TaxTMI Updates e-Newsletter
Jan 23,2021

Taxability of remuneration paid to directors under reverse charge mechanism - Distinction between salary paid to a whole-time/employee director and consideration for services by an independent director - Schedule III exclusion: services rendered by an employee to the employer - Applicability of Notification No. 13/2017 (reverse charge for services supplied by a director) - Treatment of remuneration declared as salaries and subjected to TDS under Section 192 - Remuneration declared separately and subjected to TDS under Section 194J treated as professional/technical services

Taxability of remuneration paid to directors under reverse charge mechanism - Distinction between salary paid to a whole-time/employee director and consideration for services by an independent director - Applicability of Notification No. 13/2017 (reverse charge for services supplied by a director) - Whether remuneration paid to directors is taxable in the hands of the company under the reverse charge mechanism. - HELD THAT: - The Appellate Authority for Advance Ruling considered the CBIC Circular No. 140/10/2020 - GST dated 10.06.2020 and held that remuneration paid to independent directors or directors who are not employees of the company constitutes consideration for services outside Schedule III and is therefore taxable in the hands of the company under the reverse charge mechanism as per Notification No. 13/2017. The authority accepted that services supplied by a director to the company fall within the scope of the notification where the supplier is a director and the recipient is the company located in the taxable territory. Having regard to the circular and the notification, the remuneration paid to non-employee/independent directors attracts GST to be discharged by the company under reverse charge. [Paras 6]

Remuneration paid to independent or non-employee directors is taxable in the hands of the company on reverse charge basis.

Schedule III exclusion: services rendered by an employee to the employer - Treatment of remuneration declared as salaries and subjected to TDS under Section 192 - Remuneration declared separately and subjected to TDS under Section 194J treated as professional/technical services - Whether amounts paid to whole-time/employee directors as salary are taxable, and the treatment of amounts separately declared and subjected to TDS under Section 194J. - HELD THAT: - Relying on CBIC Circular No. 140/10/2020, the authority held that those portions of a director's remuneration which are declared as 'salaries' in the company's books and subjected to TDS under Section 192 of the Income-tax Act are consideration for services by an employee to the employer and thus fall within Schedule III of the CGST Act, 2017, being not taxable. Conversely, any part of an employee-director's remuneration that is declared separately (not as salary) and subjected to TDS under Section 194J as fees for professional or technical services is to be treated as consideration for services outside Schedule III; such amounts are taxable and, under Notification No. 13/2017, the company (recipient) is liable to discharge GST on reverse charge basis. The authority applied these distinctions to the appellant's case and directed the tax treatment accordingly. [Paras 6]

Amounts declared as salary and TDS under Section 192 are not taxable; amounts separately declared and TDS under Section 194J are taxable and payable by the company under reverse charge.

Final Conclusion: The appeal is disposed of by affirming that (a) remuneration paid to independent or non-employee directors is taxable in the hands of the company under reverse charge (Notification No. 13/2017), and (b) remuneration declared as salary and subjected to TDS under Section 192 is not taxable being within Schedule III, whereas amounts separately declared and subjected to TDS under Section 194J are taxable and exigible to reverse charge.

Summary order. Notices issued to Attorney General of India and Advocate General of the State on challenge to vires of amended Rule 89(5) of the Central Goods and Services Tax Rules, 2017 and Uttar Pradesh Goods and Services Tax Rules, 2017; respondents to file counter-affidavits within four weeks and petitioner to file rejoinder within one week thereafter; matter listed in the week commencing 8.3.2021; appearance of counsel recorded as directed.

Maintainability of writ petition in presence of alternate statutory remedy - objections under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 - judicial discretion to treat time-limits as directory - interim protection of attached bank accounts subject to adjudication - liberty to prefer statutory objections with time-bound disposal

Maintainability of writ petition in presence of alternate statutory remedy - objections under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 - Whether the writ petition was maintainable in view of the availability of objections under Rule 159(5) CGST Rules, 2017 and the appropriate course of action. - HELD THAT: - The Court recognised that Rule 159(5) provides an alternate statutory remedy to object to attachments and that the respondents relied upon availability of that remedy to challenge maintainability of the writ. The Court noted precedents where similar challenges under Rule 159(5) were entertained or where the time-limit in the rule was held to be directory. Having considered the parties' contentions, the petitioner elected to withdraw the writ while reserving its rights to avail the statutory remedy. The Court therefore dismissed the petition as withdrawn and granted the petitioner liberty to prefer objections under Rule 159(5) within a specified timeframe, directing the statutory authority to dispose of those objections by a time-bound order in writing. [Paras 4, 10, 11, 14]

Writ petition dismissed as withdrawn with liberty to prefer objections under Rule 159(5) within the time directed and with a direction for time-bound disposal by the Commissioner.

Liberty to prefer statutory objections with time-bound disposal - judicial direction for four-week disposal - The temporal directions to be given for filing and adjudication of objections under Rule 159(5) and the obligation of the Commissioner to record reasons. - HELD THAT: - The Court permitted the petitioner to file objections under Rule 159(5) on or before 22nd January, 2021 and directed the Commissioner to decide those objections by an order in writing on or before 22nd February, 2021. The Commissioner was directed to deal with the objections subject to the petitioner cooperating with statutory summonses and producing required information/documents. The Court recorded the respondents' undertaking on the timeline and imposed the correlative obligation on the petitioner to comply with summons and produce records; the Commissioner, if recording default by the petitioner, must include particulars and dates in the order passed. [Paras 11, 12, 14]

Petitioner granted liberty to prefer objections by the specified date; Commissioner directed to decide objections by the specified date and to record particulars if the petitioner defaults in cooperation.

Interim protection of attached bank accounts subject to adjudication - Interim treatment of the petitioner's attached bank accounts pending disposal of objections under Rule 159(5). - HELD THAT: - The Court directed that the ICICI Bank account and the SBI account with monies therein as on the date of attachment shall remain attached until further orders consequent to the Rule 159(5) proceedings. However, recognising the petitioner's need for working capital and salaries, the Court permitted the petitioner to avail further overdraft facilities in the SBI overdraft account and to withdraw or disburse amounts representing any further overdraft so availed. The respondents were held unable to claim any entitlement to further overdraft amounts already availed in the SBI account prior to this order. [Paras 15, 16]

Existing amounts in the attached accounts to remain attached; petitioner permitted to avail further overdraft in SBI account and to withdraw/disburse amounts representing such further overdraft.

Preservation of parties' substantive rights pending statutory adjudication - Whether parties' substantive contentions are concluded by this order and effect of dismissal of objections under Rule 159(5). - HELD THAT: - The Court clarified that all contentions of the parties remain open and that the petitioner, if aggrieved by the order under Rule 159(5), will have remedies in law including those grounds advanced in the present petition. The Court further clarified that dismissal of the objections under Rule 159(5) would result in the attachment continuing until vacated in appropriate proceedings. [Paras 17]

All substantive contentions preserved; dismissal of objections under Rule 159(5) will entail continuation of attachment until vacated in appropriate proceedings.

Final Conclusion: The writ petition was dismissed as withdrawn; the petitioner was granted liberty to prefer objections under Rule 159(5) by the date directed and the Commissioner ordered to decide them in writing within a further four weeks, subject to the petitioner's cooperation with summonses; the existing attachments remain in place but the petitioner is permitted to avail further overdraft in its SBI account pending adjudication; all substantive rights of the parties are preserved.

Alternative statutory remedy - maintainability of writ petition - exercise of alternative remedy under Section 107 of the Central Goods and Service Tax Act, 2017 - condonation of delay and latches - verification of computerized court order

Alternative statutory remedy - maintainability of writ petition - The writ petition is not maintainable because an efficacious alternative statutory remedy is available to the petitioner. - HELD THAT: - The Court accepted the respondents' objection that the order impugned is amenable to challenge by the alternative remedy provided under the statute, and relied upon earlier judicial authorities to the effect that where an efficacious statutory remedy exists, judicial review by way of writ should not be invoked to bypass that remedy. In the facts and circumstances, the petition was disposed of on the ground that the petitioner must pursue the statutory appellate forum rather than seek relief by writ.

Writ petition disposed for non-availability of extraordinary jurisdiction in the presence of an efficacious alternative statutory remedy.

Exercise of alternative remedy under Section 107 of the Central Goods and Service Tax Act, 2017 - condonation of delay and latches - The petitioner was directed to prefer the statutory appeal within a limited time and the appellate authority was directed to entertain the appeal, ignoring delay and latches if statutory requirements are otherwise complied with. - HELD THAT: - Rather than finally adjudicating the disputed tax liability, the Court directed that the petitioner may prefer the statutory appeal within one month. The Court further directed that if such appeal is filed along with other statutory requirements, the appellate authority shall entertain it in accordance with law and shall ignore any delay and latches in the matter, thereby affording the petitioner an opportunity to have the matter considered by the competent appellate forum.

Petitioner to file statutory appeal within one month; appellate authority to entertain the appeal and condone delay/laches insofar as permitted by law.

Verification of computerized court order - The Court prescribed the procedural requirement for filing a computer-generated copy of the High Court order and for verification by the concerned authority. - HELD THAT: - The Court directed that the party shall file a computer-generated copy of the order downloaded from the High Court website, self-attested by the petitioner along with a self-attested identity proof (preferably Aadhaar) indicating the mobile number linked to that Aadhaar. The concerned Court/Authority/Official is to verify the authenticity of the computerized copy from the High Court website and make a written declaration of such verification. This procedural mechanism was imposed to ensure authenticity of the copy relied upon before the appellate authority.

Filing of computer-generated copy with self-attested identity proof required; authority to verify authenticity and record its verification in writing.

Final Conclusion: Writ petition disposed on the ground that an efficacious statutory remedy under Section 107 CGST Act, 2017 is available; petitioner directed to prefer the statutory appeal within one month, appellate authority directed to entertain the appeal and, where applicable, ignore delay/latches, subject to statutory requirements, and procedural safeguards prescribed for filing and verification of the computerized copy of this order.

Detention and release under Section 129 - confiscation under the Central Goods and Services Tax regime - consideration of reply to a show cause notice - right to inspect incriminatory material - opportunity of personal hearing in adjudicatory proceedings

Detention and release under Section 129 - consideration of reply to a show cause notice - Respondents directed to consider the petitioner's replies to proceedings initiated under Section 129 and to the show cause notice under Section 130 afresh in terms of W.P.No.10832/2020. - HELD THAT: - The Court disposed of the petition by directing that, insofar as the procedure for proceeding under Sections 129 and 130 is concerned, the respondents shall proceed in accordance with the observations and directions contained in W.P.No.10832/2020. The respondents are required to consider the reply already submitted by the petitioner under Section 129(3) and the reply to the show cause notice under Section 130. Further proceedings under Section 130 are to be taken only after the petitioner furnishes its reply and the replies are considered in accordance with the Court's directions in the cited order. The contentions of the parties have been kept open for consideration during that process.

Petition disposed directing fresh consideration of the petitioner's replies to the detention order under Section 129 and to the show cause notice under Section 130 in terms of W.P.No.10832/2020.

Right to inspect incriminatory material - consideration of reply to a show cause notice - Petitioner permitted to request access to incriminatory material and respondents directed to consider and supply information permissible to be shared, with specified timelines for exchange and decision. - HELD THAT: - The Court granted the petitioner leave to address a representation seeking incriminatory material within three days. The respondents must consider such request as per law and, where permissible, share the information. Thereafter the petitioner is to furnish its reply to the show cause within three days from the date the information is shared. The respondents are directed to take a decision thereafter within one week. This directs a limited remand for disclosure (to the extent legally permissible), filing of a considered reply, and expeditious adjudication within fixed short timelines.

Request to inspect incriminatory material permitted to be made; respondents to consider and share permissible material, after which petitioner to reply within three days and respondents to decide within one week.

Opportunity of personal hearing in adjudicatory proceedings - consideration of non-examination requests - Respondents to afford an opportunity of personal hearing when considering the reply to the show cause notice and to consider the petitioner's request for non-examination in accordance with law. - HELD THAT: - The Court recorded the respondents' undertaking to afford a personal hearing while considering the reply to the show cause notice. It also directed that any request by the petitioner for non-examination will be considered in accordance with legal principles. These directions ensure procedural fairness by mandating a hearing and by requiring due consideration of the petitioner's procedural requests during adjudication.

Respondents to provide personal hearing and to consider any request for non-examination as per law while adjudicating the show cause proceedings.

Final Conclusion: Writ petition disposed with directions that the respondents shall, in accordance with the observations and directions in W.P.No.10832/2020, consider the petitioner's replies to the detention order and the show cause notice, permit a request for incriminatory material (to be considered and supplied as permissible), allow a short period for the petitioner to file a reply, afford a personal hearing, and decide the matter within the timelines directed by the Court; other contentions left open.

Passing on of benefit of tax rate reduction by commensurate reduction in prices - anti-profiteering under Section 171 of the CGST Act, 2017 - denial of input tax credit (ITC) and its impact on base price - methodology for computation of profiteering where invoice-level data is unavailable - liability of registered person/franchisee to comply with Section 171 - inclusion of tax component in computation of profiteered amount - period of investigation for computation of profiteered amount - non-retroactivity of penalty newly inserted after the period of alleged violation

Passing on of benefit of tax rate reduction by commensurate reduction in prices - anti-profiteering under Section 171 of the CGST Act, 2017 - Respondent failed to pass on the commensurate benefit of reduction in GST rate to consumers and contravened Section 171(1) of the CGST Act, 2017. - HELD THAT: - The Authority found that the GST rate on restaurant services was reduced from 18% to 5% w.e.f. 15.11.2017 and that the respondent increased base prices of a large number of items on the intervening night. Comparison of pre- and post-rate reduction Menu Price Lists showed that for 115 of 137 items the base price increase exceeded the percentage impact of denial of ITC. Given Section 171(1) mandates passing on tax rate reduction/ITC benefit by way of commensurate reduction in prices (i.e., reduction in final price payable by each recipient), the respondent's conduct amounted to denial of benefit to consumers. The Authority therefore held profiteering established for the investigation period. [Paras 14, 17, 28, 32, 33]

Profiteering established; respondent contravened Section 171(1) for the period 15.11.2017 to 30.06.2019.

Denial of input tax credit (ITC) and its impact on base price - ratio of ITC to taxable turnover - The correct methodology was to determine the impact of denial of ITC by computing the ratio of ITC availed to net taxable turnover for the pre-rate reduction period and apply that percentage to assess commensurate price adjustment. - HELD THAT: - DGAP computed ITC availed (July-Oct 2017) of Rs.4,54,734 against outward taxable turnover of Rs.47,18,983 to arrive at an ITC/turnover ratio of 9.64%. The Authority accepted that ITC 'availed' (not 'utilized') is the appropriate metric because availment reflects inputs/input services attributable to outward supplies and utilization depends on a registrant's choice. The respondent's alternative calculation (9.86%) was rejected due to inclusion of ITC attributable to the whole of November 2017 and inclusion of compensation cess credit which was not lawfully usable for output tax discharge. [Paras 16, 31, 34, 36]

ITC-to-turnover ratio of 9.64% for the pre-rate reduction period is correctly used to determine denial-of-ITC impact.

Methodology for computation of profiteering where invoice-level data is unavailable - use of Menu Price Lists and quantities sold - Where invoice-wise pre- and post-change data are not furnished or are unusable, computation of profiteering on the basis of comparative Menu Price Lists and available sold quantities is appropriate. - HELD THAT: - Respondent failed to provide invoice-wise outward supply data in usable format (claimed system crash; invoices later submitted as non-editable PDFs and inconsistent product descriptions). The Authority held that deliberate withholding/mis submission of data justified DGAP's use of Menu Price Lists verified on sample invoices and sold quantity data to compute profiteering. Given these circumstances, the alternative average-price comparison method could not be applied. [Paras 6, 10, 18, 30, 31]

DGAP's methodology of using Menu Price Lists together with available quantity data for computation of profiteered amount in these circumstances is appropriate and reasonable.

Liability of registered person/franchisee to comply with Section 171 - A franchisee who is a separate GST registrant and avails ITC is individually liable to comply with Section 171 and cannot shift that responsibility to the franchisor. - HELD THAT: - The respondent claimed prices were fixed by franchisor. The Authority noted respondent held separate GST registration and availed ITC; no cogent evidence was produced to show lack of control over pricing. Section 171 responsibility rests on the registered supplier who availed the benefit and therefore cannot be displaced. [Paras 22, 37]

Respondent (franchisee) is personally responsible for passing on the benefit and cannot shift liability to franchisor.

Inclusion of tax component in computation of profiteered amount - price includes base price and tax for purposes of Section 171 - The element of GST collected from consumers on the excess base price is properly included in the profiteered amount. - HELD THAT: - Section 171 requires passing on benefit by way of commensurate reduction in price, which includes both base price and tax. If a supplier charged excess base price post-rate reduction, it also collected excess tax on that excess base price; inclusion of that tax in the profiteered amount is correct because the supplier could have refunded it or adjusted by credit notes notwithstanding subsequent payment to government. [Paras 13, 45]

GST on the excess (profiteered) base amount is to be treated as part of the profiteered amount.

Period of investigation for computation of profiteered amount - The investigation period from 15.11.2017 to 30.06.2019 is appropriate and profiteering is to be computed for that full period. - HELD THAT: - Respondent had increased base prices w.e.f. 15.11.2017 and did not demonstrate passing on of benefit at any date up to 30.06.2019. The Authority observed that profiteering continued throughout this period and that DGAP's consistent practice to take investigation up to the latest month of receipt of Standing Committee reference (June 2019) is not arbitrary. Exclusion of later months suggested by respondent was rejected. [Paras 4, 21, 44]

Profiteering computed for and upheld across 15.11.2017 to 30.06.2019.

Computation and deposit of profiteered amount - consumer welfare fund deposit and interest - The profiteered amount is Rs. 6,85,531 (inclusive of GST on the profiteered base) and, as recipients are not identifiable, the respondent is directed to deposit the amount in equal parts in the Central and State Consumer Welfare Funds with interest at 18% from dates of realization. - HELD THAT: - On the basis of DGAP's item-wise computations (Annexure-15) and accepted methodology, the Authority determined the net higher sale realization due to base price increases (including GST on that excess) to be Rs.6,85,531 for the investigation period. Recipients could not be identified; under Rule 133(3)(c) the amount is to be deposited in Consumer Welfare Funds in two equal parts, with interest at 18% computed from dates of realization until deposit, within three months, failing which recovery by Commissioners is directed. [Paras 21, 33, 47, 49]

Respondent directed to deposit Rs. 6,85,531 in equal parts to Central and Maharashtra State Consumer Welfare Funds with interest @18% within three months.

Non-retroactivity of penalty newly inserted after the period of alleged violation - Penalty under Section 171(3A) cannot be imposed because that penal provision was inserted w.e.f. 01.01.2020 and was not in force during the period 15.11.2017 to 30.06.2019. - HELD THAT: - Although profiteering offence under Section 171(3A) exists, the Authority observed the penal provision was introduced after the period of alleged contravention. Principle of non-retroactivity prevents imposing that penalty for past conduct; consequently no notice for penalty under Section 171(3A) is required. [Paras 48]

No penalty under Section 171(3A) is imposed for the investigation period as that provision was not in force then.

Final Conclusion: The Authority upheld DGAP's finding of profiteering for the period 15.11.2017 to 30.06.2019, confirmed the computation methodology adopted given the respondent's failure to furnish usable invoice-level data, fixed the profiteered amount at Rs. 6,85,531 (including GST on the excess) and directed deposit of the amount in equal parts to the Central and Maharashtra State Consumer Welfare Funds with interest @18% within three months; penal notice under Section 171(3A) was not issued because that provision was not in force during the relevant period.

Unexplained cash credit under section 68 - verification of opening balance versus receipt in the year under consideration - identity and creditworthiness of creditor - remand for limited verification - adhoc disallowance of expenses - reasonable percentage disallowance - recurring expenditure not disallowable on percentage basis

Unexplained cash credit under section 68 - verification of opening balance versus receipt in the year under consideration - identity and creditworthiness of creditor - remand for limited verification - Addition of Rs. 5,45,000 treated as bogus sundry creditor was not finally decided and is remanded for limited verification whether the amount was an opening balance brought forward from the preceding year. - HELD THAT: - The Assessing Officer made an addition treating the Rs. 5,45,000 shown as unsecured loan from Smt. Sharda Singh as a bogus sundry creditor after issuing notices and recording that the assessee failed to furnish requisite explanations. The assessee, before the Tribunal, produced ledger showing the amount as an opening balance and referred to the assessment for A.Y. 2013-14 where the loan's genuineness was not doubted. The CIT(A) confirmed the addition without examining the specific contention that no fresh loan was introduced in the year under appeal and that the amount was brought forward. Where an alleged cash credit is claimed to be an earlier year balance and the earlier assessment did not doubt its genuineness, that fact requires verification before treating it as a bogus credit for the subsequent year. For these reasons the matter is not finally adjudicated on merits and is remanded to the CIT(A) for the limited purpose of verifying from records whether the amount was only an opening balance brought forward and, if so, to decide the issue afresh. [Paras 5]

Issue remanded to the CIT(A) to verify whether the Rs. 5,45,000 was an opening balance brought forward from the preceding year and to decide the question afresh.

Adhoc disallowance of expenses - reasonable percentage disallowance - recurring expenditure not disallowable on percentage basis - Validity and extent of adhoc disallowance of 25% of certain expenses reduced by the CIT(A) to 5% were examined and modified. - HELD THAT: - The Assessing Officer disallowed 25% of specified expenses on an adhoc basis because supporting vouchers were not produced and there was a fall in gross and net profit. The Tribunal held that a decline in GP and NP is a trigger for verification but cannot, by itself, justify blanket percentage disallowance without enquiry. Recurring payments such as shop and office rent cannot be disallowed on a percentage basis where they are not inherently doubtful. Accordingly, the Tribunal deleted the 5% disallowance confirmed by the CIT(A) insofar as it related to shop and office rent. For the other expense heads, where the assessee failed to produce supporting bills and vouchers, a limited 5% disallowance as fixed by the CIT(A) was held to be reasonable and is sustained. [Paras 10, 11]

Adhoc disallowance of 25% reduced; 5% disallowance deleted in respect of shop and office rent and sustained at 5% for the other specified expenses.

Final Conclusion: Appeal partly allowed: the addition of Rs. 5,45,000 is remanded to the CIT(A) for limited verification whether it was an opening balance brought forward; the adhoc 25% disallowance is reduced - the 5% disallowance confirmed by the CIT(A) is deleted for shop and office rent and sustained at 5% for other expenses.

Deduction under Section 10A/10B - formation of an undertaking by splitting up or reconstruction of business - transfer of plant and machinery previously used - levy of interest under Section 234D - retrospective application of tax provisions - law applicable as on commencement of the Assessment Year - interest provision as substantive law

Deduction under Section 10A/10B - formation of an undertaking by splitting up or reconstruction of business - transfer of plant and machinery previously used - Assessee entitled to deduction under Section 10B for AY 2000-01 and under Section 10A for AY 2001-02 and 2002-03; disallowance by Assessing Officer was incorrect and reassessment occasioned by an order under Section 263 (for AY 2002-03) does not survive where that order has been set aside. - HELD THAT: - The Tribunal's earlier decision in I.T.A.No.2255/Mds/06, which was confirmed by a Division Bench of this Court, treated the facts as a transfer/shift of existing business to an STPI area and held that such shifting did not amount to formation of a new undertaking by splitting up or reconstruction nor did it involve creation of eligible business by transfer of plant and machinery previously used. Applying that reasoning to the present appeals, the Court held that Clauses (ii) and (iii) of sub section (2) are not attracted and the assessee is therefore entitled to the deduction under Section 10A/10B. Further, because the order passed under Section 263 was set aside, the purported cause of action for reassessment ceased to survive and the reassessment disallowing the deduction was therefore not sustainable. [Paras 5, 6, 7]

Deduction under Section 10A/10B allowed; disallowance and reassessment set aside.

Levy of interest under Section 234D - retrospective application of tax provisions - law applicable as on commencement of the Assessment Year - interest provision as substantive law - Section 234D, inserted with effect from 01.06.2003, operates prospectively and cannot be applied to Assessment Years 2000-01, 2001-02 and 2002-03; interest under Section 234D is not leviable for those years. - HELD THAT: - The Court followed the settled principle that provisions charging interest are substantive and, absent express retrospective language, operate from the date they come into force. Parliament expressly indicated that Section 234D came into effect on 01.06.2003; consequently the amended law applies only from the commencement of the relevant assessment year thereafter (i.e. from AY 2004-05). Reliance on precedents including the Constitution Bench authority concerning the law applicable as on the commencement of the assessment year supported the conclusion that Section 234D cannot be applied retrospectively to assessments relating to years prior to its commencement. [Paras 11, 13, 14]

Section 234D is prospective from 01.06.2003 (applying from AY 2004-05) and is not applicable to AYs 2000-01, 2001-02 and 2002-03.

Final Conclusion: The appeals filed by the Department are dismissed: the assessee is entitled to the deductions under Section 10A/10B for the stated assessment years and interest under Section 234D is not leviable for AY 2000-01, 2001-02 and 2002-03.

Condonation of delay - e-appeal filing - manual appeal reckoned as valid filing - effect of CBDT Circular No.20/2016 as one-time relief - substantive right of appeal

Condonation of delay - e-appeal filing - manual appeal reckoned as valid filing - effect of CBDT Circular No.20/2016 as one-time relief - Whether the Tribunal was correct in treating the manual appeal as effecting filing of the appeal and in condoning the delay in filing the e-appeal, thereby remitting the case for disposal on merits. - HELD THAT: - The Court applied the earlier Division Bench decision in CIT v. A.A. Antony & others, which observed that the CBDT Circular of 2016 constituted a one time measure and, having regard to the factual situation prevailing in 2016, substantive rights of assessees should not be defeated on technical grounds. The Division Bench had held that where the procedural mechanism for e filing was only being rolled out and the Circular extended timelines, appeals that were manually filed or where e filing became functional later could not be summarily rejected for want of e filing within the original limitation period. Repeating that approach, this Court held that, on the facts of the present case, the Tribunal did not err in treating the manual filing as sufficient and in condoning the delay in e filing, and that directing the assessees back to the CIT(A) to seek condonation would have been unduly harsh and would generate further litigation on limitation alone. The Tribunal's exercise of discretion in favour of the assessee was therefore upheld. [Paras 6, 7]

The Tribunal's order condoning delay and treating the appeal as properly filed is affirmed; the appeals are dismissed and substantial questions of law answered against the Revenue following the said precedent.

Final Conclusion: The Revenue's appeal is dismissed; the impugned Tribunal order is confirmed and the substantial questions of law are answered against the Revenue in accordance with the cited Division Bench decision; no costs.

Expenditure wholly and exclusively for the purposes of business or profession - disallowance under Section 40A(2) as excessive or unreasonable - burden on the assessee to prove that remuneration is not excessive and is commensurate with benefit derived - remand for fresh consideration by appellate authority to apply Section 40A(2)

Expenditure wholly and exclusively for the purposes of business or profession - burden on the assessee to prove that remuneration is not excessive and is commensurate with benefit derived - disallowance under Section 40A(2) as excessive or unreasonable - Principle that the assessee bears the burden to prove that remuneration paid to a director was laid out wholly and exclusively for business purposes and that the Assessing Officer may disallow payments which are excessive or unreasonable under Section 40A(2). - HELD THAT: - The Court noted the statutory scheme under Section 37(1) and the scope of Section 40A(2)(a), observed that Section 40A(2) empowers the Assessing Officer to disallow so much of an expenditure as he considers excessive or unreasonable having regard to fair market value, legitimate needs of the business or benefit derived. Accordingly, the burden rests on the assessee to establish that the payment to the Managing Director was incurred wholly and exclusively for business and was not excessive; the Assessing Officer is entitled to examine and disallow expenditure found to be excessive or unreasonable. [Paras 5, 6]

The burden is on the assessee to prove the business purpose and reasonableness of the remuneration; the AO may disallow under Section 40A(2) where expenditure is excessive or unreasonable.

Remand for fresh consideration by appellate authority to apply Section 40A(2) - absence of material to prove procurement of foreign orders - Whether the Commissioner (Appeals) and the Tribunal properly allowed the remuneration paid to the Managing Director without applying Section 40A(2) and despite absence of material showing that the MD procured business from Italy and other European countries; and the appropriate disposal of the matter. - HELD THAT: - The Court found that the Assessing Officer had disallowed the remuneration mainly on the ground of limited physical presence of the Managing Director, a finding which was set aside by the Commissioner (Appeals) and affirmed by the Tribunal on the basis that the MD secured foreign sales. The Court observed that the lower authorities failed to show that the assessee had produced material proving that the MD procured business from Italy and other European countries and that they did not take into account the applicability of Section 40A(2). In these circumstances the Court quashed the orders of the Commissioner (Appeals) and the Tribunal and remitted the matter to the Commissioner (Appeals) to decide the appeal afresh after taking into account Section 40A(2) and the absence of material to demonstrate procurement of foreign business by the MD. [Paras 7]

Orders of the Commissioner (Appeals) and the Tribunal are quashed and the matter is remitted to the Commissioner (Appeals) for fresh adjudication applying Section 40A(2) and considering the lack of material that the MD procured foreign business.

Final Conclusion: The substantial question is answered by holding that the assessee bears the burden to prove that remuneration paid to the Managing Director was wholly and exclusively for business and not excessive; because the lower authorities did not apply Section 40A(2) nor did the assessee produce material to show procurement of foreign orders, their orders are quashed and the matter is remitted to the Commissioner (Appeals) for fresh decision.

Validity of notice under Section 274 read with Section 271(1)(c) - requirement to specify limb (concealment of income or furnishing inaccurate particulars) - Penalty in search cases and applicability of Section 271AAB - Quashing of penalty for defective notice

Validity of notice under Section 274 read with Section 271(1)(c) - requirement to specify limb (concealment of income or furnishing inaccurate particulars) - Quashing of penalty for defective notice - Whether the penalty levied under Section 271(1)(c) could be sustained where the notice under Section 274 read with Section 271(1)(c) did not specify which limb of the provision (concealment of particulars of income or furnishing inaccurate particulars) was invoked. - HELD THAT: - The Tribunal found that the notice dated 20/06/2014 did not specify whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars. The Assessing Officer's assessment order likewise did not identify the specific limb. The Tribunal followed the legal principle that a notice under Section 274 read with Section 271(1)(c) must indicate which limb is invoked, relying on the ratio accepted by the courts in the decisions discussed in the judgment. Because the inappropriate words in the penalty notice had not been struck out and the notice was therefore defective, the initiation of penalty proceedings under Section 271(1)(c) was held to be null and void. The Tribunal noted that the case concerned search proceedings and observed that a separate statutory provision for penalty in search cases, Section 271AAB (effective after 01.07.2012), was available and had not been considered by the Assessing Officer, reinforcing that the penalty under Section 271(1)(c) was not sustainable on the facts of the case. Accordingly, there was no need to examine the merits of concealment or inaccuracy once the foundational defect in the notice was established. [Paras 7, 8]

The penalty under Section 271(1)(c) was quashed as the notice under Section 274 read with Section 271(1)(c) was defective for not specifying the limb invoked; the CIT(A) order confirming the penalty was set aside and the Assessing Officer was directed to cancel the penalty.

Final Conclusion: The appeal is allowed: the penalty levied under Section 271(1)(c) for assessment year 2008-09 is quashed because the notice under Section 274 read with Section 271(1)(c) failed to specify whether proceedings were for concealment of particulars of income or for furnishing inaccurate particulars, and the Assessing Officer did not invoke the statutory search-specific penalty provision (Section 271AAB).

Exemption under section 10(38) for long-term capital gains - unexplained cash credit under section 68 - evidentiary value of statements recorded under section 133A - right to cross examination / principle of natural justice - privity of contract in stock exchange online transactions - onus on assessing officer to corroborate third party statements - additions not sustainable on mere suspicion, conjecture or surmise

Exemption under section 10(38) for long-term capital gains - unexplained cash credit under section 68 - privity of contract in stock exchange online transactions - additions not sustainable on mere suspicion, conjecture or surmise - Addition treating claimed long term capital gains as unexplained cash credit was not sustainable and was to be deleted. - HELD THAT: - The assessee had sold shares on recognised stock exchange through online mechanism, paid and received consideration through banking channels, and produced purchase bills, sale contract notes, demat statements and bank statements evidencing movement of shares and funds. The sales were subjected to Securities Transaction Tax and the assessee was a habitual investor with earlier purchases reflected in its balance sheet. The assessing officer relied solely on investigation findings and statements implicating a third party to allege that the gains were bogus, but did not controvert the documentary evidence produced by the assessee or bring cogent material to rebut it. Where sales occur on an exchange with no privity of contract and the transaction documentation and banking trail remain uncontroverted, the exemption claim under section 10(38) cannot be displaced merely by suspicion. The Tribunal applied the settled principle that additions cannot rest on conjecture or third party statements uncorroborated by independent evidence. [Paras 5, 6, 7, 8]

Additions made by the assessing officer treating the LTCG as unexplained cash credit were deleted and the claim under section 10(38) upheld.

Evidentiary value of statements recorded under section 133A - right to cross examination / principle of natural justice - onus on assessing officer to corroborate third party statements - Statements recorded during investigation under section 133A, relied upon by the assessing officer, could not sustain additions in absence of corroborative material and without affording the assessee opportunity of cross examination. - HELD THAT: - The statement of the third party was recorded under section 133A during survey operations and, by itself, lacked evidentiary value unless corroborated by cogent material. The assessee was not named in the investigation report or in the third party statement as having received cash from the alleged entities, and no admission of cash exchange with the assessee was shown. The assessee had specifically requested cross examination of adverse witnesses which was not permitted. The Tribunal relied on authority establishing that denial of opportunity to confront and cross examine witnesses whose statements form the basis of adverse findings violates the principle of natural justice and renders additions unsustainable. Consequently, the assessing officer failed to discharge the onus to substantiate the additions. [Paras 6, 7]

Third party statements recorded under section 133A could not be the sole basis for additions; absence of corroboration and failure to afford cross examination required deletion of the additions.

Exemption under section 10(38) for long-term capital gains - unexplained cash credit under section 68 - For the assessment year 2014 15, being pari materia with the earlier appeal, the same conclusions apply and the departmental appeal was dismissed. - HELD THAT: - The Tribunal noted that facts and issues for AY 2014 15 were identical to those adjudicated in AY 2013 14. The first appellate authority had deleted the additions on similar reasoning and the revenue's appeal raised identical grounds. Having applied the same legal principles and factual findings mutatis mutandis, the Tribunal dismissed the departmental appeal for AY 2014 15 as well. [Paras 9]

Appeal for AY 2014 15 dismissed with the same result as in AY 2013 14.

Final Conclusion: Both departmental appeals against deletion of additions treating claimed long term capital gains as unexplained cash credit were dismissed; the Tribunal upheld the exemption claim under section 10(38) and found that additions based solely on uncorroborated third party statements without opportunity for cross examination were unsustainable.

Unexplained cash deposits - burden to explain sources of cash - telescoping of withdrawals against deposits - unexplained money under section 69A - restoration to Assessing Officer for fresh adjudication

Restoration to Assessing Officer for fresh adjudication - unexplained cash deposits - burden to explain sources of cash - telescoping of withdrawals against deposits - The appeal was restored to the file of the Assessing Officer for fresh consideration and adjudication after affording opportunity to the assessee to produce supporting material. - HELD THAT: - The Tribunal noted that the Assessing Officer made additions treating bank cash deposits totalling Rs. 10,83,000 as unexplained money under section 69A, and that the AO had not given credit for cash withdrawals of Rs. 2,85,000 on 10.05.2014. The CIT(A) had confirmed the addition but did not properly consider the financial statements for the years ending 31.03.2012, 31.03.2013 and 31.03.2014, nor the audit report for assessment year 2010-11. In view of these omissions and in the interest of justice and equity, the Tribunal held that the matter should be remitted so that the AO may examine the financials, the audit report and the claimed opening cash balance, consider the effect of withdrawals vis-a -vis deposits (telescoping), afford the assessee a reasonable opportunity of hearing, and pass a fresh order after the assessee cooperates and furnishes the necessary details. [Paras 9]

The issues are restored to the Assessing Officer for fresh consideration; the assessee to furnish details and cooperate, and the AO to pass a reasoned order after hearing.

Final Conclusion: The appeal is restored to the file of the Assessing Officer for fresh adjudication and is allowed for statistical purposes; the AO is directed to consider the financials, audit report and claimed withdrawals, afford hearing to the assessee and pass a fresh reasoned order.

Condonation of delay - treatment of deposits as unexplained cash under Section 69A - application of presumptive taxation under Section 44AD - taxation of deemed profit at 8% under Section 44AD - classification of specified bank notes deposited during demonetisation

Condonation of delay - Admission of the appeal despite delay in filing. - HELD THAT: - There was a delay of 34 days in filing the appeal against the order dated 29.05.2020. The assessee attributed the delay to the covid-19 pandemic and advanced a reasonable cause for the delay. The Tribunal found the explanation satisfactory and exercised its discretion to condone the delay and admit the appeal.

Delay of 34 days condoned and the appeal admitted.

Treatment of deposits as unexplained cash under Section 69A - application of presumptive taxation under Section 44AD - taxation of deemed profit at 8% under Section 44AD - classification of specified bank notes deposited during demonetisation - Sustainability of the addition treating specified bank notes deposited during demonetisation as unexplained income and the correct tax treatment of the deposits. - HELD THAT: - The AO had made an addition treating specified bank notes of Rs.10,75,500 (out of total deposits of Rs.17,01,000 during demonetisation) as unexplained money and added Rs.8,75,500 as unexplained income, invoking provisions of the Act and taxing as per section 115BBE. The AO also applied presumptive computation under Section 44AD to part of the deposits. The Tribunal noted that the assessee is a tea trader with total bank credits of Rs.59,46,583 for the relevant year, that the AO had accepted Rs.50,71,083 of those credits as business turnover, and that the assessee's turnover was within the threshold attracting Section 44AD (no requirement to maintain books). The Tribunal examined the pattern of bank balances and regularity of deposits and payments both before and after demonetisation, including opening balance and peak credits, and found these facts inconsistent with a finding of non-genuine or unexplained receipts. On these peculiar facts and the AO's own acceptance of substantial turnover as business receipts, the Tribunal held that the deposits of specified bank notes could not be treated as unexplained money. However, the Tribunal directed that the profit embedded in the amount in question be taxed by applying the presumptive rate of 8% under Section 44AD.

The addition of Rs.8,75,500 as unexplained income is deleted; the profit embedded in that amount is to be taxed at 8% under the presumptive scheme (Section 44AD). Appeal partly allowed.

Final Conclusion: Delay in filing the appeal was condoned. On the merits, the addition treating the specified bank notes deposited during demonetisation as unexplained income was deleted on the facts; the profit embedded in the disputed deposits is to be taxed at the presumptive rate of 8% under Section 44AD. The appeal is partly allowed.

Condonation of delay in filing cross-objection - right to urge additional legal ground before the Tribunal under Rule 27 of the ITAT Rules - validity of show cause notice under Section 274 for imposition of penalty under Section 271(1)(c) - distinction between concealment of particulars of income and furnishing inaccurate particulars of income for penalty proceedings - requirement of specific grounds in show cause notice to meet principles of natural justice

Condonation of delay in filing cross-objection - right to urge additional legal ground before the Tribunal under Rule 27 of the ITAT Rules - Whether the delay in filing the assessee's cross-objection should be condoned and whether a legal ground not urged before the CIT(A) can be raised before the Tribunal - HELD THAT: - The Tribunal examined the explanation for the delay in filing the cross-objection and, having regard to the circumstances and the affidavit filed, held the delay to be not inordinate and condoned it. Relying on Rule 27 of the ITAT Rules and the decision of the Supreme Court in NTPC Ltd., the Tribunal held that an assessee may urge a legal ground before the Tribunal for the first time where the ground is purely legal and can be decided on the basis of facts already on record; accordingly, the assessee was permitted to advance the additional legal ground in the cross-objection despite it not having been specifically raised before the CIT(A). [Paras 5]

Delay in filing the cross-objection is condoned and the additional legal ground is admitted for consideration by the Tribunal.

Validity of show cause notice under Section 274 for imposition of penalty under Section 271(1)(c) - distinction between concealment of particulars of income and furnishing inaccurate particulars of income for penalty proceedings - requirement of specific grounds in show cause notice to meet principles of natural justice - Whether the penalty imposed under Section 271(1)(c) is sustainable when the show cause notice under Section 274 did not specify whether the charge was concealment of particulars of income or furnishing inaccurate particulars of income - HELD THAT: - The Tribunal perused the show cause notices for the assessment years concerned and found that the notices were not edited to indicate which limb of Section 271(1)(c) was being invoked; the printed form left both alternatives unstruck. Having considered the Karnataka High Court's decision in CIT v. Manjunatha Cotton and Ginning Factory and subsequent consistent authorities, the Tribunal applied the principles that (a) the existence of the conditions for invoking Section 271(1)(c) must be discernible and the assessee must be made aware of the specific grounds so as to have an opportunity to meet them, and (b) initiating proceedings on one limb and imposing penalty on another is unsustainable. The Tribunal concluded that the defective notice offended principles of natural justice and that penalty imposed on that basis could not be sustained. Although the CIT(A) deleted the penalty on related grounds, the Tribunal upheld the deletion on the ground of the defective show cause notice and therefore confirmed that penalty could not be sustained. [Paras 11, 12, 13, 15]

Imposition of penalty under Section 271(1)(c) is invalid and deleted because the show cause notice under Section 274 did not specify the particular limb of Section 271(1)(c) relied upon, thereby violating principles of natural justice.

Final Conclusion: The Tribunal condoned the delay in filing the assessee's cross-objection and admitted an additional legal ground; on the merits the Tribunal upheld the CIT(A)'s cancellation of penalty for Assessment Years 2005-06 to 2007-08, holding the show cause notices under Section 274 defective for failure to specify the limb of Section 271(1)(c) and therefore unsustainable, and dismissed the Revenue appeals while partly allowing the cross-objections.

Allowability of partners' remuneration under Section 40(b) of the Income Tax Act, 1961 - effect of supplementary partnership deed on entitlement to remuneration - interpretation of partnership deed clauses - consistency in assessment treatment

Allowability of partners' remuneration under Section 40(b) of the Income Tax Act, 1961 - effect of supplementary partnership deed on entitlement to remuneration - interpretation of partnership deed clauses - consistency in assessment treatment - Whether the assessee firm is entitled to claim salary/remuneration of Rs. 2.50 lakhs to partner Smt. Sharmila Dugar for A.Y. 2014-15 in view of the supplementary partnership deed dated 10.05.1996 and the provisions of Section 40(b) of the Act. - HELD THAT: - The Tribunal found that the firm executed a supplementary deed dated 10.05.1996 which amended the original deed and specifically authorised payment of remuneration to working partners to be computed in the manner provided for deduction under Section 40(b) (read with Explanation 3). Clause 10 of the supplementary deed expressly treated both partners as working partners and allocated 50% of the prescribed remuneration to Smt. Sharmila Dugar. The AO and CIT(A) erred in relying on clause 8 of the original 1985 deed, because that clause did not conflict with the amended clause dealing with remuneration and did not negate the entitlement created by the 1996 supplementary deed. Further, the Tribunal noted that similar claims in respect of remuneration to Smt. Sharmila Dugar had been accepted in the assessments from AY 1997-98 up to AY 2014-15, invoking the principle of consistency. On these grounds the Tribunal held that the claim of Rs. 2.50 lakhs paid as salary/remuneration to Smt. Sharmila Dugar was allowable and directed the AO to give effect to the claim. [Paras 5, 6]

The Tribunal allowed the claim of Rs. 2.50 lakhs as salary/remuneration to Smt. Sharmila Dugar and directed the AO to allow the expenditure for A.Y. 2014-15.

Final Conclusion: The appeal is allowed; the Tribunal directs the Assessing Officer to allow the claimed salary/remuneration of Rs. 2.50 lakhs to the partner Smt. Sharmila Dugar for A.Y. 2014-15, on the basis of the 10.05.1996 supplementary partnership deed and consistent prior treatment.

Notice under Section 274 - Penalty under Section 271(1)(c) - Concealment of particulars of income - Furnishing inaccurate particulars of income - Initiation of penalty proceedings - Principles of natural justice - Deeming provisions in Explanation 1(A) & (B)

Rule 27 of the ITAT Rules, 1963 - Condonation of delay - Whether the delay in filing a cross-objection and the late-filed additional ground in the cross-objection should be condoned - HELD THAT: - The Tribunal considered the explanations in affidavits for delay in filing the Revenue's appeals and the assessee's cross-objection. The one day delay in the Revenue's appeals was condoned as not inordinate. With respect to the assessee's 327 day delay in filing the cross-objection, the Tribunal applied Rule 27 permitting an assessee to support the order appealed against on any ground and observed that a legal ground, which can be decided on the basis of facts on record, may be urged before the Tribunal even if not raised before the CIT(A). In view of the nature of the additional legal ground (challenge to the validity of the show cause notice under Section 274), and the precedents permitting raising such legal issues at the Tribunal stage, the Tribunal accepted the explanations and condoned the delay in filing the cross-objection and the additional ground. [Paras 3, 5]

Delay in filing the Revenue's appeal and the assessee's cross objection (including the additional legal ground) was condoned; the assessee could urge the legal ground before the Tribunal.

Notice under Section 274 - Penalty under Section 271(1)(c) - Concealment of particulars of income - Furnishing inaccurate particulars of income - Principles of natural justice - Deeming provisions in Explanation 1(A) & (B) - Validity of the penalty imposed under Section 271(1)(c) where the show cause notice under Section 274 did not specify whether the charge was concealment or furnishing inaccurate particulars - HELD THAT: - The Tribunal examined the show cause notices and held they were in the standard printed form without striking out the inapplicable limb; consequently the notices did not specifically inform the assessee whether proceedings were initiated for concealment or for furnishing inaccurate particulars. Relying on the Karnataka High Court's decision in CIT v. Manjunatha Cotton & Ginning Factory (and subsequent consistent authority), the Tribunal reiterated that notice under Section 274 must state the specific ground under Section 271(1)(c) so the assessee may know and meet the case against him, failing which principles of natural justice are offended. The Court's reasoning-that initiation and imposition of penalty must correspond to the same limb and that mere printed proforma listing all grounds is inadequate-was applied to the facts; because the show cause notices did not specify the exact charge, the imposition of penalty could not be sustained. The Tribunal noted the Karnataka High Court's exposition on discernibility of conditions from assessment or the need for clear direction under the deeming provisions, and concluded that the defect in the notice was fatal to the penalty order. [Paras 11, 15]

Penalty under Section 271(1)(c) quashed because the show cause notices under Section 274 did not specify whether the charge was concealment or furnishing inaccurate particulars; the CIT(A)'s deletion of penalty is upheld (though on different reasoning).

Final Conclusion: The Tribunal condoned the delays and upheld the CIT(A)'s deletion of penalties for Assessment Years 2005-06 to 2007-08 on the ground that the show cause notices under Section 274 were defective for not specifying whether the penalty was proposed for concealment of particulars of income or for furnishing inaccurate particulars, rendering the penalty orders unsustainable; consequently the Revenue appeals are dismissed and the assessee's cross objections are partly allowed.

Allowability of deduction for employees' contribution to PF and ESI - application of Section 43B to employer's payments and its interplay with Section 36(1)(va) and definition under Section 2(24)(x) - precedential effect of coordinate-bench and jurisdictional High Court decisions on identical issue

Allowability of deduction for employees' contribution to PF and ESI - application of Section 43B to employer's payments and its interplay with Section 36(1)(va) and definition under Section 2(24)(x) - precedential effect of coordinate-bench and jurisdictional High Court decisions on identical issue - Deletion of disallowance made for delayed deposit of employees' contribution to PF and ESI - HELD THAT: - The Tribunal upheld the order of the ld. CIT(A) deleting the disallowance made by the Assessing Officer for employees' contributions to PF and ESI deposited after the statutory due date but before the due date of filing the return. The Tribunal relied on a consistent line of decisions of the jurisdictional High Court and coordinate benches of this Tribunal, including the Coordinate Bench's decision in the assessee's own earlier years and reported High Court rulings favourable to the assessee, which interpret the provisions governing such contributions harmoniously and in favour of allowability where payments are made before filing of return. The Tribunal noted the ld. CIT(A)'s reliance on the Coordinate Bench decision in M/s K.S. Automobiles Pvt. Ltd. and observed that earlier High Court decisions which the CIT(A) followed are in favour of the assessee (with a typographical error in one paragraph of that judgment notwithstanding). The Tribunal also followed the Coordinate Bench's view in the assessee's own case for A.Y. 2007-08, confirmed by the High Court subject to any final judgment in the pending SLP, and therefore found no reason to interfere with the deletion of the disallowance. [Paras 5, 7, 8]

The disallowance on account of delayed deposit of employees' contribution to PF and ESI is deleted; the order of the ld. CIT(A) is upheld and the Revenue's appeal is dismissed.

Final Conclusion: The Tribunal, following coordinate-bench and jurisdictional High Court precedents, upheld deletion of the disallowance for delayed payment of employees' PF and ESI contributions (paid before filing return) and dismissed the Revenue's appeal for A.Y. 2016-17.

Applicability of Section 56(2)(vii)(b) to agricultural land - Definition of "property" in Explanation (d) to Section 56(2)(vii) - Capital asset exclusion under Section 2(14)(iii) - Reading Section 56(2)(vii)(b) with Explanation (d)

Applicability of Section 56(2)(vii)(b) to agricultural land - Definition of "property" in Explanation (d) to Section 56(2)(vii) - Capital asset exclusion under Section 2(14)(iii) - Whether the provisions of Section 56(2)(vii)(b) apply to agricultural land situated beyond 8 km of municipal limits which is excluded from the definition of capital asset under Section 2(14)(iii). - HELD THAT: - The Tribunal examined clause (b) of Section 56(2)(vii) read with Explanation (d), which defines "property" as the specified capital assets, including immovable property being land or building or both. The definition of "capital asset" in Section 2(14) excludes agricultural land of the description in clause (iii), i.e. agricultural land situated beyond the specified municipal limits. Where an immovable property does not qualify as a capital asset under Section 2(14)(iii), it falls outside the scope of "property" as defined in Explanation (d) to Section 56(2)(vii). Consequently Section 56(2)(vii)(b), which applies to the value of such "property", cannot be invoked in respect of agricultural land that is excluded from the definition of capital asset. The Tribunal applied this construction to the facts (lands purchased outside 8 km municipal limits) and, agreeing with coordinate decisions of other Benches, directed deletion of the addition made under Section 56(2)(vii)(b). [Paras 10, 11]

The agricultural land purchased outside 8 km of municipal limits is not a capital asset under Section 2(14)(iii); therefore Section 56(2)(vii)(b) is not applicable and the additions under that provision are deleted.

Final Conclusion: Appeals allowed: additions made under Section 56(2)(vii)(b) in respect of agricultural land situated beyond 8 km of municipal limits set aside, and the Assessing Officer directed to delete the addition for the stated assessment years.

Construction of "member" for the purposes of tax exemptions - applicability of section 194A(3)(v) - exemption from TDS on interest paid by a co-operative society to its members - role of State Co-operative Societies Act definition in construing undefined terms in the Income-tax Act - status of "associate member" under the Karnataka Co-operative Societies Act, 1959 - distinction between provisions under section 194A and section 80P of the Income-tax Act - legal effect of CBDT Circular No.9/2002(para 3) where quashed by judicial order

Construction of "member" for the purposes of tax exemptions - applicability of section 194A(3)(v) - exemption from TDS on interest paid by a co-operative society to its members - status of "associate member" under the Karnataka Co-operative Societies Act, 1959 - distinction between provisions under section 194A and section 80P of the Income-tax Act - legal effect of CBDT Circular No.9/2002(para 3) where quashed by judicial order - Associate members of the assessee are "members" within the meaning of section 194A(3)(v) and interest paid to them is exempt from deduction of tax at source. - HELD THAT: - The Court applied the settled approach that where the Income-tax Act does not define a term (here, "member"), its meaning must be ascertained from the statute under which the co-operative society is constituted. The Karnataka Co-operative Societies Act, 1959 expressly defines "member" to include nominal and associate members (sec.2(f)) and defines "associate member" to mean a person who may hold shares but shall not be entitled to become an office bearer (sec.18). Reliance on authorities concerning section 80P was examined: the Supreme Court has held that the term "member" must be construed in light of the relevant State Act, and decisions under section 80P do not govern the distinct statutory scheme and obligation created by section 194A. A coordinate bench's view that section 194A cannot be equated with section 80P was noted. The CBDT Circular No.9/2002 (para 3) - which sought to exclude nominal/associate members from the exemption - has been judicially quashed by the Bombay High Court and therefore cannot override the statutory definition in the State Act. Applying these principles, the Court concluded that associate members fall within the statutory meaning of "member" for the purpose of section 194A(3)(v), and accordingly interest paid to such associate members is not liable to TDS deduction under section 194A. [Paras 9, 11, 13, 14]

The demand under sections 201(1) and 201(1A) raised for failure to deduct TDS on interest paid to associate members is deleted; the appeals are allowed.

Final Conclusion: The Tribunal allowed the assessee's appeals for Financial Year 2015-16 (Assessment Year 2016-17), holding that "associate members" are members for the purpose of section 194A(3)(v) and directing deletion of the demands under sections 201(1) and 201(1A).

Deduction under section 35(2AB) - Approval/recognition by prescribed authority (DSIR) - Weighted deduction (200%) for in-house R&D - Form 3CL legal sanctity pre- and post-01.07.2016 - Verification of actual expenditure by assessing officer

Deduction under section 35(2AB) - Approval/recognition by prescribed authority (DSIR) - Form 3CL legal sanctity pre- and post-01.07.2016 - Weighted deduction (200%) for in-house R&D - Whether absence of certification/quantification in Form 3CL or the date of DSIR approval precludes allowance of weighted deduction under section 35(2AB) for expenditure incurred by an in-house R&D facility. - HELD THAT: - The Tribunal examined section 35(2AB) and the rule-making history. Prior to the amendment effective 01.07.2016, Rule 6(7A)(b) did not confer legal sanctity on Form No. 3CL as a fetter on allowance of deduction; the statutory pre-conditions are recognition of the facility by the prescribed authority (Secretary, DSIR) and execution of the agreement for cooperation and audit. Once recognition is granted, the legislative scheme entitles the assessee to weighted deduction for expenditure incurred on developing the approved facility. Consequently, mere non-receipt of Form 3CL quantifying expenditure, or an approval date falling during the year, cannot by itself defeat the claim where the DSIR has granted recognition. The AO was therefore not justified in denying the claim solely because Form 3CL did not reflect the assessee's claimed amounts or because recognition date was 26.03.2013. The Tribunal relied on authoritative decisions to the effect that Form 3CL's absence is not a ground to deny the statutory entitlement in the pre-amendment regime and that the AO's role is to verify actual expenditure once recognition exists. [Paras 11, 12, 15]

Deduction under section 35(2AB) is not to be denied solely for lack of quantification in Form 3CL or because of the date of DSIR approval; recognition by DSIR suffices in principle for entitlement to weighted deduction for AY 2013-14 (pre-01.07.2016 rule amendment).

Verification of actual expenditure by assessing officer - Role of AO to verify actual expenditure - Whether the claimed quantum of expenditure for the Sipaigachi R&D unit requires verification and the appropriate course of action. - HELD THAT: - Although recognition by DSIR was established, neither the prescribed authority nor the assessing officer had applied their minds to verify the expenditure actually incurred for the Sipaigachi facility. Consistent with precedents, the Tribunal held that absence of Form 3CL quantification does not extinguish the claim but left open the question of correctness of the claimed amounts. Therefore the matter is remitted to the assessing officer for limited purpose verification of actual recurring and capital expenditure incurred at the Sipaigachi R&D unit, permitting the AO to examine and verify the figures and allow weighted deduction to the extent substantiated. [Paras 16]

Remand to the assessing officer for limited verification of the actual expenditure incurred at the Sipaigachi R&D unit; allow weighted deduction only to the extent verified.

Final Conclusion: Appeal partly allowed: in principle the assessee is entitled to weighted deduction under section 35(2AB) for the Sipaigachi R&D unit despite absence of quantification in Form 3CL for AY 2013-14 (pre-amendment), but the claim is remitted to the assessing officer for limited verification of the actual expenditure incurred and quantification of the deduction.

Responsibility of Customs Cargo Service Provider not to charge rent or demurrage on seized or detained goods - Obligation of custodian under section 45 of the Customs Act, 1962 - Control of officers of customs over goods and custodians under section 141 of the Customs Act, 1962 - Certificate of detention/demise under Public Notice No.26/2010 - Obligation to release goods on compliance with conditions for re-export

Responsibility of Customs Cargo Service Provider not to charge rent or demurrage on seized or detained goods - Certificate of detention/demise under Public Notice No.26/2010 - Obligation to release goods on compliance with conditions for re-export - Whether respondent No.1 was obliged to release the petitioner's goods for re-export without charging rent or demurrage for the period certified as detention by the proper officer, upon the petitioner complying with conditions for re-export. - HELD THAT: - Regulation 6(1)(l) of the Handling of Cargo in Customs Areas Regulations, 2009 imposes on a Customs Cargo Service Provider the responsibility not to charge any rent or demurrage on goods seized or detained by the proper officer. The Commissioner of Customs (Export) clarified by Public Notice No.26/2010 that upon production of a certificate issued by the proper officer certifying the period of seizure or detention, the Customs Cargo Service Provider must allow goods for that period without charging rent or demurrage. The admitted facts show the Superintendent of Customs issued a certificate dated 31.01.2019 certifying detention of the petitioner's goods from 14.08.2018 to 06.02.2019 and the adjudicating authority approved re-export subject to conditions which the petitioner complied with by furnishing the required bond and bank guarantee. In these circumstances respondent No.1, being a Customs Cargo Service Provider and custodian, was legally bound to release the container and not to charge rent or demurrage for the certified period; continued retention after the certified period without lawful authority violated Regulation 6(1)(l) and the public notice and disentitled respondent No.1 to claim such charges for the certified detention period or for the period of unlawful retention thereafter. The dispute is not relegated to a private contractual forum because the custodian's obligations arise from the statutory/regulatory scheme and the directions of the customs authorities; respondent No.1, as a Government of India enterprise and a regulated service provider, cannot act in defiance of those obligations. [Paras 19, 20, 21, 22, 23]

Respondent No.1 directed to forthwith release the goods in container No. TTNU9895081 for re-export in terms of the customs authority's letter dated 28.11.2018 and is not entitled to charge rent or demurrage for the certified period of detention.

Final Conclusion: Writ petition allowed; respondent No.1 directed to release the petitioner's goods for re-export forthwith in terms of the customs order, with no order as to costs.

Remand for de-novo consideration - appellate tribunal's duty to decide on merits - maintainability of refund claim where assessment not challenged - refund of cess and unjust enrichment

Remand for de-novo consideration - appellate tribunal's duty to decide on merits - The propriety of the Appellate Tribunal remanding the appeals to the adjudicating authority for fresh consideration when neither party sought remand and when the Tribunal had considered the parties' contentions. - HELD THAT: - The Tribunal, having heard the parties and referred to case law relied upon by the appellant, should have proceeded to decide the controversy on its merits instead of remanding the matters to the adjudicating authority. The High Court found that the Tribunal erred in ordering a remand for de-novo consideration to the adjudicating authority; for the purpose of considering the precedent and the parties' submissions the Tribunal itself ought to have examined and decided the issues. Consequently the impugned remand-order was quashed and set aside and the matter was directed to be considered afresh by the Tribunal on merits in accordance with law.

The appellate tribunal's remand to the adjudicating authority was improper; the impugned order is quashed and set aside and the matters are remitted to the Tribunal for fresh consideration on merits.

Maintainability of refund claim where assessment not challenged - refund of cess and unjust enrichment - Whether the appellant is entitled to refund of Rubber Cess and related issues (including unjust enrichment and documentary proof). - HELD THAT: - The High Court did not adjudicate entitlement to the refund on merits. The Appellate Tribunal had indicated that questions of maintainability, documentary evidence and unjust enrichment required consideration, but instead of deciding these points it remanded the matter to the adjudicating authority. The High Court found the remand inappropriate and directed that the Tribunal should now consider these substantive questions itself and decide the appellant's claim for refund (including issues of unjust enrichment and supporting documentation) in accordance with law.

Entitlement to refund was not finally decided on merits; the question is remitted to the Tribunal to be considered and adjudicated afresh on merits.

Final Conclusion: Appeals partly allowed; the Appellate Tribunal's remand-order to the adjudicating authority is quashed and set aside. The matters are remitted to the Tribunal to be considered and decided on their merits in accordance with law.

Proof of origin of goods - confiscation under Section 111(d) and (i) - presumption under Section 123 - licit possession - illicit import / smuggling

Proof of origin of goods - confiscation under Section 111(d) and (i) - presumption under Section 123 - licit possession - Whether the 151 gold coins seized from the appellant could be confiscated as smuggled/prohibited goods and whether the presumption under Section 123 in favour of Revenue was attracted. - HELD THAT: - The Tribunal found on the material on record that the seized coins bore inscriptions and imagery (King Edward VII; indications of "IND" and "IMP") demonstrating their circulation in British India and therefore their Indian origin. The authorised valuer did not certify foreign origin and Revenue's assertion of foreign origin was held to be conjectural. The Tribunal further held that the adjudicating authority had placed selective reliance on portions of the appellant's statement under Section 108, which vitiated the impugned order. Given the established indicia of Indian origin and absence of evidence of foreign provenance, the presumption in favour of Revenue under Section 123 was held not to be attracted and the justification for confiscation under the cited provisions did not survive. [Paras 7, 18]

Impugned confiscation set aside; appellant entitled to return of seized coins and consequential benefits.

Final Conclusion: The appeal is allowed: the Tribunal held that the seized gold coins are of Indian origin, the presumption under Section 123 is not attracted, the order of confiscation is unsustainable and directed return of the coins to the appellant with consequential benefits.

Revocation of customs broker licence - forfeiture of security deposit - imposition of penalty - duty of due diligence of customs broker - complicity by failure to verify exporters - proportionality of punishment - compliance with Regulations CBLR, 2013 & CBLR, 2018

Duty of due diligence of customs broker - complicity by failure to verify exporters - compliance with Regulations CBLR, 2013 & CBLR, 2018 - Whether the customs broker failed to observe the required due diligence and thereby breached the obligations under the CBLR, 2013 and CBLR, 2018. - HELD THAT: - The Tribunal found that employees of the appellant accepted documents on behalf of seven exporters and filed numerous check lists in a short span without seeing original documents, without obtaining authorisations from the exporters and without any cross verification or direct interaction with the IEC holders. The broker's statement to DRI admitted receipt of documents and commissions from an intermediary and that originals were not produced. The appellant's contention that only check lists were filed and that physical verification was not mandatory was rejected as not amounting to a defence in the circumstances. While recognising allegations that Customs officers and exporters may have connived, the Bench confined its inquiry to the role of the broker and held that the broker's omissions constituted complicity to the extent of not exercising required due diligence under the CBLR regimes. [Paras 6, 7]

The customs broker failed to discharge the obligations of due diligence under the CBLR rules and thereby exhibited complicity by not verifying exporter antecedents or obtaining authorisations.

Revocation of customs broker licence - forfeiture of security deposit - imposition of penalty - proportionality of punishment - Whether the penalty imposed - revocation of licence, forfeiture of security deposit and imposition of penalty - was commensurate with the broker's lapse and what relief, if any, should be granted. - HELD THAT: - The Tribunal acknowledged that there was a lapse on the broker's part but concluded that the omission was not the root cause of the underlying fraud and was not of such gravity as to justify revocation of licence. Reliance was placed on precedent recognising that punishment must be proportionate. The Tribunal noted that the licence had already been suspended/revoked for a considerable period, that revocation would imperil the livelihoods of the proprietor and employees, and that in comparable decisions forfeiture of security and a monetary penalty were appropriate sanctions. Accordingly, the Tribunal held that while forfeiture of the security deposit and the monetary penalty should be sustained, the revocation of the customs broker licence should be set aside as disproportionate. [Paras 8, 9, 10, 11]

Revocation of the customs broker licence set aside; forfeiture of security deposit and imposition of penalty upheld.

Final Conclusion: Appeal partly allowed: order of revocation of the customs broker licence set aside; forfeiture of security deposit and imposition of penalty sustained.

Disqualification under Section 164(2) of the Companies Act, 2013 - Prospectivity and retrospectivity of statute (lex prospicit non respicit) - Automatic operation of law - Rule 11 - grounds for cancellation or deactivation of Director Identification Number (DIN) - Deactivation/cancellation of Director Identification Number (DIN) and its validity - Saving of accrued rights on repeal (General Clauses Act)

Disqualification under Section 164(2) of the Companies Act, 2013 - Prospectivity and retrospectivity of statute (lex prospicit non respicit) - Saving of accrued rights on repeal (General Clauses Act) - Section 164(2) of the Companies Act, 2013 operates prospectively and the three continuous financial years for triggering disqualification must be counted from 1st April 2014. - HELD THAT: - The Court adopted the reasoning in the cited Gujarat High Court decision that Sub section (2) of Section 164 attaches a new disqualification not found under the corresponding provisions of the Companies Act, 1956, and therefore must be construed as prospective. Applying the settled presumption against retrospectivity (lex prospicit non respicit), the three continuous financial years referred to in Section 164(2)(a) are to be counted from the date the provision came into force, i.e. financial years 2014 15, 2015 16 and 2016 17. The Court noted that retrospective application would alter accrued rights under the repealed Act and that the General Clauses Act saves rights accrued under the earlier statute; consequently, the respondents' approach of treating earlier years as triggering disqualification was untenable.

Section 164(2) is prospective; disqualification under Clause (a) arises only if the company fails to file for the continuous period of financial years 2014 15, 2015 16 and 2016 17.

Deactivation/cancellation of Director Identification Number (DIN) and its validity - Rule 11 - grounds for cancellation or deactivation of Director Identification Number (DIN) - Automatic operation of law - Deactivation of a DIN on the basis of a director's disqualification under Section 164(2) for a struck off company is not justified unless effected in accordance with the specific grounds and procedure prescribed in the Rules. - HELD THAT: - Relying on the reasoning reproduced from the Gujarat High Court, the Court observed that DIN once allotted is valid for the lifetime of the holder and Rules 9-11 prescribe limited, specific grounds and procedures for cancellation or deactivation. Rule 11 does not confer a suo motu power to cancel or deactivate DINs merely because a company in which the person was a director has been struck off or the director has become ineligible under Section 164(2). Although disqualification under Section 164(2) occurs by operation of law, cancellation or deactivation of a DIN must conform to the circumstances and procedure set out in the Rules; the publication of the impugned list and consequent deactivation were therefore legally untenable.

The DIN deactivation effected on the basis of the impugned list is quashed; DIN must be reactivated for use in other companies unless deactivation is carried out in conformity with the Rules.

Final Conclusion: Writ petition allowed: the Court directed reactivation of the petitioner's DIN for use in other companies, holding that disqualification under Section 164(2) is prospective (counting financial years 2014 15 to 2016 17) and that DIN deactivation was impermissible unless undertaken pursuant to the specific grounds and procedure in the Rules; the respondents remain free to take lawful action for statutory defaults in accordance with law.

Administrator Pendente Lite - Section 247 of the Indian Succession Act - probate court jurisdiction to protect and preserve estate - control/controlling block of shares as asset of estate - binding effect of majority decision of multi-member body - inability to pass orders against non-parties/strangers - interim relief/temporary injunction

Section 247 of the Indian Succession Act - probate court jurisdiction to protect and preserve estate - control/controlling block of shares as asset of estate - Scope of the Probate Court's jurisdiction under Section 247 to pass interim directions for preservation and protection of the estate, including rights flowing from controlling shareholdings - HELD THAT: - The Court held that Section 247 confers a broad protective jurisdiction on the probate court to appoint an Administrator Pendente Lite and to exercise supervisory control to preserve the estate during pendency of testamentary proceedings. The Division Bench's earlier judgments and other interlocutory orders (including confirmation by the Supreme Court of the order appointing APL) recognise that rights and powers incident to ownership of shares which constitute the controlling block are assets of the estate and may require protection. The probate court need not borrow provisions of the CPC to exercise such interim protective powers; it can grant temporary measures under the Succession Act to prevent dissipation and to preserve the status quo of estate assets pending final adjudication. Consequently the Court assumed jurisdiction to consider the defendants' applications for interim relief directed to implementation of APL decisions intended to protect the estate. [Paras 53, 178, 180]

The probate Court has jurisdiction under Section 247 to pass interim orders to protect and preserve the estate, including measures concerning rights flowing from the controlling block of shares.

Administrator Pendente Lite - binding effect of majority decision of multi-member body - Whether decisions of the three-member APL taken by a majority are binding and enforceable - HELD THAT: - The Court examined the history of the APL, prior minutes, and the Division Bench's directions governing the APL's role. Noting prior practice, the appointment order and the practical need to avoid stalemate, the Court concluded that where the APL (constituted by court order) reaches a decision by majority (2:1) in the absence of a requirement for unanimity in the appointing order, that majority decision is to be treated as valid and can be implemented. The Court rejected the plaintiffs' contention that unanimity was required, observing that parties had participated in APL meetings and acquiesced in earlier decisions and practices; it would be inequitable at this stage to permit challenge to a majority decision which had been treated as operative. [Paras 71, 161, 185, 186]

Decisions of the APL taken by majority (2:1) bind the parties and may be implemented by the Court; unanimity was not required on the facts and orders under which the APL was appointed.

Inability to pass orders against non-parties/strangers - interim relief/temporary injunction - Whether the probate Court can pass interim orders or injunctions directly against companies or other entities that are not parties to the probate proceedings - HELD THAT: - The Court reaffirmed the settled principle that orders affecting the rights of non-parties (strangers) ordinarily cannot be made in probate proceedings against entities who have not been impleaded. Applying that principle, the Court refused to grant orders directly restraining or directing the named noticee companies (which were not parties) in the manner sought. However, the Court also explained that absence of joinder does not render the entire protective scheme nugatory: the APL, acting under court supervision, may be directed and the court may obligate parties to implement APL decisions; where necessary parties with caveatable interest may seek relief to make the APL functional. For the present, no direct injunction was granted against non-party companies. [Paras 55, 125, 159, 201]

The probate Court will not, for the present, pass orders directly against non-party noticee companies; such companies cannot be restrained in this proceeding, though the Court can direct implementation of APL decisions vis-a -vis parties and preserve the estate by other interim measures.

Interim relief/temporary injunction - Administrator Pendente Lite - Relief awarded on the defendants' applications and plaintiffs' corresponding applications - HELD THAT: - Balancing the prima facie case, risk of irreparable harm to the estate, and the balance of convenience, the Court found that interim protection was necessary to preserve the estate pending final adjudication. The Court recognised an advanced stage of the testamentary suit and material allegations of obstruction to APL functioning. Accordingly, while refusing to bind non-party companies directly, the Court granted interim orders against the plaintiffs and the defendants as follows: (a) directed the plaintiffs to implement the APL decisions dated 19th and 30th July, 2019 taken by majority and all consequential measures; (b) restrained the plaintiffs from deriving personal benefit from estate assets and from interfering with APL decisions, and restrained plaintiff No.1 (H.V. Lodha) from holding any office in entities of the MP Birla Group during pendency of the suit; and (c) restrained defendants from interfering with APL majority decisions. The Court disposed of the listed applications accordingly. [Paras 192, 202, 203]

Interim injunctions were granted to implement the APL majority decisions and to restrain plaintiffs (including HVL) from deriving benefit or interfering with the APL; defendants were restrained from interfering with APL decisions. Listed applications were disposed of as recorded.

Binding effect of majority decision of multi-member body - Disposition of plaintiffs' applications challenging APL majority decisions - HELD THAT: - Applications by the plaintiffs seeking to set aside the APL majority decisions dated 19th July, 2019 and 30th July, 2019 were considered and dismissed. The Court held that the Division Bench did not intend to require unanimity, the plaintiffs' arguments on jurisdiction were self-contradictory when they both denied probate jurisdiction and attacked APL action, and the applications lacked merit on the established record and prior orders. Accordingly those plaintiff applications did not warrant interference. [Paras 14, 16]

G.A. 1761 of 2019 and G.A. 1786 of 2019 (plaintiffs' challenges to APL majority decisions) are dismissed.

Final Conclusion: The probate Court assumed jurisdiction under Section 247 to protect and preserve the estate and directed implementation of the APL's majority decisions of 19th and 30th July 2019; it held that APL majority (2:1) decisions bind the parties, dismissed the plaintiffs' challenges to those majority decisions, declined to make orders directly against companies that are not parties, and granted interim injunctions restraining the plaintiffs (including Harsh Vardhan Lodha) from deriving benefit or interfering with APL decisions while restraining defendants from obstructing the APL; the various listed applications were disposed of as recorded.

Oppression and mismanagement - Validity of requisition under section 100 of the Companies Act, 2013 - Calling of Extraordinary General Meeting by requisition - Mandatory versus directory nature of statutory time-limits for holding EGM - Removal of directors and special notice under section 169 read with section 115 of the Companies Act, 2013 - Shareholders' right to appoint or remove directors

Validity of requisition under section 100 of the Companies Act, 2013 - Calling of Extraordinary General Meeting by requisition - Whether the notices dated 06.01.2020 and 05.02.2020 amounted to a valid requisition under section 100 of the Companies Act, 2013. - HELD THAT: - The Bench recorded conflicting views. One Member (Technical) held that the notice dated 05.02.2020 satisfied the elements in section 100(3) - it set out the matters for consideration, was signed by the requisitionists and was sent to the registered office - and therefore constituted a valid requisition. The other Member (Judicial) found there was an utter violation of the mandatory requirement of section 100(2) and concluded the requisition process was vitiated. Because the Members differ on the legal characterisation and adequacy of the notices as requisitions, the question has been reserved for determination by a third Member so that a majority opinion may be formed.

Remitted to a third Member for decision; no majority conclusion recorded in the bench order.

Mandatory versus directory nature of statutory time-limits for holding EGM - Calling of Extraordinary General Meeting by requisition - Whether section 100(4) mandates that an EGM called by requisitionists must be held within three months of the requisition, and the legal consequence of holding it after that period. - HELD THAT: - The Members reached opposite conclusions. The Technical Member construed section 100(4) as directory - noting the use of the word "may" and the exceptional circumstances of the COVID-19 lockdown - and held that failure to convene the meeting within three months did not vitiate the EGM held on 10.08.2020. The Judicial Member read the statutory scheme as mandating the three month period and concluded the notice dated 13.07.2020 and the EGM of 10.08.2020 contravened section 100(4) and were therefore invalid. Given this divergence on whether the three month timeline is mandatory or directory, the point is referred to a third Member for majority determination.

Remitted to a third Member for decision; no majority conclusion recorded in the bench order.

Removal of directors and special notice under section 169 read with section 115 - Shareholders' right to appoint or remove directors - Whether the EGM held on 10.08.2020 and the resolution removing the Petitioners as directors were bad in law for want of valid special notice/requisition or other procedural infirmity. - HELD THAT: - The Members again differed. The Technical Member held that the requisition and consequential EGM complied with statutory requirements and that shareholders may remove directors without disclosing reasons; accordingly the resolutions were valid and the oppression/mismanagement claims failed. The Judicial Member concluded the EGM and resolutions were invalid because the requisition procedure and time limits under section 100 were not complied with, and on that basis found oppression and mismanagement established and set aside the removal. Because the Bench is divided on the validity of the EGM and the resulting resolution, the issue has been referred to a third Member for a majority view.

Remitted to a third Member for decision; no majority conclusion recorded in the bench order.

Oppression and mismanagement - Whether acts complained of by the Petitioners constitute oppression and mismanagement by the majority shareholders. - HELD THAT: - The Technical Member found the allegations of oppression and mismanagement to be frivolous, unsubstantiated and arising from the Petitioners' loss of board control; he dismissed the petition. The Judicial Member concluded that the removal process, opening of bank accounts without board approval, alleged unauthorised access to tax/GST details and transfers of funds amounted to oppression and mismanagement and allowed the petition, reinstating the Petitioners. Given the direct conflict in factual and legal assessment between Members on whether oppression and mismanagement have been proved, the question is referred to a third Member for determination by majority.

Remitted to a third Member for decision; no majority conclusion recorded in the bench order.

Shareholders' right to appoint or remove directors - Whether shareholders (majority holders) were required to disclose reasons for proposed resolutions to remove directors and whether such reasons are subject to judicial review. - HELD THAT: - The Technical Member relied on established principle that shareholders calling a meeting are not bound to disclose reasons for resolutions and such reasons are not ordinarily subject to judicial review, citing precedent to that effect; this supported the view that the removal resolution need not be invalidated for lack of stated reasons. The Judicial Member's reasoning focused on statutory compliance and the surrounding circumstances, treating nondisclosure together with other alleged procedural failings as part of oppressive conduct. The contrast in reliance and application of the law on shareholders' freedoms versus statutory safeguards means the issue awaits resolution by a third Member to form a majority view.

Remitted to a third Member for decision; no majority conclusion recorded in the bench order.

Final Conclusion: The two Members of the Tribunal are divided on critical questions concerning the validity of the requisition(s), the mandatory or directory character of the three month timeline in section 100(4), the legality of the EGM of 10.08.2020 and whether acts of oppression and mismanagement were proved. No majority view was formed; the record is directed to the Hon'ble Acting President for constitution of a third Member so that the matters may be decided by a majority opinion.

Restoration of company name - striking off by ROC for failure to file financial statements and annual returns - appeal under section 252(1) where company is struck off by ROC for non-compliance - mis-quotation of statutory provision not fatal to relief - extension of limitation by operation of Hon'ble Supreme Court Suo Motu proceedings arising from Covid-19 - conditional restoration subject to statutory compliance, publication and payment of government costs and clearance of Income Tax dues - Companies Fresh Start Scheme (CFSS-2020) as a remedial measure for defaulting companies

Mis-quotation of statutory provision not fatal to relief - appeal under section 252(1) where company is struck off by ROC for non-compliance - Whether the appeal filed under a wrong provision (section 252(3)) could be entertained and treated under the provision applicable to ROC initiated striking off (section 252(1)). - HELD THAT: - The Tribunal held that the appellant had invoked section 252(3) whereas the company had been struck off by the ROC for non filing of statutory returns, a situation falling within section 252(1). Relying on the proposition that quoting an incorrect provision will not by itself disentitle a party to relief, the Tribunal treated the present application as one under section 252(1) and proceeded to consider it on merits. The mis quotation was therefore not held to be a bar to adjudication under the correct statutory head. [Paras 10]

Application treated as one under section 252(1) and entertained notwithstanding the mis quotation of section 252(3).

Extension of limitation by operation of Hon'ble Supreme Court Suo Motu proceedings arising from Covid-19 - Whether the appeal filed after three years from the date of strike off could be entertained in view of the period of limitation having expired prior to filing. - HELD THAT: - The Tribunal noted that an appeal under section 252(1) is required to be filed within three years of the ROC's strike off. The company was struck off on 21.06.2017 and the appeal was filed after the three year period. However, the Tribunal applied the Hon'ble Supreme Court's Suo Motu order of 23.03.2020 (extending limitation from 15.03.2020 until further orders because of Covid 19) and subsequent clarificatory orders, and the NCLT Principal Bench circular adopting that extension. On that basis the Tribunal considered the extended limitation regime and permitted consideration of the appeal. [Paras 12, 13, 14]

Delay was condoned by application of the Supreme Court's extension of limitation orders and the appeal was entertained.

Restoration of company name - conditional restoration subject to statutory compliance, publication and payment of government costs and clearance of Income Tax dues - Companies Fresh Start Scheme (CFSS-2020) as a remedial measure for defaulting companies - Whether the company's name should be restored and, if so, on what conditions. - HELD THAT: - The Tribunal, after treating the appeal under section 252(1) and applying the extension of limitation, allowed the appeal only for the limited purpose of enabling the appellant to dispose of assets and discharge liabilities. Restoration of the company's name was ordered subject to specified conditions which the Tribunal framed as necessary safeguards: filing of all overdue statutory returns (and compliance with applicable fees), publication of a restoration notice in prescribed journals and the Official Gazette, payment to the Central Government by way of demand draft towards costs incurred in striking off the company, clearance of Income Tax dues (including any penalty) with proof of acknowledgment, and forwarding of the order to the Income Tax Department. The Tribunal thereby linked restoration to completion of statutory and fiscal obligations and permitted subsequent striking off after compliance. [Paras 15, 16]

Name of the company restored in the ROC register on specified conditions including filing overdue returns, publication of notice, payment to Government towards costs, and clearance of Income Tax dues; restoration limited to disposal of assets and discharge of obligations.

Final Conclusion: The appeal was partially allowed: the Tribunal treated the mis quoted provision as not fatal, entertained the belated appeal by applying the Supreme Court's Covid 19 extension of limitation, and directed conditional restoration of the company's name to enable disposal of assets and settlement of liabilities subject to filing overdue returns, publication, payment of Government costs and clearance of Income Tax dues.

Sanction of scheme of amalgamation - vesting of assets and liabilities - transfer of employees - dissolution without winding up - dispensation of meetings - appointed date - compliance with statutory notices and reports - continuation of tax recovery measures - no immunity from payment of stamp duty, taxes and statutory dues

Sanction of scheme of amalgamation - appointed date - Sanction was granted to the scheme of amalgamation between the Transferor and Transferee companies, effective from the appointed date of 1st April, 2019. - HELD THAT: - Having considered the materials on record, including the dispensation of meetings earlier ordered and the absence of any sustainable objections from the Regional Director, Income Tax Department or other interested parties, the Tribunal found no impediment to sanctioning the proposed amalgamation. The sanction was ordered to be effective from the appointed date fixed as 1st April, 2019, and the sanctioned scheme was declared binding on the companies, their shareholders and creditors. [Paras 7, 8, 9, 16]

Scheme of amalgamation sanctioned and declared effective from 1st April, 2019; binding on parties and their creditors and shareholders.

Compliance with statutory notices and reports - dispensation of meetings - The procedural requirements previously ordered - dispensation of shareholders' and creditors' meetings and service/publication of statutory notices - were treated as complied with and relied upon in the sanctioning process. - HELD THAT: - The Tribunal recorded that the First Motion had dispensed with convening meetings of equity shareholders, secured and unsecured creditors, and that the Second Motion directions for service/publication were complied with as evidenced by the affidavit of service and publications. The Official Liquidator's report recorded no complaints and no prejudicial conduct of the Transferor's affairs. The Regional Director's observations were addressed by an undertaking from the Transferee. [Paras 9, 10, 11, 12, 13]

Statutory service, publication and related procedural directions were found to be complied with and informed the sanction.

Continuation of tax recovery measures - The Income Tax Department's objection in respect of an outstanding demand against the Transferee Company was noted, and the Tribunal directed that the Department may continue recovery measures notwithstanding the sanction. - HELD THAT: - The Income Tax report identified an outstanding tax liability for the Transferee Company for Assessment Year 2009-10. The Tribunal observed that the Department could continue steps for recovery of the demand, thus making clear that sanction of the scheme does not inhibit statutory tax recovery proceedings. [Paras 14, 15]

Noted IT Department's outstanding demand against the Transferee and permitted continuation of recovery proceedings.

Vesting of assets and liabilities - transfer of employees - On the sanction becoming effective, assets, contracts, benefits, incentives and liabilities of the Transferor were to vest in the Transferee, and employees of the Transferor were to be deemed employees of the Transferee on terms no less favorable. - HELD THAT: - The Tribunal ordered that all subsisting contracts, statutory benefits and concessions (to the extent statutorily available) and liabilities outstanding as on the effective date shall stand transferred to and vested in the Transferee Company. Employees of the Transferor were directed to be deemed employees of the Transferee with continuity of service and preservation of remuneration and contractual/statutory benefits. [Paras 18]

Transferor's assets, contracts, benefits and liabilities vested in Transferee; employees transferred with continuity and no less favourable terms.

Dissolution without winding up - compliance with Registrar formalities - Upon filing a certified copy of the order with the Registrar of Companies, the Transferor Company shall stand dissolved without undergoing winding up and the Registrar shall consolidate the files. - HELD THAT: - The Tribunal directed that within thirty days of receipt of the order, a certified copy be delivered to the Registrar of Companies for registration; upon such delivery the Transferor Company shall be dissolved and the Registrar shall place and consolidate documents relating to the Transferor on the Transferee's file. [Paras 19]

Transferor to be dissolved without winding up upon filing certified copy with ROC and records to be consolidated.

No immunity from payment of stamp duty, taxes and statutory dues - The sanction does not operate as an exemption from payment of stamp duty, taxes or other statutory dues nor does it affect tax treatment under the Income Tax Act. - HELD THAT: - While approving the scheme, the Tribunal clarified that the order should not be construed as granting any exemption from stamp duty, taxes or other statutory dues, or as affecting the tax treatment of transactions under the Income Tax Act, 1961; payment and compliance under applicable laws remain obligatory. [Paras 18]

Sanction does not exempt companies from stamp duty, taxes or statutory dues, nor alter tax treatment under the Income Tax Act.

Final Conclusion: The Tribunal granted sanction to the scheme of amalgamation effective from 1st April, 2019, subject to compliance with statutory formalities; vested assets, liabilities, contracts and employees of the Transferor stand transferred to the Transferee; the Transferor will be dissolved on filing the certified order with the Registrar; and the sanction does not bar tax recovery or exempt payment of statutory dues.

Admission under Section 10 of the Insolvency and Bankruptcy Code - existence of debt and occurrence of default - Form 6 / completeness of application - power of the Adjudicating Authority under Rule 7 to examine annexed documents - limited scope of inquiry by the Adjudicating Authority under Section 10 - ulterior motive or intent to defeat SARFAESI measures not a ground for rejection - ineligibility under Section 11 of the I&B Code - remand for admission and rectification of defects

Power of the Adjudicating Authority under Rule 7 to examine annexed documents - limited scope of inquiry by the Adjudicating Authority under Section 10 - Whether Rule 7 of the Adjudicating Authority Rules empowers the Adjudicating Authority to examine and analyse financial statements and other documents annexed to an application under Section 10 beyond the material prescribed in Section 10 and Form 6. - HELD THAT: - The Tribunal held that Rule 7 prescribes the procedure for filing an application in Form 6 and dispatch of the application but does not confer power to scrutinise or analyse financial statements or other documents beyond the records and information required under Section 10 and Form 6. The adjudicating authority exceeded its jurisdiction by delving into discrepancies in audited financial statements and drawing adverse inferences therefrom, because Section 10 limits the authority's inquiry to the existence of debt, occurrence of default and eligibility under Section 11, and permits rejection only where the application is incomplete as per the prescribed form. [Paras 12, 14]

Rule 7 does not empower the Adjudicating Authority to examine or analyse annexed financial statements beyond the requirements of Section 10 and Form 6; the Adjudicating Authority exceeded its jurisdiction in doing so.

Ulterior motive or intent to defeat SARFAESI measures not a ground for rejection - Form 6 / completeness of application - Whether the existence of proceedings under the SARFAESI Act against the borrower and an inference of an ulterior motive to defeat those measures can justify rejection of a Section 10 application by a guarantor. - HELD THAT: - The Tribunal followed the principle that facts or actions unrelated to the requirements of Section 10 and Form 6 cannot be treated as suppression of material facts or as rendering the applicant unclean-handed, except insofar as they disclose disqualifications under Section 11. Initiation of action by a financial creditor under the SARFAESI Act against the borrower, and the drawing of an inference that the corporate applicant (a guarantor) filed the Section 10 application to defeat those measures, are facts beyond the scope of Section 10/Form 6 and therefore cannot be a ground for rejecting the application. [Paras 15]

Proceedings under SARFAESI against the borrower and alleged ulterior motive to defeat such measures are not valid grounds to reject a Section 10 application which is otherwise complete and not hit by Section 11 disqualifications.

Existence of debt and occurrence of default - ineligibility under Section 11 of the I&B Code - remand for admission and rectification of defects - Whether the applicant has established existence of debt and default and is not ineligible under Section 11, and the consequential relief to be granted. - HELD THAT: - The Tribunal found on the record that the appellant, a guarantor, had demonstrated the existence of debt and occurrence of default and that no winding up proceedings were pending nor was the appellant covered by Section 11 ineligibilities. Applying settled precedents, once debt and default are established and there is no disqualification, the adjudicating authority must admit the Section 10 application unless it is incomplete; if incomplete, the applicant must be given an opportunity to rectify defects. Because the Adjudicating Authority rejected the application on extraneous grounds, the proper course is to set aside that order and remit the matter to the NCLT with directions to admit the application after notice, or allow time to cure any defects, as appropriate. [Paras 16, 17]

Existence of debt and default established and no disqualification under Section 11; impugned rejection set aside and matter remitted to the Adjudicating Authority to admit the Section 10 application after notice or permit rectification of any defects.

Final Conclusion: The impugned order rejecting the Section 10 application is set aside. The Tribunal held that the Adjudicating Authority exceeded its jurisdiction by analysing annexed financial statements and by rejecting the application on the basis of alleged ulterior motive related to SARFAESI proceedings; existence of debt and default and absence of Section 11 disqualification have been established. The matter is remitted to the Adjudicating Authority to admit the application under Section 10 after notice to the parties, or, if defects are found, to grant time to rectify them.

Liquidation under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 - committee of creditors' decision to liquidate by requisite voting share - appointment of Liquidator under Section 34 of the Insolvency and Bankruptcy Code, 2016 - powers and duties of the Liquidator under Sections 35 to 41 of the Insolvency and Bankruptcy Code, 2016 - public announcement of liquidation

Liquidation under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 - committee of creditors' decision to liquidate by requisite voting share - Whether a liquidation order should be passed under Section 33(2) of the IBC on the basis of the Committee of Creditors' decision to liquidate. - HELD THAT: - The Tribunal noted that the 2nd meeting of the Committee of Creditors was attended by members holding 100% voting rights and that the CoC resolved to approach the Adjudicating Authority for liquidation since the corporate debtor and its suspended directors did not cooperate, making completion of the CIRP impossible. The Tribunal considered the statutory scheme in Section 33(2), which requires the resolution professional to intimate the Adjudicating Authority of a CoC decision (approved by the requisite voting share) to liquidate, and empowers the Adjudicating Authority to pass a liquidation order. Having regard to the CoC decision and the factual findings about non-cooperation and inability to continue CIRP, the Tribunal held that the statutory preconditions for invoking Section 33(2) were satisfied and that it could pass the liquidation order as contemplated by sub-clauses (i), (ii) and (iii) of Section 33(1). [Paras 6]

The Corporate Debtor M/s Goodwin Packpet Private Limited is ordered to be liquidated with immediate effect under Section 33(2) of the IBC, 2016.

Appointment of Liquidator under Section 34 of the Insolvency and Bankruptcy Code, 2016 - powers and duties of the Liquidator under Sections 35 to 41 of the Insolvency and Bankruptcy Code, 2016 - Appointment of a Liquidator and interim continuance and handing over of records by the Interim Resolution Professional. - HELD THAT: - The Tribunal recorded the IRP's statement that he did not wish to continue as Liquidator. In consequence, the Tribunal appointed a practicing insolvency professional from the IBBI panel as Liquidator, subject to his written consent and AFA. The order provided that until the Liquidator takes charge the present IRP shall continue and, thereafter, shall hand over all papers to the Liquidator on request. The Liquidator was directed to make the public announcement and discharge his powers and duties in accordance with Sections 35 to 41 of the IBC and applicable IBBI rules and regulations. [Paras 4, 6]

A Liquidator is appointed from the IBBI panel subject to consent and AFA; the IRP will continue until handover and must deliver all papers to the Liquidator on request; the Liquidator shall perform duties under Sections 35-41 and make the required public announcement.

Final Conclusion: The Tribunal allowed the application for liquidation under Section 33(2) of the IBC, 2016 on the basis of the CoC's decision and appointed a Liquidator from the IBBI panel (subject to consent and AFA), directing interim continuance by the IRP and adherence to the Liquidation provisions and IBBI regulations.

Financial debt - corporate guarantee as financial debt - preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016 - ordinary course of business - look-back period under Section 43(4) - registration of charge under Section 77 of the Companies Act, 2013 - invocation of guarantee - membership of Committee of Creditors

Corporate guarantee as financial debt - membership of Committee of Creditors - Whether the corporate guarantee executed by the corporate debtor qualifies as a financial debt and whether the claimant (UTI) is entitled to admission as a financial creditor and membership of the Committee of Creditors. - HELD THAT: - The technical Member (lead) concluded that the Deed of Corporate Guarantee dated 26.03.2018 falls within the definition of financial debt (noting sub-clause dealing with counter indemnity/guarantee) and that the guarantor (the corporate debtor) is liable for the liability under the guarantee; accordingly the claim ought to be admitted and the claimant included in the CoC. The lead relied on the elements in Section 5(8) and on precedents recognising guarantees/counter indemnities as financial debt; it also rejected characterization of the transaction as a preferential transfer because the guarantee related to a new debt (and was executed outside the relevant look back period as it dates from 26.03.2018). The Judicial Member dissented, holding that, applying the tests in Section 43 and the relevant authorities, the corporate guarantee and the registered charge (registered on 11.03.2019) fell within the two year look back period, that the corporate debtor did not receive value and was in financial distress when the guarantee and charge were created, and that the transaction therefore amounted to a preferential transaction; on that view the claim should not be admitted and the guarantee/charge set aside. The two members reached opposite conclusions on admission and entitlement to CoC membership; the Bench was therefore divided and no majority determination on admission has been rendered by the Tribunal. [Paras 3, 13, 61, 62, 63]

Remanded for final determination by a third member to form the majority opinion; no definitive admission order by the Tribunal at present.

Preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016 - ordinary course of business - look-back period under Section 43(4) - registration of charge under Section 77 of the Companies Act, 2013 - invocation of guarantee - Whether the corporate guarantee and the creation/registration of the second charge constitute a preferential transaction avoidable under Section 43 (and consequential reliefs under Section 44) of the Code. - HELD THAT: - The lead (technical) Member held that the guarantee did not constitute a preferential transaction: the guarantee related to new debt and therefore did not fall within Section 43(2)(a) as a transfer for antecedent liability; the creation of charge related back to the date of execution (26.03.2018) and was thus beyond the relevant look back period. Conversely, the Judicial Member held that the charge was registered on 11.03.2019 and that registration is material for reckoning under the Companies Act; having been registered within two years of the insolvency commencement date and given the corporate debtor's weak finances and absence of benefit, the transaction was preferential and the guarantee/charge should be set aside and security discharged under Section 44. The bench was divided on these legal conclusions-one member allowing avoidance and setting aside the charge, the other rejecting avoidance-and the question is therefore referred for determination by a third member to constitute the majority view. [Paras 13, 55, 56, 58, 61]

Remanded to a third member for majority decision on whether the guarantee/charge is an avoidable preferential transaction; in the absence of a majority view no final avoidance order by the Tribunal is effective at this stage.

Final Conclusion: The Bench is divided on (i) whether the Deed of Corporate Guarantee qualifies as a financial debt and whether UTI should be admitted as a financial creditor and member of the CoC, and (ii) whether the guarantee/second charge is an avoidable preferential transaction under Section 43. No conclusive majority decision has been delivered; the record is directed to be placed before the Acting President for constitution of a third member so that the issues may be decided according to the opinion of the majority.

Verification and admission of claims as on the insolvency commencement date - prohibition on admission of post-commencement interest - duty to prepare and verify the information memorandum - public announcement at registered and principal office locations - appointment and duties of registered valuers including physical verification - time-bound conduct of CIRP and duties of the insolvency professional - code of conduct and duties under section 208 for insolvency professionals

Verification and admission of claims as on the insolvency commencement date - prohibition on admission of post-commencement interest - Whether the resolution professional correctly admitted the revised claim of the financial creditor which included interest for periods after the insolvency commencement date and whether such admission affected voting rights. - HELD THAT: - The DC applied Regulation 13(1) of the CIRP Regulations and the duty of the RP to verify every claim as on the insolvency commencement date. It accepted that admission of interest due for the period up to the insolvency commencement date (1 June 2017 to 20 September 2017) was permissible. However, acceptance of interest for the post-commencement period (21 September 2017 to 10 April 2018) violated Regulation 13(1). The DC also examined the allegation of additional voting rights being given to the financial creditor and found that the RP did not grant extra voting rights on account of the revised claim. The RP's reliance on the proviso to section 29A and the law of subrogation was noted but was not held to justify admission of post-commencement interest; claims must be accepted only as on the insolvency commencement date. [Paras 3]

Admission of interest up to the insolvency commencement date was permissible; admission of interest for the post-commencement period contravened Regulation 13(1). No additional voting rights were recorded to have been given to the creditor.

Code of conduct and duties under section 208 for insolvency professionals - time-bound conduct of CIRP and duties of the insolvency professional - Whether deferring the publication of EoI at the behest of the promoter amounted to breach of the RP's duties under the Code and Code of Conduct. - HELD THAT: - The DC noted the RP's evidence that the deferment was deliberated and decided in the 4th CoC meeting in the context of a proposed one-time settlement by the promoter and that the sole CoC member (PNB) was to consider the OTS. Given that the decision to defer followed CoC deliberation and that the CIRP was completed within the prescribed timeline, the DC took a lenient view. The DC emphasised that IPs must adhere to prescribed time limits and exercise diligence, but on the facts it found deferment in this limited context did not warrant a finding of mala fide conduct. [Paras 3]

Deferral of EoI publication in the specific circumstances, being a CoC decision and limited in purpose, attracted a lenient view and was not treated as culpable breach.

Duty to prepare and verify the information memorandum - Whether the Information Memorandum prepared by the RP contained material inaccuracies or omissions amounting to contravention of the RP's duties. - HELD THAT: - The DC reviewed Regulation 36 and section 25(2)(g) requiring that the IM contain assets and liabilities as on the insolvency commencement date and other particulars. The DC noted discrepancies (treatment of lease/land and differing figures for workers' dues) but also recorded the RP's explanation of non-cooperation by the corporate debtor's directors and that one discrepancy was an inadvertent typographical error. Given the established non-cooperation by KMPs and AA orders recording same, the DC took a lenient view and accepted the RP's explanations while underlining the centrality of accurate, verified IMs. [Paras 3]

Discrepancies in the IM were noted but, in view of non-cooperation by the CD's management and the explanations offered, the DC took a lenient stance rather than treating them as wilful contraventions.

Public announcement at registered and principal office locations - Whether the public announcement made by the RP complied with the requirement to publish at the locations of the registered office and principal office of the corporate debtor. - HELD THAT: - Regulation 6(2) requires publication in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any. The RP produced circulation evidence from the advertising agency and Audit Bureau of Circulations indicating that the Financial Express and Dainik Statesman reached Siliguri (proximate to the tea estate/principal place of business). The DC found that the public announcement in Form A complied with the statutory requirement on the material before it. [Paras 3]

Public announcement was found to be in compliance with the statutory requirement.

Appointment and duties of registered valuers including physical verification - Whether the RP erred in accepting valuation reports where one valuer did not include value for land and plant and machinery for want of details and whether the RP failed in his duty to ensure valuers performed physical verification. - HELD THAT: - Regulations 27 and 35 require two registered valuers to compute fair and liquidation values after physical verification. The DC observed that one valuer explicitly limited its report due to absence of asset details, while the other conducted a more detailed exercise. The RP accepted both reports; DC observed that RP should have made further efforts to obtain asset particulars but also recorded that the promoters/directors did not cooperate and that both valuers produced broadly similar liquidation values. On balance and given non-cooperation, the DC accepted the RP's clarification though it noted scope for more diligence. [Paras 3]

The RP's acceptance of the valuation reports was accepted in view of non-cooperation by the CD's management, though the RP ought to have made additional efforts to obtain asset details.

Final Conclusion: The Disciplinary Committee concluded that the respondent contravened duties under section 208(2)(a) and (e) read with Regulation 13 of the CIRP Regulations and Regulation 7(2)(a) and (h) of the IP Regulations and relevant Code of Conduct clauses, notably for admission of post-commencement interest in violation of Regulation 13(1), while taking lenient views on deferment of EoI, IM discrepancies, public announcement and valuation issues due to non-cooperation by the corporate debtor; directions were issued requiring completion of a pre-registration educational course, suspension from taking new assignments until compliance, continuation of existing engagements, and forwarding of the order to the IPA and NCLT Registrar.

Authorisation for assignment (AFA) requirement for undertaking assignments - Exemption for assignments undertaken on or before 31st December, 2019 - Written consent filed under Section 34(4) of the Code - Age limit for obtaining authorisation for assignment - Obligation to comply with bye laws and Code of Conduct by insolvency professionals

Authorisation for assignment (AFA) requirement for undertaking assignments - Exemption for assignments undertaken on or before 31st December, 2019 - Written consent filed under Section 34(4) of the Code - Age limit for obtaining authorisation for assignment - Obligation to comply with bye laws and Code of Conduct by insolvency professionals - Whether Mr. Kishan Gopal Somani committed any contravention by accepting/being appointed as Liquidator after 31st December 2019 without holding a valid AFA. - HELD THAT: - Regulation 7A requires an insolvency professional to hold a valid AFA on the date of acceptance or commencement of any assignment after 31st December 2019, but expressly exempts assignments which an insolvency professional was undertaking as on 31st December 2019 or on the date of expiry of his authorisation. The Disciplinary Committee found that Mr. Somani had given his written consent to the Committee of Creditors on 22nd November 2019 and that this written consent was filed with the NCLT on 28th November 2019, i.e., prior to the cut off date for the AFA requirement. The Committee further noted that the bye laws prescribe an upper age limit of seventy years for eligibility to apply for AFA and that Mr. Somani, being over seventy years of age, was ineligible to apply for and obtain AFA. The obligation under Section 208(2) of the Code and the conditions of registration require an IP to comply with bye laws and the Code of Conduct; applying those provisions, the Committee concluded that there was no lapse by Mr. Somani because his written consent predated the applicability of Regulation 7A and he could not have obtained AFA due to the age bar in the bye laws. [Paras 4, 5, 6]

No contravention found; the show cause notice is disposed of without any direction against Mr. Kishan Gopal Somani.

Final Conclusion: The Disciplinary Committee disposed of the show cause notice holding that Mr. Somani's written consent filed on 28th November 2019 brought the appointment within the exemption to Regulation 7A and, coupled with the age bar preventing grant of AFA, there was no lapse; accordingly no action was directed against him and the SCN was disposed of.

Liquidation under Section 33(2) of the Insolvency and Bankruptcy Code - requirement of a valid Committee of Creditors resolution - Regulation 39C of the Corporate Insolvency Resolution Process Regulations, 2016 - necessity of supporting material and proof of decision by the Committee of Creditors

Requirement of a valid Committee of Creditors resolution - Regulation 39C of the Corporate Insolvency Resolution Process Regulations, 2016 - liquidation under Section 33(2) of the Insolvency and Bankruptcy Code - necessity of supporting material and proof of decision by the Committee of Creditors - Validity of the application for liquidation where the Committee of Creditors' meeting record and resolution do not disclose the requisite material or formal particulars. - HELD THAT: - The Tribunal found that the resolution placed on record did not satisfy the statutory and regulatory requirements for initiating liquidation. The COC minutes neither stated voting particulars nor attached evidence or material justifying liquidation; no valuation or asset details were produced and the claimed condition of plant and machinery was not supported by documents before the Adjudicating Authority. Regulation 39C (requirements for COC resolutions) and the explanation to Section 33(2) permit the COC to decide liquidation after constitution, but such decision must be supported by relevant material and a proper resolution. The application was filed within a short period after commencement of CIRP and the material on which liquidation was predicated was absent from the record. In these circumstances the Tribunal was not satisfied as to the bonafides and sufficiency of the grounds for liquidation and declined to pass a liquidation order, while affording liberty to the applicant to file a fresh application with appropriate supporting material. [Paras 5]

Application for liquidation dismissed for want of a valid COC resolution and supporting material; liberty granted to file a fresh application with relevant evidence.

Final Conclusion: The application for liquidation is dismissed due to absence of a compliant COC resolution and supporting material; the applicant is permitted to file a fresh liquidation application supported by appropriate documents and particulars.

Threshold requirement for initiation of CIRP by class of financial creditors - reasonable classification under Article 14 - manifest arbitrariness - retrospective legislation / clarificatory amendment - vested right and effect of subsequent amendment - Explanation clarifying corporate applicant / corporate debtor limitation - immunity to corporate debtor and protection of property on approval of resolution plan - application of Limitation Act to CIRP proceedings

Threshold requirement for initiation of CIRP by class of financial creditors - reasonable classification under Article 14 - manifest arbitrariness - Validity of the first and second provisos to Section 7(1) introducing a numerical threshold for certain classes of financial creditors (debenture/security holders; allottees under the same real estate project). - HELD THAT: - The Court held that the provisos validly classify certain subclasses of financial creditors (numerosity, heterogeneity, individualized decision-making) and bear a rational nexus to the objects of the Code (time-bound CIRP, value maximisation, preventing multiplicity of frivolous or disruptive filings). The Court applied the established tests for reasonable classification under Article 14 and rejected arguments of hostile discrimination vis-a -vis operational creditors or other financial creditors. The legislative record (Insolvency Law Committee, Parliamentary materials) and prior recognition of sub-classes in the Code (Section 21(6A), Section 25A) supported the legislative judgment; deference is owed to economic measures. Consequently the first and second provisos are not manifestly arbitrary and survive constitutional challenge.

First and second provisos to Section 7(1) are constitutionally valid and upholdable.

Retrospective legislation / clarificatory amendment - vested right and effect of subsequent amendment - threshold requirement for initiation of CIRP by class of financial creditors - Validity and effect of the third proviso to Section 7(1) which requires pending (not-yet-admitted) Section 7 applications by affected creditors to be modified to meet the new threshold within 30 days or be deemed withdrawn. - HELD THAT: - The Court recognised that an applicant who had already filed a Section 7 application under the unamended law had acquired a vested interest in prosecuting that application. The third proviso, being a one time measure to bring pending but unadmitted applications into conformity with the new threshold, operates retrospectively and affects vested procedural rights. Nevertheless, taking into account the Code's objects, the legislative judgment, the disruptive volume of filings and the need to protect the CIRP process, the Court did not strike down the proviso as manifestly arbitrary. To mitigate hardship from compelled deeming of withdrawal and limitation concerns, the Court issued equitable directions under Article 142: limited exemption from court-fees for petitioners who refile compliant applications within two months; directed adjudicating authorities to condone limitation delay for such refilings where appropriate on account of the period the earlier application was pending; and clarified that fresh filings remain available (and that the statutory withdrawal does not permanently bar refiling).

The third proviso is sustained; however the Court issued specified reliefs and directions (fee exemption; condonation guidance) to address vested right and limitation concerns.

Explanation clarifying corporate applicant / corporate debtor limitation - retrospective legislation / clarificatory amendment - Validity of Explanation II to Section 11 (clarifying that nothing in Section 11 prevents a corporate debtor which is itself in circumstances described in clauses (a)-(d) from initiating CIRP against another corporate debtor). - HELD THAT: - The Court treated the Explanation as a clarificatory amendment that merely made clear the Legislature's intent that the prohibitions in Section 11 are directed at the corporate debtor qua itself and do not bar a corporate debtor (or its authorised representatives/resolution professional/liquidator) from initiating CIRP against other defaulting corporate debtors. The Court observed that an Explanation may, in substance, clarify or widen the reach of the main provision if that reflects legislative intent; here the amendment was retrospective/clarificatory and applicable to pending matters. The petitioners' Article 14 challenge to the Explanation was rejected.

Explanation II to Section 11 is valid as a clarificatory amendment and applies to pending matters.

Immunity to corporate debtor and protection of property on approval of resolution plan - reasonable classification under Article 14 - manifest arbitrariness - Constitutionality of Section 32A (extinguishment of corporate debtor's criminal liability and bar on actions against property where a resolution plan effecting change of control is approved, subject to safeguards). - HELD THAT: - The Court upheld Section 32A as a legislative economic measure designed to encourage bona fide resolution applicants and maximise asset value. The immunity and protection are conditional (approval of a resolution plan; change of control to persons not promoters/related parties; exclusion where investigating authority has material alleging abetment/conspiracy; continuing liability of persons in charge of the erstwhile management; continuing duty to cooperate with investigations). Given those safeguards, the Court found no manifest arbitrariness and rejected challenges under Articles 14, 19, 21 and 300A. The policy judgment of the legislature to provide a 'clean slate' to successful resolution applicants was respected.

Section 32A is constitutionally valid.

Final Conclusion: The challenged amendments to the Insolvency and Bankruptcy Code, 2016 - (i) provisos to Section 7(1) imposing a minimum numerical threshold for certain classes of financial creditors, (ii) Explanation II to Section 11 clarifying eligibility of corporate applicants, and (iii) Section 32A conferring conditional immunity/protection on successful resolution outcomes - are upheld as constitutionally valid. The Court accepted the legislative classification and economic policy judgment, rejected claims of manifest arbitrariness and hostile discrimination, and treated the Explanation as a clarificatory (retrospective) amendment. To address vested right and limitation concerns arising from the third proviso, the Court directed limited equitable reliefs (narrow fee exemption and condonation measures for refiling compliant applications within two months and guidance to adjudicating authorities), while preserving the amendments' validity.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - eligibility under SVLDR Scheme - pre-deposit and adjustment of relief against outstanding tax dues - processing under Section 126 of the Finance Act, 2019 - administrative/technical error not to deprive statutory relief

Administrative/technical error not to deprive statutory relief - eligibility under SVLDR Scheme - Validity of rejection of the petitioner's SVLDR application on the ground that returns for the relevant period were not filed when returns had in fact been filed but were not visible on the portal. - HELD THAT: - The Court accepted the Revenue's concession that the petitioner had filed the returns for the specified period, and that non-visibility on the GST portal was due to a technical glitch. The Court held that such a technical/administrative infraction on the part of the authority cannot be a ground to deprive the petitioner of the benefit of the SVLDR Scheme. Consequently, the statement rejecting the petitioner's Form SVLDRS-I on that ground did not survive and required to be set aside. [Paras 5]

Impugned Statement dated 28th February, 2020 rejecting the application on the stated ground set aside.

Processing under Section 126 of the Finance Act, 2019 - pre-deposit and adjustment of relief against outstanding tax dues - eligibility under SVLDR Scheme - Obligation of the respondents to accept and process the petitioner's Form SVLDRS-I and to consider application of relevant circulars in determining entitlement under the Scheme. - HELD THAT: - Having set aside the rejection, the Court directed the authority to accept the petitioner's Form SVLDRS-I and process it under Section 126 of the Finance Act, 2019. The respondents are to take into account Circular No. 1072/05/2019-CX dated 25.09.2019 and Circular No. 1073/06/2019-CX dated 29.10.2019 while determining the net tax dues and applicability of reliefs, and, if the petitioner is found eligible, to issue the requisite discharge certificate and grant consequential benefits under the SVLDR Scheme. The matter was remitted to the respondents for fresh consideration and compliance with these directions. [Paras 6]

Respondents directed to accept and process the Form SVLDRS-I under Section 126, applying the cited circulars; eligibility to be determined and discharge certificate issued if appropriate.

Final Conclusion: Petition allowed; impugned rejection dated 28th February, 2020 set aside and respondents directed to accept and process the petitioner's SVLDR application under Section 126 of the Finance Act, 2019, applying the relevant circulars and issuing a discharge certificate if the petitioner is found eligible.

Remand for fresh adjudication - simplified export procedure for ready-made garments - procedure under Notification No.42/2001-CE (N.T.) - verification of export evidence - superintendent's report as evidence of export

Remand for fresh adjudication - verification of export evidence - superintendent's report as evidence of export - Whether the Appellate Tribunal was justified in remitting the matter to the adjudicating authority for passing a fresh order when the Tribunal itself could examine and act upon the material showing export. - HELD THAT: - The High Court found that the Tribunal had recorded a prima facie view favourable to the appellant, noted no substantial dispute on actual export, and identified documents (shipping bills and Bank Realisation Certificates) produced and a specific report from the Superintendent verifying export. The Court observed that the Superintendent's revised report expressly confirmed eligibility under the Board circulars and that the goods had been exported for the SCN period. Given these materials on record and the respondent's counsel conceding no doubt about the Superintendent's report, the Court held that remanding the entire matter for verification was unnecessary and would be a formal exercise. The Tribunal could and should have considered the report and documentary evidence itself instead of directing a remand for fresh adjudication. [Paras 16, 17, 18, 19, 20]

Remand set aside; Tribunal erred in remitting the matter where its own review of the record sufficed to address export evidence.

Simplified export procedure for ready-made garments - procedure under Notification No.42/2001-CE (N.T.) - verification of export evidence - Whether the Tribunal was right in not finally setting aside the duty demand after holding that the demand could not be sustained solely for non-compliance with the procedure under Notification No.42/2001-CE (N.T.). - HELD THAT: - The Tribunal observed that manufacturers of ready-made garments were entitled to a simplified procedure under the relevant Board circulars and that therefore a demand based only on non-following of Notification No.42/2001-CE (N.T.) would not sustain; however, it nevertheless remanded the matter for factual verification of exports. The High Court accepted the Tribunal's legal view favouring the appellant on the applicability of the simplified procedure but concluded that, because documentary evidence and the Superintendent's report corroborated actual export, there was no justification for relegating the parties to another round of adjudication merely to verify what the record already established. Consequently, the Court quashed the remand while affirming the Tribunal's legal conclusion that demand based solely on non-compliance with the Notification would not stand. [Paras 7, 9, 10, 11, 20]

Tribunal's legal conclusion on inapplicability of demand for non-compliance with Notification No.42/2001-CE (N.T.) affirmed; its decision to remand for verification quashed.

Final Conclusion: Appeal allowed; the Tribunal's order to remit the matter to the adjudicating authority is quashed and set aside while the remainder of the Tribunal's order is affirmed; questions of law answered in favour of the appellant and against the Revenue.

Limitation and extension under the Consumer Protection Act, 2019 - filing of written statement within prescribed period under Section 38(2)(a) - power of consumer forum to admit pleadings beyond statutory period - extension of limitation by Supreme Court's suo motu order in SMW(C) No.3 of 2020 - exercise of Article 142 to declare binding extension of limitation

Filing of written statement within prescribed period under Section 38(2)(a) - power of consumer forum to admit pleadings beyond statutory period - Whether the National Consumer Disputes Redressal Commission rightly declined to take on record written statements filed after the 45 day period prescribed by Section 38(2)(a) in view of the Constitution Bench decision in New India Assurance Co. Ltd. v. Hilli Multipurpose Cold Storage (P) Ltd. - HELD THAT: - The Constitution Bench ruling in New India Assurance (supra) establishes that the consumer forum has no power to extend the statutory 45 day period for filing a written statement under Section 38(2)(a) of the Consumer Protection Act, 2019. The National Commission applied that principle and therefore declined to admit the written statements filed beyond 45 days. The appeals challenged that refusal, but the Court's decision on the competence of the consumer forum to extend time remains as articulated by the Constitution Bench. However, the applicability of that rule to the present filings must be considered in light of intervening orders of this Court relating to extension of limitation due to the Covid 19 pandemic.

The Court recognised the binding effect of the Constitution Bench decision but held that its operation in the present cases must be examined in the context of the Supreme Court's suo motu order extending limitation during the Covid 19 period.

Extension of limitation by Supreme Court's suo motu order in SMW(C) No.3 of 2020 - exercise of Article 142 to declare binding extension of limitation - limitation and extension under the Consumer Protection Act, 2019 - Whether the Supreme Court's March 23, 2020 order in SMW(C) No.3 of 2020 (In Re: Cognizance for Extension of Limitation) operates to extend the period for filing the written statements in these proceedings, thereby validating the appellants' belated filings. - HELD THAT: - The March 23, 2020 order was issued suo motu, extended limitation for all proceedings w.e.f. March 15, 2020 and was declared binding on all courts, tribunals and authorities by exercise of powers under Article 142 (read with Article 141). The period for filing the initial 30 days and the further 15 day extension under Section 38(2)(a) expired while that March 23, 2020 order was in operation. Consequently, the period of limitation for filing the written statements in the National Commission proceedings is to be treated as extended by the earlier suo motu order of this Court. The modest delay of four days in filing therefore falls within that extension and is excused; fairness and the binding character of the Supreme Court's order require that the written statements be taken on record and the matters proceeded with on merits.

The Court held that the Supreme Court's suo motu order in SMW(C) No.3 of 2020 extended the period of limitation applicable to the filing of written statements in these cases, allowed the four day delay, set aside the National Commission's order refusing to take the written statements on record and directed that the pleadings be taken on record and the matters proceed expeditiously in accordance with law.

Final Conclusion: Appeals allowed; order of the National Consumer Disputes Redressal Commission refusing to take the written statements on record set aside; the written statements to be taken on record and the matters to proceed expeditiously, the four day delay being excused in view of the Supreme Court's suo motu extension of limitation during the Covid 19 period.

Presumption under Section 139 of the Negotiable Instruments Act - Dishonour of cheque and essentials of offence under Section 138 of the Negotiable Instruments Act - Reverse onus clause - Rebuttal of presumption by preponderance of probabilities - Burden of proof in prosecutions under Section 138 - Admissibility and effect of documents and signatures in cheque dishonour cases

Dishonour of cheque and essentials of offence under Section 138 of the Negotiable Instruments Act - Presumption under Section 139 of the Negotiable Instruments Act - Appellant proved the ingredients of offence under Section 138 of the Negotiable Instruments Act and the presumption under Section 139 operates in his favour. - HELD THAT: - The Court found that the cheque was issued by the respondent, the signature on the cheque was admitted, the cheque was presented and returned with endorsement of 'funds insufficient', and the statutory notice was issued and not complied with. In that factual matrix the statutory presumption under Section 139 in favour of the holder arose and shifted the onus onto the respondent to rebut that presumption. The respondent did not lead any evidence; the document relied upon by the respondent (Ex.D.1) did not bear the name of the payee, did not establish receipt of the alleged amount and its contents were not admitted by the complainant. The trial Court's reliance on alleged non-disclosure in income-tax returns and on Ex.D.1 as having rebutted the presumption was held to be erroneous. Applying the test of preponderance of probabilities for rebuttal under Section 139, the High Court concluded there was no cogent oral or documentary evidence to displace the presumption and accordingly the ingredients of Section 138 were established. [Paras 34, 35, 36, 40, 41]

Conviction under Section 138 of the Negotiable Instruments Act is warranted as the complainant established the offence and the respondent failed to rebut the presumption under Section 139.

Burden of proof in prosecutions under Section 138 - Admissibility and effect of documents and signatures in cheque dishonour cases - Reverse onus clause - The trial Court's acquittal was set aside because it improperly shifted the burden of proof to the complainant and misappreciated the evidentiary effect of the admitted signature and documentary material. - HELD THAT: - The High Court held that the trial Court erred in placing on the complainant the obligation to prove how an unadmitted document came into the respondent's possession and in treating non-production of tax returns or alleged over-writing on the cheque as sufficient to rebut the statutory presumption. Section 139 is a reverse onus provision; once the cheque and signature were admitted and procedural conditions under Section 138 satisfied, the onus lay upon the respondent to lead cogent evidence to displace the presumption. The trial Court's acceptance of the respondent's theory (that the cheque was given merely as security and that Ex.D.1 established repayment) was not supported by credible documentary or oral evidence and therefore was held to be arbitrary and unsustainable. Consequently, the acquittal was set aside and conviction entered. [Paras 36, 37, 40, 41, 42]

The order of acquittal is quashed; the High Court convicts the respondent for the offence under Section 138 and sentences him as recorded.

Final Conclusion: The High Court set aside the trial Court's order of acquittal, held the respondent guilty of the offence under Section 138 of the Negotiable Instruments Act after finding the statutory presumption under Section 139 unrebutted, convicted the respondent and imposed sentence with compensation payable to the complainant.