appeal is dismissed.

2023 (12) TMI 1153 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI BENCH Companies Law

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ISSUES PRESENTED AND CONSIDERED

1. Whether an application under Sections 388B, 397, 398, 401, 402 and 408 of the Companies Act, 1956 alleging mismanagement, fraud and seeking supervisory, injunctive and proprietary reliefs can continue or be granted after initiation of Corporate Insolvency Resolution Process (CIRP) against the same company.

2. Whether the Appellate Tribunal erred in treating or relying upon precedent concerning winding up proceedings in determining the maintainability of the Companies Act application in the face of admitted CIRP and the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Continuance and maintainability of Companies Act remedies after initiation of CIRP

Legal framework: The application was filed under Sections 388B, 397, 398, 401, 402 and 408 of the Companies Act, 1956 seeking removal/restriction of directors, attachment/return of diverted funds, injunctions against alienation or change of board/shareholding, appointment of administrators/receivers/special officers, custody and authentication of books and records, and related interim reliefs. The Insolvency and Bankruptcy Code, 2016 (IBC) imposes a moratorium on initiation or continuation of certain actions against the corporate debtor once CIRP is admitted, and vests management/control with the Interim Resolution Professional (IRP) (Section 14 moratorium and relevant IBC provisions vesting control in IRP/Resolution Professional).

Precedent treatment: The Tribunal relied on jurisprudence addressing the incompatibility of parallel adjudicatory or remedial measures against a corporate debtor once CIRP is underway (including authorities addressing the effect of moratorium and primacy of CIRP). The appellant contended that its reliefs were distinct and constituted an independent cause of action not equivalent to winding up, and therefore should not be foreclosed by insolvency proceedings. The Court did not find a need to overrule or distinguish the moratorium principle as applied in those precedents.

Interpretation and reasoning: The Court observed that once CIRP was admitted and moratorium imposed, management and control of the company were legally handed to the IRP and later Resolution Professional, and the CIRP had progressed to consideration of a Resolution Plan. Under these circumstances, the specific reliefs sought - many of which intrude upon management, control, disposition of assets, and board composition - fall squarely within the sphere regulated by the moratorium and the statutory control conferred on the IRP. Granting the reliefs sought in the pending Companies Act application would conflict with the statutory scheme of the IBC, risk disturbing the CIRP process and the ongoing consideration of a Resolution Plan, and therefore the application did not survive the initiation of CIRP.

Ratio vs. Obiter: Ratio - Where a Companies Act application seeks substantive reliefs that affect management, asset disposition, board composition or other matters taken over by the IRP under the IBC moratorium, such application is not maintainable after admission of CIRP against the same corporate debtor and while the moratorium continues. Obiter - Observations about the specific nature of each relief sought (e.g., attachment for restoring siphoned funds or appointment of administrators) are contextual and explanatory but follow from the primary ratio regarding the moratorium's preclusive effect.

Conclusion: The Tribunal did not err in holding that the Companies Act application could not be granted or sustained after CIRP admission and imposition of moratorium; the appeal challenging that dismissal is without merit.

Issue 2: Alleged error in reliance upon precedent concerning winding up proceedings

Legal framework: The appellant argued that the Tribunal mistakenly equated the present application with a petition for winding up and thus inappropriately relied on precedent addressing maintainability in the context of winding up. The legal tension arises in distinguishing remedies available under the Companies Act from consequences of insolvency processes under the IBC, and whether precedents relating to winding up are directly applicable when CIRP is pending.

Precedent treatment: The appellant pointed to a specific decision relied upon by the Tribunal (addressing winding up) and contended that the facts and nature of reliefs differed. The Court examined whether the Tribunal's reliance on that decision produced an error of law in principle or outcome.

Interpretation and reasoning: The Court found no substantive error in principle. The determinative legal principle is not the label of the earlier proceeding (winding up) but the functional effect of a parallel insolvency process and the statutory moratorium which prevents judicial or quasi-judicial intervention that would interfere with CIRP. Given that the CIRP had been admitted and was at an advanced stage (consideration of Resolution Plan), the functional consequence was the same: reliefs affecting control, assets or corporate governance could not be allowed to proceed. Thus reliance on authority considering parallel proceedings (even if in winding up context) was not misplaced insofar as it relied on the moratorium and the preclusive effect of parallel proceedings on corporate remedies.

Ratio vs. Obiter: Ratio - A tribunal may deny or dismiss applications under the Companies Act that would interfere with an ongoing CIRP because the moratorium and vesting of control in the IRP preclude such parallel reliefs; the precise classification of prior cases (e.g., as winding up) does not change this legal consequence. Obiter - Comments about the inapplicability of certain Company Act remedies that are purely personal or that do not interfere with CIRP were not necessary to the decision and remain ancillary observations.

Conclusion: The Tribunal did not commit legal error by relying on precedent addressing parallel insolvency/winding-up contexts; the controlling legal principle is the moratorium and protection of the CIRP process, which rendered the Companies Act application unsustainable.

Overall Disposition

The Court concluded that, because CIRP had been admitted against the corporate debtor and the moratorium under the IBC was in force with the IRP controlling the company's affairs and the Resolution Plan under consideration, the pending Companies Act application seeking management, injunctive and proprietary remedies could not be entertained or granted; the appellate challenge to the Tribunal's dismissal of that application was dismissed as devoid of merit. No costs.

NCLAT dismisses oppression petition after insolvency proceedings commence under Companies Act 1956
The NCLAT dismissed an appeal challenging the dismissal of an oppression and mismanagement petition under the Companies Act, 1956. The appellant had filed an application seeking reliefs against a company for alleged mismanagement and fraud. However, during pendency of the petition, insolvency proceedings were initiated against the same company under the Insolvency and Bankruptcy Code, 2016, following an application by a financial creditor. The NCLAT held that once CIRP proceedings commenced and moratorium was imposed, with the company's control transferred to the resolution professional, the oppression petition could not survive as no meaningful relief could be granted. The appeal was dismissed as without merit.

Corporate Insolvency Resolution Process moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - effect of initiation of CIRP on pending company law proceedings - exclusive control of interim resolution professional over management during CIRP - maintainability of petitions alleging mismanagement and fraud after commencement of CIRPEffect of initiation of CIRP on pending company law proceedings - Corporate Insolvency Resolution Process moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - exclusive control of interim resolution professional over management during CIRP - Whether an application under the Companies Act, 1956 seeking reliefs for alleged mismanagement and fraud can be proceeded with after admission of an insolvency petition and commencement of CIRP against the company. - HELD THAT: - The application filed by the appellant under the Companies Act, 1956 sought reliefs against the company and its directors for alleged fraud and mismanagement. While that application was pending, a Section 7 insolvency petition filed by a financial creditor against the same company was admitted and CIRP was commenced. Upon admission, the moratorium under Section 14 and the vesting of management control in the interim resolution professional operate to displace the power of other fora to grant the reliefs sought in the pending company-law application. Because the CIRP had been initiated and had progressed to consideration of the resolution plan, the pending application could not survive in a manner that would permit the grant of the reliefs sought. The Tribunal therefore did not err in dismissing the application on that ground.The dismissal of the application by the Tribunal was upheld as the pending company-law remedies could not be permitted to proceed after commencement of CIRP and imposition of the moratorium; the appeal is without merit and is dismissed.Final Conclusion: The appeal is dismissed as devoid of merit; the Tribunal's order dismissing the company-law application in view of the admitted CIRP and the moratorium is upheld. No costs.

2023 (12) TMI 1152 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI Companies Law

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Company name restored to register after tribunal finds substantial assets and liabilities prove operational status
The NCLAT Principal Bench set aside the NCLT Delhi order dated 24.09.2021 and restored the appellant company's name to the RoC register. The tribunal held that since the company possessed substantial assets and liabilities, it could not be deemed non-operational. The restoration was granted subject to statutory compliances, while the RoC retained authority to pursue punitive measures against the company and its directors for non-filing or late filing of statutory returns.

Restoration of name of a struck-off company - carrying on business / operations - just and equitable restoration - striking off for failure to file financial statements and annual returns - discretion of the Tribunal to restore where company has assets and liabilitiesCarrying on business / operations - striking off for failure to file financial statements and annual returns - Whether the Company was carrying on business or in operation at the time its name was struck off and whether striking off was justified. - HELD THAT: - The Tribunal examined the material placed on record, including provisional/audited financial statements for the years ending 31.03.2015 to 31.03.2020 and evidence of leasehold property and liabilities. It rejected the NCLT's reliance on absence of revenue in the immediate preceding two financial years as conclusively establishing non-operation where the company possesses substantial assets and liabilities. The Tribunal followed precedents holding that existence of movable and immovable assets, ongoing obligations and the capacity to generate revenue can warrant restoration under the expression "or otherwise" and that a struck-off company need not be a trading entity with positive turnover to be considered in operation for restoration purposes. [Paras 10, 15, 18]The Company cannot be said to have ceased operation merely because revenue from operations was nil in the cited years; the presence of assets and liabilities supports restoration.Restoration of name of a struck-off company - just and equitable restoration - discretion of the Tribunal to restore where company has assets and liabilities - Whether the NCLT's order dismissing restoration was sustainable in law and whether the Tribunal should restore the company's name. - HELD THAT: - Having applied the legal tests and considered authorities where restoration was granted on the basis of assets and ongoing liabilities, the Tribunal concluded that the NCLT's order was not sustainable. It held that, in the facts of this case, restoration would be just and equitable because the company holds leasehold property and recorded assets/liabilities, and the appellants' explanation about non-compliance was credible as a consequence of succession and lack of professional support. The Tribunal distinguished cases concerning shell companies or unlawful transactions and relied on coordinate Bench decisions that permit restoration where substantive assets and operations, even if limited, exist. [Paras 15, 19, 20]NCLT's order set aside and the name of the Company restored to the Register of Companies.Restoration of name of a struck-off company - striking off for failure to file financial statements and annual returns - Conditions and consequential directions upon restoring the company's name. - HELD THAT: - The Tribunal restored the company's name subject to specified compliances: payment of costs to the RoC and filing of all outstanding annual returns and balance sheets with applicable fees and late fees. The order also expressly preserved the RoC's right to initiate any other punitive or corrective proceedings under the Act for past non-filing or late filing of statutory returns/documents. [Paras 20, 21]Restoration subject to payment of costs and compliance with statutory filing and fees; RoC permitted to take further action as permissible under the Act.Final Conclusion: The Tribunal set aside the NCLT order and directed restoration of M/s Agerson Telecommunications Pvt. Ltd. to the Register of Companies on the grounds that the company has substantive assets and liabilities making restoration just and equitable; restoration is subject to payment of costs and filing of outstanding statutory returns and does not preclude the RoC from pursuing further action under the Act.

2023 (12) TMI 1150 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI Insolvency and Bankruptcy

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Issues involved:
The challenge in this appeal is to the Impugned Order dated 28.04.2023 passed by the 'Adjudicating Authority', National Company Law Tribunal, Chennai Bench-II, in IA/755/2022 in CP/1307/IB/2018, involving observations against the erstwhile Liquidator and the direction to forward compliance affidavit and report to IBBI.

Observations against the Erstwhile Liquidator:
The Appellant, the erstwhile Liquidator, contended that the Order was passed without giving him an opportunity to be heard, emphasizing delays in uploading the Order and handover process. The Advocate Commissioner's report was allegedly overlooked by the Adjudicating Authority, leading to adverse observations. The Appellant raised concerns about the new Liquidator's conduct and the fee increase for the Advocate Commissioner.

Compliance and Handover Process:
The new Liquidator sought compliance with the Order for handover of documents, highlighting the Appellant's non-compliance and selective document submission. The appointment of the Advocate Commissioner aimed to facilitate the handover process, with reports indicating cooperation from the new Liquidator's staff. The Adjudicating Authority dismissed the Appellant's claims of lack of cooperation and questioned the necessity of the fee increase for the Advocate Commissioner.

Principles of Natural Justice and Adherence to Orders:
The Appellant argued a violation of Principles of Natural Justice due to the passing of the Impugned Order in his absence. However, a review of the hearing dates and events showed the Appellant's presence and involvement in the proceedings related to the handover issue. The Adjudicating Authority's decision was based on the Appellant's actions and responses during the process, leading to the dismissal of the appeal.

Conclusion:
The National Company Law Appellate Tribunal upheld the Impugned Order, finding no illegality or infirmity in the decision. The Appellant was advised to address any further concerns before the IBBI, with no costs imposed on the parties.

NCLAT upholds liquidator replacement after document handover failure, finds no natural justice violation
NCLAT dismissed the appeal challenging observations made against the erstwhile liquidator for failing to hand over documents to the new liquidator. The tribunal held that principles of natural justice were not violated as the appellant was present and heard on multiple dates regarding the handover issue. The court found no illegality in the adjudicating authority's decision to appoint an advocate commissioner to facilitate document transition and direct IBBI notification, noting the appellant failed to protest or provide bonafide submissions about completing the handover within the given timeframe.

Principles of Natural Justice - Duty to hand over custody and control of corporate debtor records on change of liquidator - Non-cooperation of outgoing liquidator - Power to appoint an Advocate Commissioner to verify and effect handover - Authority to forward compliance affidavits and commissioner's report to IBBI and Insolvency Professional Agency - Judicial scrutiny of conduct of insolvency professionalsPrinciples of Natural Justice - Duty to hand over custody and control of corporate debtor records on change of liquidator - Non-cooperation of outgoing liquidator - Power to appoint an Advocate Commissioner to verify and effect handover - Authority to forward compliance affidavits and commissioner's report to IBBI and Insolvency Professional Agency - Validity of observations against the erstwhile liquidator and the direction to forward the compliance affidavit and Advocate Commissioner's report to IBBI and Insolvency Professional Agency. - HELD THAT: - The Tribunal examined the chronology of hearing dates, prior orders directing handover, the appellant's applications and appearances, the appointment of an Advocate Commissioner to inventory and effect transfer of records, and the Advocate Commissioner's interim and final reports. The record shows repeated opportunities for the appellant to comply, an order dated 01.07.2022 requiring handover within seven days, the appellant's request for extension which was refused, and subsequent hearings culminating in the Advocate Commissioner's report listing 377 items and documenting the handover process. Given the prolonged delay (about 81/2 months from appointment of the new liquidator) and the stalemate necessitating the Commissioner's appointment, the Tribunal found no breach of Principles of Natural Justice in passing the impugned observations in the appellant's absence. The appointment of the Advocate Commissioner to verify and supervise the transition was within the Adjudicating Authority's powers and the contents of the compliance affidavit and commissioner's report justified forwarding them to IBBI and the Insolvency Professional Agency for any further action. Contentions concerning the Advocate Commissioner's working hours and fee quantum were held to be peripheral to the determinative question of whether the observations and directions were justified, and thus not a ground to invalidate the order. [Paras 7, 8, 9, 10, 11]Observations against the erstwhile liquidator and the direction to forward the compliance affidavit and Advocate Commissioner's report to IBBI are justified; the appellant's plea of denial of natural justice is untenable.Final Conclusion: Appeal dismissed; impugned order upheld as not suffering from illegality or breach of natural justice; appellant permitted to pursue any grievances before IBBI.

2023 (12) TMI 1149 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI - LB Insolvency and Bankruptcy

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Resolution applicant loses appeal after breaching shareholding conditions and constitutional pattern maintenance undertakings
The NCLAT dismissed an appeal by a resolution applicant who breached addendum conditions by changing shareholding and directorship without obtaining required approvals from financial creditors. The CoC was held entitled to withdraw the previously approved resolution plan and issue fresh Form G due to the applicant's violation of constitutional pattern maintenance undertakings. The tribunal upheld forfeiture of Rs.20 crores performance guarantee under RFRP clause 13.2, finding the applicant had essentially sold the resolution plan to third parties. The adjudicating authority's decision to exclude the period from CIRP timeline and issue fresh Form G was affirmed as proper.

Binding effect of a CoC approved resolution plan inter se - breach of addendum and Letter of Intent as ground for revocation of plan - forfeiture of performance security under RFRP and Regulation 36B(4A) - power to withdraw plan approval application and invite fresh RFRP/Form G - exclusion of time for CIRP where process is re commencedBinding effect of a CoC approved resolution plan inter se - breach of addendum and Letter of Intent as ground for revocation of plan - The Successful Resolution Applicant committed breach of the addendum dated 18.06.2021 and the conditions of the Letter of Intent by effecting change in shareholding/directorship without requisite consent. - HELD THAT: - The Tribunal found on the record that the Resolution Plan and addendum and the LoI expressly contemplated continued association of the Shoora group and an undertaking not to dilute investment or change the constitutional pattern for five years without consent of the top two financial creditors. Emails from Shoora Capital/SRA and subsequent non disclosure showed that the ultimate holding (Shoora Capital) had transferred 100% shareholding, thereby altering the very substratum on which CoC approval had been granted. The Adjudicating Authority's factual finding that these acts contravened material provisions of the Resolution Plan, addendum and LoI was affirmed. [Paras 32]Breach of the addendum and LoI by the Successful Resolution Applicant was established and the Adjudicating Authority's finding to that effect is upheld.Power to withdraw plan approval application and invite fresh RFRP/Form G - binding effect of a CoC approved resolution plan inter se - The CoC was not precluded from withdrawing the plan approval application where the Successful Resolution Applicant had materially altered its constitution in breach of the plan; consequently CoC/RP could seek to invite fresh Resolution Plans. - HELD THAT: - While a CoC approved resolution plan is generally binding inter se the CoC and the Successful Resolution Applicant, that binding effect does not bar the CoC from revoking or seeking withdrawal of the approval where the basis of approval (the credentials, net worth and undertakings of the SRA) has been vitiated by the SRA's own conduct. The Tribunal agreed with the Adjudicating Authority that the SRA's transfer of 100% shareholding and exit of the promoter amounted to effectively selling the plan to a third party, justifying the CoC's decision to withdraw the plan approval application and restart the process. [Paras 29]CoC was entitled to seek withdrawal of the plan approval application and to invite fresh Form G in the circumstances of material breach by the Successful Resolution Applicant.Forfeiture of performance security under RFRP and Regulation 36B(4A) - Forfeiture/invocation of the performance bank guarantee by the CoC was permissible under the RFRP clauses relied upon; invocation was not confined only to post AA approval contingencies under Regulation 36B(4A). - HELD THAT: - The RFRP expressly empowered the designated lender/CoC to invoke the performance bank guarantee upon breach of conditions under the LoI or Resolution Plan (clause 13.2) and set out non compliance remedies (clause 24). Regulation 36B(4A) contemplates forfeiture post approval, but does not exclude forfeiture under broader RFRP stipulations that may arise prior to AA approval. As the CoC action invoked clause 13.2 in light of the SRA's breach, the Tribunal held the forfeiture decision to be in accordance with the RFRP. [Paras 35]The CoC's decision to forfeit the performance security under the RFRP was lawful and is upheld.Exclusion of time for CIRP where process is re commenced - power to withdraw plan approval application and invite fresh RFRP/Form G - Exclusion of time in the CIRP (from 05.02.2021 until the order) and direction to issue fresh Form G were consequential and permissible where the Adjudicating Authority allowed withdrawal of the plan approval application and permitted restart of the resolution process. - HELD THAT: - The Adjudicating Authority recorded that the Corporate Debtor remained a going concern with commercial prospects, and, having permitted withdrawal of the plan approval application and directed an expedited fresh invitation, it was entitled to grant exclusion of the period spent in the unsuccessful plan process. The Tribunal found no error in treating exclusion as consequential to permitting the RP/CoC to restart the CIRP and to issue fresh Form G. [Paras 38]Exclusion of time and direction to issue fresh Form G were rightly granted and are sustained.Final Conclusion: All appeals are dismissed; the Adjudicating Authority's order permitting withdrawal of the plan approval application, directing fresh invitation of resolution plans (fresh Form G), allowing exclusion of time, and upholding forfeiture of the performance security is affirmed.

2023 (12) TMI 1148 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI - LB Insolvency and Bankruptcy

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Issues Involved:
1. Approval of the Resolution Plan.
2. Direction to seek clarification from the Supreme Court regarding an order dated 21.11.2013.

Summary:

Approval of the Resolution Plan:
The appeals challenged the order dated 24.11.2023 by the Adjudicating Authority (NCLT, Allahabad Bench) in I.A. No. 243 of 2023 for the approval of the Resolution Plan and I.A. No. 434 of 2023 filed by the Suspended Director of the Corporate Debtor seeking dismissal of I.A. No. 243 of 2023. The Resolution Plan was approved by 100% vote share in the 33rd CoC meeting held on 21.04.2023. The Adjudicating Authority approved the resolution plan submitted by Dalmia Bharat Sugar and Industries Limited but directed the Resolution Professional (RP) and the Committee of Creditors (CoC) to seek clarification from the Supreme Court regarding the order dated 21.11.2013 before implementing the plan.

Direction to Seek Clarification from the Supreme Court:
The main contention was whether the Adjudicating Authority was correct in directing the RP and CoC to obtain clarification from the Supreme Court regarding the order dated 21.11.2013. The Supreme Court's order restrained the Sahara group of companies from parting with any movable and immovable properties. The appellants argued that this order did not impact the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor, as it was intended to protect the assets of the Sahara group of companies and not to obstruct the CIRP. The Adjudicating Authority had previously given the Suspended Management the liberty to seek clarification from the Supreme Court, which they did not pursue.

Judgment:
The National Company Law Appellate Tribunal (NCLAT) concluded that the Supreme Court's order dated 21.11.2013 did not fetter the CIRP process or the approval of the resolution plan. The direction to seek clarification from the Supreme Court was deemed unnecessary. Consequently, the appeals were allowed, and the order dated 24.11.2023 was modified to delete the direction for seeking clarification from the Supreme Court. The rest of the Adjudicating Authority's order was affirmed. The parties were directed to bear their own costs.

NCLAT allows appeal finding resolution plan approval cannot be conditioned on Supreme Court clarification regarding unrelated restraint order
NCLAT held that the Adjudicating Authority erred in conditioning approval of a resolution plan on obtaining SC clarification regarding a 2013 restraint order. The tribunal found that the SC's 2013 direction to Sahara Group not to part with properties had no bearing on the CIRP process of the corporate debtor, which was also a Sahara group company. The resolution plan, approved by 100% CoC, could not be fettered by the 2013 order, as clarified by SC in 2016. The appeal was allowed.

Approval of resolution plan - committee of creditors' approval by 100% vote - effect of Supreme Court restraint order on CIRP - clarification from the Hon'ble Supreme Court - liberty to file clarification/modificationApproval of resolution plan - effect of Supreme Court restraint order on CIRP - clarification from the Hon'ble Supreme Court - Whether the Adjudicating Authority could direct the Resolution Professional and the Committee of Creditors to seek clarification from the Hon'ble Supreme Court regarding its order dated 21.11.2013 as a condition before implementing an approved resolution plan. - HELD THAT: - The Tribunal examined the scope and purpose of the Supreme Court order dated 21.11.2013, which restrained the Sahara Group from parting with movable and immovable properties, and concluded that the direction was intended to protect assets and did not operate as a fetter upon independent insolvency resolution proceedings. The Tribunal noted subsequent clarifications by the Supreme Court (order dated 27.04.2016) releasing the restraint so far as proceedings before other fora (e.g., NCDRC) were concerned, indicating that the 21.11.2013 order was not intended to prevent adjudicative processes from proceeding. The Tribunal also considered the Adjudicating Authority's earlier order dated 27.08.2021 which merely granted liberty to the suspended management to seek modification/clarification and recorded that the CoC/RP may seek clarification if so advised; that provision did not translate into an obligation on the CoC/RP to seek such clarification. Having regard to these conclusions and the fact that the resolution plan had been approved by 100% of the CoC and sanctioned by the Adjudicating Authority, the Tribunal held that imposing a condition requiring the RP/CoC to obtain clarification from the Supreme Court before implementing the plan was unnecessary and constituted an error of direction. The Tribunal therefore deleted the directions in the impugned order that required the RP/CoC to move the Supreme Court for clarification, while affirming the remainder of the Adjudicating Authority's order approving the plan. [Paras 16, 23, 24, 25]Direction in the Adjudicating Authority's order requiring the Resolution Professional and the Committee of Creditors to seek clarification from the Hon'ble Supreme Court in relation to the order dated 21.11.2013 is erroneous and is deleted; the approval of the resolution plan otherwise stands affirmed.Final Conclusion: The appeals are allowed in part by deleting the directions that required the RP/CoC to seek clarification from the Supreme Court regarding its order dated 21.11.2013; the Adjudicating Authority's approval of the resolution plan (otherwise) is affirmed and the dismissal of I.A. No. 434 of 2023 is maintained.

2023 (12) TMI 1147 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI Insolvency and Bankruptcy

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Issues Involved:
1. Validity of the termination of the Development Agreement by Kolkata Municipal Corporation.
2. Possession rights and obligations under the Development Agreement.
3. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC) regarding moratorium and possession.

Summary:

1. Validity of the Termination of the Development Agreement:
The Kolkata Municipal Corporation (KMC) terminated the Development Agreement with Bengal Shelter Housing Development Limited (Respondent No.1) on 17.01.2022 due to breach of contract. The termination was challenged by the Resolution Applicant (Respondent No.3) but not by Respondent No.1. The tribunal found that the termination was lawful and in accordance with the Development Agreement, which prohibited assignment of rights without prior approval from KMC. The assignment to Respondent No.2 (Corporate Debtor) was unauthorized and void.

2. Possession Rights and Obligations:
The Development Agreement stipulated that KMC would remain the owner of the premises and structures, and Respondent No.1 was only given development rights. The tribunal held that Respondent No.2 was in unlawful possession of the premises as the assignment was without KMC's consent. The tribunal concluded that Respondent No.1 had no right to assign the development rights to Respondent No.2, making the possession by Respondent No.2 illegal.

3. Applicability of Section 14 of the IBC:
The tribunal examined whether the moratorium under Section 14 of the IBC, which prohibits recovery of property occupied by the Corporate Debtor, applied. It found that the premises were owned by KMC and not the Corporate Debtor, thus Section 14(1)(d) did not protect the possession of the Corporate Debtor. The tribunal emphasized that the assets in question were not part of the Corporate Debtor's assets and hence not subject to the moratorium.

Conclusion:
The tribunal set aside the Adjudicating Authority's order dated 17.11.2022, which had annulled KMC's termination of the Development Agreement. It was concluded that the termination was lawful, and the Corporate Debtor had no right to the premises. The appeal by KMC was allowed, and the IA filed by Respondent No.3 was rejected.

Municipal Corporation's termination of Development Agreement upheld as housing company subsidiary lacked valid possession rights under Section 14(1)(d)
NCLAT allowed the appeal and set aside the Adjudicating Authority's order directing handover of premises to Resolution Professional. The tribunal held that Municipal Corporation validly terminated the Development Agreement with housing company after its failure to perform development obligations. The housing company's subsidiary (Corporate Debtor) had no lawful possession rights as the assignment agreement was executed without Municipal Corporation's consent, violating original Development Agreement terms. Since Corporate Debtor lacked valid possession rights, the premises could not form part of CIRP assets and moratorium protection under Section 14(1)(d) was inapplicable. The termination being outside insolvency process, Adjudicating Authority lacked jurisdiction to interfere with Municipal Corporation's cancellation decision.

Validity of termination of development agreement for breach - lawfulness of assignment/arrangement transferring development rights without consent - scope and applicability of moratorium under Section 14(1)(d) of the IBC to assets not owned by the corporate debtor - power of Adjudicating Authority to direct possession to Resolution Professional where corporate debtor has no proprietary right - prohibition on parting with contractual rights without prior written consentValidity of termination of development agreement for breach - The termination order dated 17.01.2022 issued by Kolkata Municipal Corporation cancelling the Development Agreement and Supplemental Agreement was lawful and the Adjudicating Authority erred in setting it aside. - HELD THAT: - The Development Agreement granted development rights to Respondent No.1 subject to express obligations and remediation procedure under clause 9(g). Appellant issued show-cause notice and, on unsatisfactory reply, lawfully terminated the Agreement. No challenge to the termination was made by Respondent No.1 before any competent forum. The Adjudicating Authority should not have adjudicated the validity of that termination in the CIRP of the Corporate Debtor or set aside KMC's termination order; the termination fell outside the insolvency proceeding and was a matter between KMC and Respondent No.1. The court concluded that KMC had jurisdiction to cancel the agreement on the proved breaches and that the Adjudicating Authority's interference was erroneous. [Paras 16, 17, 23, 24]Termination dated 17.01.2022 was lawful and the Adjudicating Authority erred in setting it aside.Lawfulness of assignment/arrangement transferring development rights without consent - prohibition on parting with contractual rights without prior written consent - The Assignment/Arrangement dated 06.03.2008 in favour of the Corporate Debtor conferred no lawful right on the Corporate Debtor because it contravened the contractual prohibition against transferring rights without KMC's prior written consent. - HELD THAT: - Clause 13(b) of the Development Agreement prohibited either party from parting with rights or obligations under the Agreement to any third party without prior written approval. The alleged assignment of development rights by Respondent No.1 to Respondent No.2 in 2008 was made without KMC's consent and without communication to KMC; therefore no valid proprietary or developmental right flowed to Respondent No.2. Possession taken by Respondent No.2 was held to be unlawful and could not form the basis of rights in the CIRP. [Paras 12, 16, 21, 22]The 06.03.2008 Arrangement/Assignment did not create any lawful rights in favour of the Corporate Debtor.Scope and applicability of moratorium under Section 14(1)(d) of the IBC to assets not owned by the corporate debtor - power of Adjudicating Authority to direct possession to Resolution Professional where corporate debtor has no proprietary right - Moratorium under Section 14(1)(d) and corresponding duties of the IRP under Section 18 do not protect or bring into the CIRP assets over which the corporate debtor has no ownership or proprietary right; therefore the Adjudicating Authority erred in directing KMC to hand over possession to the Resolution Professional. - HELD THAT: - Section 14(1)(d) prohibits recovery of property by an owner where occupied by the corporate debtor, but it applies only to property that is an asset of the corporate debtor. Section 18 empowers the IRP to take control of assets over which the corporate debtor has ownership rights as recorded. Here, the premises remained the property/asset of KMC and development rights were given to Respondent No.1, not the Corporate Debtor. As the Corporate Debtor had no legitimate proprietary interest, the moratorium and IRP duties did not operate to require KMC to hand over possession; consequently the Adjudicating Authority should not have directed transfer of possession to the RP. [Paras 17, 18, 20, 21, 25]Moratorium and IRP powers did not justify directing KMC to hand over possession; the Adjudicating Authority erred in doing so.Final Conclusion: Appeal allowed. The order dated 17.11.2022 of the Adjudicating Authority setting aside KMC's termination order is set aside; IA filed by Respondent No.3 is rejected. Parties to bear their own costs.

2023 (12) TMI 1143 - ALLAHABAD HIGH COURT Central Excise

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Excise recovery challenged for procedural non-compliance, with interim protection granted pending further proceedings.
Interim protection was granted against excise recovery where the petitioner alleged that sample collection and penalty action were taken without compliance with Rule 776 of the U.P. Excise Manual and without the notice required under Section 74-A(1). The State admitted that Rule 776 had not been complied with in letter and spirit and that no notice had been issued before action. In view of these admitted procedural lapses, the court required further consideration of the challenge, stayed full recovery pending further proceedings, and permitted only partial retention of the recovered amount in fixed deposit after a 25% deduction.

Procedure for sampling under Excise Manual rule 776 - notice under section 74-A(1) of the Excise Act - principles of natural justice - consequences of procedural non-compliance - interim preservation of disputed funds pending judicial reviewProcedure for sampling under Excise Manual rule 776 - principles of natural justice - Whether samples were drawn in compliance with rule 776 of the U.P. Excise Manual and whether the penalty order complied with principles of natural justice - HELD THAT: - The Court records that while samples were drawn from the CL-2/wholesale supplier, the mandatory requirement under rule 776 that a person of the distillery be present was not complied with. The Court further records that no notice under section 74-A(1) was issued prior to passing the penalty order and that the order was passed without giving the petitioner an opportunity to be heard. Because the initiating steps themselves were procedurally defective, the consequential penalty proceedings stand vitiated in law and cannot be sustained without fresh compliance with the prescribed procedure and observance of natural justice.Finding of procedural non-compliance with rule 776 and violation of principles of natural justice; initiation and consequential proceedings held vitiated and liable to be re-considered.Notice under section 74-A(1) of the Excise Act - consequences of procedural non-compliance - Whether a notice under section 74-A(1) was served before passing the order and the legal effect of its non-issuance - HELD THAT: - On enquiry, the State conceded that no notice under section 74-A(1) was issued. The Court treats the absence of statutorily required notice as a material irregularity. The legal effect of such omission is that the impugned order cannot stand and requires reconsideration after adherence to the statutory mandate for issuing notice and affording opportunity to the petitioner.Non-issuance of the required notice held to be a material flaw rendering the order unsustainable and necessitating fresh consideration.Interim preservation of disputed funds pending judicial review - Interim treatment of the amount recovered from the petitioner pending disposal of the writ petition - HELD THAT: - The Court directed that after deducting 25% of the amount realised (sum asserted to be the deposit required for filing revision), the remaining amount shall be placed in a fixed term interest bearing account in a nationalised bank for an initial period of two years, renewable, and kept subject to the final outcome of the writ petition. The Court also required the Commissioner of Excise Tax, U.P. to file a personal affidavit about compliance. These interlocutory directions preserve the subject-matter funds while permitting adjudicatory process to proceed.Directed deduction of 25% for revision requirement and placement of the balance in a fixed term interest-bearing account pending final adjudication; compliance affidavit to be filed.Consequences of procedural non-compliance - Procedural posture for further proceedings and evidence filing after finding of initial infirmity - HELD THAT: - Because the initiation of proceedings is found to be defective, the matter requires consideration on merits only after the State files its counter-affidavit and the petitioner may file rejoinder. The Court has therefore given a timetable for filing affidavits to enable fresh adjudication on the merits consistent with statutory procedure and principles of natural justice.Directed State to file counter-affidavit within four weeks and allowed rejoinder within one week; remanded matter for fresh consideration in light of procedural infirmities.Final Conclusion: The Court found material procedural lapses-non-compliance with rule 776 and non-issuance of notice under section 74-A(1)-which vitiate the initiation and consequential penalty proceedings; it ordered interim preservation of the disputed funds (after deducting 25% for revision) in a fixed deposit, directed filing of affidavits by the State and the Commissioner, and remanded the matter for fresh consideration consistent with statutory procedure and principles of natural justice.

2023 (12) TMI 1142 - CESTAT NEW DELHI Central Excise

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Issues involved:
The issues involved in the judgment are the imposition of 100% penalty under section 11AC read with Rule 25 of Central Excise Rules, 2002, and the computation of duty by adjusting the cenvat credit available on inputs used in the manufacture of Iron and Steel parts.

Imposition of 100% penalty under section 11AC:
The Tribunal upheld the demand of duty invoking the extended period of limitation, which led to the imposition of penalty under section 11AC. The Tribunal stated that penalty under section 11AC is mandatory in cases of non-levy or short levy of duty by reason of fraud, collusion, willful statement, or suppression of facts. The Tribunal found that there was no mistake in not giving a separate finding on the penalty under section 11AC as it follows when duty is confirmed invoking the extended period of limitation.

Computation of duty by adjusting cenvat credit:
The appellant sought to compute duty by adjusting the cenvat credit available on inputs used in the manufacture of Iron and Steel parts. However, the Tribunal found no provision in the Act or Rules allowing duty to be determined after deducting cenvat credit. The Tribunal clarified that if duty is payable, the assessee would be entitled to cenvat credit as per the Cenvat Credit Rules, subject to verification of the availability of cenvat credit.

Rectification of alleged mistakes:
The appellant filed applications seeking rectification of alleged mistakes in the Tribunal's orders. The Tribunal considered the submissions in both applications, heard the parties, and examined the records. The Tribunal rejected the appellant's contentions regarding the imposition of penalty under section 11AC and the computation of duty by adjusting cenvat credit. It was emphasized that the demands confirmed within normal periods of limitation did not preclude the imposition of penalty under section 11AC.

Conclusion:
The Tribunal dismissed the applications seeking rectification of alleged mistakes, stating that there was no error apparent on record in its previous orders. The Tribunal upheld the imposition of penalty under section 11AC and clarified the computation of duty concerning cenvat credit. The judgment was pronounced on 22.12.2023.

CESTAT upholds section 11AC penalty despite normal limitation period when wilful suppression found by Commissioner
CESTAT New Delhi rejected appellant's rectification application challenging penalty imposition under section 11AC. The tribunal held that demands confirmed within normal limitation period do not preclude penalty where wilful suppression exists, as found by Commissioner. Appellant cannot raise new grounds in second rectification application that were not part of original appeal. The tribunal clarified that demands for shorter periods can be confirmed even when fraud/suppression elements are present, and penalty under section 11AC remains valid despite normal limitation period application.

Mandatory penalty under section 11AC - extended period of limitation - CENVAT credit adjustment for computation of duty - rectification of mistake - incorrect invocation of statutory provision does not vitiate orderMandatory penalty under section 11AC - extended period of limitation - rectification of mistake - Whether omission of a separate finding on imposition of 100% penalty under section 11AC in the miscellaneous order dated 30.9.2022 was a mistake apparent on the record. - HELD THAT: - The Tribunal held that section 11AC prescribes a mandatory penalty where the elements (fraud, collusion, willful statement or suppression of facts or contravention with intent to evade duty) which also justify invocation of the extended period of limitation are found. The Tribunal had already upheld the demand invoking the extended period of limitation in the final order; accordingly, the imposition of penalty under section 11AC necessarily follows and there is no discretion to reach a different conclusion. Consequently, there was no omission or mistake in not recording a separate finding on penalty in the miscellaneous order. [Paras 5]No mistake apparent; penalty under section 11AC correctly held to follow from findings warranting extended period of limitation.CENVAT credit adjustment for computation of duty - rectification of mistake - Whether the miscellaneous order dated 30.9.2022 erred in not computing duty after deducting claimed CENVAT credit on inputs. - HELD THAT: - The Tribunal found no provision in the statute or rules permitting determination of duty after deducting available CENVAT credit. It explained that while the assessee may be entitled to CENVAT credit under the Cenvat Credit Rules and may be permitted to use such credit to discharge duty (subject to verification of entitlement), duty computation itself is not to be carried out by netting off CENVAT credit in the manner suggested by the appellant. Therefore, omission to compute duty after adjusting claimed CENVAT credit did not constitute a mistake. [Paras 6]No mistake apparent; duty cannot be computed by deducting CENVAT credit though credit, if available, may be used to discharge duty subject to verification.Rectification of mistake - extended period of limitation - incorrect invocation of statutory provision does not vitiate order - Whether the appellant could, by a second rectification application, raise a new contention that the confirmed demands pertained only to the normal period of limitation and therefore penalty under section 11AC could not be invoked, and whether citing section 11A(1) by the Commissioner vitiates the order. - HELD THAT: - The Tribunal observed that the contention now sought to be raised was not part of the grounds of appeal and cannot be introduced for the first time in an application for rectification of mistake. A rectification application cannot be used to raise new grounds which were not the subject matter of the appeal. Further, the Tribunal noted that confirmation of demands for a shorter / normal period does not preclude findings of fraud, suppression or willful misstatement; shorter periods may be confirmed even when those elements are established. Finally, the Tribunal applied the settled principle that mere citation of an incorrect statutory provision by the adjudicating authority does not invalidate the order if the power exercised is available under the correct provision. [Paras 8, 9, 10]Application to raise the new limitation/penalty contention in rectification is impermissible; incorrect reference to section does not vitiate the confirmed demands.Final Conclusion: The application for rectification of alleged mistakes in the miscellaneous order dated 30.9.2022 is rejected: (i) no omission in respect of penalty under section 11AC where findings justifying extended period were upheld; (ii) no error in declining to compute duty after deducting CENVAT credit though credit, if established, may be used to pay duty; and (iii) a rectification application cannot be used to raise new grounds not part of the appeal, and an incorrect statutory citation by the authority does not vitiate the order.

2023 (12) TMI 1128 - ITAT VISAKHAPATNAM Income Tax

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Tax additions under sections 43B and 69A deleted due to proper interest servicing and jurisdictional overreach in limited scrutiny
ITAT Visakhapatnam allowed the appeal, deleting additions made under sections 43B and 69A. The tribunal held that the assessee had serviced interest payments to Bank of Baroda as evidenced by bank statements and certificate. Regarding section 69A addition for cash deposits, the tribunal ruled that the AO exceeded jurisdiction by making additions beyond the scope of limited scrutiny without converting it to complete scrutiny with proper approval from Pr. CIT/CIT, rendering the addition invalid.

Reasonable and sufficient cause for condonation of delay - limited scrutiny assessment - deduction under section 43B of the Act - taxation under section 69A of the Act for unexplained cash deposits - conversion of limited scrutiny into complete scrutiny requires prior approval of the Pr. CIT / CIT - bank statements and bank certificate as evidentiary proof of paymentDeduction under section 43B of the Act - bank statements and bank certificate as evidentiary proof of payment - Deletion of addition of Rs. 4,52,58,180/- disallowing interest claimed as paid to Bank of Baroda under section 43B of the Act. - HELD THAT: - The Tribunal examined the bank statements and observed that the assessee's cash credit/current account with Bank of Baroda showed an opening balance of Rs. 9,67,51,144.25 and a closing balance of Rs. 8,28,19,048.25 for the year, and that a debit of Rs. 4,52,58,180/- on 29/12/2017 left the balance within the account limits, indicating that the interest had been serviced. The assessee also produced a bank-issued certificate dated 27/5/2022 confirming receipt of interest from the cash credit account. On this factual and evidentiary basis the Tribunal concluded that the interest payment was substantiated and therefore not hit by the disallowance under section 43B, and deleted the addition. [Paras 11]Addition of Rs. 4,52,58,180/- under section 43B deleted.Taxation under section 69A of the Act for unexplained cash deposits - limited scrutiny assessment - conversion of limited scrutiny into complete scrutiny requires prior approval of the Pr. CIT / CIT - Deletion of addition of Rs. 86,76,158/- u/s. 69A of the Act on the ground that treating unexplained cash deposits fell outside the scope of the limited scrutiny and the assessing officer had not lawfully converted the assessment into complete scrutiny. - HELD THAT: - The Tribunal found that the assessment had been selected for limited scrutiny limited to the issue of 'business loss'. The Tribunal explained that if the assessing officer wishes to undertake complete scrutiny beyond the limited scope, the officer must first convert the case into complete scrutiny with prior approval of the Pr. CIT / CIT after being satisfied about the necessity of conversion. As no such approval or lawful conversion was on record, the assessing officer had travelled beyond jurisdiction in making the addition under section 69A. For this reason the addition was held not valid in law and deleted. [Paras 12]Addition of Rs. 86,76,158/- under section 69A deleted.Final Conclusion: The assessee's appeal is allowed; the Tribunal condoned the delay and deleted both the addition disallowing interest under section 43B and the addition under section 69A as beyond the scope of limited scrutiny.

2023 (12) TMI 1127 - ITAT DELHI Income Tax

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Advance receipt under land sale agreement is not taxable capital gains unless transfer or possession passes in the relevant year.
An advance received under an agreement to sell agricultural land did not constitute taxable sale consideration in the relevant year because no transfer of the capital asset had occurred then. The agreement was executed earlier, but possession was handed over only in 2020 and the transaction was completed in that year. In the absence of transfer of possession or completion of the sale in the year under consideration, section 2(47) of the Income-tax Act, read with the principles of part performance under section 53A of the Transfer of Property Act, was not attracted. The receipt was therefore treated as advance payment, not capital gains, and the addition was deleted.

Treatment of advance as sale consideration - transfer in relation to a capital asset - part performance / possession under section 53A of the Transfer of Property Act - capital gains taxation on transfer - test of human probabilitiesTreatment of advance as sale consideration - transfer in relation to a capital asset - part performance / possession under section 53A of the Transfer of Property Act - capital gains taxation on transfer - Whether the amount received by the assessee in F.Y. 2013-14 (AY 2014-15) constituted sale consideration resulting in a transfer taxable as capital gain in the year under consideration or was merely an advance where transfer and possession occurred later. - HELD THAT: - The assessing officer treated the cash receipts as sale consideration and made an addition on the basis that no capital gains computation was offered and on surrounding circumstances including cash deposits. The Tribunal examined the material on record, including the agreement to sell, sale deed and settlement agreement, and noted that possession was handed over on 15.02.2020 and the transfer was completed in that year. Applying the statutory concept of 'transfer' in section 2(47) and the principle of part performance/possession under section 53A of the Transfer of Property Act, the Tribunal held that the amounts received in the year under consideration represented advances and did not constitute a transfer in that year. The AO's addition rested on the absence of a capital gains computation and inferences from cash deposits rather than documents showing transfer in the year; on the facts and documents the Tribunal found merit in the assessee's contention and deleted the addition, while leaving the AO free to tax any capital gain in the year in which the transfer and possession were effected in accordance with law. [Paras 6, 7]Impugned addition deleted; amount held to be advance (not a transfer) for AY 2014-15 and AO directed to tax capital gain, if any, in the year of actual transfer/possession in accordance with law.Final Conclusion: Assessee's appeal allowed: addition of the alleged sale consideration in AY 2014-15 deleted on the finding that amounts were advances and the transfer/possession occurred later (possession shown as 15.02.2020); the assessing officer is at liberty to assess capital gain in the appropriate year of transfer in accordance with law.

2023 (12) TMI 1126 - ITAT VISAKHAPATNAM Income Tax

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Unaccounted purchases cannot be fully treated as income under Section 69A; only profit element taxable at 8% of sales
ITAT Visakhapatnam ruled on unexplained cash purchases under Section 69A. Revenue contended that unaccounted purchases should be treated as unexplained cash income due to inadequate source explanation. ITAT held that entire unaccounted purchases cannot be deemed assessee's income; only profit element should be considered. Tribunal allowed 8% of sales as taxable income instead of treating full purchase amount as unexplained cash. AO directed to compute income and tax accordingly.

Treatment of unexplained cash purchases as income - taxation of profit element in unaccounted sales - unexplained money under section 69A of the Income tax Act - application of precedents limiting addition to gross profit - remand for quantification of incomeTreatment of unexplained cash purchases as income - taxation of profit element in unaccounted sales - unexplained money under section 69A of the Income tax Act - application of precedents limiting addition to gross profit - Whether the entire cash purchases reported by investigation can be treated as income of the assessee or only the profit element on such unaccounted sales is exigible to tax. - HELD THAT: - The Tribunal found no dispute that cash purchases occurred, but held that tax is levied on income and not on gross receipts. Relying on precedents which construe that only the excess over cost (profit) on unaccounted sales constitutes taxable income, the Tribunal rejected the AO's treatment of the entire cash purchases as the assessee's income. Applying those authorities, the Tribunal concluded that the addition could not be sustained in full and accepted the approach of taxing only the profit element, allowing an estimate of income at 8% of the cash sales for the purpose of assessment. [Paras 5, 6]Addition treating entire cash purchases as income deleted; only profit element on unaccounted sales to be taxed (accepted estimate @ 8% of sales).Remand for quantification of income - Whether the matter should be remitted to the Assessing Officer for computation of income consistent with the Tribunal's conclusion. - HELD THAT: - Having held that only the profit element is taxable and having accepted an 8% estimate on sales, the Tribunal directed the AO to compute the assessee's income and tax it in accordance with law. The order therefore requires the AO to work out the taxable income on the stated basis and complete assessment proceedings consequentially. [Paras 6]Matter remitted to the AO to compute income on the basis indicated (profit element/8% on sales) and to tax accordingly.Final Conclusion: Revenue appeal partly allowed: Tribunal set aside AO's addition of the entire cash purchases under section 69A and directed taxation only of the profit element (accepted estimate @ 8% of sales), remitting the matter to the AO for computation and assessment in accordance with law.

2023 (12) TMI 1125 - ITAT MUMBAI Income Tax

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Excess depreciation claim due to insurance adjustment deemed bona fide mistake, penalty under section 270A deleted
ITAT Mumbai upheld CIT(A)'s deletion of penalty u/s 270A for under-reporting income. Assessee failed to reduce insurance claim from block of assets, resulting in excess depreciation claim. However, assessee declared huge loss and was not in advantageous position to claim higher depreciation. Following SC precedent in Reliance Petro Products and Bombay HC decision in Somany Evergreen Knits, tribunal held excess depreciation claim was bona fide mistake, not concealment of income warranting penalty.

Penalty for under-reporting and misreporting of income under section 270A - bona fide mistake - excess claim of depreciation and under-reporting - mens rea and suppression of material fact - deletion of penalty on merits Penalty for under-reporting and misreporting of income under section 270A - excess claim of depreciation and under-reporting - bona fide mistake - mens rea and suppression of material fact - Validity of penalty under section 270A for excess claim of depreciation and whether the excess claim amounted to concealment or was a bona fide mistake. - HELD THAT: - The assessee had claimed depreciation without reducing an insurance receipt from the block of assets, resulting in excess depreciation of Rs. 3,17,94,645/-, and furnished a revised computation during assessment reducing the insurance receipt from the block and recalculating depreciation. The Assessing Officer levied penalty under section 270A(7) for under-reporting, without accepting the assessee's explanation. The first appellate authority held the mistake to be bona fide and deleted the penalty, relying on precedent that an erroneous claim of expenditure/depreciation does not necessarily amount to giving inaccurate particulars or concealment. The Tribunal, on reviewing the facts and authorities, found no infirmity in the CIT(A)'s conclusion: the excess claim arose from an inadvertent error corrected during assessment and there was no evidentiary finding of mens rea or suppression of material facts by the assessee. Having decided the matter on merits that the claim was a bona fide mistake, the Tribunal treated procedural/contentionary grounds raised in the cross-objection as academic and affirmed deletion of the penalty. [Paras 5, 9, 11, 12, 13] Penalty under section 270A levied for excess claim of depreciation deleted; assessee's excess claim held to be a bona fide mistake and not concealment. Final Conclusion: Revenue's appeal and the assessee's cross-objection are dismissed; the penalty levied under section 270A is deleted on the merits as the excess depreciation was a bona fide mistake.

2023 (12) TMI 1124 - ITAT RAJKOT Income Tax

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1. ISSUES PRESENTED AND CONSIDERED

Whether an assessment order addressed and finalized in the name of a deceased person, when the Assessing Officer had knowledge of the death and a legal heir was on record, is curable under Section 292B of the Income Tax Act.

Whether proceedings and notices issued prior to or after the assessment, addressed to the deceased instead of the legal representative, satisfy the statutory requirements of Section 159(2)(b) and Section 159(3) and render the assessment and consequential demand/penalty actions valid.

Whether failure of the Assessing Officer to acknowledge or conduct the assessment proceedings against the legal heir (despite awareness of death and despite limited mentioning of the legal heir in records) affects the validity of the assessment and subsequent demand/penalty notices.

2. ISSUE-WISE DETAILED ANALYSIS

Issue A: Curability under Section 292B of an assessment order addressed to a deceased person

Legal framework: Section 292B permits rectification of mistakes, defects or omissions in assessment orders so as not to invalidate proceedings when no confusion or prejudice is caused by non-observance of technical formalities.

Precedent Treatment: Revenue relied on a High Court decision holding that an incorrectly worded title of an assessment order did not invalidate the assessment and could be cured under Section 292B. The assessee relied on various decisions holding that assessment orders in the name of a deceased or non-existent person are invalid and not curable.

Interpretation and reasoning: The Tribunal examined not only the mere appearance of the deceased person's name on the order (which may result from system defaults) but the surrounding facts: the Assessing Officer had actual knowledge of the death, the legal heir had been placed on record, and yet the Assessing Officer passed the final assessment order in the name of the deceased and subsequently issued demand and penalty-related notices also in the deceased's name. The Tribunal contrasted this with the High Court decision relied upon by Revenue where the Assessing Officer had actively acknowledged the legal heir and conducted proceedings in the heir's presence; there the defect in the title was curable. In the present facts the Assessing Officer "consciously chose" to issue the order and subsequent notices in the name of the deceased despite knowledge of the legal heir. The Tribunal held that such a defect is not a mere technicality cured by Section 292B because the consequence was that proceedings were not conducted against the proper statutory person and subsequent notices likewise failed to identify the legal representative.

Ratio vs. Obiter: Ratio - where the Assessing Officer, with knowledge of the assessee's death and the existence/on-record status of a legal heir, completes assessment and issues consequential notices in the name of the deceased (a non-existent person), the defect is not a curable technicality under Section 292B and renders the assessment void-ab-initio. Distinguishing observation - prior decisions curing title defects under Section 292B are distinguishable where the legal heir was acknowledged and proceedings were conducted against/with the legal heir.

Conclusion: The Tribunal concluded that the assessment order addressed to the deceased was not curable under Section 292B given the Assessing Officer's conscious omission to recognize the legal heir, and the assessment was therefore invalid.

Issue B: Effect of Sections 159(2)(b) and 159(3) - proceedings against legal representative and deemed assessee status

Legal framework: Section 159(2)(b) provides that proceedings which could have been taken against the deceased may be continued against his legal representative; Section 159(3) deems the legal representative to be the assessee for the purposes of proceedings and deems orders addressed to the deceased to be addressed to the legal heir in certain circumstances.

Precedent Treatment: Revenue contended that Sections 159(2)(b) and 159(3) render proceedings valid against the legal representative even if documents bear the deceased's name; Revenue relied on a High Court decision upholding validity where legal heir had been acknowledged. The assessee relied on authorities holding that mere appearance of the deceased's name does not validate proceedings where the legal heir was not recognized in the substantive proceedings.

Interpretation and reasoning: The Tribunal acknowledged the general proposition that proceedings may continue against a legal representative and that a legal representative is deemed to be the assessee. However, application of these provisions depends on actual recognition and conduct of proceedings against the legal representative. Merely issuing a show-cause notice where the legal heir's name is mentioned but not consistently used, and then finalizing the assessment and issuing demand/penalty notices in the deceased's name, does not amount to proceeding against the legal representative as contemplated by Sections 159(2)(b) and 159(3). The Tribunal emphasized substance over form: where the Assessing Officer is aware of death and the legal heir has been put on record, the order and consequential notices should be in the name of the legal heir; failure to do so undermines the statutory scheme.

Ratio vs. Obiter: Ratio - Sections 159(2)(b) and 159(3) do not automatically validate an assessment addressed to a deceased person where there is clear evidence that the Assessing Officer did not proceed against or recognize the legal representative in finalizing assessment and issuing consequential notices. Observation - the provisions operate to permit proceedings against legal representatives only when the proceedings as a whole reflect that the legal representative has been the party before the authorities.

Conclusion: The Tribunal held that statutory provisions regarding legal representatives do not save the assessment in the facts where the Assessing Officer failed to conduct proceedings against the legal heir and persisted in addressing orders and notices to the deceased.

Issue C: Validity of consequential demand and penalty notices issued in the name of deceased person

Legal framework: Valid demand and penalty notices must be addressed to the correct statutory person; procedural fairness and conformity with Sections 159 and related provisions are prerequisites for valid enforcement and penal consequences.

Precedent Treatment: Parties cited conflicting authorities - some upholding curvature of title errors where legal heir was acknowledged; others invalidating proceedings addressed to non-existent persons.

Interpretation and reasoning: The Tribunal found that consequential demand and penalty notices were issued in the name of the deceased without reference to the legal heir, reinforcing the conclusion that the Assessing Officer had not treated the legal heir as the party to proceedings. Such issuance demonstrated that the defect was substantive (failure to proceed against the correct person) rather than merely technical, and therefore could not be remedied by a later rectification under Section 292B or by deeming provisions alone.

Ratio vs. Obiter: Ratio - demand and penalty actions founded on an assessment that was not validly made against the legal representative (and which were themselves addressed to a deceased person) cannot stand. Obiter - timing and practical difficulties (e.g., short compliance timelines, pandemic context) underscore the need for reasonable conduct when switching parties due to death, but those contextual points supplement rather than alter the legal requirement of proceeding against the legal heir.

Conclusion: The Tribunal held that subsequent demand and penalty notices addressed to the deceased were tainted by the same defect that invalidated the assessment and thus could not be sustained.

Cross-reference and final disposition

Cross-reference: The Tribunal distinguished the High Court decision relied upon by Revenue on the ground that in that authority the legal heir had been acknowledged and proceedings conducted in that heir's presence; by contrast, here the Assessing Officer, despite knowledge of death and record of a legal heir, passed orders and issued notices in the name of the deceased.

Final conclusion: The Tribunal affirmed the appellate authority's conclusion that the assessment was invalid because the Assessing Officer failed to conduct the assessment and consequent actions against the legal representative as required by law; the defect was not a mere curable technicality under Section 292B. The Revenue's appeal was dismissed.

Assessment order passed in deceased person's name instead of legal heir renders proceedings void ab-initio under Section 292B
The ITAT Rajkot dismissed the Revenue's appeal regarding assessment proceedings against a deceased assessee. The AO, despite knowing of the assessee's death and legal heir representation, passed the assessment order and subsequent notices in the deceased person's name rather than the legal heir's name. The ITAT held that this defect rendered the assessment order void ab-initio and was not curable under Section 292B, as the AO consciously chose to use the deceased's name. The CIT(A)'s decision declaring the assessment order invalid was upheld, distinguishing it from the Punjab & Haryana HC precedent where the legal heir was properly acknowledged.

Assessment order passed in the name of a deceased person - curability of defects under Section 292B - recognition of the legal heir and proceedings against the legal representative under Section 159Assessment order passed in the name of a deceased person - recognition of the legal heir and proceedings against the legal representative under Section 159 - curability of defects under Section 292B - Validity of assessment order when the final order and subsequent demand/penalty notices were in the name of the deceased assessee despite the Assessing Officer's knowledge of the death and presence of a legal heir - HELD THAT: - The Tribunal held that where the Assessing Officer, with knowledge of the assessee's death and of the legal heir, passes the final assessment order and issues subsequent demand and penalty notices in the name of the deceased (a non-existent person) without recognising and completing proceedings against the legal heir, such defect is not a mere technicality curable under Section 292B. The decision in Swaran Kanta was distinguished because there the Assessing Officer had acknowledged the legal heir and taken proceedings accordingly; by contrast, in the present case the Assessing Officer consciously continued to treat the deceased as the party, failed to record the fact of death or to complete proceedings against the legal heir, and did not recognise the legal heir in subsequent notices. In those circumstances the assessment order is void ab initio and the CIT(A) correctly held the assessment invalid. [Paras 7, 8]Assessment order passed in the name of the deceased without recognising the legal heir is not curable under Section 292B and is void; CIT(A)'s order setting aside the assessment is affirmed.Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s finding that the assessment order and consequential notices issued in the name of the deceased assessee without due recognition and treatment of the legal heir were not curable and rendered the assessment void.

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