TaxTMI Updates e-Newsletter
Feb 03,2021

Challenge to vires of statutory provisions - interim protection from coercive action - reliance on prior interim orders refusing protection - issuance of notice and mandate to file counter-affidavit

Challenge to vires of statutory provisions - interim protection from coercive action - reliance on prior interim orders refusing protection - Petition challenging the vires of certain provisions and seeking interim protection from coercive action was not finally adjudicated; court directed issuance of notice and sought respondents' response. - HELD THAT: - The petitioner filed a writ petition challenging the vires of specified provisions of the CGST Act and sought interim protection against coercive action. The Court noted recent decisions of this Court refusing similar interim relief. Rather than adjudicating the question of vires or granting interim protection at this stage, the Court required factual response from the respondents before considering interim relief. Notice was ordered and respondents were granted a defined period to file counter-affidavits, with liberty for the petitioner to file rejoinder thereafter. The matter was listed for hearing along with connected matters. [Paras 4, 5, 6]

Notice issued; respondents to file counter-affidavits within two weeks, rejoinder within two weeks thereafter; matter posted for hearing on the listed date.

Final Conclusion: The Court did not decide the substantive challenge to the vires of the statutory provisions or grant interim protection; it issued notice, directed the respondents to file counter-affidavits within two weeks with leave for rejoinder, and listed the matter for further hearing.

Migration of existing taxpayers - Certificate of registration/GSTIN - Deemed non-issuance/cancellation of registration on account of antecedent registration status - Activation/operationalisation of migrated GSTIN upon revival of antecedent registration - Writ relief directing administrative action to activate registration

Migration of existing taxpayers - Activation/operationalisation of migrated GSTIN upon revival of antecedent registration - Certificate of registration/GSTIN - Whether the migrated GSTIN should be activated and made operational after the antecedent Value Added Tax registration was restored by an appellate order. - HELD THAT: - The Court observed that under the statutory scheme for migration, every person registered under the existing laws with a valid PAN is to be issued a provisional certificate of registration (GSTIN), subject to conditions and eventual grant of a final certificate under the prescribed procedure. The writ-applicant had been issued a GSTIN pursuant to migration, but activation became problematic because the antecedent VAT registration had been cancelled effective 30.06.2016. The appellate authority subsequently allowed the writ-applicant's appeal and restored the VAT registration with retrospective effect from 30.06.2016. In view of that revival, the Court held that the GSTIN ought to be activated and operationalised so the petitioner can commence business. Taking note that the State had positively recommended activation, the Court directed the respondent no.2 to take up the matter and pass an appropriate order within one week, to effect activation in accordance with law. [Paras 5, 6, 8, 10, 11]

The GSTIN shall be activated and made operational; respondent no.2 is directed to consider the matter and pass an appropriate order within one week to give effect to the restoration of antecedent registration.

Final Conclusion: Writ-application disposed of with a direction to the Goods & Services Tax Council (respondent no.2) to take up the petitioner's case and pass an appropriate order within one week to activate and operationalise the GSTIN in accordance with law, in view of the appellate restoration of the antecedent VAT registration.

Withholding of refund - Instruction No. 1 of 2015 dated 13th January 2015 issued by the Central Board of Direct Taxes challenged - refunds were declined for the reason that the case was pending scrutiny and that in the light of Section 143(ID) and the Instructions of the CBDT, refund could not be processed for the said AYs - HC held Instruction No.1 of 2015 dated 13th January 2015 issued by the CBDT is unsustainable in law and it is hereby quashed - HELD THAT:- Special leave petitions pertain to pre-assessment stage. We are informed that the assessment is now over.

Hence the special leave petitions have become infructuous and are disposed of as such.

Question of law is, however, left open.

Penalty u/s 271D and 271E - Deposit of the cash by the Director into the bank account of the assessee - running account maintained between the promoter/director and the Appellant company in the context of the transactions covered in section 269SS - no genuinity or bonafideness in the transaction done by the assessee and it will not amount to reasonable cause for the purpose of exercise or discretion by the Assessing Officer under Section 273B - HELD THAT:- SLP dismissed.

Willful misstatement - evasion of tax - delayed payment not amounting to evasion - acceptance of returns by software requiring tax shown as paid - reverse burden of proof under the Income Tax Act - vicarious liability of company directors requires specific allegations - application of mind in taking cognizance - mandatory enquiry under Section 202 Cr.P.C. before issuing process to persons outside jurisdiction

Willful misstatement - acceptance of returns by software requiring tax shown as paid - reverse burden of proof under the Income Tax Act - Whether the statements in the uploaded returns amount to a misstatement wilfully made to evade tax under Section 277 of the Income Tax Act. - HELD THAT: - The Court held that the Income Tax Department must prove that a statement in the return is a misstatement and that it was made wilfully with dishonest intent. The facts showed the company followed accrual accounting, had uploaded returns on the departmental portal which, according to the Court, required an entry of tax paid to accept the return, and had made substantial tax payments (including TDS credits and subsequent payments) though not the entire assessed amount at the time of upload. The Court found that the software constraint effectively compelled the assessee to show tax payment for upload and that the uploading of returns under those constraints, and in the absence of proof of mens rea, could not be equated to a wilful misstatement. While recognizing statutory presumptions as to culpable mental state, the Court emphasised that those presumptions do not relieve the Department of the need to establish circumstances showing wilful misstatement in each case.

No wilful misstatement was made by the petitioners in the circumstances of these cases; therefore the criminal misconduct required under Section 277 is not established on the present record.

Evasion of tax - delayed payment not amounting to evasion - Whether delayed payment of income tax (where tax is ultimately paid) constitutes evasion of tax attracting prosecution under the penal provisions of the Income Tax Act. - HELD THAT: - Relying on earlier decisions of this Court and applying the facts, the Court observed that delayed payment of tax does not ordinarily amount to evasion so long as the tax is ultimately paid and the return acknowledges the tax liability. The Court noted that delay may attract interest or penalty under the tax statutes but delay alone, without evidence of wilful evasion or mens rea, is insufficient to sustain criminal prosecution under provisions like Section 276C(2). The petitioners had made payments and the department had received taxes; accordingly criminal proceedings for evasion were not warranted on the present material.

Delayed payment of income tax, where tax has been paid and the return acknowledges the liability, does not amount to evasion of tax for the purposes of criminal prosecution in these matters.

Vicarious liability of company directors requires specific allegations - Whether all directors of the company can be automatically prosecuted by relying on the inclusive definition of 'principal officer' under the Income Tax Act. - HELD THAT: - The Court held that criminal liability of company directors cannot be imposed as a matter of course by omnibus allegations. Penal provisions creating vicarious or derivative liability must be strictly construed and specific averments are required to show how each director was in charge of, or responsible for, the particular conduct constituting the offence. The complaint in these cases contained only generalized allegations against the directors; moreover, having found no misstatement or wilful evasion on the part of the company, there was no basis for prosecuting the directors on the material before the Court.

Directors cannot be automatically prosecuted on broad omnibus allegations; specific allegations showing responsibility or conduct are necessary and, on the present facts, prosecutions against the directors were not sustainable.

Application of mind in taking cognizance - mandatory enquiry under Section 202 Cr.P.C. before issuing process to persons outside jurisdiction - Whether the Magistrate's order of cognizance and issuance of summons complied with the requirement of judicial application of mind and whether Section 202 Cr.P.C. enquiry was required before issuing process to an accused residing outside the Court's jurisdiction. - HELD THAT: - The Court reiterated that taking cognizance requires the Magistrate to apply judicial mind to the materials and to record reasons showing that there are sufficient grounds for proceeding; the order must not be formulaic. The cognizance orders in both complaints were limited to a recital of statutory provisions without any recorded application of mind or assessment as to whether allegations, if accepted, would prima facie constitute an offence. Further, the record showed at least one accused (a director) resided outside the court's jurisdiction; Section 202 Cr.P.C. mandates that a Magistrate, before issuing process to such persons, must conduct or direct an inquiry to decide whether there is sufficient ground for proceeding. No such enquiry or recorded satisfaction was seen in the cognizance order. The Court concluded that the cognizance orders failed both the sufficiency-of-reasons requirement and the Section 202 safeguard.

The cognizance orders dated 29.03.2016 are set aside for lack of recorded application of mind and for failure to comply with the mandatory enquiry under Section 202 Cr.P.C. where an accused resides outside the Magistrate's jurisdiction.

Final Conclusion: The criminal complaints in C.C.No.85/2016 and C.C.No.86/2016 were quashed: the Court found no wilful misstatement or evasion warranting prosecution on the present material; delayed payment of tax (where paid) does not constitute criminal evasion; directors cannot be prosecuted on omnibus allegations; and the Magistrate's cognizance and issuance of summons were set aside for want of recorded application of mind and non-compliance with Section 202 Cr.P.C.

Weighted deduction under section 35(2AB) - legal sanctity of Form No.3CL - binding nature of certificate issued by prescribed authority - rectification under section 254(2) of the Act

Weighted deduction under section 35(2AB) - legal sanctity of Form No.3CL - binding nature of certificate issued by prescribed authority - Whether the Tribunal erred in allowing the assessee's weighted deduction as claimed in books despite a lower amount shown in Form No.3CL and in not following the jurisdictional High Court decision in Tejas Network Ltd. - HELD THAT: - The Tribunal analysed whether Form No.3CL had legal sanctity for quantification of weighted deduction prior to 1.7.2016 and followed the coordinate-bench decision in Mahindra Electric Mobility Ltd., which held that Form No.3CL did not possess legal sanctity before the amendment to rule 6(7A)(b) w.e.f. 1.7.2016 and therefore the deduction as per books could be allowed. The revenue relied on the Karnataka High Court decision in Tejas Network Ltd. to contend that the assessing officer is bound by the amount certified in Form No.3CL. The Tribunal distinguished Tejas Network Ltd. on facts and on the specific question before it, and the Appellate Tribunal (this Bench) agreed that Tejas Network Ltd. dealt with a different question and was not apposite. Having considered the coordinate-bench precedent relied upon by the Tribunal and the factual distinction from Tejas Network Ltd., the Bench found no mistake apparent on the face of the record in the Tribunal's treatment of the weighted deduction issue and declined to direct recall of the impugned order. [Paras 8]

The Tribunal's conclusion allowing the deduction as per books by following the coordinate-bench decision was upheld; the revenue's plea to recall the order on this ground is rejected.

Rectification under section 254(2) of the Act - Whether there is a mistake apparent from record in the Tribunal's order requiring rectification of the wrongly mentioned assessment year in paragraph 7. - HELD THAT: - The Bench observed that the Tribunal has power to rectify mistakes apparent from the record under section 254(2) of the Act but cannot convert a rectification application into a review. While the substantive challenge to the Tribunal's legal view was untenable as a rectification ground, a typographical error was identified: paragraph 7 incorrectly mentioned assessment year 2014-15 though the appeal related to 2013-14. The Bench directed substitution of the assessment year in paragraph 7 to reflect the correct assessment year. [Paras 9, 10]

The typographical error in paragraph 7 is to be corrected by substituting "2013-14" for the wrongly stated year.

Final Conclusion: The miscellaneous application is dismissed; the Tribunal's order allowing the weighted deduction (as determined by it following coordinate-bench precedent) is upheld, subject only to correction of the typographical error in paragraph 7 by substituting the assessment year "2013-14".

Penalty under section 271(1)(c) - show-cause notice - concealment of particulars of income - furnishing inaccurate particulars of income - requirement to specify the limb of section 271(1)(c) in the notice - vitiation of penalty proceedings for defective notice

Penalty under section 271(1)(c) - show-cause notice - requirement to specify the limb of section 271(1)(c) in the notice - vitiation of penalty proceedings for defective notice - Validity of show-cause notices issued for levy of penalty under section 271(1)(c) where the notice did not specify whether proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income. - HELD THAT: - The AO issued show-cause notices invoking section 271(1)(c) but used wording that alleged both concealment of particulars of income and furnishing of inaccurate particulars without indicating which limb of the provision was the basis for initiating penalty proceedings (paras. 6-7). The Tribunal held that a notice which fails to specify the precise limb of section 271(1)(c) for which penalty proceedings are commenced is legally defective. Such omission renders the show-cause notices bad in law and vitiates the entire penalty proceedings. The Tribunal relied on consistent precedents of higher fora and other benches of the Tribunal to affirm that, in these circumstances, the levy of penalty cannot be sustained (para. 7). Consequently, the authorities below erred in confirming the penalties and those orders were set aside (para. 8). [Paras 6, 7, 8]

Show-cause notices were defective for not specifying which limb of section 271(1)(c) was invoked; penalty proceedings were vitiated and penalties cancelled.

Final Conclusion: The Tribunal allowed the appeals, set aside the orders of the authorities below and cancelled the penalties levied under section 271(1)(c) on the ground that the show-cause notices were defective for not specifying the limb of the provision under which penalty proceedings were initiated.

Addition on account of unexplained cash deposits during demonetization - addition under section 69A read with section 115BBE as unexplained money - preponderance of probability - belated filing of return and its evidentiary bearing

Addition under section 69A read with section 115BBE as unexplained money - unexplained cash deposits during demonetization - preponderance of probability - belated filing of return and its evidentiary bearing - Sustainability of the addition of Rs. 15 lakhs as unexplained cash deposits in the assessee's bank account during the demonetization period. - HELD THAT: - The Tribunal found it was not in dispute that cash deposits of Rs. 15 lakhs were made in November 2016 during the demonetization period. The assessee's primary explanations - life-time savings, prior cash withdrawals for household expenditures, and withdrawals in 2014 purportedly in anticipation of settlement of a matrimonial dispute - were examined and rejected. The assessee produced no documentary evidence to link the 2014 bank loan to the cash retained, did not explain how household expenditures were met between June 2014 and November 2016 if large cash sums were retained, and offered an improbable narrative of holding large cash at home for over two years until demonetization. The Tribunal applied the rule of preponderance of probability and found the explanations inconsistent and not credible; the belated filing of the return was noted as reinforcing the conclusion that the deposits represented unaccounted money. On these grounds the Tribunal upheld the AO's addition under section 69A read with section 115BBE as unexplained money. [Paras 8, 9]

Addition of Rs. 15 lakhs as unexplained cash deposit is sustained and the assessee's appeal is dismissed.

Final Conclusion: The Tribunal has upheld the addition of Rs. 15 lakhs as unexplained cash under section 69A read with section 115BBE for AY 2017-18, concluding that the assessee failed, on the preponderance of probabilities, to satisfactorily explain the source of the deposits; the appeal is dismissed.

Unexplained share application money - Unexplained unsecured loans - Burden of proof on assessee to prove identity, genuineness and creditworthiness - Adverse inference for non-compliance with summons - AO's duty to assist assessee in producing evidence - Primary evidence going to root of the matter

Unexplained share application money - Burden of proof on assessee to prove identity, genuineness and creditworthiness - Addition of Rs. 9,50,000 on account of unexplained share application money confirmed. - HELD THAT: - The assessee produced confirmations and copies of ITRs for the two share applicants but failed to establish whether the share application monies were paid by cash or through bank and did not place evidence of the applicants' creditworthiness. In the absence of adequate evidence and primary particulars establishing the genuineness of the receipts, the authorities were justified in treating the amounts as unexplained. The Tribunal accordingly affirmed the addition made by the assessing officer and sustained the view of the CIT(A). [Paras 7]

Addition of Rs. 9,50,000 on account of unexplained share application money confirmed and this ground of appeal dismissed.

Unexplained unsecured loans - Adverse inference for non-compliance with summons - AO's duty to assist assessee in producing evidence - Primary evidence going to root of the matter - Addition of Rs. 1.50 crores on account of unsecured loans from five creditors deleted. - HELD THAT: - For four creditors the assessee filed confirmations, bank statements and ITRs showing transactions through banking channels and sufficient bank balances; for Kshitiz Infratech Pvt. Ltd. documentary material showed the amount reflected as advance in its books yet the existence of the payment to the assessee was not disproved. As regards Star Technosoft Pvt. Ltd., the assessee had requested the AO to summon the bank and the creditor and explained attempts to obtain the statements, but the AO made no effort to summon the bank or enforce attendance and had issued summons only at the fag end of the assessment process. Relying on authorities that an AO should assist the assessee to enable production of evidence and that mere non appearance of third parties is not a sufficient basis for drawing adverse inference where identity, genuineness and creditworthiness are otherwise established, the Tribunal held the initial burden on the assessee discharged and found no basis for the additions. Consequently the additions relating to unsecured loans were deleted and the orders below set aside. [Paras 8]

Addition of Rs. 1.50 crores on account of unsecured loans deleted and this ground of appeal allowed.

Final Conclusion: Appeal partly allowed: addition of Rs. 9,50,000 on account of share application money confirmed; addition of Rs. 1.50 crores on account of unsecured loans deleted and orders of authorities below set aside in that respect.

Estimation of income - Rejection of books of account - Acceptance of trading results in absence of rejection of books - Comparative gross profit analysis - Requirement of supporting material for estimation

Estimation of income - Requirement of supporting material for estimation - Rejection of books of account - Acceptance of trading results in absence of rejection of books - Comparative gross profit analysis - Validity of the assessing officer's estimate of income where books and financial statements were not produced and the AO estimated income at a much higher amount. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the addition made by the AO because the AO's estimation lacked supporting material and did not reject the assessee's books for the year under appeal. The CIT(A) had examined the assessee's reconciliations and records that were furnished, noted that major manufacturing expenses were verifiable and that the assessee declared a gross profit of 24% in the year under appeal (against an estimated 25% in the preceding year when books had been rejected). Given the significant drop in turnover and the absence of any material, comparable data or explicit rejection of the books by the AO for the year under appeal, the AO's higher standalone estimate was found to be unjustified. The Tribunal agreed that where the AO has not shown basis or brought material to justify a higher estimate, and where the appellate authority has accepted trading results after consideration of available details, the addition cannot be sustained. [Paras 5, 6, 7]

The AO's estimation of income was not sustained; the CIT(A)'s deletion of the addition was affirmed.

Final Conclusion: The Revenue's appeal is dismissed and the order of the CIT(A) deleting the addition stands affirmed.

Income from other sources - capital receipt - inextricably linked to construction activities - set-off against pre-operative interest - commencement of business - interest on short-term deposits - remand for fresh consideration

Income from other sources - interest on short-term deposits - set-off against pre-operative interest - commencement of business - remand for fresh consideration - Whether interest earned on bank deposits during the pre operative period is taxable as income from other sources or can be set off against interest on term loans for capitalization - restored to CIT(A) for fresh adjudication. - HELD THAT: - The Tribunal noted conflicting precedents: the Supreme Court's ratio in Tuticorin (interest on deposits is revenue and taxable under the head 'income from other sources') and the Tribunal's earlier factual decisions in the assessee's own case for AYs 2009-10 and 2010-11 where, on peculiar facts, interest was held inextricably linked to construction activity. The CIT(A) had followed the Tribunal's earlier orders without making findings that the factual matrix of the impugned years was similar. Because the CIT(A) did not record the requisite factual findings distinguishing or aligning the current years with the earlier years and the High Court and Supreme Court decisions were relevant, the Tribunal declined to decide the merits and restored the matter to the file of the CIT(A) for de novo adjudication after considering the Tuticorin ratio, relevant High Court decisions and the facts of the impugned years; the CIT(A) is directed to afford opportunity of hearing and examine whether the interest was truly surplus or inextricably linked to construction so as to be capitalised. [Paras 8]

Issue remanded to the CIT(A) for fresh consideration and de novo determination of whether the interest is taxable as income from other sources or admissible for set off/capitalisation.

Capital receipt - inextricably linked to construction activities - commencement of business - Whether forfeiture of earnest money and other recoveries from contractors are capital receipts inextricably linked to the project and therefore not taxable as income from other sources. - HELD THAT: - The Tribunal applied the principle in Bokaro Steel and analogous authority that receipts which are directly connected with or incidental to the construction of the plant, and which serve to reduce the cost of construction, are capital in nature. On the facts recorded by the AO and CIT(A) (contractors' earnest money forfeited for failure to perform and miscellaneous recoveries) and noting that commercial operations had not commenced and the receipts related to the ongoing project, the Tribunal held these receipts to be inextricably linked to the project and capital in nature; consequently they cannot be taxed as income from other sources and must go to reduce project cost. [Paras 10]

Assessee's appeal allowed; forfeited earnest money and miscellaneous recoveries treated as capital receipts reducible from project cost and not taxable as income from other sources.

Commencement of business - Condonation of delay in filing the assessee's appeal to the Tribunal for AY 2013-14. - HELD THAT: - The Tribunal examined the affidavit and explanation for a 40 day delay in filing the appeal and, finding sufficient cause, exercised its discretion to condone the delay. [Paras 9]

Delay of 40 days in filing the assessee's appeal is condoned.

Final Conclusion: Revenue appeals for AYs 2013-14 and 2014-15 are restored to the CIT(A) for fresh adjudication on the question of taxability of interest on deposits; the assessee's appeal for AY 2013-14 is allowed insofar as forfeited earnest money and miscellaneous recoveries are held to be capital receipts; the Tribunal condoned the 40 day delay in filing the assessee's appeal.

Deductibility of business expenditure under section 37(1) - reimbursement of expenses versus taxable income and TDS implications - membership subscription to an international Verein and commercial necessity - expenditure incurred to protect firm's goodwill and reputation as deductible business expense

Membership subscription to an international Verein and commercial necessity - reimbursement of expenses versus taxable income and TDS implications - deductibility of business expenditure under section 37(1) - Deletion of addition disallowing subscription fees paid to Deloitte Touche Tohmatsu as not being wholly and exclusively for business purpose - HELD THAT: - The Tribunal held that the subscription payments represented the assessee's allocated share of the operational budget of the global network (Verein) and were paid as reimbursement/allocated contribution based on revenue. The authorities below erred in treating the amounts as non-deductible or as transfers of profit; reasoning that a member firm's contribution to the Verein furthers international cooperation, access to common knowledge systems and brand advantage, and therefore bears business necessity. Precedent and coordinate-bench decisions treating similar reimbursements as non-profit elements and not exigible to TDS were followed. On this basis the Tribunal concluded the subscription fees were incurred wholly and exclusively for the purpose of business and allowable, directing deletion of the disallowance. [Paras 5]

The disallowance of subscription fees paid to DTT is deleted and the grounds raised by the assessee are allowed.

Expenditure incurred to protect firm's goodwill and reputation as deductible business expense - deductibility of business expenditure under section 37(1) - Deletion of addition disallowing legal fees paid to defend criminal proceedings against a partner as personal and not business expenditure - HELD THAT: - The Tribunal found that the partner had signed the audit report in his capacity as a partner of the firm and the complaint arose from acts connected to the firm's professional activity. The firm engaged counsel and incurred legal fees to defend proceedings which, if unchallenged, would have jeopardised the firm's reputation and goodwill. Such expenditure was therefore held to be incurred in the course of business and deductible. The Tribunal disagreed with the Assessing Officer's characterization of the fees as personal to the partner and set aside the disallowance, relying on the connection between the partner's role and the firm's professional interests. [Paras 5]

The legal and professional fees paid to defend the partner are deductible business expenditure and the disallowance is deleted.

Final Conclusion: Both additions-the subscription fees paid to DTT and the legal fees paid to defend the partner-are held to be deductible business expenditures and the Assessing Officer's disallowances are deleted; appeals allowed for statistical purposes.

Revisional power under section 263 - twin conditions of erroneousness and prejudice to revenue - Distinction between lack of enquiry and inadequate enquiry in exercise of revisional jurisdiction - When two views are possible the Commissioner cannot substitute his opinion for that of the Assessing Officer - Taxability of ESOPs prior to amendment of section 17(2)(vi) w.e.f. 01.04.2010

Revisional power under section 263 - twin conditions of erroneousness and prejudice to revenue - Distinction between lack of enquiry and inadequate enquiry in exercise of revisional jurisdiction - When two views are possible the Commissioner cannot substitute his opinion for that of the Assessing Officer - Whether the Principal Commissioner of Income Tax validly exercised jurisdiction under section 263 in setting aside the assessment on account of alleged failure of the Assessing Officer to conduct proper enquiries regarding unexplained perquisites, directions under section 144A, and fresh facts arising during assessment. - HELD THAT: - The Tribunal held that exercise of power under section 263 requires satisfaction of twin conditions - that the AO's order is erroneous and that it is prejudicial to the interests of revenue. Where the AO has applied his mind and conducted enquiries (even if another view might have been open), the Commissioner cannot substitute his own view merely because he disagrees. The record showed that the AO had conducted extensive enquiries (statements under section 131, information under section 133(6) from employer and other authorities, bank statements, passports and cross-references to the spouse's assessment), and reached a view after investigation. The PCIT's reasons for invoking section 263 in respect of unexplained perquisites, non-compliance with section 144A directions and fresh facts were the very grounds on which reassessment had been initiated and were shown to have been examined by the AO. Thus the case involved either inquiries that were made or differences of view; it was not a case of no enquiry. The Tribunal therefore concluded that the PCIT wrongly assumed jurisdiction under section 263 on these issues and that the revisional power could not be exercised merely to direct a further or different mode of inquiry when the AO had already made enquiries and adopted a possible view. [Paras 17, 19]

PCIT's exercise of jurisdiction under section 263 in respect of alleged failure to enquire into unexplained perquisites, non-observance of section 144A directions and fresh facts was not justified; the section 263 order is set aside and the AO's assessment restored.

Taxability of ESOPs prior to amendment of section 17(2)(vi) w.e.f. 01.04.2010 - Revisional power under section 263 - requirement of error contrary to law - Whether the PCIT was justified in invoking section 263 for alleged non-examination of taxability of ESOPs in A.Y. 2005-06. - HELD THAT: - The Tribunal noted that for A.Y. 2005-06 ESOPs were not chargeable as perquisites under section 17(2)(vi) because the statutory amendment making ESOPs perquisites took effect from 01.04.2010. Prior to that, ESOPs were treated as capital receipts and taxable, if at all, on sale. Consequently the criticism that the AO failed to enquire into taxability of ESOPs in A.Y. 2005-06 was misplaced as a matter of law. The PCIT therefore could not sustain revision under section 263 on that ground because there was no error of law in the AO's treatment for that year. [Paras 18]

PCIT was not justified in assuming jurisdiction under section 263 on the issue of ESOP taxability for A.Y. 2005-06; that limb of the revision fails.

Revisional power under section 263 - twin conditions of erroneousness and prejudice to revenue - Distinction between lack of enquiry and inadequate enquiry in exercise of revisional jurisdiction - Whether, on the totality of the record, the PCIT's combined order under section 263 should be upheld or set aside. - HELD THAT: - Applying settled principles (including that revisional power cannot be used to substitute the Commissioner's view where the AO has made enquiries and adopted a possible view), and having considered the investigating steps recorded in the assessment order (requests under section 133(6), statements under section 131, corroborative material from employer and other offices, bank statements and passports), the Tribunal concluded that the AO had conducted thorough enquiries and reached a view. The PCIT did not conduct any independent inquiry to establish that the AO's order was contrary to law or that revenue had suffered prejudice; instead the PCIT sought a re-examination of issues already investigated. Following the coordinate decision in the spouse's case and the authorities cited, the Tribunal found that the PCIT wrongly assumed jurisdiction and quashed the revision order, restoring the AO's assessment. [Paras 19, 20]

The combined section 263 order is quashed; the assessment order passed by the AO is restored.

Final Conclusion: The Tribunal set aside the PCIT's order passed under section 263 for A.Y. 2005-06, holding that (i) the AO had conducted necessary enquiries and adopted a possible view so as to preclude revisional interference on grounds complained of, and (ii) the PCIT's criticism on ESOPs was legally misplaced for that year; the AO's assessment is restored.

Unexplained cash credit and burden of proof regarding genuineness, identity and creditworthiness of share applicants under section 68 - admission of additional evidence under Rule 46A and scope of appellate admission - reliance on findings in related proceedings/sister concerns and their persuasive effect

Unexplained cash credit and burden of proof regarding genuineness, identity and creditworthiness of share applicants under section 68 - reliance on findings in related proceedings/sister concerns and their persuasive effect - Deletion of additions made as unexplained share application money (including the commission charged for procurement) treated as unexplained cash credit under section 68. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of additions made by the Assessing Officer treating share application monies as unexplained credits. The Assessing Officer had summarily relied on an Inspector's report which recorded incorrect addresses and stated that parties were 'not found' without confronting or testing the documentary evidence placed on record. The assessee filed ITRs, audited balance sheets, share applications, bank statements and confirmations in respect of the share applicant companies; some of those companies were earlier assessed by the Department itself for relevant years. The CIT(A) admitted additional evidence, examined the materials, sought and considered the AO's remand report and found that the aggregate material established the identity, existence and source/creditworthiness of the applicants. The Tribunal endorsed the CIT(A)'s view that where the Department's own records and the evidence furnished demonstrate existence and source for the investments, and where no independent contrary material (including from searches) was found, additions under section 68 cannot be sustained. The Tribunal also relied on the CIT(A)'s concurrent approach in related appeals involving a sister concern, where identical facts led to deletion of similar additions, as persuasive support for accepting the evidence here. The deletion therefore extended to the commission charged for procuring the entries as it formed part of the same contested characterization of the receipts.

Additions on account of share application money and the related commission treated as unexplained credits under section 68 are deleted; the Revenue's appeal is dismissed on this ground.

Admission of additional evidence under Rule 46A and scope of appellate admission - Validity of the CIT(A)'s admission of additional evidence under Rule 46A and its taking of that evidence into account in appellate adjudication. - HELD THAT: - The Tribunal found that the CIT(A) correctly exercised jurisdiction to admit additional evidence under Rule 46A where the assessee had been prevented from discharging its onus at the assessment stage due to insufficient opportunity and where the AO had not confronted the evidence. The CIT(A) reviewed the assessment material together with the additional documents, sought a remand report from the AO and based its findings on the totality of evidence including records showing departmental processing/assessment of the share applicants in other years. The Tribunal held that admission of such evidence and its consideration in appellate proceedings was justified, and that the AO's failure to meaningfully examine or confront the evidence undermined the basis for the additions.

The CIT(A)'s admission and consideration of additional evidence under Rule 46A is upheld and does not warrant interference.

Final Conclusion: The Tribunal upheld the CIT(A)'s findings: the assessee discharged the onus to establish existence, identity and creditworthiness of the share applicant companies and the CIT(A) correctly admitted and relied upon additional evidence under Rule 46A; the additions under section 68 (including the commission) are deleted and the Revenue's appeal is dismissed.

Reopening of assessment on basis of information from Investigation Wing - formation of subjective satisfaction for escapement of income under section 147/148 - rejection of books of account under section 145(3) - estimation of income by applying average gross profit rate after rejection of books - limits of judicial scrutiny as to sufficiency of reasons for reopening

Reopening of assessment on basis of information from Investigation Wing - formation of subjective satisfaction for escapement of income under section 147/148 - limits of judicial scrutiny as to sufficiency of reasons for reopening - Validity of reassessment proceedings initiated by issuance of notice under section 148 read with section 147. - HELD THAT: - The Tribunal held that the Assessing Officer had specific information received from the Investigation Wing regarding accommodation entries involving the Rajendra Jain group and after examining that material recorded reasons for reopening. Relying on the principle that the Assessing Officer need only have cause or justification to suppose that income has escaped assessment and that courts cannot re examine the sufficiency or adequacy of reasons for belief, the Tribunal found the reopening to be valid. The Tribunal drew support from the jurisdictional High Court decision cited in the order which approved proceedings initiated on the basis of DIT(Inv.) report and concluded that the AO's recorded reasons and approval furnished the requisite basis for invoking section 147/148. Consequently the assessee's challenge to the reopening was dismissed. [Paras 8, 9]

Reopening under section 148/147 was valid and the ground challenging initiation of reassessment is dismissed.

Rejection of books of account under section 145(3) - estimation of income by applying average gross profit rate after rejection of books - Whether purchases treated as unverifiable/bogus and consequent trading additions computed by applying a gross profit rate were sustainable. - HELD THAT: - The Tribunal accepted that the AO was justified in applying section 145(3) to treat books as not reliable in view of the investigation findings and authorities relied upon by the Revenue, and noted that the assessee had produced invoices, bank payments, PAN, VAT registrations and confirmations which discharged the initial evidential burden. However, on the question of quantification, the Tribunal examined the assessee's trading pattern and found a material change in the nature of business in the year under consideration (shift to diamond trading) with commensurately lower GP margins. Having regard to past years' results, the bill to bill export tally and industry practice, the Tribunal concluded that the addition made by applying a notional GP (12% by CIT(A)) was unwarranted on facts and precedent of the Coordinate Bench; the addition confirmed by CIT(A) was therefore deleted. The Tribunal thus differentiated the rejection/verification step (upheld) from the measure of assessment and reversed the trading addition. [Paras 12, 13, 14]

Rejection of books under section 145(3) sustained but the trading addition computed by applying the GP rate (confirmed by CIT(A)) is not sustainable; the addition is deleted.

Final Conclusion: The reassessment notice under section 148/147 was valid and is upheld; although the Assessing Officer was entitled to reject the books under section 145(3), the trading addition sustained by the CIT(A) (applying a GP rate) was found unjustified on the facts and deleted; assessee's appeal is allowed in part and revenue's appeal is dismissed.

Revisionary jurisdiction under section 263 of the Income Tax Act, 1961 - erroneous and prejudicial to the interests of the revenue - lack of enquiry versus inadequate enquiry - Assessing Officer as investigator and adjudicator - plausible view and unsustainable in law - doctrine of merger in revisional proceedings - onus to prove identity, creditworthiness and genuineness of share subscription under section 68

Revisionary jurisdiction under section 263 of the Income Tax Act, 1961 - erroneous and prejudicial to the interests of the revenue - Validity of the Principal CIT's second exercise of revisional jurisdiction under section 263 by order dated 14/03/2019. - HELD THAT: - Having considered the material on record, the statutory tests for exercise of jurisdiction under section 263 - that the order of the Assessing Officer must be both erroneous and prejudicial to the interests of the revenue - were not satisfied. The Tribunal applied settled principles (including Malabar/Max reasoning as summarized) and concluded that where the Assessing Officer had conducted inquiry and taken a plausible view, mere disagreement by the Principal CIT did not render the AO's order erroneous. The second revisional order merely questioned the sufficiency of inquiry without demonstrating that the AO's view was unsustainable in law or showing specific material to rebut the AO's factual satisfaction; consequently, the invocation of section 263 the second time was unjustified and without jurisdiction. [Paras 11]

The second revisional order dated 14/03/2019 under section 263 is bad in law and is quashed.

Assessing Officer as investigator and adjudicator - onus to prove identity, creditworthiness and genuineness of share subscription under section 68 - plausible view and unsustainable in law - lack of enquiry versus inadequate enquiry - Whether the Assessing Officer conducted independent and adequate enquiries in respect of identity, creditworthiness and genuineness of share subscribers and whether the AO's acceptance of the share capital/premium was a plausible view. - HELD THAT: - On review of the assessment/reassessment records the Tribunal found that, pursuant to the first revisional directions, the AO summoned the assessee and shareholders, obtained and examined voluminous documents (ITRs, audited accounts, bank statements, board resolutions, share application forms), issued notices under section 133(6) and summons under section 131, and recorded statements on oath. The AO verified the documents and accepted the explanations; many shareholders' assessments under section 143(3) were also on record. In those circumstances the AO's conclusion as to identity, creditworthiness and genuineness was a possible view supported by material and hence not an unsustainable view in law. The Principal CIT failed to identify specific factual or legal errors in the AO's inquiry or to bring material to rebut the AO's satisfaction, and therefore the allegation of lack of enquiry was speculative and insufficient to justify revision. [Paras 6, 9, 54, 55, 56]

The Assessing Officer carried out independent and adequate enquiries and his acceptance of the share capital/premium was a plausible view which cannot be impugned under section 263.

Doctrine of merger in revisional proceedings - revisionary jurisdiction under section 263 of the Income Tax Act, 1961 - Whether the second Principal CIT could reopen the same subject-matter after the AO had carried out reassessment pursuant to the first revisional order and whether merger doctrine precluded fresh revisional interference. - HELD THAT: - The Tribunal observed that the first Principal CIT had set aside the original assessment with specific directions; the AO then conducted de novo reassessment in compliance with those directions. Once the AO had carried out the directed inquiry and framed the reassessment, the subject-matter (share capital and premium) had merged into that reassessment. The second Principal CIT, without pointing to concrete errors in the AO's performance of the earlier directions or adducing material to overturn the AO's factual satisfaction, effectively attempted to substitute his view for that of the AO and the earlier revisional authority. Permitting such second-time intervention in the absence of demonstrable error would defeat finality and the safeguards Parliament intended; accordingly the second revisional exercise was impermissible. [Paras 7, 8, 56]

The doctrine of merger precluded the second revisional interference; the second Pr. CIT could not validly reopen the same subject-matter after the AO's reassessment pursuant to the first revisional order.

Final Conclusion: Applying established precedent and on the facts found, the Tribunal allowed the assessee's appeal, quashed the Principal CIT's revisional order dated 14/03/2019 under section 263, and held that the Assessing Officer's reassessment accepting the identity, creditworthiness and genuineness of the share subscriptions was a plausible view not amenable to second-stage revision.

Disallowance of proportionate interest under section 36(1)(iii) for interest free advances - Computation of proportionate interest with reference to interest bearing funds and available non interest bearing capital - Deductibility under section 37(1): expenditure laid out wholly and exclusively for business and Explanation 1 excluding expenditure for offences or acts prohibited by law - Remand for fresh computation and verification

Disallowance of proportionate interest under section 36(1)(iii) for interest free advances - Computation of proportionate interest with reference to interest bearing funds and available non interest bearing capital - Remand for fresh computation and verification - Whether proportionate interest on interest free advances to sister concerns is liable to be disallowed and, if so, the correct basis for computing such disallowance. - HELD THAT: - The Tribunal examined the assessee's balance sheet as on 31/3/2013 and found that paid up capital and net reserves resulted in net capital of Rs. 2,42,89,044/-, demonstrating that the assessee did not have non interest bearing funds fully covering the advances. The AO had made a blanket disallowance without considering the extent of interest free funds actually available; however, additions under section 36(1)(iii) cannot be made in respect of advances made out of genuine non interest bearing capital. In view of these facts, the matter was remitted to the AO to compute the proportionate interest attributable to the portion of advances made out of interest bearing funds (i.e., not out of non interest bearing capital) and to pass such consequential order after verification and recomputation in accordance with the Tribunal's observations. [Paras 7]

Matter remitted to the AO for computation of proportionate interest with reference to interest bearing funds and for passing appropriate order in accordance with law.

Deductibility under section 37(1): expenditure laid out wholly and exclusively for business and Explanation 1 excluding expenditure for offences or acts prohibited by law - Whether interest and penalty paid for late payment of TDS are allowable deductions under section 37(1). - HELD THAT: - The Tribunal noted that section 37(1) permits deduction of expenditure laid out wholly and exclusively for business or profession, whereas Explanation 1 disallows expenditure incurred for an offence or act prohibited by law. The Tribunal held that delayed payment of TDS and the consequential penalty are not offences or acts prohibited by law but are compensatory liabilities (damages) for failure to pay sums to the Revenue on time. Therefore such payments do not fall within the Explanation 1 exclusion and are not precluded from deduction on that ground. Consequentially, the additions made by the AO and confirmed by the CIT(A) in respect of interest and penalty for late payment of TDS are unsustainable. [Paras 10]

Addition of interest and penalty paid for late payment of TDS is deleted and the AO is directed to delete the addition of Rs. 2,73,183/-.

Final Conclusion: The appeal is partly allowed: the addition for interest free advances is remitted to the AO for recomputation limited to the portion attributable to interest bearing funds; the disallowance of interest and penalty for late payment of TDS is deleted.

Early hearing - detention of goods - perishability of goods / deterioration over time - expedition of appeal

Early hearing - detention of goods - perishability of goods / deterioration over time - Miscellaneous application for early hearing of the appeal was allowed and the appeal was fixed for an early date. - HELD THAT: - The application sought early hearing on the ground that the goods (readymade garments) had been detained since March, 2019 and would deteriorate over time. The authorised representative for the Revenue raised no objection to expedition. In view of the potential deterioration of the detained goods and the Revenue's concurrence, the Tribunal allowed the miscellaneous application and fixed the appeal for hearing on 06.01.2021. [Paras 2, 3, 4]

Application for early hearing allowed; appeal fixed for hearing on 06.01.2021.

Final Conclusion: The Tribunal allowed the miscellaneous application for early hearing, noting the detained goods' vulnerability to deterioration and the absence of objection from the Revenue, and directed that the appeal be heard on 06.01.2021.

Disqualification under Section 164(2) of the Companies Act, 2013 - Prospective operation of penal or disabling statutory provision - Director Identification Number deactivation and Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 - Publication of struck off companies list under Section 248 of the Companies Act, 2013 - Remedy of quashing deactivation and direction for re activation of DIN

Disqualification under Section 164(2) of the Companies Act, 2013 - Prospective operation of penal or disabling statutory provision - Whether disqualification under Section 164(2) applies retrospectively or only prospectively from 1.4.2014 and, consequently, which financial years qualify for the three year continuous default test. - HELD THAT: - The Court adopts the reasoning in the quoted Gujarat High Court decision that Sub section (2) of Section 164, which imposes ineligibility to be appointed or reappointed as director where a company has not filed financial statements or annual returns for three continuous financial years, is a provision imposing a disability and therefore prima facie prospective. The provision came into force w.e.f. 1.4.2014 and, applying the presumption against retrospective operation, the three financial years must be counted from 2014 15 (i.e. 2014 15, 2015 16 and 2016 17). Retrospective application to include 2013 14 would impermissibly attach new disability to conduct that pre dated the provision and would affect accrued rights under the repealed Companies Act, 1956. The Court therefore holds that disqualification under Section 164(2)(a) would be attracted only after the timelines applicable to the 2016 17 financial year elapsed (post the relevant AGM and filing periods in 2017). [Paras 23, 24, 25]

Section 164(2) operates prospectively from 1.4.2014; the three financial years for the purpose of disqualification are 2014 15, 2015 16 and 2016 17, and disqualification could not properly be declared earlier.

Publication of struck off companies list under Section 248 of the Companies Act, 2013 - Director Identification Number deactivation and Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 - Whether the respondents were justified in publishing the impugned list showing directors as disqualified and in deactivating the DINs of the petitioners on that basis. - HELD THAT: - Relying on the reasoning adopted from the Gujarat High Court, the Court finds the impugned publication dated 12.9.2017 premature and not in conformity with Section 164(2) because the disqualification periods alleged were untenable in law given the prospective operation of Section 164(2). Further, Rule 11 of the 2014 Rules prescribes specific grounds and a procedure for cancellation, surrender or deactivation of DIN; it does not contemplate suo motu deactivation of a DIN merely because a company with which a person was associated has been struck off or to reflect an alleged ineligibility under Section 164(2). Once allotted, a DIN is intended to be valid for life and cannot be deactivated except in circumstances provided by the Rules. The Court also notes that because DINs were deactivated the affected directors were deprived of opportunities (such as availing the condonation scheme) and that the scheme introduced later could not validate the prior, unlawful deactivation/publication. [Paras 26, 29, 30, 31, 32]

The publication showing the petitioners as disqualified on the dates and for the period stated was premature and the consequent deactivation of the petitioners' DINs was not legally tenable.

Remedy of quashing deactivation and direction for re activation of DIN - What relief is appropriate in respect of the deactivated DINs? - HELD THAT: - In view of the conclusions that the impugned list was premature and the deactivation unsupported by the Act and Rules, the Court allows the writ petition and directs re activation of the Director Identification Numbers so that they may be used for other companies. The Court preserves the respondents' right to initiate appropriate legal action against the petitioner for any statutory default or non compliance in accordance with law, leaving open any merits of such proceedings but invalidating the administrative step of deactivation taken on the impugned basis. [Paras 6, 7]

Writ petitions allowed; DINs de activated on account of disqualification in one company must be re activated for use in other companies, subject to the respondents' liberty to pursue legal action in accordance with law.

Final Conclusion: The writ petition is allowed: the impugned publication identifying the petitioners as disqualified (and the consequent deactivation of their DINs) was premature and legally untenable because Section 164(2) operates prospectively from 1.4.2014 (three years being 2014 15 to 2016 17); the respondents are directed to activate the petitioners' Director Identification Numbers for use in other companies, while preserving the respondents' liberty to take lawful action for any statutory default or non compliance.

Disqualification of directors for failure to file financial statements under Section 164(2)(a) of the Companies Act, 2013 - DIN deactivation and reactivation by Registrar of Companies - Requirement of enquiry and opportunity before disqualification - Interaction of Section 164(2) with Section 167(1) regarding vacation of office

Disqualification of directors for failure to file financial statements under Section 164(2)(a) of the Companies Act, 2013 - Requirement of enquiry and opportunity before disqualification - DIN deactivation and reactivation by Registrar of Companies - Interaction of Section 164(2) with Section 167(1) regarding vacation of office - Validity of the order disqualifying the petitioner as director and deactivating the DIN without prior opportunity and consequent relief of setting aside the disqualification and reactivation of the DIN in terms of the Division Bench precedent. - HELD THAT: - The writ petition challenged the respondent's order disqualifying the petitioner under Section 164(2)(a) for non-filing of financial statements and the absence of prior notice. The Court applied the ratio of the Division Bench in W.A. No. 569 & Ors. (paras. 36 and 38) holding that the AQD Rules do not empower the ROC to deactivate a DIN upon disqualification under Section 164(2), and that deactivation would be contrary to the scheme read with Section 167(1) since a director of a defaulting company may need to retain the DIN to rectify defaults. The Court noted that no notice was given to the petitioner before disqualification in the present case and that the Division Bench's directions-which set aside impugned deactivation and ordered reactivation subject to the ROC being free to initiate enquiry to attribute defaults to specific directors-apply equally. For these reasons the impugned order was set aside and relief granted in the terms indicated by the earlier Division Bench, leaving open the ROC's power to conduct an enquiry to determine attribution of default. [Paras 6, 7, 8]

Impugned order dated 13.12.2019 disqualifying the petitioner is set aside; relief granted in terms of the Division Bench order (reactivation of DIN and quashing of disqualification) while permitting the ROC to initiate enquiry to decide attribution of default.

Final Conclusion: Writ petition allowed; the disqualification order set aside and relief granted in terms of the Division Bench precedent, with liberty to ROC to conduct enquiry to determine attribution of defaults.

Scheme of Merger sanction under sections 230 to 232 - Appointed Date - Dispensation of shareholder and creditor meetings on consent affidavits - Compliance with accounting standards AS-14 (Ind AS-103) and AS-5 (Ind AS-8) - Set-off of fees paid by transferor company against transferee company's fees on authorised capital - Undertaking to comply with Regional Director's observations - Dissolution of transferor companies without winding up - Filing of certified order and Scheme in Form INC-28 and stamping adjudication - Service of notices to affected authorities under section 230(5)

Scheme of Merger sanction under sections 230 to 232 - Sanction of the Scheme of Merger of the two transferor companies with the transferee company - HELD THAT: - The Tribunal, having considered the petition, the reports placed on record including the Regional Director's report and the Official Liquidator's report, and in the absence of any objections, found the Scheme to be fair and reasonable, not violative of law and not contrary to public policy. All requisite statutory compliances were held to have been fulfilled and the Company Petition was made absolute in terms of the prayers. Consequently the Scheme is sanctioned by the Tribunal. [Paras 10, 18, 19, 20, 21]

Scheme sanctioned and Company Petition CP(CAA)/927/MB-III/2020 made absolute

Appointed Date - Appointed Date for the Scheme - HELD THAT: - The Scheme expressly provided the Appointed Date as 1st April 2019. The Tribunal accepted that the appointed date is clearly indicated in the Scheme in accordance with the statutory requirement and fixed the Appointed Date as 1st April 2019, noting the petitioners' compliance with applicable clarifications. [Paras 11, 13, 21]

Appointed Date fixed as 1st April 2019 and Scheme deemed effective from that date

Dispensation of shareholder and creditor meetings on consent affidavits - Validity of dispensing with meetings of shareholders and creditors by placing consent affidavits - HELD THAT: - The petitioners placed before the Tribunal consent affidavits of all equity shareholders, requisite preference shareholders and unsecured creditors as applicable, and there being no secured creditors, the meetings were dispensed with in accordance with the earlier directions of the Tribunal. The Tribunal accepted that where consents from all concerned classes were placed on record the requirement to place minutes of meetings did not arise. [Paras 8, 15]

Meeting dispensation on the basis of consent affidavits accepted

Compliance with accounting standards AS-14 (Ind AS-103) and AS-5 (Ind AS-8) - Requirement to pass accounting entries complying with applicable accounting standards - HELD THAT: - The Regional Director observed that entries necessary under AS-14 (Ind AS-103) and other applicable standards such as AS-5 (Ind AS-8) should be made. The Transferee Company undertook to pass such accounting entries as may be necessary to comply with those standards, and the Tribunal accepted that undertaking. [Paras 11, 12, 17]

Undertaking to comply with specified accounting standards accepted

Set-off of fees paid by transferor company against transferee company's fees on authorised capital - Obligation regarding set-off of fees paid by transferor companies against transferee company's authorised capital fees - HELD THAT: - The Regional Director noted the requirement under the statute that fees, if any, paid by a transferor company on its authorised capital shall be set off against any fees payable by the transferee company after amalgamation. The Transferee Company furnished an undertaking to comply with that statutory provision and the Tribunal accepted the undertaking. [Paras 11, 14, 17]

Undertaking to comply with statutory set-off requirement accepted

Service of notices to affected authorities under section 230(5) - Compliance with service of notices to authorities likely to be affected by the Scheme - HELD THAT: - The petitioners filed proof of service of notices to the Regional Director, Registrar of Companies, concerned Income Tax authority and the Official Liquidator as required under the statute. No representations or objections were received from these authorities. The Tribunal accepted the petitioners' compliance while noting that the sanction does not preclude authorities from dealing with post-effective issues. [Paras 11, 16, 17]

Statutory service of notices under section 230(5) satisfied and accepted

Dissolution of transferor companies without winding up - Dissolution of the transferor companies consequent to sanction of the Scheme - HELD THAT: - The Official Liquidator reported that the affairs of the transferor companies were not conducted prejudicially to members or the public. In view of the sanction of the Scheme, the Tribunal ordered that the transferor companies be dissolved without winding up. [Paras 18, 21]

Transferor companies ordered to be dissolved without winding up

Filing of certified order and Scheme in Form INC-28 and stamping adjudication - Post-sanction compliance directions including filing with Registrar, stamping adjudication and regulatory action - HELD THAT: - The Tribunal directed the petitioner companies to file a certified copy of the order and the Scheme with the Registrar of Companies electronically in Form INC-28 within thirty days, and to lodge a certified copy with the Superintendent of Stamps for adjudication within sixty working days. The Tribunal further directed all concerned regulatory authorities to act on a certified copy of the order and Scheme. Liberty to apply for further directions was preserved. [Paras 22, 23, 24, 25]

Petitioners directed to comply with filing and stamping formalities and regulatory authorities directed to act

Final Conclusion: The Tribunal sanctioned the Scheme of Merger under sections 230-232 of the Companies Act, 2013, fixed the Appointed Date as 1st April 2019, accepted the petitioners' undertakings (including accounting, statutory set-off and service of notices), ordered dissolution of the transferor companies without winding up, and directed standard post-sanction filings and stamping formalities.

Scheme of Arrangement under Sections 230-232 of the Companies Act, 2013 - Sanction of composite demerger scheme - Appointed Date - Acceptance of Regional Director's report and undertakings - Meetings of shareholders and dispensation of creditors' meetings - Filing of certified order with Registrar of Companies and stamp duty adjudication

Scheme of Arrangement under Sections 230-232 of the Companies Act, 2013 - Sanction of composite demerger scheme - Sanction of the composite Scheme of Arrangement effecting demerger of the Demerged Undertaking of Marinetrans India Private Limited into Safewater Lines India Private Limited - HELD THAT: - The Tribunal considered the petition under Sections 230 to 232 of the Companies Act, 2013, the board and shareholders' approvals, the absence of any objector appearing against the petition, and the material on record. The Regional Director's observations were noted and the petitioners' undertakings and clarifications were placed before the Tribunal. The Tribunal found the Scheme to be fair and reasonable, not violative of law, and not contrary to public policy or public interest. Having regard to fulfillment of statutory compliances and acceptance of the undertakings, the petition was made absolute and the Scheme was sanctioned. [Paras 11, 12, 13, 14, 15]

The Composite Scheme of Arrangement is sanctioned and the Company Petition is made absolute.

Appointed Date - Determination of the Appointed Date for the Scheme - HELD THAT: - The Scheme defined the "Appointed Date" as the 1st day of April, 2019. The Tribunal sanctioned the Scheme and declared the Appointed Date to be 1st April, 2019 as defined in the Scheme, thereby making the Scheme operative from that date. [Paras 15]

The Appointed Date of the Scheme is 1st day of April, 2019.

Acceptance of Regional Director's report and undertakings - Compliance with accounting standards and statutory requirements - Acceptance of the Regional Director's report subject to procedural observations and acceptance of petitioners' undertakings to comply with those observations - HELD THAT: - The Regional Director filed a report raising several observations relating to accounting entries under applicable Accounting Standards, clarification on the Appointed Date, certification of meeting approvals, auditor's certificate regarding accounting treatment for any reduction, service of statutory notices, and conformity of the Scheme documents. The petitioners furnished an undertaking addressing each observation, including that necessary accounting entries will be passed in accordance with AS-14 (Ind AS-103) and other applicable standards, that statutory notices have been served, that auditor's certificate is annexed, and that modifications in share entitlement ratio were made in the shareholders' meeting. The Tribunal accepted these undertakings and treated the Regional Director's report as addressed. [Paras 9, 10, 11]

The Tribunal accepts the Regional Director's report subject to the petitioners' undertakings, which are accepted.

Meetings of shareholders and dispensation of creditors' meetings - Validation of shareholders' meetings approval and dispensation of creditors' meetings - HELD THAT: - The Tribunal noted that the meetings of equity shareholders were convened and the Scheme was approved unanimously with a modification to the share entitlement ratio. It was recorded that meetings of secured and unsecured creditors had been dispensed with by earlier order and that individual notices had been served on creditors. The petitioners confirmed by undertaking that the Scheme was approved by the requisite majority in terms of Section 230(6) and that dispensation of creditors' meetings had been directed previously. The Tribunal found these procedural requirements satisfied. [Paras 6, 8, 10, 11]

Shareholders' approvals are validated and the dispensation of creditors' meetings is recognized as per earlier directions.

Filing of certified order with Registrar of Companies and stamp duty adjudication - Post-sanction compliance directions regarding filing of certified order and stamp duty adjudication - HELD THAT: - Upon sanctioning the Scheme, the Tribunal directed the petitioner companies to file a certified copy of the order with the Registrar of Companies electronically in e Form INC 28 within 30 days from receipt of the order, and to lodge the certified order and Scheme with the Superintendent of Stamps for adjudication of stamp duty, if any, within 60 days. The Tribunal further directed that all concerned regulatory authorities may act on the certified order and Scheme and left liberty to interested persons to apply for further directions if necessary. [Paras 16, 17, 18, 19]

Petitioners must file the certified order with RoC in e Form INC 28 and lodge the certified order with the Superintendent of Stamps; regulatory authorities to act on certified copies.

Final Conclusion: The Tribunal sanctioned the composite Scheme of Arrangement under Sections 230-232 of the Companies Act, 2013 for demerger of the specified undertaking, fixed the Appointed Date as 1st April, 2019, accepted the Regional Director's report subject to the petitioners' undertakings, and directed statutory post-sanction compliances including filing with the Registrar of Companies and stamp duty adjudication.

Sanction under sections 230 to 232 read with section 66 of the Companies Act, 2013 - sanction of a Composite Scheme of Arrangement and Amalgamation - reduction of share capital - appointed date and retrospective operation from Appointed Date - effectiveness upon filing of certified copy with the Registrar - compliance with accounting standards (IND AS-103 and IND AS-8) - dissolution of transferor without winding-up

Sanction of a Composite Scheme of Arrangement and Amalgamation - sanction under sections 230 to 232 read with section 66 of the Companies Act, 2013 - Sanction of the Composite Scheme of Arrangement and Amalgamation between RKD Trendy Retailers Pvt. Ltd. (Transferor) and Himalchuli Food Products Limited (Transferee). - HELD THAT: - The Tribunal considered compliance with statutory requirements, service on creditors and regulatory authorities, reports of the Regional Director and Official Liquidator, and approvals by the requisite majorities of shareholders. No objections were received from creditors, objectors or regulatory authorities. The Official Liquidator reported that the affairs of the Transferor Company were conducted properly. The Tribunal found the Scheme to be fair and reasonable, not violative of law and not contrary to public policy, and that all requisite statutory compliances had been fulfilled. [Paras 11, 15, 18, 19, 20]

The Composite Scheme of Arrangement and Amalgamation is sanctioned and the Company Petition is made absolute.

Appointed date and retrospective operation from Appointed Date - effectiveness upon filing of certified copy with the Registrar - Fixing of the Appointed Date and the date from which the Scheme is to operate. - HELD THAT: - The Scheme defined the Appointed Date as 1st April, 2018. The Regional Director's observations regarding the Appointed Date and related filings were considered. The Petitioners undertook that the Appointed Date shall be 1st April, 2018 and that the Scheme will take effect from that Appointed Date in terms of Section 232(6), while being effective upon filing of the certified copy of this Tribunal's order with the Registrar of Companies. The Tribunal accepted these undertakings. [Paras 16, 17, 21]

The Appointed Date is fixed as 1st April, 2018; the Scheme shall be effective from that Appointed Date and upon filing of the certified copy of this order as provided.

Compliance with accounting standards (IND AS-103 and IND AS-8) - reduction of share capital - Acceptance of the Petitioner Companies' undertaking on accounting treatment and the proposed reduction of share capital of the Transferee Company. - HELD THAT: - The Regional Director observed that accounting entries in compliance with IND AS-103 (AS-14) and other applicable accounting standards such as IND AS-8 (AS-5) should be passed. The Petitioners undertook to make such entries and to comply with statutory requirements. The Transferee Company's shareholders had passed a special resolution for reduction of share capital under Section 66; the Tribunal recorded the undertaking and accepted compliance with accounting and statutory requirements. [Paras 5, 12, 15, 16, 17]

The Tribunal accepted the Petitioners' undertakings to comply with the applicable accounting standards and statutory formalities in relation to the reduction of share capital.

Dissolution of transferor without winding-up - Dissolution of the Transferor Company without winding-up consequent to sanction of the Scheme. - HELD THAT: - The Official Liquidator reported that the affairs of the Transferor Company have been conducted properly and indicated that the Transferor Company may be dissolved without winding-up. In view of the Scheme being sanctioned and effective, the Tribunal directed that the Transferor Company be dissolved without winding-up after the Scheme becomes effective. [Paras 18, 21]

The Transferor Company shall be dissolved without winding-up upon the Scheme becoming effective.

Effectiveness upon filing of certified copy with the Registrar - Directions for post-sanction compliance including filing of certified copy of the order and lodging with statutory authorities. - HELD THAT: - The Tribunal directed the Petitioner Companies to lodge certified copies of the order and the Scheme with the Superintendent of Stamps for adjudication of stamp duty within sixty working days, and to file the certified copy with the Registrar of Companies electronically in E-Form INC-28 within thirty days of issue of the order. It also directed that all concerned regulatory authorities act on the certified copy. These directions were issued to effectuate the Scheme and ensure statutory compliance. [Paras 22, 23, 24]

Petitioner Companies to lodge certified copies of the order and Scheme with the Superintendent of Stamps and Registrar of Companies and regulatory authorities as directed.

Final Conclusion: The National Company Law Tribunal sanctioned the Composite Scheme of Arrangement and Amalgamation between RKD Trendy Retailers Pvt. Ltd. and Himalchuli Food Products Limited, fixed the Appointed Date as 1st April, 2018 with effectiveness upon filing of the certified order, accepted undertakings on accounting and statutory compliance including reduction of share capital, directed post-sanction filings, and ordered dissolution of the Transferor Company without winding-up upon effectiveness of the Scheme.

Genuine dispute - spurious, hypothetical and illusory dispute - voting threshold for withdrawal under Section 12A of the I&B Code - withdrawal of corporate insolvency resolution process under Section 12A - approval of resolution plan by the Committee of Creditors - admission under Section 9 of the I&B Code - Mobilox principle

Genuine dispute - spurious, hypothetical and illusory dispute - voting threshold for withdrawal under Section 12A of the I&B Code - approval of resolution plan by the Committee of Creditors - Mobilox principle - Whether NCLAT erred in not adjudicating an earlier framed dispute and whether that dispute was required to be decided before upholding admission under Section 9 and related votes of the Committee of Creditors. - HELD THAT: - The Court applied the principle in Mobilox Innovations (that a dispute must be real and not spurious, hypothetical or illusory) to the facts recorded by NCLAT. The NCLAT's factual findings (recorded voting results) showed that the Settlement Proposal under Section 12A was rejected by the Committee of Creditors by 99.68% voting shares and that the Resolution Plan was thereafter approved by the Committee with 99.68% votes. Given those results, the Court held that no genuine dispute on the admitted claim persisted which would require separate adjudication of the earlier framed issue. Consequently, NCLAT was justified in declining to entertain the framed issue and proceeding on the basis of the CoC's voting outcome and the admission under Section 9. The Court found no reason to interfere with NCLAT's approach or conclusion.

NCLAT was right in not considering the earlier framed issue; appeal dismissed.

Final Conclusion: The appeal is dismissed; the NCLAT's decision in Company Appeal (AT) (Insolvency) No.139 of 2018 is upheld and no costs are awarded.

Limitation under Article 137 of the Limitation Act - operational debt - continuing contract - frustration of contract by efflux of time - termination for non-payment and suspension clauses

Limitation under Article 137 of the Limitation Act - continuing contract - The Section 9 application was not barred by limitation. - HELD THAT: - The Tribunal examined the contractual matrix and correspondence and found that neither party had validly terminated the EPC contract; the contract therefore continued to subsist. In view of the continuing nature of the contract and the Respondent's demand notice dated 02.07.2018 (which alleged the debt continued to fall due and that the last payment was on 25.02.2011), the Adjudicating Authority correctly held that the Section 9 application was not time-barred under Article 137. The Tribunal affirmed that the limitation defence based on alleged termination could not be accepted where the contract remained subsisting. [Paras 16, 22]

Limitation defence rejected; Section 9 application held not barred by limitation.

Operational debt - The claim advanced by the Respondent qualifies as an operational debt under the IBC. - HELD THAT: - The Tribunal noted the definition of 'operational debt' under Section 5(21) and observed that the Respondent's claim arose from provision of goods and services under the EPC contract. As the claim undisputedly related to dues arising from the contractual performance, the Tribunal held that the debt fell within the scope of operational debt and that the Adjudicating Authority's finding to that effect was correct. [Paras 17, 18, 22]

Claim held to be an operational debt; Section 9 admission on this ground sustained.

Frustration of contract by efflux of time - termination for non-payment and suspension clauses - The contention that the contract was frustrated or terminated by efflux of time was negatived. - HELD THAT: - The Tribunal considered the contract terms, including Article 14 (termination for owner's convenience and termination upon non-payment) and the letter of suspension dated 30.07.2011. It found no clause providing for frustration by efflux of time and observed that the Respondent had not invoked the contractual termination provisions in a manner that would effect termination. Given the absence of any valid termination, the plea of frustration by efflux of time was rejected. [Paras 11, 13, 19]

No frustration or termination by efflux of time; contract held to subsist.

Final Conclusion: The Tribunal upheld the Adjudicating Authority's admission of the Section 9 application, finding the claim to be an operational debt, rejecting the limitation and frustration/contention, and dismissed the appeal. No order as to costs.

Consent order - ratification of fees by committee of creditors - rectification of order under Rule 154 of NCLT Rules - mistake apparent on the face of the record - challenge to consent recorded through proxy counsel - finality of orders obtained by mutual consent

Consent order - finality of orders obtained by mutual consent - challenge to consent recorded through proxy counsel - IA No.3049/2020 seeking interference with the Appellate Tribunal's order dated 29.7.2020 passed by consent was dismissed. - HELD THAT: - The Appellate Tribunal's order of 29.7.2020 was recorded by consent and fixed specific limits for various heads of expenses and fees. Although the Resolution Professional admitted to having worked for only 39 days and the claimed expenses appeared excessive on their face, the impugned order was the product of agreement between the parties. The RP did not object when the order was dictated, did not notify the Tribunal at the time that the counsel appearing was a proxy, and has not made any complaint to the Bar Council regarding unauthorised representation. The contention that the proxy appearance was unauthorised is treated as an afterthought. In these circumstances, and given that the order was made with the consent of both sides, no interference is warranted and the IA is liable to be dismissed.

IA No.3049/2020 dismissed; the consent order dated 29.7.2020 stands.

Rectification of order under Rule 154 of NCLT Rules - mistake apparent on the face of the record - ratification of fees by committee of creditors - The application premised on rectification under Rule 154 and relief under Section 420 of the Companies Act was rejected for want of any mistake apparent on the face of the record or other grounds justifying amendment. - HELD THAT: - The RP sought amendment/rectification of the Appellate Tribunal's order on the basis that the order wrongly recorded consent and limited the RP's claim. Rule 154 of the NCLT Rules permits correction of clerical or arithmetical mistakes; however, no such clerical or arithmetical error was shown. The RP also relied on the ratification of his appointment and fees by the Committee of Creditors, but the remedy sought was not supported by evidence of a mistake apparent on the record or contemporaneous objection to the proxy appearance. The Tribunal therefore found the invocation of Rule 154 and Section 420 to be misconceived and not maintainable.

Application under Rule 154/Section 420 rejected; no rectification or amendment made to the consent order.

Final Conclusion: The application by the Resolution Professional to set aside or rectify the NCLAT order dated 29.7.2020 was dismissed; the consent order limiting the RP's recoverable amounts remains operative and is not reopened in the absence of any demonstrated mistake apparent on the face of the record or timely objection to the proxy appearance.

Existence of financial debt - default under the Insolvency and Bankruptcy Code - admissibility of an application under section 7 - completeness of application under the Rules and Form I - appointment of interim resolution professional - declaration of moratorium under section 14 - continuation of supply of goods and essential services during moratorium

Existence of financial debt - default under the Insolvency and Bankruptcy Code - The financial creditor proved existence of a financial debt and the corporate debtor committed default. - HELD THAT: - On consideration of the facility agreements, repayment schedules acknowledged by the corporate debtor and payment records, the Tribunal found that term loans were sanctioned and that the corporate debtor admitted taking subsequent loans. The records show payments at times but outstanding balances remain for the second, third and fourth loans; the repayment schedule filed by the financial creditor is signed/acknowledged by the corporate debtor. In light of these documents, the Authority was satisfied that a 'debt' as defined in the Code exists and that there was default by the corporate debtor, notwithstanding the respondent's contention as to disputed calculations for penal interest, for which no corroborative evidence was produced. [Paras 12, 13, 19]

There is a debt due to the financial creditor and the corporate debtor has defaulted in payment.

Admissibility of an application under section 7 - completeness of application under the Rules and Form I - The petition under section 7 was complete in form and content and therefore maintainable and liable to be admitted. - HELD THAT: - The Tribunal examined the application filed in Form 1 with accompanying documents and records, noted compliance with Rule 4 requirements and dispatch obligations, and applied the settled principle that the adjudicating authority need only be satisfied from records that a default has occurred. The Authority found the application complete and within limitation, and that there was no ground to reject or dismiss it at the threshold. [Paras 16, 21]

The section 7 application is complete and admissible and must be admitted.

Appointment of interim resolution professional - A named interim resolution professional was appointed to oversee the corporate insolvency resolution process. - HELD THAT: - The financial creditor proposed a resolution professional and placed Form 2 on record containing the requisite declaration that no disciplinary proceedings were pending. On that basis, and having admitted the petition, the Tribunal appointed the proposed professional as interim resolution professional. [Paras 20]

Mr. Manish Shah is appointed as the interim resolution professional.

Declaration of moratorium under section 14 - continuation of supply of goods and essential services during moratorium - A moratorium was declared in terms of section 14 of the Code, with the supply of goods and essential services not to be terminated during the moratorium subject to statutory exceptions. - HELD THAT: - Upon admission of the petition and finding of default, the Tribunal invoked section 14 to prohibit institution or continuation of suits, transfer or disposal of assets, enforcement of security interests and recovery of property, and directed that supplies and essential services, if continuing, shall not be terminated or interrupted during the moratorium period, while noting exceptions as may be notified by the Central Government in consultation with regulators. The moratorium is to operate from receipt of the authenticated order until completion of the resolution process or approval of a resolution plan or liquidation order. [Paras 22, 23, 24]

Moratorium is declared with the stated prohibitions and protections for ongoing supply of essential goods and services.

Final Conclusion: The section 7 petition filed by the financial creditor is admitted: the Tribunal found a provable financial debt and default, held the application complete and within limitation, appointed an interim resolution professional, and declared the statutory moratorium with attendant protections for supply of essential goods and services; the petition is disposed of accordingly with no order as to costs.

Condonation of delay - maintainability of appeals - jurisdictional mistake in filing - certainty in fiscal matters - alacrity in pursuing legal remedies

Condonation of delay - jurisdictional mistake in filing - maintainability of appeals - certainty in fiscal matters - Whether the substantial delay in filing the appeals should be condoned - HELD THAT: - The Court held that the appeals were filed with delays of 668 days and 727 days respectively and that, even after excluding the period during which proceedings were pursued before the High Court, a substantial unexplained delay remained. The explanation that the appeals were mistakenly filed before the Calcutta High Court was rejected: the Union of India has competent legal advice and, on the facts, could not reasonably contend that it was under a misapprehension about the proper forum. The nature of the controversy made the appeals plainly maintainable before this Court alone, and therefore the mistake did not justify condonation. Emphasising the importance of certainty in fiscal matters and the need for the Revenue to show alacrity in pursuing remedies, the Court declined to exercise its discretion to condone the gross delay. The Court further clarified that, having dismissed the appeals on delay, it did not examine the merits of the legal issues raised in the appeals. [Paras 2, 3, 4, 5]

Appeals dismissed on the ground of delay; condonation refused.

Final Conclusion: The appeals by the Revenue were dismissed for substantial and unexplained delay; the Court refused to condone the delay caused by filing in the wrong forum, declined to consider the merits, and emphasised the need for prompt pursuit of available legal remedies to protect fiscal certainty.

Inclusion of value of goods supplied free of cost in taxable value of services - valuation under section 67 of the Finance Act, 1994 - distinction between construction/works contract valuation rules and valuation of mining services - non-applicability of works contract composition scheme to mining service valuation - precedential effect of Bhayana Builders (Tri-LB) affirmed by the Supreme Court

Inclusion of value of goods supplied free of cost in taxable value of services - valuation under section 67 of the Finance Act, 1994 - precedential effect of Bhayana Builders (Tri-LB) affirmed by the Supreme Court - Value of items supplied free of cost by the service recipient is not includible in the taxable value of mining services provided by the appellant. - HELD THAT: - The Tribunal accepted the appellant's contention that valuation of taxable services is governed by section 67 of the Finance Act and that goods/materials supplied free of cost by the service recipient do not constitute consideration chargeable as part of the gross amount. The decision of the larger Bench in Bhayana Builders, which was affirmed by the Supreme Court, holds that the value of goods/materials provided free of charge by the service recipient is not includible in the gross amount charged by the service provider because no price is charged for such goods. The Division Bench decision in ABL Infrastructure was distinguished: that decision applied the specific Explanation in the Works Contract (Composition Scheme) Rules which expressly required inclusion of goods supplied (for consideration or otherwise) for works contract valuation. No corresponding rule or notification applying the works contract composition scheme to mining services was shown to exist in the present case. In the absence of any statutory provision analogous to the works contract composition rule, the Tribunal held that the Bhayana Builders ratio governs and the demand for service tax on the value of free supplies could not be sustained. [Paras 13, 14, 16, 17, 19]

The demand of service tax on the money value of items supplied free of cost by the service recipient to the appellant is set aside.

Final Conclusion: The Commissioner's order confirming demand of service tax, interest and penalty on the value of items supplied free of cost is quashed; the appeal is allowed.

Casual Trader - time limit for assessment for a Casual Trader - assessment barred by limitation - statutory interpretation - singular and plural construction - application of General Clauses Act principles to avoid absurdity

Casual Trader - time limit for assessment for a Casual Trader - Whether the respondent, having effected a single purchase transaction of a motor vehicle, falls within the definition of a "Casual Trader" for the purposes of the Rajasthan Sales Tax Act and thereby attracts the shorter assessment period under the Entry Tax Act read with Sections 10A and 10B of the Rajasthan Sales Tax Act. - HELD THAT: - The Court held that the definition of "Casual Trader" contemplates a person engaged in occasional transactions of a business nature and is not to be read as requiring multiple transactions as a condition precedent. Construing the statutory language sensibly and in consonance with Section 13(2) of the General Clauses Act (and analogous provisions), words in the singular may include the plural and vice versa, and a literal requirement of plurality would lead to an anomalous result contrary to legislative intent. The provisions of Section 10A (reporting and assessment of Casual Trader) read with Section 10B(1)(iii) (time limit for assessment where no report is filed) thus apply to persons with occasional or one-off transactions of the nature described, bringing the respondent within the category of a "Casual Trader". [Paras 11, 12, 15, 16, 18]

The respondent was rightly treated as a "Casual Trader" and the shorter assessment regime under Sections 10A and 10B applied.

Assessment barred by limitation - time limit for assessment for a Casual Trader - Whether the Assessment Order dated 9.10.2012 was time barred in view of the two year limitation applicable where no report is made by a Casual Trader, the date of transaction being 26.12.2009. - HELD THAT: - The Court accepted the view that for a "Casual Trader" who does not file the report envisaged by Section 10A, the assessment must be completed within two years from the date of the transaction as stipulated by Section 10B(1)(iii). The transaction in question occurred on 26.12.2009; an assessment beyond two years from that date would be impermissible. The appellate and revisional fora had found that the assessment was therefore barred by limitation, and the Supreme Court found no reason to disturb that conclusion, applying the statutory time limit and the interpretative principle that avoids any construction which frustrates the legislative scheme. [Paras 13, 15, 19]

The Assessment Order dated 9.10.2012 was barred by limitation under the time limits applicable to a Casual Trader and was correctly set aside.

Final Conclusion: The Special Leave Petition is dismissed; the classification of the respondent as a "Casual Trader" and the consequent finding that the assessment was time barred are upheld.

Condonation of delay - reopening of assessment - inclusion of asset in net wealth where asset stands in name of a partnership - valuation of interest in a partnership firm under Rule 16 - valuation of property under Schedule III - exemption as commercial/productive asset under section 2(ea)(1)(v) - deduction of liability for purchase of asset against net wealth - deletion of additions made towards motor vehicles and cash balance

Condonation of delay - Admissibility of the appeals despite delay - HELD THAT: - The assessee filed a petition for condonation of delay of ten days, attributing the delay to the authorised representative being out of station. The Tribunal examined the explanation and, finding the cause to be reasonable and not wilful or deliberate, exercised its discretion to condone the delay and admit the appeals for adjudication. [Paras 5]

Delay in filing the appeals is condoned and the appeals are admitted for adjudication.

Inclusion of asset in net wealth where asset stands in name of a partnership - exemption as commercial/productive asset under section 2(ea)(1)(v) - valuation of interest in a partnership firm under Rule 16 - valuation of property under Schedule III - Correct treatment and valuation of the Saidapet and Haddows Road properties for net wealth - HELD THAT: - The Tribunal noted that the Saidapet property stood in the name of the partnership firm and that the CWT(A) admitted this fact but nonetheless confirmed additions because the asset was not shown to have been occupied for the assessee's business on the valuation date. The Tribunal emphasised that an asset not in the name of the assessee cannot be directly included in the assessee's net wealth; instead the value of the assessee's interest in the firm must be determined in the manner provided by Rule 16. Further, where the Assessing Officer determines value of a property, Schedule III (Part B) prescribes the manner of valuation and must be followed; the Tribunal observed the AO had not applied Schedule III in determining the values. In view of these defects in approach and valuation, the Tribunal concluded that the assessments in respect of the two properties require fresh determination in accordance with Rule 16 (for interest in partnership) and Schedule III (for property valuation). [Paras 11]

Appeals set aside and remitted to the Assessing Officer to re-determine (a) the value of the assessee's interest in the partnership in accordance with Rule 16 and (b) the value of the Saidapet property in accordance with Part B of Schedule III to the Wealth Tax Act, 1957.

Deduction of liability for purchase of asset - deletion of additions made towards motor vehicles and cash balance - Treatment of Rutland Gate liability, motor vehicles and cash balance in net wealth - HELD THAT: - The Tribunal noted that the CWT(A) had accepted that loans taken for purchase of the Rutland Gate property were genuine as held in the income-tax proceedings and therefore directed deduction of the liability for wealth-tax computation. The CWT(A) also found that the motor vehicles and cash balance were already reflected in the returns filed under section 14 and deleted the additions made by the Assessing Officer in respect of those items. The Tribunal did not disturb these findings of the CWT(A). [Paras 8, 11]

Liability in respect of Rutland Gate property to be allowed as deduction and additions in respect of the motor vehicles and cash balance deleted as directed by the CWT(A).

Final Conclusion: Delay in filing the appeals is condoned and the appeals are admitted; the Tribunal upholds the CWT(A)'s relief on Rutland Gate liability and deletion of additions for motor vehicles and cash, but sets aside the assessments insofar as the Saidapet and Haddows Road properties are concerned and remits those matters to the Assessing Officer for fresh valuation and determination in accordance with Rule 16 and Schedule III. Appeals are allowed for statistical purposes.

Vacant urban land - definition of 'asset' under Section 2(ea) of the Wealth Tax Act - building under construction / semi-finished structure - fit for habitation and residential exemption - remand to the Assessing Officer for fresh examination

Vacant urban land - definition of 'asset' under Section 2(ea) of the Wealth Tax Act - Whether the impugned property was a vacant urban land as on the valuation dates and therefore taxable as an asset under Section 2(ea). - HELD THAT: - The Tribunal examined the record including the Joint Development Agreement dated 04.07.2009 and the letter of the Corporation of Chennai dated 06.08.2007 relied on by the lower authorities. It held that the JDA expressly contemplates demolition of an existing structure and thus indicates that a building existed at the time of signing; consequently the adverse finding of the AO and the CWT(A) that the land was vacant on the valuation date was not supported by evidence but rested on conjecture based on the demolition permission letter. The Tribunal concluded that the lower authorities' conclusion that the land was urban vacant land within the scope of Section 2(ea) was incorrect and requires further factual enquiry by the Assessing Officer. [Paras 9, 10, 13]

Findings of lower authorities that the land was vacant urban land are set aside and the matter is remitted to the Assessing Officer for re examination in accordance with the Tribunal's findings.

Building under construction / semi-finished structure - fit for habitation and residential exemption - Whether an incomplete or under construction building on the land excludes the land from the definition of asset and whether the property qualifies for exclusions (house used for residence, let out for 300 days, commercial exemption, or being one residential house). - HELD THAT: - The Tribunal reviewed the authorities relied upon by the parties and the evidentiary material. It agreed with the CWT(A) that there was no documentary proof of sanctioned plans, completion or that construction had reached a stage to be treated as a building. It noted that under construction or semi finished structures are not to be equated with a completed building for exclusion from Section 2(ea), following the principle that until construction is complete the character remains vacant land. The Tribunal further stressed that exclusion from the definition of asset depends on whether the building is fit for habitation or used for residential purpose (or qualifies under other statutory exemptions) and that the Assessing Officer must verify these facts (use, let out period, sanction/approval) before arriving at a taxable conclusion. [Paras 11, 12, 13]

Assessee's alternative contention of a semi finished/under construction building is not accepted on the record; the question of exclusion under Section 2(ea) and applicability of residential or other exemptions is remitted to the Assessing Officer for verification of permissions, stage of construction and actual use.

Final Conclusion: The Tribunal set aside the findings of the Assessing Officer and the Commissioner (Appeals) that the property was vacant urban land, remitted the matters to the Assessing Officer for fresh examination of (a) whether a building existed and the timing of demolition, (b) whether any structure was completed or under construction to a degree to exclude the land from Section 2(ea), and (c) whether any residential or other statutory exclusion applies; appeals are treated as allowed for statistical purposes.

Computation of limitation period under Section 142(b) of the Negotiable Instruments Act - Exclusion of the day from which the period is reckoned (British calendar / General Clauses Act rule) - Requirement of application under Section 142(b) for condoning delay when complaint is time barred - Summoning order vitiated where complaint is filed beyond limitation - Reckoning of notice period under Section 138 of the Negotiable Instruments Act

Computation of limitation period under Section 142(b) of the Negotiable Instruments Act - Exclusion of the day from which the period is reckoned (British calendar / General Clauses Act rule) - Reckoning of notice period under Section 138 of the Negotiable Instruments Act - Whether the complaint under Section 138 NI Act was filed within the one month period prescribed by Section 142(b) when computed excluding the day from which the period is to be reckoned. - HELD THAT: - The Court applied the binding ratio in M/s Saketh India Ltd., as affirmed by the Full Bench in Econ Antri Ltd., that for computing the one month period under Section 142(b) the day on which the cause of action arises is to be excluded and the last day included (British calendar/General Clauses Act rule). Adopting that rule, the demand notice was served on 03.06.2019, the 15 day notice period expired on 18.06.2019, and the cause of action for filing the complaint accrued on 19.06.2019; that day is to be excluded and the one month limitation therefore commenced on 20.06.2019 and expired on the corresponding preceding day in the next month (19.07.2019). The complaint was instituted on 20.07.2019, one day after the limitation period had expired. The complaint was also not accompanied by an application under Section 142(b) seeking condonation of delay. Applying these principles, both courts below erred in holding the complaint within time. [Paras 11, 12, 13, 16]

Complaint was filed beyond the one month period prescribed by Section 142(b); therefore the summons based on that complaint cannot be sustained.

Requirement of application under Section 142(b) for condoning delay when complaint is time barred - Summoning order vitiated where complaint is filed beyond limitation - Whether the learned Magistrate and the Revisional Court could lawfully take cognizance and issue summons where the complaint was filed after the limitation period and without a condonation application under Section 142(b). - HELD THAT: - The Court noted that because the complaint was filed after the expiry of the one month period, and no application under Section 142(b) for condonation of delay accompanied the complaint, the Magistrate lacked jurisdiction to validly take cognizance and issue summons. The Revisional Court sustained the summons despite this defect; its conclusion was premised on an erroneous calculation (and alternatively on an inconsistent service date), which did not cure the absence of a condonation application. That defect vitiated the impugned orders and required their setting aside. [Paras 13, 14, 15, 16]

Impugned summoning order and the revisional order upholding it are vitiated because the complaint was time barred and unaccompanied by a Section 142(b) condonation application; both orders are set aside.

Reckoning of notice period under Section 138 of the Negotiable Instruments Act - Judicial consistency in factual findings when computing limitation - Whether the Revisional Court correctly relied upon conflicting service dates of the demand notice when computing limitation. - HELD THAT: - The Court observed that the Revisional Court in different paragraphs treated two different dates (03.06.2019 and 05.06.2019) as the date of service of the demand notice while seeking to justify that the complaint was within time. The admitted fact on record was service on 03.06.2019; the Revisional Court was not entitled to rely on the alternative tracking report date to validate limitation. The inconsistent treatment of service dates rendered the Revisional Court's computation unreliable. [Paras 14, 15]

Revisional Court erred in relying upon inconsistent service dates; that error contributed to the incorrect conclusion that the complaint was within limitation.

Final Conclusion: The revisional order dated 27.11.2020 and the magistrate's order dated 26.09.2019 are set aside because the complaint under Section 138 NI Act was filed one day beyond the one month period prescribed by Section 142(b) (computed excluding the day on which the cause of action arose) and was not accompanied by any application for condonation of delay; the revisional court also erred in relying on inconsistent service dates in computing limitation.

Judicial application of mind in order taking cognisance - requirement of sufficient grounds for proceedings under Section 204 Cr.P.C. - mandatory inquiry under Section 202 Cr.P.C. before issuing process to persons residing beyond jurisdiction - territorial jurisdiction in e-commerce offences - presence of accused (registered office/branch) as basis - intermediary immunity under Section 79 IT Act and due diligence under Section 79(2)(c) - no criminal liability of intermediary or its directors for third party vendor actions where ingredients of substantive offence absent - delay in filing criminal complaint and need for satisfactory explanation

Judicial application of mind in order taking cognisance - requirement of sufficient grounds for proceedings under Section 204 Cr.P.C. - The order of cognisance dated 08.06.2020 did not disclose application of mind or the reasons required under Section 191(1)(a) read with Section 204 Cr.P.C. and therefore is not in compliance with law. - HELD THAT: - The Court held that taking cognisance activates the criminal process and requires a judicial application of mind to the materials (oral or documentary) to assess whether, on their face, the allegations constitute an offence. The impugned order merely stated that records were perused and cognisance taken under the provision without any appreciation of how the allegations, if assumed true, amounted to the offence or of the role of each accused. An order of cognisance must, by its terms, indicate that the magistrate formed an opinion after applying mind that there were sufficient grounds for proceeding; a formulaic or perfunctory recital is insufficient. The impugned order therefore failed to satisfy the statutory and judicially laid standards and was set aside. [Paras 9, 16]

Order of cognisance dated 08.06.2020 set aside for non compliance with requirement to record application of mind and reasons under Sections 191(1)(a) and 204 Cr.P.C.

Mandatory inquiry under Section 202 Cr.P.C. before issuing process to persons residing beyond jurisdiction - The Magistrate erred in issuing summons to accused who had no presence within the Magistrate's territorial jurisdiction without conducting the mandatory inquiry under Section 202 Cr.P.C. - HELD THAT: - Section 202 permits postponement of issuance of process and mandates that, where the accused resides beyond the jurisdiction, the magistrate "shall" inquire or direct investigation to decide whether there are sufficient grounds for proceeding. The Court found that accused Nos.2-4 had no registered office, branch, corporate or sales office or other presence within Mysuru jurisdiction and therefore the Magistrate was required to conduct the inquiry under Section 202 before issuing process. The only exception is where the accused has a presence (registered/branch/temporary residence) within the jurisdiction, in which case the magistrate should record reasons for not holding the inquiry. Absent such inquiry or recorded reasons, issuance of summons was impermissible. [Paras 10]

Issuance of summons without undertaking the mandatory Section 202 inquiry was impermissible where the accused had no presence in the Magistrate's jurisdiction.

Territorial jurisdiction in e-commerce offences - presence of accused (registered office/branch) as basis - In e commerce related offences (non cybercrime), only a Court in which the accused has a presence (registered office, branch office, corporate office or the like) can ordinarily exercise jurisdiction. - HELD THAT: - The Court analysed Sections 177-187 Cr.P.C. and the practical difficulties posed by internet transactions. While multiple courts may have power where acts occur in different places, protection against forum shopping and undue harassment requires that criminal prosecution against an e commerce entity be instituted where the accused has a presence. The judgment distinguished cyber crimes (which may be registered with cyber cells irrespective of location) from ordinary offences arising out of e commerce transactions and concluded that presence of the accused in the forum is the determinative factor for jurisdiction. [Paras 11]

Only a court where the accused has a presence (registered/branch/corporate office or similar) could exercise jurisdiction for an offence relating to an e commerce transaction (except cyber crimes).

Intermediary immunity under Section 79 IT Act and due diligence under Section 79(2)(c) - Snapdeal, being an intermediary within the meaning of the IT Act and having exercised due diligence, is entitled to exemption from liability under Section 79 and therefore cannot be prosecuted for third party vendor actions on its platform. - HELD THAT: - The Court found that Snapdeal fits the definition of intermediary and had contractual terms, seller agreements, banned product schedules, prohibited seller policies and other measures demonstrating the exercise of due diligence in compliance with Section 79(2)(c) and the Intermediary Rules. The function of an intermediary is limited to providing access to a communication system; it does not initiate, select receiver, or modify third party transmissions. Liability under Section 79(3) arises only in cases of abetment/conspiracy or failure to disable access upon actual knowledge/notification; the complaint showed removal of offending content. On this basis, intermediary immunity applied, and no criminal liability could be fastened on the intermediary or its directors for the vendor's act. [Paras 12, 16]

Snapdeal is entitled to protection under Section 79 IT Act; neither the intermediary nor its directors/officers are liable for the third party vendor's sale in the absence of the statutory exceptions.

No criminal liability of intermediary or its directors for third party vendor actions where ingredients of substantive offence absent - Neither Snapdeal nor its directors can be prosecuted under Section 27(b)(ii) read with Section 18(1)(c) of the Drugs and Cosmetics Act because the essential ingredients of Section 18(1)(c) are not satisfied against them. - HELD THAT: - Section 18(1)(c) penalises manufacture for sale/distribution, or sale, stocking, exhibiting or offering for sale of drugs without a licence. The complaint alleged that the vendor (Accused No.1) exhibited and sold the drug via Snapdeal's platform; there were no allegations that Snapdeal manufactured, sold, stocked, exhibited or offered the drug itself. Given Snapdeal's intermediary role and the absence of allegations establishing personal involvement by the directors, the essential statutory ingredients for prosecuting Snapdeal or its directors under Section 27(b)(ii) were not met. Consequently, criminal proceedings against them could not be sustained. [Paras 13, 16]

Snapdeal and its directors cannot be held liable under the Drugs and Cosmetics Act for the vendor's sale where the statutory ingredients against them are absent.

Delay in filing criminal complaint and need for satisfactory explanation - The complaint was filed after an inordinate delay of nearly six years without any acceptable explanation, and that delay was held fatal to the prosecution. - HELD THAT: - The Court reiterated the settled principle that unexplained or excessive delay in lodging criminal complaints undermines spontaneity, invites embellishment and raises serious doubts about veracity. Although delay may be excused if satisfactorily explained, the state complainant here (a government official) offered only that obtaining permissions took time; the Court found six years to be inordinate and not a satisfactory explanation. The unexplained long delay therefore gave rise to a rebuttable presumption against the complaint and rendered the prosecution unsustainable. [Paras 14, 16]

The inordinate and unexplained delay in filing the complaint (nearly six years) was fatal to the proceedings.

Magistrate's duty to record reasons when dispensing with Section 202 inquiry where accused has presence in jurisdiction - If an accused has presence within the magistrate's jurisdiction (office or temporary residence), the magistrate may not be required to hold a Section 202 inquiry but must record reasons in the order for not doing so. - HELD THAT: - The Court clarified that the obligation to conduct a Section 202 inquiry is contingent on the absence of any presence of the accused within the forum. Where an accused has a registered office, branch, corporate office, sales office or even a temporary residence within the jurisdiction, the magistrate need not postpone issuance of process; however, the order issuing summons/process must explicitly record why the Section 202 inquiry is not being held. This recording of reasons protects accused and ensures transparency in the exercise of judicial discretion. [Paras 10, 16]

Presence of the accused within the forum negates the mandatory Section 202 inquiry but the magistrate must record reasons for dispensing with the inquiry in the order.

Remedial consequence - quashing proceedings for cumulative defects - On the cumulative findings - defective cognisance order, failure to conduct Section 202 inquiry where required, intermediary immunity, absence of ingredients of substantive offence, and fatal delay - the criminal proceedings in C.C. No.156/2020 were quashed. - HELD THAT: - Having held that the cognisance order did not disclose application of mind, that summons were issued without mandatory Section 202 inquiry to persons with no presence in the forum, that Snapdeal enjoyed intermediary protection and its directors could not be prosecuted for the vendor's acts, and that the complaint suffered an inordinate unexplained delay, the High Court concluded that the criminal proceedings could not be allowed to continue. These cumulative legal defects warranted quashing of the complaint and all consequential proceedings. [Paras 12, 13, 14, 16, 17]

Both petitions allowed and proceedings in C.C. No.156/2020 quashed.

Final Conclusion: Both petitions were allowed: the Magistrate's cognisance/order and summons were set aside for failure to record application of mind and for omission to conduct mandatory Section 202 inquiry (where applicable); Snapdeal and its directors were held entitled to intermediary protection and could not be prosecuted under the Drugs and Cosmetics Act for the vendor's acts; the inordinate unexplained delay in lodging the complaint was fatal. Consequentially C.C. No.156/2020 pending before the Principal Senior Civil Judge and CJM, Mysuru was quashed.