TaxTMI Updates e-Newsletter
Feb 15,2022

Blocking of Electronic Credit Ledger - Rule 86-A of the Central Goods and Services Tax Rules, 2017 - provisional attachment under section 83 of the CGST Act - disallowance limited to extent of fraudulent or wrongly availed credit - subjective satisfaction on the basis of objective material - recording reasons in writing - post-decisional (remedial) hearing - principles of natural justice and reasonableness - delegation/abdiation of authority

Provisional attachment under section 83 of the CGST Act - blocking of Electronic Credit Ledger - Blocking of the Electronic Credit Ledger under rule 86-A is not equivalent to provisional attachment under section 83 of the CGST Act. - HELD THAT: - Rule 86-A authorises non-allowance of debit of an amount equivalent to credit in the Electronic Credit Ledger (ECL) for specified reasons; its effect is an embargo on utilisation or refund and maintaining status quo, not physical or symbolic seizure for appropriation. Provisional attachment under section 83 involves custodial control to protect property for realisation of dues and can be exercised only upon initiation of specified proceedings. Since invocation of rule 86-A does not require initiation of those chapters, an order under rule 86-A cannot be treated as an order of provisional attachment under section 83 and the procedural requirements of section 83 do not apply to blocking under rule 86-A. [Paras 26, 27, 28]

Blocking under rule 86-A is distinct from provisional attachment under section 83 and is not to be treated as the latter.

Rule 86-A of the Central Goods and Services Tax Rules, 2017 - disallowance limited to extent of fraudulent or wrongly availed credit - Rule 86-A permits disallowing debit of ECL (i.e., blocking) only to the extent of the amount found to be fraudulently or wrongly availed. - HELD THAT: - Text of rule 86-A contemplates that the Commissioner or an authorised officer may not allow debit of an amount equivalent to such credit in the ECL for discharge of liabilities or claim of refund where specified conditions (fraudulent/non-existent supplier, non-receipt of goods, tax not paid to government, non-existence of registered person, or absence of documents) exist. The rule does not permit a blanket prohibition on the entire ECL where only a portion is found to be wrongly or fraudulently availed; the restriction must be confined to the amount equivalent to the fraudulent or ineligible credit. [Paras 30, 31, 32]

Blocking under rule 86-A may be exercised but only to the extent of the amount determined to be fraudulently or wrongly availed.

Subjective satisfaction on the basis of objective material - recording reasons in writing - post-decisional (remedial) hearing - principles of natural justice and reasonableness - Exercise of power under rule 86-A requires (i) the authority to have reasons to believe based on objective material and (ii) recording of reasons in writing; a post-decisional remedial hearing must be afforded within a reasonable period (two weeks). - HELD THAT: - Rule 86-A contains twin pre-requisites: the authority must be satisfied (i.e., have reasons to believe) on available material that credit has been fraudulently or ineligibly availed, and those reasons must be recorded in writing. Given the drastic civil consequence of disabling use of ECL, the satisfaction must rest on objective material and not whim; the duty to record reasons is mandatory to satisfy doctrine of fair play. While prior hearing may not be mandated in every emergent case, principles of natural justice require a prompt post-decisional remedial hearing so the affected person can seek redress; two weeks is a reasonable outer limit for such hearing. [Paras 33, 34, 35, 36, 38]

Both satisfaction on objective material and contemporaneous written reasons are mandatory, and a post-decisional remedial hearing must be provided within a reasonable time (suggested two weeks).

Blocking of Electronic Credit Ledger - disallowance limited to extent of fraudulent or wrongly availed credit - delegation/abdiation of authority - The impugned order of blocking the petitioner's ECL was arbitrary and illegal because it contained no reasons, imposed a blanket ban without specifying the amount blocked, and was passed without independent application of mind by the authority. - HELD THAT: - The two-line impugned entry gave no reasons and failed to reflect any satisfaction on objective material, breaching the mandatory requirements of rule 86-A. The order also did not specify the extent of disallowance, contrary to the rule which permits blocking only to the extent of fraudulent or wrongly availed credit. Further, the Deputy Commissioner acted on directions and material supplied by other authorities without independent satisfaction, amounting to abdication of the delegated power; administrative action under rule 86-A must be exercised in the prescribed manner, by the proper authority applying independent mind. [Paras 39, 40, 41, 42]

Impugned blocking order was arbitrary and illegal and is quashed.

Maintainability of writ despite alternate statutory remedy - Writ petition was maintainable because the remedy under section 107(1) does not cover orders made under Rules (rule 86-A) and revision under section 107(2) is not available against the acts complained of. - HELD THAT: - Section 107(1) permits appeal against decisions or orders passed under the Act by an adjudicating authority; it does not extend to orders passed under subsidiary Rules. Section 107(2) confers revisional power on the Commissioner in respect of orders passed by adjudicating authorities and cannot be used where the impugned action is not an adjudicating authority's order; hence the petitioner could not be said to have an adequate alternate remedy that would render the writ incompetent. [Paras 19, 20, 21, 22, 23]

The petition is maintainable; alternative remedy under section 107 did not preclude writ jurisdiction in the facts of this case.

Delegation/abdiation of authority - A Deputy Commissioner authorised under rule 86-A (not below Assistant Commissioner) can exercise the power; however, the order must reflect independent satisfaction and cannot be a mere compliance with direction from another authority. - HELD THAT: - Rule 86-A permits exercise by the Commissioner or an officer authorised by him not below the rank of Assistant Commissioner. The Deputy Commissioner in this matter was within the authorised cadre, but the law requires that the delegate exercise the power by applying independent mind and forming satisfaction on the basis of objective material. Acting solely on directions from another authority without recording independent reasons constitutes improper abdication and renders the order invalid. [Paras 24, 41]

Deputy Commissioner was competent in rank but must independently apply mind and record reasons; mere obedience to directions is impermissible.

Final Conclusion: The writ petition is partly allowed: the two-line order blocking the petitioner's Electronic Credit Ledger dated 1.7.2021 is quashed as arbitrary and illegal for failure to comply with rule 86-A's requirements (satisfaction based on objective material, written reasons, specification of amount and independent exercise of delegated power). Respondents remain free to reconsider invocation of rule 86-A afresh in accordance with law, observing the safeguards explained (limiting blockage to the amount found fraudulent, recording reasons in writing and providing a prompt post-decisional hearing).

Review petition -Set-off of earlier years' excess expenditure against subsequent years' income under Section 11 - application of Section 11 by trusts/charitable institutions - Supreme Court [2018 (4) TMI 1622 - SC ORDER] heard the limited legal question on invoking Section 11 for set-off of earlier years' excess expenditure by a trust/charitable institution, found the contention without merit and dismissed the miscellaneous application.

HELD THAT:- Delay of 862 days in filing the review petition is condoned.

We have carefully gone through the review petition and the connected papers. We find no merit in the review petition and the same is, accordingly, dismissed.

Indexation of cost of acquisition - deeming fiction under Explanation 1(i)(b) to section 2(42A) - deemed cost under section 49(1)(ii) - computation of indexed cost under section 48 - refund of excess tax deducted at source and adjustment - interest on refund payable from date of payment under section 244A(1)(b)

Deemed cost under section 49(1)(ii) - deeming fiction under Explanation 1(i)(b) to section 2(42A) - computation of indexed cost under section 48 - Indexation of cost of acquisition - Whether indexation of cost of acquisition must be computed with reference to the year from which the previous owner first held the asset (thereby allowing indexation from financial year 1981-1982) or from the year the seller became owner. - HELD THAT: - The Court applied the deeming fiction in Explanation 1(i)(b) to section 2(42A) together with section 49(1)(ii) and held that where a capital asset becomes the property of an assessee by modes specified in section 49(1), the period for which the asset was held by the previous owner is to be included in determining the period of holding by the assessee. Consequently, the indexed cost of acquisition under section 48 must be determined with reference to the first year in which the previous owner held the asset. The Court relied on the reasoning that construing the words "asset held by the assessee" in isolation would defeat the legislative object to tax gains arising on transfer of assets acquired under gift or will, and that indexation is intended to be linked to the period of holding. Applying these principles to the facts, the cost of acquisition in the hands of the seller is the cost to the original owner and indexation is available from financial year 1981-1982. [Paras 11, 12, 13]

Indexation of the cost of acquisition is to be allowed from financial year 1981-1982 by applying the deeming provisions; the petitioner's challenge to the order directing indexation from 1992-93 is upheld.

Refund of excess tax deducted at source and adjustment - Whether petitioner is entitled to refund of the excess TDS deposited and, if so, the quantum to be refunded after accounting for the seller's assessment position and departmental demand. - HELD THAT: - On the materials filed by petitioner, including the seller's return, Form 26AS and the assessment order for Assessment Year 2011-12, the Court noted that the seller computed indexed cost leading to capital gains of Rs. 3,85,613 and had not claimed credit for the full TDS amount paid by the petitioner; the department, in its assessment, accepted the capital gains at Rs. 3,85,613 and raised a demand of Rs. 91,360. In view of these facts, the Court directed that the department may retain the demand amount and refund the balance of the TDS deposited by the petitioner after adjusting the retained amount; proportionate interest shall also be refunded after recalculation using the capital gains figure of Rs. 3,85,613. [Paras 14, 15, 16, 18]

Department to retain the amount corresponding to the assessed demand and refund the balance of the TDS paid by petitioner; proportionate interest to be refunded after recalculation on the correct capital gains figure.

Interest on refund payable from date of payment under section 244A(1)(b) - From which date and at what rate interest on the refund of excess tax deposited under Section 195(2) is payable. - HELD THAT: - Relying on the principle in Union of India Vs. Tata Chemicals Limited and the statutory scheme, the Court held that where excess tax has been paid and the case does not fall under clauses (a) or (b) of section 244A, interest on refund is payable from the date of payment of tax. Consequently, interest is to be paid at the rate prescribed under section 244A(1)(b) for the period beginning from the date on which the tax was paid by the petitioner, namely 7th January, 2011, until the date of refund as recalculated. [Paras 19, 20]

Interest on the refund shall be paid at the rate under section 244A(1)(b) from 7th January, 2011 (date of payment of tax).

Final Conclusion: The petition is allowed in part: the order directing indexation from 1992-93 is set aside and indexation is to be allowed from financial year 1981-1982; the department shall retain the assessed demand amount and refund the balance of TDS deposited by petitioner with proportionate interest recalculated on the correct capital gains, interest to be paid from 7th January, 2011 at the rate under section 244A(1)(b).

Allocation of allocable expenditure between STP and non STP units on the basis of gross profit rather than turnover - Depreciation on intangible assets including intellectual property rights and non compete fee under Section 32(1)(ii) of the Income Tax Act

Allocation of allocable expenditure between STP and non STP units on the basis of gross profit rather than turnover - Allocable expenditure between the STP and non STP units can be validly determined on the basis of gross profit where the departmental material does not challenge the separate accounts maintained for the two units. - HELD THAT: - The Court accepted the parties' concession that this question was previously considered and decided in favour of the assessee. The earlier reasoning endorsed by the Court shows that where the Department has not disputed the correctness of the separately maintained accounts for the STP and non STP units, and only certain items are difficult to identify, allocation based on profit is a logical method. The Revenue's contention that allocation must be made on turnover was rejected as conjectural and not supported by material; the officer's turnover based formula was held to be mere surmise and not a reasoned basis to disturb the accounts. In those circumstances the tribunal's and the Commissioner (Appeals)'s approach of using profit for allocation was upheld and applied to the present appeal. [Paras 3, 5]

Question answered for the assessee; allocation on the basis of gross profit upheld and the Revenue's challenge dismissed.

Depreciation on intangible assets including intellectual property rights and non compete fee under Section 32(1)(ii) of the Income Tax Act - Intellectual property rights and the non compete fee, forming part of a composite transfer of intangible rights, qualify as intangible assets eligible for depreciation under Section 32(1)(ii). - HELD THAT: - The Court accepted that the earlier decision in favour of the assessee is applicable: the agreement constituted a composite transfer whereby copyrights, trademarks and other rights were transferred to the assessee and the non compete clause operated to support and strengthen those transferred commercial rights. The non compete therefore formed part of the commercial/intangible asset package rather than being a mere negative right outside the scope of clause (ii). On that basis the transfer was held to be the acquisition of intangible assets falling within Section 32(1)(ii) and entitled to depreciation; the tribunal's contrary view was set aside in the precedent applied to the present appeal. [Paras 4, 5]

Question answered for the assessee; intellectual property and non compete fee recognised as depreciable intangible assets and the Revenue's challenge dismissed.

Final Conclusion: Both substantial questions of law were answered in favour of the assessee following earlier decisions applicable to the facts; the appeal is dismissed and there shall be no order as to costs.

Deduction under section 80IA(4) - Container Freight Station as infrastructure facility - precedential effect of High Court and Supreme Court decisions - relevance of departmental instructions vis-a -vis judicial pronouncements

Deduction under section 80IA(4) - Container Freight Station as infrastructure facility - precedential effect of High Court and Supreme Court decisions - Whether the CIT(A) was justified in deleting the AO's disallowance and allowing deduction under section 80IA(4) in respect of the assessee's Container Freight Station for A.Y. 2013-14. - HELD THAT: - The Tribunal noted that the question of whether Container Freight Stations (CFS) qualify as infrastructure facilities eligible for deduction under subsection (4) of section 80IA has been authoritatively addressed in the assessee's own earlier proceedings. The Bombay High Court, in the assessee's case for an earlier year, held that CFS/ICDs are infrastructure facilities within the meaning of the provision; that view was considered and the issue was decided in favour of the assessee by the Hon'ble Supreme Court in the batch of civil appeals in which the assessee was a party. The Coordinate Bench of the Tribunal had also taken the same view in the assessee's own case for A.Y. 2011-12. Though the Revenue relied on a subsequent CBDT instruction declining to treat ICDs/CFS as ports for section 80IA(4)(i) purposes, the Tribunal held that the judicial decisions in the assessee's favour are binding for the period and facts under consideration, and the CIT(A)'s reliance on those decisions to allow the deduction was justified. Having regard to the settled position in the judicial precedents relied upon, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's grounds. [Paras 6, 7]

The CIT(A)'s deletion of the AO's disallowance is upheld and the deduction under section 80IA(4) in respect of the Container Freight Station for A.Y. 2013-14 is allowed.

Final Conclusion: Revenue's appeal is dismissed and the order of the Commissioner of Income Tax (Appeals) allowing the deduction under section 80IA(4) in respect of the assessee's Container Freight Station for A.Y. 2013-14 is upheld.

Bogus purchases - accommodation entries - estimation of additions - telescoping - assessment under section 153A - addition under section 69C for unexplained expenditure

Bogus purchases - accommodation entries - estimation of additions - assessment under section 153A - Validity and quantum of additions made by disallowing purchases shown to have been made from identified accommodation entry providers for A.Y. 2011-12 - HELD THAT: - The Tribunal examined the A.O.'s finding that purchases of Rs. 1,90,43,829 were from parties identified as accommodation entry providers based on recorded statements of proprietors admitting non existence of real business and use of bank accounts for bogus billing. The CIT(A) had restricted the A.O.'s uniform 25% disallowance to 20% for parties found at the given address and upheld 25% for others. The Tribunal noted that sales were not disturbed, certain parties were served and found at their addresses, books were audited without adverse remarks, payments were through banking channels and stock registers quantitatively tallied with materials used in job work. Applying these facts and in the interest of justice, the Tribunal found the percentage disallowance adopted by the lower authorities excessive and modified the disallowance to a lesser percentage, directing recomputation by the A.O. The Tribunal also considered the addition of commission estimated by the A.O.; finding estimation on the entire purchase not justified in view of the limited scope of bogus transactions, it substituted a lump sum addition on estimate basis. The Tribunal allowed part relief to the assessee on these issues. [Paras 6, 8, 12]

Disallowance on account of bogus purchases reduced (modified) and A.O. directed to recompute; commission addition substituted by a lump sum addition; appeal partly allowed.

Telescoping - estimation of additions - bogus purchases - Availability and scope of telescoping benefit for commission/expenditure and interplay between additions in A.Y. 2011-12 and A.Y. 2012-13 - HELD THAT: - The Tribunal addressed whether the assessee could claim telescoping (set off of an assessed addition against another addition) for the commission/expenditure relating to A.Y. 2012 13. For A.Y. 2011 12 the Tribunal had reduced the disallowance on purchases and held that the resultant deemed income could be used to meet commission expenditure; accordingly it directed allowance of telescoping to the extent of the income found attributable to bogus purchases. For A.Y. 2012 13, the Tribunal rejected the claim that telescoping benefit could be derived from reductions or cash generated in other group concerns, holding that telescoping is available only to the assessee from additions in the assessee's own case and not from group entities. The Tribunal thus partly allowed the plea on telescoping as respects the assessee's own assessed additions and disallowed the wider contention as to group wide benefit. [Paras 11, 16]

Telescoping allowed to the extent of income determined in the assessee's own assessment; cross group telescoping rejected; appeal partly allowed (and for statistical purposes where indicated).

Final Conclusion: ITA No.9145/Del./2019 (A.Y. 2011 12) is partly allowed by reducing the quantum of disallowance on purchases and substituting a lump sum commission addition with directions for recomputation; telescoping benefit permitted to the extent of income determined in the assessee's own assessment. ITA No.7187/Del./2019 (A.Y. 2012 13) is partly allowed for limited/statistical purposes by rejecting cross group telescoping and preserving telescoping only as available against the assessee's own additions.

Validity of assessment under section 153A vis-a -vis section 153C - Assessment vitiated where no incriminating material found at assessee's premises - Finality of assessment on expiry of time for issuance of notice under section 143(2) - Addition under section 68 based solely on book entries

Validity of assessment under section 153A vis-a -vis section 153C - Assessment vitiated where no incriminating material found at assessee's premises - Whether assumption of jurisdiction and completion of assessment under section 153A was valid when no search was conducted at the assessee's business/registered premises and seized documents relied upon were recovered from third party premises. - HELD THAT: - The Tribunal found that no search took place at the assessee's registered office or business premises; the seized documents relied upon by the Revenue were recovered from premises belonging to other entities. On that factual basis the Tribunal held that invoking section 153A (assessment consequent to search of the assessee) instead of section 153C (assessment in respect of searched third parties) vitiated the assessment proceedings. Further, the addition impugned was founded on entries appearing in the assessee's balance-sheet and not on any incriminating material discovered at the assessee's premises. The Tribunal also noted that the period for issuing a notice under section 143(2) had expired and the assessment had therefore attained finality; consequently, reliance on post search enquiries (absent incriminating material at the assessee's premises) could not sustain the section 153A assessment. For these reasons the Tribunal allowed the legal grounds challenging the jurisdictional basis of the assessment and quashed the proceedings initiated under section 153A as being contrary to law and procedure. [Paras 9]

Assumption of jurisdiction and assessment completed under section 153A was quashed; proceedings should have been under section 153C if at all; assessment set aside.

Addition under section 68 based solely on book entries - Finality of assessment on expiry of time for issuance of notice under section 143(2) - Whether the addition of the unsecured loan amount to the assessee's income under section 68 could be sustained where the addition was made on the basis of balance sheet entries and the assessment under section 153A was vitiated. - HELD THAT: - The Tribunal recorded that the Assessing Officer made the addition by invoking section 68 on the strength of an unsecured loan entry in the assessee's balance sheet. However, having found that the entire assessment under section 153A was invalidly assumed (see above) and that the addition was not based on any incriminating material discovered at the assessee's premises, the Tribunal treated the question of merits as academic. Because the jurisdictional defect led to quashing of the section 153A proceedings and the assessment had attained finality under section 143(2) prior to the post search action, the addition could not be sustained in the impugned proceedings and was consequently not adjudicated on merits. [Paras 9]

Addition under section 68 cannot be sustained in the impugned section 153A assessment which has been quashed; merits left academic.

Final Conclusion: The appeal is allowed: the Tribunal quashed the assessment proceedings completed under section 153A (holding that proceedings should, if at all, have been under section 153C since seized material arose from third party premises), and consequently the addition founded on those proceedings cannot be sustained; other grounds rendered academic.

Royalty - Fees for technical services - Reimbursement of expenses - Use or right to use industrial, commercial or scientific equipment - Disallowance under section 40(a)(i) of the Income tax Act, 1961 - Article 12 of the DTAA (India-Netherlands) - royalties and payments for use of equipment

Royalty - Reimbursement of expenses - Cost plus arm's length mark up - Use or right to use industrial, commercial or scientific equipment - Disallowance under section 40(a)(i) of the Income tax Act, 1961 - Nature of payment made by the assessee to its Netherlands holding company and whether it is chargeable as royalty and therefore liable to disallowance under section 40(a)(i). - HELD THAT: - The Tribunal found on the basis of the Services Agreement and allocation records that the Netherlands entity had aggregated direct and indirect ICT costs, added an arm's length mark up and allocated charges to group companies on the basis of users. Consequently the payment was not a mere reimbursement but a cost allocation charge with mark up. The assessee was effectively paying for the use of the holding company's overall ICT infrastructure (access to software, networks and related equipment) rather than buying or receiving identified deliverables. Such payments fall within the definition of 'royalty' under Explanation 2 (clause (iva)) read with Explanations 4 and 5 to section 9(1)(vi) as consideration for the use or right to use industrial or commercial equipment. The Tribunal therefore held the amounts to be chargeable as royalty in the hands of the Netherlands entity, attracting the obligation on the payer to deduct tax at source; failure to do so rendered the payment hit by section 40(a)(i). [Paras 9, 10]

Payment characterised as consideration for use of ICT infrastructure and held to be royalty; not a reimbursement; disallowance under section 40(a)(i) sustained.

Article 12 of the DTAA (India-Netherlands) - royalties and payments for use of equipment - Amendment to DTAA (1999) bringing industrial equipment within Article 12 - More beneficial provisions under section 90(2) - Whether the amended DTAA between India and the Netherlands exempts the holding company's receipts from tax or otherwise alters chargeability. - HELD THAT: - The Tribunal examined Article 12 of the DTAA as originally notified and as amended by the 1999 notification (effective from 01 04 1997). The amended Article 12(4) introduced sub paragraph (b) expressly covering payments for the use of industrial, commercial or scientific equipment. Given that the assessee's payment was for access to and use of the Netherlands entity's ICT infrastructure, the amended Article 12 covers such industrial royalty payments. As the payment is chargeable under section 9(1)(vi) of the Act and also falls within the amended Article 12 of the DTAA, the DTAA does not afford a beneficial exclusion in favour of the recipient that would remove Indian taxability; accordingly the obligation to deduct tax at source remained and the disallowance under section 40(a)(i) is attracted. [Paras 15]

Amended Article 12 of the DTAA covers payments for use of industrial equipment; therefore the receipts are chargeable under the DTAA and the Act, and the disallowance under section 40(a)(i) is upheld.

Final Conclusion: The Tribunal dismissed the assessee's appeal: the payments to the Netherlands holding company were cost allocated charges with an arm's length mark up for use of the holding company's ICT infrastructure, constituted 'royalty' chargeable to tax (and covered by the amended DTAA), and the failure to deduct tax at source justified the disallowance under section 40(a)(i).

Allowability of interest expense - prior period expenses - accrual and realisation of liability - contingent liability crystallising on settlement - deduction of tax at source under section 194A

Allowability of interest expense - prior period expenses - contingent liability crystallising on settlement - deduction of tax at source under section 194A - Whether the interest amount treated by the Assessing Officer as arrear/prior period interest is disallowable in A.Y. 2013-14 or is allowable in that year when the liability crystallized and was accounted for and subjected to TDS in that year. - HELD THAT: - The Tribunal found that the assessee had not claimed the interest in the earlier years and the creditor (IBFSL) had also not recognised the corresponding interest income in those years. The interest liability arose from a dispute and became contingent; it devolved and crystallised only when IBFSL realised its dues by selling securities during the year relevant to A.Y. 2013-14 and accounted for interest income in its books for financial year 2012-13. The assessee correspondingly accounted for the interest expense in his books for the year ending 31.03.2013 and deducted and deposited TDS under section 194A before the return due date and reported the same in Form 26Q. Given that neither party had treated the interest as income/expense in earlier years and there was no prejudice or loss of tax to revenue (indeed earlier non-claim of the expense resulted in higher income reported earlier), it was not justified to treat the amount as disallowable arrear interest in A.Y. 2013-14. The Tribunal held that documentary evidence substantiated the claim and that the CIT(A) erred in sustaining the AO's disallowance; accordingly the addition representing the disallowance was set aside. [Paras 8, 11, 12]

The disallowance of Rs. 5,82,80,708/- as arrear/prior period interest is deleted and the interest expense is allowed in A.Y. 2013-14.

Final Conclusion: The appeal is allowed: the Tribunal deleted the addition of the interest treated as prior period arrears and allowed the interest expense in A.Y. 2013-14, holding that the liability crystallised in the year under consideration and was supported by the creditor's accounting and TDS compliance.

Treatment of bank deposits as taxable income - income from undisclosed sources - commission income of shroff - reassessment under s. 147 for cash deposits

Income from undisclosed sources - commission income of shroff - treatment of bank deposits as taxable income - Whether the cash deposits of Rs. 5,88,43,806/- in the assessee's bank account constituted the assessee's income from undisclosed sources or represented receipts in the course of his avocation as a shroff, taxable only by way of commission. - HELD THAT: - The Tribunal accepted the factual finding that the assessee was functioning as a shroff (commission agent) and had regularly deposited and withdrawn cash through the bank account during the year. The assessee explained that the cash related to Ceramic/Tiles industries of Morbi, clients of Shaileshbhai Marvania, and that he received commission on such transactions. The AO treated the entire aggregate deposits as the assessee's income, partly on account of an alleged contradiction about the commission rate; however, the Tribunal found no merit in treating all deposits as the assessee's income where the account showed regular deposits and withdrawals and the assessee's role as an intermediary was not disputed. The Tribunal upheld the CIT(A)'s direction to compute the assessable income by applying the commission rate (accepting the commission-based character of the receipts) rather than treating the gross deposits as undisclosed income.

The CIT(A)'s deletion of the addition treating the deposits as undisclosed income and his direction to compute taxable commission income at the stated rate is upheld; the Revenue's appeal is dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal, holding that the cash deposits in the assessee's bank account related to his activity as a shroff and should be assessed by computing commission income at the accepted rate rather than treating the entire deposits as income from undisclosed sources.

Allowability of business interest expenditure where interest-bearing funds are allegedly diverted for non-business purposes - diversion of interest-bearing funds - interest-free loans to sister concerns - use of cash accruals (depreciation) and cash equivalents to meet interest-free advances - burden of proof on revenue to controvert assessee's explanation for source of funds

Allowability of business interest expenditure where interest-bearing funds are allegedly diverted for non-business purposes - diversion of interest-bearing funds - interest-free loans to sister concerns - use of cash accruals (depreciation) and cash equivalents to meet interest-free advances - Whether the disallowance of part of the interest claimed under the proviso to section 36(1)(iii) on the ground that interest-bearing funds were diverted for interest-free loans to sister concerns is sustainable. - HELD THAT: - The Assessing Officer treated a portion of the interest expense as disallowable on the basis that interest-bearing loans had been diverted for interest-free advances to sister concerns, and recomputed allowable interest accordingly. The assessee, however, demonstrated that the interest-free advances were not made out of the interest-bearing borrowings claimed as expenditure but were met by cash accruals represented by depreciation and by cash equivalents available at year end. The revenue did not effectively controvert these factual explanations before the Tribunal. In these circumstances the Tribunal accepted the assessee's explanation that the impugned interest-free loans were financed from non-interest-bearing internal accruals and cash balances, and accordingly concluded that the disallowance was not justified. [Paras 4]

Disallowance of part of the interest expense deleted; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, deleted the disallowance of interest made by the AO and confirmed by the CIT(A), holding that the assessee's uncontroverted explanation that interest-free loans to sister concerns were financed from depreciation-linked cash accruals and cash equivalents absolved it of diversion of interest-bearing funds.

Deductibility of employees' contribution to ESI/PF under section 36(1)(va) - Applicability of section 43B to employees' contribution - Due date for furnishing return under section 139(1) - Prospective operation of Finance Act, 2021 amendments - Retrospective application of tax statutes

Deductibility of employees' contribution to ESI/PF under section 36(1)(va) - Applicability of section 43B to employees' contribution - Due date for furnishing return under section 139(1) - Prospective operation of Finance Act, 2021 amendments - Allowability of deduction for employees' share of ESI/PF for AY 2019-20 where such share was paid before the due date for filing return, and whether the 2021 amendments operate retrospectively to alter the position. - HELD THAT: - The Tribunal examined whether employees' share of contribution, though covered by section 36(1)(va), is governed by the payment-based disallowance regime of section 43B so as to permit deduction if paid on or before the due date for furnishing the return under section 139(1). The decision of the Hon'ble Karnataka High Court in Essae Teraoka treating employees' contribution as falling within the ambit of section 43B was noted. The Tribunal further considered the amendments introduced by the Finance Act, 2021 which inserted clarificatory explanations to clause (va) of section 36(1) and to section 43B, observing that the explanatory memorandum and the nature of the amendments indicate applicability only from 01.04.2021. As the amendments impose liabilities and do not expressly provide for retrospective effect, they cannot be applied to prior assessment years. Since there was no dispute that the employees' share was paid on or before the due date for filing the return for the relevant year, and the 2021 amendments are prospective, the addition made under section 36(1)(va) for AY 2019-20 was not sustainable and was deleted. [Paras 8, 10]

Addition under section 36(1)(va) in respect of employees' contribution deleted; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal for AY 2019-20, deleting the addition in respect of employees' share of ESI/PF since payment was made before the due date for filing the return and the Finance Act, 2021 amendments operate prospectively from 01.04.2021; Revenue may seek rectification subject to statutory limits.

Assessment of agricultural income - burden of proof for genuineness of claimed receipts - treatment of unexplained bank deposits during demonetisation - appellate reduction and deletion of additions - dismissal of unargued grounds

Assessment of agricultural income - burden of proof for genuineness of claimed receipts - Whether the Assessing Officer's addition on account of alleged excessive agricultural income should be sustained despite the CIT(A)'s substantial relief based on receipt through banking channels. - HELD THAT: - The Tribunal examined the Assessing Officer's finding that the assessee declared agricultural receipts of Rs. 17,25,068/- from 52 Bigha while 9R forms produced covered a much smaller amount and average local yield indicated a far lower realistic income. The CIT(A) had granted substantial relief primarily on the basis that receipts were routed through banking channels, without rebutting the AO's factual findings. No documentary evidence was placed on record before the Tribunal to establish the genuineness of the claimed agricultural receipts or to negate the AO's yield-based estimate. In the absence of such evidence and given that the CIT(A) did not demonstrably negate the AO's findings, the Tribunal found no justification to disturb the AO's addition as reduced by the CIT(A) and accordingly upheld the addition sustained by the CIT(A). [Paras 5]

Addition in respect of claimed agricultural income upheld; assessee's appeal dismissed on this ground.

Treatment of unexplained bank deposits during demonetisation - appellate reduction and deletion of additions - Whether the addition made by the Assessing Officer in respect of cash deposits in bank accounts during the demonetisation period should be sustained after the CIT(A) restricted the addition. - HELD THAT: - The AO had made an addition of a portion of total cash deposits after noting deposits during the demonetisation period, having quantified an addition of Rs. 2,04,000/-. Before the CIT(A) it was shown that opening cash-in-hand as on 08/11/2016 exceeded the total deposits made during the year (total deposits being less than the opening cash balance). On that basis the CIT(A) restricted the addition to a smaller amount. The Tribunal found the claim that deposits were met from opening cash-in-hand to be acceptable on the material on record and therefore concluded that the restricted addition was not justified and deleted the addition. [Paras 6]

Addition in respect of bank deposits deleted in favour of the assessee.

Dismissal of unargued grounds - Disposition of grounds of appeal which were not argued before the Tribunal. - HELD THAT: - Although multiple grounds were filed, only the primary ground (relating to agricultural income and bank deposits) was argued at the hearing. The Tribunal recorded that grounds numbered 2 to 7 were not argued and therefore declined to entertain them on merits, dismissing those grounds. [Paras 7]

Grounds 2 to 7 dismissed for non-argument; only the primary ground was considered and adjudicated.

Final Conclusion: The appeal is partly allowed: the addition relating to claimed agricultural income is sustained against the assessee, the addition relating to bank deposits during demonetisation is deleted, and the remaining unargued grounds are dismissed.

Employees' contribution to Provident Fund - deductibility under Section 36(1)(va) - payment before due date of filing return under Section 139(1) - reliance on coordinate bench precedent

Employees' contribution to Provident Fund - deductibility under Section 36(1)(va) - payment before due date of filing return under Section 139(1) - reliance on coordinate bench precedent - Deletion of addition made for employees' PF contribution paid after the statutory due date but before the due date for filing return under Section 139(1). - HELD THAT: - The Tribunal considered whether employees' provident fund contributions paid after the date prescribed by the corresponding statute (PF) but before the due date for filing the return under Section 139(1) are deductible and not liable to disallowance under Section 36(1)(va). Relying on a coordinate bench decision in Value Momentum Software Services Private Limited, which held that payments made before the due date of filing the return under Section 139(1) are not liable to disallowance (and noting the legislature's subsequent explanatory amendment recognizing the position from 01-04-2021), the Tribunal found no merit in sustaining the disallowance. For these reasons the Tribunal directed the Assessing Officer to delete the addition of the impugned employees' provident fund contribution, allowing the assessee's ground on this issue. [Paras 4, 5]

Addition of Rs. 1,30,255/- towards employees' PF contribution deleted and the assessee's appeal allowed on this issue.

Final Conclusion: The appeal is allowed by deleting the addition made in respect of employees' provident fund contribution for AY 2019-20, following the coordinate bench precedent that payment before the due date for filing return under Section 139(1) precludes disallowance under Section 36(1)(va).

Reopening of assessment under section 147/148 of the Income Tax Act - reason to believe - proviso to section 147 regarding failure to disclose fully and truly all material facts - acceptance of return under section 143(1) versus scrutiny under section 143(3) - penny stock manipulation and accommodation entries as basis for escapement of income

Reopening of assessment under section 147/148 of the Income Tax Act - reason to believe - penny stock manipulation and accommodation entries as basis for escapement of income - Validity of notice for reassessment issued for A.Y. 2015-16 on the basis of reasons recorded alleging penny stock price manipulation and accommodation entries - HELD THAT: - The Court examined whether the assessing officer had sufficient material to form a reason to believe that income chargeable to tax had escaped assessment. The AO recorded detailed reasons linking the assessee's transactions in the identified penny stock (Life Line Drugs & Pharma Ltd.) to the departmental findings of a syndicate driven scheme of accommodation entries and price rigging, and observed poor fundamentals, cyclical price spikes, corroborative SEBI action and transactional patterns (purchase at low price, phenomenal rise, sale to entities lacking substance). Applying the standard in Rajesh Jhaveri Stock Brokers P. Ltd., the Court held that at the initiation stage the AO need only have material on which a reasonable person could form the requisite belief and need not have conclusively established escapement. The recorded reasons demonstrated a live link between the available information and the AO's belief that claimed LTCG was a conduit for undisclosed income, thereby satisfying the statutory threshold for reopening under section 147 read with section 148. [Paras 5, 7, 8]

Notice for reassessment sustained as the assessing officer had sufficient material to form reason to believe that income had escaped assessment.

Acceptance of return under section 143(1) versus scrutiny under section 143(3) - change of opinion doctrine - proviso to section 147 regarding failure to disclose fully and truly all material facts - Whether reopening is impermissible because the return was accepted under section 143(1) and whether the doctrine of change of opinion or requirement of prior scrutiny precludes reassessment - HELD THAT: - The Court recalled that where a return is accepted under section 143(1) without scrutiny, the assessing officer is not precluded from reopening assessments and enjoys greater latitude to form reason to believe. Reliance on Rajesh Jhaveri established that the AO's subjective satisfaction based on relevant material suffices to initiate proceedings under section 147, and failure to have completed assessment under section 143(3) does not oust jurisdiction to reopen. The proviso to section 147 (requiring failure to disclose fully and truly all material facts) applies where its conditions are met; here the AO treated the matter as falling within Explanation 2(b) and formed belief accordingly. The Court distinguished decisions cited by the petitioner as being factually different where scrutiny had been completed or other conditions obtained. [Paras 5, 6, 7]

Reopening was not barred by mere acceptance under section 143(1); the AO lawfully exercised jurisdiction to issue notice under section 147/148.

Final Conclusion: Petition dismissed; reassessment notice upheld and interim order vacated. The High Court found a sufficient nexus between the material relied upon (including findings about penny stock manipulation) and the assessing officer's reason to believe that income had escaped assessment for A.Y. 2015-16.

Acquittal Appeal - Re-appreciation of evidence by appellate court - Presumption of innocence - When two views are possible the view favourable to the accused should be adopted - Standard for interference with an order of acquittal - Insufficiency of evidence to prove abetment

Acquittal Appeal - Re-appreciation of evidence by appellate court - Presumption of innocence - Standard for interference with an order of acquittal - Whether the High Court should interfere with the trial court's order of acquittal of the respondents. - HELD THAT: - The High Court re-appreciated the evidence and noted the settled principle that while an appellate court has full power to review evidence on which an acquittal is founded, special caution is required because an acquittal strengthens the presumption of innocence (paras 6 and 8). The trial court's findings on credibility and the overall assessment of evidence must be given proper weight where two views are possible. The evidence showed that the principal from whom the gold was recovered had died and that the remaining case against the respondents was one of abetment; there was no admissible evidence connecting the respondents to the commission of the offence, no original Mint report on purity, and material contradictions and omissions in the prosecution case (paras 7, 7.1, 7.2, 7.03). Applying the established test that an appellate court should not disturb an acquittal unless the trial court's view is perverse or wholly unsustainable, the Court found no special reason to reverse the acquittal (paras 8 and 9). [Paras 6, 7, 8, 9]

The High Court affirmed the trial court's order of acquittal and dismissed the appeal.

Final Conclusion: The appeal against the acquittal was dismissed as the prosecution failed to prove the offence beyond reasonable doubt and there were no special reasons to interfere with the trial court's finding of acquittal.

Delay in investigation and quashing of FIR under Section 482 Cr.P.C - Right to speedy trial vs right to fair trial - Investigation requiring Letters Rogatory and international cooperation - Economic offences involving manipulation and back-dating of letters of credit - Duty of investigating agency to conclude investigation expeditiously

Delay in investigation and quashing of FIR under Section 482 Cr.P.C - Right to speedy trial vs right to fair trial - Whether delay in investigation alone justifies quashing the FIR registered by the CBI - HELD THAT: - The Court held that unreasonably long delay may violate Article 21 but no inflexible period can be prescribed; each case must be examined on its facts. Here the protracted investigation was explained by the need to obtain evidence from abroad through Letters Rogatory, to pursue cooperation from foreign authorities and to negotiate a bilateral agreement with the foreign Serious Fraud Office, all of which caused unavoidable administrative and systemic delays beyond the control of the CBI. The Court found that the nature of the alleged offences (economic offences involving international elements and alleged fabrication/back-dating of Letters of Credit) and the necessity of obtaining foreign evidence justified prolonged investigation. The petitioner failed to demonstrate substantial prejudice or tangible loss arising from the delay. Balancing the right to a speedy trial with the right to a fair and effective investigation, the Court declined to quash the FIR on the ground of delay, while directing the investigating agency to conclude the probe expeditiously. [Paras 19, 20, 21, 22, 23]

Delay alone is not a ground to quash the FIR; investigation permitted to continue subject to expeditious completion.

Economic offences involving manipulation and back-dating of letters of credit - Investigation requiring Letters Rogatory and international cooperation - Whether the petitioner, as beneficiary of the Letters of Credit, is immune from interrogation or investigation concerning alleged fabrication/back-dating of the LCs - HELD THAT: - The Court rejected the submission that being a beneficiary absolves the petitioner from inquiry. Given the allegation that the LCs were fabricated and back-dated to circumvent a government export ban, the petitioner could legitimately be interrogated and asked to produce documents in furtherance of the investigation. The Court observed that allegations of connivance with banks require probing, especially where the alleged offence has significant economic and societal impact and involves national and international networks. [Paras 22]

The petitioner is not immune from investigation merely because it was a beneficiary; interrogation and document requisition are permissible.

Duty of investigating agency to conclude investigation expeditiously - Delay in investigation and quashing of FIR under Section 482 Cr.P.C - Whether the FIR should be quashed at this stage or the investigation should be continued with a direction for expeditious completion - HELD THAT: - Weighing the gravity of the alleged offences, the international dimension of evidence collection, and the lack of demonstrated prejudice to the petitioner, the Court concluded that quashing the FIR at this juncture would be inappropriate. However, recognising the accused's interest in prompt resolution, the Court directed the CBI to conclude the investigation as expeditiously as possible. The balance of interests favoured completion of the probe rather than termination of proceedings. [Paras 23, 24]

The FIR is not quashed; investigation to continue with a direction to the CBI to conclude it expeditiously.

Final Conclusion: The petition to quash FIR RCSI82007E004 dated 27.03.2007 is dismissed; the Court finds that delay attributable to international evidence-gathering and systemic factors does not justify quashing, the petitioner may be interrogated despite being LC beneficiary, and the CBI is directed to conclude the investigation expeditiously.

Withdrawal of Scheme of Amalgamation - Effect of rejection of scheme by creditors - Commencement of corporate insolvency resolution process and its impact on pending scheme - Direction restraining Credit Rating Agencies from treating non-payment as default - Setting aside tribunal direction and consequential dismissal of appeals

Withdrawal of Scheme of Amalgamation - Effect of rejection of scheme by creditors - Commencement of corporate insolvency resolution process and its impact on pending scheme - Application by Administrator to withdraw the proposed Scheme of Amalgamation was allowed. - HELD THAT: - The Tribunal accepted the Administrator's evidence that the proposed Scheme had been rejected by the requisite majorities of creditors (as reflected in declarations of results) and that subsequent action by the Reserve Bank of India resulted in supersession of the board, appointment of an Administrator and initiation and admission of CIRP against the company. In view of the Scheme being effectively infructuous on account of its rejection by creditors and the company being under insolvency proceedings, the Tribunal allowed the interlocutory application seeking withdrawal of the Scheme and permitted the Administrator to withdraw the Scheme before the Appellate Tribunal. [Paras 5, 6]

I.A. No. 2868 of 2021 filed by the Administrator seeking withdrawal of the Scheme is allowed.

Direction restraining Credit Rating Agencies from treating non-payment as default - Setting aside tribunal direction and consequential dismissal of appeals - The impugned NCLT direction restraining Credit Rating Agencies from treating non-payment as default and directing maintenance of the company's ratings was set aside; the related appeals were allowed. - HELD THAT: - The impugned order of the Adjudicating Authority had directed CRAs and creditors to maintain status quo and expressly directed CRAs not to treat non-payments as defaults and to maintain ratings. Having allowed the Administrator's application to withdraw the Scheme on the ground that it was rejected and that CIRP has commenced, the Tribunal concluded that the impugned directions cannot stand. Consequently, the order dated 30.12.2020 issuing restraints against CRAs and others was set aside. As a logical corollary, the Company Appeals challenging that impugned order were allowed. No costs were imposed. [Paras 7, 8, 10, 11]

The impugned NCLT order dated 30.12.2020 is set aside; Company Appeal (AT) No. 31 of 2021, Company Appeal (AT) No. 34 of 2021 and Company Appeal (AT) No. 39 of 2021 stand allowed.

Final Conclusion: The Administrator's application to withdraw the Scheme was allowed as the Scheme had been rejected by creditors and CIRP had been initiated; accordingly the NCLT directions restraining Credit Rating Agencies were set aside and the related appeals were allowed, with no order as to costs.

CIRP initiation under Section 7 - occurrence of default - completeness of petition in Form No. 1 - admission of petition - moratorium under Section 14 - prohibitions during moratorium - appointment of Interim Resolution Professional - constitution of Committee of Creditors and reporting timelines

CIRP initiation under Section 7 - occurrence of default - completeness of petition in Form No. 1 - admission of petition - Petition under Section 7 for initiation of CIRP admitted on the ground of established default and completeness of the petition. - HELD THAT: - The Tribunal found that the petitioner advanced an unsecured loan and furnished details evidencing occurrence of default. The Petition filed in the prescribed Form No. 1 was held to be complete. Having established default in payment of the financial debt and compliance with filing requirements, the Tribunal admitted the petition under Section 7(5) of the IBC. [Paras 6, 7, 8]

Petition admitted under Section 7(5) of the IBC for the stated default.

Moratorium under Section 14 - prohibitions during moratorium - Moratorium declared and the statutory prohibitions imposed upon admission of the petition. - HELD THAT: - Consequent to admission of the Section 7 petition, the Tribunal declared moratorium in terms of Section 14. The order set out the statutory prohibitions that operate during the moratorium, including restraint on institution or continuation of suits or proceedings against the corporate debtor, transfer or disposition of assets by the corporate debtor, enforcement of security interests, recovery of leased property, and interruption of supply of specified essential goods or services, with the moratorium to remain in effect until completion of CIRP or approval of a resolution plan or an order for liquidation as applicable. [Paras 8]

Moratorium under Section 14 imposed with the stated prohibitions effective from the date of the order until completion of the CIRP or earlier specified events.

Appointment of Interim Resolution Professional - constitution of Committee of Creditors and reporting timelines - Interim Resolution Professional appointed and directed to perform specified duties, collate claims, constitute the Committee of Creditors and report within prescribed timelines. - HELD THAT: - The Tribunal appointed the proposed registrant as Interim Resolution Professional after verification of credentials and directed him to undertake the statutory functions under the Code. The IRP was directed to collate claims, determine the financial position of the corporate debtor, constitute the Committee of Creditors and file a report certifying its constitution within thirty days of appointment, convene the first meeting within seven days thereafter, and to send fortnightly progress reports to the Tribunal. The Registry and petitioner were directed to communicate the order and provide the IRP with a copy forthwith. [Paras 9, 10, 11]

Mr. Srinivas Thatikonda appointed as IRP with directions to perform duties, constitute the CoC and comply with reporting timelines.

Final Conclusion: The Section 7 petition was admitted on proof of default and completeness of the filing; moratorium under Section 14 was declared with statutory prohibitions; and the proposed Interim Resolution Professional was appointed and directed to constitute the Committee of Creditors and comply with the Tribunal's timelines and reporting directions.

Initiation of Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 - operational debt and existence of undisputed liability - statutory demand under Section 8 of the IBC, 2016 - appropriation/adjustment of payments between separate legal entities - pre existing dispute and its effect on maintainability of a Section 9 petition - summary procedure of CIRP not permitting trial of disputed factual issues

Operational debt and existence of undisputed liability - statutory demand under Section 8 of the IBC, 2016 - Whether the Operational Creditor has established an outstanding operational debt payable by the Corporate Debtor so as to sustain initiation of CIRP. - HELD THAT: - The Tribunal examined the rival contentions that the Petitioner supplied goods totalling a stated sum and that the Respondent had either paid only part of it or paid the entire consideration. The record showed that payments had been made by the Respondent which, on the material before the Adjudicating Authority, satisfied the supplies in question. The Petitioner relied on an asserted adjustment of certain receipts in favour of a separate firm (RMM Food Products) to show an outstanding balance, but failed to substantiate any agreement or contemporaneous understanding permitting such appropriation of payments made by the Respondent. Where the Corporate Debtor proves payment of the claimed supply consideration, the prerequisite of an undisputed operational debt for a Section 9 petition is lacking. Given the Petitioner did not establish an outstanding, undisputed liability of the Corporate Debtor, the statutory demand and the claim for initiation of CIRP could not be sustained on the present record. [Paras 15]

Petition dismissed for failure to establish an outstanding operational debt owing from the Corporate Debtor.

Appropriation/adjustment of payments between separate legal entities - pre existing dispute and its effect on maintainability of a Section 9 petition - summary procedure of CIRP not permitting trial of disputed factual issues - Whether disputed factual contentions about inter entity adjustments and the alleged payments require trial and thus bar summary initiation of CIRP. - HELD THAT: - The Tribunal held that the Petitioner alleged it adjusted payments made by the Respondent towards liabilities of a separate partnership firm; the Respondent countered with bank statements and ledgers showing on account payments that, it says, discharged the liability. The Adjudicating Authority observed that such contentions raise disputed factual questions about appropriation and inter entity dealings which cannot be resolved in the summary CIRP initiation process. In a proceeding under the Code the Tribunal will not conduct a full trial to resolve complex factual disputes over allocation of payments where the Corporate Debtor has produced material to show settlement of the account. Because the dispute on payments/appropriation was bona fide and substantiated to an extent that undermined the claim of an undisputed debt, the petition was not maintainable. [Paras 15, 16]

Disputed factual issues regarding appropriation of payments and inter entity adjustments cannot be tried in summary CIRP proceedings; petition therefore not maintainable.

Final Conclusion: The Company Petition under Section 9 of the IBC, 2016 was dismissed on the record: the Operational Creditor failed to establish an outstanding, undisputed operational debt against the Corporate Debtor and the disputed questions of appropriation/adjustment between separate entities could not be resolved in the summary CIRP initiation process.

Corporate Insolvency Resolution Process - Operational Creditor's right to initiate CIRP under section 9 - Default and debt due and payable - Admission of petition under the Insolvency and Bankruptcy Code - Moratorium under section 14 - Requirement of Authorisation for Assignment for insolvency professionals - Appointment of Interim Resolution Professional - Vesting of management in the Interim Resolution Professional under section 17 - Public announcement of CIRP

Jurisdiction of Adjudicating Authority - This Bench has jurisdiction to adjudicate the petition against the Corporate Debtor. - HELD THAT: - The Corporate Debtor is a company incorporated within the State of Uttar Pradesh with its registered office at the address stated in the petition. The Adjudicating Authority accordingly records that the Bench has territorial jurisdiction to deal with the petition filed by the Operational Creditor. [Paras 2]

Bench has jurisdiction to hear the petition.

Operational Creditor's right to initiate CIRP under section 9 - Default and debt due and payable - Admission of petition under the Insolvency and Bankruptcy Code - The petition under section 9 is admitted as the Corporate Debtor is in default of a debt due and payable and the petition is complete in all respects. - HELD THAT: - The Operational Creditor supplied goods, raised invoices and produced invoices, consignor copy, E-waybills, purchase order, ledger statement, bank statements and a demand notice. The Corporate Debtor admitted that dues were pending and explained the default by stating the company was shut down and non functional. The default exceeds the statutory minimum threshold applicable at the relevant time. There is no defence disputing the debt; accordingly the default stands established and the requirements for admission under section 9 are satisfied. [Paras 3, 5, 6, 8, 9]

Petition under section 9 is admitted and CIRP is initiated against the Corporate Debtor.

Requirement of Authorisation for Assignment for insolvency professionals - Appointment of Interim Resolution Professional - The proposed IRP could not be appointed because he did not possess a valid Authorisation for Assignment (AFA); another insolvency professional from the IBBI panel was directed to be appointed. - HELD THAT: - The Operational Creditor proposed an insolvency professional as IRP and filed the requisite Form 2. However, the proposed IRP did not hold a valid Authorisation for Assignment as required by regulation 7A of the Insolvency & Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016; an insolvency professional without a valid AFA cannot be appointed to accept or undertake the assignment. For this reason the Adjudicating Authority declined appointment of the proposed individual and directed appointment of another insolvency professional from the panel made available by the IBBI. Thereafter the Adjudicating Authority appointed Mr. Dev Vrat Rana as IRP, subject to his possession of a valid AFA. [Paras 10, 11]

Proposed IRP not appointed for lack of valid AFA; another IRP appointed subject to possession of valid AFA.

Moratorium under section 14 - Vesting of management in the Interim Resolution Professional under section 17 - Public announcement of CIRP - A moratorium is declared and management vests in the IRP; public announcement and compliance with statutory duties are ordered. - HELD THAT: - Upon admission of the petition, the Adjudicating Authority ordered a moratorium under section 14 to operate from the date of the order until completion of CIRP or approval of a resolution plan or liquidation. The IRP (or the RP) is directed to make the public announcement as specified in the Code and relevant regulations. The management of the Corporate Debtor shall vest in the IRP in terms of section 17; officers and managers are directed to provide all documents and information to the IRP within one week, with coercive steps contemplated for non compliance. The IRP is also directed to carry out functions under the specified provisions of the Code and to submit periodical reports to the Adjudicating Authority. [Paras 11]

Moratorium imposed; management vests in IRP; public announcement and statutory duties of IRP ordered.

Final Conclusion: The section 9 petition filed by the Operational Creditor is admitted as the Corporate Debtor was found to be in default; a moratorium is imposed and CIRP is ordered. The originally proposed IRP was not appointed for lack of a valid Authorisation for Assignment and an alternative insolvency professional has been appointed subject to possession of the required authorisation; the IRP is to make the public announcement, assume management under section 17 and perform statutory functions while submitting periodical reports to the Adjudicating Authority.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - amount in arrears - tax dues - category 'arrears' versus category 'litigation' under the Scheme - finality of assessment order as crystallising tax dues - eligibility for relief under section 124(1)(c) by applying 40% - purpose and object of the SVLDR Scheme

Amount in arrears - finality of assessment order as crystallising tax dues - category 'arrears' versus category 'litigation' under the Scheme - Whether the petitioner was entitled to file the SVLDRS declaration under the 'arrears' category based on the Assessment Order dated 23rd December, 2019 instead of under the 'litigation' category. - HELD THAT: - The court held that the Assessment Order dated 23rd December, 2019 had determined and quantified the petitioner's service tax liability which had attained finality because no appeal was filed by the petitioner. By virtue of the definition of amount in arrears in the Scheme (amount recoverable as arrears on account of no appeal having been filed) and the Scheme's definition of tax dues, the liability quantified in the assessment order fell squarely within the arrears category. A conjoint reading of the earlier show cause notice and the Assessment Order shows that the adjudicating authority considered the show cause notice and the petitioner's reply and accepted the petitioner's computed figures, thereby crystallising the dues. The Scheme and its Rules contemplate a separate declaration for arrears (Rule 3(2) and its explanations). Reliance upon the Board's FAQs and this Court's precedents (including the approach in Jyoti Plastic Works and Morde Foods as explained) support a pragmatic construction that a declarant should not be put in a worse position than before making the declaration. Consequently, the petitioner's classification under the arrears category was legally permissible. [Paras 38, 40, 41, 42]

The petitioner was entitled to file the SVLDRS declaration under the 'arrears' category based on the Assessment Order dated 23rd December, 2019 which had crystallised the tax dues.

Eligibility for relief under section 124(1)(c) by applying 40% - purpose and object of the SVLDR Scheme - Whether the petitioner was entitled to the relief computed under the Scheme by applying 40% under the provision invoked and to have the estimated amount payable accepted accordingly. - HELD THAT: - Having found that the Assessment Order had crystallised the tax dues as arrears, the court applied the Scheme's relief mechanism. The petitioner had satisfied the conditions of the Scheme and Rules for an arrears declaration; accordingly the relief under the provision invoked (computation by applying 40%) was available. The court emphasised the statutory objective and purpose of the SVLDR Scheme as a one time measure to liquidate legacy disputes and observed that a pragmatic approach is required so declarants are not put in a worse position by making a declaration. On that basis the court accepted the petitioner's computation of the estimated amount payable by applying 40% to the quantified tax dues. [Paras 41, 42, 52]

The petitioner was entitled to the relief under the Scheme and the estimated amount payable computed by applying 40% to the crystallised tax dues was to be accepted.

Final Conclusion: Writ petition allowed: the petitioner's SVLDRS declaration filed under the 'arrears' category was valid, the tax dues as crystallised by the Assessment Order were to be treated as the basis for the Scheme, and the estimated amount payable computed at 40% was accepted; petitioner directed to pay the accepted amount within the time ordered and respondents to issue a discharge certificate thereafter.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - time bound amnesty scheme - extension of time for payment - court's power to make a scheme operational beyond its prescribed period - acceptance of payment under the scheme after cut off date

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - time bound amnesty scheme - extension of time for payment - acceptance of payment under the scheme after cut off date - Whether the Court can direct respondents to accept payment under the SVLDRS, 2019 after the expiry of the scheme period and thereby permit the petitioner to avail benefits of the scheme beyond the prescribed cut off date. - HELD THAT: - The petitioner filed a declaration under SVLDRS, 2019 and was issued Form SVLDRS 3 requiring payment within thirty days; the payment was not made within the original or extended cut off and recovery steps followed. The Court examined decisions of other High Courts and noted a consistent approach that the SVLDRS is a time bound amnesty scheme with no provision for extension beyond the prescribed period. Orders allowing individual extensions were found to be exceptional or subsequently recalled. The Division Bench decisions considered and cited (including reasoning that the designated committee no longer exists after the scheme period and that there is no statutory provision for extending time) support the principle that courts should not, as a matter of course, make the scheme operational for a belated applicant or relax its conditions for one person. Applying that principle to the facts-where the petitioner sought relief after a lapse of over a year from the last date for payment and had not shown willingness to pay within interim offers-the Court held that it could not direct respondents to accept payment or extend the scheme for the petitioner. [Paras 17, 18]

Petition dismissed; Court will not direct acceptance of payment under SVLDRS, 2019 after the scheme period has expired.

Final Conclusion: The writ petition seeking direction to permit payment under SVLDRS, 2019 after the statutory cut off was dismissed: courts will not, as a rule, make the time bound SVLDRS operational beyond its prescribed period or relax its conditions for a belated applicant.

Refund of unutilized Cenvat credit under Rule 5 of the Cenvat Credit Rules read with Notification No. 5/2006-C.E. (N.T.) - eligibility of exporters / 100% EOU (STP) for refund where exported services are exempt - availability of Cenvat credit not disputed - cannot be denied at sanctioning stage - payment of interest on delayed refund under Section 11BB of the Central Excise Act

Refund of unutilized Cenvat credit under Rule 5 of the Cenvat Credit Rules read with Notification No. 5/2006-C.E. (N.T.) - eligibility of exporters / 100% EOU (STP) for refund where exported services are exempt - availability of Cenvat credit not disputed - cannot be denied at sanctioning stage - Appellants entitled to refund of unutilized Cenvat credit for the impugned period despite the exported services being held exempt, where availment of credit was not disputed by Revenue. - HELD THAT: - The Tribunal examined the fact that the appellant, a 100% EOU under STPI, had availed Cenvat credit which Revenue never challenged at the stage of credit availment. Relying on this factual position and precedents of this Tribunal and other courts, the Bench held that appellants who have exported services cannot be denied refund under Rule 5 merely because the exported services are exempt. The Tribunal noted earlier decisions (including Kpit Cummins Infosystems Ltd., AXA Business Services Pvt. Ltd., Repro India Ltd. and mPortal India Wireless Solutions P. Ltd.) which applied the policy objective of promoting exports and recognised that, being a destination-based consumption tax, service tax should not burden exports; accordingly, refund under Notification No. 5/2006-C.E. (N.T.) and Rule 5 is permissible subject to verification of other conditions. Given that the availment of credit was not contested, the adjudicating authority's rejection on the ground that 'Development of Software' was not taxable could not disentitle the appellants to refund. [Paras 5]

Refund claim allowed on merits; appellants entitled to refund under Rule 5 read with the Notification for April 2006 to April 2007.

Payment of interest on delayed refund under Section 11BB of the Central Excise Act - application of Ranbaxy Laboratories principle to computation of interest - Interest on delayed sanction of the eligible refund is payable under Section 11BB of the Central Excise Act and is to be computed in accordance with settled precedent. - HELD THAT: - The Tribunal considered the appellants' miscellaneous application for interest and the authorities relied upon, including High Court decisions and the Supreme Court's decision in Ranbaxy Laboratories. The Bench observed that the scheme for refund of unutilized Cenvat credit does not exclude the operation of Section 11BB and that courts have held that delayed refund of such credit attracts interest. The computation point - that liability to pay interest commences from the expiry of three months from receipt of the refund application - was noted as settled by Ranbaxy. On this basis the Tribunal found no substance in Revenue's submissions opposing payment of interest on the delayed refund. [Paras 5]

Miscellaneous application for interest allowed; interest on delayed refund payable in terms of Section 11BB and settled law.

Final Conclusion: The appeal is allowed: the appellant is entitled to the refund of unutilized Cenvat credit for April 2006 to April 2007 under Rule 5 read with Notification No. 5/2006-C.E. (N.T.), and the Revenue is obliged to pay interest on the delayed sanction of the eligible refund under Section 11BB of the Central Excise Act; the miscellaneous application is disposed accordingly.

Rebate under Rule 18 of the Central Excise Rules, 2002 - Duty-free procurement under Rule 19 of the Central Excise Rules, 2002 - CENVAT credit encashment - Voluntary deposit v. duty payable - Refund of amounts collected without authority of law

Rebate under Rule 18 of the Central Excise Rules, 2002 - CENVAT credit encashment - Voluntary deposit v. duty payable - Refund of amounts collected without authority of law - Whether the petitioner was entitled to rebate under Rule 18 in respect of alleged duty paid by encashing CENVAT credit on goods exported under the Advance Licence scheme, where no duty was in fact payable. - HELD THAT: - The Court found that the Central Excise Rules, 2002 recognise two distinct regimes for equalising excise duty on inputs for export: rebate of duty actually paid under Rule 18 and duty-free procurement under Rule 19. Those provisions concern bona fide payment or waiver of duty; they do not convert an amount deposited with the Government which is not in the nature of duty into duty. Although some authorities observe that payment by utilisation of CENVAT credit may be treated as payment of duty, the facts here showed that no duty was payable because inputs were imported or procured duty-free under advance licences and invalidations. The amount in dispute was not a bona fide duty liability but an encashment of CENVAT credit to the petitioner's advantage. The Government has no authority to retain sums collected without legal basis, and a mistaken cash deposit might support a refund claim; however, where the amount was taken by encashing CENVAT credit, the petitioner cannot bypass the statutory mechanism for encashment and claim rebate under Rule 18 without satisfying the prescribed procedure and conditions for encashment of unused CENVAT credit. For these reasons the appellate and revisional authorities were justified in rejecting the rebate claim. [Paras 8, 9, 10]

Rebate claim under Rule 18 rejected; petitioner not entitled to rebate for amounts obtained by encashing CENVAT credit where no duty was payable and statutory encashment procedure was not followed.

Final Conclusion: Writ petitions dismissed; rebate under Rule 18 cannot be claimed in respect of amounts obtained by encashing CENVAT credit where no duty was payable on exported goods and the statutory procedure for encashment was not complied with.

Abeyance of criminal proceedings pending departmental adjudication - identical allegations in adjudication and criminal prosecution - abuse of the process of court - simultaneous adjudication and criminal prosecution - higher standard of proof in criminal cases - remand of adjudication order vitiating the basis for prosecution

Abeyance of criminal proceedings pending departmental adjudication - identical allegations in adjudication and criminal prosecution - abuse of the process of court - remand of adjudication order vitiating the basis for prosecution - Whether the criminal complaint proceedings ought to be kept in abeyance pending the fresh adjudication under the Central Excise Act where the adjudicating authority's order, which formed the basis of prosecution, has been set aside and remanded. - HELD THAT: - The Court applied the principles distilled in Radheshyam Kejriwal and affirmed in Videocon Industries, namely that while adjudication and criminal prosecution may ordinarily proceed simultaneously, the controlling test is whether the allegations in both proceedings are identical and whether exoneration in the adjudication is on merits. Here the Tribunal set aside the adjudicating authority's order dated 23.12.1999 and remanded the matter for fresh adjudication, thereby removing the substantial basis upon which the complaint was instituted. The facts and materials relied upon in both departmental and criminal proceedings are the same. In these circumstances, permitting the criminal trial to proceed while the departmental adjudication - which may result in exoneration on merits on remand - remains pending would amount to an abuse of the process of the court. Applying the settled yardstick, the Court held that continuation of the criminal prosecution should be stayed until disposal of the departmental adjudication. [Paras 4, 7, 9, 10]

The trial in Complaint Case No.2(C) C.C. 57 of 2003 is directed to be kept in abeyance pending disposal of the departmental adjudication proceedings under the Central Excise Act, 1944.

Final Conclusion: CRLMC allowed; further proceedings in the criminal complaint are stayed until the departmental adjudication under the Central Excise Act is finally disposed of.

Works contract - sale of goods - levy of tax under the TNGST Act, 1959 - charge on works contract with effect from 26.06.1986 - estimation of turnover by assessing officer - failure to produce agreements / non-maintenance of records - Tribunal as final fact-finding authority - perversity standard for interference

Works contract - sale of goods - levy of tax under the TNGST Act, 1959 - failure to produce agreements / non-maintenance of records - estimation of turnover by assessing officer - Tribunal as final fact-finding authority - perversity standard for interference - Whether the receipts of the petitioner for assessment year 1985-86 represented sale of mosaic tiles liable to tax under the TNGST Act, 1959, or payments for works contract (laying and polishing) which were outside the charge of TNGST Act for that year. - HELD THAT: - The authorities below treated the receipts as proceeds of conventional sale of mosaic tiles on the factual basis that the petitioner failed to produce any agreement with customers, did not maintain forms of XXVIII, and did not keep production-cum-stock accounts showing materials taken to customers' sites. The assessing officer estimated turnover by adding gross profit to net purchases, a finding confirmed on first appeal and by the Tribunal. The High Court noted that the determination whether a contract is for sale or for execution of works is primarily a question of fact dependent on contract terms and surrounding circumstances. The Tribunal is the final fact-finding authority and its concurrent findings will not be disturbed unless shown to be perverse. In the absence of any material placed by the petitioner to show that the receipts related to works contract and given the consistent factual findings of non-production of contracts and absence of requisite records, there is no basis to interfere with the Tribunal's conclusion that the receipts were sales and hence taxable under the TNGST Act for the year in question. [Paras 7, 8, 9]

The finding of the Tribunal that the receipts represented sale of mosaic tiles and were liable to tax under the TNGST Act, 1959, for assessment year 1985-86 is upheld.

Final Conclusion: Writ petition dismissed; no infirmity or perversity found in the Tribunal's factual conclusion that the receipts were sales (and taxable) rather than works contract for assessment year 1985-86.

Compounding of offence under Section 138 of the Negotiable Instruments Act - Settlement between parties as basis for quashing conviction - Application of appellate precedent permitting compromise in cheque bounce prosecutions - Return/withdrawal of amounts deposited pursuant to settlement

Compounding of offence under Section 138 of the Negotiable Instruments Act - Settlement between parties as basis for quashing conviction - Application of appellate precedent permitting compromise in cheque bounce prosecutions - Conviction and sentence under Section 138 of the Negotiable Instruments Act were quashed and the accused was acquitted pursuant to the settlement reached between the parties, permitting compounding of the offence. - HELD THAT: - The Court recorded that the complainant (respondent No. 2) filed an affidavit stating that the dispute between him and the applicant had been settled and that he did not wish to prosecute the matter further; counsel for the parties confirmed the settlement. Although the learned APP objected, the Court applied the ratio of the Apex Court in Vinay Devanna Nayak (paras quoted in the judgment) holding that where parties have amicably settled, compounding/compromise in cases under Section 138 may be permitted. Applying that principle to the facts before it, and having noted the settlement and the complainant's affidavit, the Court allowed the revision, quashed the judgments of the trial and first appellate courts and acquitted the applicant of the Section 138 charge (while noting non-conviction only in respect of that offence). [Paras 6, 7, 8, 9]

Revision allowed; impugned conviction and sentence under Section 138 quashed and applicant acquitted pursuant to the settlement between the parties.

Return/withdrawal of amounts deposited pursuant to settlement - Applicant permitted to withdraw the amounts deposited in court arising from the proceedings, as there was no objection from the complainant. - HELD THAT: - Counsel for the applicant sought permission for withdrawal of amounts deposited; counsel for respondent No. 2 expressly recorded no objection. In view of the settlement and the complainant's acquiescence recorded on affidavit and before the Court, the Court directed that the applicant be permitted to withdraw the amounts deposited before the trial Court. [Paras 10, 11]

Applicant permitted to withdraw the amount deposited by him before the trial Court.

Final Conclusion: The Criminal Revision Application is allowed: the conviction and sentence under Section 138 N.I. Act are quashed and the applicant is acquitted pursuant to the parties' settlement; the applicant is permitted to withdraw amounts deposited in court; registry to communicate the order to concerned courts and jail authorities.