TaxTMI Updates e-Newsletter
Mar 18,2021

Classification of services - Licensing services for the right to use minerals including its exploration and evaluation - rate of tax for Heading 9973 - residuary entry inapplicable to intellectual property and similar products without underlying goods - same rate as on supply of like goods involving transfer of title in goods - reverse charge mechanism

Classification of services - Licensing services for the right to use minerals including its exploration and evaluation - The service provided by the State Government to the applicant in granting the mining lease is classifiable under licensing services for the right to use minerals including its exploration and evaluation (Group 99733, Heading 9973, sub heading 997337). - HELD THAT: - The Authority examined the nature of the lease which confers on the lessee the right to extract and appropriate minerals from the leased area and noted that title in extracted minerals vests with the lessee. Applying the explanation to the scheme of classification of services, the activity of payment of lease charge/royalty/dead rent by the applicant to the State is a supply of service by the Government, namely licensing services for the right to use minerals including exploration and evaluation. The Authority also noted the applicability of reverse charge mechanism and that the liability to pay GST on royalty is on the recipient in terms of the relevant rate notification. On this basis the Authority held that the impugned service merits classification under Serial No. 257, Heading 9973, Group 99733, sub heading 997337. [Paras 9, 10, 19]

Service is classifiable as licensing services for the right to use minerals including its exploration and evaluation (Serial No. 257, Heading 9973, Group 99733, sub heading 997337).

Rate of tax for Heading 9973 - residuary entry inapplicable to intellectual property and similar products without underlying goods - same rate as on supply of like goods involving transfer of title in goods - The GST rate applicable to the licensing service for right to use minerals (royalty paid to the State) is 18% (9% CGST + 9% SGST). - HELD THAT: - The Authority reviewed Notification No. 11/2017 (Rate) and subsequent amendments, the Fitment Committee proposal and the minutes of the 31st GST Council meeting which clarified that the residuary entry in Heading 9973 prescribing 'same rate as on supply of like goods involving transfer of title in goods' does not apply to transfer of intellectual property and similar products lacking underlying goods. The Authority held that leasing of mining area conferring the right to extract and appropriate minerals is not a lease of goods where title remains with the lessor and therefore the conditional rate tied to sale of like goods cannot be imported. Having regard to the legislative intent as reflected in the notifications, agenda and minutes and consistent administrative rulings and clarifications, the Authority concluded that the service received by the applicant from the State Government is taxable at 18%. The Authority noted earlier analogous AAR/AAAR orders and departmental clarification supporting this rate. [Paras 13, 14, 15, 17, 19]

The licensing service (royalty) is liable to GST at 18% (9% CGST + 9% SGST).

Final Conclusion: The Authority ruled that the mining lease service provided by the State Government to the applicant is classifiable as licensing services for the right to use minerals including exploration and evaluation (Heading 9973, Group 99733, sub heading 997337) and that the royalty payable to the State is taxable at 18% (9% CGST + 9% SGST); the ruling is binding only within the jurisdiction of the Uttar Pradesh AAR and subject to statutory challenge provisions.

Duty to record reasons for each ground of appeal - formulation of points of decision by appellate authority - remand for fresh adjudication where main plea not decided

Duty to record reasons for each ground of appeal - formulation of points of decision by appellate authority - Whether the first appeal authority complied with its obligation to consider and record reasons on each ground of appeal pressed by the petitioner. - HELD THAT: - The Court held that an appellate authority exercising its jurisdiction must identify the exact objections or grounds raised, formulate the points of decision necessary for resolution, and record clear reasons accepting or rejecting each ground actually pressed. Merely referring to the entire memo of appeal or the written submissions without indicating which grounds were limited, pressed, or rejected, and without offering reasons on the main contentions, does not satisfy the duty of reasoned adjudication. The appeal order under challenge had copiously referred to the submissions but failed to deal with or decide the petitioner's primary plea that there was no infraction of law and that penalty provisions were not attracted, offering reasons only for an alternate plea. Such omission prevents effective appellate scrutiny and renders that portion of the order unsustainable.

The portion of the impugned order which did not deal with or record reasons on the main plea is set aside for failure to discharge the duty to formulate points of decision and to record reasons on each ground pressed.

Remand for fresh adjudication where main plea not decided - What relief should follow from the appellate authority's failure to decide the main plea and to record reasons. - HELD THAT: - Because the appeal authority considered and gave reasons only on the alternate issue but did not make any application of mind to the main submission, the Court remitted the matter to the appeal authority for fresh consideration. The alternate finding will be operative only if the appeal authority, after addressing and rejecting the main plea on merits with reasons, finds it necessary to do so. The appellate authority is required on remand to formulate the precise points for decision, decide each ground urged with reasons, and then pass a fresh order in accordance with law. The Court directed that the proceedings on remand be completed as expeditiously as possible, preferably within three months.

Matter remitted to the appeal authority to pass a fresh reasoned order after formulating the points of decision and deciding each ground urged; remand to be concluded expeditiously (preferably within three months).

Final Conclusion: The writ petition is allowed to the extent indicated: the impugned order is set aside insofar as it failed to record reasons on the petitioner's main plea and the matter is remitted to the appellate authority for fresh, reasoned disposal within the time directed; otherwise the petition is disposed of.

Transitional credit of unutilised CENVAT credit - rectification/revision of GST TRAN-1 - time limit for filing TRAN-1 and Rule 117/Rule 117(1A)/Rule 120A - vested right to carry forward unutilised credit - liberty to approach GST Council for recommendation to enable carry forward

Rectification/revision of GST TRAN-1 - time limit for filing TRAN-1 and Rule 117/Rule 117(1A)/Rule 120A - liberty to approach GST Council for recommendation to enable carry forward - transitional credit of unutilised CENVAT credit - Petitioner's entitlement to seek correction of an already filed TRAN-1 (filed before 27.12.2017) and the appropriate remedy to obtain carry forward of unutilised CENVAT credit. - HELD THAT: - The Court distinguished two categories of defaults: (a) registered persons who had loaded TRAN-1 by 27.12.2017 but sought to revise it due to mistakes; and (b) registered persons who did not file TRAN-1 by 27.12.2017 and have no evidence of attempt to file. The petitioner falls in the first category, having filed TRAN-1 on 13.12.2017 but having inadvertently entered incorrect particulars. The Court noted earlier Division Bench and coordinate decisions which recognise that where TRAN-1 was filed before the prescribed last date but contains mistakes, the petitioner may be permitted remedial relief, and that introduction of Rules such as 117(1A) and 120A and subsequent judicial decisions treat the right to carry forward unutilised credit as a vested right not to be defeated by mere procedural or technical errors. Relying on those precedents (including the affirmation at the Supreme Court level of the relevant Punjab & Haryana High Court view), the Court found no reason to depart from the settled position permitting affected taxpayers to seek correction and directed a remedial route rather than denying relief for the departmental delay or the mistake. The Court therefore granted the petitioner liberty to apply to the GST Council (through Standing Counsel and the jurisdictional officer) for issuance of a certificate/recommendation with requisite particulars and evidence; if the petitioner's assertions are found correct, the GST Council is to issue the necessary recommendation to the Commissioner to enable carry forward of the credit. The exercise is directed to be completed within six months, strictly in accordance with law.

Liberty granted to petitioner to make an application through Standing Counsel to the jurisdictional officer for forwarding to the GST Council for requisite recommendation to enable carry forward of unutilised CENVAT credit; exercise to be completed within six months.

Final Conclusion: Writ petition allowed to the extent of granting liberty to the petitioner to seek the prescribed recommendation from the GST Council for rectification of the already filed TRAN-1 and carry forward of unutilised CENVAT credit; pending applications disposed of and the directed process to be completed within six months.

Status quo - interim relief - power of the Director General of Anti Profiteering to compute profiteering - adjustment of average base price in profiteering calculation - interpretation of Section 171 of the Central Goods and Services Tax Act, 2017

Status quo - interim relief - Interim preservation of the existing position until respondents file their return and further orders - HELD THAT: - Having considered the rival submissions and relying on the view taken by a coordinate Bench in the order dated 18.02.2020 in WP(C) 1780/2020, the Court directed that the existing position be maintained as an interim measure until the respondents file their return. The Court issued notice and recorded that counsels accept service on behalf of the respondents. The interim order is anchored on maintenance of status quo at the interim stage and is without prejudice to the adjudication on merits. [Paras 1, 4]

Status quo to be maintained until respondents file their return; notice issued; interim relief granted subject to just exceptions

Power of the Director General of Anti Profiteering to compute profiteering - adjustment of average base price in profiteering calculation - interpretation of Section 171 of the Central Goods and Services Tax Act, 2017 - Contentions on whether DGAP must make adjustments where selling price is lower than the average base price and whether Section 171 contemplates such adjustment remained undecided and are left for adjudication - HELD THAT: - The Court recorded competing submissions: the petitioner contended that DGAP compared average prices with local selling prices without making requisite downward adjustments in instances where selling price was lower than the average base price, whereas the Revenue submitted that such adjustment is not contemplated under Section 171 and that DGAP is entitled to compute profiteering across supplies. The Court did not resolve these contentions on merits; instead it issued notice and permitted the respondents to file a counter affidavit and reply to the interlocutory application within two weeks, with rejoinder before the next hearing, thereby leaving the legal question for full adjudication. [Paras 3, 6]

Substantive legal dispute regarding DGAP's calculation methodology and the scope of Section 171 is pending consideration; parties directed to file pleadings for adjudication

Final Conclusion: Interim order granted: status quo directed to be maintained until respondents file their return; substantive disputes on DGAP's methodology and the scope of Section 171 were recorded but left undecided for adjudication after filing of pleadings; matter listed for further hearing on 29.04.2021.

Summary order. Captioned matters listed on 30.04.2021 (at end of supplementary board); notation made that Rule 44A of the Central Goods and Services Tax Rules, 2017 is challenged as being ultra vires the Central Goods and Services Tax Act, 2017.

Addition u/s.36(i)(ii) - Commission paid to directors - whether in the nature of Dividend - rule of consistency - payment to Directors/shareholders was hit by the provisions of section 36(1)(ii) as the said commission would have been payable to the Directors as dividend and accordingly, disallowed the same - Bogus purchases - Disallowance of insurance expense - Allowable revenue expenditure - HELD THAT:- There is a delay of 452 days in filing this Special Leave Petition and we do not find any justifiable reason to condone this huge delay.

The Special Leave Petition is, accordingly, dismissed on the ground of delay.

Registration under section 12AA - proposed activities - genuineness of objects of trust - cancellation under section 12AA(3) - approval under section 80G

Registration under section 12AA - proposed activities - genuineness of objects of trust - approval under section 80G - Entitlement of the trust to registration under section 12AA and approval under section 80G when the trust had not commenced activities. - HELD THAT: - The Court applied the principle that section 12AA concerns registration of a trust and requires the Commissioner to examine whether the objects of the trust are genuinely charitable and whether the activities proposed to be carried on are in accordance with those objects; the term 'activities' for registration purposes includes proposed activities. Where the genuineness of objects is not disputed and the trust has not commenced operations, the Commissioner is not justified in refusing registration at the threshold. The position differs when cancellation under section 12AA(3) is contemplated, since cancellation requires findings about activities actually carried on. Following the binding Supreme Court authority and the Division Bench's earlier decision, the Tribunal's direction to grant registration under section 12AA and approval under section 80G was upheld.

The Tribunal was right to direct grant of registration under section 12AA and approval under section 80G despite no activities having commenced; the revenue's appeals are dismissed.

Final Conclusion: Appeals dismissed; the Tribunal's order directing grant of registration under section 12AA and approval under section 80G is affirmed, following the established principle that registration may be granted based on genuine objects and proposed activities where no operations have yet commenced. No costs.

Legality of demand under section 200A for computation and recovery of late fee under section 234E for periods prior to 1st June, 2015 - Prospective effect of the amendment to section 200A establishing the machinery to levy late fee under section 234E - Validity of levy of late fee under section 234E where the statutory machinery to compute/raise demand was not in force

Legality of demand under section 200A for computation and recovery of late fee under section 234E for periods prior to 1st June, 2015 - Prospective effect of the amendment to section 200A establishing the machinery to levy late fee under section 234E - Demand notices issued under section 200A for computation and recovery of late fee under section 234E in respect of TDS for the period prior to 1st June, 2015 are without authority of law. - HELD THAT: - The Division Bench decision in Fatheraj Singhvi and Others was held to be determinative: the amendment to section 200A, which brought into effect the machinery to compute and raise demands for the late fee under section 234E, operates prospectively from 1st June, 2015, and therefore intimation/demand under section 200A for fees under section 234E relating to tax-deducted periods prior to 1st June, 2015 lacked legal authority. The Single Judge's order applying that ratio to the respondent's notices for financial years 2012-2013 and 2013-2014 was upheld. The High Court considered the contrary view of the Gujarat High Court but declined to follow it, treating it as persuasive only; where the machinery was not in existence to recover the late fee before 1st June, 2015, demands for that earlier period cannot be sustained. Consequently the writ petitions were allowed below, the impugned demands insofar as they relate to the pre-1st June, 2015 period were set aside and the proceedings were directed to be recomputed in light of the observations.

The demands and intimation under section 200A for computation and recovery of late fee under section 234E relating to periods prior to 1st June, 2015 are quashed; the Division Bench ratio in Fatheraj Singhvi controlling and the appeal dismissed.

Final Conclusion: Appeal dismissed. The High Court confirmed that demands raised under section 200A for fees under section 234E in respect of TDS periods prior to 1st June, 2015 are without authority of law and were set aside; proceedings to be recomputed in accordance with that view.

Disallowance of bogus purchases - estimation of gross profit on accommodation entries - reopening of assessment under section 147 - failure to issue notice under section 133(6) - application of precedent in fixing percentage addition

Disallowance of bogus purchases - estimation of gross profit on accommodation entries - failure to issue notice under section 133(6) - application of precedent in fixing percentage addition - Appropriateness of the percentage addition to income on purchases held to be accommodation/bogus entries for the assessment years in dispute and whether the CIT(A)'s restriction of the AO's addition is sustainable. - HELD THAT: - The Tribunal examined the Assessing Officer's estimation of profit on disputed purchases which was made after reopening the assessment on information from the Sales Tax Department. The AO estimated gross profit at 7.28% on the alleged bogus purchases and made an addition accordingly. The CIT(A) reviewed the nature of the assessee's trading business, the material placed on record and the adequacy of inquiries made by the AO, noting that no notices under section 133(6) were issued to the alleged suppliers to verify genuineness of purchases. The CIT(A) also considered judicial decisions applying a fixed percentage approach in cases of accommodation entries and, having regard to the facts and deficiencies in the AO's inquiry, fixed the disallowance at 6.75% (being the gross profit rate) for AY 2009-10 and AY 2011-12, and at 8.25% for AY 2010-11 (a higher rate than gross profit rate because the AO's deficiencies were found to be reasonably proved for that year). The Tribunal found no infirmity in the CIT(A)'s approach of moderating the AO's estimate in light of the inadequate enquiries and relevant precedents, and agreed with the exercise of discretion to restrict the addition to the rates applied by the CIT(A). [Paras 5, 6]

The CIT(A)'s restriction of the AO's addition is affirmed: disallowance fixed at 6.75% for AY 2009-10, 8.25% for AY 2010-11, and 6.75% for AY 2011-12; the Revenue's appeals are dismissed.

Final Conclusion: The Tribunal affirmed the CIT(A)'s moderation of the Assessing Officer's addition on accommodation entries, sustaining disallowances at the respective percentages applied by the CIT(A) for AY 2009-10, AY 2010-11 and AY 2011-12, and dismissed the Revenue's appeals.

Disallowance under section 14A and Rule 8D - Application of High Court ratio in REI Agro - Computation of disallowance under Rule 8D(2)(i) - Computation of disallowance under Rule 8D(2)(ii) - Effect of Supreme Court decision on section 43B(f)

Disallowance under section 14A and Rule 8D - Application of High Court ratio in REI Agro - Validity of the CIT(A)'s direction to the AO to compute disallowance under section 14A read with Rule 8D by applying the ratio of REI Agro (Jurisdictional High Court). - HELD THAT: - The Tribunal examined the Revenue's challenge to the CIT(A)'s direction to recompute the disallowance under section 14A read with Rule 8D in accordance with the ratio of the Hon'ble Jurisdictional High Court in REI Agro Ltd v. DCIT. Finding that the CIT(A) had correctly applied the said High Court decision, the Tribunal recorded no infirmity in the CIT(A)'s order and upheld the directions given to the AO for recomputation as per that proposition of law. [Paras 5]

The CIT(A)'s direction to recompute the disallowance under section 14A read with Rule 8D in accordance with the REI Agro ratio is upheld; the Revenue's grounds are dismissed.

Computation of disallowance under Rule 8D(2)(i) - Sustentation of the disallowance under Rule 8D(2)(i) based on direct expenditure relatable to exempt income as per Tax Audit Report. - HELD THAT: - The Tribunal considered the assessee's challenge to the AO's disallowance under Rule 8D(2)(i). The AO applied figures from the Tax Audit Report (appendix 4(b)) to determine direct expenditure relatable to exempt income. The assessee failed to demonstrate any cogent material to displace the AO's basis for disallowance and did not substantiate the contention that the AO acted without calculation or basis. In view of the material on record, the Tribunal found no reason to disturb the CIT(A)'s confirmation of the AO's disallowance. [Paras 9]

The disallowance under Rule 8D(2)(i) as computed by the AO (and confirmed by the CIT(A)) is upheld; the assessee's ground is dismissed.

Computation of disallowance under Rule 8D(2)(ii) - Whether net interest expenditure should have been considered while computing disallowance under Rule 8D(2)(ii). - HELD THAT: - The assessee sought consideration of net interest expenditure in computing the disallowance under Rule 8D(2)(ii). The Tribunal noted that the AO had already excluded interest attributable to borrowings for specific purposes and applied only the balance for disallowance. The assessee, however, did not file any calculations or supporting material to substantiate its contention. In the absence of cogent material, the Tribunal found no basis to interfere with the AO's and CIT(A)'s approach. [Paras 10]

The CIT(A)'s confirmation of the AO's treatment under Rule 8D(2)(ii) is upheld; the assessee's claim for consideration of net interest expenditures is dismissed for want of material.

Effect of Supreme Court decision on section 43B(f) - Claim that section 43B(f) (leave encashment treatment) is not disallowable in view of the High Court decision relied upon by the assessee. - HELD THAT: - The Tribunal considered the assessee's reliance on a judgment striking down section 43B(f) but observed that the Hon'ble Supreme Court had adjudicated the issue in Exide Industries Ltd v. Union of India and the result was against the assessee. The Tribunal respectfully followed the Supreme Court's decision and held that the assessee's ground based on the contrary High Court view cannot be sustained. [Paras 11]

The ground founded on the contention regarding section 43B(f) is dismissed, the Tribunal following the Supreme Court decision adverse to the assessee.

Final Conclusion: Both the Revenue's appeal and the assessee's cross-appeal for A.Y. 2011-12 are dismissed; the CIT(A)'s order is upheld on the recomputation of disallowance under section 14A read with Rule 8D and on the specific confirmations of the AO under Rule 8D(2)(i) and (ii), and the Tribunal follows the Supreme Court's ruling on section 43B(f).

Set-off of carried forward business losses against capital gains - Characterisation of gains on sale of business/depreciable assets as business income despite taxation as capital gains - Application of section 72 for carry forward and set off of business losses

Set-off of carried forward business losses against capital gains - Characterisation of gains on sale of business/depreciable assets as business income despite taxation as capital gains - Application of section 72 for carry forward and set off of business losses - Whether carried forward business losses could be set off against short-term capital gains arising from sale of depreciable/business assets in the assessment year. - HELD THAT: - The Tribunal agreed with the view taken by the CIT(A) that losses carried forward under the head 'Profits and Gains of Business or Profession' are available for set-off against profits 'of any business or profession carried on by the assessee and assessable for that assessment year' under section 72. The decision relied on earlier decisions of the Mumbai Tribunal which held that gains arising on sale of business/depreciable assets, though taxable under the head 'Capital Gains' (computed under the provision taxing such transfers), retain the character of business income because they arise from transfer of business assets on which depreciation was allowed. Consequently there is no textual requirement that the income sought to be adjusted against carry forward business loss must itself be assessed under the head 'Profits and Gains of Business or Profession'; it suffices that the gain is 'of' the business carried on by the assessee and assessable in that year. Applying those precedents to the facts, the CIT(A) was correct in allowing set-off subject to verification of records, and the Tribunal upheld that conclusion. [Paras 5, 6]

Set-off of brought forward business losses against the short-term capital gains on sale of depreciable/business assets is permissible under the principle embodied in section 72 as applied by the Tribunal; the CIT(A)'s allowance of the set-off (subject to verification) is upheld.

Final Conclusion: Revenue's appeal is dismissed; the CIT(A)'s order allowing set-off of carried forward business losses against the short-term capital gains on sale of depreciable/business assets is affirmed and the Assessing Officer is directed to grant the set-off after verification of records.

Disallowance of business interest under section 36(1)(iii) - family settlement/partition as determinative of substance over form - Rule 46A - duty to afford opportunity to file remand report - computation of long term capital gains under section 50C provisos - valuation by stamp valuation authority and value as on date of agreement - retrospective application of proviso to section 50C(1) as held by jurisdictional High Court

Disallowance of business interest under section 36(1)(iii) - family settlement/partition as determinative of substance over form - Rule 46A - duty to afford opportunity to file remand report - Deletion of interest disallowance of Rs. 44,22,711/- under section 36(1)(iii) was set aside and remitted to the Assessing Officer for fresh decision after verification and hearing. - HELD THAT: - The appellate authority accepted the assessee's plea that the transaction (advances to a sister concern) arose out of a family settlement/partition and treated it as not being a loan, thereby deleting the disallowance under section 36(1)(iii). The Tribunal found that the ld. CIT(A) considered fresh material and reached that conclusion without affording the Assessing Officer an opportunity to file a remand report under Rule 46A. In view of the failure to give the AO the opportunity to verify the newly relied-on material, the Tribunal set aside the CIT(A) order on this issue and directed that the matter be remitted to the AO to verify and decide the issue afresh in accordance with law after affording the assessee a hearing. [Paras 4]

Order of the CIT(A) deleting the disallowance is set aside and the issue is remitted to the AO for fresh verification and decision after providing opportunity to the AO and the assessee to be heard.

Computation of long term capital gains under section 50C provisos - valuation by stamp valuation authority and value as on date of agreement - retrospective application of proviso to section 50C(1) as held by jurisdictional High Court - Deletion of addition of Rs. 6,55,20,000/- on account of LTCG determined by AO under section 50C was directed to be re-examined by the AO in light of the jurisdictional High Court's decision and after affording the assessee an opportunity of being heard. - HELD THAT: - The AO had computed capital gains by adopting revised guideline values effective from 01.04.2012 for unregistered transfers, leading to an addition. The CIT(A) deleted that addition following authorities relied upon by the assessee. The Tribunal noted the jurisdictional High Court's view that the proviso to section 50C(1) (providing for value to be taken as on date of agreement where dates differ) seeks to relieve hardship and should be treated as retrospectively effective. In consequence, the Tribunal directed the AO to examine and decide the issue afresh in accordance with that judgment, after affording the assessee a hearing; the ground is allowed for statistical purposes. [Paras 6]

AO directed to re-examine computation of LTCG under section 50C in line with the Madras High Court decision and decide afresh after hearing the assessee; deletion by CIT(A) set aside for reconsideration (allowed for statistical purposes).

Final Conclusion: The Revenue appeal is partly allowed; the CIT(A) order deleting (a) the interest disallowance under section 36(1)(iii) and (b) the LTCG addition under section 50C is set aside on the respective issues and both matters are remitted to the Assessing Officer for fresh decision in accordance with law after affording the assessee an opportunity of being heard (the second remand directed to be decided in line with the jurisdictional High Court ruling).

Bogus purchases disallowance where sales not doubted - addition estimated on information from sales tax department - partial disallowance by applying additional profit on turnover - payments through banking channel and production of vouchers as evidence - penalty under section 271(1)(c) - requirement of concealment or furnishing inaccurate particulars - assessee's conduct not contumacious - bar to penalty

Bogus purchases disallowance where sales not doubted - addition estimated on information from sales tax department - partial disallowance by applying additional profit on turnover - Sustainability of 100% addition for alleged bogus purchases where sales are not doubted and addition was made solely on sales tax department information. - HELD THAT: - The Assessing Officer made a 100% disallowance of alleged bogus purchases based solely on information from the Sales Tax Department and without independent inquiry or issuing notice to the alleged suppliers. The Tribunal noted that the assessee's sales were not doubted and relied on the settled proposition that when sales are not impugned a wholesale (100%) disallowance of purchases is not appropriate because sales cannot ordinarily occur without corresponding purchases. Having regard to the assessee's business (contractual work) and low reported profit margin, the CIT(A) applied a pragmatic approach by allowing an additional profit on turnover (1% in addition to the assessed gross profit) to account for the disputed purchases and restricted the disallowance accordingly. The Tribunal found this approach to meet the ends of justice on the facts, particularly in view of the AO's failure to make enquiries, and upheld the CIT(A)'s restricted disallowance. [Paras 5, 6]

The order of the CIT(A) restricting the 100% addition to the amount determined by applying additional profit on turnover is upheld; the Revenue's appeal is dismissed.

Penalty under section 271(1)(c) - requirement of concealment or furnishing inaccurate particulars - payments through banking channel and production of vouchers as evidence - assessee's conduct not contumacious - bar to penalty - addition estimated on information from sales tax department - Validity of levy of penalty under section 271(1)(c) where disallowance was based on estimated additions from information received from an outside agency and where vouchers and banking evidence were produced. - HELD THAT: - The AO levied penalty under section 271(1)(c) on the quantum addition made for alleged hawala purchases which were disallowed on an estimated basis due to non-production of suppliers. The assessee, however, produced purchase vouchers and showed payments were made through banking channels. The Tribunal observed that the disallowance was made on an estimated basis and that the assessee's conduct did not exhibit contumacious concealment or furnishing of inaccurate particulars of income. Reliance was placed on the principle that penalty should not be levied where the assessee's conduct is not contumacious. The Tribunal also noted that the tax effect fell below the Board's limit for filing appeals and rejected the Revenue's contention that an exception applied merely because the information originated from a Sales Tax Department. Given these circumstances and the fact that the Revenue could not obtain more relief than the CIT(A) had granted, the Tribunal held that penalty could not be sustained beyond the quantum confirmed in the appeal and that levy of penalty was unwarranted. [Paras 10, 11, 12, 13]

The CIT(A)'s direction to restrict or not sustain the penalty is upheld and the Revenue's appeal against levy of penalty under section 271(1)(c) is dismissed.

Final Conclusion: Both appeals filed by the Revenue are dismissed: the Tribunal upholds the CIT(A)'s restriction of the disallowance in respect of alleged bogus purchases and confirms the relief granted against imposition of penalty under section 271(1)(c) for Assessment Year 2011-12.

Disallowance under section 14A read with Rule 8D - automatic application of Rule 8D formula - nexus of expenses with exempt dividend income - carry forward of business loss and unabsorbed depreciation - rectification pending before Assessing Officer - ex parte adjudication for non-appearance

Disallowance under section 14A read with Rule 8D - automatic application of Rule 8D formula - nexus of expenses with exempt dividend income - Validity of disallowance of expenditure under section 14A by applying Rule 8D and its quantification. - HELD THAT: - The Tribunal considered the Assessing Officer's invocation of Rule 8D to disallow expenditure attributable to exempt dividend income and the CIT(A)'s confirmation of that disallowance. The assessee maintained that no expenditure was incurred specifically for earning the dividend income from liquid mutual funds. The lower authorities rejected that plea on the basis that managerial, accounting and audit functions necessarily involve costs attributable, even indirectly, to decisions and verification relating to investments and dividend receipts. The Tribunal observed that once Rule 8D is applicable, the disallowance quantified under the prescribed formula is to be made by the AO and there is no discretionary alternative to ignore the rule. Having reviewed the findings of the CIT(A) and his reliance on the prescribed formula and the rationale that indirect expenditure cannot be severed from earning dividend income, the Tribunal found no infirmity in the appellate order and upheld the disallowance. [Paras 6]

The disallowance under section 14A computed in terms of Rule 8D is upheld and the ground challenging that disallowance is dismissed.

Carry forward of business loss and unabsorbed depreciation - rectification pending before Assessing Officer - appellate restraint where rectification proceedings are pending - Whether the CIT(A) erred in not allowing set off of brought forward business loss and unabsorbed depreciation claimed by the assessee. - HELD THAT: - The Tribunal noted that the Assessing Officer had disallowed carry forward of business loss and unabsorbed depreciation for lack of supporting evidence and that the assessee had filed a rectification application before the AO which remained pending. The CIT(A) declined to decide the matter in appeal in view of the pending rectification. The Tribunal agreed that it was not appropriate for the appellate authority to adjudicate the issue while rectification proceedings were pending before the AO, and therefore concurred with the CIT(A)'s approach. The Tribunal nevertheless directed that, if the rectification application has not been decided, the AO should decide it in the interest of justice. [Paras 7]

The ground challenging denial of carry forward is dismissed without adjudication on merits; the rectification application before the AO is to be decided and the AO is directed to decide it if still pending.

Final Conclusion: Appeal dismissed - the Section 14A disallowance computed under Rule 8D is sustained; the challenge to denial of carry forward of losses/depreciation is dismissed by the Tribunal in deference to pending rectification proceedings, and the AO is directed to decide the rectification application if not already decided.

Deduction under Section 80IC - Substantial expansion as triggering a new initial assessment year - entitlement to 100% deduction for five years on commencement or on substantial expansion - Application of authoritative precedent

Deduction under Section 80IC - Substantial expansion as triggering a new initial assessment year - Initial assessment year - Application of precedent Aarham Softronics - Whether the assessee was entitled to 100% deduction under Section 80IC for the assessment year in question despite earlier avails of 100% deduction, by virtue of having undertaken substantial expansion which would constitute a new initial assessment year - HELD THAT: - The Tribunal applied the ratio of the Hon'ble Supreme Court in Aarham Softronics, which held that where an undertaking undertaking substantial expansion as defined in the statute within the ten-year benefit period, the previous year in which such substantial expansion is undertaken becomes a new 'initial assessment year' and entitles the assessee to 100% deduction again for the prescribed period (subject to the overall ten-year limit). The CIT(A)'s approach treating the enterprise as a single block and denying a fresh initial assessment year was inconsistent with that ratio. On facts, the Tribunal examined the assessee's audited financials and schedule of fixed assets and found additions to plant and machinery exceeding fifty per cent of the opening block as on 01.04.2011, and noted the auditor's certificate in Form 10CCB confirming substantial expansion. In view of these findings and the authoritative precedent, the Tribunal set aside the CIT(A)'s disallowance and directed the Assessing Officer to allow the 100% deduction claimed under Section 80IC for the year under appeal. [Paras 13, 14, 15]

Findings of the CIT(A) disallowing 100% deduction are set aside; Assessing Officer directed to allow 100% deduction under Section 80IC for the assessment year.

Final Conclusion: Following the Supreme Court's decision in Aarham Softronics and on the material showing substantial expansion (corroborated by audited accounts and Form 10CCB), the Tribunal allowed the appeal and directed allowance of the 100% deduction under Section 80IC for the assessment year 2013-14.

Protective assessment and effect of subsequent adjudication in the hands of another person - Chargeability of interest under section 158BFA(1) - Remand for computation of income and interest after giving effect to higher court decision

Protective assessment and effect of subsequent adjudication in the hands of another person - Whether an amount which has been charged as income in the hands of the father by the High Court can be again charged in the hands of the assessees before the Tribunal. - HELD THAT: - The Tribunal examined the factual and legal position recorded by the Commissioner(Appeals) and noted that the additions in the cases before it had been made on a protective basis. The Tribunal observed that the substantive addition in the father's case (Dr. G.G. Dhir) has been held by the High Court to be the income of the father. Once the income has been charged in the hands of the father by the High Court, the same amount cannot be charged again in the hands of the assessees. This finding follows the settled principle that the same income cannot be taxed in two different hands where a final adjudication has fixed taxability in one hand. [Paras 7]

The Tribunal held that the amount so charged in the hands of the father cannot be again charged in the hands of the assessees.

Chargeability of interest under section 158BFA(1) - Remand for computation of income and interest after giving effect to higher court decision - Determination of chargeability and computation of interest under section 158BFA(1) after giving effect to the High Court's decision in the father's case. - HELD THAT: - The Tribunal recognised that computation of the assessees' income and the resulting interest liability are integrally connected to the High Court's determination that the impugned amount is the father's income. Because the quantum of income remaining in the hands of the assessees will change once the father's share is excluded, the Tribunal held that the primary duty of recomputing income and interest lies with the Assessing Officer. Consequently, the Tribunal remanded the matter to the Assessing Officer to give effect to the High Court's decision treating the locker amounts as the father's income, and thereafter to decide the chargeability and computation of interest on the residual amount. The Tribunal also specified that the date of chargeability of interest on the residual income shall be the date when such amount was due for taxation in terms of the block assessment order. [Paras 8, 9]

Matter remanded to the Assessing Officer for recomputation of income and interest after giving effect to the High Court's decision; date of chargeability to be the date when the residual amount was due for taxation in the block assessment.

Final Conclusion: Appeals allowed for statistical purposes; the Tribunal held that the amount adjudicated as income of the father cannot be charged again in the assessees' hands and remanded the matter to the Assessing Officer to recompute income and decide chargeability and computation of interest under section 158BFA(1) after giving effect to the High Court's decision.

Ex parte order - violation of natural justice - opportunity of being heard - remand for de novo assessment - service of notice under section 133(6) - duty of appellate authority under section 250(6) - Tin Box principle that assessment must follow reasonable opportunity

Ex parte order - violation of natural justice - duty of appellate authority under section 250(6) - Ld. CIT(A)'s ex parte dismissal of the appeal without recording service of notice or providing opportunity to the assessee was unsustainable. - HELD THAT: - The Tribunal found that the Ld. CIT(A) had fixed hearings on three occasions but the impugned order does not record mode or proof of service of notice or any return. In these circumstances the appellate authority was bound to decide the appeal in accordance with its duty under section 250(6) and could not dismiss the appeal ex parte without affording the assessee an opportunity to be heard. The procedure adopted by the Ld. CIT(A) was held to be per se a violation of natural justice, requiring setting aside of the appellate order. [Paras 3]

Ld. CIT(A)'s ex parte order set aside for failure to record service/provide opportunity; appeal remitted for fresh consideration.

Service of notice under section 133(6) - opportunity of being heard - remand for de novo assessment - Tin Box principle that assessment must follow reasonable opportunity - Assessment framed by AO without affording the assessee proper opportunity to have replies from share subscribers considered warranted remand to AO for de novo assessment. - HELD THAT: - The AO issued enquiries under section 133(6) to share subscribers and, according to the record relied upon by the assessee, replies reached the AO a day after the assessment was framed. The Tribunal accepted that the assessee was not put on notice regarding non-service/non-receipt issues and that replies were received shortly after framing. Relying on the principle in Tin Box that an assessment must be made after the assessee has been given a reasonable opportunity to place evidence before the assessing authority, the Tribunal concluded that the AO did not afford proper opportunity and therefore directed a de novo assessment with liberty to the assessee to file/produce documents and written submissions before the AO. [Paras 3, 5]

Assessment set aside and matter remanded to the AO for de novo assessment with direction to afford the assessee a proper opportunity of being heard.

Final Conclusion: The appeal is allowed for statistical purposes: the Ld. CIT(A)'s ex parte order is set aside and the assessment is remanded to the AO for de novo consideration after affording the assessee a reasonable opportunity to place the replies and supporting documents on record.

Setting aside of an impugned judicial order for want of application of mind - duty to record reasons in judicial orders and principle of open justice - duty of candour in pleadings and disclosure of prior adverse orders - judicial comity and hierarchy of courts - referral of conduct of advocates and prosecutors to Bar Council of India - referral to Inspecting Committee of Judges for non-application of mind

Setting aside of an impugned judicial order for want of application of mind - duty to record reasons in judicial orders and principle of open justice - duty of candour in pleadings and disclosure of prior adverse orders - Impugned order dated 06.01.2021 of the learned CMM permitting the respondent to travel abroad was vulnerable for non-application of mind and for concealment of an earlier High Court order declining the same prayer, and therefore required interference. - HELD THAT: - The High Court found that the application placed before the learned CMM did not disclose the earlier judgment of this Court dated 31.08.2020 in CRL.M.C.1529/2020 whereby the very prayer of the respondent had been expressly declined. The learned CMM's order recorded only that the court had "considered the facts as mentioned in the application" without addressing or recording the impact of the earlier High Court decision or other relevant aspects, thereby demonstrating a failure to inquire into the fate of the prior petition and a lack of application of mind. The omission to disclose an adverse prior order in pleadings amounted to a serious deficiency of candour which prevented fair adjudication. Having regard to the obligation of courts to give reasoned decisions in the exercise of judicial power and to the duty upon parties to disclose material adverse orders, the High Court concluded that the impugned order could not stand and set it aside in toto.

Impugned order dated 06.01.2021 set aside for want of application of mind and failure to disclose the prior adverse High Court order.

Judicial comity and hierarchy of courts - duty to record reasons in judicial orders and principle of open justice - The learned CMM's failure to ascertain or record the status of earlier High Court proceedings and to respect the hierarchical decision-making affecting the same subject-matter warranted institutional review. - HELD THAT: - The Court observed that even if circumstances had changed after the High Court's order, it was open to the applicant to seek appropriate relief by review or further petition; concealing the existence and result of the earlier High Court adjudication from the trial court was not permissible. The learned CMM did not enquire into or note the status of the High Court order when passing the impugned order, thereby disregarding judicial comity and the hierarchy of courts. Such disregard, together with the non-application of mind, justified institutional scrutiny of the manner in which the trial court conducted the proceedings.

Finding of disregard for judicial hierarchy and failure to inquire into prior High Court proceedings; institutional review ordered.

Referral of conduct of advocates and prosecutors to Bar Council of India - referral to Inspecting Committee of Judges for non-application of mind - The conduct of the counsel for the parties and the representation for the Department in the proceedings before the learned CMM on 06.01.2021 warranted communication to the Bar Council of India and placement of the matter before the Inspecting Committee of Judges. - HELD THAT: - Given the omissions in the application filed before the trial court and the manner in which the hearing was conducted - including apparent non-disclosure of the prior High Court order and the trial court's failure to inquire into that order - the High Court directed that information about the proceedings be sent to the Chairman, Bar Council of India through the Registrar General for appropriate action in respect of the conduct of the advocates and the prosecutor. Further, the matter is to be placed before the Inspecting Committee of Judges with respect to the learned CMM's apparent non-application of mind and disregard for the hierarchy of courts.

Directions issued to send information to the Bar Council of India and to place the matter before the Inspecting Committee of Judges for scrutiny.

Final Conclusion: The petition was disposed of by setting aside the trial court order dated 06.01.2021 in its entirety for non-application of mind and failure to disclose an earlier adverse High Court order; the conduct of the advocates and representation for the Department is to be communicated to the Bar Council of India and the matter placed before the Inspecting Committee of Judges for further scrutiny.

Petition under Section 237 read with Section 247 of the Companies Act, 1956 - maintainability of a company petition where alternate efficacious remedy exists - separate legal status of unincorporated subsidiary units (shaka) vis-a -vis the parent association - assets and liabilities of a shaka are not assets and liabilities of the parent company/Yogam - investigation of company affairs by an Inspector appointed by the Central Government - receiver appointed by a court to liquidate assets for the benefit of creditors

Petition under Section 237 read with Section 247 of the Companies Act, 1956 - maintainability of a company petition where alternate efficacious remedy exists - investigation of company affairs by an Inspector appointed by the Central Government - Whether the Company Petition seeking appointment of an Inspector to investigate the affairs of the 6th Respondent is maintainable. - HELD THAT: - The Tribunal found that the Company Petition was filed under Section 237 read with Section 247 of the Companies Act, 1956 seeking appointment of an Inspector to investigate the 6th Respondent. The allegations related to deposits taken by SNDP Shaka (Branch No.363) and the trust formed by that shaka; there were no allegations against the functioning, business or affairs of the 6th Respondent as a company through its governing organs. The Tribunal noted prior findings and reports that the subject entity is deemed to be governed under the Kerala Non Trading Companies Act and that the Registrar of Companies had no jurisdiction after transfer of records. On these facts the petition did not pertain to the affairs of the 6th Respondent company and an alternate efficacious remedy existed in proceedings before civil courts and execution processes; accordingly the petition was held not maintainable as a Company Petition seeking central appointment of an Inspector. [Paras 15, 16, 22]

The Company Petition is not maintainable against the 6th Respondent and cannot be entertained for appointment of an Inspector by the Central Government.

Separate legal status of unincorporated subsidiary units (shaka) vis-a -vis the parent association - assets and liabilities of a shaka are not assets and liabilities of the parent company/Yogam - Whether the SNDP shaka (Branch No.363) is a branch of the 6th Respondent such that its assets, liabilities and deposit-taking activities can be treated as affairs of the 6th Respondent. - HELD THAT: - The Tribunal examined the articles, byelaws and subsidiary rules and recorded that shakas are unincorporated associations functioning under their own byelaws and that the assets and liabilities of a shaka belong to the shaka alone. The 6th Respondent (SNDP Yogam) was held to be a non trading association with subsidiary units, but the shaka had no authority to take loans or deposits on behalf of the Yogam and shaka assets did not form part of the Yogam's assets. Raising deposits for carrying on finance business was beyond the scope of the shaka's objectives and beyond the authority of its office bearers. On these bases the Tribunal concluded there was no privity or cause of action against the 6th Respondent arising from the shaka's deposit activities. [Paras 18, 19, 20, 21, 26]

The SNDP shaka is a separate unincorporated entity and its assets and liabilities are not those of the 6th Respondent; the 6th Respondent is not amenable to the petition in respect of the shaka's deposit taking.

Receiver appointed by a court to liquidate assets for the benefit of creditors - Whether this Tribunal should direct liquidation or take further steps, or defer to the Receiver and the High Court's earlier directions regarding liquidation and settlement of creditors. - HELD THAT: - The Tribunal noted the High Court's order appointing an Advocate Receiver and directing a committee under the Receiver to list assets of the shaka and to liquidate them to generate resources for settlement of creditors. The petitioners acknowledged that they would benefit from such sale proceeds. Having regard to the High Court's directions and the appointment of the Receiver (Advocate A.S.P. Kurup), the Tribunal held that no further orders from this Tribunal were necessary and that the Receiver should proceed to liquidate the property and take steps as directed by the High Court to recover money and settle creditors. [Paras 29, 31, 32, 33]

No further order is required from this Tribunal; the Receiver appointed by the High Court shall proceed to liquidate assets and undertake steps directed by the High Court for settlement of creditors; TCP/89/KOB/2019 is disposed of.

Final Conclusion: The Company Petition seeking appointment of a Central Government Inspector into the affairs of the 6th Respondent is held not maintainable because the complaints related to deposits taken by an independent shaka and not to the affairs of the 6th Respondent; shaka assets and liabilities are separate; the Tribunal declined to pass further orders and directed that the Receiver appointed by the High Court proceed to liquidate assets and settle creditors, disposing TCP/89/KOB/2019.

Time is the essence of the Code - initiation of liquidation under Section 33 - committee of creditors' commercial wisdom - intervention after EOI and mid process intrusions impermissible - appointment of liquidator and cessation of moratorium

Initiation of liquidation under Section 33 - time is the essence of the Code - Whether the impugned order of the Adjudicating Authority dismissing IA No.165/2018 as not maintainable and infructuous should be set aside and liquidation of the Corporate Debtor initiated under Section 33(1) of the Code. - HELD THAT: - The Tribunal held that the Code's object is time bound resolution and that repeated delays defeating that object are impermissible. Noting that the insolvency process had extended well beyond the statutory outer limits and that the Adjudicating Authority had repeatedly adjourned matters despite CoC repeatedly rejecting variants of the sole Resolution Applicant's proposals, the Tribunal found that the Adjudicating Authority had failed to implement this Tribunal's earlier directions and thereby frustrated the time bound mandate. Applying Section 33, the Tribunal concluded that initiation of liquidation was warranted and that the impugned order must be set aside to give effect to the Code's purpose of timely resolution and maximization of asset value. [Paras 5, 6, 8, 9]

Impugned order dated 01.01.2021 is set aside and initiation of liquidation of M/s. K.S. Oils Ltd. under Section 33(1) is directed.

Intervention after EOI and mid process intrusions impermissible - time is the essence of the Code - Whether the intervention application (IA No.357/2021) seeking to enter the resolution process after the EOI stage should be allowed. - HELD THAT: - The Tribunal observed that the IBBI regulations prescribe a process beginning with EOI, information memorandum and an evaluation matrix; permitting a party to intervene years after EOI would undermine that process and natural justice. While the proposed intervener offered a fresh infusion, allowing such midway intervention after prolonged pendency would contravene the regulatory scheme and the Code's time bound object. Accordingly, the Tribunal declined to permit the intervention, while noting the intervener remains free to pursue options available under the liquidation regulations if appropriate. [Paras 5]

Intervention Application IA No.357/2021 is rejected at the threshold; intervener may pursue remedies under liquidation regulations if permitted.

Appointment of liquidator and cessation of moratorium - initiation of liquidation under Section 33 - Consequential directions on appointment of liquidator and the legal consequences of initiation of liquidation. - HELD THAT: - On allowing the appeal and directing liquidation, the Tribunal appointed the Resolution Professional as Liquidator and directed him to act in accordance with Chapter III of the Code and the Liquidation Process Regulations. The Tribunal directed issuance of public announcement, cessation of the moratorium under Section 14, vesting of management powers in the Liquidator, and application of the statutory bar on suits subject to the exceptions in Section 52. The Liquidator is to exercise powers under the specified sections and furnish copies of the order to statutory authorities. [Paras 9]

Mr. Kuldeep Verma is appointed Liquidator; public announcement to be made; moratorium ceases; powers of directors cease and vest in Liquidator; Liquidator to act under applicable provisions and notify authorities.

Final Conclusion: The appeal is allowed: the NCLT order dated 01.01.2021 is set aside, the Corporate Debtor M/s. K.S. Oils Ltd. is ordered to be liquidated under Section 33(1) of the IBC, IA No.357/2021 for intervention is rejected, and consequential directions including appointment of the Liquidator and cessation of moratorium are recorded.

Condonation of delay - limitation and condonation of delay under Section 61(2) of the Insolvency & Bankruptcy Code - exclusion of time under Section 14 of the Limitation Act, 1963 - bona fide prosecution of parallel or appellate proceedings - doctrine of merger

Condonation of delay - limitation and condonation of delay under Section 61(2) of the Insolvency & Bankruptcy Code - Delay of 193 days in filing the appeal under Section 61(2) of the Insolvency & Bankruptcy Code is to be condoned. - HELD THAT: - The Tribunal considered whether the appeal filed beyond the initial 30-day period (and beyond the further 15-day extension) could nevertheless be entertained by condoning the excess delay. It held that the expression "sufficient cause" contemplates absence of negligence or inaction and requires evaluation of whether the litigant acted with reasonable diligence. Applying these principles to the facts - where the appellant had pursued proceedings before the Supreme Court and thereafter filed a review before the Adjudicating Authority pursuant to liberty granted by the Supreme Court, and where those proceedings were prosecuted in good faith and with due diligence - the Tribunal found that the time so spent ought to be excluded in computing limitation. Adopting a pragmatic and liberal approach, the Tribunal concluded that condonation of 193 days was warranted in the interests of justice. [Paras 34, 35]

IA No.774 of 2020 is allowed and the delay of 193 days is condoned.

Exclusion of time under Section 14 of the Limitation Act, 1963 - bona fide prosecution of parallel or appellate proceedings - doctrine of merger - Time spent prosecuting the interlocutory application before the Hon'ble Supreme Court and the review application before the Adjudicating Authority is excluded for computation of limitation. - HELD THAT: - The Tribunal examined whether the period spent in pursuing the Supreme Court interlocutory application (leading to liberty to file review) and the subsequent review proceedings before the Adjudicating Authority (which remained pending for approximately 140 days and was dismissed for lack of jurisdiction) could be excluded under principles akin to Section 14 of the Limitation Act. Relying on precedents and the requirement that prior proceedings be prosecuted in good faith and with due diligence, the Tribunal found the appellant's actions to be bona fide and reasonable (filing the Supreme Court IA within ten days, filing the review within 30 days of the Supreme Court order, and prosecuting the review diligently). The Tribunal rejected the submission that such time could not be excluded merely because the review was dismissed for lack of jurisdiction, and held that the time spent in those proceedings should be excluded in computing the limitation period for the present appeal. [Paras 25, 26, 29, 35]

The period occupied by the Supreme Court interlocutory proceedings and the review before the Adjudicating Authority is excluded from limitation calculation.

Final Conclusion: The Tribunal, taking a pragmatic and liberal view, excluded the time spent by the appellant in pursuing the Supreme Court interlocutory application and the review proceedings before the Adjudicating Authority and accordingly condoned the delay of 193 days; IA No.774 of 2020 in Company Appeal (AT)(Ins) 294 of 2020 is allowed without costs.

Person aggrieved - maintainability of appeal under Section 61 - locus standi to challenge resolution plan - time bound nature of CIRP - commercial wisdom of the Committee of Creditors - limited jurisdiction of Adjudicating Authority in approval of resolution plan - compliance with Section 30(2) of the Code

Person aggrieved - locus standi to challenge resolution plan - maintainability of appeal under Section 61 - time bound nature of CIRP - Whether the appeal by Interups Inc. against approval of the JSW resolution plan is maintainable and whether Interups has locus to challenge the approval - HELD THAT: - The Tribunal held that the expression "any person aggrieved" under Section 61(1) is confined to stakeholders in the CIRP and liquidation process. Interups first expressed interest on 12.06.2020, long after the RP had invited EOIs (Form G dated 01.10.2018, revised 14.12.2018), the CoC approved the JSW plan on 28.06.2019 (79.3% voting) and the RP filed the Section 31 application on 10.07.2019. Interups did not submit an EOI or a resolution plan within the prescribed timelines, nor was it an unsuccessful or prospective resolution applicant; its belated approach to seek consideration of a plan after conclusion and implementation of the JSW plan places it outside the class of "person aggrieved." The Tribunal emphasised the time bound object of CIRP and that allowing an outsider to intervene post approval would undermine finality and the statutory timetable. Though arguments were advanced about alleged non compliance with Section 30(2) and the limited jurisdiction of the Adjudicating Authority, the determinative finding was that Interups lacks locus and therefore the appeal is not maintainable. [Paras 10]

Appeal dismissed as not maintainable; Interups has no locus to challenge the approval of the resolution plan.

Final Conclusion: The appeal is dismissed for want of maintainability on the ground that the appellant is not a "person aggrieved" within the CIRP, having not participated in the insolvency process or submitted a timely EOI; pending applications are disposed of and there is no order as to costs.

Corporate Insolvency Resolution Process (CIRP) - moratorium under Section 14, IBC 2016 - negligence and lapse in banking prudence - liability of bank to make good unauthorized withdrawals - direction to hand over corporate assets and vehicles - obligation to cooperate with the Resolution Professional - liberty to initiate criminal and civil proceedings

Negligence and lapse in banking prudence - liability of bank to make good unauthorized withdrawals - moratorium under Section 14, IBC 2016 - Respondent No.4 Bank was negligent in permitting debit transactions from the Corporate Debtor's account after initiation of CIRP and is liable to make good the unauthorized withdrawals. - HELD THAT: - The Bench found from documents and submissions that the RP had communicated initiation of CIRP to the bank by email and that, notwithstanding operational disruptions caused by the COVID-19 lockdown, the bank failed to exercise normal banking prudence in allowing debits from the Corporate Debtor's account. The tribunal rejected the bank's contention that a negligible balance at initiation absolved it, noting that during CIRP there will be normal course credits and debits and that debit entries must be effected only on instructions of the authorized signatory. On this basis the bank was held negligent and directed to make good the amounts withdrawn by persons not authorized to sign on behalf of the company on the date of the transactions. [Paras 2, 3]

Bank held negligent and directed to compensate for the unauthorized withdrawals from the Corporate Debtor's account.

Liberty to initiate criminal and civil proceedings - Respondent No.4 Bank and the Resolution Professional are permitted to initiate criminal or civil proceedings against persons alleged to have committed fraud or unauthorized payments. - HELD THAT: - While directing the bank to make good the unauthorized withdrawals, the tribunal observed that the bank remains free to pursue criminal and/or civil remedies against respondents or any other persons involved in committing the fraud. Similarly, the RP was granted liberty to initiate appropriate criminal or civil actions against the suspended directors or others involved in making the unauthorized payments. [Paras 4, 5]

Bank and RP granted liberty to initiate criminal and civil proceedings against those involved in the alleged fraud.

Direction to hand over corporate assets and vehicles - obligation to cooperate with the Resolution Professional - Respondents No.1, 2 and 3 were directed to hand over possession of all assets, including the vehicles, and to provide absolute cooperation to the Resolution Professional. - HELD THAT: - The tribunal recorded that suspended management had failed to hand over books, registers and certain assets and therefore directed the suspended directors to give possession of all company assets, including the vehicles, to the RP and to confirm compliance by affidavit within 15 days. The bench also directed that the suspended directors must provide absolute cooperation to the RP in discharging his duties under CIRP. [Paras 6, 7]

Suspended directors directed to hand over assets and to cooperate with the Resolution Professional, compliance to be filed by affidavit within 15 days.

Corporate Insolvency Resolution Process (CIRP) - Registry was directed to immediately communicate the tribunal's order to the Resolution Professional, the respondents and to the RBI; compliance reporting was ordered. - HELD THAT: - To ensure effective implementation of the directions given in the CIRP, the tribunal directed the registry to communicate the order immediately to the RP and respondents (including by email) and also to inform the RBI as the banking sector regulator. The registry was further directed to submit a compliance report and the designated registrar was to submit a compliance report on the order. [Paras 8, 9, 10, 11]

Registry to communicate the order to RP, respondents and RBI and to file compliance reports as directed.

Final Conclusion: The tribunal upheld the RP's complaints of lack of cooperation and certain unauthorized debits, held the bank negligent and directed it to make good the unauthorized withdrawals; it permitted civil/criminal remedies to be pursued by the bank and the RP, directed suspended directors to surrender assets and cooperate with the RP, and ordered immediate communication of the order and filing of compliance reports.

Validity of RBI directions under Section 35-AA of the Banking Regulation Act - Effect of Dharani Sugars judgment on RBI letters and circulars - Maintainability of proceedings under Section 7 of the Insolvency and Bankruptcy Code initiated pursuant to RBI directions - Power of the Adjudicating Authority/NCLT to rectify or review its own order (rectification under Section 420 Companies Act / correction under NCLT Rules) - Exclusion of time for limitation under Section 14 of the Limitation Act

Validity of RBI directions under Section 35-AA of the Banking Regulation Act - Effect of Dharani Sugars judgment on RBI letters and circulars - Maintainability of proceedings under Section 7 of the Insolvency and Bankruptcy Code initiated pursuant to RBI directions - Whether the Adjudicating Authority erred in dismissing the Section 7 petition on the ground that the proceedings were instituted by the bank only pursuant to RBI directions lacking Central Government authorisation and therefore non-est. - HELD THAT: - The Tribunal examined the Gazette Notification dated 05.05.2017 whereby the Central Government authorised the Reserve Bank of India to issue directions under Section 35 AA to banking companies for initiation of insolvency resolution in respect of defaults. The Tribunal held that the letter of RBI dated 28.08.2017 identified specific accounts (including the respondent) and was issued pursuant to the Ministry's Notification; the Supreme Court's decision in Dharani Sugars had quashed the RBI Circular dated 12.02.2018 but did not generally invalidate prior specific directions issued under the Notification. On this basis the NCLT's conclusion that the Section 7 petition was instituted only on RBI instructions without Central Government authorisation was unsustainable. The Tribunal therefore set aside the Adjudicating Authority's order which had dismissed the CP and allowed the interlocutory application, directing restoration of the CP to the file and further adjudication on merits with liberty to parties to raise maintainability and other pleas. [Paras 76, 77, 78]

Impugned order dated 25.06.2019 set aside; IA No.21/CTB/2019 dismissed; CP(IB) No.24/KB/2018 restored to the file for further adjudication on merits.

Power of the Adjudicating Authority/NCLT to rectify or review its own order (rectification under Section 420 Companies Act / correction under NCLT Rules) - Effect of superior court liberty to file review on maintainability - Treatment of the Adjudicating Authority's subsequent order dismissing the review/recall application and the effect of this Tribunal's decision on that order. - HELD THAT: - The Adjudicating Authority had dismissed the review/recall application on the ground that no provision under the IBC or NCLT Rules permits review of its own order. Having allowed the appeal that set aside the primary order (thereby removing the foundation for the review dismissal), the Tribunal held that the second order dated 10.01.2020 became otiose. In consequence the Tribunal disposed of the appeal against the second order as having become nugatory in law and directed ministerial compliance (filing certified copy) while leaving the main proceedings to be proceeded with in accordance with law. [Paras 84, 85]

Second impugned order dated 10.01.2020 treated as otiose and disposed of; connected interlocutory applications closed.

Final Conclusion: The appeal challenging the Adjudicating Authority's dismissal of the Section 7 petition succeeds: the order dated 25.06.2019 is set aside, the interlocutory application of the corporate debtor is dismissed, CP(IB) No.24/KB/2018 is restored for fresh adjudication on merits (with liberty to raise maintainability and other pleas), and the subsequent order dismissing the review application is rendered otiose and disposed of.

Entitlement to Cenvat credit for dredging and marine consultancy services - Input service - receipt, payment (including service tax) and use for business purpose - Service recipient test - Location of service immaterial where service is received and used by assessee

Entitlement to Cenvat credit for dredging and marine consultancy services - Input service - receipt, payment (including service tax) and use for business purpose - Location of service immaterial where service is received and used by assessee - Appellant is entitled to Cenvat credit in respect of dredging and marine consultancy services provided for smooth navigation of vessels at a private jetty used by the appellant. - HELD THAT: - The Tribunal found on the facts that the appellant was the recipient of the services, bore the service charges including service tax, and availed the services for its business purpose. The statutory test for admissibility of Cenvat credit under the Cenvat Credit Rules, 2004 - receipt of service, payment thereof (including service tax), and use for business purposes - was satisfied. The Tribunal held that the physical location where the service was performed is immaterial; what matters is that the service was received by and for the appellant and the cost was absorbed in the appellant's business. The appellant's case was supported by an affidavit from the service provider confirming that the entire service charge was paid by the appellant and no amount was recovered from other jetty owners. The Tribunal relied on its earlier decisions in Sanghi Industries Limited and Saurashtra Cement Limited , and on the reasoning in Ultratech Cement Limited and similar authorities, to conclude that dredging and related marine services used in relation to the appellant's business qualify as input services and credit cannot be denied merely because the service was performed outside the factory premises.

Impugned order denying Cenvat credit is set aside and the appeal is allowed; appellant entitled to Cenvat credit for the dredging and marine consultancy services.

Final Conclusion: Credit for the dredging and marine consultancy services was allowed because the appellant received and paid for the services (including service tax) and used them for its business; the place of provision of service was immaterial to admissibility of Cenvat credit.

Taxability of amounts recovered in lieu of notice period - service tax under Section 66E(e) - provision of service by an employee to the employer - CBEC Guidance Note dated 20.06.2012 - no service rendered by employer on receipt of notice pay

Taxability of amounts recovered in lieu of notice period - service tax under Section 66E(e) - provision of service by an employee to the employer - CBEC Guidance Note dated 20.06.2012 - no service rendered by employer on receipt of notice pay - Levy of service tax on amounts received by the employer from an employee in lieu of notice period on termination of employment - HELD THAT: - The Tribunal held that amounts recovered by the employer from an employee in lieu of serving the contractual notice period do not attract service tax. Relying on the Madras High Court's decision in GE T and D India Ltd (as discussed), and the CBEC Guidance Note dated 20.06.2012, the Court accepted that provisions excluding provision of service by an employee to the employer remove the characterisation of such notice-pay receipts as consideration for a taxable service. The Board's clarification treats amounts paid by the employer to an employee on premature termination as not charging service tax because they relate to services provided by the employee; by parity, the Tribunal concluded that the employer receiving payment from the employee to permit premature exit does not result in the employer rendering any taxable service. Notice-pay in lieu of sudden termination, therefore, does not constitute rendition of service by either party and is outside the scope of Section 66E(e). Applying that principle to the facts, the Tribunal found the adjudicating and appellate authorities' imposition of service tax on the recovered amounts to be unsustainable. [Paras 6, 7]

The appeal is allowed; the order of the Commissioner (Appeals) is set aside and the demand of service tax on amounts recovered in lieu of notice period is quashed with consequential relief as per law.

Final Conclusion: The Tribunal allowed the appeal, holding that amounts recovered by the employer from employees in lieu of serving the contractual notice period are not chargeable to service tax and quashed the impugned demand with consequential relief.

Valuation of taxable service - reimbursable expenses forming part of gross taxable value - gross amount charged - reverse charge mechanism under Rule 2(1)(d)(iii) - recovery under Section 73A(2) of the Finance Act, 1994 - prospective effect of statutory amendment to valuation provision

Valuation of taxable service - reimbursable expenses forming part of gross taxable value - gross amount charged - prospective effect of statutory amendment to valuation provision - Expenses reimbursed to insurance agents (travel, conveyance and vehicle running, training, printing and stationery, business development/marketing and sales promotion) do not form part of the gross taxable value for service tax for the period in issue. - HELD THAT: - The Tribunal applied the legal principle laid down in Intercontinental Consultants and Technocrats Pvt Ltd (as approved by the Supreme Court) that valuation for service tax must be the gross amount charged 'for such' taxable service and subordinate legislation (Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006) which brought reimbursable expenses into valuation went beyond the statutory mandate. The Legislature subsequently amended Section 67 (with effect from May 14, 2015) to include reimbursable expenditure, which is a substantive prospective change and does not operate retrospectively. Consequently, for the period 01.4.2011 to 31.3.2015 the adjudicating authority could not validly include reimbursed agent expenses in the taxable value. [Paras 9, 10]

Inclusion of the reimbursable expenses in the gross taxable value for the period 01.4.2011 to 31.3.2015 is unsustainable and the demand on that count is set aside.

Reverse charge mechanism under Rule 2(1)(d)(iii) - recovery under Section 73A(2) of the Finance Act, 1994 - Service tax initially paid by the appellant under the reverse charge mechanism and later collected from agents by adjusting commissions is not liable to be recovered again under Section 73A(2). - HELD THAT: - Relying on this Tribunal's earlier decision in Bajaj Allianz Life Insurance Company Ltd, the Tribunal held that where the insurer initially discharged service tax under the reverse charge mechanism and subsequently recovered that amount from agents by adjusting commissions, the same amount cannot be directed to be deposited afresh under Section 73A(2). The impugned orders contrary to that position were set aside. [Paras 11, 12]

The demand and recovery under Section 73A(2) in respect of service tax collected from agents after initial payment under reverse charge is unsustainable and set aside.

Final Conclusion: The appeal is allowed; the impugned order is set aside and consequential reliefs, if any, shall follow in accordance with law.

Cenvat Credit - Input Service - nexus between input service and manufacturing/business activity - remand for verification of documentary evidence

Cenvat Credit - Input Service - nexus between input service and manufacturing/business activity - Entitlement to Cenvat credit in principle for the specified services listed by the appellant. - HELD THAT: - The Tribunal found that the impugned order disallowed credit mainly for want of nexus or non-production of invoices. On review of records and the appellant's case-wise statements, the services were received in the name of the appellant and were used either in relation to manufacturing activity or in relation to overall business activities. The Tribunal observed that the judgments cited by the appellant deal directly with the input services in question and therefore, in principle those services qualify as Input Service entitling the appellant to Cenvat Credit. Consequently, the Tribunal allowed the appeal in principle on the ground that the services are used in or in relation to manufacture/business and invoices were in the appellant's name. [Paras 4, 5]

Allowed in principle; appellant entitled to Cenvat credit for the services listed, subject to verification of documentary evidence where necessary.

Remand for verification of documentary evidence - Cenvat Credit - Requirement to remit matters for adjudication where invoices or documentary proof were not produced. - HELD THAT: - The Tribunal noted that although entitlement was recognised in principle, certain claimed credits could not be admitted without verification because representative/sample invoices for some services were not produced. For those services the question of admissibility of Cenvat credit requires factual verification of documentary evidence and nexus by the Adjudicating Authority. Accordingly, the Tribunal set aside the impugned order and remitted the matter to the Adjudicating Authority for verification and further adjudication limited to the missing documentary proof and related verification. [Paras 4, 5]

Matter remitted to the Adjudicating Authority for verification of invoices/documentary evidence and consequent adjudication.

Final Conclusion: The appeal is allowed in principle: the listed services qualify as input services entitling the appellant to Cenvat credit, but claims supported by missing invoices are remitted to the Adjudicating Authority for verification and further adjudication.

Appropriation of refund - adjustment of excess duty between units - refund of excess duty - provisional assessment - due process of law for refund - remand for fresh consideration - change in law with introduction of C.G.S.T., 2017

Appropriation of refund - adjustment of excess duty between units - refund of excess duty - due process of law for refund - Whether the adjudicating authority erred in refusing the appellant's request to appropriate the excess duty/refund of the Poonamallee Unit towards duty and interest liabilities of its other unit and whether the matter requires remand for reconsideration. - HELD THAT: - The appellant had made a formal request on 09.10.2017 for appropriation of an alleged excess payment at its Poonamallee Unit against duty liabilities of its other units and also sought refund of any balance. The record shows provisional assessments and advance payments, and the Commissioner (Appeals), Nagpur, in a similar matter allowed appropriation of excess from Poonamallee towards Butibori Unit after the introduction of the C.G.S.T. Act, 2017. The Tribunal noted that excess duty remaining with the Revenue is refundable by following the statutory procedure and that the First Appellate Authority in the present case ignored the relevant decision and considerations without apparent justification. Given these facts and to avoid inconsistency with the findings of the Commissioner (Appeals), Nagpur, the Tribunal considered it appropriate to set aside the impugned order and remit the matter to the Adjudicating Authority. The Adjudicating Authority is directed to examine the appellant's calculations of refund, determine the refund due in accordance with law, and thereafter, if excess duty in the Poonamallee Unit is established, to appropriate or adjust that excess towards duty and interest liability of the unit in appeal consistent with the discussions and findings referred to by the Tribunal. [Paras 6]

Impugned order set aside and matter remanded to the Adjudicating Authority to determine the refund due to the appellant and to consider appropriation/adjustment of any excess duty of the Poonamallee Unit towards the duty and interest liability of the unit in appeal in accordance with law and the referenced appellate finding.

Final Conclusion: The appeal is allowed in part by setting aside the impugned order and remanding the matter to the Adjudicating Authority to verify the appellant's refund claim and to effect appropriation/adjustment of any excess duty of the Poonamallee Unit towards the liabilities of the unit in appeal, as directed; appeal disposed accordingly.

Claim of input tax credit - Form VAT 240 versus statutory return - mandatory filing of returns under Section 35 - interpretation of Section 10(3) and Section 10(4) - re-assessment and revisional proceedings under Section 39 and Section 64 - discrimination between dealers required to file audited statement

Claim of input tax credit - Form VAT 240 versus statutory return - mandatory filing of returns under Section 35 - interpretation of Section 10(3) and Section 10(4) - Whether a registered dealer can claim input tax credit solely on the basis of the audited annual statement in Form VAT 240 when such credit was not claimed in the periodical returns filed under Section 35. - HELD THAT: - The Court held that Form VAT 240 is an audited statement to facilitate assessment but cannot be treated as a statutory "return" for computing net tax liability under Section 10(3). Filing of returns within the time prescribed under Section 35 is mandatory and the tax liability, including entitlement to input tax credit, is to be determined on the basis of the returns filed. Section 10(4) requires that the tax invoice or equivalent documentation be with the dealer at the time any return in respect of the sale is furnished; accordingly, an opinion or certificate in Form VAT 240 is recommendatory and cannot supplant the statutory requirement of claiming input credit in the returns. Accepting Form VAT 240 as a substitute for returns would render the scheme of periodic returns and related penal and procedural provisions redundant. The Court therefore affirmed that input tax credit cannot be availed independent of a claim made in the prescribed returns merely by filing Form VAT 240. [Paras 26, 29, 30, 31, 36]

Input tax credit cannot be claimed solely on the basis of Form VAT 240 in the absence of a claim in the statutory returns; Form VAT 240 does not replace the returns required under Section 35.

Re-assessment and revisional proceedings under Section 39 and Section 64 - claim of input tax credit - Whether the Commissioner was justified in revising the reassessment order to deny input tax credit that the Deputy Commissioner had allowed based on Form VAT 240. - HELD THAT: - The Court observed that the Commissioner, on revisional scrutiny, correctly applied the statutory scheme and relevant precedents to conclude that allowing input credit on the basis of Form VAT 240 (absent a claim in the statutory returns) was impermissible. The revisional order restoring the correct statutory position was thus held to be in consonance with Sections 10 and 35 and with the principle that assessment must proceed from returns. The Court found no illegality or want of jurisdiction in the revisional exercise and upheld the Commissioner's order denying the credit allowed by the Deputy Commissioner on the basis of Form VAT 240. [Paras 26, 36]

The Commissioner's revisional order denying the input tax credit (previously allowed by the Deputy Commissioner on Form VAT 240) was justified and is upheld.

Discrimination between dealers required to file audited statement - claim of input tax credit - Whether permitting input tax credit on the basis of Form VAT 240 would result in impermissible discrimination between dealers and offend the statutory scheme. - HELD THAT: - The Court accepted the argument that Form VAT 240 is mandated only for dealers whose turnover exceeds the prescribed threshold and that treating Form VAT 240 as a substitute for returns would create two dissimilar classes of dealers under the same Act. Such a result would amount to discrimination contrary to the statutory framework which mandates uniform compliance with periodic return-filing and claim procedures. The learned Single Judge's conclusion that allowing Form VAT 240 to replace returns would create unacceptable discrimination was endorsed. [Paras 30, 37]

Allowing input tax credit on the basis of Form VAT 240 in lieu of statutory returns would create discrimination between classes of dealers and is therefore impermissible.

Final Conclusion: The Court dismissed the writ appeals, upheld the Commissioner's revisional order and the Single Judge's conclusion that Form VAT 240 cannot substitute for statutory returns under Section 35 and that input tax credit cannot be claimed solely on the basis of Form VAT 240; the impugned orders stand affirmed and the appeals are dismissed.