TaxTMI Updates e-Newsletter
Jan 21,2023

Quashing of show cause notice - exercise of writ jurisdiction under Article 226 - proceedings under Section 130 - prematurity of judicial interference with adjudicatory process - remand for fresh consideration by appropriate authority

Quashing of show cause notice - exercise of writ jurisdiction under Article 226 - proceedings under Section 130 - prematurity of judicial interference with adjudicatory process - The High Court erred in entertaining the writ petition and quashing the show cause notice issued under Section 130. - HELD THAT: - The show cause notice called upon the original writ petitioner to appear and answer allegations, including an allegation of evasion of duty, and required the appropriate authority to consider those contentions. The High Court, in exercising jurisdiction under Article 226, recorded conclusions on whether there was contravention or intent to evade tax and held that proceedings under Section 130 could not be sustained. The Supreme Court held that it was premature for the High Court to adjudicate the merits of the allegations which were required to be examined by the authority that issued the notice and thereby materially erred in quashing the notice. The Court set aside the High Court's order to the extent it quashed the notice, without expressing any opinion on the merits of the underlying allegations. [Paras 5, 6]

Impugned judgment insofar as it quashed the notice dated 14.09.2021 issued under Section 130 is set aside.

Remand for fresh consideration - proceedings under Section 130 - opportunity to reply - The matter is remanded to the appropriate authority for fresh consideration and adjudication in accordance with law after affording the respondent an opportunity to reply. - HELD THAT: - The Supreme Court remanded the show cause notice back to the authority which issued it, directing that the original writ petitioner (respondent herein) may file a reply within four weeks and that the authority shall thereafter pass an appropriate order on its merits and in accordance with law. The Court expressly left open all contentions and defences available to the respondent for consideration by the authority and did not express any view on the substantive merits. [Paras 6, 7]

Show cause notice remitted to the issuing authority for fresh adjudication after the respondent files a reply within four weeks; all contentions left open.

Final Conclusion: The appeal is partly allowed: the High Court's order quashing the Section 130 show cause notice is set aside and the matter is remanded to the appropriate authority to decide the notice afresh after giving the respondent an opportunity to file a reply; goods already released are not disturbed; no order as to costs.

Mandatory hearing before rejection of refund under Rule 92(3) of the CGST Rules - proviso that no refund application shall be rejected without giving the applicant an opportunity of being heard - principle that breach of natural justice at the adjudicating stage cannot be cured by hearing at the appellate stage

Mandatory hearing before rejection of refund under Rule 92(3) of the CGST Rules - proviso that no refund application shall be rejected without giving the applicant an opportunity of being heard - principle of natural justice - Orders rejecting the petitioner's refund claims were passed without complying with the hearing requirement of Rule 92(3) and thus are invalid. - HELD THAT: - Rule 92(3) requires that where the proper officer is satisfied that any part of a refund claim is not admissible, a notice in FORM GST RFD-08 must be issued, a reply sought in FORM GST RFD-09 and only after considering the reply an order in FORM GST RFD-06 may be passed; the proviso makes hearing mandatory before rejection. The adjudicating authority failed to comply with these statutory requirements and rejected the refund claims without giving the petitioner the opportunity of being heard. The appellate authority itself recorded that natural justice was not followed at the adjudicating stage. The Court held that the statutory hearing requirement is mandatory and its non-observance vitiates the impugned orders.

Impugned orders rejecting the CGST and IGST refund claims are quashed and set aside for failure to comply with Rule 92(3) and the proviso thereto.

Principle that breach of natural justice at the adjudicating stage cannot be cured by hearing at the appellate stage - remand for fresh consideration in conformity with statutory procedure - Whether the appellate authority's subsequent hearing could cure the adjudicating authority's breach and sustain the rejection; and procedural consequence. - HELD THAT: - The Court applied the established principle that a breach of natural justice at the initial adjudicatory stage is not generally cured merely because the appellate authority affords an opportunity later; allowing otherwise would encourage summary disposal at first instance. Reliance was placed on precedent to that effect. Consequently, the appellate authority could not sustain the rejection merely because it heard the matter on appeal. The appropriate course is to remit the matter to the adjudicating authority to follow the mandatory procedure under Rule 92(3) and then pass a fresh order in accordance with law.

Matter remanded to the adjudicating authority to issue notice, afford the statutory opportunity of hearing and pass fresh orders under Rule 92(3); appellate order upholding the original rejection is set aside.

Final Conclusion: Writ petition allowed; orders dated 29.10.2018 and 15.01.2020 are quashed to the extent they reject the CGST and IGST refund claims; the matter is remitted to the adjudicating authority to consider the refund applications afresh after issuing notice and affording hearing in accordance with Rule 92(3) of the CGST Rules.

Freezing of bank accounts - escrow account - current account - speaking order - liberty to apply afresh - reservation of rights - funds belonging to genuine merchants cannot be interdicted

Freezing of bank accounts - escrow account - current account - speaking order - Challenge to the orders freezing/attaching the petitioner's escrow and current bank accounts - HELD THAT: - The Court recorded the petitioner's case that the escrow account receives monies collected on behalf of merchants and that only a small service charge is retained; funds remaining in escrow belong to merchants. The respondents conceded that disbursement of monies belonging to genuine merchants cannot be interdicted. The Court directed that the authority shall consider the petitioner's objections and pass a speaking order within two weeks. The petition was disposed of with liberty to the petitioner to take further steps if aggrieved by the order to be passed; all rights and contentions were reserved. The Court did not adjudicate the merits of the challenge to the freezing orders but required fresh consideration by the authority in a reasoned order. [Paras 7, 8, 9]

Authority to pass a speaking order on the petitioner's objections within two weeks; petition disposed of with liberty to apply afresh and rights reserved.

Interim relief - operational access for essential expenditure - urgency / irreparable harm - Prayer for interim direction permitting operation of accounts for essential business expenditure and statutory liabilities - HELD THAT: - The petitioner emphasised grave urgency and the impossibility of carrying on business if accounts remain frozen. The Court noted the urgency but did not grant the interim relief sought. Instead, by directing the authority to pass a speaking order promptly and by disposing of the petition with liberty to the petitioner to seek appropriate relief after that order, the Court left interim aspects to be addressed by the authority in its consideration; no interim operating permission was granted by the Court in this order. [Paras 6, 9]

No interim permission was granted; urgency noted, but petitioner directed to seek relief pursuant to the speaking order to be passed by the authority.

Final Conclusion: The petition was disposed of with a direction to the concerned authority to decide the petitioner's objections by a reasoned speaking order within two weeks; no interim relief was granted by this Court, the petitioner retains liberty to act if aggrieved by the order to be passed, and all rights and contentions are reserved.

Speaking order doctrine - reasons are the heart and soul of an order - principles of natural justice - show cause notice - cancellation and restoration of GST registration - opportunity to be heard

Speaking order doctrine - reasons are the heart and soul of an order - show cause notice - cancellation and restoration of GST registration - opportunity to be heard - Validity of the order dated 28.09.2018 cancelling the petitioner's GST registration which consists of a one line conclusion without reasons. - HELD THAT: - The Court applied the settled principle that judicial and quasi judicial orders must record reasons, observing that absence of reasons constitutes denial of a reasonable opportunity and renders the order indefensible. The one line cancellation stating only the effective date lacked any reasoning or jurisdictional facts and therefore did not satisfy the requirement that a show cause notice and the consequent order disclose the basis on which jurisdiction and conclusion were reached. The Court relied on established authorities recognizing that reasons are integral to natural justice, that reasons restrain arbitrary exercise of power, and that show cause notices should reflect jurisdictional facts so that the person proceeded against can effectively meet the case. In view of this, the cancellation order was quashed, the registration was restored, and the matter was directed to be proceeded afresh: the authority is permitted to issue a fresh show cause notice within four weeks and to afford the petitioner an opportunity to file returns and to be heard in accordance with law. [Paras 4, 6, 7]

Order dated 28.09.2018 cancelling the petitioner's registration quashed and set aside; registration restored; respondent directed to permit filing of returns and to issue fresh show cause notice within four weeks and afford opportunity in accordance with law.

Final Conclusion: Writ petition allowed; cancellation order quashed, registration restored, and matter remitted for fresh proceedings with direction to issue fresh show cause notice within four weeks and to afford the petitioner an opportunity in accordance with law.

Permission to rectify GSTR-3B returns - bona fide and inadvertent filing errors during nascent GST regime - use of ICE-GATE/auxiliary records to corroborate ITC claims - no cascading effect from intra-head adjustment of already claimed ITC - limitation on application of precedent where facts differ - stay on precipitative action pending compliance

Permission to rectify GSTR-3B returns - bona fide and inadvertent filing errors during nascent GST regime - stay on precipitative action pending compliance - Petitioner entitled to make limited corrections to GSTR-3B returns for the specified tax periods and respondents restrained from taking precipitative steps until corrections are effected. - HELD THAT: - The Court found that the petitioner inadvertently entered import IGST figures in incorrect columns in GSTR-3B for the initial months after GST implementation. The mistakes were bona fide and occurred during the nascent stage of the new returns regime. Allowing limited rectification would not prejudice the Revenue nor upset the chain of credit under GST, as the relief sought only shifts already-claimed ITC between heads and does not create or inflate ITC. Consequently, the petition was partly allowed and respondents were directed to permit corrections online by reopening the portal for a limited period, or alternatively to permit manual/physical corrections if online correction is not feasible. Until compliance with these directions, respondents were restrained from taking precipitative action under the impugned show cause notice. [Paras 12, 13]

Petitioner permitted to correct GSTR-3B for July-2017 to March-2018; portal to be reopened or manual corrections allowed; respondents restrained from precipitative steps pending such corrections.

Use of ICE-GATE/auxiliary records to corroborate ITC claims - no cascading effect from intra-head adjustment of already claimed ITC - limitation on application of precedent where facts differ - Apex Court precedent cited by respondents (Bharti Airtel) is not applicable on the facts; ICE-GATE records and absence of cascading impact justify a different outcome. - HELD THAT: - The Court distinguished the decision relied upon by the respondents on the basis that in Bharti Airtel the revision would have resulted merely in postponement of ITC leading to potential cascading effects, whereas in the present case the petitioner seeks to reclassify ITC already available to it without creating additional credit or cascading consequences. The record shows that Revenue itself referred to ICE-GATE import figures for other months and, by selectively ignoring those entries for the disputed months, has failed to take a holistic view. Given the difference in factual matrix and the demonstrable availability of corroborative records, the Apex Court ruling relied upon could not be applied to deny the petitioner the limited rectification relief. [Paras 9, 10, 11]

Bharti Airtel precedent distinguished; ICE-GATE and the bona fide nature of errors support permitting correction.

Final Conclusion: Petition partly allowed: petitioner granted limited liberty to correct GSTR-3B for July-2017 to March-2018 (online or manually); respondents to permit such corrections and refrain from precipitative action under the show cause notice until compliance; order confined to the peculiar facts of the first year of GST and not to be treated as a precedent.

Appeal under Section 107 of the CGST Act, 2017 - Revocation of cancellation of GST registration under Section 30 of the CGST Act, 2017 - Maintainability of appeal where remedy of revocation exists - Reconsideration of revocation request subject to payment of outstanding taxes

Appeal under Section 107 of the CGST Act, 2017 - Maintainability of appeal where remedy of revocation exists - Validity of impugned order dismissing the appeal as not maintainable on the ground that remedy of revocation under Section 30 is available. - HELD THAT: - The Court examined whether an order cancelling GST registration can be summarily held non appealable because Section 30 provides a remedy of revocation. It held that availability of a statutory remedy of revocation under Section 30 does not oust the appellate remedy under Section 107. The impugned order which dismissed the appeal as not maintainable on the sole ground that revocation was available was contrary to the statutory scheme and therefore unsustainable. Consequently the impugned order dated 29.03.2022 was set aside. [Paras 6]

Impugned order dismissing the appeal as not maintainable was set aside; appeal remedy under Section 107 remains available notwithstanding remedy under Section 30.

Revocation of cancellation of GST registration under Section 30 of the CGST Act, 2017 - Reconsideration of revocation request subject to payment of outstanding taxes - Whether the petitioner's request for revocation of the cancellation should be reconsidered and the parameters of such reconsideration. - HELD THAT: - The Court accepted the petitioner's explanation that bonafide reasons (including the Covid 19 pandemic) prevented timely pursuit of revocation within the 30 day period and treated that explanation as a valid basis to reconsider the revocation claim. The Court directed respondent No.2 to reconsider the petitioner's request for revocation in accordance with law, permitting reconsideration subject to payment of any outstanding taxes and within a specified short period for disposal. [Paras 7, 8]

Respondent No.2 directed to reconsider the petitioner's request for revocation of cancellation in accordance with law and subject to payment of outstanding due taxes; reconsideration to be completed within two weeks from receipt of the order.

Final Conclusion: Writ petition allowed; impugned cancellation order dated 29.03.2022 set aside and respondent No.2 directed to reconsider the petitioner's claim for revocation of GST registration in accordance with law, subject to payment of outstanding taxes, and to pass a decision within two weeks.

Supply of services - reverse charge mechanism - public administrative services - classification under SAC 999113 - exemption under government-provided services to Panchayats

Supply of services - reverse charge mechanism - Statutory permit fee collected by the Forest Department under the Forest Produce Transit Rules is a taxable supply of services and GST is payable on reverse charge basis by the applicant where the supplier is not registered. - HELD THAT: - The permit charges are consideration for issuance of permits that are essential to enable the applicant to transport mined coal; the Forest Department collects the charges and issues the permits. Services by government to business entities by way of grant of privileges, licences or regulation against consideration are taxable under GST and, where the supplier (Forest Department) is not registered, tax liability falls on the recipient under the reverse charge mechanism. The Appellate Authority accepted the classification of the activity as a service provided by public authorities and upheld that tax is payable on reverse charge basis as per the applicable notification. [Paras 8, 9]

The permit fee is a supply of services and GST is payable on reverse charge basis.

Public administrative services - classification under SAC 999113 - exemption under government-provided services to Panchayats - The service of issuing forest transit permits is not classifiable under heading 9973 for a lower rate and is instead classifiable as public administrative services (SAC 999113) under Entry 29 to Notification No. 11/2017, and the claimed exemption under Notification No.12/2017 (services entrusted to Panchayats/social or farm forestry) is not applicable. - HELD THAT: - The Appellate Authority examined the purpose of permit charges, noting they fund regulatory activities such as surveillance, surveys and monitoring of mining and movement of produce, which align with public administrative functions. The annexure and explanatory notes to the classification indicate inclusion of regulatory and forest operations related administrative services within SAC 999113. The applicant's contention that the service falls within social or farm forestry (and thus exempt under Notification No.12/2017) was rejected because the permit charges relate to regulatory oversight of mining activity rather than social or farm forestry functions. Accordingly, the supply is taxable under the public administration entry and not eligible for the lower classification or exemption argued by the applicant. [Paras 8, 9]

The supply is public administrative services (SAC 999113) falling under Entry 29 and is not exempt as social or farm forestry; it is not classifiable under heading 9973 for a lower rate.

Final Conclusion: The Appellate Authority modified the lower authority's order to hold that the forest permit fee is a taxable supply of services, payable under reverse charge by the applicant where applicable, and that the service is classifiable as public administrative services (SAC 999113) rather than under heading 9973 or as an exempt social/farm forestry service; the appeal is disposed accordingly.

Special leave petition - interference with impugned order - dismissal of petition - disposal of pending applications

Special leave petition - interference with impugned order - dismissal of petition - The Court declined to interfere with the impugned order and dismissed the special leave petition. - HELD THAT: - Counsel for the petitioner was heard. The Court found no reason at this stage to interfere with the impugned order and accordingly dismissed the special leave petition. No reasons for interference were recorded or elaborated upon in the order; the decision is a summary refusal to grant relief by way of special leave.

Special leave petition dismissed; impugned order left undisturbed.

Disposal of pending applications - Pending applications connected with the petition were disposed of. - HELD THAT: - The Court ordered that any pending applications in the petition stand disposed of consequent to the dismissal of the special leave petition.

Pending application(s), if any, are disposed of.

Final Conclusion: The special leave petition was dismissed; the impugned order is not interfered with and any pending applications in the petition are disposed of.

Estimation of addition in respect of bogus purchases - disallowance of purchases as accommodation entries - profit margin/gross profit rate in the industry as basis for estimation - concurrent findings of fact and scope of interference - right to disclosure of investigation report and opportunity for cross-examination - precedential weight of earlier departmental and judicial decisions in assessment estimation

Estimation of addition in respect of bogus purchases - profit margin/gross profit rate in the industry as basis for estimation - disallowance of purchases as accommodation entries - precedential weight of earlier departmental and judicial decisions in assessment estimation - Whether the Tribunal was justified in restricting the addition on alleged bogus purchases to 6% of the disputed purchases instead of disallowing 100% as made by the Assessing Officer. - HELD THAT: - The Court upheld the concurrent factual findings of the CIT(A) and the Tribunal that, although the Assessing Officer treated the purchases as bogus on the basis of information from the Investigation Wing, the assessee had produced documentary evidence (purchase invoices, bank payments, day-to-day stock registers, sales records and confirmations) which the Assessing Officer did not traverse or reject; the statements and investigation report were not provided for cross-examination. The Tribunal applied an industry profit-margin approach, observing that gross profit in the trade is ordinarily 5%-7% and restricting the addition to 6% to prevent revenue leakage while recognising the material placed on record by the assessee. The Court noted consistent practice in related group cases (disallowances in the range of 3%-5%) and precedent (Mayank Diamonds) recognizing an industry gross profit benchmark; it found no reason to interfere with the Tribunal's pragmatic estimation and the reduction from the CIT(A)'s 12.5% to 6%, as these were concurrent findings supported by reasons. [Paras 9, 10, 11, 12, 13]

Tribunal's restriction of addition to 6% of the disputed purchases sustained; no interference warranted.

Right to disclosure of investigation report and opportunity for cross-examination - concurrent findings of fact and scope of interference - Whether failure to provide the Investigation Wing's report and to allow cross-examination required restoration to the Assessing Officer or other relief. - HELD THAT: - The Court acknowledged that the assessee had requested copy of statements and the investigation report and was not afforded an opportunity for cross-examination; it observed that non-disclosure could have justified restoration. However, the Court also recorded that the assessee had placed detailed documentary evidence before the authorities, which the Assessing Officer did not examine or expressly reject, and that both the CIT(A) and the Tribunal considered these circumstances in reducing the addition. On this basis the Court held that the concurrent appellate findings addressing the evidential position and limiting the addition were supported by reasons, and that no interference was necessary. [Paras 9, 11]

Non-provision of the investigation material and absence of cross-examination were noted but did not impel interference with the Tribunal's reasoned concurrent findings.

Final Conclusion: The Tax Appeal is dismissed. The High Court declined to disturb the concurrent findings of the CIT(A) and the Tribunal that restricted the addition on alleged bogus purchases to 6%, finding no substantial question of law requiring interference despite issues of non-disclosure of investigation material.

Service of notice by e-mail - Opportunity to be heard under Section 148A of the Income Tax Act, 1961 - Setting aside order under clause (d) of Section 148A and notice under Section 148 - Remand for fresh consideration

Service of notice by e-mail - Opportunity to be heard under Section 148A of the Income Tax Act, 1961 - Setting aside order under clause (d) of Section 148A and notice under Section 148 - Whether impugned order under clause (d) of Section 148A and the consequent notice under Section 148 should be set aside and the petitioner granted an opportunity to reply where notices were sent by e-mail and the petitioner, being unable to access e-mail, was not heard. - HELD THAT: - The Court recorded that proceedings were initiated for the assessment year 2015-2016 and notices were sent by e-mail to the petitioner (the deceased assessee's wife). The petitioner asserted she was not computer literate and could not access or open the e-mail notices and therefore was not in a position to reply to the show cause notice issued under clause (b) of Section 148A. The respondents did not dispute that the departmental e-mail could have gone into spam and accepted that the petitioner had not been heard. In these circumstances and in the interest of justice, and without creating a precedent, the Court found that the impugned order under clause (d) of Section 148A dated 05.04.2022 and the notice under Section 148 dated 05.04.2022 should be set aside. The petitioner was granted a limited opportunity of 15 days to file a reply to the Section 148A(b) show cause notice dated 24.03.2022, and the authorities were directed to consider the reply in accordance with law and thereafter pass appropriate orders.

Impugned order under clause (d) of Section 148A and the notice under Section 148 set aside; petitioner granted 15 days to reply to the Section 148A(b) notice and authorities directed to consider the reply and pass appropriate orders.

Final Conclusion: Writ petition allowed to the extent that the order under clause (d) of Section 148A dated 05.04.2022 and the notice under Section 148 dated 05.04.2022 are set aside; petitioner granted 15 days to file a reply to the Section 148A(b) show cause notice and the assessing authorities directed to consider the reply and pass appropriate orders.

Reopening of assessment - failure to supply reasons recorded for reopening - right to file objections to reopening - tangible material to form belief of escapement of income - GKN principle on supply of reasons and disposal of objections

Failure to supply reasons recorded for reopening - right to file objections to reopening - GKN principle on supply of reasons and disposal of objections - Whether non-supply of the reasons recorded for issuance of notice under section 148 vitiated the reopening of assessment - HELD THAT: - The Tribunal found that the Assessing Officer did not supply the reasons recorded for reopening despite requests, thereby depriving the assessee of the statutory and procedural right to receive those reasons and to file objections. The Tribunal applied the principle in GKN Driveshafts that on issuance of a notice under section 148 the noticee may seek the reasons, the AO is bound to furnish them within a reasonable time, and the noticee is entitled to file objections which the AO must dispose of by a speaking order. Undisputed non-supply of reasons in the present case prevented the assessee from making effective objections and vitiated the reassessment process. Consequently, the reopening was held to be improper on this ground. [Paras 7]

Non-supply of reasons recorded for reopening vitiated the reopening; the reassessment was set aside.

Reopening of assessment - tangible material to form belief of escapement of income - Whether the reopening of assessment was justified on the material available regarding purchase of immovable property - HELD THAT: - The Tribunal noted that the AO reopened the assessment based on information about purchase of a DDA flat and sought verification of the source of acquisition. The assessee had disclosed computation of capital gains and stated that the investment was made from sale proceeds of two properties. Having regard to the totality of facts and, in particular, to the procedural failure to supply reasons, the Tribunal concluded that the reopening was not justified in the circumstances of the case. The procedural lapse was determinative and, combined with the disclosed particulars, led the Tribunal to set aside the reassessment. [Paras 6, 7]

Reopening of assessment was not justified on the facts and was set aside.

Final Conclusion: The appeal is allowed; the reassessment initiated by notice under section 148 for AY 2011-12 is set aside because the Assessing Officer failed to supply the reasons recorded for reopening, thereby depriving the assessee of the opportunity to file objections as required by the established GKN principle.

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - benami ownership / benami transaction - fact of same income being offered to tax by a different entity as a relevant factor in penalty proceedings - survey under section 133A and consequent verification - assessment completed in the hands of a third party

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - fact of same income being offered to tax by a different entity as a relevant factor in penalty proceedings - benami ownership / benami transaction - assessment completed in the hands of a third party - Whether penalty under section 271(1)(c) can be sustained against the assessee for alleged concealment of income claimed to belong to M/s Chandan Carrier when that same income had been offered to tax and assessed in the hands of another person. - HELD THAT: - The Tribunal observed that the income sought to be taxed in the assessee's hands had already been offered to tax and assessed in the hands of Shri Nilesh Shah, proprietor of M/s Chandan Carrier. While the Assessing Officer and lower authority treated the firm as effectively held by the assessee and imposed penalty on that basis, the Court noted the legal principle, as articulated by the Gujarat High Court in Patel Chemical Works, that in penalty proceedings the fact of the very same income having been offered to tax and substantially taxed in the hands of a different entity is a relevant factor in deciding whether concealment or furnishing of inaccurate particulars has occurred. Applying that principle to the facts, and having regard to the completed assessment in the name of Shri Nilesh Shah and the materials produced by the assessee, the Tribunal concluded that imposition of penalty in the assessee's case was not justified. Consequently, the penalty was deleted. The reasoning was applied consistently for both assessment years, as the facts and issues were common. [Paras 6, 7, 9]

Penalty under section 271(1)(c) deleted; appeals allowed.

Final Conclusion: The Tribunal allowed the appeals for AY 2006-07 and AY 2007-08 and directed deletion of the penalty under section 271(1)(c) in view of the fact that the impugned income had already been offered to tax and assessed in the hands of another person, making penalty not sustainable on the facts.

Deductibility under 43B - Rectification under section 154 - Tax Audit Report - Remand for verification - Appeal allowed for statistical purposes

Deductibility under 43B - Tax Audit Report - Remand for verification - Limited remand to the Assessing Officer to verify whether the expenses reported in clause 26(i)(A) and 26(i)(B) of the Tax Audit Report qualify for deduction under section 43B and whether such expenses were disallowed in earlier years. - HELD THAT: - The Tribunal recorded that the Assessing Officer had invoked rectification jurisdiction under section 154 and made a disallowance based on figures in clause 26(i)(B)(b) of the Tax Audit Report without considering the related figures in clause 26(i)(A) and the expenditure actually charged to the Profit & Loss Account. The departmental representative conceded that the AO had proceeded on incomplete reference to TAR figures, and the FAA had taken a holistic view of the TAR. In light of these facts and the limited factual dispute about qualification of the claimed expenditure under section 43B and any earlier-year disallowance, the Tribunal directed a remand to the jurisdictional AO for limited verification of those aspects rather than deciding the deductibility on merits at the appellate stage. [Paras 6, 7, 8]

Matter remanded to the file of the Assessing Officer for limited verification whether the expenses reported in clause 26(i)(A) and 26(i)(B) of the Tax Audit Report qualify for deduction under section 43B and whether they were disallowed in earlier years.

Final Conclusion: The revenue appeal is allowed for statistical purposes and the matter is remitted to the Assessing Officer for limited verification of the qualifying nature of the claimed expenses under section 43B and whether they were disallowed in earlier years; no final adjudication on the merits of the deductibility was made by the Tribunal.

Reassessment jurisdiction under section 148 of the Income-tax Act - reasons to believe - rational connection between material and formation of belief - reopening assessment - information received through AIR and cash deposits - application of mind requirement - reason to suspect versus reason to believe - all receipts are not income - quashing reopening where proceedings founded on surmise and suspicion

Reassessment jurisdiction under section 148 of the Income-tax Act - reasons to believe - information received through AIR and cash deposits - application of mind requirement - reason to suspect versus reason to believe - rational connection between material and formation of belief - Validity of the reopening of assessment under section 148 based on reasons recorded relying on AIR cash-deposit information and alleged non-filing of return. - HELD THAT: - The Tribunal found that the reassessment notice was invalidly issued because the AO's recorded basis for reopening was factually incorrect and lacked required enquiry and application of mind. The AO's own order acknowledged that the assessee had filed the return on 10/10/2011, contrary to the stated reason for reopening, demonstrating lack of basic verification before forming belief. The AIR information regarding cash deposits was available during the unexpired period of regular assessment and thus did not constitute fresh material justifying reopening; material coming to light after the expiry of the regular assessment period alone may support reassessment only if, after enquiry, it forms the basis of a rational belief. The reasons recorded did not explain how the bank cash deposits represented income or unexplained investment of the assessee, nor did they identify enquiries or tangible material linking the deposits to taxable income. Accordingly, the recorded reasons amounted at best to a reason to suspect and were far too vague, remote and conjectural to sustain formation of belief as required for invocation of section 148. The Tribunal applied the established principle that there must be a direct nexus between the material and the belief of escapement of income and held that proceedings founded on surmise and suspicion are without jurisdiction, relying on the position laid down in ITO Vs Lakhmani Mewal Das as to the necessity of a rational connection between material and belief. [Paras 5, 6, 7, 8, 9]

The reassessment proceedings under section 148 were quashed as the reasons to reopen were invalid; the appeal is allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, quashed the reopening under section 148 for AY 2011-12 on the ground that the reasons recorded lacked application of mind and a rational nexus to form a belief of escapement of income, and held that the consequential merits grounds became academic.

Deduction under Section 54F - Timing of investment for exemption - receipt of sale consideration and handing over of possession versus execution of sale deed - Capital Gains Account Scheme deposit requirement - Substantial compliance doctrine in claim for exemption

Deduction under Section 54F - Timing of investment for exemption - receipt of sale consideration and handing over of possession versus execution of sale deed - Whether the investment of Rs.45 Lacs made on 29.11.2013 out of advances received under an unregistered sale agreement dated 15.05.2013 qualifies for deduction under Section 54F despite execution of sale deed on 23.02.2015. - HELD THAT: - The Tribunal found that the assessee had entered into a binding sale agreement on 15.05.2013 and received the entire sale consideration by 16.12.2013, and possession was handed over on 15.10.2014. The investment of Rs.45 Lacs on 29.11.2013 was made out of part of the sale consideration and fell within one year of receipt of the full sale consideration and before handing over of possession. The fact that the formal sale deed was executed on a later date did not disentitle the assessee to claim the deduction; the transaction and the application of proceeds for acquisition were substantively complete for the purpose of Section 54F. Accordingly, the AO's denial of deduction solely because the sale deed was executed later was reversed. [Paras 6]

Rs.45 Lacs invested on 29.11.2013 qualifies for deduction under Section 54F and cannot be denied merely because the sale deed was executed subsequently.

Deduction under Section 54F - Capital Gains Account Scheme deposit requirement - Substantial compliance doctrine in claim for exemption - Whether the remaining construction expenditure (including Rs.30.56 Lacs spent after the earlier period) on the property purchased on 29.04.2015 entitles the assessee to full deduction under Section 54F despite not depositing unutilized gains in the Capital Gains Account Scheme by the return filing due date. - HELD THAT: - The Tribunal observed that the assessee purchased adjacent land on 29.04.2015 and substantially constructed a residential building thereon, incurring major construction expenditure (noted as Rs.130.56 Lacs spent earlier and a further sum thereafter). Treating Section 54F as a beneficent provision, the Tribunal held that substantial compliance with the conditions for exemption entitled the assessee to claim the full deduction. The AO's restriction-based on the requirement to deposit unutilized capital gains in the Capital Gains Account Scheme by the return filing due date-was held not to preclude allowance of the remaining amount where substantial investment and construction had been carried out on the new property. The Tribunal directed the AO to allow the remaining deduction. [Paras 7]

Remaining construction-related expenditure qualifies for deduction under Section 54F; AO directed to allow the deduction (including the disputed Rs.30.56 Lacs).

Final Conclusion: The appeal is allowed: the Rs.45 Lacs investment made on 29.11.2013 is eligible for deduction under Section 54F notwithstanding later execution of the sale deed, and the Tribunal directed allowance of the remaining construction-related deduction on the subsequent property, treating substantial compliance as sufficient for the exemption.

Transfer pricing adjustment on reimbursement of expenses - markup on reimbursements - interest on delayed recovery / constructive loan - treatment of advances and reimbursement - Arm's length price - preliminary expenses deduction under Section 35D - capital expenditure v. preliminary expenses (increase in share capital) - rate of depreciation - plant and machinery v. office equipment

Transfer pricing adjustment on reimbursement of expenses - markup on reimbursements - interest on delayed recovery / constructive loan - treatment of advances and reimbursement - Arm's length price - Whether upward transfer pricing adjustments made by the TPO/AO - (i) a markup on reimbursements and (ii) interest on delayed recovery - were justified in respect of reimbursements received from the Associated Enterprise. - HELD THAT: - The Tribunal examined the nature of the payments made by the assessee on behalf of its AE (customs duty, GIEK premium, EMD/tender fees, FAT expenses and ticket charges) and the contemporaneous bank evidence showing substantial advances maintained by the AE with the assessee throughout the year. The authorities below did not dispute that these payments were statutory fees/charges or project costs and that advances from the AE existed. The TPO's view that a markup and interest were justified rested on an unestablished contention that services were rendered or that the assessee had in effect financed the AE. The CIT(A) analysed the contract terms, the advance receipts and bank statements and found (i) no material showing services rendered by the assessee in respect of those payments that would attract an operational profit markup, and (ii) that payments were made from advances provided by the AE so as to negative a finding of the assessee having advanced funds to the AE that would attract an interest adjustment. The Tribunal agreed with the CIT(A), noting that the TPO/AO had not identified the nature of any services or specified a comparable or method under Section 92C, and that no adverse finding was pointed out against the CIT(A)'s factual conclusions about advances and the character of the payments. Consequently, the transfer pricing adjustments for markup and interest were held unwarranted and deleted. [Paras 13, 14, 15]

The upward TP adjustments (markup of Rs.1,06,54,295 and interest of Rs.90,18,586) were not justified and are dismissed; the CIT(A)'s deletion of both adjustments is upheld.

Preliminary expenses deduction under Section 35D - capital expenditure v. preliminary expenses (increase in share capital) - Whether the assessee was entitled to deduction under Section 35D for preliminary expenses claimed (aggregate claim with a component relating to increase in share capital). - HELD THAT: - The Assessing Officer disallowed the entire claim invoking precedent that expenditure incurred in connection with increase in share capital is capital in nature. The CIT(A) examined the components and held that Rs.25,000 (1/5th of the Rs.1,25,000 incurred for increase in share capital) was not allowable in view of the Brooke Bond India principle, but sustained the balance (Rs.4,66,063) as being 1/5th of preliminary/incorporation expenses consistently written off in earlier years and not relating to increase of share capital. The Department did not challenge the CIT(A)'s factual finding that the larger component related to incorporation/preliminary expenses and had been treated similarly in prior years. The Tribunal found no reason to interfere with the CIT(A)'s factual and legal conclusion that the Brooke Bond ratio applied only to the share-capital-related component and that the remaining preliminary expenses were allowable under Section 35D. [Paras 16, 18]

The CIT(A)'s order is upheld: Rs.4,66,063 is allowable under Section 35D and Rs.25,000 relating to increase in share capital is disallowed.

Rate of depreciation - plant and machinery v. office equipment - Whether certain assets (EPBAX equipment, vacuum cleaner, water dispenser, etc.) qualify as plant and machinery eligible for depreciation at 15% instead of office furniture/equipment at 10%. - HELD THAT: - The CIT(A) evaluated the nature and use of the assets and referred to statutory context (provisions concerning investment allowance and additional depreciation) and judicial precedent holding that office appliances/equipment can qualify as plant and machinery. The Assessing Officer's classification as office equipment at the lower rate was not sustained on facts or law. The Department could not controvert the factual characterization that the assets were machinery/office appliances rather than 'furniture and fittings'. The Tribunal accepted the CIT(A)'s reasoning and precedent reliance and found the higher rate applicable. [Paras 19, 20]

The excess disallowance of depreciation (Rs.15,555) is not justified; the assets qualify as plant and machinery and are eligible for depreciation at 15%.

Final Conclusion: The Tribunal dismisses the Revenue's appeal in respect of the transfer pricing adjustments (markup and interest), upholds the CIT(A)'s allowance of preliminary expenses under Section 35D except the component relating to increase in share capital, and affirms the CIT(A)'s classification of the disputed assets as plant and machinery eligible for 15% depreciation; overall the Revenue's appeal is dismissed.

Arm's length price - Reimbursement of expenses to associated enterprise - Onus of proof of actual rendition of services by associated enterprise - Benefit Test and Willingness to Pay Test - Determination of ALP at nil where no nexus or supporting evidence

Arm's length price - Reimbursement of expenses to associated enterprise - Onus of proof of actual rendition of services by associated enterprise - Determination of ALP at nil where no nexus or supporting evidence - Benefit Test and Willingness to Pay Test - Whether the Transfer Pricing Officer was justified in determining the arm's length price of reimbursements paid to the overseas associated enterprise at nil where the assessee failed to demonstrate a nexus or actual rendition of services. - HELD THAT: - The Tribunal affirmed the TPO/DRP conclusion that the assessee failed to discharge the onus of proving that the overseas AE had actually rendered services or that the expenses reimbursed had a live nexus with Indian operations. The assessee had no written agreement with the AE and primarily relied on emails and general narrations which, according to the DRP, did not categorically identify the nature, level or scale of work performed for the Indian entity or demonstrate receipt of services sufficient to satisfy the Benefit Test and Willingness to Pay Test. The Tribunal accepted the principle that while the TPO cannot determine ALP at nil merely by questioning the commercial wisdom or necessity of expenditure, where the assessee does not produce cogent documentation or other convincing evidence of actual rendition of services or nexus with the Indian business, the TPO is entitled to determine ALP as nil. The Tribunal relied on precedent to illustrate the consistent approach that absent proof of services rendered, intra-group charges or allocated costs may be treated as having an ALP of nil: Akzonobel India Pvt. Ltd. , Gemplus India Pvt. Ltd. , Deloitte Consulting India (P.) Ltd. , Cranes Software International Ltd. , and Cisco Systems Capital (India) (P.) Ltd. . Applying these principles to the facts - absence of an agreement, inadequate documentary evidence, and emails that did not demonstrate concrete service delivery - the Tribunal held the TPO/DRP was justified in determining ALP at nil. [Paras 6, 7]

The TPO/DRP's determination of the arm's length price of the reimbursement payments at nil is upheld and the assessee's appeal is dismissed.

Final Conclusion: The Tribunal dismissed the appeal for AY 2015-16, upholding the TPO/DRP finding that, in absence of an agreement or convincing evidence demonstrating actual rendition of services and nexus with the Indian operations, the arm's length price of the reimbursements to the overseas associated enterprise could be determined at nil.

Deduction under section 80P(2)(d) for interest from investments with co-operative banks - Effect of insertion of subsection (4) to section 80P on deductibility - Interpretation of the term "co-operative society" for eligibility under section 80P(2)(d) - Precedential treatment of conflicting High Court decisions - preference to views favourable to the assessee - Revisional jurisdiction under section 263 and its limits where Assessing Officer takes a possible view

Deduction under section 80P(2)(d) for interest from investments with co-operative banks - Effect of insertion of subsection (4) to section 80P on deductibility - Interpretation of the term "co-operative society" for eligibility under section 80P(2)(d) - Precedential treatment of conflicting High Court decisions - preference to views favourable to the assessee - Revisional jurisdiction under section 263 and its limits where Assessing Officer takes a possible view - Interest income earned by a co operative society from deposits with co operative banks is deductible under section 80P(2)(d) of the Income tax Act and the denial of the deduction was incorrect. - HELD THAT: - The Tribunal held that section 80P(2)(d) entitles a co operative society to deduct income by way of interest derived from investments made with any other co operative society. Although subsection (4) to section 80P (inserted by Finance Act 2006) excludes co operative banks from claiming 80P, a co operative bank nevertheless remains a co operative society as defined in section 2(19), and therefore interest received by a co operative society from deposits with such banks falls within the scope of clause (d). The Tribunal followed coordinate Bench decisions of the ITAT and relied on High Court decisions (including those of Karnataka and Gujarat) and CBDT guidance to distinguish the Supreme Court decision in Totgar's (which arose in the context of clause (a)(i)) as not determinative of the present clause (d) issue. Having found that the Assessing Officer had taken a possible view in favour of deduction at assessment, the Tribunal held that the revisional order under section 263 dislodging that view was not justified and therefore restored the AO's order and allowed the deduction.

Deduction under section 80P(2)(d) in respect of interest income from deposits with co operative banks allowed; CIT(A)'s confirmation of disallowance set aside and Assessing Officer's order restored.

Final Conclusion: Both appeals are allowed: the Tribunal restored the Assessing Officer's view and granted the co operative society deduction under section 80P(2)(d) for interest earned on deposits with co operative banks, setting aside the CIT(A)'s denial.

Deduction under section 80P(2)(d) for interest from investments with co-operative banks - Deduction under section 80P(2)(a)(i) for co-operative credit societies - Applicability of section 80P(4) to co-operative banks versus co-operative societies - Requirement of RBI licence to operate as a co-operative bank - Definition of "co-operative society" under the Income-tax Act

Deduction under section 80P(2)(d) for interest from investments with co-operative banks - Definition of "co-operative society" under the Income-tax Act - Claim for deduction under section 80P(2)(d) in respect of interest income earned by the co-operative society from deposits/investments with co-operative banks - HELD THAT: - Tribunal held that a co-operative society is entitled to deduction under section 80P(2)(d) for interest or dividends derived from investments with any other co-operative society. Though subsection (4) of section 80P excludes co-operative banks (other than specified primary agricultural credit societies) from 80P, that amendment does not defeat a co-operative society's claim where the investee is a co-operative bank which remains a co-operative society for the purposes of the Act. The Tribunal relied on coordinate bench decisions and High Court decisions favouring the assessee, observed that the term "co-operative society" under section 2(19) includes entities registered under the Co-operative Societies Act, and followed precedents holding that interest earned from investments with co-operative banks is eligible for deduction under section 80P(2)(d). The revisional action under section 263 which sought to dislodge an assessing officer's view favourable to the assessee was held to be unjustified.

Deduction under section 80P(2)(d) allowed in respect of interest income from deposits with co-operative banks.

Deduction under section 80P(2)(a)(i) for co-operative credit societies - Applicability of section 80P(4) to co-operative banks versus co-operative societies - Requirement of RBI licence to operate as a co-operative bank - Entitlement of the co-operative credit society to deduction under section 80P(2)(a)(i) and whether subsection (4) of section 80P applies to such a society - HELD THAT: - Tribunal held that the co-operative credit society is not a co-operative bank and therefore is not hit by section 80P(4) (inserted by Finance Act 2006 w.e.f. 01.04.2007) which targets co-operative banks carrying on banking business. The decision noted that it is mandatory for a co-operative society to obtain an RBI licence to form and operate as a co-operative bank and that the assessee only provided financial assistance/credit to members and had not undertaken banking activities. Relying on a coordinate bench decision (KEM Hospital & Sheth GSM College Employees Co-operative Credit Society Ltd.) and the Hon'ble Bombay High Court decision in Quepem Urban Co-operative Credit Society Ltd., the Tribunal concluded that subsection (4) does not apply to the assessee and thus the claim under section 80P(2)(a)(i) is maintainable.

Deduction under section 80P(2)(a)(i) allowed; section 80P(4) held not attracted to the co-operative credit society.

Final Conclusion: Both appeals allowed: deductions under section 80P(2)(d) (interest from investments with co-operative banks) and section 80P(2)(a)(i) (for the co-operative credit society) were upheld, the tribunal holding that section 80P(4) does not apply to the assessee which is not a co-operative bank.

Taxability of interest on enhanced compensation under amended charging provisions including Section 56(2)(viii) and Section 57(iv) - exemption under Section 10(37) for capital gains on agricultural land - deemed receipt and computation under Section 145A/145B - binding nature of jurisdictional High Court precedents

Taxability of interest on enhanced compensation under amended charging provisions including Section 56(2)(viii) and Section 57(iv) - exemption under Section 10(37) for capital gains on agricultural land - deemed receipt and computation under Section 145A/145B - binding nature of jurisdictional High Court precedents - Whether interest received under Section 28 of the Land Acquisition Act on enhanced compensation is taxable as 'income from other sources' under the statutory amendments and not exempt as capital gains under Section 10(37), and whether the income-tax authorities were correct to follow the jurisdictional High Court decision. - HELD THAT: - The Tribunal analysed the effect of post-Ghanshyam amendments which inserted specific provisions treating interest on compensation/enhanced compensation as income assessable on receipt and included within 'income from other sources' by way of Section 56(2)(viii), with corresponding deduction rules in Section 57(iv), and the deeming of receipt under Section 145A/145B. The Tribunal accepted the reasoning of the Hon'ble Punjab & Haryana High Court in Mahendra Pal Narang, which held that those statutory amendments altered the chargeability scheme so that interest under Section 28 of the Land Acquisition Act is assessable as income from other sources in the year of receipt and cannot be claimed to be exempt as part of capital gains under Section 10(37). The Tribunal further noted the territorial connection of the acquired land to District Panipat (Haryana) and held that, in view of settled principles, an assessing authority and the Tribunal must follow the decision of the jurisdictional High Court on the point even where there exist contrary decisions of other High Courts or earlier Supreme Court pronouncements addressed by subsequent legislative amendment. Applying these conclusions to the facts, the Tribunal found no error in the assessment authorities' invocation of the amended provisions and their treatment of the interest as taxable income. [Paras 7, 9, 10, 11]

Appeal dismissed; the addition treating the interest on enhanced compensation as taxable under Section 56(2)(viii)/related amendments was upheld and the Tribunal affirmed the correctness of following the jurisdictional High Court's decision.

Final Conclusion: The Tribunal dismissed the appeal, upholding the assessment treatment that interest on enhanced compensation under Section 28 of the Land Acquisition Act is taxable as income from other sources in view of the statutory amendments and binding authority of the jurisdictional High Court; the claim of exemption under Section 10(37) was rejected.

Application of Section 41(1) of the Income-tax Act - remission or cessation of trading liability as sine qua non for invocation of Section 41(1) - trade payables / outstanding liabilities - benefit by way of remission or cessation - condonation of delay in filing appeal

Condonation of delay in filing appeal - Whether the delay of 141 days in filing the appeal ought to be condoned. - HELD THAT: - The Tribunal considered the explanation and supporting affidavits filed by the assessee's director and an employee, which attributed the delay to the employee's inadvertent failure to bring the CIT(A)'s order to the notice of the directors. The Departmental Representative opposed condonation. The Tribunal found that the delay was not deliberate or the result of a lackadaisical approach and that the affidavits furnished substantiated bona fide reasons for the delay. [Paras 2]

Delay in filing the appeal is condoned.

Application of Section 41(1) of the Income-tax Act - remission or cessation of trading liability as sine qua non for invocation of Section 41(1) - trade payables / outstanding liabilities - benefit by way of remission or cessation - Whether the Assessing Officer was justified in invoking Section 41(1) to add back outstanding trade-payable balances as ceased liabilities and taxable income. - HELD THAT: - The authorities below treated two unmoved outstanding balances shown as trade payables in the assessee's balance sheet as ceased liabilities and added them under Section 41(1). Section 41(1) applies only where a deduction/allowance was earlier made in respect of a trading liability and subsequently the assessee obtained a benefit by way of remission or cessation of that liability in a later previous year. The Tribunal found that the AO did not establish that the liabilities had in fact ceased or that any benefit by remission or cessation had been obtained in the year under consideration; the sole basis relied upon was that the liabilities remained unpaid at the year end. Merely showing outstanding trade payables in the books for several years does not demonstrate remission or cessation. The Tribunal relied on precedents holding that unilateral book entries or aged outstanding balances, without evidence of extinguishment or benefit to the assessee, do not attract Section 41(1). [Paras 10, 11, 12]

The additions under Section 41(1) in respect of the outstanding trade-payable balances are vacated/deleted; the appeal is allowed on this issue.

Final Conclusion: The Tribunal condoned the delay in filing the appeal and, on merits, held that the Assessing Officer had wrongly invoked Section 41(1) merely because trade-payable entries remained outstanding; in absence of evidence of remission or cessation or any benefit to the assessee, the additions under Section 41(1) for A.Y. 2013-14 were set aside and the appeal was allowed.

Disallowance of interest on diverted funds - allowability of business expenditure - vouching and proof of business purpose - capital v. revenue treatment of signboard expenses - entertainment expenses and allowability under Section 37(1) principles

Disallowance of interest on diverted funds - Deletion of addition computed as interest attributable on advances shown recoverable from an employee alleged to have embezzled funds. - HELD THAT: - The Tribunal noted that the advances in question related to amounts misappropriated by a former unit head and that the assessee had taken legal steps and produced documentary evidence (including FIRs) to show that recovery was beyond its control. The Tribunal also recorded that the matter had been decided in favour of the assessee by the lower appellate authority and by coordinate benches of the Tribunal for earlier assessment years and, on that basis, declined to interfere with the appellate authority's deletion of the addition. [Paras 6, 10, 11, 12]

Addition deleted; Tribunal declines to interfere with the CIT(A)'s order.

Vouching and proof of business purpose - allowability of business expenditure - Deletions of additions made in respect of various miscellaneous business expenses (marriage gift, subscription, advertisement, staff welfare, foreign travel, sales promotion) on grounds of being unvouched or not wholly and exclusively for business. - HELD THAT: - For each category the Tribunal observed that the question had been repeatedly decided in favour of the assessee in earlier assessment years by the CIT(A) and/or coordinate ITAT benches. Having regard to the consistent appellate treatment and the materials placed on record (including business rationale and comparative/consistent expenditure pattern in earlier years for foreign travel), the Tribunal declined to interfere with the CIT(A)'s deletions of the additions which had been made on an ad hoc/lump-sum basis by the AO without pinpointing specific inadmissible vouchers. [Paras 24, 25, 27, 29, 31]

Additions in respect of marriage gift, subscription, advertisement, staff welfare, foreign travel and sales promotion expenses deleted; Tribunal declines to interfere.

Capital v. revenue treatment of signboard expenses - Whether expenditure on 'glow sign boards' is capital in nature and thus not allowable as revenue deduction in the assessee's hands. - HELD THAT: - The Tribunal held that the issue was squarely covered by the Tribunal's earlier decision for preceding years where it was treated that because the signboards were not owned by the assessee they could not be treated as capital expenditure. On that basis the Tribunal declined to interfere with the CIT(A)'s order which had disallowed the AO's addition. [Paras 32]

Deletion of addition upheld; no interference with CIT(A).

Entertainment expenses and allowability under Section 37(1) principles - Allowability of expenses on wine and beer claimed as business expenditure. - HELD THAT: - The Tribunal held that such expenses were not necessary for conducting the assessee's business and that failure to provide wine and beer would not impede business operations; accordingly they did not qualify as allowable expenditures under principles of business expenditure (Section 37(1) reasoning applied). [Paras 33]

Addition in respect of wine and beer expenses sustained (not allowable).

Excess depreciation claimed and self-correction by revised return - Disallowance of amount claimed as excess depreciation in original return where assessee revised return and added back the amount. - HELD THAT: - The Tribunal noted that the assessee had revised its return and suo moto added back the excess depreciation claimed in the original return; accordingly there was no justification to interfere with the appellate authority's treatment. [Paras 28]

Issue not disturbed; Tribunal declines to interfere.

Final Conclusion: All grounds raised by the Revenue were either rejected or not interfered with by the Tribunal: additions made by the AO in respect of interest on advances, various miscellaneous business expenses (marriage gifts, subscriptions, advertisement, staff welfare, foreign travel, sales promotion), glow sign board treatment and excess depreciation were not sustained by the Tribunal, while entertainment (wine & beer) expense was held not allowable. Appeals of the Revenue are dismissed.

Application of section 40A(3) - exception under Rule 6DD(b) - MSEDCL as "State" under Article 12 - payments to agent/franchisee deemed received on behalf of State

Application of section 40A(3) - exception under Rule 6DD(b) - MSEDCL as "State" under Article 12 - payments to agent/franchisee deemed received on behalf of State - Whether the disallowance under section 40A(3) for cash payment of electricity charges to MSEDCL (through its franchise/agent) was justified. - HELD THAT: - The Tribunal found that MSEDCL is a wholly owned corporate entity of the State of Maharashtra and a deemed distribution licensee under the Electricity Act, 2003. The distribution in Nagpur was being carried out by a franchise/agent (SNDL/Spanco) pursuant to an agreement with MSEDCL, and receipts placed on record show SNDL collected and issued receipts as a franchisee on behalf of MSEDCL. Payments made to the franchise/agent were therefore regarded as received on behalf of the State entity. In view of this agency/franchise relationship and the characterisation of MSEDCL as an entity covered by Article 12, the Tribunal applied the exception in Rule 6DD(b) of the Income tax Rules and held that the prohibition/disallowance under section 40A(3) is not attracted to such cash payments. The Tribunal relied on its earlier decision in Aakash Petroleum (ITA No. 134/NAG/2021 for A.Y. 2018 19) which addressed identical facts and reached the same conclusion, and on relevant authorities recognising State or State instrumentality status for similar entities. [Paras 6, 7]

The disallowance under section 40A(3) confirmed by the CIT(A) was set aside and the addition deleted.

Final Conclusion: Appeal allowed; cash payments made to the franchise/agent collecting electricity charges on behalf of MSEDCL are covered by Rule 6DD(b) and not liable to disallowance under section 40A(3), hence the addition confirmed by the CIT(A) is deleted.

Import through State Trading Enterprises - High Seas sale - interpretation of 'through' versus 'by' in ITC (HS) Policy Heading 3102 1000 - permission of Ministry of Chemical and Fertilizers to import through STE - confiscation under Section 111(d) of the Customs Act, 1962 - penalty under Section 112(a) of the Customs Act, 1962

Import through State Trading Enterprises - High Seas sale - interpretation of 'through' versus 'by' in ITC (HS) Policy Heading 3102 1000 - permission of Ministry of Chemical and Fertilizers to import through STE - confiscation under Section 111(d) of the Customs Act, 1962 - penalty under Section 112(a) of the Customs Act, 1962 - Whether import of Urea purchased on High Seas from State Trading Enterprises was in accordance with Heading No. 3102 1000 of the ITC (HS) Policy 2009-2015 and whether goods were liable to confiscation and penalty - HELD THAT: - The Tribunal held that Heading No. 3102 1000 uses the word "through" and does not stipulate import "by" State Trading Enterprises (STEs) only; import "through" STEs means that where the foreign supplier contracts and ships to the STE and the STE makes payment to the foreign supplier, the STE may sell onward to an Indian buyer (including by High Seas sale) and the import remains "through" the STE. The Tribunal found that the Ministry of Chemical and Fertilizers' letter of 15-5-2013 granted permission to the appellants to import Urea "through" any STE and that neither condition (xiv) nor condition (v) of that permission restricts purchases to domestic purchases only or prohibits High Seas sale by the STE to the Indian buyer. The Tribunal rejected the lower authorities' view that a High Seas purchase followed by filing of the bill of entry made the purchaser the importer in a manner inconsistent with the import policy, observing there was no policy bar on STEs effecting High Seas sales of Urea during the relevant period and that accepted past practice and precedents supported such transactions. Because the imports were effected through MMTC/Indian Potash Ltd and in accordance with the ITC (HS) Policy and the Ministry's permission, the goods could not be held liable to confiscation under Section 111(d) and no penalty under Section 112 was imposable. The Tribunal further held that the Commissioner (Appeals) misinterpreted the permission conditions and erred in upholding confiscation and penalty. [Paras 5, 6]

Impugned orders holding the goods liable to confiscation and upholding penalty under Section 112(a)(i) were set aside; appeals allowed with consequential relief.

Final Conclusion: The Tribunal held that imports of Urea purchased on High Seas from STEs were in accordance with Heading No. 3102 1000 of the ITC (HS) Policy 2009-2015 and with the Ministry's permission; accordingly confiscation under Section 111(d) and penalty under Section 112 could not be sustained and the appeals were allowed.

Swiss Challenge / Challenge Process in CIRP - Commercial wisdom of the Committee of Creditors - Permissibility of post-closure modification of resolution plans - Directory versus mandatory nature of regulation permitting one-time modification - Duty of Adjudicating Authority not to interfere with CoC's commercial decision except on limited grounds - Time-bound completion of CIRP and salutary value of timelines under the IBC

Permissibility of post-closure modification of resolution plans - Swiss Challenge / Challenge Process in CIRP - Directory versus mandatory nature of regulation permitting one-time modification - Whether the Adjudicating Authority could direct the Resolution Professional to consider a revised resolution plan submitted after conclusion of the Challenge Process. - HELD THAT: - The Tribunal examined the terms of the RFRP and the Challenge Process rules (including Clause 7 which forbids revision after conclusion of the Challenge Process), the power of the CoC to adopt, modify or abandon the Challenge Process and Regulation 39(1A) (as substituted w.e.f. 30.09.2021) which permits modification of a resolution plan if envisaged in the RFRP but not more than once, or the use of a challenge mechanism. The CoC had adopted the Challenge Process, all participating RAs had given unconditional acceptance and the process concluded with final bids and a deadline for submission of signed plans. The CoC deliberated in subsequent meetings and, by its 03.08.2022 decision, chose to proceed to vote on the plans received after the Challenge Process; it did not permit any further revision. The Adjudicating Authority's order directing the RP to consider the revised post-closure offer contained no reasons and did not engage with the contractual process approved by the CoC or with the limitation on modifications under the Regulations. Reliance on the object of value maximisation and on precedents does not justify judicial intrusion where the CoC in its commercial wisdom had decided not to reopen the process. The Supreme Court's authority affirming non-interference with CoC commercial wisdom and the sanctity of timelines under the IBC was held to support the conclusion that a resolution applicant cannot unilaterally submit a revised plan after the completion of a Swiss Challenge/Challenge Process. [Paras 21, 24, 25]

Adjudicating Authority's direction to consider the revised plan submitted after the Challenge Process was unsustainable and set aside.

Commercial wisdom of the Committee of Creditors - Duty of Adjudicating Authority not to interfere with CoC's commercial decision except on limited grounds - Time-bound completion of CIRP and salutary value of timelines under the IBC - Whether the CoC's decision to proceed to voting after conclusion of the Challenge Process should have been interfered with and what remedial directions should follow. - HELD THAT: - The Tribunal reiterated that the CoC's decision-making in commercial matters is entitled to primacy and is not ordinarily amenable to judicial interference except on limited statutory grounds. The CoC had, after deliberation in multiple meetings, decided to vote on plans (decision dated 03.08.2022) and voting had commenced. The Adjudicating Authority's order disrupted that process without recording reasons that would justify setting aside the CoC decision or reopening the concluded Challenge Process. Given the CoC's exercise of its rights under the RFRP and Regulations and the need to adhere to the time-bound scheme of the Code, the appropriate relief was to restore the CoC process. The Tribunal therefore set aside the Adjudicating Authority's order, directed the Resolution Professional to initiate a fresh voting process in accordance with the CoC decision dated 03.08.2022 to be completed within one month, and extended the CIRP timeline to permit filing of an appropriate progress application before the Adjudicating Authority. [Paras 20, 25, 26, 28, 29]

CoC decision to proceed to voting upheld; order of Adjudicating Authority set aside; fresh voting directed within one month and CIRP period extended for administrative compliance.

Final Conclusion: The Adjudicating Authority's order directing the Resolution Professional to consider a revised plan submitted after the close of the Challenge Process was set aside for want of reason and interference with the CoC's exercised commercial wisdom; the CoC's decision to vote on plans received post-Challenge Process is upheld, a fresh time bound voting process is directed, and the CIRP timeline is extended to permit requisite filing.

Admission under Section 7 of the IBC - financial debt and default - discretion under Section 7(5)(a) - fraud classification and its effect on admission and OTS - maintainability and limitation of Section 7 application

Financial debt and default - admission under Section 7 of the IBC - The financial creditor proved existence of financial debt and default and the Adjudicating Authority rightly admitted the Section 7 application. - HELD THAT: - The Tribunal accepted the particulars of financial debt placed in Part IV and records relied upon by the financial creditor and held that a default had occurred. Applying the settled test that the Adjudicating Authority need ascertain from the information utility records or other evidence that a default has occurred, the Tribunal found that the debt and default were established on the material on record and that the application was otherwise complete and maintainable. The admission was therefore upheld as being within the statutory scheme and not vitiated by legal infirmity. [Paras 30, 53, 65, 66, 67]

Admission under Section 7 was proper because financial debt and default were proved.

Discretion under Section 7(5)(a) - The Adjudicating Authority's discretion under Section 7(5)(a) is discretionary and was exercised appropriately in the present case. - HELD THAT: - The Tribunal reiterated that Section 7(5)(a) uses the word 'may' and therefore confers discretion on the Adjudicating Authority to admit or not admit a financial creditor's application after considering relevant facts. The appellate Tribunal considered the material before the NCLT and concluded that the exercise of subjective discretion in admitting the application was in a right-thinking and sound manner and free from legal error. The Tribunal noted that discretion, even if available, must not be exercised arbitrarily or capriciously and found no such arbitrariness here. [Paras 56, 61, 67]

The Adjudicating Authority validly exercised its discretion under Section 7(5)(a) to admit the petition.

Fraud classification and its effect on admission and OTS - one time settlement (OTS) - Classification of the corporate debtor's account as 'fraud' by the bank did not prohibit admission of the Section 7 application nor, as a matter of law, preclude consideration of OTS proposals. - HELD THAT: - The Tribunal examined the contention that the 'fraud' tag prevented settlement and impeded the corporate debtor's ability to submit improved OTS proposals. It held that classification as fraud does not ipso facto bar the bank from considering OTS and that such classification did not negate the proof of debt or default required for admission. The Tribunal also observed that the corporate debtor had avenues to challenge the classification and that the mere existence of FIRs or investigations did not displace the material establishing debt and default for purposes of admission under the Code. [Paras 7, 8, 9, 21, 62]

Fraud classification did not oust the Adjudicating Authority's power to admit the application nor automatically negate the financial creditor's claim.

Maintainability and limitation of Section 7 application - The Section 7 application was filed within the permissible period and was maintainable. - HELD THAT: - The Tribunal noted the date of default and the filing date of the application and found that the petition was filed within three years from the date of default. It further observed that the corporate debtor had not genuinely disputed the debt before the Adjudicating Authority and that the application complied with the requirements of Form I and the Rules, rendering the petition maintainable in law. [Paras 58, 59, 60, 61]

The Section 7 application was maintainable and filed within the applicable time frame.

Final Conclusion: The appeal is dismissed. The Tribunal upheld the NCLT's admission of the Section 7 application, finding the financial debt and default proved, the application maintainable and filed within time, the fraud classification not determinative of admission or OTS consideration, and the Adjudicating Authority's exercise of discretion under Section 7(5)(a) to be proper.

Discharge of corporate guarantee by merger/scheme of amalgamation - interpretation of 'additional equity' in CDR package and deed of guarantee - statutory effect of a tribunal-sanctioned scheme of amalgamation as binding on creditors - absence of 'debt' and 'default' as bar to initiation of CIRP under Section 7 of IBC - effect of parallel CIRP proceedings against another corporate guarantor on initiation against a guarantor

Discharge of corporate guarantee by merger/scheme of amalgamation - absence of 'debt' and 'default' as bar to initiation of CIRP under Section 7 of IBC - Whether the Adjudicating Authority was correct in rejecting the Section 7 petition on the ground that the corporate guarantor's obligation stood discharged and therefore there was no debt or default. - HELD THAT: - The Tribunal accepted the Adjudicating Authority's appraisal that the corporate-guarantor executed continuing guarantees conditioned to remain until the borrower brought in additional equity of Rs.125 crores over and above promoters' contribution. The Court found that the sanctioned scheme of amalgamation treating the business value of the transferor as infusion by way of additional equity, together with accounting entries reflected in the transfeeree's financial statements, established that the condition of additional equity had been satisfied. In that factual and legal matrix there was no debt payable in law or in fact by the guarantor and consequently no default for the purposes of Section 7. The appellate majority agreed with the reasoning in paragraphs 10-12 of the impugned opinion and concluded the NCLT's rejection of the Section 7 petition was not erroneous. [Paras 10, 11, 12, 17]

The rejection of the Section 7 petition was upheld; the guarantor's obligation stood discharged and there was no debt or default.

Interpretation of 'additional equity' in CDR package and deed of guarantee - statutory effect of a tribunal-sanctioned scheme of amalgamation as binding on creditors - Whether 'additional equity' in the CDR package and in the deed of guarantee required cash infusion only or could be satisfied by valuation/accounting treatment under the sanctioned scheme of amalgamation. - HELD THAT: - The Tribunal held that the CDR provisions referred to 'additional equity' and listed various modes (including merger/demerger, issuance of shares, strategic investment), and did not restrict satisfaction to cash infusion alone. The sanctioned scheme of amalgamation expressly provided that the business value of the transferor as reflected in the transferee's books shall be treated as infusion by way of additional equity. A tribunal-sanctioned scheme operates with statutory force and binds creditors. Having regard to those provisions and the post merger accounting entries (including capital reserves), the court found the condition of additional equity was fulfilled and the guarantor's liability under the guarantee was thereby discharged (see paragraphs 11-12). [Paras 11, 12]

'Additional equity' was not confined to cash infusion; the merger/amalgamation treated as additional equity under the sanctioned scheme satisfied the guarantee condition.

Effect of parallel CIRP proceedings against another corporate guarantor on initiation against a guarantor - Whether initiation of CIRP proceedings against another corporate guarantor in respect of the same debt precluded initiation of CIRP against the respondent-guarantor. - HELD THAT: - The Tribunal noted that initiation of CIRP against Visa International Limited (another corporate guarantor) in respect of the same debt was a relevant circumstance that would preclude the appellant from proceeding with CIRP against the respondent guarantor in the present matter. This formed part of the court's appraisal supporting non-interference with the impugned order. [Paras 12]

The existence of parallel CIRP proceedings against another corporate guarantor was a factor precluding initiation of CIRP against the respondent here.

Final Conclusion: The appeal is dismissed; the Adjudicating Authority's order rejecting the Section 7 petition is affirmed on the grounds that the guarantee obligation stood discharged (no debt/default) and the sanctioned scheme of amalgamation satisfied the 'additional equity' condition; no order as to costs.

Forfeiture of earnest money deposit - withdrawal from auction - effect of provisional attachment under PMLA on auction completion - paragraph 1(12) of Schedule 1 of Liquidation Process Regulations - 90 days for payment - interest on refunded EMD and first installment - sale on "as is where is" basis

Paragraph 1(12) of Schedule 1 of Liquidation Process Regulations - 90 days for payment - forfeiture of earnest money deposit - sale on "as is where is" basis - Entitlement of the liquidator to forfeit the EMD and first installment for non-payment of balance bid within the prescribed period. - HELD THAT: - The Court accepted that the e auction terms unambiguously contemplated forfeiture where the successful bidder failed to make payment within the prescribed time and that paragraph 1(12) provided a 90 day outer limit (with interest for payments after 30 days). However, the Court found that before expiry of the 90 day period the assets of the corporate debtor were provisionally attached under the PMLA on 02.12.2021, which rendered the liquidator unable to hand over assets, issue sale certificate or complete the sale. As the first installment had been paid within time and attachment occurred prior to the expiry of the 90 days, the auction purchaser could not be treated as having committed the default contemplated by the forfeiture clause. The Court therefore held that forfeiture was not justified in the circumstances. [Paras 11, 12, 16]

Forfeiture of the EMD and first installment was not justified because attachment under PMLA occurred before the 90 day period for payment expired, preventing completion of the sale.

Withdrawal from auction - effect of provisional attachment under PMLA on auction completion - Validity of the Adjudicating Authority's order permitting the successful auction purchaser to withdraw from the e auction and directing refund of amounts (exclusive of interest). - HELD THAT: - The Court observed that the Division Bench of the Delhi High Court recorded and accepted the auction purchaser's statement that it wished to exit and granted liberty to act in accordance with law. Given the provisional attachment of assets and the High Court proceedings (including status quo orders), the liquidator could not be compelled to conclude the sale. The Adjudicating Authority therefore rightly permitted withdrawal and ordered refund of the EMD and first installment. That part of the order was upheld. [Paras 13, 14, 16]

The Adjudicating Authority rightly permitted withdrawal from the auction and directed refund of the EMD and first installment.

Interest on refunded EMD and first installment - terms of the e auction process document - Whether interest was payable on the refunded EMD and first installment. - HELD THAT: - The e auction terms (clause 15.4) expressly provided that where the sale as a going concern is not approved the liquidator shall refund the EMD and first installment within 60 days of the final order but no interest shall be payable on such refunds. The Adjudicating Authority directed refund with interest without advertence to clause 15.4. The Court held that, on the contractual terms applicable to the e auction, the successful bidder was not entitled to interest on the refunded amounts and that the direction to refund with interest was unsustainable. [Paras 17, 18, 19]

Direction to refund the EMD and first installment with interest set aside; no interest payable under the auction terms.

Final Conclusion: Appeal partly allowed: the order permitting the successful auction purchaser to withdraw and directing refund of the EMD and first installment is upheld; the direction to refund those amounts with interest is set aside. Parties to bear their own costs.

Offence of money laundering dependent on proceeds of crime derived from a scheduled offence - scheduled/predicate offence as precondition to liability under Section 3 of the PMLA - quashing or discharge of scheduled offence extinguishes prosecution under the PMLA - Explanation to Section 44 and the question of independence of PMLA proceedings

Offence of money laundering dependent on proceeds of crime derived from a scheduled offence - quashing or discharge of scheduled offence extinguishes prosecution under the PMLA - Whether prosecution under the PMLA (Criminal Misc. Case (PMLA) No.40 of 2017) can continue after the scheduled/predicate offence was quashed by a competent court. - HELD THAT: - The Court examined the statutory scheme of the PMLA, the definition of 'proceeds of crime' and the relationship between money laundering under Section 3 and the scheduled/predicate offences. After reviewing the amendments to the PMLA and divergent High Court decisions, the Court followed the binding pronouncement of the Supreme Court in Vijay Madanlal Choudhury and subsequent authority indicating that the offence under Section 3 is dependent on illegal gain arising from a scheduled offence and that authorities cannot prosecute on a notional basis where the predicate offence has been quashed or the person discharged. The Court considered conflicting decisions and the Explanation to Section 44 introduced by amendment, but held that such legislative changes do not supplant the settled ratio that, where the foundation of the PMLA prosecution - namely the scheduled offence - is demolished by quashing, the money laundering prosecution cannot survive. Applying that principle to the facts, the Court concluded that continuation of the PMLA proceeding in the present case, after the quashing of the Vigilance prosecution, would be untenable. [Paras 7, 11, 12, 14]

The PMLA prosecution cannot continue once the scheduled offence has been quashed; the PMLA proceeding in Criminal Misc. Case (PMLA) No.40 of 2017 is quashed.

Final Conclusion: The writ petition is allowed; Criminal Misc. Case (PMLA) No.40 of 2017 pending before the Special Court (PMLA Act), Khurda at Bhubaneswar, is quashed because the predicate Vigilance proceeding was quashed, thereby extinguishing the basis for prosecution under the PMLA.

Representation of a juristic person under Section 305 Cr.P.C. - voluntary nomination to represent a corporate accused - discharge of a natural person where the accused is a juristic entity

Representation of a juristic person under Section 305 Cr.P.C. - voluntary nomination to represent a corporate accused - Petition for discharge of the petitioner (named as a director) from the complaint lodged against the juristic person M/s. More Max Ltd in view of nomination of a representative by another accused. - HELD THAT: - The Court applied the settled principle that a juristic person accused must itself nominate a human representative to represent it in inquiry or trial and that it is not the duty of the prosecution or the Court to nominate such a person. Reliance was placed on the decision reproduced in the judgment which held that a corporate accused may appoint any person, including another accused, to represent it, and failure to do so cannot later be pleaded as prejudice. Here, during pendency, A12 filed an affidavit expressly undertaking to represent the 13th accused entity and to be bound by statements, depositions and material evidence adduced and defenses projected on its behalf. The Court held that, by this voluntary nomination, the juristic entity had a representative and consequently the individual petitioner need not remain arrayed as the representative of that juristic person and could be discharged from the complaint. [Paras 6, 7, 8]

The petitioner was discharged from the complaint insofar as he was arrayed as the representative of A13, since A12 had volunteered and was accepted as the representative of the juristic person.

Representation of a juristic person under Section 305 Cr.P.C. - Procedure to be followed for formalising the representation of the juristic person before the trial court. - HELD THAT: - Although A12 had filed an affidavit volunteering to represent the 13th accused, the High Court directed compliance with the procedural requirement under Section 305 Cr.P.C. by ordering A12 to file a fresh petition under that provision with an affidavit stating he will represent the company. The Court directed that upon filing such petition the trial court shall allow it and permit A12 to represent A13 in C.C.No.58 of 2016. The direction ensures formal and authorized representation of the juristic person in accordance with the statutory procedure. [Paras 9, 10]

A12 was directed to file a petition under Section 305 Cr.P.C. and, on filing, the trial court was directed to permit A12 to represent the 13th accused entity.

Final Conclusion: Criminal Revision allowed; the order of the Principal Sessions Judge dated 23.06.2022 is set aside, the petitioner is discharged insofar as he was arrayed as representative of the juristic person A13, and Raju R. Patwa (A12) is directed to file a fresh petition under Section 305 Cr.P.C. to be allowed by the trial court so that he may represent A13.

Works contract service - withdrawal of exemption by notification - recovery of service tax from the recipient of service - Writ of mandamus to compel collection of tax from State - remedial relief by civil suit/claim for reimbursement

Withdrawal of exemption by notification - works contract service - Challenge to the validity of Notification No.6/2015 (withdrawal of exemption) and consequential assessments for works contract service - HELD THAT: - The writ petitions challenging Notification No.6/2015 and the consequential show cause notices/orders relating to works contract service were considered in the light of earlier Division Bench observations. The Court held that the challenge to the impugned notification and the attendant demands for service tax fail. Petitioners are not relieved of liability to pay service tax arising from the assessment for the period specified; they must participate in the adjudicatory process, file replies to show cause notices and, where assessment orders have been passed, pursue statutory appeals as provided by law. The Court recorded that the principles noted by the Division Bench permit petitioners to seek other statutory or contractual remedies for reimbursement from their clients. [Paras 118, 119, 120, 121]

Challenge to the notification and related show cause notices/orders dismissed; petitioners remain liable to the service tax and must pursue available statutory and contractual remedies.

Recovery of service tax from the recipient of service - Writ of mandamus to compel collection of tax from State - remedial relief by civil suit/claim for reimbursement - Prayer for writ of mandamus directing authorities to collect the tax from the State/State departments and for refund - HELD THAT: - The Court upheld the Division Bench's conclusion that a writ of mandamus directing respondents to collect tax from the State Public Works Department could not be granted because no corresponding statutory duty to collect from the State was established. The petitioners were directed to apply established principles (including those enabling contractual or civil recovery) to seek reimbursement from their contracting authority; the Court left open the petitioners' right to reply to show cause notices, to avail benefit of relevant statutory provisions where applicable, and to file appeals subject to prescribed appellate procedure. [Paras 122, 123, 124]

Writ of mandamus to compel collection from State refused; petitioners may seek reimbursement from their clients by appropriate civil or statutory remedies and must pursue appeals/defences in the adjudicatory process.

Time-bar and limitation defences in revenue demands - Availability of time-bar and limitation defences and directions regarding adjudicatory process - HELD THAT: - The Court noted the Division Bench's guidance that petitioners may establish that parts of the demand are time-barred under applicable limitation provisions and that they should file detailed replies to show cause notices within the timelines directed. Where appeals are to be filed against orders-in-original, petitioners were granted liberty to file statutory appeals to the Appellate Authority with directions regarding pre-deposit and the appellate authority's duty to entertain and decide appeals on merits and in accordance with law. [Paras 119, 125, 126]

Petitioners may raise time-bar/limitation defences in the adjudicatory process; directions issued for replies to show cause notices and for the conduct of adjudication and appeals.

Final Conclusion: Writ petitions dismissed. Petitioners remain liable to the service tax assessed for the period 01.10.2014 to 30.06.2017, are directed to participate in the statutory adjudicatory process, may assert limitation and reimbursement claims against their contracting authority by appropriate remedies, and cannot be granted a mandamus compelling the authorities to collect the tax from the State.

Cenvat credit entitlement - reconciliation of ST-3 returns - burden of proof on revenue to establish prior utilisation of credit - effect of undisclosed input credit due to system glitch - unsustainability of demand where credit supported by invoices and books of account

Cenvat credit entitlement - reconciliation of ST-3 returns - burden of proof on revenue to establish prior utilisation of credit - Whether the appellant was entitled to Cenvat credit of Rs. 31,67,294/- and whether the demand based on the difference in closing Cenvat balance as per ST-3 return for June, 2017 is sustainable. - HELD THAT: - The appellant produced a statement with complete details of Cenvatable documents, copies of invoices and the books of account reflected the Cenvat balance after taking credit of Rs. 31,67,294/-. The Tribunal held that such contemporaneous documentary evidence and book entries could not be discarded on a mere presumption that the appellant might have earlier taken the credit; the Revenue bears the burden to prove prior utilisation or earlier taking of the credit. In absence of any such proof by the Revenue, the appellant's claim for the credit stood established. On acceptance of the credit of Rs. 31,67,294/-, the remaining discrepancy reduced to Rs. 37,321/-, which the appellant had admitted and paid along with interest. Consequently, the demand confirmed by the lower authority, except for the admitted paid amount, was held not sustainable and was set aside. [Paras 4]

The appellant was entitled to the Cenvat credit of Rs. 31,67,294/-; the demand except for the admitted amount of Rs. 37,321/- (paid with interest) does not survive and is set aside.

Final Conclusion: The appeal is allowed; the impugned demand is quashed except to the extent of the admitted and paid amount of Rs. 37,321/- (with interest), with consequential relief to the appellant.

Condonation of delay - remand for fresh adjudication - limitations and condonable period - early hearing - coercive recovery measures - freeze of bank accounts - opportunity of hearing

Early hearing - Miscellaneous Applications for early hearing were allowed and the Appeals were taken up immediately for disposal. - HELD THAT: - The Tribunal noted that Miscellaneous Applications (EH) seeking early hearing were filed by the appellants and, having considered the submissions and reasons advanced, granted early hearing. With the consent of both parties, the Appeals were taken up on the same day for disposal. [Paras 2, 3]

Miscellaneous Applications (EH) allowed and Appeals taken up for hearing on the same day.

Condonation of delay - limitations and condonable period - remand for fresh adjudication - Delay in filing the Appeal before the First Appellate Authority was condoned and the matter remanded to the Commissioner (Appeals) to decide the Appeals on merits without re-visiting limitation. - HELD THAT: - The Tribunal examined the dates of communication of the Orders-in-Original and noted that although the Appeals were filed beyond the statutory period of sixty days, they fell within the condonable period of thirty days once the correct communication date (07.05.2019) was recorded. The Tribunal accepted the departmental records showing dispatch and receipt, held that the Appeal was within the condonable period, condoned the delay, and remanded the matter to the Commissioner (Appeals) for fresh adjudication on merits without further examining limitation. [Paras 4, 5]

Delay condoned; Appeals remanded to Commissioner (Appeals) to be decided on merits without revisiting limitation.

Coercive recovery measures - freeze of bank accounts - opportunity of hearing - The Tribunal disapproved the Department's coercive steps (including bank account freezes and inconsistent communications to banks), set aside the impugned orders, and directed that the Appeals be remanded with liberty to the parties and a reasonable opportunity of hearing. - HELD THAT: - The Tribunal observed that despite the Appeals being pending before it, the Department had communicated conflicting instructions to banks-first withdrawing and then putting on hold the de-freeze-thereby hampering the assessee's day-to-day business. Noting that substantial amounts had been paid and appropriated in the Order-in-Original, the Tribunal found such actions unwarranted, set aside the impugned orders, remanded the Appeals to the Commissioner (Appeals) for fresh adjudication, disposed of the Miscellaneous Applications (Stay), kept all issues open, and directed that the appellant be given a reasonable opportunity to be heard and allowed both sides to place evidence. [Paras 6, 7]

Impugned orders set aside; Appeals remanded; Miscellaneous Applications (Stay) disposed of; reasonable opportunity of hearing to be granted; all issues kept open.

Final Conclusion: Early hearing was granted; delay in filing the Appeals was condoned on the basis of corrected communication date and the matters remanded to the Commissioner (Appeals) for fresh adjudication on merits without revisiting limitation; Tribunal set aside the impugned orders, criticised the Department's coercive bank-freeze communications, disposed of the stay applications, and directed that a reasonable opportunity of hearing be afforded with all issues left open.

Advance payment of tax - adjustment of excess payment of tax - Rule 6(1A) of the Service Tax Rules - Rule 6(4A) and Rule 6(4B) of the Service Tax Rules - procedural lapse / venial breach - Article 265 of the Constitution of India

Advance payment of tax - Rule 6(1A) of the Service Tax Rules - procedural lapse / venial breach - adjustment of excess payment of tax - Article 265 of the Constitution of India - Whether admitted deposits of service tax made by the appellant prior to receipt (while raising invoices) qualify as advance payment and are entitled to be adjusted against subsequent liabilities or refunded despite non-compliance with the intimation formalities. - HELD THAT: - The Tribunal (Majority - Member (Judicial)) held that payments made by the appellant at the time of raising invoices, prior to actual receipt, constitute advance payment of service tax in ordinary parlance and fall within the scope of Rule 6(1A). Rule 6(1A) requires intimation to the jurisdictional Superintendent within fifteen days and disclosure in subsequent ST-3 returns; nevertheless, where such payment is admittedly made and adjustment is declared in returns, failure to strictly comply with the procedural proviso is a minor/venial procedural lapse which should not defeat the substantive entitlement to adjustment. The Majority observed that the Adjudicating Authority erred in applying provisions for provisional/excess payments (Rule 6(4)/(4A)/(4B)) instead of Rule 6(1A), ignored the excess payments made in several months, and selectively raised demand only for months with apparent short payment. Reliance was placed on the settled principle that the State cannot retain amounts collected without authority of law; therefore, where net excess/advance tax is established on the record, denial of adjustment or retention by Revenue is contrary to Article 265. The Majority directed month to month adjustment of advance/excess paid tax for the entire disputed period and refund with interest if any net excess remains after adjustments. [Paras 22, 23, 24, 26, 28]

Allowed the appeal: held the payments to be advance/excess tax qualifying for adjustment under Rule 6(1A); procedural non compliance was venial and could not defeat adjustment; directed adjudicating authority to grant adjustments and refund any net excess with interest.

Excess payment of tax - Rule 6(4A) and Rule 6(4B) of the Service Tax Rules - monetary limits and intimation requirement - Whether the appellant's payments should instead be treated as excess payments under Rule 6(4A) subject to the conditions and monetary limits in Rule 6(4B), and if so whether the appellant complied with those conditions. - HELD THAT: - The Member (Technical) dissented, holding that advance payment (Rule 6(1A)), provisional assessment (Rule 6(4)) and excess payment (Rule 6(4A)) are distinct; the show cause notice and impugned order proceeded under Rule 6(4A)/(4B). Rule 6(4B) conditions - no issue of taxability/valuation, registration based unlimited adjustment, prescribed monthly monetary limits (as amended) and mandatory intimation within fifteen days - must be satisfied. On the record there was no intimation to the Superintendent and the amounts sought to be adjusted in many months far exceeded the monetary limits in Rule 6(4B); consequently entitlement under Rule 6(4A)/(4B) was not made out and the Tribunal could not relax or re write the Rules. For these reasons the dissenting Member would have sustained the impugned order. [Paras 32, 33, 36, 37, 38]

Dissenting view: payments are excess payments under Rule 6(4A); appellant failed to comply with Rule 6(4B) (intimation and monetary limits), hence adjustment not allowable and impugned order should be sustained.

Difference of opinion - referral to third Member - Whether the difference of opinion between the Members on the applicable rule and entitlement to adjustment should be referred to a third Member for determination. - HELD THAT: - A formal difference of opinion exists between the Members on (a) whether the payments qualify as advance tax under Rule 6(1A) or as excess payments under Rule 6(4A)/(4B), and (b) whether procedural non compliance can be condoned. Consequently, the Registry was directed to place the matter before the Hon'ble President for appointment of a third Member to resolve the specific questions framed and determine the points of difference. The questions for the third Member (framed in paragraph 40 and earlier) identify the legal and factual permutations requiring adjudication. [Paras 40]

Matter referred to the Hon'ble President for appointment of a third Member to decide the framed questions arising from the difference of opinion between the Members.

Final Conclusion: By majority the appeal was allowed: the Tribunal directed month to month adjustment of the admitted advance/excess payments and refund with interest if any net excess remained, holding procedural non compliance to be venial; a dissenting Member disagreed, treating the payments as excess under Rule 6(4A)/(4B) and finding non compliance with those conditions; the matter was referred to a third Member to resolve the difference of opinion and determine the specific questions framed.

Service tax demand - classification of advances under Rule 3 of the Service Tax (Determination of Value) Rules, 2006 - proof of receipt of advances and correct ledger interpretation - interest under Section 75 of the Act - penalty under Section 78 of the Finance Act, 1994

Service tax demand - classification of advances under Rule 3 of the Service Tax (Determination of Value) Rules, 2006 - proof of receipt of advances and correct ledger interpretation - Validity of the service tax demand founded on the allegation that the appellant received advances from an associated company and the consequent application of Rule 3. - HELD THAT: - The Tribunal found that the Department's case rested on a mistaken reading of the appellant's ledgers: amounts shown in the records were advances given by the appellant to the associated company and not advances received by the appellant. The appellant had specifically pleaded this position in its written reply to the Show Cause Notice and reiterated it at personal hearing; the audit team and the SCN misconstrued debits as credits. The impugned order recorded findings opposite to the documentary evidence and confirmed the demand without giving reasons for rejecting the appellant's documented submissions. Since the foundational fact for invoking Rule 3 and raising the service tax demand was factually incorrect, the demand and consequential orders could not be sustained.

The Tribunal allowed the appeal and set aside the impugned order confirming the service tax demand (and consequential interest and penalty founded on that demand).

Final Conclusion: The appeal is allowed; the impugned order dated 28.02.2018 is set aside and consequential relief granted to the appellant, the demand being founded on a mistaken ledger interpretation and contrary to the appellant's documented case.

Re-credit of Cenvat credit - suo motu reversal of Cenvat entry - account-entry reversal does not equate to refund claim - refund under Section 11B of the Central Excise Act, 1944 - input service credit - input services enumerated under Rule 6(5) of the Cenvat Credit Rules, 2004 - unjust enrichment - neutralisation of cash payment by reversal of earlier Cenvat debit

Re-credit of Cenvat credit - suo motu reversal of Cenvat entry - account-entry reversal does not equate to refund claim - neutralisation of cash payment by reversal of earlier Cenvat debit - Validity of the re-credit to the appellant's Cenvat account consequent to subsequent payment of duty in cash and whether such re-credit could be disallowed despite factual payment in cash. - HELD THAT: - The Tribunal found that the appellant had, after earlier utilising Cenvat credit to discharge service tax liabilities, paid the duty subsequently in cash from its PLA/current account and accordingly re-credited the earlier Cenvat debit entry. The adjudicating authority nevertheless disallowed the re-credit and confirmed duty, even though there was no dispute that duty was later discharged in cash. The Tribunal held that where duty has been paid in cash, earlier payments effected through the Cenvat account are liable to be re-credited to neutralise the earlier accounting adjustment; such a re-credit is essentially an account-entry reversal and does not involve an outflow of funds from the assessee that would attract the remedy of refund proceedings. The Tribunal accepted the reasoning of the Hon'ble High Court of Madras in ICMC Corporation Ltd. v. CESTAT [reported in 2014 (302) ELT 45 (Mad.)], which treats suo motu reversal as a technical adjustment not requiring filing of a refund claim under Section 11B, and rejected Revenue's objection that the re-credit could be denied on the ground that it was not supported by an eligible document. Applying that principle to the facts, the Tribunal concluded that the re-credit was permissible and the disallowance could not be sustained. [Paras 5, 7]

The re-credit of the Cenvat account consequent to subsequent cash payment of duty was held valid; the impugned orders disallowing the re-credit were set aside.

Refund under Section 11B of the Central Excise Act, 1944 - account-entry reversal does not equate to refund claim - unjust enrichment - input service credit - input services enumerated under Rule 6(5) of the Cenvat Credit Rules, 2004 - Whether the appellant was required to pursue a refund claim under Section 11B for the amount re-credited, and whether the concept of unjust enrichment applied to the account-entry reversal. - HELD THAT: - Relying on the Madras High Court's decision, the Tribunal accepted that a suo motu reversal of a Cenvat entry constitutes only an account adjustment and does not cause any outward flow of funds that would make Section 11B applicable. The Tribunal noted that where the reversal pertains to amounts correctly attributable to input services as per Rule 6(5) of the Cenvat Credit Rules, the notion of unjust enrichment is not engaged in a manner that mandates refund proceedings. Consequently, the adjudicating authority's view that the appellant should have sought refund under Section 11B was rejected as inapplicable to an account-entry neutralisation following cash payment of duty. [Paras 5, 6, 7]

No requirement to seek refund under Section 11B for the suo motu account-entry reversal; unjust enrichment principle did not preclude the re-credit.

Final Conclusion: The Tribunal allowed the appeal, set aside the impugned orders disallowing the re-credit of the Cenvat account, and granted consequential relief, holding that a suo motu account-entry reversal after subsequent cash payment of duty is permissible and does not require a refund claim under Section 11B.

Admissibility of CENVAT credit despite invoices not consigned to factory premises - Availment of CENVAT credit on inputs procured prior to registration - Prohibition on denial of substantial benefit for procedural lapses - Application of Board Circular regarding invoices issued in name of registered office/head office

Admissibility of CENVAT credit despite invoices not consigned to factory premises - Application of Board Circular regarding invoices issued in name of registered office/head office - Whether CENVAT credit availed on inputs whose invoices were consigned to the assessee's earlier office address (and did not bear the registered manufacturing unit address) could be disallowed solely on that ground. - HELD THAT: - The Tribunal examined the departmental finding that the nine disputed invoices did not bear the address of the registered manufacturing unit and that no documents were produced showing receipt of the goods at the factory. The lower authorities denied credit on this basis. The Tribunal relied upon the Board Circular recognizing cases where goods procured in the domestic market are invoiced in the name of the registered office/head office instead of the manufacturing unit and held that such credits should not be denied where the factual position shows bona fide procurement and single manufacturing unit. The Tribunal further observed that jurisprudence requires that substantial benefit should not be denied on mere procedural lapses. Applying these principles to the present facts, and finding them squarely covered by the cited authority of the High Court, the Tribunal concluded that the absence of the factory address on the invoices was not by itself a ground to disallow the CENVAT credit and set aside the impugned orders. [Paras 4, 5]

The Tribunal allowed the appeal, set aside the impugned orders and held that the disputed invoices could be considered bona fide for the purpose of availing CENVAT credit.

Availment of CENVAT credit on inputs procured prior to registration - Prohibition on denial of substantial benefit for procedural lapses - Interpretation of Rule 3(2) of Cenvat Credit Rules, 2004 and evidentiary requirement for inputs in stock - Whether CENVAT credit based on invoices issued prior to the date of registration (and availed after registration) could be disallowed where the assessee did not maintain quantitative details of inputs as of the date goods became dutiable. - HELD THAT: - The lower authorities relied on Rule 3(2) and the absence of documentary quantification of inputs held on the date the goods ceased to be exempt to disallow the credit. The Tribunal noted the adjudicating authority's reference to Rule 3(2) but placed reliance on the principle that registration as a condition precedent for claiming credit is not mandated by the Cenvat Credit Rules and that substantive rights should not be defeated by procedural omissions. In the circumstances of the case, and having regard to the Board Circular and relevant judicial precedent, the Tribunal found no infirmity in treating the credits as admissible and rejected the disallowance premised solely on the timing of invoice issuance and delayed accounting. [Paras 3, 4, 5]

The Tribunal disallowed the authorities' reliance on the prior issuance of invoices and lacunae in accounting as a ground for denying credit and allowed the claim subject to consequential relief as per law.

Final Conclusion: Impugned orders of disallowance, demand, interest and penalty were set aside; appeal allowed and the disputed CENVAT credit was held admissible with consequential relief as per law.

Principle of natural justice - failure to provide copy of show cause notice - opportunity to make defence reply - personal hearing - remand for fresh adjudication

Principle of natural justice - failure to provide copy of show cause notice - personal hearing - opportunity to make defence reply - remand for fresh adjudication - Whether the adjudication was vitiated for non-supply of the show cause notice and denial of opportunity to defend, and whether the matter should be remanded for fresh adjudication. - HELD THAT: - The Tribunal found from the correspondence on record that the appellants repeatedly requested copies of the show cause notice and sought adjournments to enable them to prepare their defence. The adjudicating authority did not supply the show cause notice to the noticees, thereby denying the fundamental requirement of notice and an opportunity to be heard. Such omission constitutes a violation of the principle of natural justice. In view of this procedural defect the impugned order cannot stand. The appropriate remedy is to set aside the impugned order and remit the matter to the adjudicating authority for fresh adjudication after supplying the show cause notice, granting an opportunity to file a defence reply and allowing personal hearing. The remand is directed to be completed preferably within two months, having regard to the antiquity of the proceedings.

Impugned order set aside; appeal allowed by remand to the adjudicating authority to supply the show cause notice, permit filing of defence reply and grant personal hearing, and pass fresh order preferably within two months.

Final Conclusion: The Tribunal allowed the appeals by setting aside the impugned order as vitiated for denial of the show cause notice and opportunity to be heard, and remanded the matter to the adjudicating authority for fresh decision after supplying the notice, permitting a defence reply and granting personal hearing within the directed timeframe.

Divisible works contract - separation of supply and execution components - tax liability on lump-sum works contract - applicability of notification dated 27.4.1987 where contract description matches schedule

Divisible works contract - separation of supply and execution components - tax liability on lump-sum works contract - applicability of notification dated 27.4.1987 where contract description matches schedule - Whether the works contract for 1989-1990 could be bifurcated into supply of goods and works contract so as to attract tax under the notification dated 27.4.1987. - HELD THAT: - The Court examined the written agreement between the assessee and Auraiya Gas Power Project and found Clause 2.4 and Clause 3 (read with Clause 3.1) expressly provided a consolidated lump-sum payment that included both material and labour for laying the pipeline. Although the Tribunal relied on the work specification/tender to effect a segregation between materials supplied and work executed, the contractual terms did not segregate the contract price into distinct supply and execution components. The notification dated 27.4.1987 applies where the description of the works contract matches the schedule and the statutory conditions are met; it is not applicable where the parties have agreed a lump-sum contract without segregation of material and labour. For these reasons the Tribunal's finding of divisibility and consequent taxation could not be sustained.

The Tribunal's order holding the contract divisible and taxable was set aside; the question of law is answered in favour of the assessee and against the revenue.

Final Conclusion: Revision allowed; the impugned Tribunal order sustaining tax liability on the works contract is set aside because the written contract provided for a lump-sum payment covering both materials and execution and therefore could not be bifurcated for taxation under the notification dated 27.4.1987.

Restoration of assessment order - non-speaking order - remand for fresh consideration - survey report as basis for best judgment assessment - tribunal as last fact-finding authority - revisional jurisdiction and interference with findings of fact

Restoration of assessment order - non-speaking order - remand for fresh consideration - tribunal as last fact-finding authority - revisional jurisdiction and interference with findings of fact - Whether the Tribunal was legally justified in restoring the assessment order instead of remanding the matter to the appellate authority - HELD THAT: - The Tribunal restored the assessment order after recording categorical findings based on the undisputed survey report of 26.09.2015 and admitted particulars of rent, wages and electricity expenses, using those materials to arrive at the turnover and tax liability. The court treated the Tribunal as the last fact-finding forum and held that, in absence of any material produced by the assessee to demonstrate that the authorities acted without jurisdiction or without material, the findings of fact recorded by the Tribunal could not be re-appreciated in revision. The Tribunal's refusal to remand was upheld because it had given elaborate reasoning and reached factual conclusions based on the survey and admitted expenses; those factual conclusions are not amenable to interference in revisional jurisdiction.

Tribunal legally justified in restoring the assessment order; remand not required; findings of fact sustained.

Survey report as basis for best judgment assessment - revisional jurisdiction and interference with findings of fact - Whether the assessment made on best judgment based on the survey report and absence of books justified the tax liability - HELD THAT: - The Assessing Authority relied on the undisputed survey report which recorded 16 persons dining and absence of books of account; the first appellate authority reduced the quantum but the Tribunal restored the assessment after evaluating admitted rent, salaries and electricity charges. The Court held that the Assessing Authority was justified to proceed on the basis of the survey when no accounts were produced, and the Tribunal's fact-based computation founded on those materials cannot be disturbed in revision where no contrary material was placed on record by the assessee.

Assessment based on survey and best judgment sustained; no interference warranted.

Final Conclusion: Revision dismissed; the question of law is answered against the assessee and in favour of the Revenue, the Tribunal's factual findings based on the survey and admitted expenses being upheld and not susceptible to revisional interference.

Proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006 as inserted by Tamil Nadu Value Added Tax (Fifth Amendment) Act No.28 of 2013 - non-applicability of legislative proviso to manufacturers - jurisdiction of High Court under Article 226 of the Constitution - exercise of writ jurisdiction not as a matter of course - circumscription of writ jurisdiction by laches and principles for interference (unfairness, unreasonableness, perversity, want of jurisdiction, violation of natural justice) - application of precedent decision in W.A.No.1260 of 2017 etc. batch

Proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006 as inserted by Tamil Nadu Value Added Tax (Fifth Amendment) Act No.28 of 2013 - non-applicability of legislative proviso to manufacturers - application of precedent decision in W.A.No.1260 of 2017 etc. batch - Validity and applicability of the proviso inserted by Act No.28 of 2013 to Section 19(2)(v) of the TNVAT Act insofar as manufacturers are concerned - HELD THAT: - The writ appeals by the Revenue were disposed of in accordance with the earlier judgment dated 31.03.2022 in W.A.No.1260 of 2017 etc. batch. That earlier decision examined Section 19(2)(ii) and the proviso inserted by Act 28 of 2013 and concluded on its application; on that basis the present appeals were disposed of and the learned Judge's order was set aside insofar as it held the proviso applicable to manufacturers. The present court therefore followed the ratio and directions in W.A.No.1260 of 2017 etc. batch and allowed disposal of these writ appeals in the same terms.

Writ appeals disposed of in terms of the Court's earlier judgment; the proviso inserted by Act No.28 of 2013 is not applied to manufacturers as concluded in W.A.No.1260 of 2017 etc. batch.

Jurisdiction of High Court under Article 226 of the Constitution - exercise of writ jurisdiction not as a matter of course - circumscription of writ jurisdiction by laches and principles for interference - Scope and parameters for exercise of writ jurisdiction under Article 226 in tax matters - HELD THAT: - The Court applied the principles articulated in the earlier reported decision: while the High Court has wide powers under Article 226, those powers are not to be exercised as a matter of course where efficacious alternative remedies exist; the writ jurisdiction is to be exercised within the broad parameters of intervening where there is unfairness, unreasonableness, perversity, lack of jurisdiction, or violation of principles of natural justice, and is also circumscribed by the doctrine of laches as applied to the facts of each case. The present batch was disposed by applying these principles as set out in W.A.No.1260 of 2017 etc. batch.

The Court applied the established parameters for entertaining writ petitions in tax matters and disposed the appeals consistent with that approach.

Final Conclusion: The writ appeals filed by the Revenue are disposed of in terms of this Court's earlier judgment in W.A.No.1260 of 2017 etc. batch; the proviso inserted by Act No.28 of 2013 was not applied to manufacturers in accordance with that precedent. No costs; connected miscellaneous petitions closed.

Branch transfer - interstate sale - burden of proof / initial burden on the assessee and onus on the department to prove a concluded contract - time bound supply scheme (TBSS) and demand registration scheme (DRS) not constituting an offer of sale by themselves - verification of each transaction

Branch transfer - interstate sale - time bound supply scheme (TBSS) and demand registration scheme (DRS) not constituting an offer of sale by themselves - Whether movements of goods from the Rourkela Steel Plant to branches outside Odisha under the TBSS/DRS for the year 1988-89 amounted to interstate sales or were branch transfers - HELD THAT: - The Court accepted the assessee's evidence that the transactions for 1988-89 were stock/branch transfers to its branches outside the State and were thereafter offered for sale in those States. The Court noted the CSTAA's view that the TBSS is a framework and cannot, by itself, be characterized as an offer of sale or an agreement of sale. Applying the principle in Tata Engineering and Locomotive Co. Ltd., once the assessee discharged the initial burden of showing branch transfers, it was for the Department to produce material demonstrating that the movement resulted from a concluded contract with an out-of-state customer. The Department failed to point to any document creating such a concluded contract for the transactions under challenge for 1988-89. Consequently, the Court held that the transactions for that year were branch transfers and not interstate sales. [Paras 5, 6, 10, 11, 12]

Transactions for 1988-89 were branch transfers and did not amount to interstate sales.

Burden of proof / initial burden on the assessee and onus on the department to prove a concluded contract - verification of each transaction - Whether the Department had discharged the onus of proving that the movements were pursuant to concluded contracts such as to make them interstate sales, and whether the matter should be remanded to the Tribunal for verification of each transaction - HELD THAT: - The Court reiterated that each transaction ordinarily requires examination to determine its true character, and that decisions in other years need not bind the present year since facts may differ transaction by transaction. However, in the present record for 1988-89 the assessee had discharged its initial burden of proof and the Department had not produced any material to show concluded contracts leading to interstate sales. Given the Department's inability to point to evidence raising a legitimate doubt about the character of the transactions, and in view of the prolonged delay (about 35 years), the Court declined to remit the matter to the Tribunal for fresh verification of each transaction for 1988-89. [Paras 9, 11, 12]

Department failed to discharge its onus; no remand to the Tribunal was directed for the year 1988-89.

Final Conclusion: The revision petition is allowed: the impugned orders are set aside and, for the year 1988-89, the transactions in question are held to be branch transfers not amounting to interstate sales; the Department remains free to establish otherwise in respect of subsequent years on their own facts.

Permission to adduce evidence in Section 34 proceedings - summary proceeding under Section 34 - pre-amendment applicability of Section 34(2)(a) - furnish proof versus establish on the basis of record of the arbitral tribunal - conflict with public policy under Section 34(2)(b) - exceptional circumstances to admit additional evidence - scope of judicial review in Section 34

Pre-amendment applicability of Section 34(2)(a) - furnish proof versus establish on the basis of record of the arbitral tribunal - Pre-amendment provision of Section 34(2)(a) applies to arbitration proceedings and awards concluded before the 2019 amendment. - HELD THAT: - The Court held that where arbitration proceedings commenced and the award was declared prior to the amendment by Act 33/2019, the pre-amendment formulation of Section 34(2)(a) (requiring the applicant to "furnish proof") governs the Section 34 challenge. The 2019 substitution of "furnishes proof" with "establishes on the basis of the record of the arbitral tribunal" effects a substantial change; hence the amended provision is not applied retrospectively to proceedings already concluded. The concession before the High Court that pre-amendment law applies was accepted and independently upheld on the ground of substantial change by the amendment. [Paras 6]

Pre-amendment Section 34(2)(a) governs the present proceedings.

Permission to adduce evidence in Section 34 proceedings - summary proceeding under Section 34 - exceptional circumstances to admit additional evidence - scope of judicial review in Section 34 - Whether, under pre-amendment Section 34, a party may be permitted to file affidavits or adduce additional evidence in an application to set aside an arbitral award. - HELD THAT: - Relying on this Court's decisions, the Court reiterated that Section 34 proceedings are summary in nature and ordinarily require nothing beyond the record before the arbitrator. However, in exceptional cases where matters relevant to determination under Section 34(2)(a) do not form part of the arbitral record, such matters may be placed before the court by affidavit. Cross-examination of affidavit-makers should be avoided unless absolutely necessary. Thus admission of additional evidence is permissible only in exceptional circumstances and subject to procedures ensuring expedition and fairness, including allowing the opposing party to lead contrary evidence or cross-examine if warranted. [Paras 8, 11, 12]

Additional evidence by affidavit may be permitted in exceptional cases under pre-amendment Section 34, but ordinarily the court will decide on the basis of the arbitral record.

Conflict with public policy under Section 34(2)(b) - permission to adduce evidence in Section 34 proceedings - Whether evidence may be led in Section 34 to establish that an award is in conflict with public policy or that the subject-matter is not arbitrable, and whether subsequent events may be considered in Section 34. - HELD THAT: - The Court held that a challenge under Section 34(2)(b) (including conflict with public policy or non-arbitrability) can be agitated in a Section 34 application and, in a given case, may require evidence to establish the ground. Although some relevant facts (such as subsequent administrative refusals) will not be in the arbitral record, if such facts are material to showing the award conflicts with public policy or is not arbitrable, they may warrant admission by way of affidavit in an exceptional case. The possibility of raising executability in execution proceedings does not preclude agitating public policy grounds in Section 34. [Paras 9, 10, 11]

Evidence may be admitted in Section 34 to establish public policy or non-arbitrability where necessary; subsequent events relevant to those grounds can be considered in Section 34 in appropriate cases.

Final Conclusion: The High Court rightly permitted the respondents to file affidavits/additional evidence in the Section 34 proceedings (the appeal is dismissed); such evidence admission is confined to exceptional cases, the appellant may lead contrary evidence and seek cross-examination, and the Section 34 application must be decided expeditiously in accordance with the Arbitration Act's object of speedy disposal.

Presumption under Section 139 of the Negotiable Instruments Act - Rebuttable presumption and standard of preponderance of probabilities - Scope of appellate interference in acquittal - Civil standard of preponderance of probabilities as distinct from criminal standard of proof beyond reasonable doubt - Adverse inference for withholding best available evidence - Modification of civil decree to amount deposited

Presumption under Section 139 of the Negotiable Instruments Act - Rebuttable presumption and standard of preponderance of probabilities - Scope of appellate interference in acquittal - Whether the High Court was justified in reversing the trial court's acquittal under Section 138 of the N.I. Act and convicting the appellant. - HELD THAT: - The Court applied the settled principle that once execution of a cheque is admitted, Section 139 raises a rebuttable presumption that the cheque was issued for discharge of a debt, and the accused must raise a probable defence on the preponderance of probabilities. Having examined the evidence, including certified income-tax returns and defence witnesses, the Trial Court had found the complainants lacked the financial capacity to have made the alleged loans and that the defence had rebutted the Section 139 presumption on the balance of probabilities. This Court held that the defence satisfied the preponderance standard and that the High Court was not justified in upsetting the acquittal unless the Trial Court's appreciation was perverse. Accordingly, the convictions recorded by the High Court were quashed and the Trial Court's order of acquittal was restored. [Paras 25, 26, 27]

Criminal Appeal Nos.1978 of 2013 and 1990 of 2013 allowed; High Court conviction and sentence set aside and trial court's acquittal confirmed.

Civil standard of preponderance of probabilities as distinct from criminal standard of proof beyond reasonable doubt - Adverse inference for withholding best available evidence - Modification of civil decree to amount deposited - Whether the High Court was justified in decreeing the suits for recovery on the basis of promissory notes and whether any modification of the decree was warranted. - HELD THAT: - The Court recognised the differing standards of proof in criminal and civil proceedings. Unlike in the criminal cases where promissory notes were not proved, the plaintiffs in the civil suits proved the promissory notes and adduced evidence to establish financial capacity; the High Court, applying the preponderance of probabilities and drawing an adverse inference from the defendants' failure to call the best available evidence, rightly decreed the suits. However, having regard to amounts deposited in this Court during pendency, the Court modified the decrees to restrict recovery to the sums already deposited with interest and directed an apportionment allowing the respondents to withdraw 50% of the deposited amount with accrued interest. [Paras 28, 29, 31]

Civil Appeal Nos.10500 of 2013 and 10501 of 2013 dismissed; High Court decrees upheld but modified to the amounts deposited in this Court with interest, respondents entitled to withdraw 50% each of the deposited sum with interest accrued.

Final Conclusion: The convictions in the criminal appeals are quashed and the trial court's acquittals are restored; the civil appeals are dismissed, with the High Court decrees upheld but modified to limit recovery to the amount deposited in this Court with interest, and respondents permitted to withdraw fifty per cent of the deposited amounts each with accrued interest.