TaxTMI Updates e-Newsletter
Jan 20,2022

Provisional attachment of cash credit account - powers under Section 83 of the CGST Act - prohibition on attaching borrowed funds/loan accounts - binding effect of High Court orders on subordinate/quasi judicial authorities

Provisional attachment of cash credit account - powers under Section 83 of the CGST Act - prohibition on attaching borrowed funds/loan accounts - Validity of provisional attachment of the writ applicant's cash credit bank account under the powers exercised in Form GST DRC 22 purportedly under Section 83 of the CGST Act, 2017. - HELD THAT: - The Court held that the law is well settled that a cash credit account maintained to enable the assessee to borrow from the bank/obtain cash credit facility cannot be provisionally attached under the impugned power. A cash credit facility represents borrowing/loan monies of the bank and is not the proprietary funds of the taxpayer; therefore the bank and the assessee are not in a relationship that permits provisional attachment of such account under the statutory scheme. Prior decisions of this Court treating provisional attachment of cash credit accounts as impermissible were followed and applied to the facts of this petition. On that legal basis the impugned order of provisional attachment in Form GST DRC 22 dated 29.11.2021 was quashed and set aside and the writ application was allowed. [Paras 2, 3]

The order of provisional attachment of the cash credit account is quashed and set aside and the writ application is allowed.

Binding effect of High Court orders on subordinate/quasi judicial authorities - Allegation that the Principal Commissioner was in contempt for disregarding earlier High Court orders and the treatment of the Court's earlier paragraph recording that view. - HELD THAT: - Although the Court expressed concern at the Principal Commissioner's failure to follow the settled position of law, on request made by the Additional Solicitor General the Court expunged paragraph 6 of its earlier order which had recorded that the Principal Commissioner was prima facie in contempt. The Court, while expunging that paragraph, admonished that officers of the rank of Principal Commissioner should act cautiously and respect orders of the High Court. [Paras 6]

Paragraph 6 of the order dated 5th January 2022 is expunged; no contempt determination remains recorded in that paragraph.

Final Conclusion: The writ petition is allowed: the provisional attachment of the cash credit account imposed by Form GST DRC 22 dated 29.11.2021 is quashed and set aside; paragraph 6 of the Court's earlier order is expunged.

Grant of bail - prima facie case - economic offences - tampering with evidence - custodial detention under Section 69 of OGST Act, 2017 - offences under Section 132 of OGST Act, 2017 - conditions of bail including surrender of passport

Grant of bail - prima facie case - economic offences - custodial detention under Section 69 of OGST Act, 2017 - Whether the petitioner should be released on bail in proceedings arising under the OGST Act, 2017. - HELD THAT: - The Court examined the limited materials on record for the purpose of bail and found that the investigation has unearthed documentary evidence indicating involvement of the petitioner in procuring and using fake invoices and in operation of non-existent business entities resulting in wrongful claim and passing of input tax credit. While recognising that economic offences require a cautious approach, the Court applied settled bail principles - nature of accusation, severity of punishment, risk of tampering with evidence, and likelihood of absconding - and concluded that the materials prima facie support prosecution but do not establish a flight risk as the petitioner is a local resident and has been in custody for a substantial period. The alleged offences attract a maximum sentence of up to five years, and the Court noted that detailed adjudication of the extent of illegality must await trial. Balancing these factors, the Court exercised discretion to grant bail subject to stringent conditions to safeguard the prosecution and prevent tampering with evidence. [Paras 9, 10, 11]

Bail allowed; petitioner to be released on furnishing bail bond and sureties, subject to conditions including non-interference with witnesses, surrender of passport and restriction on leaving the jurisdiction without permission.

Final Conclusion: Application under Section 439 Cr.P.C. allowed; petitioner released on bail on specified bond and conditions, with breach of conditions to entail cancellation of bail.

Input tax credit restriction on goods or services received for construction of an immovable property (other than plant or machinery) - Interpretation of the expression "for construction" and scope of nexus required - Explanation of "plant and machinery" - inclusion of foundation and structural support and exclusion of land - Immovable property as things attached to the earth or permanently fastened thereto

Input tax credit restriction on goods or services received for construction of an immovable property (other than plant or machinery) - Interpretation of the expression "for construction" and scope of nexus required - Whether the service received from IPL (withdrawing/transfer of leasehold rights) is a service received "for construction" such that input tax credit thereon is restricted under Section 17(5)(d). - HELD THAT: - The Appellate Authority examined the statutory meaning of "construction" (an inclusive explanation covering original construction, reconstruction, renovation, additions, alterations or repairs to the extent capitalised) and the contrast between the expressions 'for' and 'in'. Relying on the wider ambit of 'for', the Authority held that services which enable acquisition of leasehold rights and thereby enable erection, installation and commissioning of the manufacturing facility form part of the cost of construction to the extent capitalised. The amount paid to IPL for withdrawing its leasehold rights was held to be integral to procuring the site and enabling construction of the Air Separation Plant (ASP); without that service the appellant could not have undertaken construction. Consequently, the service was held to be received "for construction" within the meaning of Section 17(5)(d). [Paras 9, 10]

The service received from IPL is a service received "for construction" and therefore falls within the prohibition in Section 17(5)(d) subject to the remaining tests in that provision.

Immovable property as things attached to the earth or permanently fastened thereto - Explanation of "plant and machinery" - inclusion of foundation and structural support and exclusion of land - Whether the Air Separation Plant (ASP) installed by the appellant is an immovable property or a movable "plant and machinery" excluded from the restriction, and whether the exclusion of 'land' in the definition of "plant and machinery" prevents denial of ITC. - HELD THAT: - The Authority considered factual material (photos and the nature of installation) and precedents on annexation and permanence. Applying the test of intention and permanence, and noting that the ASP was erected with foundations and structural supports and commissioned as a long-term manufacturing facility on leased land for 72 years, the Authority concluded that the ASP is embedded and constitutes immovable property. While the explanation to "plant and machinery" includes foundations and structural supports, it expressly excludes land and other civil structures; therefore, where the facility is an immovable property embedded in the land, the exclusion of 'land' in the definition does not permit input tax credit for services received in relation to procuring the leasehold of that land used for construction. The Authority thus held that the ASP, being an immovable plant embedded in the land, does not bring the impugned service outside the restriction in Section 17(5)(d). [Paras 9, 10]

The ASP is an immovable property (though it may be regarded as plant and machinery for other purposes), and the services relating to procuring the leasehold of the land used for its construction are caught by the restriction under Section 17(5)(d).

Final Conclusion: The Appellate Authority upheld the ruling of the Authority for Advance Ruling: the consideration paid to IPL for transfer/withdrawal of leasehold rights is a service received "for construction" of an immovable manufacturing plant (ASP) and, therefore, input tax credit thereon is restricted under Section 17(5)(d) of the GST law.

Classification under HSN - interpretation of exemption notification - strict interpretation of exemptions - construction of the word 'includes' in exemption - taxability where exemption does not apply - Advance Ruling under Section 98(4)

Classification under HSN - Rodent Feed falls under HSN 2309 90 10. - HELD THAT: - The Authority examined the product description and the classification asserted by the applicant and held that the commodity imported and described as rodent feed is classifiable under HSN 2309 90 10. The ruling records that the applicant has been importing and disclosing the goods under that tariff heading and accepts that classification for the purposes of the Advance Ruling.

Rodent Feed is classifiable under HSN 2309 90 10.

Interpretation of exemption notification - construction of the word 'includes' in exemption - strict interpretation of exemptions - The exemption at Serial No.102 of Notification No.02/2017 does not cover rodent feed. - HELD THAT: - The Authority analysed the language of Serial No.102 which groups specific tariff items and provides an inclusive description. Relying on the principle that the word 'includes' may be used to connote a specific and exhaustive meaning and on precedents that exemption notifications must be strictly construed, the Authority found no specific reference to 'rodent feed' or any general term that would unambiguously encompass it. In the absence of express inclusion, the exemption cannot be extended to the applicant's commodity and any ambiguity in an exemption provision is resolved in favour of the State.

Description at Sl.No.102 does not include rodent feed; therefore the exemption does not apply.

Taxability where exemption does not apply - Rodent feed is taxable under the residual entry (Sl.No.453 of Schedule III of Notification No.01/2017) at the rate prescribed therein (9% CGST and 9% SGST). - HELD THAT: - Having held that the exemption notification does not cover rodent feed, the Authority proceeded to state the fiscal consequence: the product is not exempt and is therefore taxable under the applicable schedule and entry referenced in the ruling. The Authority identified the relevant notification entry for levy and specified the applicable rate as recorded in the order.

Rodent feed, not being covered by the exemption, is taxable under Sl.No.453 of Schedule III of Notification No.01/2017 at 9% CGST and 9% SGST.

Final Conclusion: The Advance Ruling accepts classification of the product as HSN 2309 90 10, rules that the exemption under Serial No.102 of Notification No.02/2017 does not extend to rodent feed, and concludes that the product is taxable under the referenced entry of Notification No.01/2017 at the stated GST rates.

Exemption under Notification No. 12/2017 - Pure services provided to the State Government - Composite supply versus pure service - Services "in relation to" functions entrusted under Articles 243G and 243W of the Constitution - Handling charges as consideration for supply of services

Exemption under Notification No. 12/2017 - Pure services provided to the State Government - Composite supply versus pure service - Services "in relation to" functions entrusted under Articles 243G and 243W of the Constitution - Handling charges as consideration for supply of services - Whether the handling services rendered by the applicant in relation to procurement, inspection, storage and transportation of Sarees, Dhothies and School Uniforms supplied to State Government departments are exempt under SI. No. 3 of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017. - HELD THAT: - The Authority examined the scope of SI. No. 3 of Notification No. 12/2017 which grants nil rate to "Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the ... State Government ... by way of any activity in relation to any function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W". The applicant's activities consist of inspection, collection, storage and transportation of goods and receipt of handling charges fixed by a government committee. The State tax officer contended the activities were a composite supply and thus not covered by the exemption. The Authority analysed (i) whether the handling activities are services without supply of goods and (ii) whether such services are "in relation to" functions entrusted to Panchayats/Municipalities. It held that the gamut of handling activities are services (and do not amount to supply of goods) and that the notification's restriction excludes only composite supplies involving supply of goods, not composite supplies made up solely of services. Further, having compared the functions listed in the Eleventh and Twelfth Schedules, the Authority found a sufficient nexus between the handling services and the functions (such as planning for social and economic development, safeguarding interests of weaker sections, public distribution system and education/primary and secondary education) entrusted to Panchayats/Municipalities, and that the services were supplied to State Government departments. On these bases the Authority concluded the handling services fall within the exemption at SI. No. 3 of Notification No. 12/2017. [Paras 8, 9]

The handling services rendered by the applicant in respect of free distribution of Sarees, Dhothies and School Uniforms to State Government departments are exempt from GST under SI. No. 3 of Notification No. 12/2017-C.T.(Rate) dated 28.06.2017.

Pre-GST period supplies - Whether handling charges relating to the pre-GST period (2015-16 and 2016-17) fall within the Authority's jurisdiction for advance ruling. - HELD THAT: - The applicant sought clarification on applicability of GST to handling charges for pre-GST years. The Authority observed that supplies in the pre-GST period are governed by earlier statutes and not by the CGST provisions. Consequently, questions pertaining to pre-GST period taxation do not fall within the scope of the advance ruling under the Act and cannot be admitted. [Paras 6, 9]

The question on handling charges relating to the pre-GST period is not admitted and does not fall within the Authority's jurisdiction for advance ruling.

Final Conclusion: The Authority ruled that the applicant's handling services for distribution of Sarees, Dhothies and School Uniforms to State Government departments are exempt from GST under SI. No. 3 of Notification No. 12/2017-C.T.(Rate) dated 28.06.2017; the query on pre-GST years 2015-16 and 2016-17 is not admitted before the Authority.

Applicability of reduced GST rate based on end-use - Parts of vessels eligible for concessional rate under entry Sl. No. 252 of Annexure I to Notification No. 01/2017 C.T (Rate) - Spare parts of marine engines not covered as parts of specified vessel headings under Sl. No. 252 - Onus of proof by documentary evidence to establish end use for concessional rate - Advance Ruling binding only on the applicant and jurisdictional authority

Applicability of reduced GST rate based on end-use - Parts of vessels eligible for concessional rate under entry Sl. No. 252 of Annexure I to Notification No. 01/2017 C.T (Rate) - Onus of proof by documentary evidence to establish end use for concessional rate - Applicability of 5% GST to outboard motors (marine engines) claimed to form part of fishing vessels (heading 8902). - HELD THAT: - The concessional rate at Sl. No. 252 applies to goods which are parts of specified vessel headings and is available only when the goods in question become parts of those vessels; therefore the concession is dependent on the end use. The applicant did not furnish documentary evidence to establish that the outboard motors sold were used as parts of fishing vessels (no purchase orders or corroborative sale documents for fishermen customers were produced). In the absence of such substantiation the authority is constrained from adjudicating entitlement to the reduced rate for supplies claimed to be to fishing vessels. [Paras 7, 10]

Not answered for lack of substantiating documents; entitlement to 5% GST as parts of fishing vessels not adjudicated.

Parts of vessels eligible for concessional rate under entry Sl. No. 252 of Annexure I to Notification No. 01/2017 C.T (Rate) - Applicability of reduced GST rate based on end-use - Spare parts of marine engines not covered as parts of specified vessel headings under Sl. No. 252 - Applicability of 5% GST to marine engines (HSN/HS code 8407) supplied for fitting in vessels falling under heading 8906 (other vessels, including warships and lifeboats) supplied to defence and similar agencies; and applicability of the concessional rate to spare parts of such engines. - HELD THAT: - The entry at Sl. No. 252 confers the reduced rate where goods are parts of vessels under the specified headings, including 8906. Applicant produced purchase orders and invoices evidencing supply of engines to defence establishments and a naval base; those vessels fall under heading 8906 and are used for patrolling, relief and rescue operations. On that factual basis the marine engines supplied as parts of such vessels attract GST at 5% under Sl. No. 252. However, Sl. No. 252 applies to 'parts of goods of headings' listed therein; spare parts of the marine engines are parts of the engines and not directly parts of the vessel headings specified, and the applicant produced no documents establishing supply of spare parts as falling within the entry. Accordingly the reduced rate is not available for spare parts of the marine engines. [Paras 8, 10]

Marine engines supplied for fitting in vessels under heading 8906 used for patrolling/relief/rescue by defence/naval agencies are eligible for 5% GST under Sl. No. 252; spare parts of marine engines are not eligible for the reduced rate.

Final Conclusion: The Authority declined to rule on entitlement to 5% GST for outboard motors claimed to be parts of fishing vessels for want of documentary proof; it ruled that marine engines supplied and evidenced as fitted to vessels under heading 8906 for defence/naval patrolling, relief and rescue attract 5% GST under Sl. No. 252, but the reduced rate does not extend to spare parts of those engines. Advance rulings are binding only on the applicant and the jurisdictional authority.

Classification of fusible interlining fabrics - Heading 59.03 (CTH 5903) - Chapter Note 2(a) exclusions - Chapter Note 2(a)(1) - coating visible to naked eye - Chapter Note 2(a)(4) - fabrics partially coated and bearing designs - Explanatory Notes to HSN - spattered thermoplastic particles capable of bonding - classification under Chapters 50 to 55, 58 or 60 (or Chapter 52)

Classification of fusible interlining fabrics - Heading 59.03 (CTH 5903) - Chapter Note 2(a)(1) - coating visible to naked eye - Chapter Note 2(a)(4) - fabrics partially coated and bearing designs - Explanatory Notes to HSN - spattered thermoplastic particles capable of bonding - Whether the Fusible Interlining Fabrics of Cotton (FIFC) supplied by the applicant are classifiable under CTH 5903 or under Chapter 52 (depending on cotton content). - HELD THAT: - The Authority examined the physical samples and laboratory reports showing that the dot printing (HDPE powder) on the fabrics is visible to the naked eye and is present uniformly on one side, following a set pattern. On this basis the Authority held that the exclusions in Chapter Note 2(a) to Chapter 59 are not attracted. Specifically, the fabric does not fall within the exclusion at 2(a)(1) because the impregnation/coating is visible to the naked eye. The Authority also rejected the contention that the fabrics are 'partially coated' within the meaning of Note 2(a)(4): the one-sided dot impregnation, being uniform over that side, cannot be equated to a small or insubstantial partial coating and thus does not satisfy the 'partially coated ... bearing designs' exclusion. Further, the Explanatory Notes to HSN cover textile fabrics spattered with visible particles of thermoplastic material which are capable of bonding to other fabrics on application of heat and pressure; the evidence (including the applicant's own submissions about stiffness and bonding on rolling) establishes that the fabrics are of that character. Having found that the exclusions in Chapter Note 2(a) do not apply and that the fabrics meet the features described in the Explanatory Notes, the Authority concluded that the goods merit classification under Heading 59.03. [Paras 8, 10]

Fusible Interlining Fabrics of Cotton (FIFC) supplied by the applicant are classifiable under CTH 5903.

Final Conclusion: The Authority rules that the Fusible Interlining Fabrics of Cotton (FIFC) before it are classifiable under Heading 59.03 of the Customs Tariff (CTH 5903) and not under Chapter 52, because the coating is visible to the naked eye, the products do not satisfy the exclusions in Chapter Note 2(a), and they fall within the Explanatory Notes describing fabrics spattered with thermoplastic particles capable of bonding.

Carry forward of cesses on transition to GST - refund of cesses reversed in GSTR-3B - cash refund of unutilized cesses - vested right to cenvat credit - interaction of Explanation (3) to Section 140 and refund under Section 54

Carry forward of cesses on transition to GST - interaction of Explanation (3) to Section 140 and refund under Section 54 - cash refund of unutilized cesses - Admissibility of refund of cesses which were carried in TRAN-1 and subsequently reversed in GSTR-3B, claimed under Section 54 in the category 'Any Other' for August, 2018. - HELD THAT: - The appeal was decided on the basis that Explanation (3) to Section 140 of the CGST Act (inserted by amendment with retrospective effect from 1-7-2017) excludes certain cesses from being carried forward into the GST credit ledger, and that once transition of such cesses to the GST credit ledger is inadmissible, a cash refund of those cesses reversed in GSTR-3B is not permissible under Section 54. The order refers to the Hon'ble Madras High Court decision upholding the effect of Explanation (3) and notes absence of any explicit provision in Section 54 permitting cash refund of such transitioned cesses. In view of these statutory effects and the cited judicial authorities favouring the revenue, the Commissioner (Appeals) concluded that the adjudicating authority rightly rejected the refund claim. [Paras 8, 9, 11]

Refund claim for cesses reversed in August, 2018 is not admissible and the rejection under Section 54 is upheld.

Vested right to cenvat credit - cash refund of unutilized cesses - Whether decisions relied on by the appellant (including Eicher Motors and certain CESTAT orders) mandate allowance of refund of such cesses in the present case. - HELD THAT: - The appellant relied on precedents holding that a right to credit may be vested and that refund may be allowable where credits became unutilizable due to change in law. The Commissioner (Appeals) acknowledged these authorities but observed conflicting judicial outcomes on the issue. It was recorded that certain CESTAT orders in favour of claimants have been challenged by the department and that High Court and Tribunal decisions exist against allowing cash refund of cesses. Given the lack of finality and the pendency of departmental appeals against favourable CESTAT orders, reliance on those decisions did not warrant allowing the refund in the present appeal. [Paras 10]

Precedents cited by the appellant do not compel allowance of the refund in the present circumstances because the legal position is not finally settled and contrary authoritative decisions exist.

Final Conclusion: The appeal is dismissed; the adjudicating authority's rejection of the refund claim for cesses reversed in August, 2018 is affirmed.

Condonation of delay under Section 107(4) of the CGST Act, 2017 - refund of tax under Section 54 of the CGST Act, 2017 - sanction of refund in original mode of payment (cash/credit) under amended Rules 86(4A) and 92(1A) of the CGST Rules, 2017 - prospective application of delegated legislation / non-retroactivity of rule amendment

Condonation of delay under Section 107(4) of the CGST Act, 2017 - Whether the appeal filed on 23-11-2020 was within time or liable to be condoned. - HELD THAT: - The appeal was filed 26 days beyond the three-month period prescribed by Section 107(1). The appellant explained that the office of its authorised representative was closed due to COVID-19 and that portal filing attempts and helpdesk support had failed. The Appellate Authority found the reasons sufficient within the scope of sub-section (4) of Section 107 and exercised the discretionary power to condone delay up to one month, thereby admitting the appeal for adjudication on merits. [Paras 7]

Delay in filing the appeal is condoned and the appeal is admitted for decision on merits.

Refund of tax under Section 54 of the CGST Act, 2017 - sanction of refund in original mode of payment (cash/credit) under amended Rules 86(4A) and 92(1A) of the CGST Rules, 2017 - prospective application of delegated legislation / non-retroactivity of rule amendment - Whether the appellant's refund claim for excess IGST paid in January 2020 was admissible for recredit to electronic credit ledger under the amendments to Rules 86 and 92 and Circular No. 135/05/2020. - HELD THAT: - The appellant paid IGST in January 2020 and filed a refund claim for excess payment. Amendment by Notification No. 16/2020 (inserting Rule 86(4A) and Rule 92(1A)) and Circular No. 135/05/2020 prescribe that refunds of amounts paid by debiting the electronic credit ledger are to be recredited to that ledger (via FORM GST PMT-03) and that refunds should be paid proportionately in the original mode of payment. However, those amendments and the Circular were made effective from 31-3-2020, whereas the disputed tax payment and the refund period relate to January, 2020. The Appellate Authority held that the amended rules cannot be given retrospective effect to govern a refund claim pertaining to January 2020 and therefore the relief of recredit under the amended provisions could not be granted to the appellant. [Paras 12, 13]

The amendment to Rules 86 and 92 and the Circular cannot be applied retrospectively to the refund claim for January, 2020; the claim for recredit to electronic credit ledger is not allowable under the amended provisions for that period.

Final Conclusion: Delay in filing the appeal is condoned; on merits the appeal is rejected because the amendments to Rules 86(4A) and 92(1A) and the clarificatory Circular, effective from 31-3-2020, cannot be applied retrospectively to the refund claim relating to January, 2020, and hence recredit of the excess payment to the electronic credit ledger is not granted.

Application of substituted provisions from 01.04.2021 - legislative substitution obliterates pre-existing provisions absent a saving clause - ultra vires delegated legislation - non obstante clause limited to saving proceedings already under way - requirement of compliance with newly enacted Section 148A before issuance of reassessment notices - quashing of reassessment notices issued after 31.03.2021 for want of jurisdiction

Application of substituted provisions from 01.04.2021 - legislative substitution obliterates pre-existing provisions absent a saving clause - Whether reassessment notices issued under Section 148 on or after 1st April 2021 must comply with the provisions substituted by the Finance Act, 2021 and not with the pre-existing provisions. - HELD THAT: - The Court adopted the reasoning of the cited High Court decisions that the Finance Act, 2021 effected a legislative substitution of the earlier provisions governing reassessment with effect from 01.04.2021. A substitution operates to omit the earlier provision unless an express saving clause preserves it. In the absence of any express saving, references to issuance of notices after 01.04.2021 must be read as references to the substituted provisions; consequently, reassessment notices issued on or after 01.04.2021 had to be issued in accordance with the law as amended by the Finance Act, 2021 and not under the pre-existing regime.

Reassessment notices issued on or after 01.04.2021 must comply with the substituted provisions enacted by the Finance Act, 2021; the pre-existing provisions do not continue to operate absent an express saving.

Ultra vires delegated legislation - non obstante clause limited to saving proceedings already under way - Whether Explanations A(a)(ii)/A(b) to the Notifications dated 31.03.2021 and 27.04.2021 (issued under the Relaxation Act, 2020) validly extend the pre existing reassessment provisions beyond 31.03.2021 or are ultra vires the enabling enactment. - HELD THAT: - The Court agreed with the view that the Relaxation Act and the Notifications under it could only extend time limits for proceedings already validly instituted and could not, by delegated legislation, defeat or revive provisions that Parliament had expressly substituted by the Finance Act, 2021. The non obstante language in the Relaxation Act is confined to protecting proceedings already in existence from limitation bars; it does not save or restore pre-existing statutory provisions obliterated by subsequent legislative substitution. Thus the Explanations purporting to extend applicability of the pre-existing reassessment provisions beyond 31.03.2021 exceeded the delegated power and were ultra vires the Relaxation Act, 2020.

Explanations A(a)(ii)/A(b) to the Notifications dated 31.03.2021 and 27.04.2021 are ultra vires the Relaxation Act, 2020 and therefore invalid to the extent they purport to extend the pre existing reassessment provisions beyond 31.03.2021.

Requirement of compliance with newly enacted Section 148A before issuance of reassessment notices - quashing of reassessment notices issued after 31.03.2021 for want of jurisdiction - Whether reassessment notices under Section 148 issued after 31.03.2021 without observance of the statutory formalities introduced by the Finance Act, 2021 (including Section 148A) are liable to be quashed. - HELD THAT: - The Court held that since the substituted law (including Section 148A) applied from 01.04.2021, issuance of reassessment notices after that date without compliance with the procedural requirements prescribed by the amended statute rendered the notices without jurisdiction. Following the principles and conclusions in the cited authorities, the impugned Section 148 notices issued post 31.03.2021 which did not conform to the amended legal regime were quashed, while leaving the revenue free to initiate fresh proceedings in accordance with the Finance Act, 2021 and after fulfilling required compliances.

Impugned reassessment notices under Section 148 issued after 31.03.2021 without compliance with the amended provisions (including Section 148A) are quashed for want of jurisdiction; assessing officers may initiate fresh proceedings in accordance with the Finance Act, 2021 after observing statutory formalities.

Final Conclusion: The impugned Explanations in the Notifications dated 31.03.2021 and 27.04.2021 are declared ultra vires the Relaxation Act, 2020 and the reassessment notices issued under Section 148 on or after 01.04.2021 are quashed for failure to comply with the substituted provisions enacted by the Finance Act, 2021; assessing officers remain at liberty to commence reassessment afresh in accordance with the amended statutory regime after fulfilling all legal formalities.

Substitution of statutory provisions by Finance Act, 2021 - applicability of substituted reassessment provisions w.e.f. 01.04.2021 - requirement of compliance with newly enacted procedure (Section 148A) before issuance of notice - limits of delegated legislation under the Relaxation Act, 2020 (Enabling Act) - ultra vires doctrine in relation to executive notifications extending pre-existing procedure - effect of non obstante clause in limited saving of time-limits only

Substitution of statutory provisions by Finance Act, 2021 - applicability of substituted reassessment provisions w.e.f. 01.04.2021 - requirement of compliance with newly enacted procedure (Section 148A) before issuance of notice - Validity of reassessment notices issued under Section 148 after 31.03.2021 in view of substitution of Sections 147-151 by the Finance Act, 2021 and requirement to follow the substituted procedure. - HELD THAT: - The Court accepted the view that the Finance Act, 2021 substituted the earlier provisions relating to reassessment with effect from 01.04.2021, and in absence of any express saving clause the pre-existing provisions ceased to operate thereafter except as to proceedings already validly commenced. Consequently, issuance of notices under Section 148 on or after 01.04.2021 must comply with the procedure and safeguards introduced by the substituted law (including Section 148A). Where no reassessment jurisdiction had been validly assumed prior to 01.04.2021, the assessing authority could not rely on the pre-amendment regime; reassessment notices issued post 31.03.2021 without observance of the substituted provisions were therefore without jurisdiction and liable to be quashed. The Court followed and applied the reasoning of the Allahabad, Rajasthan and Delhi High Courts on this point.

Reassessment notices issued under Section 148 on or after 01.04.2021 which do not comply with the substituted provisions (including Section 148A) are without jurisdiction and are quashed, with liberty to initiate fresh proceedings under the Finance Act, 2021 regime after due compliance.

Limits of delegated legislation under the Relaxation Act, 2020 (Enabling Act) - ultra vires doctrine in relation to executive notifications extending pre-existing procedure - effect of non obstante clause in limited saving of time-limits only - Validity of Explanations A(a)(ii)/A(b) to Notifications dated 31.03.2021 and 27.04.2021 issued under the Relaxation Act, 2020 insofar as they purported to extend the applicability of the pre-existing reassessment provisions beyond 31.03.2021. - HELD THAT: - The Court held that the Enabling Act (Relaxation Act, 2020) and notifications issued thereunder were confined to extending time-limits and protecting proceedings already underway; they did not empower the executive to restore or prolong pre-existing substantive or procedural reassessment provisions superseded by the Finance Act, 2021. The non obstante clause in Section 3(1) of the Enabling Act was construed as limited to saving time-limits for proceedings already validly pending and could not be read as authorising delegated legislation to defeat or re enact provisions that Parliament had substituted. Therefore, the Explanations in the impugned notifications that sought to operate the pre amendment provisions for proceedings initiated after 31.03.2021 were beyond the scope of the delegated power and declared ultra vires and void.

Explanations A(a)(ii)/A(b) to the Notifications dated 31.03.2021 and 27.04.2021 are ultra vires the Relaxation Act, 2020 and are declared null and void; the notifications cannot be used to extend or revive pre-amendment reassessment provisions beyond 31.03.2021.

Final Conclusion: Writ petitions allowed; impugned reassessment notices issued under Section 148 on or after 01.04.2021 are quashed as lacking jurisdiction for non compliance with the substituted law; the challenged Explanations in the Notifications of 31.03.2021 and 27.04.2021 are declared ultra vires the Relaxation Act, 2020; assessing officers are at liberty to initiate fresh reassessment proceedings in accordance with the Finance Act, 2021 after fulfilling statutory formalities.

Retrospective application of administrative tax circulars - prospective application of oppressive tax circulars - disallowance of business expenditure prohibited by law under Section 37(1) - applicability of professional conduct regulations to third party companies

Retrospective application of administrative tax circulars - prospective application of oppressive tax circulars - disallowance of business expenditure prohibited by law under Section 37(1) - C.B.D.T. Circular No.5 of 2012 could not be applied retrospectively to deny deduction for expenditure incurred in Assessment Year 2010-11 and the Tribunal was justified in deleting the disallowance. - HELD THAT: - The Court accepted the Tribunal's conclusion that Circular No.5 of 2012, which treats certain payments as inadmissible under the explanation to Section 37(1) as expenses prohibited by law, imposes a new burden or liability and hence is not to be given retrospective effect. Reliance was placed on the principle that beneficial circulars may be applied retrospectively but circulars creating a new liability or imposing an oppressive obligation must operate prospectively. The Tribunal's consistent view across benches that the Circular operates from its date (01.08.2012) and therefore cannot be applied to Assessment Year 2010-11 was held to be consonant with the law and not incorrect; accordingly the deletion of the disallowance for AY 2010-11 was upheld. [Paras 6]

The Tribunal was justified in deleting the disallowance insofar as the Circular could not be applied retrospectively to Assessment Year 2010-11.

Applicability of professional conduct regulations to third party companies - disallowance of business expenditure prohibited by law under Section 37(1) - Whether Medical Council of India regulations and Circular No.5 of 2012 apply to pharmaceutical companies was left undecided and not adjudicated. - HELD THAT: - The Court expressly refrained from deciding the question of applicability of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations and the CBDT Circular to pharmaceutical companies from 01.08.2012 onwards. Having answered the retrospective application issue in favour of the assessee, the Court observed that the substantive question on applicability can be considered in an appropriate case and kept the parties' contentions on that point open. [Paras 7]

The question of applicability of the MCI regulations and the Circular to pharmaceutical companies is left open for consideration in a future appropriate case.

Final Conclusion: Income Tax Appeal dismissed; the Tribunal's deletion of the disallowance for AY 2010-11 is upheld on the ground that C.B.D.T. Circular No.5 of 2012 cannot be given retrospective effect; the question whether the MCI regulations and the Circular apply to pharmaceutical companies from 01.08.2012 remains undecided.

Reopening of assessment under Section 148 - assumption of jurisdiction under Section 147 - failure to fully and truly disclose material facts - change of opinion - reasons to believe - proviso to Section 147 - cogent and clear indication in the reasons

Reopening of assessment under Section 148 - change of opinion - reasons to believe - Validity of the notice under Section 148 reopening the assessment. - HELD THAT: - The Court found that the reasons recorded for reopening demonstrate a change of opinion by the Jurisdictional Assessing Officer based on the same material that was before him during the original assessment. The Assessing Officer proceeded on the incorrect premise that certain expenditures were not incurred in the relevant year, an assumption he later admitted was erroneous. The reasons effectively amount to the Assessing Officer re-evaluating the same documents already considered during scrutiny assessment which resulted in an assessment under Section 143(3) accepting the returned income. As the essential factual matrix was disclosed and considered earlier, a mere change of opinion does not furnish a valid reason to believe that income has escaped assessment; consequently the notice issued under Section 148 is vitiated. [Paras 7, 8, 9, 14]

Notice under Section 148 quashed as founded on change of opinion and therefore invalid.

Assumption of jurisdiction under Section 147 - failure to fully and truly disclose material facts - proviso to Section 147 - cogent and clear indication in the reasons - Whether the reasons disclose a failure to fully and truly disclose material facts such as would satisfy the proviso to Section 147. - HELD THAT: - Where reopening is sought after four years and following a completed scrutiny assessment, the proviso to Section 147 places the onus on the revenue to demonstrate failure to fully and truly disclose material facts. The Court applied the principle that reasons may suffice if they clearly indicate such failure, but concluded that the recorded reasons in this case do not identify any material fact that was not truly and fully disclosed at the original assessment. The Assessing Officer's reasons lack the cogent and clear indication required to sustain assumption of jurisdiction under Section 147 and, on the material on record, no such failure can be culled. [Paras 11, 12, 13]

Assumption of jurisdiction under Section 147 is unfounded because the reasons do not show failure to fully and truly disclose material facts; reopening is therefore not maintainable.

Final Conclusion: Writ petition allowed; notice dated 30th March 2019 under Section 148 and the order rejecting objections dated 16th November 2019 quashed, the reopening held to be founded on a mere change of opinion and lacking any cogent indication of failure to fully and truly disclose material facts; petition disposed without costs.

Bogus purchases - genuineness, identity and credit-worthiness of suppliers - burden of proof - principles of natural justice - application of Accounting Standard AS-7 - factual findings and perversity standard

Bogus purchases - genuineness, identity and credit-worthiness of suppliers - burden of proof - principles of natural justice - application of Accounting Standard AS-7 - Validity of additions made by the Assessing Officer treating certain purchases as bogus and the assessee's discharge of the evidentiary burden in support of those purchases. - HELD THAT: - The Tribunal and the Commissioner (Appeals) found that the Assessing Officer's disallowance rested primarily on information from the Investigation Wing without affording opportunity to cross-examine the parties relied upon, which amounted to breach of principles of natural justice. The authorities accepted the assessee's books and documentary evidence including purchase bills, weighment bills and architect certificates, and were not satisfied that the Assessing Officer had positively reasoned that those documents were fabricated. Further, the adoption of Accounting Standard AS-7 by the assessee for revenue recognition meant that treating the purchases as bogus would necessarily affect revenue and profits; the AO did not reject the books of account while making the addition. The Tribunal noted absence of independent enquiries to show non-utilisation of amounts by suppliers or cash withdrawals from amounts received, and held that mere non-production or non-appearance of suppliers before the AO did not, without further enquiry or evidence, justify treating the purchases as bogus. The High Court found no perversity in these concurrent factual findings and declined to interfere.

The deletion of the addition by the CIT(A), as upheld by the ITAT, is sustained; the Assessing Officer's additions treating the purchases as bogus were not upheld.

Factual findings and perversity standard - Whether the appeal raised any substantial question of law warranting interference with the concurrent factual findings of the lower authorities. - HELD THAT: - The Court observed that the controversy turned on appreciation of evidence and factual inferences-acceptance of accounting treatment under AS-7, assessment of documentary evidence and enquiries conducted by the AO. As the Revenue's challenge did not demonstrate any legal error or perversity in the concurrent findings of fact by the CIT(A) and the ITAT, no substantial question of law arose for the High Court to entertain.

No substantial question of law arose; the appeal does not warrant interference with the factual findings and is dismissed.

Final Conclusion: The High Court dismissed the Revenue's appeal, finding no perversity in the concurrent factual findings of the CIT(A) and the ITAT regarding the disallowance of purchases; the deletion of the addition was upheld and no substantial question of law was found.

Deduction under section 80IA(4)(iii) of the Income Tax Act - Disallowance of interest as business expenditure where interest bearing loan funds are advanced to partners - Consistency and precedent in assessee's own case - Academic nature of adjudication rendered by allowance of statutory deduction

Deduction under section 80IA(4)(iii) of the Income Tax Act - Consistency and precedent in assessee's own case - Validity of deletion of addition by Ld. CIT(A) disallowing claim under section 80IA(4)(iii) for assessment year 2012-13 - HELD THAT: - The Tribunal examined earlier decisions in the assessee's own case where the claim under section 80IA was allowed by the Tribunal and upheld by the High Court for earlier assessment years, and noted that for assessment years 2010-11 and 2011-12 the Ld. CIT(A) had also granted relief which was maintained by the Tribunal. The authorities below recorded that the facts for 2012-13 are similar to those earlier years. In the absence of any compelling changed circumstances, the consistent view taken in the assessee's own case for earlier years is binding for the year under appeal. Applying that consistent precedent, the Tribunal held that the deletion of the disallowance under section 80IA(4)(iii) by the Ld. CIT(A) was neither illegal nor irregular and must be upheld. [Paras 8, 9]

Deletion of the addition disallowing the claim under section 80IA(4)(iii) is upheld and the challenge by Revenue is dismissed.

Disallowance of interest as business expenditure where interest bearing loan funds are advanced to partners - Academic nature of adjudication rendered by allowance of statutory deduction - Whether disallowance of interest expense claimed by the assessee required adjudication once deduction under section 80IA was allowed - HELD THAT: - The Tribunal accepted the Ld. AR's submission that because the assessee is entitled to deduction under section 80IA(4)(iii), the question of disallowing interest (including the Assessing Officer's finding that loan funds were diverted as interest free advances to partners) became academic. The CIT(A) had observed that imputation of interest in partners' hands would, if anything, reduce partners' taxable income while the firm's income would be exempt under section 80IA, making further adjudication unnecessary. The Tribunal concurred and found no need to decide the interest disallowance issue on merits. [Paras 10]

The disallowance of interest expense was not adjudicated as the issue became academic after allowance of the section 80IA deduction.

Final Conclusion: Revenue's appeal is dismissed: the Tribunal upheld the deletion of the section 80IA(4)(iii) disallowance for AY 2012-13 following consistent precedent in the assessee's own case, and declined to adjudicate the interest disallowance issue as academic in view of the allowed deduction.

Sufficiency of explanation for unexplained cash deposits - requirement to explain nature and source of undisclosed cash under sections 69/69A/68 - test of identity and capacity and genuineness of the transaction - effect of entries in books of account on burden of proof - assessment of contemporaneous evidence (bank pass-book, cash book) and human probabilities

Sufficiency of explanation for unexplained cash deposits - requirement to explain nature and source of undisclosed cash under sections 69/69A/68 - effect of entries in books of account on burden of proof - assessment of contemporaneous evidence (bank pass-book, cash book) and human probabilities - Maintainability in law of the addition of rs.2,47,000 as unexplained cash deposited during the demonetization period - HELD THAT: - The Tribunal upheld the addition on the basis that the assessee failed to furnish satisfactory and contemporaneous evidence to prove the nature and source of the cash deposited. The adjudication applied the established test of identity, capacity and genuineness of the transaction and examined the explanation against surrounding circumstances and human probabilities. The assessee's account that the cash derived from earlier withdrawals and tuition fees was unsupported by bank pass-books, cash books, or particulars (student names, teaching periods, subjects), and the pattern of withdrawals and non-expenditure was inconsistent and improbable. The timing of deposit (forty days into the demonetization period), the retention of a large balance in low denomination notes close to the perceived safe limit, and inconsistent affidavits undermined credibility. The Tribunal further held that entries in books of account do not dispense with the statutory obligation to prove the truth of credited sums, and that mere bank statements or compilation of entries without supporting evidence cannot substitute proof of source. Considering the totality of evidence and credibility defects, the explanation was rightly found unsatisfactory and the addition sustained. [Paras 5, 6]

The addition of rs.2,47,000 made in the assessment was sustained and the assessee's appeal dismissed.

Final Conclusion: The Tribunal dismissed the appeal for AY 2017-18, holding that the assessee failed to satisfactorily explain the source and nature of the cash deposited; entries in books or bank statements without corroborative evidence did not discharge the statutory burden of proof, and the addition was therefore sustained.

Reopening of assessment under section 147 - Assessment in search cases under section 153A/153C - Non-obstante clause in section 153A/153C - Jurisdiction to proceed under section 148 versus mandatory procedure under section 153C - Requirement of recording satisfaction before transmitting seized documents under section 153C

Reopening of assessment under section 147 - Assessment in search cases under section 153A/153C - Non-obstante clause in section 153A/153C - Jurisdiction to proceed under section 148 versus mandatory procedure under section 153C - Validity of reopening assessment under section 147/148 where incriminating documents belonging to the assessee were seized during a search at a third party's premises - HELD THAT: - The Tribunal found that the reassessment proceedings were initiated solely on the basis of incriminating loose papers seized during a search at the premises of a third person. Sections 153A/153C begin with a non-obstante clause and constitute a separate statutory scheme for assessment where search or requisition under section 132/132A has taken place. Under that scheme the Assessing Officer is obliged to proceed under section 153C (and thereafter section 153A) to assess or reassess the person to whom the seized documents belong; the word 'shall' in the provisions makes issuance of notice under the search-assessment scheme mandatory. Consequently, the Assessing Officer did not have the option to invoke section 148/147 in respect of the assessment years falling within the scope of the search regime. Following precedents of coordinate benches, the Tribunal held that initiation and completion of reassessment under section 147/148 in such circumstances is without jurisdiction and is to be quashed. [Paras 12]

Reassessment completed under section 143(3) read with section 147/148 quashed for lack of jurisdiction; correct course was to proceed under section 153C/153A.

Additions under section 69D - Treatment of merits (including addition under section 69D and related contentions) left open for adjudication - HELD THAT: - The Tribunal expressly did not adjudicate the substantive merits raised in grounds 3 to 5, including the addition made invoking section 69D and contentions that the amount was already taxed or considered before the Settlement Commission. These grounds were kept open for determination as they arise from the quashed assessment and are not decided in this order. [Paras 13]

Merit issues (additions and related contentions) not decided and remain open for adjudication.

Final Conclusion: The appeal is partly allowed: the reassessment and order passed under section 143(3) read with sections 147/148 for A.Y. 2011-12 are quashed for lack of jurisdiction because the proper procedure under sections 153C/153A should have been invoked; the substantive merits (including the addition under section 69D and related contentions) are left open for determination.

Penalty for furnishing inaccurate particulars under section 271(1)(c) - Bonafide claim and change of opinion - Debatable claim versus furnishing inaccurate particulars - Provision for Non-Performing Assets as per RBI guidelines - Deduction under section 80P(2)(d)

Penalty for furnishing inaccurate particulars under section 271(1)(c) - Provision for Non-Performing Assets as per RBI guidelines - Debatable claim versus furnishing inaccurate particulars - Whether penalty under section 271(1)(c) could be sustained in respect of disallowance of claim for provision on standard/non-standard NPA assets - HELD THAT: - The Tribunal examined the nature of the assessee's claim for provision in respect of NPA assets, noting that the bank asserted the claim was made in accordance with mandatory RBI guidelines. The authorities below treated the disallowance as furnishing inaccurate particulars and sustained penalty. The Tribunal found the claim to be debatable and bonafide in view of the RBI-prescribed provisioning framework; a mere non-acceptance by the Assessing Officer amounted to a change of opinion rather than deliberate concealment or furnishing of inaccurate particulars. On that basis the Tribunal held that penalty could not be sustained in respect of the NPA provisioning disallowance and the penalty in respect of that item was directed to be deleted. [Paras 11]

Penalty under section 271(1)(c) deleted insofar as it related to the disallowance of claim for provision on standard/non-standard NPA assets.

Penalty for furnishing inaccurate particulars under section 271(1)(c) - Deduction under section 80P(2)(d) - Loss on sale of furniture and fixtures - Whether penalty under section 271(1)(c) could be sustained in respect of disallowance of loss on sale of furniture and deduction under section 80P(2)(d) - HELD THAT: - The Tribunal considered the Assessing Officer's disallowance of the claimed loss on sale of furniture and the deduction under section 80P(2)(d). Unlike the NPA provisioning claim, these heads were found by the Tribunal to be rightly disallowed by the AO. The Tribunal rejected the contention that these claims were bonafide or debatable in a manner that would preclude penalty, and therefore upheld the view that furnishing of inaccurate particulars had occurred with respect to these specific claims. Accordingly, the penalty in respect of these items was sustained. [Paras 11]

Penalty under section 271(1)(c) sustained insofar as it related to disallowance of loss on sale of furniture and deduction under section 80P(2)(d).

Final Conclusion: The appeal is partly allowed: the penalty under section 271(1)(c) is deleted in respect of the claim for provision on NPA assets but is sustained in respect of the disallowance of loss on sale of furniture and the deduction under section 80P(2)(d); appeal otherwise stands partly allowed.

Applicability of section 14A to exempt dividend income - Computation under Rule 8D(2)(ii) - Computation under Rule 8D(2)(iii) limited to investments yielding exempt income - Remand for verification and substantiation of claims - Classification of profit on sale of investments as capital gains and burden of documentary proof

Applicability of section 14A to exempt dividend income - Computation under Rule 8D(2)(ii) - Computation under Rule 8D(2)(iii) limited to investments yielding exempt income - Remand for verification and substantiation of claims - Disallowance under section 14A and Rule 8D - part deletion and part remand for recomputation - HELD THAT: - The AO made disallowance under rule 8D in two limbs: Rs. 8,17,998 under rule 8D(2)(ii) and Rs. 45,38,656 under rule 8D(2)(iii). On examining financial statements and earlier coordinate-bench findings for preceding assessment years, the Tribunal found that the assessee had sufficient own funds and an increase in own funds exceeding the investments made during the year; consequently the disallowance computed under rule 8D(2)(ii) was deleted. As to the larger disallowance under rule 8D(2)(iii), the AO had applied the average value of entire investments, which the Tribunal held to be incorrect because the exempt income arose only from some investments. The Tribunal therefore remitted the computation under rule 8D(2)(iii) to the AO with directions to consider only those investments which yielded exempt income in the year and to allow the assessee to substantiate its claim before the AO for a true and correct calculation. [Paras 5]

Deletion of disallowance under rule 8D(2)(ii); remand to AO to recompute disallowance under rule 8D(2)(iii) considering only investments yielding exempt income, with opportunity to the assessee to substantiate its claim.

Classification of profit on sale of investments as capital gains and burden of documentary proof - Remand for verification and substantiation of claims - Treatment of profit on sale of investments as capital gains - remand to AO for determination on documentary evidence - HELD THAT: - The AO treated the receipt as capital gains because the assessee had not produced documentary evidence of purchase and sale to support its claim that indexation converted the profit into a loss. The CIT(A) confirmed the addition for lack of evidence. Before the Tribunal the assessee sought restoration to the AO to enable it to produce documentary proof; the Revenue did not object. The Tribunal remitted the matter to the AO with a direction to examine documentary evidence to decide the exact capital gains in accordance with law, after providing reasonable opportunity of hearing to the assessee. [Paras 6]

Matter remitted to the AO to determine capital gains after examining documentary evidence to be produced by the assessee and after affording opportunity of hearing.

Final Conclusion: Appeal partly allowed for statistical purposes: disallowance under rule 8D(2)(ii) deleted; disallowance under rule 8D(2)(iii) remitted for recomputation restricting to investments yielding exempt income; addition as capital gains remitted to AO for determination on documentary evidence.

Depreciation on computer including computer software - Software licence as intangible asset - Classification under the Depreciation Schedule (Part A, block III(5)) - Amortisation of preoperative/preliminary expenses under section 35D - Scope of expenses covered by section 35D(2) - Principle of consistency in taxation

Depreciation on computer including computer software - Software licence as intangible asset - Classification under the Depreciation Schedule (Part A, block III(5)) - Whether depreciation at 60% is allowable on the software licence purchased by the assessee or whether it is to be treated as an intangible asset eligible only for lower rate of depreciation. - HELD THAT: - The Tribunal examined the Depreciation Schedule and noted that Part A, block III(5) expressly lists "Computers including computer software" and that Note 7 defines "computer software" as programs recorded on information storage devices. The Tribunal agreed with the CIT(A)'s reliance on authoritative precedent which treated software applications as falling within the specific entry for computers and computer software, thereby attracting the 60% depreciation rate. The Revenue's contention that software licences are intangible assets falling under the general entry for knowhow, patents, licences etc. was rejected because the specific entry for computers including computer software prevails. Applying that interpretation to the facts, the assessee's software licence was held to be eligible for depreciation at the rate applicable to computers, and the CIT(A)'s deletion of the AO's disallowance was upheld. [Paras 8]

Depreciation at 60% on the software licence is allowable; the Revenue's ground challenging the CIT(A)'s decision is dismissed.

Amortisation of preoperative/preliminary expenses under section 35D - Scope of expenses covered by section 35D(2) - Principle of consistency in taxation - Whether the expenses capitalised in the books but claimed as revenue expenses by the assessee in connection with expansion of an existing plant are exigible to amortisation under section 35D, and whether the AO was justified in disallowing a portion by invoking section 35D. - HELD THAT: - The Tribunal noted that section 35D applies to expenditures incurred before commencement of business or in connection with extension/setting up of a new unit, but found that the AO did not make any finding that the expenditures were incurred before commencement or in relation to a new unit. Further, the Tribunal examined the nature of the expenses and observed that they were travelling, salary and similar revenue-type expenses, which are not among the categories specified in section 35D(2). The CIT(A) had also found that the expenditures were incurred for capacity expansion of an existing unit, a finding which the Revenue did not controvert. The Tribunal relied on the absence of material demonstrating applicability of section 35D and on the assessee's consistent treatment in the preceding year, invoking the principle of consistency. For these reasons the Tribunal concluded that the AO's invocation of section 35D was not sustainable and that the addition should be deleted. [Paras 14]

The disallowance under section 35D is not sustainable; the CIT(A)'s deletion of the addition is upheld and the Revenue's grounds on this issue are dismissed.

Final Conclusion: Both grounds of the Revenue appeal were dismissed: the Tribunal upheld the CIT(A)'s allowance of 60% depreciation on the software and upheld the deletion of the AO's addition under section 35D in respect of the preoperative/expansion-related expenses; the Revenue's appeal is dismissed.

Disallowance under Section 14A and computation under Rule 8D - recording of satisfaction as condition precedent for Section 14A disallowance - capital subsidy versus revenue receipt - purposive test for characterisation of government incentives - treatment of incentive refunds for computation of book profit under Section 115JB

Disallowance under Section 14A and computation under Rule 8D - recording of satisfaction as condition precedent for Section 14A disallowance - Whether disallowance under Section 14A read with Rule 8D could be made when the Assessing Officer had not recorded the satisfaction mandated by Section 14A(2). - HELD THAT: - The Tribunal found that the Assessing Officer proceeded mechanically to apply Rule 8D without recording any satisfaction as to why the assessee's claim (that no expenditure was incurred in relation to exempt dividend income) was unacceptable. The court applied the settled principle that recording of satisfaction as contemplated by Section 14A(2) is a condition precedent to invoking apportionment under Rule 8D, citing the jurisdictional High Court and Supreme Court authority to the same effect. In the absence of the requisite satisfaction, the disallowance computed under Rule 8D cannot stand and must be deleted. The Tribunal therefore deleted the Section 14A disallowance and allowed the assessee's grounds on this issue. [Paras 5]

Disallowance under Section 14A/Rule 8D deleted for assessment year 2010-11 for want of recording of satisfaction by the Assessing Officer.

Capital subsidy versus revenue receipt - purposive test for characterisation of government incentives - treatment of CENVAT refund as capital receipt - exclusion from book profit under Section 115JB - Whether refund of central excise credit (CENVAT) received under the Jammu & Kashmir incentive scheme is a capital receipt not chargeable to tax and therefore not includible in book profit for computation under Section 115JB. - HELD THAT: - The Tribunal examined the object and scheme of the J&K incentive, noted the J&K High Court decision in Shree Balaji Alloys and subsequent appellate treatment (including dismissal of Revenue's SLP and Supreme Court authority recognising the purposive test). Applying the settled principle that the character of a subsidy depends on the purpose for which it is granted, and that incentives granted to industrialise the State and generate employment are capital in nature, the Tribunal held that the CENVAT refund on the facts of the case is a capital subsidy not exigible to tax. Consequentially, receipts so characterised are not includible in book profits under Section 115JB. [Paras 12, 15]

CENVAT refund under the J&K incentive scheme held to be a capital receipt and excluded from tax and from book profit under Section 115JB for AY 2010-11.

Capital subsidy versus revenue receipt - purposive test for characterisation of government incentives - treatment of VAT/sales-tax refund under state industrial policy as capital receipt - continuity of entitlement under transitional provision of state VAT law - Whether the refund of Uttar Pradesh VAT (sales-tax subsidy) under the UP Industrial Policy is a capital receipt not liable to tax and not includible in book profit under Section 115JB. - HELD THAT: - The Tribunal considered the UP Industrial Policy, its objectives (attracting capital investment, promoting industrialisation and employment), the enabling statutory provisions (including the transitional continuation under Section 42 of the UP VAT Act) and the entitlement certificates obtained by the assessee. Applying the purposive test affirmed by Supreme Court precedents (Sahney, Ponni Sugars, Chaphalkar Brothers) and subsequent High Court and Tribunal decisions, the Tribunal concluded that the VAT refund/ trade-tax exemption granted to attract investment is capital in nature. The mode or timing of payment (refund under VAT Act) does not alter the capital character where the object of the scheme is capital promotion. The Tribunal therefore admitted the additional legal ground and allowed it on merits. [Paras 29, 30]

VAT refund under the UP Industrial Policy held to be a capital receipt, not taxable and not to be included in book profit under Section 115JB for AY 2010-11.

Final Conclusion: The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeal for assessment year 2010-11: the Section 14A/Rule 8D disallowance was deleted for want of the Assessing Officer's recorded satisfaction; the CENVAT refund under the J&K incentive and the UP VAT/sales-tax refund under the UP Industrial Policy were held to be capital receipts not exigible to tax and excluded from book profit under Section 115JB.

Reopening of assessment - validity of reassessment under section 147/148 - unexplained investment - addition under section 69 (unexplained investment) - admission of additional evidence under Rule 46A - onus on assessee to prove identity and creditworthiness of lenders for unsecured loans

Reopening of assessment - unexplained investment - addition under section 69 (unexplained investment) - Whether the deletion of addition of the advance in AY 2005-06 by the CIT(A) was justified and whether the AO may tax the amount in AY 2006-07. - HELD THAT: - The Tribunal reviewed the CIT(A)'s finding that, although the AO had valid reason to reopen the assessment on the basis of the FIR, the year of payment was not specified in the FIR and the assessee produced material showing the payment related to the previous year relevant to AY 2006-07. The CIT(A) deleted the addition in AY 2005-06 on the basis that the payment belonged to the subsequent assessment year and expressly left it open for the AO to take action for AY 2006-07. The Tribunal found the CIT(A)'s conclusion correct and declined to interfere, thereby upholding deletion for AY 2005-06 while noting the AO's liberty to tax the amount in AY 2006-07 if appropriate. [Paras 4, 5, 6]

Revenue's appeal for AY.2005-06 dismissed; deletion of the addition for AY.2005-06 confirmed and AO permitted to proceed for AY.2006-07.

Validity of reassessment under section 147/148 - admission of additional evidence under Rule 46A - onus on assessee to prove identity and creditworthiness of lenders for unsecured loans - unexplained investment - addition under section 69 (unexplained investment) - Whether reopening and completion of assessment for AY 2006-07 under section 147/148 was valid, whether additional evidence at appellate stage should be admitted, and whether the addition under section 69 for Rs.1,85,00,000/- was sustainable. - HELD THAT: - The Tribunal examined the circumstances of reassessment and the appellate findings. The AO issued notice under section 148 after administrative approval and proceeded to complete assessment under section 143(3) r.w.s.147 following non-compliance by the assessee. The CIT(A) held there was no irregularity in reopening or completion. On additional evidence, the CIT(A) applied the four conditions of Rule 46A and rejected admission: the assessee had ample time (from 28/11/2008) and was not prevented by sufficient cause from producing evidence during assessment, so affidavits filed at the appellate stage were not admitted. On merits, the assessee claimed the amount represented advances from 104 persons but produced affidavits for only 29, without corroborative particulars such as bank records or tax details; the CIT(A) applied the well established rule that for unsecured loans the primary onus lies on the assessee to prove identity and creditworthiness of lenders and genuineness of transactions. Finding the assessee failed to discharge that onus, the addition under section 69 was sustained. The Tribunal found no infirmity in these conclusions and dismissed the assessee's appeal. [Paras 9, 10, 11]

Assessee's appeal for AY.2006-07 dismissed; reopening under section 147/148 upheld, additional evidence at appellate stage not admitted, and addition under section 69 confirmed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for AY.2005-06 (confirming deletion of the addition for that year while permitting the AO to proceed for AY.2006-07) and dismissed the assessee's appeal for AY.2006-07 (upholding reassessment procedure, refusing admission of belated additional evidence, and confirming the addition under section 69).

Treatment of bank cash deposits as unexplained income - onus on the assessee to explain identity, creditworthiness and genuineness of cash credits - admission of additional evidence under Rule 46A of the Income Tax Rules, 1962 - assessment framed ex parte for non-appearance - consequential charging of interest and penalty

Treatment of bank cash deposits as unexplained income - onus on the assessee to explain identity, creditworthiness and genuineness of cash credits - Addition of Rs. 13,00,000 on account of cash deposits in the bank account sustained as unexplained income. - HELD THAT: - The Tribunal upheld the finding of the Assessing Officer and the CIT(A) that the assessee failed to discharge the onus of explaining the source and nature of cash deposits of Rs. 13,00,000. The appellate authority recorded that the assessee did not furnish corroborative material such as confirmations, identity and creditworthiness of alleged agriculturists, nor explanations satisfactorily demonstrating why those amounts were received in cash; the claim of loans from agriculturists and available cash balance was held to be unsubstantiated and "concocted, bizarre and lacks substance." Given the absence of supporting documents or credible explanation despite opportunities to explain, the addition was rightly treated as unexplained income and sustained. [Paras 5, 10]

Addition of Rs. 13,00,000 upheld and grounds 1 to 3 dismissed.

Rejection of business loss for want of supporting evidence - Claimed business loss of Rs. 43,525/- not allowed for want of evidence. - HELD THAT: - The Tribunal affirmed the authorities below that the assessee did not file the original return or any supporting documents to substantiate the business loss claimed. In absence of justification or evidentiary support, the loss could not be accepted. [Paras 11, 13]

Claim for business loss rejected.

Admission of additional evidence under Rule 46A of the Income Tax Rules, 1962 - Application for admission of additional evidence was correctly rejected for non-compliance with Rule 46A. - HELD THAT: - The Tribunal agreed with the CIT(A) that the assessee failed to demonstrate why the evidence sought to be adduced before the appellate authority was not placed before the Assessing Officer, as required by Rule 46A. The application did not establish the cause for earlier non-submission or meet the procedural test for admission; therefore the rejection of additional evidence was proper. [Paras 5, 15, 16]

Request to admit additional evidence dismissed.

Acceptance of cash in hand claimed in books - Claim that Rs. 2,75,000 was cash in hand available in books was not accepted for want of supporting evidence. - HELD THAT: - The Tribunal held that the assessee did not produce any supporting material such as cash flow statements or corroborative records to substantiate the alleged cash-in-hand. In absence of evidence, authorities were justified in not accepting the claim. [Paras 5, 17, 19]

Claim of cash in hand of Rs. 2,75,000 not accepted.

Explanation of debit and credit entries in bank accounts - Assessee failed to explain debit entries showing withdrawals from bank to pay farmers; therefore no interference with findings below. - HELD THAT: - The Tribunal observed that the onus to explain both credit and debit entries in bank accounts lay on the assessee. No documentary evidence was placed on record to substantiate that withdrawals corresponded to bona fide payments to agriculturists, and consequently the authorities' conclusions were affirmed. [Paras 20, 22]

Ground challenging non-consideration of bank debit entries dismissed.

Consequential charging of interest and penalty - assessment framed ex parte for non-appearance - Contentions against charging of interest under sections 234A & 234B and against imposition of penalty were rejected as the claims were consequential or lacked merit given assessee's non-appearance. - HELD THAT: - The Tribunal treated the challenge to interest as consequential to the primary additions and dismissed it. The plea that insufficient opportunity was given in relation to penalty and interest was repelled by recording that the assessee was negligent, repeatedly failed to appear before authorities and did not pursue the case; assessments were framed ex parte, and on these facts the authorities were justified in their actions. [Paras 5, 23, 24, 25]

Challenges to interest and to adequacy of opportunity in respect of penalty/assessment dismissed.

Final Conclusion: The appeal is dismissed in entirety: the addition of Rs. 13,00,000 as unexplained income is sustained; the claimed business loss and cash-in-hand not accepted for want of evidence; the application for additional evidence was rightly rejected under Rule 46A; explanations regarding bank entries were not furnished; and consequential interest/penalty contentions fail in view of the assessee's non-appearance and lack of substantiation.

Treatment of bogus purchases as unexplained expenditure - estimation of profit element in bogus purchases at 12.5% - reliance on uncontroverted sales to limit addition - appropriateness of disallowance under Section 69C versus Section 37(1) for bogus purchases - prevention of double taxation where amount already offered in a subsequent assessment year

Prevention of double taxation where amount already offered in a subsequent assessment year - treatment of bogus purchases as unexplained expenditure - Whether the amount of Rs. 5,04,800/- which was offered to tax in A.Y. 2012-13 could be subjected to tax again in A.Y. 2009-10. - HELD THAT: - The Tribunal accepted the finding of the CIT(A) that the sum of Rs. 5,04,800/- relating to M/s. Sumeet Sales had already been offered to tax in A.Y. 2012-13 on account of creditors written off. The appellate authority's reduction of the disallowance to avoid double taxation was held to be cogent, and the revenue placed no contrary material before the Tribunal. Consequently, the amount already taxed in A.Y. 2012-13 could not be taxed again in A.Y. 2009-10. [Paras 5, 7]

Amount already offered to tax in A.Y. 2012-13 (Rs. 5,04,800/-) cannot be taxed again in A.Y. 2009-10; relief granted by CIT(A) confirmed.

Estimation of profit element in bogus purchases at 12.5% - reliance on uncontroverted sales to limit addition - Whether the entire purchases declared as bogus should be added back, or whether an estimation of embedded profit (12.5%) of the proven portion should be substituted for 100% disallowance. - HELD THAT: - The Tribunal agreed with the CIT(A)'s factual conclusion that the assessee's sales were not doubted and that the modus operandi indicated purchases from the grey market with hawala bills. Given that sales had been recorded and not controverted, the Tribunal held that a 100% disallowance was not sustainable. Relying on relevant precedents cited by the CIT(A) and applying the principle of estimating the profitelement, the Tribunal sustained the CIT(A)'s direction to the Assessing Officer to estimate and add only 12.5% of the proven bogus purchases (applied to the balance amount), thereby meeting the ends of justice. [Paras 4, 5, 7]

100% disallowance set aside; addition restricted to 12.5% of the proven portion of bogus purchases as directed by CIT(A) and confirmed.

Appropriateness of disallowance under Section 69C versus Section 37(1) for bogus purchases - treatment of bogus purchases as unexplained expenditure - Whether the disallowance made by the AO under Section 69C was appropriate, or whether the correct statutory characterisation is disallowance under Section 37(1). - HELD THAT: - The CIT(A) observed that Section 69C deals with unexplained expenditure incurred out of books, whereas the facts pointed to bogus cash purchases for which disallowance is more appropriately characterised under Section 37(1) as expenditure not wholly and solely for business purposes. While treating the AO's use of Section 69C as an error of classification, the CIT(A) held that the error was curable under Section 292B and sustained the addition on the alternative legal footing of Section 37(1). The Tribunal found this approach acceptable and confirmed the CIT(A)'s correction of the statutory basis while upholding the substantive disallowance (subject to the quantification adjustments already recorded). [Paras 5]

Error in invoking Section 69C noted, but disallowance sustained on the correct statutory basis of Section 37(1); classification error condoned.

Final Conclusion: The Tribunal confirmed the order of the CIT(A): the addition of Rs. 9,04,800/- was reduced by allowing set-off of Rs. 5,04,800/- already taxed in A.Y. 2012-13, the remaining proven bogus purchases were subjected to an addition limited to 12.5% as profit-embedded estimation, and the AO's invocation of Section 69C was corrected to disallowance under Section 37(1); the revenue's appeal is dismissed.

Substantial question of law - maintainability of appeal under Section 130 of the Customs Act, 1962 - determination relating to the rate of duty of customs or to the value of goods for purposes of assessment - classification of imported goods versus prohibition on import - onus of proof to establish imported goods as prohibited goods - confiscation of prohibited goods and imposition of penalties - Navin Chemicals principle on 'direct and proximate' relation to rate of duty/value

Substantial question of law - onus of proof to establish imported goods as prohibited goods - Admission of the appeal on the substantial question whether the department discharged the onus to establish the cargo as High-Speed Diesel (HSD). - HELD THAT: - The High Court, having heard rival submissions and examined the materials including laboratory reports and the Tribunal's findings, found the contention on whether the department discharged the onus to establish the cargo as HSD to raise a substantial question of law warranting admission. The Court noted the presence of conflicting factual and expert material and accepted that the legal import of those conflicts - including whether the evidence sufficed to treat the import as prohibited HSD - raised a question fit for adjudication under Section 130. Consequently the appeal was admitted on this question for final hearing. [Paras 21]

Appeal admitted on the substantial question whether the department discharged the onus to establish the cargo as HSD.

Substantial question of law - confiscation of prohibited goods and imposition of penalties - classification of imported goods versus prohibition on import - Admission of the appeal on the substantial question whether the Tribunal was right in setting aside the confiscation of prohibited goods and penalties imposed by the order in original. - HELD THAT: - The Court found that the legality of the Tribunal's reversal of confiscation and penalties raised a question of law of sufficient substance to be entertained. The Revenue's contention that, if the goods are HSD, import is prohibited and confiscation/penalties follow as a legal consequence, was held to engage legal principles beyond mere fact-finding and therefore to constitute a substantial question for determination. The matter was admitted for final hearing to decide the correctness of the Tribunal's order setting aside confiscation and penalties. [Paras 21]

Appeal admitted on the substantial question whether the Tribunal was correct in setting aside confiscation and penalties.

Maintainability of appeal under Section 130 of the Customs Act, 1962 - determination relating to the rate of duty of customs or to the value of goods for purposes of assessment - Navin Chemicals principle on 'direct and proximate' relation to rate of duty/value - Framing and admission of the additional substantial question whether the impugned Tribunal order relates to the determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment, thereby affecting maintainability of the appeal under Section 130. - HELD THAT: - Respondents contended that classification issues inherently relate to rate of duty/value and thus appeals under Section 130 are not maintainable but must lie to the Supreme Court; the Revenue rebutted that the Tribunal's order concerns prohibition/identity of goods and not a proximate determination of rate or value. The Court, applying the principle in Navin Chemicals that the phrase 'relation to the rate of duty or value' must be read as 'direct and proximate', exercised its proviso power to frame this additional substantial question of law and admitted the appeal for final adjudication on the maintainability point as well. [Paras 22]

Additional substantial question framed and appeal admitted to determine whether the Tribunal's order relates to rate/value for assessment so as to affect maintainability under Section 130.

Final Conclusion: All three Tax Appeals under Section 130 of the Customs Act, 1962 have been admitted by the High Court on the three framed substantial questions of law (two proposed by the Revenue and one additionally framed by the Court); matters are listed for final hearing.

Customs duty on impermissible wastage - SION/Input-Output norms - retrospective fixation of wastage norms by Ministry of Commerce - duty demand premature pending debonding/de-bonding - entitlement of EOU to benefit of revised norms

SION/Input-Output norms - retrospective fixation of wastage norms by Ministry of Commerce - entitlement of EOU to benefit of revised norms - Whether the appellants are entitled to the higher wastage norm fixed by the Ministry (15%) and, if so, whether revenue can demand duty for wastage exceeding the earlier norm. - HELD THAT: - The Tribunal examined the communications from the Ministry of Commerce fixing a 15% wastage norm for the appellants' product and directing action under procedural provisions. The bench held that where the Ministry has fixed higher SION wastage norms (with retrospective effect in the appellants' case), revenue is bound by those norms and the benefit must accrue to the appellants. Consequently, the earlier demand premised on the lower 9.09% norm could not be sustained to the extent covered by the revised 15% norm. The Tribunal therefore amended its earlier order to give effect to the Ministry's decision and held the impugned orders unsustainable insofar as they did not apply the revised norms. [Paras 2, 6, 8]

Benefit of the 15% wastage norm fixed by the Ministry is available to the appellants; demands based on the earlier 9.09% norm are not sustainable to that extent and the earlier order is rectified accordingly.

Customs duty on impermissible wastage - duty demand premature pending debonding/de-bonding - Whether the demand for customs duty on impermissible wastage was prematurely raised while the imported goods remained in the factory/warehouse and before debonding. - HELD THAT: - The Tribunal accepted the appellants' submission that duty in respect of imported goods placed under bond and lying within the factory/warehouse cannot be demanded until debonding or expiry of the bond period, or clearance for home consumption, as applicable. The bench found this submission legally correct and that the point had not been considered in the earlier order. Relying on the principle that duty on bonded/in-bond goods is realizable on debonding, the Tribunal concluded that the earlier demand (to the extent it sought recovery prior to debonding) was premature. [Paras 3, 9]

Demand for duty while goods remained in bond/warehouse prior to debonding was premature and cannot be sustained.

Final Conclusion: The appeals are allowed: the Tribunal's earlier order is rectified to give appellants the benefit of the 15% wastage norm fixed by the Ministry and to record that any demand for duty raised before debonding was premature; consequential relief, if any, follows and the original order is modified accordingly.

Exemption of advances for sale of immovable property from 'deposit' - proviso to Rule 2(1)(c)(xii)(b) of the Companies (Acceptance of Deposits) Rules, 2014 - definition of 'deposit' under the Companies (Acceptance of Deposits) Rules, 2014 - abuse of process of court - quashing of criminal proceedings under Section 482 Cr.P.C. - intention to sell versus collection as deposit

Exemption of advances for sale of immovable property from 'deposit' - proviso to Rule 2(1)(c)(xii)(b) of the Companies (Acceptance of Deposits) Rules, 2014 - definition of 'deposit' under the Companies (Acceptance of Deposits) Rules, 2014 - Advances received by the company for sale of immovable property fall outside the definition of 'deposit' and are exempt under the proviso to Rule 2(1)(c)(xii)(b) where advances are adjusted against the property in accordance with the terms of the agreement and requisite permissions exist. - HELD THAT: - The court examined Rule 2(1)(c)(xii)(b) which excludes from 'deposit' any amount received as advance in connection with consideration for property under an agreement or arrangement provided such advance is adjusted against the property in accordance with the terms of the agreement. The proviso makes an amount to be deemed a deposit only if it becomes refundable (with or without interest) because the company lacks necessary permission or approval to deal in the property, with an explanation deeming such amounts deposits after fifteen days from becoming due for refund. The material shows the petitioner company purchased agricultural land, obtained conversion and development permissions and entered into written agreements/arrangements to sell plots. Advances were received pursuant to those agreements and refunded with interest in cases where the buyer failed to complete the purchase as per the agreed terms. On these facts the proviso is not attracted because the refunds were not necessitated by absence of requisite permissions; accordingly the advances fall within the statutory exemption and do not constitute 'deposits' under the Rules.

Advances received for sale of immovable property are exempt from being treated as 'deposits' under the proviso to Rule 2(1)(c)(xii)(b) on the facts before the Court.

Abuse of process of court - quashing of criminal proceedings under Section 482 Cr.P.C. - intention to sell versus collection as deposit - Continuation of criminal proceedings based on the complaint was an abuse of process and liable to be quashed. - HELD THAT: - The complaint arose from repeated allegations by a litigant who the court found to have repeatedly filed vexatious petitions and complaints against the company and its group. The records showed inspections triggered by those complaints, but no material demonstrating that the advances were deposits as defined under the Rules. Given that requisite permissions for development were obtained and advances were taken under agreements with refund mechanisms where applicable, and in the absence of cogent facts to establish an intention to collect deposits rather than sell property, continuation of the prosecution would amount to an abuse of the court's process. The court therefore exercised its inherent jurisdiction under Section 482 Cr.P.C. to prevent abuse and quash the proceedings.

Proceedings in C.C.No.12 of 2020 are quashed as continuation would amount to an abuse of process of the court.

Final Conclusion: Proceedings initiated in C.C.No.12 of 2020 against the petitioners were quashed: the advances for sale of immovable property fell within the exemption in Rule 2(1)(c)(xii)(b) and, in the absence of material showing the advances to be deposits or that requisite permissions were lacking, continuation of the prosecution amounted to an abuse of process.

Dispensing with meeting of creditors where creditors holding at least ninety per cent. in value agree by affidavit - disclosure of all material facts relating to the company including pendency of investigations or proceedings - merger of a wholly owned subsidiary into its holding company and dispensation of shareholder/creditor meetings - continuance of proceedings against transferee post scheme so that creditors' rights are not extinguished or prejudicially affected - requirement that creditors' liabilities are not reduced or extinguished by a scheme

Merger of a wholly owned subsidiary into its holding company and dispensation of shareholder/creditor meetings - disclosure of all material facts relating to the company including pendency of investigations or proceedings - continuance of proceedings against transferee post scheme so that creditors' rights are not extinguished or prejudicially affected - Whether the NCLT was justified in refusing to dispense with convening meetings of unsecured creditors and in holding that the affidavits under Section 230(2)(a) were incomplete, thereby dismissing the application to approve the scheme without holding creditor meetings. - HELD THAT: - The Tribunal examined the affidavit disclosures under Section 230(2)(a) read with Rule 6(3)(viii) and held that the wording requires disclosure of material investigations or proceedings relating to the companies. The Appellants had furnished audited financial statements and disclosed such material investigations and enquiries; moreover, the Scheme expressly provides that all proceedings in the name of the Transferor Company would continue and be enforced against the Transferee Company so that no proceeding would be discontinued or prejudicially affected by the Scheme. Applying the consistent approach of this Appellate Tribunal in earlier decisions concerning amalgamation of wholly owned subsidiaries into their holding companies-where net worths are positive, unsecured creditors are paid in the ordinary course and their liabilities are neither reduced nor extinguished-the Tribunal concluded that convening meetings of shareholders/creditors could be dispensed with in the present facts. On that basis the NCLT's finding that the affidavits were incomplete and its refusal to dispense with meetings was found to be incorrect and was set aside. [Paras 5, 6, 7]

The appeal is allowed; the NCLT order dismissing the application is set aside as the affidavit disclosures were adequate and, having regard to the nature of the wholly owned subsidiary merger and protection of creditors' rights under the Scheme, meetings could be dispensed with.

Final Conclusion: The Appellate Tribunal allowed the appeal, set aside the NCLT order dated 23.09.2021, held that the disclosure requirements of Section 230(2)(a) read with Rule 6(3)(viii) were satisfied and that, in the facts of a merger of a wholly owned subsidiary into its holding company without reduction/extinguishment of creditors' liabilities and with continuity of proceedings against the transferee, convening creditor/shareholder meetings could be dispensed with; registry directed to upload and communicate the judgment.

Liquidation under Section 33(1) of the IBC - Corporate Insolvency Resolution Process time limits and extension - Appointment and duties of Resolution Professional / Liquidator - Sale of corporate debtor as going concern - Constitution of NCLT Bench - single member under Section 419(3) of the Companies Act, 2013

Liquidation under Section 33(1) of the IBC - Corporate Insolvency Resolution Process time limits and extension - Validity of the liquidation order where CIRP period expired and no approved resolution plan was before the Adjudicating Authority. - HELD THAT: - The Tribunal held that CIRP commenced on 25.07.2018 and, after due processes of invitation for EOIs and consideration, no resolution plan acceptable to the CoC was approved within the statutory period. In those circumstances, and having regard to the statutory mandate in Section 33(1) of the IBC, the Adjudicating Authority was left with no alternative but to order liquidation. The Tribunal found no infirmity in the Adjudicating Authority's conclusion that there was no viable or approved plan and that statutory timelines precluded indefinite continuation of CIRP. The contention that certain plans were available but not placed before CoC did not alter that conclusion in the facts of this case.

The liquidation order was upheld as valid under Section 33(1) of the IBC because the CIRP had run its course without an approved resolution plan.

Appointment and duties of Resolution Professional / Liquidator - Sale of corporate debtor as going concern - Allegations of mala fides / conflict of interest against the Resolution Professional and scope of duties of the liquidator after liquidation. - HELD THAT: - The Tribunal rejected the appellants' broad allegations that the RP acted mala fide or in collusion with a financial creditor, noting absence of evidence and observing that SBI had in fact supported a resolution plan at one stage. The RP's conduct in inviting EOIs, forwarding proposals and filing the liquidation application was found to be within the statutory framework and compelled by absence of an approved plan. While rejecting the challenge to the RP's bona fides, the Tribunal nonetheless directed that, in liquidation, the liquidator must make all efforts to sell the corporate debtor or its business as a going concern, in consultation with the stakeholders consultation committee formed under Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016, to protect employees' livelihoods.

Allegations of mala fide conduct were rejected; the RP's appointment and filing of the liquidation application were not set aside, but the liquidator was directed to endeavour to effect a going concern sale in consultation with stakeholders.

Constitution of NCLT Bench - single member under Section 419(3) of the Companies Act, 2013 - Whether the liquidation order was vitiated for being pronounced by a single member bench (coram non judice). - HELD THAT: - The Tribunal observed that the bench composition at the time of pronouncement comprised a single judicial member lawfully constituted under the proviso to Section 419(3) of the Companies Act, 2013. The appellant had not raised objection before the Adjudicating Authority to the bench composition. The Tribunal therefore found no jurisdictional defect in the order on account of bench composition.

The challenge to the order on the ground of coram non judice was rejected; the single member constitution was held to be competent and the order valid.

Final Conclusion: The appeals were dismissed. The Tribunal upheld the Adjudicating Authority's liquidation order under Section 33(1) of the IBC for want of an approved resolution plan within the CIRP period, rejected allegations of mala fide conduct against the RP and found no jurisdictional defect in the single member bench; it directed the liquidator to endeavour to sell the corporate debtor or its business as a going concern in consultation with the stakeholders consultation committee.

Initiation of corporate insolvency resolution process under Section 7 - existence of debt and occurrence of default - record of default in an information utility as evidence for admission - relevance of NPA classification under SARFAESI to insolvency proceedings - limitation for filing under the Code - Adjudicating Authority's satisfaction under Section 7(5)

Initiation of corporate insolvency resolution process under Section 7 - existence of debt and occurrence of default - record of default in an information utility as evidence for admission - limitation for filing under the Code - relevance of NPA classification under SARFAESI to insolvency proceedings - Adjudicating Authority's satisfaction under Section 7(5) - Whether the Adjudicating Authority was justified in admitting the Section 7 application and initiating CIRP against the corporate debtor. - HELD THAT: - The Tribunal held that the Code provides a self-contained scheme for initiation of CIRP under Section 7 where the Adjudicating Authority has to ascertain (i) that a debt is due and payable, (ii) that a default has occurred, and (iii) the existence of default from records of an information utility or other evidence. The record shows packing credit disbursed on 07.03.2016 with recoupment due 03.09.2016 and non-repayment thereafter; the Information Utility recorded the date of default as 03.09.2016. The Appellate Tribunal rejected the contention that an earlier declaration of NPA on 02.12.2016 (for SARFAESI purposes) precluded initiation of CIRP, observing that NPA classification under SARFAESI is distinct from the legal question of default under the Code and that the DRT order set aside NPA classification only for SARFAESI purposes and did not find that no default had occurred or that no amount was due. On limitation, the Tribunal accepted that the application filed on 12.03.2019 was within the prescribed period computed from the date of default of 03.09.2016, and therefore not barred. Applying these conclusions, the Adjudicating Authority was warranted in being satisfied under Section 7(5) and admitting the application. [Paras 7]

The order admitting the Section 7 application and initiating CIRP was upheld.

Final Conclusion: The Tribunal upheld the Adjudicating Authority's admission of the Section 7 petition: the existence of debt, occurrence of default as recorded by the Information Utility (03.09.2016), and the timeliness of the application were found established; NPA classification under SARFAESI was held not to bar initiation of CIRP.

Assets excluded from liquidation estate under Section 36(4) - pre CIRP contractual disputes/sub judice civil proceedings - jurisdiction to permit impleadment of liquidator as representative of corporate debtor - power to correct accidental slip/corrigendum under Rule 154

Pre CIRP contractual disputes/sub judice civil proceedings - title to assets to be adjudicated by civil court - Title to the windmill assets is to be adjudicated in the Civil Suit pending before the Calcutta High Court and is therefore sub judice. - HELD THAT: - The Appellate Tribunal examined the pleadings and orders in the Calcutta High Court proceedings, including the Division Bench's observations and the Appellants' own admission in their affidavit that rights over the windmill assets can only be determined upon adjudication of Civil Suit No. 39 of 2019. The Division Bench expressly noted multiple contested factual and legal questions (time being of the essence, frustration, notice of CIRP, transferability) which must be decided in that suit. In light of these factors, the Tribunal held that the question whether title has passed to the Appellants is sub judice before the High Court and not ripe for final determination in these insolvency proceedings. [Paras 42, 44, 46, 48]

Title is sub judice and the High Court will determine whether the sale was concluded.

Assets excluded from liquidation estate under Section 36(4) - effect of prior Adjudicating Authority order keeping sale outside CIRP - Adjudicating Authority did not exceed jurisdiction in permitting the liquidator to keep the windmill assets outside the liquidation estate. - HELD THAT: - The Tribunal found that the sale process in respect of the windmill assets had been initiated pre CIRP under the MRA and that the Adjudicating Authority had earlier, by order dated 22.08.2017, permitted completion of the sale transaction outside CIRP. Given that it is not yet finally determined whether title vested in the Appellants, the case falls within the exclusions in sub section (4) of Section 36 (notably clauses (a) and (e)) where assets owned by a third party or otherwise specified need not be included in the liquidation estate. The Appellants had not impugned the 22.08.2017 order and in their counter affidavit expressly disavowed interest in the assets while reserving challenge to distribution of sale proceeds; accordingly the Adjudicating Authority's decision to keep the assets outside the liquidation estate was not illegal or beyond its power. [Paras 51, 53, 56, 59, 60]

Order keeping windmill assets outside the liquidation estate is within jurisdiction and is upheld.

Jurisdiction to permit impleadment of liquidator as representative of corporate debtor - liquidator's duty to protect corporate debtor's interest in pending proceedings - Adjudicating Authority did not exceed jurisdiction in permitting the liquidator to apply for impleadment in the Civil Suit as representative of the corporate debtor. - HELD THAT: - The Adjudicating Authority's earlier liquidation order required prior approval for suits to be instituted by the Liquidator on behalf of the corporate debtor. The impugned order merely granted permission to the Liquidator to file an appropriate application in the High Court to seek impleadment as representative of the corporate debtor; it did not itself assume jurisdiction over the civil dispute or supplant the High Court. The Tribunal therefore held that permitting the Liquidator to seek impleadment was a legitimate protection of the corporate debtor's interests and did not encroach upon the civil court's domain. [Paras 61, 62]

Permission to the Liquidator to seek impleadment in the High Court is within the Adjudicating Authority's jurisdiction.

Power to correct accidental slip/corrigendum under Rule 154 - limits of review versus correction of clerical/manifest slip - The corrigendum dated 23.03.2021 deleting a sentence from the impugned order was a permissible correction of an accidental slip under Rule 154 and did not amount to an impermissible review. - HELD THAT: - The Tribunal analysed the nature and effect of the deletion and the context of the earlier 22.08.2017 order which had declined distribution of proceeds during CIRP. Noting that both the Appellants and SBI had sought that proceeds not be distributed, the Adjudicating Authority's subsequent deletion was treated as rectifying an accidental slip or omission rather than re opening or reviewing the merits of the earlier decision. The Tribunal relied on the inherent power of courts/tribunals to correct manifest clerical errors and Rule 154 of the NCLT Rules permitting correction of accidental slips, holding that the corrigendum was lawfully made and that no principle of natural justice was infringed by the correction. [Paras 63, 65, 66, 68]

Corrigendum is valid as correction of accidental slip under Rule 154 and not an unlawful review; it is upheld.

Final Conclusion: The Appellate Tribunal dismissed the appeal; the impugned orders dated 18.03.2021 and the corrigendum dated 23.03.2021 are upheld - the question of title to the windmill assets remains to be decided by the Calcutta High Court, the Adjudicating Authority acted within jurisdiction in excluding the assets from the liquidation estate and in permitting the Liquidator to seek impleadment, and the corrigendum was a permissible correction of an accidental slip.

Stakeholders' Consultation Committee and its constitution under Regulation 31A - consultation with stakeholders in grouping and sale strategy - sale of assets as a going concern and grouping of assets under Regulation 32/32A - fairness and transparency in liquidation and e-auction processes - replacement of liquidator and exercise of inherent powers - completion of liquidation within the prescribed timeline and Regulation 47/44 - condonation of delay in filing appeal - jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016

Stakeholders' Consultation Committee and its constitution under Regulation 31A - jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - Whether the liquidator constituted the Stakeholders' Consultation Committee in accordance with Regulation 31A and whether the appellants have locus to challenge liquidation proceedings. - HELD THAT: - The Tribunal found that the liquidator constituted the Stakeholders' Consultation Committee in accordance with Regulation 31A of the Liquidation Regulations and that only one of the three appellants, Paradise Systems Private Limited, was a member of the SCC representing 25% voting rights. Notwithstanding that two appellants were not SCC members, the Tribunal held that unsecured creditors who have a stake in liquidation are entitled to prefer an appeal under Section 60(5) of the IBC. The Adjudicating Authority's observation that the applicants did not hold 75% voting share was noted, but the appellants' locus as stakeholders was recognised. [Paras 9, 15]

The SCC was validly constituted; the appellants, though not all SCC members, have locus to appeal as stakeholders.

Condonation of delay in filing appeal - jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - Whether the appeal filed after the statutory 30-day period was barred by limitation and whether delay should be condoned. - HELD THAT: - The Impugned Order dated 24.9.2021 was challenged by an appeal filed on 8.11.2021, which was 15 days beyond the 30-day period. Applying the Supreme Court's suo motu exclusion (Misc. Application No. 665/2021 in SMW(C) No.3/2020), the period from 15.3.2020 to 2.10.2021 is excluded for computing limitation. Consequently, limitation for this appeal began on 3.10.2021 and the appeal was filed on the 37th day thereafter. Having regard to the pandemic conditions and the appellants' circumstances, the Tribunal exercised its discretion to condone the delay and treated the appeal as within time. [Paras 16]

Delay in filing the appeal is condoned and the appeal is treated as within limitation.

Fairness and transparency in liquidation and e-auction processes - consultation with stakeholders in grouping and sale strategy - sale of assets as a going concern and grouping of assets under Regulation 32/32A - Whether the liquidator conducted the third and fourth rounds of e-auction with requisite consultation, fairness and transparency and whether sales in those rounds should be quashed or the liquidator replaced. - HELD THAT: - The Tribunal examined the agenda notes, minutes and email records. It noted that the SCC had approved sale as a going concern in the first meeting and had authorisations in subsequent meetings to conduct further e-auctions. However, the Tribunal recorded procedural shortcomings: sale notices for the third and fourth e-auctions were in some instances sent to SCC members after newspaper publication, the specific grouping of assets into five groups for the third e-auction was not reflected in the SCC minutes, and there were long and unexplained gaps (approximately four to four-and-a-half months) between SCC decisions and the holding of the e-auctions. Despite these concerns and the prolonged liquidation with mounting costs, the Tribunal found no material irregularity warranting replacement of the liquidator under the inherent powers of the Adjudicating Authority. The appellants' objections were not found to be sufficiently convincing to displace the liquidator or to quash completed sales. [Paras 18, 21, 23, 26, 27]

No grounds made out to replace the liquidator or to quash the e-auctions; appellants' challenge on fairness and transparency is not accepted as sufficient for replacement.

Completion of liquidation within the prescribed timeline and Regulation 47/44 - fairness and transparency in liquidation and e-auction processes - Whether the liquidation process has exceeded the statutory timeline and what directions should be issued to ensure timely completion and reasonable liquidation costs. - HELD THAT: - Regulations envisage completion of liquidation within 365 days from liquidation commencement date, with an additional 90 days where sale as a going concern is pursued. The Tribunal treated the decision taken in the third SCC meeting on 9.11.2020 as the relevant point from which the 365-day period should be reckoned because from that meeting onward sale as a going concern was not to be pursued. No lockdown-based exclusion applied after 9.11.2020. Given the passage of more than 365 days since that meeting, the Tribunal observed that liquidation has been unduly prolonged, risking asset deterioration and escalating costs. Accordingly, the Tribunal directed expeditious completion of liquidation and that liquidation costs be restricted to actual costs incurred. [Paras 24, 25, 28]

Liquidation must be completed as early as possible; liquidation costs are to be restricted to actual expenses.

Final Conclusion: The appeal is disposed of by (i) recognising the appellants' locus as stakeholders though only one is an SCC member; (ii) condoning the delay in filing the appeal; (iii) declining to replace the liquidator or to quash the e-auctions in the absence of material irregularity; and (iv) directing expeditious completion of liquidation and limitation of liquidation costs to actual expenses.

Exclusion of time under Regulation 40C - distinction between exclusion and extension of CIRP timelines - discretion of Adjudicating Authority under Rule 11 of the NCLT Rules, 2016 - requirement of Committee of Creditors' approval under Section 12(2) - keeping corporate debtor as a going concern as an objective of the Code - replacement of interim resolution professional by Committee of Creditors under Sections 22 and 27 - maintaining status quo and contempt for non-compliance

Distinction between exclusion and extension of CIRP timelines - requirement of Committee of Creditors' approval under Section 12(2) - exclusion of time under Regulation 40C - Whether approval of the Committee of Creditors under Section 12(2) is mandatory for seeking exclusion of time lost (as distinct from extension) from the 180 days CIRP period - HELD THAT: - The Tribunal held that Section 12(2) specifically governs extension of the CIRP period and requires a 66% CoC vote for an application to extend beyond 180 days. Regulation 40C, inserted in response to the COVID-19 pandemic, permits exclusion of lockdown periods from computation of timelines, subject to the Code. The words 'extension' and 'exclusion' bear different meanings: an extension adds to the 180 days whereas exclusion removes the lost period from reckoning. The Adjudicating Authority exercised discretionary power under Rule 11 of the NCLT Rules, 2016 to exclude 87 days comprising a period of interim status quo and lockdown-related inability to proceed. In view of Regulation 40C, the object and spirit of the Code to preserve a corporate debtor as a going concern, and earlier Tribunal precedents recognising exclusion in unforeseen circumstances, the requirement of a CoC resolution under Section 12(2) does not operate as a bar to seeking exclusion under Regulation 40C and Rule 11 where facts justify it. [Paras 9, 11, 14, 15, 16]

Approval of the CoC under Section 12(2) is not an absolute precondition to seek exclusion of time under Regulation 40C; the Adjudicating Authority rightly exercised its discretion to exclude 87 days.

Discretion of Adjudicating Authority under Rule 11 of the NCLT Rules, 2016 - exclusion of time under Regulation 40C - keeping corporate debtor as a going concern as an objective of the Code - Whether the Adjudicating Authority was justified in excluding the specific period of 87 days from the CIRP timeline in the facts of this case - HELD THAT: - The Tribunal examined the factual matrix: an interim stay/status quo resulting in 37 days and a lockdown-related period of 50 days during which IRP and others were affected and activities could not be completed. Reliance was placed on Regulation 40C and earlier Tribunal decisions allowing exclusion for unforeseen circumstances. The Adjudicating Authority heard both sides and, applying its discretionary powers under Rule 11, excluded the 87-day period to avoid forcing liquidation when the corporate debtor could be preserved as a going concern. The Tribunal found no error in the Adjudicating Authority's application of Regulation 40C read with the Code and its exercise of discretion. [Paras 10, 11, 12, 16]

The exclusion of 87 days by the Adjudicating Authority was justified and was correctly allowed.

Replacement of interim resolution professional by Committee of Creditors under Sections 22 and 27 - Whether a single CoC member may approach the Tribunal to replace the IRP/RP when the CoC has not approved replacement by the requisite majority - HELD THAT: - Sections 22 and 27 prescribe the procedure and majority thresholds for appointment or replacement of an IRP/RP by the Committee of Creditors. The Tribunal noted the CoC votes in favour of continuing the IRP in the meetings referred to and that resolutions to replace or appoint another insolvency professional did not secure the statutory majority. Given these statutory mechanisms, the Tribunal held that there is no provision empowering an individual CoC member to seek substitution before this Tribunal when the CoC has not approved replacement by the required majority. The matter is to be processed by the CoC and, where applicable, the Adjudicating Authority and Board as provided in the Code. [Paras 18, 19]

Application for replacement is disposed with direction to the CoC to proceed in accordance with Sections 22 and 27; individual members cannot compel replacement contrary to the CoC majority.

Maintaining status quo and contempt for non-compliance - Whether the IRP wilfully disobeyed the Tribunal's status quo order and is liable for contempt for actions connected to the CoC meeting and filing of the exclusion application - HELD THAT: - The Tribunal considered the chronology: the status quo order dated 19.08.2021, its upload timing, the scheduling and notice of the CoC meeting, and that no items were put to vote in the CoC meeting of 23.08.2021. The IRP interpreted the status quo as preserving the position after the Adjudicating Authority had excluded 87 days, which had already been treated as excluded on 19.08.2021. Given that the meeting notice predated the Tribunal's uploaded order and that the meeting did not put agenda items to vote, the Tribunal found no conscious and wilful disobedience of its order. The reasons used to dismiss the main appeal were also relevant in assessing the contempt plea. [Paras 20, 21, 23, 24, 25]

Contempt petition dismissed for lack of conscious and wilful disobedience; no contempt established.

Final Conclusion: The appeal is dismissed: the Tribunal upheld the Adjudicating Authority's exercise of discretion under Rule 11 to exclude 87 days from the CIRP period under Regulation 40C; held that CoC approval under Section 12(2) governs extension but does not preclude exclusion under Regulation 40C; directed the CoC to follow Sections 22 and 27 when seeking replacement of the IRP; and dismissed the contempt petition for lack of wilful disobedience.

Operational debt - interest on delayed payment as part of operational debt - dispute under Section 9 of the Insolvency and Bankruptcy Code - plausible contention test in Mobilox Innovations - IBC not a recovery mechanism - disputed claim requiring adjudication by civil court - unconscionable or excessive interest

Interest on delayed payment as part of operational debt - unconscionable or excessive interest - Whether the claim for interest on delayed payment constituted an operational debt entitling initiation of corporate insolvency proceedings when the principal had been paid and the interest claim was disputed. - HELD THAT: - The Tribunal held that although interest may, in principle, form part of an operational debt where it is agreed or statutorily payable, the facts here differ from authorities relied upon by the appellant. The principal amount had been paid prior to admission and the corporate debtor had specifically denied any agreement to pay interest, characterising the interest claim as mala fide and without basis. The Adjudicating Authority found the claimed interest to be unconscionable, irrational and unjustified, observing inconsistent rates asserted by the appellant in different documents and absence of a clear agreed rate. Given these findings, the claim for interest did not qualify as an operational claim that would justify invoking insolvency proceedings under the Code. [Paras 6, 16, 17]

The claim for interest was not an operational debt warranting initiation of CIRP where the principal was paid and the interest demand was disputed and found to be unconscionable.

Dispute under Section 9 of the Insolvency and Bankruptcy Code - plausible contention test in Mobilox Innovations - IBC not a recovery mechanism - disputed claim requiring adjudication by civil court - Whether the Adjudicating Authority rightly rejected the Section 9 application on the basis that a plausible dispute existed, applying the Mobilox test, and whether IBC could be used as a recovery forum for interest. - HELD THAT: - The Tribunal applied the Mobilox Innovations test, requiring only that a dispute be a plausible contention not patently feeble or a mere assertion unsupported by evidence. The corporate debtor had, in its reply, specifically denied any liability for interest, relied on audited balance sheets to show absence of such dues and pointed to inconsistencies in the rate of interest claimed. Those contentions constituted a real and plausible dispute warranting rejection of the Section 9 application at the threshold. The Tribunal further emphasised that the Code's primary object is to resolve insolvency and revival of the corporate debtor, not to serve as a recovery forum for creditors seeking interest alone; where only interest recovery is pursued and is disputed, civil adjudication is the appropriate remedy. [Paras 9, 10, 18]

Adjudicating Authority correctly rejected the Section 9 application because a real, plausible dispute existed as to the interest claim and the Code cannot be used as a forum for recovery of disputed interest.

Final Conclusion: The appeal is dismissed. The Adjudicating Authority rightly rejected the Section 9 application because the interest claim was disputed, found unconscionable and not a proper operational debt for initiating insolvency proceedings; the dispute required civil adjudication and the IBC cannot be used as a recovery mechanism for such contested interest claims.

Applicability of moratorium under Section 10A of the Insolvency and Bankruptcy Code, 2016 - Effect of subsequent settlement on previously accrued default - Adjudicating Authority's duty under Section 7(5) to admit or reject an application

Effect of subsequent settlement on previously accrued default - Adjudicating Authority's duty under Section 7(5) to admit or reject an application - Settlement entered into during pendency of a section 7 petition does not negate or reschedule a default that occurred prior to the settlement; the adjudicating authority must still proceed under section 7(5) to admit or reject the application based on whether a default had occurred and the completeness of the application. - HELD THAT: - The Tribunal held that the settlement agreement executed between the parties is a subsequent arrangement and cannot erase or reschedule a liability which had already arisen prior to the settlement. The liability to pay and the default in the present matter accrued well before the moratorium under section 10A became effective. Section 7(5) provides the Adjudicating Authority with two clear courses - to admit the application if satisfied that a default has occurred and the application is complete, or to reject it if default has not occurred or the application is incomplete. A post-filing settlement does not alter the historical occurrence of default for the purposes of the section 7 enquiry, and therefore the Corporate Debtor's contention that the MOU/settlement novated the date of default was rejected. [Paras 12, 13, 14]

The contention that the settlement novated the date of default is rejected; the settlement does not negate the earlier default and the Tribunal must adjudicate under section 7(5) accordingly.

Applicability of moratorium under Section 10A of the Insolvency and Bankruptcy Code, 2016 - Section 10A's temporary bar on filing CIRP applications for defaults arising on or after 25 March 2020 does not apply to defaults that occurred before 25 March 2020. - HELD THAT: - The Tribunal noted that section 10A expressly provides that its bar on filing applications under sections 7, 9 and 10 applies only to defaults arising on or after 25 March 2020 and clarifies by explanation that defaults committed before 25 March 2020 are not covered. Since the default in this case pre-dates 25 March 2020 and the section 7 petition was filed prior to that date, the moratorium under section 10A is inapplicable. The applicant's reliance on section 10A to seek dismissal of the section 7 petition as infructuous was therefore unsustainable. [Paras 11, 12, 15]

Section 10A does not apply to the defaults in this case which occurred prior to 25 March 2020; the application under section 10A is dismissed.

Final Conclusion: The application seeking directions for withdrawal/dismissal of the section 7 petition on the basis of the settlement and under Section 10A is dismissed; the settlement cannot vitiate a default that accrued before 25 March 2020 and the moratorium under Section 10A does not apply to such pre-25 March 2020 defaults.

Implementation of approved resolution plan - enforceable bank guarantee - exclusion of litigation period from timeline for implementation - re-initiation of corporate insolvency resolution process and invitation of fresh EOIs - liquidation under the IBC

Implementation of approved resolution plan - exclusion of litigation period from timeline for implementation - Whether the default of Respondent No. 1 in implementing the approved resolution plan is excused by the pendency of appeals and litigation and the period consumed therein. - HELD THAT: - The Tribunal found that the period from approval of the resolution plan on 28.2.2018 until the dismissal of the appeal in the Hon'ble Supreme Court on 5.4.2019 was effectively consumed by litigation and therefore cannot be attributed to the Successful Resolution Applicant. The status quo order passed by NCLAT between 27.4.2018 and 19.12.2018 further restrained implementation during that period. Accordingly, effective implementation could be expected to commence only after 5.4.2019. Notwithstanding the exclusion of the litigation period, the Tribunal found failures by Respondent No.1 to comply with core obligations of the approved plan after that date, including the provision of a valid, enforceable bank guarantee to the satisfaction of the monitoring agency and payment obligations and infusions required under the plan. The Tribunal therefore treated the litigation period as excluded for purposes of attributing responsibility, but held that non-adherence to plan obligations post-litigation constitutes default by Respondent No.1. [Paras 24, 25, 26]

Period of litigation from 28.2.2018 to 5.4.2019 excluded from attribution to Respondent No.1; nevertheless, Respondent No.1 was held in default for non-compliance with plan obligations after 5.4.2019, including failure to provide an enforceable bank guarantee and to make overdue payments.

Enforceable bank guarantee - re-initiation of corporate insolvency resolution process and invitation of fresh EOIs - liquidation under the IBC - Whether the Tribunal should order re-initiation of CIRP/invitation of fresh EOIs or liquidate the Corporate Debtor, and what remedial steps should be directed in view of Respondent No.1's default. - HELD THAT: - The Tribunal observed that liquidation follows where no resolution plan is received or an approved plan is rejected, or where the CoC recommends liquidation; in the present case no CoC recommendation for liquidation had been made and stakeholders preferred continuation as a going concern. The Corporate Debtor was a going concern and stakeholders wished to avoid corporate death by liquidation. Having regard to the primary objective of the IBC to revive and continue the Corporate Debtor and the absence of a CoC resolution to liquidate, the Tribunal held that re-initiation of CIRP was not the immediate course but that remedial directions should be given to secure performance of the approved plan. In partial modification of the impugned order the Tribunal directed that an enforceable bank guarantee (as required by the approved plan) be submitted within 30 days, and that overdue payments under the plan be made within two months; any Rs. 10 crores already deposited in lieu of guarantee was to be adjusted against pending amounts or refunded within 30 days. The Tribunal therefore declined to order liquidation and did not direct re-initiation of CIRP with fresh EOIs, but imposed specific compliance timelines to salvage the approved plan's implementation. [Paras 30, 32, 34]

Liquidation is not ordered; instead the Successful Resolution Applicant must submit an enforceable bank guarantee within 30 days and make overdue payments within two months, with any prior deposit of Rs. 10 crores to be adjusted or refunded within 30 days.

Final Conclusion: The appeals are disposed of by (i) holding that the litigation period up to 5.4.2019 is excluded from attribution to the Successful Resolution Applicant though defaults after that date are established, and (ii) directing submission of an enforceable bank guarantee within 30 days and payment of overdue amounts within two months; liquidation or re-initiation of CIRP is not ordered.

Initiation of Corporate Insolvency Resolution Process - default in payment - admission of debt as concession of liability - application under Section 7 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution Professional - declaration of moratorium - duty of directors/promoters to cooperate with the IRP

Initiation of Corporate Insolvency Resolution Process - default in payment - admission of debt as concession of liability - Admission of the Section 7 application and initiation of CIRP against the Corporate Debtor on the basis of admitted debt/default. - HELD THAT: - The Tribunal found that the Financial Creditor provided credit facilities to the Corporate Debtor and the Corporate Debtor admitted the loan agreement and the outstanding principal (paras. 3 and 5). The Tribunal observed that defences and explanations advanced by the Corporate Debtor (relating to alleged excise penalty, insurance claim, damage to goods and the pandemic) did not negate the admitted debt and therefore could not be appreciated at the admission stage (para. 8). On that basis the Tribunal concluded that the Financial Creditor had demonstrated a default and that the case was fit for admission under Section 7 of the Code, warranting initiation of the Corporate Insolvency Resolution Process (para. 9). [Paras 5, 8, 9]

The Company Petition under Section 7 is admitted and CIRP is ordered to commence.

Appointment of Interim Resolution Professional - IRP to take charge of management and perform functions under the Code - declaration of moratorium - duty of directors/promoters to cooperate with the IRP - Consequential directions on appointment of IRP, declaration of moratorium and obligations of management following admission of the Section 7 petition. - HELD THAT: - Following admission, the Tribunal appointed the Financial Creditor's proposed nominee as Interim Resolution Professional and directed him to take charge of the Corporate Debtor's management and to take necessary steps under the Code and Rules. The Tribunal declared the moratorium in terms of the Code and directed the directors, promoters and persons associated with management to extend assistance and cooperation to the IRP for discharge of his functions. The Registry and Financial Creditor were directed to communicate the order and provide the IRP with a copy for compliance. These directions flow directly from the admission and are standard consequences mandated by the Code (Order paragraphs i-vi and overall directions). [Paras 9]

Mr. Maligi Madhusudhana Reddy is appointed as Interim Resolution Professional; he is directed to take charge and perform CIRP functions, moratorium is declared, and management must cooperate.

Final Conclusion: The Tribunal admitted the Section 7 petition on the ground of admitted default, directed commencement of CIRP, appointed the named Interim Resolution Professional, declared the moratorium and directed cooperation of the Corporate Debtor's management and communication of the order for compliance.

Release of retention money - retention as security for defects liability - Defects Liability Period - escrow arrangement for retention funds - application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - effect of Ministry of Road Transport & Highways notification dated 03.06.2020 on retention deductions

Release of retention money - retention as security for defects liability - Defects Liability Period - effect of Ministry of Road Transport & Highways notification dated 03.06.2020 on retention deductions - escrow arrangement for retention funds - Entitlement of the applicant to release of retention money withheld by the corporate debtor under the subcontract agreement. - HELD THAT: - The subcontract (as amended) provided for retention of 6% of monthly bills, with half to be repaid on completion and the remainder after expiry of the Defects Liability Period of 36 months from issuance of the Completion Certificate (completion certificate dated 30.06.2019, making the DLP run until 30.06.2022). The applicant accepted that the defect liability period had not expired. The liquidator proposed an escrow arrangement for the balance retention but the applicant did not accept it. The Tribunal noted a notification dated 03.06.2020 issued by the Ministry of Road Transport & Highways addressing retention deductions and, having considered the parties' submissions and the notification, allowed the application and directed release of the retention money. The Tribunal treated the notification as decisive for permitting refund of the retention amount despite the contractual DLP not having run its full course and ordered immediate release by the corporate debtor.

Application allowed; respondent directed to release the retention money of Rs. 2,62,74,514/- forthwith.

Final Conclusion: The Tribunal allowed the application under Section 60(5) IBC and directed the corporate debtor/liquidator to release the withheld retention money forthwith, relying on the Ministry notification dated 03.06.2020 despite the admitted Defects Liability Period not having expired.

Cenvat credit on ISD invoices - input service - maintenance and repair services - place of removal - Rule 6 of CENVAT Credit Rules - clearance of waste and scrap (non-manufactured goods) - exempted goods and non-excisable goods

Cenvat credit on ISD invoices - input service - maintenance and repair services - Whether cenvat credit availed on ISD invoices in respect of management and repair services was rightly disallowed. - HELD THAT: - The Tribunal found the disallowance by the adjudicating authority to be vague and without proper justification. Where repair and maintenance services are received through ISD invoices and used in relation to manufacture, the cenvat credit is allowable. The Tribunal noted that maintenance charges billed by the lessor (AKVN) for services such as road, drainage and street lighting, charged on the basis of premises occupied, fall within the ambit of input services and lease-related charges that indirectly support the business; reliance on prior Tribunal rulings was noted. The Court below erred in allowing part of the services and disallowing part without clear reasons and in treating the services as required to be used exclusively by a particular unit when the definition of input service permits credit for services used directly or indirectly in relation to manufacture. For other ISD invoices where the nature and location of services were not clarified, no specific denial on admissibility was sustained by adequate reasoning; therefore the overall disallowance was held unsustainable. [Paras 7]

Disallowance of cenvat credit on ISD invoices for repair and maintenance services set aside; amount disallowed held payable as credit to the appellant.

Rule 6 of CENVAT Credit Rules - clearance of waste and scrap (non-manufactured goods) - exempted goods and non-excisable goods - Whether demand under Rule 9(6) read with Rule 6 of CCR on clearance of waste and scrap (old empty bags, drums, etc.) was rightly upheld. - HELD THAT: - The Tribunal examined the amended Rule 6 and its Explanation provisions and concluded that Rule 6 is attracted where a manufacturer clears both manufactured dutiable and exempted goods or where the goods in question are manufactured exempted goods or arise in the course of manufacture. The scrap/waste cleared by the appellant consisted of non-manufactured items (empty/gunny bags, old drums) that did not arise as manufactured scrap or as bye-products in the course of manufacture. Reliance on circulars and prior reasoning that empty bags/boxes removals are not exigible was noted. Accordingly, the statutory scheme underlying Rule 6 did not apply to the appellant's clearances of such non-manufactured waste and scrap, and the demand under the Rule was not sustainable. [Paras 10, 11]

Demand under Rule 9(6)/Rule 6 in respect of clearance of the specified waste and scrap set aside; Rule 6 not attracted to non-manufactured scrap in these facts.

Final Conclusion: The appeal is allowed; the impugned order is set aside insofar as it confirmed disallowance of cenvat credit on ISD invoices for repair and maintenance services and the demand under Rule 6/Rule 9(6) on clearance of the specified waste and scrap, with consequential relief to the appellant.

Disallowance of Cenvat credit - penalty under Rule 15(2) of Cenvat Credit Rules - reliance on statements without cross-examination - recorded receipt in statutory books as evidentiary proof - requirement of actual receipt/delivery of inputs for credit - follow-the-precedent principle of a coordinate Bench

Disallowance of Cenvat credit - recorded receipt in statutory books as evidentiary proof - requirement of actual receipt/delivery of inputs for credit - Validity of denial of Cenvat credit to the appellant on the basis of the department's investigation and statements implicating the supplier. - HELD THAT: - The Tribunal examined whether the Revenue had established that the appellant did not actually receive the inputs allegedly supplied by M/s Unnati Alloys. The Tribunal observed that the same set of investigative material and witnesses (statements of Shri Amit Gupta and certain transporters) had been considered in earlier, similarly situated appeals where those orders were set aside because the departmental case rested on untested statements and there was no independent evidence contradicting the books and inventory records of the purchasers. The appellant consistently maintained statutory records (RG-23 and other registers), showed consumption of inputs in manufacture, and cleared final products on payment of duty. The Revenue failed to produce evidence of any other source of inputs or to show seizure of cash allegedly received back, and did not place any additional corroborative material before the Tribunal. In these circumstances, and following the coordinate Bench's precedent, the Tribunal found no justifiable reason to deny the Cenvat credit. [Paras 5, 9, 10]

Denial of Cenvat credit was set aside and credit was allowed.

Penalty under Rule 15(2) of Cenvat Credit Rules - reliance on statements without cross-examination - follow-the-precedent principle of a coordinate Bench - Sustainability of the penalty imposed under the Rules on the appellant and its director. - HELD THAT: - The Tribunal considered whether imposition of penalty was warranted in view of the material on record. It noted that the impugned penalty arose from the same investigative material that had been found inadequate in earlier similar matters because the departmental case depended on statements for which no opportunity of cross-examination was shown and there was absence of independent corroboration. Given the insufficiency of evidence and the appellant's maintained records and cleared production, the Tribunal found the penalty unsustainable. The Tribunal followed the reasoning and orders in earlier coordinate-Bench decisions and applied that precedent to the present appellant. [Paras 6, 9, 10]

Penalty imposed under the Rules was set aside.

Final Conclusion: Following coordinate-Bench precedents and on the facts that statutory records showed receipt and consumption of inputs, the Tribunal allowed the appeals, set aside the impugned order denying Cenvat credit and quashed the penalty, granting consequential relief to the appellant company and its director.

Compounding of offence under the Negotiable Instruments Act for dishonour of cheque - Inherent powers of High Court under Section 482 of the Code of Criminal Procedure - Application of Damodar S. Prabhu guidelines on compounding and payment to Legal Services Authority - Quashing of conviction consequential to amicable settlement between complainant and accused

Compounding of offence under the Negotiable Instruments Act for dishonour of cheque - Application of Damodar S. Prabhu guidelines on compounding and payment to Legal Services Authority - Inherent powers of High Court under Section 482 of the Code of Criminal Procedure - Quashing of conviction consequential to amicable settlement between complainant and accused - Whether the conviction under Section 138 of the Negotiable Instruments Act can be quashed in view of an amicable settlement and in accordance with the guidelines in Damodar S. Prabhu, and on what conditions. - HELD THAT: - The Court observed that the parties have amicably settled the dispute and the complainant filed an affidavit expressing no objection to quashing the conviction. Relying on the Supreme Court's guidelines in Damodar S. Prabhu and this Court's prior decision in Khokhar Iliyas Bismilla Khan, the High Court held that compounding and quashing may be permitted notwithstanding a prior conviction where the parties have settled, since the offence under Section 138 NI Act is principally a private transaction and Section 147 makes offences under the Act compoundable. The Court noted that ordinarily statutory remedies and appellate routes would not be circumvented, but given the peculiar facts and the parties' invocation of the High Court's jurisdiction, the inherent powers under Section 482 CrPC can be exercised to impart justice and bring finality. Applying the Damodar S. Prabhu scale for stages of compounding, the Court directed compliance with the condition applicable to compounding in revision or appeal before the High Court, namely deposit of a percentage with the Legal Services Authority. The applicant was therefore permitted to deposit the prescribed percentage with the Gujarat State Legal Services Authority within the time directed, and on production of the receipt the order quashing the conviction would operate. [Paras 6, 7, 8, 9]

Impugned judgment and conviction dated 27.12.2021 are quashed and set aside pursuant to the amicable settlement; applicant to deposit 15% of the cheque amount with the Gujarat State Legal Services Authority within four weeks and production of receipt will give effect to the order.

Final Conclusion: The High Court allowed the Section 482 CrPC petition, quashed the conviction under Section 138 NI Act in view of the parties' settlement, and directed the applicant to deposit 15% of the cheque amount with the Gujarat State Legal Services Authority within four weeks; on production of the deposit receipt the order will operate.

Presumption under Section 139 of the Negotiable Instruments Act - Rebuttal standard - preponderance of probabilities - Legally enforceable debt - Partnership transaction versus personal loan - Appellate interference with concurrent probable view

Presumption under Section 139 of the Negotiable Instruments Act - Rebuttal standard - preponderance of probabilities - Legally enforceable debt - Whether the statutory presumption in favour of the cheque-holder under Section 139 could be drawn and whether the respondent successfully rebutted that presumption by showing a probable defence that there was no legally enforceable debt. - HELD THAT: - The court applied the principle from Rangappa that once the factual basis for Section 139 is established the presumption arises but may be rebutted on the preponderance of probabilities. The complainant proved the cheque and its dishonour but failed to establish essential particulars of the alleged loan - when the payment was made, its terms and repayment timeline - and omitted disclosure of the partners' agreement. The respondent produced contemporaneous partnership agreement evidence and oral testimony showing that the Rs. 14 lakh related to a partnership settlement, that partial amounts and goods had been paid/adjusted, and that cheques were issued in the context of the partnership arrangement (one cheque returned and the other retained by the complainant). The trial court's finding that these materials raised a probable defence was a permissible conclusion. On this basis the court held that the presumption under Section 139 was rebutted to the extent required to defeat the prosecution, and therefore the complainant failed to prove a legally enforceable debt in the criminal prosecution under Section 138. [Paras 21, 22]

The presumption under Section 139 was rebutted on the preponderance of probabilities; the complainant failed to prove a legally enforceable debt.

Partnership transaction versus personal loan - Appellate interference with concurrent probable view - Whether the appellate court should disturb the trial court's acquittal where the trial court adopted a probable view that the cheque related to a partnership settlement and not a personal loan. - HELD THAT: - The High Court examined the trial court's reasoning and the materials on record, noting that the trial court took a view supported by evidence (partnership agreement, admissions, and witnesses' testimonies) that the payment arose from partnership liabilities rather than a personal loan. The appellate court held that the trial court's conclusion was a probable view and, where two probable views exist, the view favourable to the accused is to be accepted. There was no perversity or misappreciation warranting interference; the respondent had adduced evidence which the trial court could reasonably accept. [Paras 23, 24]

The appellate court declined to disturb the trial court's acquittal as it represented a permissible probable view supported by the record.

Final Conclusion: The appeal is dismissed; the trial court's acquittal is upheld because the statutory presumption was rebutted on a balance of probabilities and the trial court's concurrent view was a permissible one not to be interfered with on appeal.

Payment of fine to complainant as satisfaction of sentence - entry in fine register/Form No.20 recording realisation and payment of fine - compliance with court direction to remit fine through trial court - payment as compensation under S.357(1)(b) of the Code of Criminal Procedure

Payment of fine to complainant as satisfaction of sentence - entry in fine register/Form No.20 recording realisation and payment of fine - Whether direct payment by the accused to the complainant, acknowledged by the complainant, constitutes sufficient compliance with the appellate direction to remit fine in the trial court and warrants entry in the fine register as if the fine were realised and paid to the complainant. - HELD THAT: - The Court noted that the appellate order (Annexure-A4) modified the sentence to payment of fine to be treated as compensation to the complainant and that the petitioner had, in fact, paid the entire amount directly to the complainant who issued a receipt and filed an affidavit before this Court acknowledging receipt. Having considered earlier decisions in Beena v. Balakrishnan and Sivankutty v. John Thomas, the Court observed that where the accused has paid the amount to the complainant and the complainant files a statement/affidavit of satisfaction, the proper course is for the trial court to accept that as sufficient compliance and make the necessary entry in the fine register (Form No.20) recording realisation and payment to the complainant. Given the admitted payment and the complainant's affidavit, the Court found substantial compliance with the appellate direction and that the trial court ought to record the payment in the fine register accordingly. [Paras 7]

Annexure-A1 order set aside and the trial court directed to make necessary entries in the fine register recording realisation and payment to the complainant as compliance with the appellate order.

Final Conclusion: The order dismissing the petition to close the case is set aside; the trial court is directed to record in the fine register that the fine has been realised and paid to the complainant (as acknowledged), and the matter is disposed of accordingly.