TaxTMI Updates e-Newsletter
Jan 02,2020

Composite supply - principal supply - composite supply of health care services - inpatient services - clinical establishment - health care services (diagnosis, treatment or care) - exemption under Notification No. 12/2017 read with the definition of health care services - SAC 999311

Composite supply - principal supply - composite supply of health care services - Whether medicines, drugs, stents, consumables and implants supplied to in patients form part of a composite supply with inpatient health care services. - HELD THAT: - The Authority found that the hospital supplies a bundled set of services to in patients which includes bed/ICU/room, nursing care, diagnostics, surgical and other treatment under medical direction and, necessarily, medicines, consumables and implants dispensed from the in patient/OT pharmacy pursuant to medical prescriptions. Those goods are procured, issued to inpatient pharmacies, tracked against patient indents and billed together in the final inpatient bill. Given that these items are naturally bundled with the provision of health services in the ordinary course of business and that the health care service is the raison d'etre for admission, the hospital's supply of medicines, consumables and implants to in patients is a composite supply in which the health care service is the principal supply. The Authority applied the statutory definition of composite supply and relied on the explanation and classification of inpatient services to conclude that pharmaceutical and paramedical components form part of the composite inpatient service. [Paras 6]

Medicines, drugs, stents, consumables and implants used in the course of providing health care services to in patients constitute a composite supply of inpatient health care service.

Health care services (diagnosis, treatment or care) - clinical establishment - exemption under Notification No. 12/2017 read with the definition of health care services - inpatient services - SAC 999311 - Whether the supply of inpatient health care services (including the medicines and allied items supplied to in patients) by the applicant hospital is exempt from CGST and SGST. - HELD THAT: - The Authority examined the scope of the exemption entry for services by way of health care by a clinical establishment and the definition of health care services in Notification No.12/2017, as well as the explanatory classification of inpatient services under SAC 999311 which expressly includes medical, pharmaceutical and paramedical services provided to in patients. The Authority also noted the Circular clarifying that food and other items supplied to in patients as part of treatment are part of the composite healthcare supply and not separately taxable. Applying these provisions to the facts - namely that the applicant is a clinical establishment providing diagnosis and treatment under medical direction and bills the inpatient treatment including medicines and allied items together - the Authority held that such inpatient healthcare supply by the applicant falls within the exemption at Sl. No. 74 of Notification No.12/2017 and is not subject to CGST/SGST. [Paras 6]

Supply of inpatient health care services by the applicant, inclusive of medicines, consumables and implants provided to in patients, is exempt from CGST and SGST under the stated notifications.

Final Conclusion: The Authority ruled that medicines, consumables, implants and similar items supplied to in patients form part of a composite inpatient health care service (with health care as the principal supply) and that the applicant's supply of inpatient health care services, inclusive of those items, is exempt from CGST and SGST under the exemption entry for health care services in Notification No.12/2017.

Input Tax Credit - construction of immovable property on one's own account - blocked credits under Section 17(5)(d) - use in the course or furtherance of business - prevention of cascading effect of taxation

Input Tax Credit - construction of immovable property on one's own account - blocked credits under Section 17(5)(d) - use in the course or furtherance of business - Whether input tax credit is available on goods and services received for construction of a building (marriage hall) constructed by the applicant on its own account, where the building is let out and renting attracts GST. - HELD THAT: - Section 17(5)(d) expressly provides that input tax credit shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account, including when such goods or services or both are used in the course or furtherance of business. The applicant built the marriage hall on its own account and used inputs and input services (materials, contractors, architectural services etc.) for that construction. The activity of letting the hall and charging GST on rentals does not alter the statutory bar; the restriction is legislated and is within the power of the Legislature to limit the flow of input tax credit under Section 16(1). Reliance on the Orissa High Court decision in M/s Safari Retreats Pvt. Ltd. was noted; that court granted relief on the facts before it without striking down the provision as ultra vires. Given that Section 17(5)(d) remains part of the law, the Advance Ruling Authority will not extend credit contrary to the clear statutory prohibition. Consequently, input tax credit on goods and services used in construction of the applicant's own immovable property cannot be claimed even though the property is subsequently let out and renting is subject to GST. [Paras 5, 6]

No input tax credit is available for goods or services received for construction of the marriage hall on the applicant's own account, even if the hall is let out and the letting attracts GST.

Final Conclusion: The Authority ruled that Section 17(5)(d) bars the applicant from claiming input tax credit on inputs and input services used in construction of the marriage hall built on its own account, and therefore no ITC can be utilized against GST on renting of the hall.

Voucher - Actionable claim - Supply of goods - Time of supply of vouchers - Classification of printed vouchers under CTH 4911 - Classification of gift cards under CTH 8523 - Jurisdiction of Advance Ruling Authority

Voucher - Actionable claim - Supply of goods - Own closed PPIs issued by the applicant are vouchers and constitute a supply of goods under the CGST/TNGST Act, 2017. - HELD THAT: - The Authority examined whether the instruments issued by the applicant are 'actionable claims' or 'vouchers' within the meaning of the Act. The PPIs (gift vouchers/gift cards) are payment instruments under the Payment and Settlement Act, 2007 but do not constitute a claim to a debt or a beneficial interest in movable property as envisaged by Section 3 of the Transfer of Property Act; they become invalid if lost or not produced within validity and are accepted as consideration or part consideration for supply of goods at identified supplier outlets. Consequently, the instruments satisfy the definition of 'voucher' in section 2(118) of the CGST Act. As 'vouchers' are not money or actionable claims and are movable property, they fall within the definition of 'goods' under section 2(52). The face value paid at sale of vouchers is a consideration in the course or furtherance of business, bringing the transaction within 'supply' under section 7. Applying these statutory definitions and the legislative record concerning the insertion of 'voucher', the Authority held that the applicant's own closed PPIs are vouchers and amount to supply of goods under the CGST/TNGST Act.

Own closed PPIs are vouchers and are a supply of goods under CGST/TNGST Act, 2017.

Time of supply of vouchers - Voucher - The time of supply of vouchers is the date of issue if the supply is identifiable at that point; otherwise it is the date of redemption. - HELD THAT: - Section 12(4) governs time of supply where vouchers are involved. If a voucher is specific to particular goods identified at the time of issue, the date of issue is the time of supply. Where the voucher is redeemable against any goods (i.e., the supply is not identifiable at issuance), the time of supply is the date of redemption. Applying the statutory test to the applicant's vouchers, which are in most cases redeemable against any jewellery item, the Authority held that time of supply, in those cases, is the date of redemption; only vouchers specific to particular goods would have time of supply at issue.

Time of supply is date of issue when supply is identifiable at issue; otherwise date of redemption (applicant's generally redeemable vouchers: time of supply on redemption).

Classification of printed vouchers under CTH 4911 - Classification of gift cards under CTH 8523 - Paper-based gift vouchers are classifiable under CTH 4911 and card-based (electronic/magnetic/smart) gift cards are classifiable under CTH 8523; corresponding GST rates apply. - HELD THAT: - The Authority applied tariff nomenclature and explanatory notes. Paper printed vouchers are printed matter falling under Chapter 4911 (CTH 49119990) and thus attract the rates specified for that classification. Plastic/electronic gift cards with magnetic stripe or smart card functionality fall within Chapter 8523 (e.g., CTH 8523.21.00 or 8523.52) as media capable of electronic reading. The Authority accordingly identified the applicable rates under the notifications referenced: paper vouchers at the notified rate for CTH 4911 and gift cards at the notified rate for CTH 8523.

Paper vouchers (CTH 4911) attract the notified rate applicable to that heading; gift cards (CTH 8523) attract the notified rate applicable to that heading.

Jurisdiction of Advance Ruling Authority - Questions relating to PPIs issued by third-party PPI issuers, and supply/consideration between distinct entities (applicant, Qwikcilver, Kalyan Jewellers Kerala), are not admitted because this Authority lacks jurisdiction over activities of those distinct entities. - HELD THAT: - The contractual and supply chain facts show that Kalyan Jewellers Kerala is the PPI issuer vis-a -vis Qwikcilver and that Qwikcilver undertakes marketing/activation and supplies vouchers to customers; these involve distinct persons/entities and activities beyond the territorial and subject-matter jurisdiction of this AAR. Accordingly, questions about GST treatment at issue for third-party PPI issuers, amounts received by the applicant from third parties, GST compliance on redemption for third-party PPIs, and treatment of discount/incentive in third-party arrangements were not admitted for determination by this Authority.

Questions 4-7 concerning third party PPI issuers are not answered as the Authority does not have jurisdiction to admit those questions.

Final Conclusion: The Authority ruled that the applicant's own closed PPIs (gift vouchers/cards) are 'vouchers' and a supply of goods; time of supply is issue date if the supply is identifiable at issue, otherwise redemption date (applicant's general vouchers: time of supply on redemption); paper vouchers classify under CTH 4911 and card-based vouchers under CTH 8523 with the corresponding notified GST rates. Questions concerning third party PPI issuers were not admitted for want of jurisdiction.

Composite supply - mixed supply - principal supply - highest rate principle for mixed supplies - exemption of duty credit scrips

Composite supply - mixed supply - principal supply - Whether the applicant's one lump sum supply comprising consultancy/data management services and transfer of duty credit scrips is a composite supply or a mixed supply. - HELD THAT: - The Authority examined the nature of the bundled offerings (consultancy, document management, technical support, facilitation and re transfer of duty credit scrips) and the contractual/service order practices including single price invoicing. It found that the duty credit scrip is acquired by the applicant by transfer and can be supplied independently of the consultancy and data management services; likewise the consultancy and data management services can be rendered without supplying the scrip. Hence the components are not "naturally bundled" or supplied in conjunction in the ordinary course of business so as to constitute a composite supply with a principal supply. Instead, they are several individual supplies made in conjunction for a single price and therefore amount to a mixed supply. [Paras 7]

The supplies are mixed supplies and not composite supplies.

Mixed supply - highest rate principle for mixed supplies - exemption of duty credit scrips - The rate of GST applicable to the mixed supply billed at a single price. - HELD THAT: - Applying Section 8 (tax liability on mixed supplies) the Authority treated the mixed supply as taxable at the rate applicable to the component attracting the highest rate. It observed that duty credit scrips (HSN 4907) are exempt under the relevant notifications, while the various services supplied (consultancy, data management, technical support, RTI/legal services, etc.) fall in SAC categories taxable at 9% CGST (and 9% SGST) as per the notifications relied upon. As the non exempt service components attract 9% CGST (and 9% SGST), the mixed supply billed as a single price is taxable at that highest applicable rate. [Paras 7, 8]

The mixed supply is taxable at the highest applicable rate, namely 9% CGST and 9% SGST.

Final Conclusion: The Authority ruled that the applicant's bundled supply (consultancy, DMS, technical/legal services together with transfer of duty credit scrips) is a mixed supply and, applying the highest rate rule, is taxable at 9% CGST and 9% SGST (duty credit scrips remain exempt).

Transitional credit under GST - Form GST TRAN-1 and TRAN-2 - permitting electronic or manual filing of TRAN-2 by Nodal Officer - judicial direction to reopen portal and permit filing/revision - verification of genuineness of TRAN-1/TRAN-2

Form GST TRAN-1 and TRAN-2 - permitting electronic or manual filing of TRAN-2 by Nodal Officer - judicial direction to reopen portal and permit filing/revision - Validity of Annexure-D dated 29.03.2019 insofar as it prevented the petitioner from filing/revising TRAN-2 and direction to permit filing/revision of TRAN-2. - HELD THAT: - The Court found that the petitioner was unable to upload TRAN-2 on the GST portal because Part 7B of Table 7(a) of TRAN 1 was left blank. In view of earlier orders in connected matters (including Writ Petition No.19076/2019 and related matters extending time to furnish TRAN 1), the Court set aside Annexure-D dated 29.03.2019 insofar as it affected the petitioner and directed the petitioner to approach the Nodal Officer. Respondent No.4 (Nodal Officer) was directed to consider the petitioner's case in the light of the Court's earlier directions and the extension of time to furnish TRAN 1, and to take a suitable decision to permit the petitioner to file or revise TRAN 2 either electronically or manually. The direction requires that compliance be completed expeditiously, in any event within eight weeks from receipt of certified copy of the order. [Paras 6]

Annexure-D dated 29.03.2019 set aside insofar as the petitioner; petitioner to approach Nodal Officer who shall consider and permit filing/revision of TRAN 2 (electronically or manually) within eight weeks.

Transitional credit under GST - verification of genuineness of TRAN-1/TRAN-2 - Whether respondents may verify the genuineness of the TRAN 1/TRAN 2 claims and the scope of such verification. - HELD THAT: - The Court expressly left open the respondents' statutory and factual rights to verify the merits and genuineness of the TRAN 1/TRAN 2 claims. While directing facilitation of filing/revision, the Court permitted the respondents to examine and decide on the claims in accordance with law, thereby confining the relief to procedural facilitation without precluding substantive scrutiny. [Paras 7]

Respondents are at liberty to verify the genuineness of TRAN 1/TRAN 2 and decide the claim on merits in accordance with law.

Final Conclusion: The writ petition is disposed of by setting aside Annexure-D dated 29.03.2019 insofar as the petitioner and directing the petitioner to approach the Nodal Officer who shall consider and permit filing or revision of TRAN 2 (electronically or manually) in light of this Court's earlier directions, with compliance within eight weeks; respondents retain the authority to verify claims on merits.

Transit credit under Section 140(3) of the CGST Act read with Rule 117(4)(b)(iii) - Nodal Officer's duty to consider representations for uploading Form GST TRAN-2 electronically or accepting manual filing - obligation to decide representations expeditiously - application of Sections 140, 142 and 172 of the CGST Act and Rule 117(1) of the CGST Rules - administrative direction to permit filing/revision of transitional forms

Nodal Officer's duty to consider representations for uploading Form GST TRAN-2 electronically or accepting manual filing - obligation to decide representations expeditiously - transit credit under Section 140(3) of the CGST Act read with Rule 117(4)(b)(iii) - Petitioner's representation seeking permission to upload Form GST TRAN-2 electronically or to accept manual filing and to enable claim of transitional credit was to be considered by the Nodal Officer and decided within a specified time. - HELD THAT: - The Court found that the petitioner's representation to the Nodal Officer remained unconsidered and that, in view of the statutory framework governing transitional credit (Sections 140 read with Sections 142 and 172 of the CGST Act and Rule 117 of the CGST Rules) and the relevant administrative circular, the Nodal Officer is obliged to consider such applications seeking permission to upload or to accept manual filing of GST TRAN-2. The Court referred to its earlier treatment of filing/revising transitional forms in allied writ petitions and held that administrative authorities must entertain and decide representations made for availing transitional credit rather than leaving them unconsidered. Applying these principles, the Court directed that the pending representation be expeditiously considered and disposed of on merits in accordance with law. [Paras 4, 5]

The Nodal Officer is directed to consider the petitioner's application/representation for uploading Form GST TRAN-2 or acceptance of the manually filed form and to take a decision within eight weeks from receipt of the certified copy of the order; writ petition disposed.

Final Conclusion: Writ petition disposed with a direction to the Nodal Officer to consider and decide the petitioner's representation regarding filing of Form GST TRAN-2 (and consequent claim of transitional credit) expeditiously, no later than eight weeks from receipt of certified copy of this order.

Seizure of goods and vehicle - e-way bill - calculation of excess amount payable - penalty - release of goods and vehicle upon payment

Seizure of goods and vehicle - e-way bill - calculation of excess amount payable - penalty - release of goods and vehicle upon payment - Direction to the tax authorities to compute the excess amount and procedure for release of seized goods and vehicle upon payment - HELD THAT: - The writ petition challenged notices issued in November 2019 and alleged illegal seizure of goods and the carrying vehicle on the ground that required documents, including the e-way bill, had in fact been produced. The Court observed the petitioning company stated willingness to pay any excess amount after assessment but noted the absence of a supporting board resolution. Without adjudicating the merits of the seizure allegation, the Court directed the respondent authority to calculate the excess amount (including penalty, if any) payable by the petitioner and communicate the quantification within three weeks. The Court further directed that if the petitioner makes full payment in accordance with that communication within one week of receipt, the goods and the vehicle shall be released in accordance with law.

Respondent authority to compute and communicate the excess amount and penalty within three weeks; upon full payment within one week of communication, goods and vehicle to be released in accordance with law.

Final Conclusion: Writ petition disposed by directing the tax authority to quantify the excess amount and penalty within three weeks and, upon full payment by the petitioner within one week of such communication, to release the seized goods and vehicle in accordance with law; the Court did not adjudicate the legality of the seizure on merits.

Summary order. Liberty granted to amend the writ petition to include a challenge to the vires of section 129 of the Uttar Pradesh Goods and Services Tax Act, 2017 in addition to the challenge to section 129 of the Central Goods and Services Tax Act, 2017; amendment to be completed in the presence of a Court officer within 10 days; Advocate-on-Record to serve notice upon the Attorney General of India and the Advocate General of Uttar Pradesh; matter listed for the second week of January, 2020.

Bank attachment notice - Form GST DRC-22 - Attachment under Section 83 of the Act - Withdrawal of notice - Rendered infructuous

Bank attachment notice - Form GST DRC-22 - Withdrawal of notice - Rendered infructuous - Petition challenging the bank attachment notice issued in Form GST DRC-22 - HELD THAT: - The petitioner challenged a bank attachment notice issued in Form GST DRC-22 dated 04.10.2019. The respondents filed a memo enclosing communication of the Additional Commissioner of Commercial Taxes (Legal Affairs) dated 02.12.2019 stating that the Commercial Tax Officer (Enforcement-11) withdrew the impugned Form GST DRC-22 by letter dated 30.11.2019 addressed to the bank and a copy of that withdrawal letter was placed on record. In view of the withdrawal of the attachment notice, the relief sought in the writ petition became academic and there was no live controversy for adjudication. The court therefore dismissed the writ petition as having been rendered infructuous without deciding the merits of the original challenge. [Paras 3, 4]

Writ petition dismissed as rendered infructuous on account of withdrawal of the impugned Form GST DRC-22.

Final Conclusion: The court dismissed the writ petition as academic and rendered infructuous because the respondent withdrew the bank attachment notice (Form GST DRC-22); no substantive adjudication on the merits was undertaken.

Pre-deposit requirement for interim hearing under section 107 of the Uttar Pradesh Goods and Services Tax Act, 2017 - hearing on merits conditional on compliance with pre-deposit and filing of affidavits - time-bound filing of counter-affidavit and rejoinder following compliance

Pre-deposit requirement for interim hearing under section 107 of the Uttar Pradesh Goods and Services Tax Act, 2017 - hearing on merits conditional on compliance with pre-deposit and filing of affidavits - Proceedings admitted subject to the petitioner making the statutory pre-deposit and compliance with directions for filing affidavits; matter to be heard on merits thereafter. - HELD THAT: - The High Court directed that the writ petitioner must secure the amount required to be paid as pre-deposit to the appropriate authority for the purpose of hearing in terms of section 107 of the Uttar Pradesh Goods and Services Tax Act, 2017, within a period of a fortnight from the date of the order. Upon such compliance, the petition will be heard on merits upon filing of affidavits. The Court further ordered a timetable for pleadings: a counter-affidavit to be filed within a fortnight from the date of the pre-deposit payment, and any rejoinder affidavit to be filed within a further fortnight. The matter was directed to be listed immediately after completion of the stipulated steps.

Admission of the petition is conditional upon payment of the pre-deposit within a fortnight and compliance with the affidavit filing schedule; matter to be listed for hearing on merits thereafter.

Final Conclusion: Petition admitted on terms: petitioner to make the pre-deposit within a fortnight and file requisite affidavits; respondents to file counter-affidavit and petitioner any rejoinder within the stipulated fortnights; matter to be listed for hearing immediately thereafter.

Exclusion of period for special audit from computation of limitation - commencement of exclusion period from date of direction/order under Section 142(2A) - distinction between date of direction and date of receipt for computation of limitation - outer time-limit for furnishing special audit report commencing from receipt of direction - sustainability of conclusion notwithstanding erroneous reasoning

Exclusion of period for special audit from computation of limitation - commencement of exclusion period from date of direction/order under Section 142(2A) - distinction between date of direction and date of receipt for computation of limitation - Whether the period to be excluded for computing limitation under Section 158BE/Section 153 Explanation 1(iii) commences from the date on which the Assessing Officer directs the assessee to get his accounts audited (date of order) or from the date on which such direction is received by the assessee (date of service). - HELD THAT: - The Court held that the statute (Explanation 1(iii) to Section 153 read with Section 158BE and Section 142(2A)) refers to the period commencing from the date on which the Assessing Officer "directs the assessee to get his accounts audited" and ending on the date on which the assessee is required to furnish the audit report. The words used in clause (iii) indicate the starting point is the date of the direction/order itself and not the date of receipt by the assessee. The proviso to Section 142(2A), which uses the phrase "received by the assessee", serves a different purpose and fixes the outer time-limit (180 days) for completion/extension of the special audit from the date of receipt; that phrase cannot be conflated with clause (iii) of Explanation 1. Reliance on the Division Bench decision of the Delhi High Court in Nokia India Pvt. Ltd. was noted as supporting the interpretation that clause (iii) begins from the date of the Assessing Officer's direction. Applying this construction to the facts, the direction dated 17.04.2000 gives an exclusion of 105 days up to 31.07.2000, which when added to the limitation period extends the last date for assessment to 13.11.2000, and the assessment order dated 13.11.2000 therefore falls within limitation. [Paras 6, 7, 8, 9]

The exclusion period for computation of limitation commences from the date of the Assessing Officer's direction/order under Section 142(2A) and not from the date of receipt by the assessee; accordingly the block assessment dated 13.11.2000 was within limitation.

Sustainability of conclusion notwithstanding erroneous reasoning - Whether the Tribunal's alternative reasoning (that limitation was saved by the intervening Saturday and Sunday) was necessary to sustain the conclusion that the assessment was within limitation. - HELD THAT: - The Court observed that the Tribunal's reliance on intervening non-working days (11.11.2000 being Saturday and 12.11.2000 being Sunday) as the basis to save limitation was not the correct legal reasoning. However, because the assessment was otherwise within limitation on the correct statutory construction (exclusion from 17.04.2000 to 31.07.2000), the Tribunal's ultimate conclusion that the assessment was within time is legally sustainable despite the incorrect reasoning employed in the impugned order. [Paras 10]

The Tribunal's stated reason was incorrect, but its conclusion is sustainable on the correct interpretation of the statute; no interference is warranted.

Final Conclusion: The appeal is dismissed. The Court answers the substantial question of law in favour of the Revenue and holds that the exclusion for special audit under the relevant provisions begins from the date of the Assessing Officer's direction/order under Section 142(2A); consequently the block assessment dated 13.11.2000 was within limitation.

Charitable institution - Section 11, 12 and 13 of the Income Tax Act - Section 2(15) definition of charitable purpose - principle of mutuality - principle of consistency/continuity in income tax assessments - res judicata not strictly applicable but prior consistent findings relevant - treatment of interest income under mutuality/charitable status

Charitable institution - Section 11, 12 and 13 of the Income Tax Act - Section 2(15) definition of charitable purpose - Assessee is a charitable institution and its income for the year must be computed under Sections 11, 12 and 13 of the Act. - HELD THAT: - The Court accepted the finding that the activities of India Habitat Centre fall within the meaning of charitable activities under the definition in Section 2(15) and that the proviso to that definition is not attracted. Applying the profit motive test, the Court found that surpluses were not appropriated by individuals or groups and that charging for certain goods or services did not convert the activities into commercial undertakings. The Court held that once the activities are held charitable, the income is to be computed under Sections 11, 12 and 13 rather than by treating the entity as an AOP or otherwise. The Court found no error in the factual conclusions recorded by the lower authorities which supported exemption under those provisions. [Paras 15, 17, 21]

Revenue's contention rejected; assessee is entitled to have its income computed under Sections 11, 12 and 13.

Principle of consistency/continuity in income tax assessments - res judicata not strictly applicable but prior consistent findings relevant - Prior consistent findings that the assessee's activities are charitable precluded reopening the issue for the assessment year in question in absence of material change in fundamental facts. - HELD THAT: - The Court noted that although res judicata does not strictly apply to income tax proceedings, the Supreme Court's decisions recognize that where no material change in fundamental facts is shown and a consistent position has been accepted across assessment years and by multiple authorities, it is inappropriate to take a different view in a subsequent year. The CIT(A) and ITAT had recorded that there was no change in the fundamental nature of the Centre's activities over the relevant years and relied on earlier High Court and Tribunal decisions. In such circumstances the Court found no justification to disturb the accepted position for AY 2012 13. [Paras 13, 16, 18]

Revenue cannot reopen the grant of exemption for AY 2012 13 in absence of material change; ITAT and CIT(A) conclusions affirmed.

Principle of mutuality - treatment of interest income under mutuality/charitable status - The principle of mutuality is rendered superfluous where activities are held to be charitable; interest income on deposits is not taxable in the facts of this case. - HELD THAT: - The Court observed that once the assessee is established to be a charitable trust and its income falls to be computed under Sections 11-13, consideration of mutuality is unnecessary. With respect to interest income, the Court referred to its earlier decision in Delhi Gymkhana Club and other authorities holding that interest earned from deposits made out of members' contributions can be covered by the principle of mutuality and not be taxable. The Bangalore Club decision relied on by Revenue was distinguished on facts because that case concerned an unincorporated AOP, whereas the present assessee is a registered society with valid Section 12A registration. [Paras 19, 20, 21]

Mutuality need not be applied once charitable status is established; interest income is not taxable on the facts.

Final Conclusion: The appeal is dismissed. The High Court and the Tribunal correctly held that India Habitat Centre is a charitable institution and its income for AY 2012 13 is to be computed under Sections 11, 12 and 13; prior consistent findings barred reopening in absence of material change, and the interest income is not chargeable to tax on the facts.

Validity of notice under Section 148 read with limitation in Section 149(3) - Supplementation or alteration of reasons for reopening and the rule in Hindustan Lever Ltd. - Retrospective effect of Finance Act, 2012 amendment and its Explanation - Characterisation of settlement as a family settlement and taxability as capital gains - Concurrent findings of fact and appellate interference for perversity

Validity of notice under Section 148 read with limitation in Section 149(3) - Supplementation or alteration of reasons for reopening and the rule in Hindustan Lever Ltd. - Retrospective effect of Finance Act, 2012 amendment and its Explanation - The notice dated 14.03.2005 under Section 148 was valid and within time; the June 21, 2005 communication did not impermissibly supplement the reasons for reopening, and the 2012 amendment with its Explanation supports applicability of extended limitation. - HELD THAT: - The Court held that the communication of 21.06.2005 merely clarified that the notice was addressed to Mr. P.P. Mahatme in his capacity as power of attorney holder and did not introduce new reasons or materially supplement the reasons that accompanied the notice dated 14.03.2005; consequently the principle in Hindustan Lever Ltd. against supplementation of reasons was not attracted. On limitation, the Court accepted that where a notice is addressed to the power of attorney holder (and not as an agent under section 163), the applicable limitation was six years, so the notice dated 14.03.2005 fell within the period then in force for the relevant assessment year 1999-2000. The Court further observed that the Finance Act, 2012 amended Section 149(3) to extend the period and included an Explanation expressly clarifying that the amendment applies to any assessment year beginning on or before 1 April 2012; that Explanation distinguishes Uttam Steel and S.S. Gadgil relied upon by the appellant and permits application of the extended limitation in the present facts. The Court therefore found no infirmity in the authorities' view upholding the notice's validity. [Paras 29, 30, 31, 32, 33]

The first substantial question is answered against the appellant and in favour of the Revenue: the notice dated 14.03.2005 is valid and within limitation.

Characterisation of settlement as a family settlement and taxability as capital gains - Concurrent findings of fact and appellate interference for perversity - The settlement embodied in the Consent Decree is not a bona fide family settlement realigning pre-existing rights; the amount received is properly held to be taxable as capital gains and concurrent factual findings are not vitiated by perversity. - HELD THAT: - The Court noted that Assessing Officer, CIT(A) and ITAT recorded concurrent findings that Cristovam and Alvaro had no pre-existing right in the disputed immovable property. Because there was no pre-existing joint right realigned by the settlement, the arrangement could not be characterised as the kind of family settlement which, according to authorities relied upon by the appellant, merely defines pre-existing interests and thus avoids conveyance for capital gains purposes. The material on record showed prior partition and exclusive inheritance by the appellant's predecessors; on that basis the authorities' findings that the settlement did not qualify as a family settlement were supported by cogent evidence and not perverse. Differing precedents were examined and distinguished on facts; the Court found no reason to interfere under the limited jurisdiction to test perversity of concurrent factual conclusions. [Paras 39, 40, 41, 42, 43]

The second substantial question is answered against the appellant and in favour of the Revenue: the settlement is not a family settlement exempting the amount from capital gains tax.

Final Conclusion: Both substantial questions of law are answered against the appellant and in favour of the Revenue; the appeal is dismissed with no order as to costs.

Principle of mutuality - taxability of interest paid by Indian branch to Head Office/overseas branches - application of Double Taxation Avoidance Agreement (India-USA Tax Treaty) vis-a -vis domestic law - exercise of revisional power under section 263 of the Income Tax Act, 1961 - Explanation (a) to section 9(1)(v)(c) - retrospective application and effect of legislative amendment

Principle of mutuality - taxability of interest paid by Indian branch to Head Office/overseas branches - application of Double Taxation Avoidance Agreement (India-USA Tax Treaty) vis-a -vis domestic law - exercise of revisional power under section 263 of the Income Tax Act, 1961 - Whether the orders passed by the Commissioner under section 263 were justified in holding that interest paid by the Indian Branch to the Head Office/overseas branches was taxable in India and that the original assessments were erroneous and prejudicial to the interests of Revenue. - HELD THAT: - The Tribunal held that the question whether interest paid by an Indian branch to its foreign Head Office/overseas branches is taxable was squarely covered by the Special Bench decision in Sumitomo Mitsui Banking Corporation, which treated such payments as payments to self governed by the principle of mutuality and therefore not taxable under domestic law. The Special Bench further held that where domestic law is more beneficial, it prevails over treaty provisions under the statutory scheme. The Assessing Officer had considered the assessee's submissions and judicial precedents and accepted the claim in the assessments. The Commissioner's view that the Tax Treaty (Article 14(6)) rendered the interest taxable and therefore the assessments were erroneous was thus a contrary view to a binding Special Bench precedent and to the position of law prevailing at the time of assessment. Because the issue was debatable and a possible view existed in favour of the assessee, the exercise of revisional power under section 263 could not be sustained. The Tribunal therefore concluded that the assessments were not erroneous or prejudicial to the interests of Revenue for not taxing that interest and quashed the revisional orders. [Paras 4]

The orders passed under section 263 holding the assessments erroneous for not taxing the interest were quashed and the Assessing Officer's original assessment orders were restored.

Explanation (a) to section 9(1)(v)(c) - retrospective application and effect of legislative amendment - exercise of revisional power under section 263 of the Income Tax Act, 1961 - Whether Explanation (a) to section 9(1)(v)(c), introduced by Finance Act, 2015 w.e.f. 1 April 2016, could be invoked to bring the interest to tax for the assessment years 2011-12 and 2012-13 or to justify revision under section 263. - HELD THAT: - The Tribunal observed that the Explanation was enacted w.e.f. 1 April 2016 and, as a clarification introduced after the relevant assessment years, would apply prospectively and not to the years under dispute. It relied on coordinate authority to the same effect. Even if one were to assume retrospective operation, the Tribunal held that revisional proceedings under section 263 cannot be initiated to give effect to a retrospective amendment where the Assessing Officer had to proceed on the law prevailing at the time of assessment. Consequently, Explanation (a) could not be pressed into service to sustain the Commissioner's revision for the impugned years. [Paras 4]

Explanation (a) to section 9(1)(v)(c) does not apply to the assessment years in question and cannot justify the initiation of revision under section 263; the revisional orders are unsustainable on this ground as well.

Final Conclusion: The Tribunal allowed the appeals, quashed the orders passed under section 263 of the Act, and restored the original assessment orders for AY 2011-12 and AY 2012-13, holding that interest paid by the Indian branch to the Head Office/overseas branches was not taxable under the law prevailing at the time and that the Explanation to section 9(1)(v)(c) could not be invoked to sustain the revision.

Treatment of loss on cancellation of foreign currency forward contracts as business loss vis-a -vis speculative loss - requirement of one-to-one linkage between hedge contract and underlying export/import exposure - scope of proviso to section 43(5) regarding hedging transactions - application of CBDT Circular No.23D(xxxix) on hedging transactions - additions under section 69A and section 69B for unexplained shortage and unexplained investment - restriction of additions by applying gross profit rate

Treatment of loss on cancellation of foreign currency forward contracts as business loss vis-a -vis speculative loss - requirement of one-to-one linkage between hedge contract and underlying export/import exposure - scope of proviso to section 43(5) regarding hedging transactions - application of CBDT Circular No.23D(xxxix) on hedging transactions - Loss on cancellation of foreign currency forward contracts held to be allowable as business loss and not as speculative loss under section 43(5). - HELD THAT: - The Tribunal accepted that the assessee, a resident exporter and importer operating from SEEPZ, regularly transacted in foreign currency and entered into forward contracts to hedge payables and receivables. The revenue authorities disallowed the loss primarily because the assessee did not establish a one to one linkage between specific forward contracts and specific underlying import/export transactions. The Tribunal rejected the necessity of one to one linkage, relying on the view that hedging transactions entered into in the regular course of business cannot be treated as speculative merely because a strict one to one correlation is not shown. The Tribunal observed that the forward contracts were substantially lower than the overall exposure and noted the guidance of CBDT Circular No.23D(xxxix) that hedging transactions are genuine provided their total does not exceed the cost of raw materials or merchandise in hand. The Tribunal additionally relied on its own consistent earlier decisions in the assessee's cases for other assessment years where similar hedging losses were allowed. Applying these principles to the facts, the Tribunal held that the loss on cancellation of forward contracts was a business loss and not a speculative loss under section 43(5), and allowed the claim. [Paras 8]

Claim for loss on cancellation of foreign currency forward contracts allowed as business loss; not speculative under section 43(5).

Additions under section 69A and section 69B for unexplained shortage and unexplained investment - restriction of additions by applying gross profit rate - Additions under sections 69A and 69B upheld in principle for differences between physical stock and books, but computation to be restricted by applying gross profit rate. - HELD THAT: - On search, discrepancies were found between physical stock and book records. The Assessing Officer made additions treating shortages as out of book sales under section 69A and excess physical cost as unexplained investment under section 69B. The Tribunal found that the assessee failed to reconcile the differences with a satisfactory explanation, thereby establishing the factual basis for additions. However, the Tribunal accepted the assessee's alternative plea that the additions, if sustained, ought to be limited by application of the gross profit rate rather than the full valuation taken at the date of search. Consequently, the Tribunal directed the Assessing Officer to recompute the disallowance/additions applying the gross profit rate. [Paras 13]

Additions under sections 69A and 69B sustained to the extent discrepancies remain, but remitted for recomputation applying the gross profit rate; grounds partly allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal allows the claim of loss on cancellation of foreign currency forward contracts as business loss (not speculative) for AY 2012-13, and upholds the additions under sections 69A and 69B in principle but directs recomputation of the disallowances by applying the gross profit rate.

Genuineness of purchases - allowance of depreciation on capital asset - verification of documentary evidence by Assessing Officer - re-opening of assessment on information from investigative agencies - reliance on returned/unserved third party notices in adjudication - treatment of purchases from bogus/grey market suppliers

Genuineness of purchases - verification of documentary evidence by Assessing Officer - allowance of depreciation on capital asset - Whether the assessee's claim of depreciation on the machinery purchased from the declared seller for Rs. 10,23,750 ought to be allowed in full where the Assessing Officer treated the purchase as non genuine based on third party information and a returned/unserved notice, but the assessee produced documentary evidence of purchase and receipt. - HELD THAT: - The Assessing Officer re opened assessment after receiving information from tax authorities that the selling dealer was dubious and because notices issued to the seller returned unserved; on that basis the Assessing Officer disallowed depreciation. During assessment the assessee, however, furnished purchase invoice, goods receipt note, lorry receipt, purchase order and transporter's bill showing delivery and installation of the machinery at the assessee's premises. The Commissioner (Appeals) accepted installation but reduced the purchase value by 50% without recording any basis for that reduction. The Tribunal held that where the assessee produces documentary evidence demonstrating purchase and delivery from the declared source and there is no contrary material on record to falsify those documents, the Assessing Officer is obliged to make an effective enquiry into authenticity rather than reject the claim on presumption and reliance solely on third party information or returned notices. Having found as a factual conclusion that the machinery was received and installed, and in the absence of any material discrediting the documents, the Tribunal concluded that the assessee is entitled to depreciation on the entire purchase value, subject only to computation for the period of use.

Assessee entitled to depreciation on the full purchase value of Rs. 10,23,750; Assessing Officer directed to allow depreciation accordingly, taking into account the period the asset was put to use.

Final Conclusion: Tribunal allows the assessee's appeal and directs the Assessing Officer to grant depreciation on the entire purchase value of the machinery for AY 2010-11, holding that documentary evidence of purchase and installation, uncontradicted on record, cannot be rejected on the basis of third party information or returned notices; Revenue's appeal dismissed.

Levy of fee under section 234E - Section 200(3) - furnishing of TDS statement including Form 26QB - Effect of deduction under section 194IA on deductor's obligations - Obligation to compute fee for each delayed TDS statement - Section 200A processing of TDS statements

Levy of fee under section 234E - Section 200A processing of TDS statements - Validity of the fee levied under section 234E for delayed filing of TDS statements while processing under section 200A - HELD THAT: - The Tribunal followed its earlier decision in the assessee's own case and upheld the levy of fee under section 234E where the deductor failed to deposit TDS and furnish the TDS statement within the time prescribed. Once the assessee deducted tax under section 194IA, it became bound to deposit the TDS and file the statement in terms of the Rules; default in timely filing attracts the mandatory levy of fee under section 234E when the statement is processed under section 200A. Reliance was placed on the jurisdictional High Court's view that the fee under section 234E compensates for additional work burden caused by late filing and operates as a privilege allowing regularisation of delayed statements. [Paras 6]

Assessee's challenge to the levy of fee under section 234E is dismissed.

Section 200(3) - furnishing of TDS statement including Form 26QB - Effect of deduction under section 194IA on deductor's obligations - Whether Form 26QB (challan-cum-statement) falls within the scope of section 200(3) and attracts fee for late filing under section 234E - HELD THAT: - The Tribunal held that Form 26QB is a mode of depositing TDS pursuant to rules applicable to section 194IA and that furnishing statements in the prescribed form, manner and time under section 200(3) applies to Form 26QB as well. The fact that Form 26QB is generated at payment does not exempt it from the time bar under section 200(3); delay in filing such statements therefore triggers section 234E. [Paras 6]

Form 26QB statements are within the ambit of section 200(3); late filing attracts fee under section 234E.

Obligation to compute fee for each delayed TDS statement - Whether multiple payments/statements arising from purchase of multiple flats should be treated as a single transaction for computation of fee under section 234E - HELD THAT: - The Tribunal found no merit in treating all purchases as a single transaction where the allotment letter and annexures specified individual flats and the assessee itself computed and deposited TDS on the basis of each flat. Because the assessee filed separate challan-cum-statements (Form 26QB) for the deductions relating to respective flats, the Assessing Officer was obliged to compute and levy fee under section 234E for delay in each separate statement in the course of processing under section 200A; the statutory use of 'shall' makes the levy mandatory. [Paras 6]

Separate delayed TDS statements must be treated individually for computation of fee under section 234E; the assessee's plea for a single fee is rejected.

Appealability to Commissioner (Appeals) - Maintainability of appeal against levy of fee under section 234E before the Commissioner (Appeals) - HELD THAT: - The Tribunal accepted that an appeal against the levy of fee under section 234E is maintainable before the Commissioner (Appeals). However, since the Commissioner (Appeals) had already adjudicated the issue on merits against the assessee, the Tribunal found no reason to interfere with that decision. [Paras 6]

Appeal against levy of fee under section 234E is maintainable before the Commissioner (Appeals), but the Tribunal declines to interfere with the appellate authority's adverse decision.

Final Conclusion: Following the Tribunal's earlier decision in the assessee's own case and the reasoning that Form 26QB statements fall within section 200(3), separate delayed statements attract mandatory fee under section 234E, the appeal is dismissed.

Revisionary jurisdiction under section 263 of the Income Tax Act - Non-application of mind by Assessing Officer - Eligibility for enhanced depreciation for air pollution control equipment under Rule 5 / Appendix I - Scope of beneficial provisions and threshold of eligibility - Capitalisation and allocation of pre commencement finance cost - Explanation 2 to section 263 (assessment passed without requisite inquiry/verification)

Eligibility for enhanced depreciation for air pollution control equipment under Rule 5 / Appendix I - Non-application of mind by Assessing Officer - Revisionary jurisdiction under section 263 of the Income Tax Act - Allowability of 100% depreciation on Ground Power Unit (GPU) and Pre Conditioned Air unit (PCA) and validity of revisional action under section 263 in respect of enhanced depreciation claim. - HELD THAT: - The Tribunal found that the Assessing Officer did not raise any specific query as to why GPU and PCA would qualify as air pollution control equipment eligible for 100% depreciation; the AO's questionnaire only sought general fixed asset details. The equipment categories listed at serial No. 3(viii) of Part A(III) of New Appendix I of Rule 5 identify specified types of air pollution control equipment (electrostatic precipitators, felt filter systems, dust collectors, scrubbers, ash handling/evacuation systems), and GPU and PCA do not fall within those enumerated categories. The assessee neither filed a revised tax audit report reflecting the enhanced depreciation claim nor furnished material before the AO to show that the threshold eligibility was satisfied; a certificate from a chartered engineer was on record but its filing before the AO was not traced to any specific AO query. A beneficent provision cannot be applied without establishing eligibility at the threshold. On these facts the Tribunal concluded there was clear non application of mind by the AO in allowing depreciation at 100%, and therefore the Principal CIT was justified in invoking section 263 to set aside the assessment for fresh consideration. [Paras 5]

The revisional exercise under section 263 in respect of the enhanced depreciation claim is upheld; the assessment is set aside for the AO to re examine eligibility and reframe the assessment.

Capitalisation and allocation of pre commencement finance cost - Non-application of mind by Assessing Officer - Revisionary jurisdiction under section 263 of the Income Tax Act - Allowability of the finance/interest expense debited in P&L (allocation between pre commencement and post commencement periods) and validity of revisional action under section 263 in respect of interest claim. - HELD THAT: - The Tribunal examined the record and found that the AO did not seek a specific break up of interest between pre commencement and post commencement periods; the questionnaire items relied upon by the assessee required particulars of large expenses and loan charts but did not specifically ask for pre commencement allocation. The confirmations and statements produced before the AO showed total interest paid but did not disclose a clear bifurcation. On this basis the Tribunal held that the AO failed to examine the matter as expected and that the Principal CIT correctly concluded the assessment to be erroneous and prejudicial for want of requisite inquiry. Accordingly, revisional jurisdiction under section 263 was properly invoked. [Paras 5]

The revisional exercise under section 263 in respect of the interest/finance cost allocation is upheld; the assessment is set aside for the AO to verify and reframe the assessment.

Final Conclusion: The Tribunal upholds the Principal CIT's exercise of revisionary jurisdiction under section 263 in respect of both the 100% depreciation claim and the finance cost allocation for AY 2011-12; the assessment is set aside and the AO is directed to re examine and reframe the assessment. The assessee's appeal is dismissed.

Revisionary jurisdiction under section 263 of the Income Tax Act, 1961 - reassessment under section 147/148 of the Income Tax Act, 1961 - seized material arising from search and seizure operations - accommodation entries - duty to examine seized material and confront the assessee - Explanation 2 to section 263 - assessment deemed erroneous where AO fails to make proper enquiries - order prejudicial to the interest of revenue

Revisionary jurisdiction under section 263 of the Income Tax Act, 1961 - seized material arising from search and seizure operations - duty to examine seized material and confront the assessee - Explanation 2 to section 263 - assessment deemed erroneous where AO fails to make proper enquiries - order prejudicial to the interest of revenue - accommodation entries - Whether the Pr. CIT rightly set aside the reassessment order under section 263 on the ground that the Assessing Officer failed to examine seized material and therefore the order was erroneous and prejudicial to the interest of the revenue. - HELD THAT: - The Tribunal upheld the Pr. CIT's exercise of jurisdiction under section 263. The record showed that reassessment proceedings under section 147/148 were instituted on allegation of accommodation entries revealed in search and seizure of S.K. Jain group, and that an appraisal report and scanned seized documents were made available to Assessing Officers. The reassessment order merely referred to the appraisal report but did not indicate that the Assessing Officer had examined or confronted the assessee with the seized material (which named the assessee as a beneficiary and recorded a cheque credited to the assessee). The Assessing Officer's action was limited to verification of existence of parties and did not include adequate enquiry into genuineness of the transaction or whether the cheques were issued in lieu of cash as reflected in seized papers. In absence of any notings, questionnaire entries or references in the reassessment record demonstrating that seized material was considered or the assessee confronted therewith, the Tribunal concluded the AO did not make the requisite enquiries. Following Explanation 2 to section 263 (w.e.f. 1.6.2015) and binding precedents including the Tribunal's earlier decision on identical facts and the Supreme Court's dismissal of SLPs in similar contexts, the failure to examine seized material rendered the assessment order erroneous insofar as it was prejudicial to the revenue and justified revision under section 263. [Paras 5]

The order under section 263 setting aside the reassessment order was upheld; the reassessment was held to be erroneous and prejudicial for failure by the AO to examine seized material and to make requisite enquiries.

Final Conclusion: The Tribunal dismissed the assessee's appeal and confirmed the Pr. CIT's order under section 263, holding that the Assessing Officer failed to examine seized material and make necessary enquiries, thereby rendering the reassessment order erroneous and prejudicial to the interest of the Revenue.

Assessment framed on non-existent entity - void ab initio - jurisdictional defect - merger approved by High Court - transfer of jurisdiction to successor company - precedent on assessments after amalgamation

Assessment framed on non-existent entity - void ab initio - jurisdictional defect - merger approved by High Court - transfer of jurisdiction to successor company - Validity of assessment framed in the name of Atos IT Solutions and Services Pvt. Ltd. after its merger into Atos India Pvt. Ltd. - HELD THAT: - The Tribunal found on record that Atos IT Solutions and Services Pvt. Ltd. had been amalgamated into Atos India Pvt. Ltd. pursuant to a High Court-approved scheme and that this fact was communicated to and known by the revenue during assessment proceedings. The record shows transfer memos and letters evidencing communication of the merger and the assessee's consent to transfer jurisdiction to the successor company. Despite knowledge of the merger, the Assessing Officer framed draft and final assessment orders in the name of the amalgamating (now non-existent) company. Relying on the settled legal principle that an assessment framed in the name of an entity which has ceased to exist due to amalgamation is without jurisdiction, and following the cited higher authority on assessments after amalgamation (PCIT vs. Maruthi Suzuki India Ltd. ), the Tribunal held that the assessment is void ab initio. Because the entire assessment was quashed on this jurisdictional/legal ground, adjudication of the other merits-based additions and disallowances was rendered infructuous. [Paras 3]

Assessment framed in the name of the non-existent amalgamating company is quashed as void ab initio; appeal allowed.

Final Conclusion: The assessment order dated 27/01/2016 framed in the name of Atos IT Solutions and Services Pvt. Ltd. (which had been amalgamated into Atos India Pvt. Ltd.) is quashed as being without jurisdiction; the appeal is allowed and the remaining merits issues are rendered infructuous.

Disallowance of agricultural income - assessment on estimate basis - acceptance of sale vouchers as evidence - preceding year consistency - suspicion cannot replace evidence

Disallowance of agricultural income - assessment on estimate basis - acceptance of sale vouchers as evidence - preceding year consistency - suspicion cannot replace evidence - Whether the addition disallowing agricultural income and treating disclosed agricultural receipts as non-agricultural, made by the AO and confirmed by the CIT(A), was justified - HELD THAT: - The Tribunal examined the materials on record including khasra/girdawari, Patwar Halka report and sale vouchers evidencing sale of agricultural produce through Krishi Upaj Mandi. The AO reduced the agricultural income by resorting to generalised yield and price estimates obtained from Tehsildar/State agriculture department and made additions without conducting independent enquiries from the purchasers or producing material to disprove the sale vouchers. The Tribunal observed that general survey reports are not universally applicable because yield depends on land quality, irrigation and inputs, and that the AO estimated both yield and price despite not being a specialist. The Tribunal noted the assessee had accepted agricultural income in the immediately preceding scrutiny assessment on the same land and under the same facts, which supported the assessee's claim. Relying on the settled principle that suspicion however strong cannot take the place of evidence, the Tribunal held that the AO's action was based on guesswork and estimates and that the vouchers could not be rejected on mere suspicion. Applying these principles, the Tribunal concluded there was no justification for the disallowance and the additions made. [Paras 2, 3]

The disallowance of the agricultural income was not justified; the additions are set aside and the appeal is allowed.

Final Conclusion: The appeal is allowed; the additions disallowing agricultural income for Assessment Year 2016-17 are vacated and the assessee's claim supported by sale vouchers and preceding-year acceptance is upheld.

Unexplained credits - beneficial owner - protective addition - commission income computation - admission of additional evidence - reopening assessment under section 147

Unexplained credits - beneficial owner - protective addition - Deletion of addition treating total deposits in the bank accounts of M/s Pride Trade Agency, M/s Sidh Trading Co. and the assessee's Syndicate Bank account as the assessee's unexplained income for A.Y. 2008-09 (addition of Rs. 13,30,16,654/-). - HELD THAT: - The Tribunal accepted the CIT(A)'s conclusion that there was no credible basis to treat the entire turnover of the two concerns as the assessee's income once it was common ground that the assessee was the beneficial owner of M/s Pride Trade Agency and M/s Sidh Trading Co. and that commission income should be determined by applying the commission/net profit rate recognised in subsequent scrutiny assessments. The CIT(A) noted that in later assessments for A.Ys. 2009-10 and 2010-11 the Department applied commission rates of 0.43% and 0.37% respectively and no adverse view was taken on the Syndicate Bank transactions; on this basis the protective addition of the total credits was held to be unsustainable and deleted. The Tribunal upheld that deletion.

Addition of Rs. 13,30,16,654/- treated as unexplained credits deleted; Revenue appeal dismissed on this point.

Commission income computation - net profit rate - nexus between cash withdrawals and deposits - Computation of commission income from the transactions in M/s Pride Trade Agency and M/s Sidh Trading Co. and the claim to exclude certain cash withdrawals from the turnover for computing commission. - HELD THAT: - The CIT(A) directed the Assessing Officer to compute commission income at 0.37% on total transactions in the two concerns, noting that the extremely low commission rate stated by the assessee (0.025%) was not believable and that subsequent assessments had applied a commission/net profit rate of about 0.37-0.43%. The CIT(A) rejected the assessee's claim to reduce turnover by specific cash withdrawals because the assessee failed to show the requisite nexus between those cash withdrawals and later deposits. The Tribunal endorsed this approach and the directed computation, resulting in commission income of Rs. 1,23,712/-. [Paras 8]

Commission income to be computed at 0.37% on the transactions of the two concerns; claim to exclude cash withdrawals denied.

Admission of additional evidence - Rule 46A - Validity of the CIT(A)'s admission of additional evidence filed by the assessee before the CIT(A). - HELD THAT: - The CIT(A) admitted additional evidence as necessary for deciding the appeal, observing that subsequent scrutiny assessments and the findings in related proceedings were relevant to the correctness of the additions made. The Tribunal found that the CIT(A) properly took cognisance of the additional material in reaching the conclusion that the total credits could not be treated as the assessee's income, and upheld the admission and consideration of that evidence.

Admission and consideration of additional evidence by the CIT(A) sustained.

Final Conclusion: Both Revenue appeals for A.Y. 2008-09 and A.Y. 2011-12 are dismissed: the Tribunal upholds the CIT(A)'s deletion of the protective additions treated as unexplained credits, sustains the direction to compute commission income at the recognised rate (0.37%) and affirms the CIT(A)'s admission of additional evidence.

Addition on bogus purchases - application of a deemed profit rate - beneficiary of hawala purchases - genuineness of purchases and evidentiary proof - reassessment and reopening of assessment

Addition on bogus purchases - application of a deemed profit rate - genuineness of purchases and evidentiary proof - Whether the profit element on purchases held to be bogus should be brought to tax by applying the rate adopted by the revenue or a lower rate having regard to the trade and evidences filed by the assessee. - HELD THAT: - The Tribunal accepted that the assessee was beneficiary of hawala purchases connected to a group on which adverse findings were recorded and that the revenue was therefore entitled to apply a rate to bring the profit element on such bogus purchases to tax. The Tribunal, however, found that the AO's applied rate and the rate confirmed by the CIT(A) were excessive in view of the nature of the assessee's trade (manufacture and export of cut and polished diamonds) and the low profit margins recognized in the trade. The assessee had filed documentary material including payment evidence, delivery notes, bills, stock tallies and confirmations which, while not overcoming the finding of bogus billing, were material to quantify a reasonable profit margin. Balancing the authorities' power to make an estimated addition against the commercial realities and evidence on record, the Tribunal concluded that a substantially lower deemed profit rate was appropriate and reasonable in the facts of these cases. [Paras 7]

The addition on purchases held to be bogus is to be computed by applying a rate of 3% on such purchases; the appeals are partly allowed.

Final Conclusion: The Tribunal upheld the approach of making a deemed addition on purchases found to be bogus but reduced the rate to 3% (in place of the AO's 12.5% and CIT(A)'s 8%) for the assessment years 2008-09, 2012-13 and 2013-14 and directed recomputation accordingly.

Release of detained imported goods on payment of duty shown in bill of entry - effect of a subsequently issued notification enhancing duty where bill of entry was generated prior to notification - entitlement to benefit of an earlier judicial decision in identical facts - interpretation of Section 15 of the Customs Act, 1962 - limitations of departmental objections based on pendency of appeal

Release of detained imported goods on payment of duty shown in bill of entry - effect of a subsequently issued notification enhancing duty where bill of entry was generated prior to notification - entitlement to benefit of an earlier judicial decision in identical facts - interpretation of Section 15 of the Customs Act, 1962 - Petitioner is entitled to release of the imported goods on payment of the rate of duty assigned in the bill of entry generated prior to the impugned notification, in view of this Court's earlier decision in M/s Rasrasna Food Pvt. Ltd. and the interpretation of Section 15 of the Customs Act, 1962. - HELD THAT: - The Court found that the facts of the petition mirror those decided in CWP-11887-2019 (M/s Rasrasna Food Pvt. Ltd. v. Union of India and others) and that, applying the same legal principle and the Court's interpretation of Section 15 of the Customs Act, 1962, the petitioner must receive identical relief. The bill of entry had been electronically generated before the late-evening issuance of the notification that enhanced duty; consequently the subsequent notification could not be allowed to defeat the right conferred by the earlier bill of entry. The Court rejected hyper-technical objections advanced by the respondents, holding that the petitioner is entitled to the benefit adjudicated in the earlier judgment and as interpreted under Section 15.

Writ petition allowed and petitioner entitled to release of the goods on payment of duty shown in the bill of entry.

Limitations of departmental objections based on pendency of appeal - release of detained imported goods on payment of duty shown in bill of entry - Goods must be released forthwith despite the department's stated intention to file an appeal against the Tribunal's order. - HELD THAT: - Although the respondents informed the Court that they were in the process of filing an appeal against the Tribunal's order, the Court declined to permit such procedural steps to delay relief. The Tribunal had directed release within seven days and the High Court observed that pendency or proposed filing of an appeal did not justify continued detention when the petitioner is otherwise entitled to relief under the binding judicial decision and statutory interpretation. The Court additionally directed issuance of a detention memo by the Customs department to facilitate early release.

Respondents directed to forthwith release the goods as ordered by the Tribunal and to issue the detention memo immediately.

Final Conclusion: The writ petition is allowed in terms of the earlier judgment in M/s Rasrasna Food Pvt. Ltd.; the petitioner is entitled to release of the goods on payment of the duty shown in the bill of entry generated before the impugned notification, and the respondents are directed to release the goods forthwith and issue a detention memo to facilitate release.

Corporate insolvency resolution process - settlement before constitution of Committee of Creditors - set aside initiation order - interim resolution professional's remuneration and adjustment of advance - release of corporate debtor from rigours of law and restoration of management to Board of Directors

Settlement before constitution of Committee of Creditors - set aside initiation order - Impugned order initiating corporate insolvency resolution process was set aside because the parties settled the dispute before constitution of the Committee of Creditors. - HELD THAT: - The Tribunal recorded that the Operational Creditor and the Appellant had settled the outstanding claim and that the Committee of Creditors had not been constituted. In view of the settlement reached prior to constitution of the Committee, the Tribunal exercised its power to set aside the Adjudicating Authority's order initiating the corporate insolvency resolution process dated 25th September, 2019.

Impugned initiation order dated 25th September, 2019 set aside and appeal allowed on this ground.

Interim resolution professional's remuneration and adjustment of advance - interim resolution professional's expenses - Remuneration of the Interim Resolution Professional (IRP) was assessed and the advance received by the IRP was ordered to be adjusted. - HELD THAT: - Having noted that the IRP had received an advance from the Respondent and had incurred certain expenses, the Tribunal assessed the IRP's fee for the period in issue and directed that the advance already received be adjusted against the assessed remuneration and expenses. The Tribunal quantified the fee for the period and directed adjustment of the advance against that amount and the incurred expenses.

IRP's fees assessed and Rs.2,00,000/- advance to be adjusted against the assessed remuneration and expenses.

Release of corporate debtor from rigours of law and restoration of management to Board of Directors - handing over of assets and records by Interim Resolution Professional - Corporate Debtor was released from the rigours of the insolvency process and its management was restored to the Board of Directors; the IRP was directed to hand over assets and records. - HELD THAT: - Because the insolvency initiation order was set aside following settlement and the Committee of Creditors had not been constituted, the Tribunal directed that the Corporate Debtor be released from the rigours of law under the insolvency proceedings and that its Board of Directors be permitted to function immediately. The Interim Resolution Professional was directed to hand over assets and records to the Board without delay.

Corporate Debtor restored to its Board of Directors with immediate effect and IRP directed to hand over assets and records.

Final Conclusion: The appeal is allowed: the initiation order dated 25th September, 2019 is set aside in view of the settlement reached before constitution of the Committee of Creditors; the IRP's fees were assessed and the advance adjusted; the Corporate Debtor is released to function through its Board and the IRP shall hand over assets and records. No costs.

Financial creditor - Financial debt - Allottee under a real estate project treated as financial creditor - Commercial effect of a borrowing - Initiation of corporate insolvency resolution process under Section 7 - Default - Appointment of Interim Resolution Professional - Moratorium under Section 14

Financial creditor - Financial debt - Allottee under a real estate project treated as financial creditor - Commercial effect of a borrowing - Petitioners (home buyers/allottees) fall within the definition of 'financial creditor' and the amounts paid by them constitute 'financial debt'. - HELD THAT: - The Tribunal applied the amended definition of 'financial debt' which, by way of the Explanation inserted with effect from 06.06.2018, treats amounts raised from allottees under a real estate project as having the commercial effect of a borrowing. The application and the Apartment Buyer Agreement show that the petitioners paid the consideration which was received by the corporate debtor; therefore the petitioners are allottees whose payments qualify as financial debt and the petitioners are financial creditors entitled to invoke remedies under the Code. [Paras 24, 26, 33]

Petitioners are financial creditors and the amounts paid are financial debt.

Default - Initiation of corporate insolvency resolution process under Section 7 - There has been a default by the corporate debtor in repaying the financial debt, satisfying the threshold for initiation under Section 7. - HELD THAT: - On the material placed on record, including the agreement and payment particulars, the Tribunal found that the principal amount remained unpaid since 2016 and exceeded the statutory monetary threshold. The corporate debtor did not deny the claim substantively and attempts at settlement were noted; accordingly, the requisite 'default' for initiating the corporate insolvency resolution process under Section 7 is established. [Paras 31, 33]

Default by the corporate debtor is established and the statutory threshold is met for a Section 7 application.

Initiation of corporate insolvency resolution process under Section 7 - Appointment of Interim Resolution Professional - The Section 7 application is complete, no disciplinary proceedings are pending against the proposed IRP, and the application is to be admitted with appointment of the proposed interim resolution professional. - HELD THAT: - The Form I filed under Section 7 read with the Rules was held to be complete. The proposed interim resolution professional submitted the requisite Form 2, made the prescribed disclosures, and declared absence of pending disciplinary proceedings, thereby satisfying the requirements of Section 7(3)(b) and Section 7(5). In consequence, the Tribunal admitted the application and appointed the proposed Interim Resolution Professional. [Paras 4, 28, 33, 35]

Application admitted; Mr. Anil Tayal is appointed as Interim Resolution Professional.

Moratorium under Section 14 - A moratorium under Section 14 is declared from the date of admission, and the statutory prohibitions during moratorium are imposed. - HELD THAT: - Pursuant to admission of the Section 7 application, the Tribunal directed the Interim Resolution Professional to publish the public announcement and declared the moratorium in terms of Section 14. The order specifies the prohibitions on institution or continuation of suits or proceedings, transfer or disposal of assets, enforcement of security interests and recovery of property occupied by the corporate debtor, subject to statutory exceptions. [Paras 36, 37, 38]

Moratorium under Section 14 imposed with the statutory prohibitions and limited exceptions.

Final Conclusion: The Section 7 petition by the home buyers/allottees is admitted: the petitioners are financial creditors, default is established, the application is complete, Mr. Anil Tayal is appointed as Interim Resolution Professional, public announcement is directed and moratorium under Section 14 is declared.

Definition of 'cleaning activity' under Section 65(24b) - classification of services as 'business auxiliary services' - taxability of cleaning of public roads and streets - service tax - show cause notice issued on audit objection - exclusion from tax

Definition of 'cleaning activity' under Section 65(24b) - taxability of cleaning of public roads and streets - exclusion from tax - Receipts from cleaning of public roads and streets do not fall within the defined cleaning activity liable to service tax. - HELD THAT: - The Court examined the statutory definition of cleaning activity, which expressly applies to cleaning of commercial or industrial buildings and premises and specified related structures. The activity of cleaning public roads and streets is not included within that description and therefore falls outside the scope of the defined cleaning activity. On that basis, receipts derived by the petitioner for cleaning public roads and streets are excluded from tax at the threshold and cannot be aggregated as taxable cleaning activity receipts.

Receipts from cleaning public roads and streets are excluded from the taxable cleaning activity and not subject to service tax under the cited definition.

Show cause notice issued on audit objection - audit objection - classification of services as 'business auxiliary services' - The show cause notice issued to the petitioner, premised on an audit objection seeking reclassification of the activity as business auxiliary services, is unsustainable and is set aside. - HELD THAT: - The respondent conceded that the audit objection was not accepted by the Departmental assessing officer and that the objection was closed after the Ministry's reply to the Comptroller and Auditor General. The impugned show cause notice was therefore founded on an audit objection which the department itself did not pursue. In view of the foregoing and the statutory scope of cleaning activity, the show cause notice seeking to tax the petitioner's receipts from cleaning public roads and streets is liable to be quashed.

Impugned show cause notice set aside and the writ petition allowed.

Final Conclusion: Writ petition allowed; show cause notice seeking to tax receipts from cleaning public roads and streets for the period September 2004 to August 2007 quashed as such activities fall outside the statutory definition of taxable cleaning activity and the underlying audit objection was not pursued by the Department.

Ex-gratia compensation for under-utilisation - declared service of agreeing to refrain from, or to tolerate, an act or situation (Section 66E(e)) - manufacture/production services excluded by negative list (Section 65B(44)) - service tax liability on compensation payments

Ex-gratia compensation for under-utilisation - declared service of agreeing to refrain from, or to tolerate, an act or situation (Section 66E(e)) - service tax liability on compensation payments - Whether amounts paid to the appellant as ex-gratia job charges for shortfall in agreed production constitute consideration for a taxable declared service attracting Service Tax. - HELD THAT: - The Tribunal found that the appellant manufactured confectioneries for the principal manufacturer and was paid agreed per kg job charges; ex gratia payments arose only when the principal did not utilise the appellant's production capacity and were mutually determined to compensate the appellant for loss or deficiency. Invocation of the declared service under Section 66E(e) requires an obligation to refrain from, or to tolerate, an act or situation, or to assume an obligation to do an act. The ex gratia payments in question were compensatory in nature, payable for an uncertain eventuality (reduced offtake) and intended to make good damages or loss, not payments for assuming any obligation to tolerate or refrain from an act. Further, processes amounting to manufacture/production are addressed separately under Section 65B(44) and are within the negative list context. Applying these principles, the Tribunal held that the ex gratia amounts did not constitute consideration for a declared service and therefore did not attract Service Tax.

Impugned orders confirming Service Tax demand and penalties on the ex gratia job charges set aside; appeal allowed on merits (limitation not adjudicated).

Final Conclusion: Appeal allowed on merits: ex gratia job charges paid to the appellant as compensation for under utilisation of production capacity do not amount to a declared service under Section 66E(e) and do not attract Service Tax; consequential demands and penalties quashed (question of limitation left unaddressed).

Reversal of Cenvat credit amounts to non-taking of credit - entitlement to benefit of exemption notification upon reversal of credit - omission to consider alternative contention requiring remand for verification

Reversal of Cenvat credit amounts to non-taking of credit - entitlement to benefit of exemption notification upon reversal of credit - Effect of reversal of Cenvat/Modvat credit on entitlement to exemption and the consequent remedial direction. - HELD THAT: - The Tribunal found that the appellant had raised, as an alternative plea, that any Cenvat credit taken in respect of common input services was subsequently reversed, but this contention was omitted from the earlier order. Relying on the ratio in the decisions referred to in the impugned proceedings - including Franco Italian Company Pvt. (following Chandrapur Magnet Wire (P) Ltd. ) and the decision in Hello Minerals Water , as applied and followed by the High Court in Ashima Dyecot Ltd. and affirmed by the Apex Court in Commr. vs Ashima Dyecot Ltd. - the Tribunal recorded the legal proposition that reversal of Modvat/Cenvat credit amounts to non-taking of credit and, if reversal is established, the appellant is entitled to the benefit of the exemption notification relied upon. Because the earlier order did not address this alternative contention, the Tribunal held that there was an error by omission. The Tribunal therefore amended the order to record the above legal position and remanded the matter for verification of facts and decision in the light of the principle that reversal of credit negates its prior availment for the purpose of claiming exemption. [Paras 4, 5]

The earlier order is amended to note that reversal of Cenvat credit equates to non-taking of credit; the appeal is allowed by way of remand for verification and decision whether the appellants, having reversed the credit, are entitled to the benefit of notification no. 01/2006-ST.

Omission to consider alternative contention requiring remand for verification - Whether the omission in the impugned order to consider the appellant's alternative submission warranted grant of rectification (ROM) and remand. - HELD THAT: - The Tribunal examined the appeal memorandum and found that the contention regarding reversal of Cenvat credit had been specifically raised (para 'H') but was inadvertently not addressed in the order dated 03.05.2019. The omission was held to be an error of fact/record that affected the determinative legal position. In view of this omission and given the legal consequences of an established reversal (as explained in the substituted paragraph), the ROM application was allowed and the matter remanded for factual verification and decision consistent with the Tribunal's stated legal position. [Paras 4, 5]

ROM application allowed; impugned order set aside to the extent indicated and matter remanded for verification and fresh decision on the alternative contention.

Final Conclusion: ROM application allowed; order dated 03.05.2019 is amended to record that reversal of Cenvat/Modvat credit amounts to non-taking of credit and, if reversal is established on remand, the appellant is entitled to benefit of the exemption notification; matter remanded for verification and decision accordingly.

Proportionate CENVAT credit - Rule 6(2) of CENVAT Credit Rules, 2004 - Rule 6(3) and Rule 6(3A) of CENVAT Credit Rules, 2004 - maintenance of separate accounts - principle of proportionality in allocation of common input services - extended period of limitation where audits were conducted

Proportionate CENVAT credit - Rule 6(2) of CENVAT Credit Rules, 2004 - principle of proportionality in allocation of common input services - Whether the appellant could lawfully avail CENVAT credit proportionate to turnover of dutiable goods and taxable services for common input services and thereby comply with Rule 6(2) of the CENVAT Credit Rules, 2004 - HELD THAT: - The Tribunal applied its earlier Final Order in favour of the appellant and held that a manufacturer or service-provider who avails credit for inputs/input services used both for taxable and exempted outputs may comply with Rule 6(2) by maintaining separate records and by allocating credit on a proportionate basis to taxable outputs. The appellant had taken credit only to the extent attributable to excisable goods and taxable services, supported by allocation methodology and precedent decisions of the Tribunal (including the reasoning in Trans Asian Shipping Services Pvt. Ltd. and Sify Technologies Limited) accepting proportional allocation and record-keeping supported by Chartered Accountant certification. Applying that ratio, the impugned order disallowing credit was held unsustainable and set aside on merits. [Paras 4, 5, 6, 10]

Appellant entitled to avail proportionate CENVAT credit as compliance with Rule 6(2); impugned disallowance set aside on merits.

Extended period of limitation where audits were conducted - Whether the extended period of limitation could be invoked where the appellant's records had been audited regularly - HELD THAT: - The Tribunal, following precedent, held that where records have been audited at regular intervals (EA 2008 audits in this case), allegations of suppression or mis-statement cannot be sustained to invoke the extended period. As audits were regularly conducted and no earlier objection was raised in those audits, the invocation of extended period was not tenable and the appellant succeeded on limitation grounds. [Paras 8, 9]

Extended period could not be invoked; appellant succeeds on limitation.

Final Conclusion: Appeal allowed; impugned order set aside-credit upheld on merits as proportionately allocated under Rule 6(2) and extended period not invokable due to regular audits.

Dismissal for want of prosecution - non-prosecution - absence of appellant from hearings - repeated adjournment requests - adjournment not a ground for restoration

Dismissal for want of prosecution - absence of appellant from hearings - repeated adjournment requests - Whether the appeal should be dismissed for want of prosecution in view of the appellant's continuous non appearance and repeated requests for adjournment. - HELD THAT: - The Tribunal found that from the date of filing of the appeal there was no single appearance by the appellant and that today's absence, together with the pattern of repeated written requests for adjournment, demonstrated an unwillingness to prosecute the appeal. The Tribunal relied on the decision in Ram Siromani Tripathi & Ors. Vs. State of U.P. & Ors. for the proposition that non-appearance and unexplained adjournments justify dismissal for non-prosecution. Applying that principle to the factual conduct of the appellant, the Tribunal concluded that the appeal was liable to be dismissed for want of prosecution. [Paras 1, 3]

The appeal is dismissed for want of prosecution.

Final Conclusion: The appeal was dismissed for want of prosecution due to the appellant's continuous non-appearance and repeated adjournment requests; the Tribunal applied established authority supporting dismissal in such circumstances.

Tender conditions - mandatory document compliance - technical bid rejection - arbitrariness in tender rejection - right to fair tender process

Tender conditions - mandatory document compliance - technical bid rejection - arbitrariness in tender rejection - Validity of rejection of the petitioner's tender application for not uploading a month-wise GST clearance certificate when the tender notification required only the latest Sales Tax/GST Clearance Certificate along with PAN and registration documents. - HELD THAT: - The Court found that prospective bidders are obliged to comply only with the requirements expressly set out in the tender notification and cannot be expected to supply documents which are not specifically required therein. The tender notice (Condition No. 2(v)) required the latest Income Tax Clearance Certificate and Sales Tax/GST Clearance Certificate together with copies of PAN and registration under the relevant sales tax/GST enactments. The petitioner had uploaded the documents expressly required by the tender notification. The respondents rejected the technical bid on the ground that a month-wise GST clearance certificate (specifically for March 2019) was not uploaded, a requirement that was not set out in the tender notification. The Court held that rejecting the bid on the basis of a condition not reflected in the tender notification was arbitrary and contrary to the terms of the notification. Consequently, the impugned rejection could not be sustained and the appropriate remedial course was to set aside the rejection and direct issuance of a fresh tender notification which must clearly highlight all documents/certificates to be furnished at the time of uploading the tender application. [Paras 8, 9, 10, 11]

Rejection of the petitioner's tender application for non-uploading of a month-wise GST clearance certificate set aside; respondents directed to issue a fresh tender notification clearly listing all required documents.

Final Conclusion: Writ petition allowed; impugned rejection of the technical bid quashed and respondents directed to issue a fresh tender notification specifying all required documents for uploading the tender application; pending applications disposed of.

Presumption under Section 139 of the Negotiable Instruments Act - rebuttable presumption - proviso to clause (g) of Section 118 of the Negotiable Instruments Act - holder in due course - burden of proof on accused to make defence probable - test of preponderance of probability - insufficient funds as reason for dishonour of cheque - receipt of statutory notice

Presumption under Section 139 of the Negotiable Instruments Act - proviso to clause (g) of Section 118 of the Negotiable Instruments Act - holder in due course - The initial statutory presumption in favour of a holder under Section 139 / Section 118(g) is not available to the complainant where there is a genuine dispute as to whether the payee received the cheque lawfully or by coercion. - HELD THAT: - The Court held that Section 139 creates a rebuttable presumption that a cheque was issued for discharge of a debt, but that other presumptions in the N.I. Act (including the proviso to Section 118(g) concerning instruments obtained by offence, fraud or unlawful means) must be considered together. Where the parties dispute the manner in which the cheque came into the payee's possession - specifically an allegation that the cheque was obtained by force - the presumption that the payee is a holder in due course, and thereby entitled to the benefit of Section 139, is not usable by the payee. The absence of consensus as to lawful receipt defeats the availability of the initial presumption in favour of the holder. [Paras 15, 16]

Section 139 presumption / Section 118(g) protection cannot be invoked by the complainant in view of the disputed claim that the cheque was not delivered voluntarily.

Burden of proof on accused to make defence probable - test of preponderance of probability - rebuttable presumption - The accused successfully rebutted the presumption under Section 139 by making out a probable defence on the preponderance of probabilities. - HELD THAT: - Applying the established test that the accused need only make out a defence on the preponderance of probability (not beyond reasonable doubt), the Court agreed with the trial Court that the accused discharged their burden. The accused did not establish the forcible signature incident by documentary proof, but they exposed material lacunae and inconsistencies in the complainant's case (defective/altered bills and challans, failure to produce usual documentary records or supporting witnesses). Those lacunae, together with admissions elicited in cross-examination, rendered the accused's defence probable and sufficient to rebut the statutory presumption. [Paras 24, 29]

The presumption under Section 139 is rebutted because the accused established a probable defence on the preponderance of probability by pointing to material shortcomings in the complainant's evidence.

Insufficient funds as reason for dishonour of cheque - receipt of statutory notice - The cheque was dishonoured for insufficient funds and the complainant proved service/receipt of the statutory notice required under the N.I. Act. - HELD THAT: - On the evidence, including the bank return memo and the testimony of the bank witness, the Court found that the return memo recorded 'insufficient funds' as the reason for dishonour; the accused failed to demonstrate that the bank should have recorded 'incomplete cheque' despite the company's internal signing practice being pleaded. As to the demand notice, the complainant produced the notice(s), postal receipts, returned envelopes and originals found in envelopes; the envelopes marked 'returned to sender/refused' supported the conclusion that notice was duly sent and action was taken. The trial Court's findings on these points were upheld. [Paras 30, 31, 32, 33]

The cheque's dishonour was for insufficient funds and the statutory notice was shown to have been sent/received as established in the record.

Final Conclusion: The High Court upheld the trial Court's acquittal: the complainant could not invoke the Section 139/Section 118(g) presumption because the manner of receipt of the cheque was disputed; the accused successfully rebutted the presumption by making out a probable defence on the preponderance of probabilities; the cheque was nevertheless dishonoured for insufficient funds and the demand notice was proved; appeal dismissed, parties to bear their own costs.