TaxTMI Updates e-Newsletter
Mar 20,2021

Summary order. Interim directions issued: respondents to file counter-affidavit within three weeks; petitioner to file reply within two weeks thereafter; respondents to place on record the orders passed in the proceedings; matter listed after five weeks; parties to file written notes and authorities at least three days before the next hearing.

IGST refund - verification of suppliers - completion of verification before next hearing - direction to explain non-remittance of refund - filing of counter-affidavit / affidavit on instructions

IGST refund - direction to explain non-remittance of refund - Respondents directed to inform the court why IGST refunds in respect of thirteen shipping bills have not been remitted to the petitioner. - HELD THAT: - The Court issued notice and directed the respondent appearing counsel to revert with instructions explaining the grievance about non-remittance of IGST refunds. The respondent was specifically required to inform the Court on the next date why the IGST is not being refunded to the petitioner. This is an interlocutory procedural direction to obtain an explanation from the respondents and does not constitute an adjudication on the merits of entitlement to refund. [Paras 1, 3, 4]

Respondents to state reasons for non-remittance of IGST refunds on the next date of hearing.

Verification of suppliers - completion of verification before next hearing - Ongoing verification of entities and persons who supplied to the petitioner must be completed and a report placed before the Court before the next hearing. - HELD THAT: - The Court recorded that verification of the petitioner's suppliers is being carried out. Given that position, the Court directed that the verification process shall be completed before the next date of hearing and that a report in that behalf shall be placed before the Court. This direction effectively remands the factual verification to the respondents for completion and reporting; it does not decide the merits of the refund claim but requires the fact finding step to be concluded within the specified timeframe. [Paras 5, 6]

Verification to be completed and report placed before the Court prior to the next hearing.

Filing of counter-affidavit / affidavit on instructions - Respondents permitted and directed to file a counter-affidavit if they wish to resist the petition; in any event an affidavit stating instructions received must be filed before the next date. - HELD THAT: - The Court directed that respondents wishing to resist the petition shall file a counter-affidavit before the next date of hearing, and in any event an affidavit shall be filed setting out the instructions received regarding the IGST refund and the verification of the petitioner's suppliers. This is a procedural direction to ensure the Court receives the respondents' stance and the factual basis (instructions) prior to the next hearing. [Paras 6]

Respondents to file counter-affidavit if contesting; otherwise file an affidavit of instructions before the next hearing.

Final Conclusion: Notice issued; respondents directed to explain non-remittance of IGST refunds, complete verification of the petitioner's suppliers and place a report before the Court, and to file requisite affidavits before the next listed date of hearing (20.04.2021).

Summary order. Writ petition disposed of in view of the proposed retrospective amendment to limit interest to amounts payable in cash (assent pending); liberty to revive granted in case of future difficulty; notice discharged; ad interim relief vacated.

Anticipatory bail in economic offences involving fraudulent input tax credit - requirement of clean hands and cooperation with investigation in bail applications - parity in grant of bail - gravity of offence and non compliance with summons as grounds to deny anticipatory bail

Anticipatory bail in economic offences involving fraudulent input tax credit - gravity of offence and non bailable nature - Anticipatory bail application of the accused in proceedings alleging large scale fraudulent availment of input tax credit was declined. - HELD THAT: - The court examined the allegations that the accused was involved in organised fraudulent availment of ITC through several firms and was the main beneficiary of the alleged tax evasion. Having regard to the seriousness and magnitude of the alleged offence and the role attributed to the accused, the court concluded that protection by way of anticipatory bail was not warranted. The court treated the gravity of the offence as a determinative factor against granting anticipatory bail in the circumstances of the case.

Application for anticipatory bail dismissed.

Requirement of clean hands and cooperation with investigation in bail applications - non compliance with departmental summons and notices - Denial of anticipatory bail was justified by the accused's alleged avoidance of investigation and failure to comply with summons and notices. - HELD THAT: - The court relied on the recorded averments that the accused failed to respond to multiple summonses and notices, and that correspondence was returned undelivered despite addresses on record. The court held that an applicant seeking anticipatory bail must come with clean hands and that deliberate avoidance of investigation and non cooperation weighed against the grant of relief. The accused's conduct was therefore treated as a material factor supporting refusal of anticipatory bail.

Non cooperation and avoidance of investigation precluded grant of anticipatory bail.

Parity in grant of bail - individual conduct distinguishing co accused' bail - Parity with co accused who had been granted bail was not accepted as a ground for anticipatory bail for the applicant. - HELD THAT: - Although a co accused on similar allegations had earlier been granted bail, the court found that the accused's personal conduct - notably alleged persistent avoidance of investigation since 2019 and non compliance with summons - differentiated his case from that of the co accused. Consequently, parity was held inapplicable and could not be invoked to obtain anticipatory bail for the applicant.

Parity with co accused refused; parity not a ground for bail in the present circumstances.

Final Conclusion: On the allegations of organised fraudulent availment of input tax credit, the accused's alleged non cooperation with investigation and the gravity of the offence, anticipatory bail was refused and the application dismissed.

Mercantile system of accounting - meaning of "paid" under section 43(2) - Explanation to Rule 9B - cost of acquisition as amount paid by distributor under agreement - scope of revisionary powers under section 263 - error prejudicial to revenue - change of opinion doctrine

Mercantile system of accounting - meaning of "paid" under section 43(2) - Explanation to Rule 9B - cost of acquisition as amount paid by distributor under agreement - The Tribunal correctly applied section 43(2) to allow the assessee to claim as cost of acquisition the sum stated in the agreement when the assessee followed the mercantile system of accounting, notwithstanding the Explanation to Rule 9B. - HELD THAT: - The Court observed that the Explanation to Rule 9B defines cost of acquisition as the amount paid by the film distributor to the film producer under an agreement. However, the assessee admittedly followed the mercantile system of accounting and, therefore, under section 43(2) "paid" includes amounts incurred according to the method of accounting adopted for computing business income. The revenue did not dispute that the mercantile system was followed. The Assessing Officer had called for and considered the agreement during original assessment and allowed the claim on that basis. In these circumstances the Tribunal correctly held that the assessee was entitled to claim the amount recorded in the agreement as cost of acquisition under the accounting method adopted, and that the Explanation to Rule 9B did not oust that entitlement on the facts of the case. [Paras 4]

Claim for cost of acquisition as per agreement allowed where assessee follows mercantile accounting; reliance on section 43(2) upheld.

Scope of revisionary powers under section 263 - error prejudicial to revenue - change of opinion doctrine - The Commissioner of Income Tax was not justified in invoking section 263 because the original assessment order did not suffer from an error prejudicial to the interests of revenue and the Commissioner merely sought to substitute his view for that of the Assessing Officer. - HELD THAT: - The Court found that the Assessing Officer had considered the agreement and the claim during the original assessment and had given allowance accordingly. The Commissioner invoked revisionary powers based on the Assessing Officer's letter rather than an independent appraisal of the facts. The Tribunal correctly concluded that the Commissioner was attempting to effect a change of opinion, which does not constitute an error prejudicial to the interests of revenue warranting exercise of powers under section 263. Accordingly, the exercise of revisionary jurisdiction was held to be impermissible on the material on record. [Paras 4]

Invocation of section 263 set aside; no error prejudicial to revenue established and revision constituted impermissible change of opinion.

Final Conclusion: The appeal is dismissed; the substantial questions are decided against the Revenue and in favour of the assessee, and the Tribunal's order is upheld. No costs.

Allowability of write-off as business expenditure under Section 37(1) of the Income Tax Act - treatment of Service Tax / CENVAT credit written off where statutory set-off becomes unavailable - operation of the CENVAT/Service Tax set-off mechanism and its effect on assessability - reliance on coordinate bench precedents and applicability of earlier tribunal decisions - distinguishability of precedents on facts and law

Allowability of write-off as business expenditure under Section 37(1) of the Income Tax Act - treatment of Service Tax / CENVAT credit written off where statutory set-off becomes unavailable - The claim for write-off forming part of the opening balance in the Service Tax Set Off Account was allowable as a business expenditure for the assessment year 2007-08. - HELD THAT: - The Tribunal and the CACIT(A) were justified in treating the portion of the Service Tax/CENVAT balance written off and charged to the profit and loss account as an allowable deduction under Section 37(1) because, on the facts, the statutory mechanism for set-off ceased to be available from the assessment year 2007-08 (Central Excise duty on edible oil having been deleted). Where the assessee could not utilize the accumulated credit due to the operation of law and consequent unavailability of set-off, the write off represented a business loss relatable to the year in which the benefit could no longer be availed and thus fell within the scope of allowable business expenditure. The Tribunal also noted and relied upon coordinate decisions applying analogous reasoning to CENVAT credits that became unutilizable on account of cessation or change in excise liability, thereby supporting allowance of the write off in the facts of this case. [Paras 6, 7, 8]

Write-off forming part of the Service Tax Set Off Account balance is allowable as deduction in AY 2007-08.

Reliance on coordinate bench precedents and applicability of earlier tribunal decisions - distinguishability of precedents on facts and law - The Tribunal was justified in placing reliance on the decision of the Hyderabad Tribunal (and other coordinate benches) and in holding that those precedents applied to the present facts; the Revenue's attempt to distinguish them was not accepted. - HELD THAT: - The High Court found no error in the Tribunal's approach of examining how the CENVAT/Service Tax set-off scheme operates and applying coordinate-bench decisions which had allowed write-offs where credits could not be utilised. The Revenue's contention that earlier decisions were distinguishable (for example, because of unit closure or merger in other cases) did not, on the facts before the Tribunal, render those precedents inapplicable. The Tribunal re appreciated factual and legal facets and correctly concluded that the earlier decisions were applicable to the present case where statutory change prevented future set-off of the credit. [Paras 6, 8, 9]

Reliance on coordinate-bench decisions was legally justified and those precedents were applicable in the present case; the Revenue's distinctions were rejected.

Final Conclusion: The High Court dismissed the Revenue's appeal against the Tribunal's order and answered the substantial questions of law against the Revenue, upholding the allowance of the Service Tax/CENVAT write off as a business expenditure for AY 2007 08 and sustaining the Tribunal's reliance on coordinate bench precedents.

Disallowance of managerial commission as business expenditure - distinction between dividend and remuneration/commission - completion certificate and applicability of Explanation (2) to deduction - administrative approval by statutory authority and its effect on factual completion - motive of tax avoidance

Disallowance of managerial commission as business expenditure - distinction between dividend and remuneration/commission - motive of tax avoidance - Deletion of the Assessing Officer's disallowance under Section 36(1)(ii) in respect of commission paid to the managing director was upheld by the Tribunal and challenged by Revenue. - HELD THAT: - The Court held that the issue was covered by earlier decisions and accepted the proposition that commission paid to a managing director pursuant to terms of appointment is remuneration for services rendered and not a dividend. Where commission was part of the contractual employment terms, treated as salary with TDS deducted and offered to tax by the payee, it cannot be equated to dividend. The Commissioner of Income Tax (Appeals) also noted absence of tax avoidance motive since the recipient had offered the commission to tax and paid tax at the maximum marginal rate. Applying these principles, the disallowance under the impugned provision was not sustainable and was to be deleted. [Paras 3]

The deletion of the disallowance made by the Assessing Officer was to be upheld and the question of law decided against the Revenue in favour of the assessee.

Completion certificate and applicability of Explanation (2) to deduction - administrative approval by statutory authority and its effect on factual completion - Whether reliance on Explanation (2) could defeat the assessee's claim for deduction where construction was completed and local authority had certified completion. - HELD THAT: - Following the Division Bench precedent of this Court, the Court observed that completion certified by the competent local authority is a factual determination which cannot be negatived merely because another statutory authority's approval was issued later as an administrative act. Where construction was completed within the relevant period and approvals were matters of administrative process beyond the assessee's control, Explanation (2) could not be invoked to deny the deduction. The Tribunal and the Commissioner (Appeals) were therefore right to accept the assessee's position. [Paras 3]

The claim for deduction was to be sustained and the Revenue's contention based on Explanation (2) rejected; the question of law was decided against the Revenue.

Final Conclusion: Both substantial questions of law raised by the Revenue were decided against it following earlier authoritative decisions; the Tax Case Appeal is dismissed and the Tribunal's order deleting the disallowance is affirmed.

Computation of book profits under Section 115JB - Prior period items / prior period expenses - Schedule VI of the Companies Act, 1956 - Accounting Standard-5 - prior period items and disclosure - Remand for fresh consideration - Scope of appellate interference under Section 260A

Remand for fresh consideration - Computation of book profits under Section 115JB - Schedule VI of the Companies Act, 1956 - Accounting Standard-5 - prior period items and disclosure - Whether the tribunal was justified in setting aside the Commissioner of Income Tax (Appeals) order and remitting the question of allowability of prior period expenses to the Commissioner of Income Tax (Appeals) for fresh examination. - HELD THAT: - The Court confined the scope of the appeal to the propriety of the tribunal's remand. The tribunal set aside the CIT(A)'s allowance of the prior period expenses and remitted the matter for re-examination on the ground that the CIT(A) had not examined whether the prior period expenditure was required to form part of the profit and loss account as per Schedule VI and the applicable accounting standard, and observed that neither party had furnished records on that point (see tribunal reasoning reproduced at paragraph 6). The High Court found that the tribunal did not advert to or consider the reasoning recorded by the CIT(A) when reaching its conclusion. On that basis the Court answered the substantial question concerning the remand in favour of the assessee and against the revenue, holding that the tribunal's order of remand was unjustified and must be quashed. The Court therefore set aside the tribunal's order dated 29.12.2015, while clarifying that the parties remain free to raise all admissible contentions in further proceedings; other substantial questions reserved were not decided as unnecessary in view of this conclusion (paragraph 7). [Paras 6, 7]

Tribunal's remand of the issue to the Commissioner of Income Tax (Appeals) is quashed; the appeal is allowed on that ground and the impugned tribunal order dated 29.12.2015 is set aside.

Final Conclusion: The appeal is allowed to the extent of quashing the Income Tax Appellate Tribunal's order dated 29.12.2015 which remitted the question of allowability of prior period expenses to the CIT(A); the parties are at liberty to pursue such contentions as are legally open to them and the remaining substantial questions were not decided.

Capital expenditure versus revenue expenditure in respect of computerisation/core banking implementation - deduction under Section 36(1)(viia) relating to rural branch income - amortization of premium/discount on held to maturity investments and characterisation as capital asset - applicability of minimum alternate tax regime under Section 115JB to banking companies

Capital expenditure versus revenue expenditure in respect of computerisation/core banking implementation - Claim of Rs. 23,05,49,466/- treated as revenue expenditure for computerisation/core banking implementation - HELD THAT: - The tribunal held the expenditure to be revenue in nature by reference to this Court's decision in CIT v. IBM India Ltd., but the High Court found the tribunal's order cryptic and vitiated by non-application of mind because it did not consider the revenue's contention that IBM India Ltd. was inapplicable to the facts and gave no reasons for applying that decision. The Court therefore quashed the tribunal's finding on this question and remitted the matter to the tribunal for fresh decision after hearing rival submissions and applying legal tests distinguishing capital from revenue expenditure in the context of software, hardware and networking acquired for banking operations. [Paras 7]

Tribunal's finding quashed; matter remitted to the tribunal for fresh adjudication on whether the expenditure is capital or revenue in nature.

Deduction under Section 36(1)(viia) relating to rural branch income - Claim of deduction under Section 36(1)(viia) where no income from rural branches - HELD THAT: - This Court applied its precedent in Commissioner of Income tax v. Syndicate Bank and held that the second substantial question of law is answered in favour of the revenue and against the assessee. The Court therefore endorsed the revenue's position on the disallowance under the provision as explained in the cited authority. [Paras 8]

Second substantial question answered in favour of the revenue and against the assessee.

Amortization of premium/discount on held to maturity investments and characterisation as capital asset - Amortization of cost over face value of investments classified as 'held to maturity' - HELD THAT: - Relying on this Court's earlier decision in CIT v. Karnataka Vikas Grameen Bank, the Court answered the third substantial question of law against the revenue and in favour of the assessee, thereby upholding the tribunal's approach on this matter as covered by the cited precedent. [Paras 9]

Third substantial question answered against the revenue and in favour of the assessee.

Applicability of minimum alternate tax regime under Section 115JB to banking companies - Applicability of provisions of Section 115JB to the assessee being a banking company - HELD THAT: - Following this Court's decision in CIT v. ING Vysya Bank Ltd., the Court held that the fourth substantial question of law is answered against the revenue and in favour of the assessee. The earlier authority was treated as determinative on the applicability issue. [Paras 9]

Fourth substantial question answered against the revenue and in favour of the assessee.

Final Conclusion: The tribunal's order is quashed only insofar as it decides the first substantial question of law and that issue is remitted to the tribunal for fresh consideration; the second question is decided in favour of the revenue and against the assessee, while the third and fourth questions are decided against the revenue and in favour of the assessee in accordance with the Court's precedents.

Addition on account of undisclosed income - statement under Section 132(4) of the Income Tax Act - estimation of net profit on main contract works and sub-contract works - reconciliation between ledger entries and electronic books (Tally) - appellate jurisdiction under Section 260-A of the Income Tax Act

Estimation of net profit on main contract works and sub-contract works - addition on account of undisclosed income - Validity of the Tribunal's direction to recompute the net profit at 9% of turnover on main contracts and 6% of turnover on sub-contracts for taxing the income portion of the discrepancy in labour charges. - HELD THAT: - The Tribunal modified the Commissioner (Appeals)'s direction and directed the Assessing Officer to re-compute taxable income by applying 9% net profit on turnover attributable to main contracts and 6% on turnover attributable to sub-contracts. The High Court held that this modification is consonant with the Commissioner (Appeals)'s own finding that the assessee's net profit is to be estimated at those rates for main and sub-contract works. The Tribunal's direction was therefore a factual conclusion reached by applying the net profit percentages to the respective turnovers, and did not involve any error of law. As such, the recomputation directed by the Tribunal is a finding of fact and not a substantial question of law fit for admission under Section 260-A. [Paras 18, 20]

Tribunal's direction to recompute net profit at 9% on main contracts and 6% on sub-contracts affirmed as factual; no substantial question of law arises.

Statement under Section 132(4) of the Income Tax Act - reconciliation between ledger entries and electronic books (Tally) - addition on account of undisclosed income - Whether the entire discrepancy in labour charges (as noted between Profit & Loss account and Tally records) admitted during search must be treated as the assessee's income and wholly added to assessment. - HELD THAT: - The Assessing Officer brought the entire discrepancy to tax as undisclosed income after a search; the Commissioner (Appeals) accepted the existence of the discrepancy but held that only the income portion of the labour charges should be taxed, applying a 9% rate to the admitted additional income. The Tribunal, noting that the assessee acted both as main contractor and sub-contractor, adjusted the computation by applying 9% to main contract turnover and 6% to sub-contract turnover. The High Court observed that the Executive Director's statements under Section 132(4) included an admission but also an earlier request for time to reconcile, and that the lower authorities appropriately did not treat the entire inflated labour-charge figure as profit without applying the net-profit estimation. The Court found these to be factual determinations on the quantum of taxable income rather than legal errors. [Paras 12, 16, 18]

Entire discrepancy need not be treated as assessable income; only the income portion is taxable and computation by applying the appropriate net-profit percentages upheld as a factual determination.

Final Conclusion: The Revenue's appeals are dismissed. The Tribunal's factual findings directing recomputation of taxable income by applying 9% net profit on main contracts and 6% on sub-contracts are upheld; no substantial question of law arises under Section 260-A and the Assessing Officer is to recompute assessment accordingly. No order as to costs.

Set off of carry forward business loss against capital gains - characterisation of income from sale of business asset as business income despite classification under another head - reopening assessment under section 148 - sufficiency of reasons / reason to believe - requirement to dispose of taxpayer's objections by a speaking order before passing assessment - interpretation of Section 72 regarding carry forward and set off of business losses after omission of proviso - principle that substance/character of income governs entitlement to set off notwithstanding its head-wise classification (as applied in Cocanada/Express Newspapers discussion)

Set off of carry forward business loss against capital gains - interpretation of Section 72 regarding carry forward and set off of business losses after omission of proviso - Entitlement to set off carried forward business losses against income arising from sale of business asset assessed as capital gains. - HELD THAT: - The Court held that, having regard to the omission of the proviso to Section 72(1)(i) by the Finance Act, 1999 (effective 01.04.2000), an assessee is not required to continue the same business to avail carry forward and set off of business losses. The legislature's wording permits set off where the loss arose under the head 'profits and gains of business or profession' and the income to which set off is sought has the attributes of business income even if in computation it is classified under another head. The Court applied the principle in Cocanada Radhaswami Bank Ltd. (as explained with reference to Express Newspapers and Chugandas) that the heads of income are classificatory for computation and do not exhaustively delimit the source or character of income; consequently, income having business character but assessable under another head may legitimately be the subject of set off under Section 72. On this basis the substantial questions of law nos. 1 and 2 were answered in favour of the assessee and against the revenue. [Paras 11, 14]

Set off of the carried forward business loss against the income from sale of the business asset (assessed as capital gains) is permitted; substantial questions of law 1 and 2 answered for the assessee.

Reopening assessment under section 148 - sufficiency of reasons / reason to believe - requirement to dispose of taxpayer's objections by a speaking order before passing assessment - Validity of proceedings under Section 148 and related procedural compliance (service of Tribunal order) - remitted for fresh adjudication. - HELD THAT: - The Court declined to decide the substantial questions of law nos. 3 and 4 concerning the legality of the notice under Section 148 (including adequacy of reasons to believe and the Assessing Officer's assumption of jurisdiction) and the alleged failure to dispose of the assessee's objections by a speaking order and non-service of a Tribunal order. The Court observed that no order under Section 254(1) of the Act had been passed and that the tribunal must record its findings on these procedural and jurisdictional matters. Consequently, the matters were remitted to the Tribunal for fresh adjudication on the merits of those questions. [Paras 15]

Substantial questions of law nos. 3 and 4 are not decided and the issues are remitted to the Tribunal for fresh consideration and factual/merits findings.

Final Conclusion: Appeal disposed: the High Court quashed the Tribunal's adverse findings insofar as they denied set off of carried forward business losses (answered in favour of the assessee) and remitted the remaining questions on the validity of reopening and related procedural issues to the Tribunal for fresh adjudication.

Reopening of assessment - reason to believe - tangible material - escapement of income - accommodation entries / bogus billing - formation of belief - live link between material and belief

Reopening of assessment - reason to believe - tangible material - escapement of income - Validity of the notice under Section 148 read with Section 147 for reopening assessment of AY 2011-12. - HELD THAT: - The Court examined the reasons recorded (paras 2-6) and the material obtained by the Assessing Officer, including third party information, statements, and bank statements, and concluded that there was prima facie material permitting the AO to form a belief that income chargeable to tax had escaped assessment. Relying on the settled law that the AO need not conclusively establish escapement at the stage of recording reasons but must have tangible material and a live link to form a belief, the Court held that the AO applied his mind and independently verified information (including under Section 133(6)) before issuing the notice. The formation of belief was therefore within the AO's subjective satisfaction and lawful. [Paras 19, 20, 21, 23, 25]

Notice under Section 148/147 for AY 2011-12 was valid; reopening justified on the material on record.

Accommodation entries / bogus billing - live link between material and belief - Whether the transactions alleged to be accommodation entries and routed through Mahavir Enterprise constituted sufficient material to support reopening. - HELD THAT: - The Court found that the information identified the assessee as a beneficiary of bogus billing, that the assessee's name appeared in Mahavir Enterprise's bank statements, and specific inter company transactions were reflected in bank records. The AO obtained bank statements and called for information to corroborate the linkage. Applying authorities that require only prima facie material at the reopening stage, the Court concluded there was a live link between the information and the belief of escapement. [Paras 18, 19, 20, 22, 23]

Alleged accommodation entries and corroborative bank material furnished sufficient prima facie basis to treat the transactions as potentially bogus for purposes of reopening.

Formation of belief - sanction for reopening - Validity of the sanction/approval for reopening under Section 151 (sanction) as challenged by the assessee. - HELD THAT: - The assessee contended that sanction was mechanically granted without satisfaction. The Court noted absence of any record produced by the assessee to show mechanical sanctioning and observed there is no statutory obligation to furnish a copy of the sanction with the reasons recorded. Given the material before the AO and the detailed disposal of objections by a speaking order, the contention that sanction was mechanically given was rejected for want of evidence. [Paras 24]

Challenge to the validity of sanction/approval fails; no evidence that sanction was accorded mechanically.

Final Conclusion: Writ petition dismissed; the Assessing Officer was justified in reopening the assessment for AY 2011-12 on the available prima facie material and the recorded reasons, and the challenge to the sanction was rejected.

Deduction under section 37 as business expenditure (commercial expediency) - Effect of contractual allocation of liability in a Joint Development Agreement on deductibility - Cost of project as allowable revenue expenditure - Remand for adjudication of interest under sections 234A, 234B and 234C

Deduction under section 37 as business expenditure (commercial expediency) - Cost of project as allowable revenue expenditure - Rs.65,00,000 paid to the landlord was allowable as business expenditure/cost of the project and therefore deductible. - HELD THAT: - The High Court held that the payment of Rs.65 lakhs to the landlord was made to remove an encumbrance and to enable continuation and completion of the project, and was reflected as project cost in the assessee's accounts and profit & loss. The Tribunal had relied strictly on clauses of the original Joint Development Agreement and rejected the deduction, but the Court found that the Tribunal erred in ignoring the subsequent developments and the practical commercial exigencies faced during execution of the project. Applying the principle that expenditure incurred for commercial expediency or to protect and enable the carrying on of business is allowable as business expenditure, the Court treated the payment as part of the cost of the project and thus deductible. The Court cited and applied precedents recognising payments to clear title or defend/enable business as revenue expenditure and business expenditure incurred on grounds of commercial expediency. The Tribunal was not entitled to rewrite the parties' modified understanding or ignore the genuine expenditure incurred in the course of the project. [Paras 6, 7, 13]

Order of the Tribunal denying deduction of Rs.65,00,000 is set aside; substantial questions answered in favour of the appellant and the payment is held deductible as business expenditure/cost of the project.

Effect of contractual allocation of liability in a Joint Development Agreement on deductibility - Deduction under section 37 as business expenditure (commercial expediency) - Tribunal erred in treating the original JDA clauses as conclusive to deny deduction despite subsequent conduct, agreements and the realities of project execution. - HELD THAT: - The Court observed that the Tribunal's reliance on clauses 33 and 34 of the original Joint Development Agreement, which prima facie allocated the expense of keeping title clear to the owner, was misplaced when subsequent events and arrangements compelled the assessee to incur the expenditure. The High Court emphasised that the Tribunal should not have ignored modifications in parties' understanding and the factual matrix showing that the payment was incurred to remove encumbrance and enable sale of apartments. The Court held that where parties' conduct and the exigencies of carrying on the business demonstrate that an expense was in fact borne by the assessee for business purposes, a mechanical application of the original contractual clause to deny deduction was erroneous. [Paras 5, 6, 13]

Tribunal's reliance on the JDA to deny deduction is found to be erroneous; the Tribunal's order is set aside insofar as it ignored subsequent modifications and the commercial reality.

Remand for adjudication of interest under sections 234A, 234B and 234C - The question of levy of interest under sections 234A, 234B and 234C was not adjudicated by the High Court and requires further consideration. - HELD THAT: - Although the substantial questions framed included whether the Tribunal erred in not adjudicating the issue of interest, the judgment does not contain any determination on the applicability or levy of interest under sections 234A, 234B or 234C. The Court's decision focused on the deductibility of the Rs.65 lakhs and on setting aside the Tribunal's order on that point. Consequently, the issue of interest stands without adjudication in this judgment and must be addressed by the appropriate adjudicatory authority in accordance with law.

Issue of interest under sections 234A, 234B and 234C remains undecided and requires fresh adjudication.

Final Conclusion: The High Court allowed the appeal, set aside the Tribunal's order insofar as it denied deduction of the Rs.65 lakhs, and answered the substantial questions in favour of the assessee; the Tribunal's mechanical reliance on the original JDA was held erroneous, while the question of levy of interest under sections 234A/234B/234C remains unadjudicated and requires further consideration.

Validity of proceedings under section 153C - Recording of satisfaction note for initiation under section 153C - Incriminating material representing undisclosed income - Applicability of Calcutta Knitwears principles to section 153C - Binding effect of jurisdictional High Court decision

Validity of proceedings under section 153C - Recording of satisfaction note for initiation under section 153C - Incriminating material representing undisclosed income - Binding effect of jurisdictional High Court decision - Proceedings initiated under section 153C in respect of AYs 2007-2008 and 2008-2009 are invalid where the satisfaction recorded by the Assessing Officer does not state that the documents found during search were incriminating and prima facie represented undisclosed income. - HELD THAT: - The Tribunal applied the binding decision of the jurisdictional High Court in the assessee's own case, which followed the Supreme Court's guidance in Calcutta Knitwears and CBDT Circular No. 24/2015 that a satisfaction note is a prerequisite for invoking the provisions analogous to section 153C. The High Court held that disturbance of a concluded assessment is permissible only if incriminating material detected during search relates to undisclosed income of the other person; absent any specific recording to that effect in the satisfaction note, proceedings under section 153C cannot be validly initiated. There is parity of facts and identity of the statutory provision for the years under consideration; the Assessing Officer's satisfaction did not contain the requisite observation that the seized documents evidenced undisclosed income. Applying the High Court ratio to these years, the Tribunal rightly upheld the CIT(A)'s quashing of the section 153C proceedings. [Paras 11]

Uphold the CIT(A)'s cancellation of initiation of proceedings under section 153C for AYs 2007-2008 and 2008-2009.

Binding effect of jurisdictional High Court decision - Validity of proceedings under section 153C - Whether the CIT(A) was justified in not adjudicating the assessee's remaining grounds on merit after quashing the section 153C proceedings. - HELD THAT: - The Tribunal held that once the initiation of proceedings under section 153C was quashed as invalid on the binding authority of the jurisdictional High Court, the substantive grounds raised by the assessee before the CIT(A) became academic. Therefore, the CIT(A)'s decision to decline adjudication of those grounds on merits was appropriate and did not warrant interference. [Paras 12]

Confirm that the CIT(A) properly refrained from adjudicating the grounds on merits as they were rendered academic by quashing the section 153C proceedings.

Final Conclusion: Both departmental appeals and the assessee's cross-objections are dismissed: the initiation of proceedings under section 153C for AYs 2007-2008 and 2008-2009 is held invalid for lack of a satisfaction recording that seized documents were incriminating and prima facie represented undisclosed income, and consequently the CIT(A) rightly did not decide the remaining grounds on merit.

Interest under Section 244A of the Income Tax Act - entitlement to interest for a full month when tax payment/adjustment is made on the last day of the month - analogy between levy of interest on taxpayers and payment of interest to taxpayers - restoration to Assessing Officer for fresh computation of interest

Interest under Section 244A of the Income Tax Act - entitlement to interest for a full month when tax payment/adjustment is made on the last day of the month - analogy between levy of interest on taxpayers and payment of interest to taxpayers - Whether interest under Section 244A is payable to the assessee for the entire month when the tax payment/adjustment is made on the last day of the month. - HELD THAT: - The Tribunal recorded that both parties agreed the controversy is covered by a coordinate-bench decision in the assessee's own case (ITA No. 2641/Del/2013, order dated 31/08/2020) which held that payments made on the last day of a month qualify as part of that month and, by analogy with provisions charging interest, taxpayers are entitled to receive interest for that month. No material was placed before the Tribunal to distinguish or displace that coordinate-bench view. Applying the same reasoning and following the earlier decision in identical facts, the Tribunal held that interest under Section 244A is payable for the whole month even where payment/adjustment occurs on the last day of the month and therefore declined to interfere with the CIT(A)'s direction in favour of the assessee.

Revenue appeals dismissed; direction confirmed that interest under Section 244A is allowable for the full month even when payment/adjustment is made on the last day of the month.

Interest under Section 244A of the Income Tax Act - restoration to Assessing Officer for fresh computation of interest - Whether the computation of interest under Section 244A made by the Assessing Officer requires rectification and fresh computation. - HELD THAT: - The parties agreed that the computation of interest required reconsideration. In view of that agreement the Tribunal restored the matter to the file of the Assessing Officer for fresh computation of interest under Section 244A in accordance with law, after affording the assessee a reasonable opportunity. The Tribunal did not itself quantify or re-compute interest but directed re-computation by the AO consistent with the legal position it affirmed regarding entitlement to interest for the full month.

Assessee's appeals partly allowed; matters remanded to the Assessing Officer for fresh computation of interest under Section 244A.

Final Conclusion: The Tribunal dismissed the three appeals filed by Revenue, confirming that interest under Section 244A is payable for the entire month even when payment/adjustment is made on the last day, and partly allowed the three appeals filed by the assessee by restoring those matters to the Assessing Officer for fresh computation of interest in accordance with law.

Reopening of assessment on the basis of recorded reasons - reassessment initiated on wrong or incorrect facts - approval/sanction given without application of mind (mechanical approval) - borrowed satisfaction from investigation wing - requirement of tangible material linking to formation of reason to believe - quashing of reassessment proceedings as nullity - treatment of unexplained credit as prima facie addition

Reopening of assessment on the basis of recorded reasons - reassessment initiated on wrong or incorrect facts - requirement of tangible material linking to formation of reason to believe - quashing of reassessment proceedings as nullity - Validity of reassessment proceedings where reasons recorded named incorrect entities and AO relied on those reasons to reopen assessment. - HELD THAT: - The Tribunal found that the reasons recorded for reopening alleged receipt of share capital from certain companies, whereas the assessment order and AO's subsequent handling referred to different companies; the AO conceded this was a typographical error. The mismatch demonstrates absence of proper application of mind by the AO at the time of recording reasons and shows that the reopening was founded on wrong and incorrect facts. The Tribunal also applied the principle that reasons must demonstrate a link between tangible material and the formation of a reason to believe that income has escaped assessment; where such link and independent application of mind are lacking, reassessment is not justified. Reliance was placed upon precedents holding that reopening based merely on information from investigation without independent reasoning or tangible material is invalid. On these grounds the Tribunal concluded the reopening was null and void and the reassessment could not stand. [Paras 20, 21, 22, 23]

Reopening held invalid and reassessment proceedings quashed as founded on wrong/incorrect reasons.

Approval/sanction given without application of mind (mechanical approval) - borrowed satisfaction from investigation wing - quashing of reassessment proceedings as nullity - Validity of the prior approval given by the Addl. CIT where approval record showed a perfunctory statement of satisfaction without any recorded application of mind. - HELD THAT: - The Addl. CIT's approval consisted only of a brief endorsement stating satisfaction that the case was fit for issuance of notice, without any material indicating exercise of judgment. The Tribunal held that the sanctioning authority must apply independent mind and record satisfaction (even briefly) that connects available material to the opinion to reopen; mere ritualistic or mechanical approval frustrates the safeguard intended by the requirement of prior approval. Following precedent, the Tribunal found the approval to be mechanical and therefore vitiated the reassessment process on this independent ground. [Paras 21, 24, 25, 26]

Approval by the Addl. CIT held to be mechanical and without application of mind; reassessment quashed on this ground as well.

Final Conclusion: The Tribunal allowed the appeal and quashed the reassessment proceedings for assessment year 2008-09 on the dual grounds that the reopening was based on wrong/incorrect facts and that the prior approval was given mechanically without application of mind; since the legal challenge to reopening succeeded, the Tribunal did not adjudicate the merits of the addition.

Defective notice under section 148 - Burden of proof on assessing officer to establish service of notice - Powers of Commissioner (Appeals) under section 250(4) to call for further inquiry - Validity of reassessment where service/issuance of notice is not established

Defective notice under section 148 - Burden of proof on assessing officer to establish service of notice - Whether reassessment initiated by issuing notice under section 148 was invalid because service/issuance of the notice was not established by the Assessing Officer - HELD THAT: - The Commissioner (Appeals) directed the Assessing Officer to verify and produce proof of service of the notice under section 148 and whether the assessee had sought to treat the original return as filed in response to that notice. The Assessing Officer failed to respond to repeated inquiries and did not produce acknowledgement or other proof to contradict the assessee's claim that no notice was served. The appellate authority is entitled to call for such inquiry under section 250(4), and where the issuing authority does not disprove the assessee's claim despite being afforded reasonable opportunity, the matter must be resolved in favour of the claimant. On that basis the Commissioner (Appeals) concluded that the notice/issuance was not established and cancelled the reassessment. The Tribunal found no error in this approach and affirmed the cancellation of reassessment given the Assessing Officer's non compliance and absence of proof of service. [Paras 4, 5]

The reassessment was cancelled as the notice under section 148 was not established on the record and the Assessing Officer failed to discharge the burden of proof despite directions from the Commissioner (Appeals).

Final Conclusion: The order of the Commissioner (Appeals) cancelling the reassessment was affirmed and the Revenue's appeal is dismissed.

Deduction under section 36(1)(iii) of the Act - proportionate disallowance of interest expense - availability of interest free funds presumption - nexus between borrowings and application of funds - applicability of the ratio in CIT v. Reliance Utilities & Power Ltd.

Deduction under section 36(1)(iii) of the Act - proportionate disallowance of interest expense - availability of interest free funds presumption - nexus between borrowings and application of funds - applicability of the ratio in CIT v. Reliance Utilities & Power Ltd. - Whether the disallowance of proportionate interest expense should be sustained or whether the matter should be remitted to the Assessing Officer to examine availability of interest free funds and applicability of the Reliance Utilities ratio. - HELD THAT: - The Tribunal observed that the Assessing Officer disallowed proportionate interest on the ground that the assessee had given interest free advances and had not proved availability of non interest bearing or own funds at the time the advances were made. The Hon'ble Bombay High Court in CIT v. Reliance Utilities & Power Ltd. holds that where an assessee had sufficient interest free funds to meet investments and still raised borrowed funds, it may be presumed that investments were made from the interest free funds. Applying that precedent, the Tribunal found that the question of availability of interest free funds and the consequent presumption under the Reliance Utilities ratio requires fresh examination by the AO in the facts of this case. The Tribunal therefore set aside the appellate authority's order and directed the AO to reconsider the disallowance in the light of the said ratio, calling upon the assessee to place relevant documentary evidence before the AO for that purpose. [Paras 6, 7]

Order of the CIT(A) set aside and matter remitted to the Assessing Officer to examine, in light of the Reliance Utilities ratio, whether sufficient interest free funds were available when the advances were made and accordingly to determine the correctness of the proportionate interest disallowance; assessee directed to file relevant documents.

Final Conclusion: Appeal allowed for statistical purposes by setting aside the CIT(A) order and remitting the issue of disallowance of proportionate interest under section 36(1)(iii) for fresh examination by the Assessing Officer in accordance with the Reliance Utilities & Power Ltd. ratio; assessee to produce relevant evidence.

Mismatch between Form No. 26AS and books of account - onus on the assessee to substantiate declared income and tax paid - remand for fresh adjudication and verification of claimed prior-year inclusion - treatment of expense reimbursements vis-a -vis taxable receipts - power to obtain information under Section 133(6) for verification

Mismatch between Form No. 26AS and books of account - onus on the assessee to substantiate declared income and tax paid - remand for fresh adjudication and verification of claimed prior-year inclusion - Whether amounts shown in Form No. 26AS as payments by Alstom T&D/Areva T&D corresponding to receipts that the assessee claims were received and taxed in the preceding year (AY:2014-15) should be treated as escaped income for AY:2015-16 or verified on remand. - HELD THAT: - The Tribunal found a differential of Rs. 37,92,738/- between contractual receipts recorded by the assessee and amounts reflected in Form No. 26AS for AY:2015-16. The assessee asserted that Rs. 18,46,865/- (component parts shown in its reconciliation) had been received and offered to tax in the preceding previous year (FY 2013-14, AY:2014-15) and that the deductor erroneously uploaded those payments in the TDS returns for the current year. The Tribunal observed that where the assessee had dealings with the payor, primary onus lies on the assessee to prove correct year of inclusion and payment of tax. The Tribunal further held that the assessee's claim that the amounts were included and taxed in AY:2014-15 requires verification by the Assessing Officer and therefore remanded the matter for fresh adjudication so that the assessee may produce supporting evidence (ledgers, bank statements, returns) and the AO may verify whether the amounts were genuinely included and taxed in the earlier year. [Paras 6]

Issue remanded to the Assessing Officer for verification of the asserted prior-year inclusion and tax payment of Rs. 18,46,865/-, with direction to admit and adjudicate the assessee's evidence.

Treatment of expense reimbursements vis-a -vis taxable receipts - onus on the assessee to substantiate declared nature of receipts - remand for fresh adjudication and verification - Whether amounts reflected in Form No. 26AS as reimbursements (aggregating Rs. 6,60,210/-) are merely expense reimbursements and not taxable receipts for AY:2015-16, requiring verification. - HELD THAT: - The assessee contended that certain components of the differential (Rs. 4,33,200/- and Rs. 2,27,010/-) represented reimbursements of expenses and had been accounted for accordingly. The Tribunal reiterated that the onus is on the assessee to prove the non-taxable character of such receipts. Given the factual nature of the claim and the need for documentary verification, the Tribunal directed that the AO examine relevant evidence on remand to determine whether these amounts are reimbursements included in the assessee's return for AY:2015-16 and whether tax treatment was correct. [Paras 6]

Issue remanded to the Assessing Officer for verification of the character and tax treatment of the alleged expense reimbursements, with directions to admit and adjudicate the assessee's evidence.

Mismatch between Form No. 26AS and books of account - onus on the assessee to substantiate non-liability where payor records a credit - power to obtain information under Section 133(6) for verification - remand for fresh adjudication - Whether the amount of Rs. 12,85,663/- uploaded by Alstom T&D in its TDS return as credited to the assessee, but denied by the assessee, should be treated as the assessee's income for AY:2015-16 or be investigated and verified. - HELD THAT: - The assessee maintained that it never received or earned the Rs. 12,85,663/- and had repeatedly requested the payor to correct the TDS return; copies of emails were placed on record. The Tribunal recognised that, since the assessee had dealings with the payor, the onus to prove that the credited amount did not belong to it rests on the assessee. Given the payor's alleged non-cooperation (attributed to management change), the Tribunal directed the AO to verify the claim on remand and to invoke the statutory information-gathering power under Section 133(6) to obtain details directly from the payor to ascertain the true position. The Tribunal emphasised that the AO must provide the assessee an opportunity to be heard and admit relevant evidence. [Paras 6]

Issue remanded to the Assessing Officer for fresh adjudication; AO directed to invoke Section 133(6) where necessary and to verify whether the Rs. 12,85,663/- belongs to the assessee, with opportunity to the assessee to produce evidence.

Final Conclusion: The Tribunal restored the disputed matters to the file of the Assessing Officer for fresh adjudication and verification of the asserted prior-year inclusion, the character of alleged reimbursements, and the denial of receipt of a credited amount, with directions to invoke Section 133(6) if required and to afford the assessee full opportunity of hearing; appeal allowed for statistical purposes.

Seizure and extension under Section 110(2) - reasons to be recorded in writing - intimation of extension before expiry of initial period - requirement of providing reasons with intimation - principles of natural justice in extension proceedings - effect of Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020

Seizure and extension under Section 110(2) - reasons to be recorded in writing - intimation of extension before expiry of initial period - Validity of an extension under the proviso to Section 110(2) when intimation and reasons were not communicated to the assessee within the original six month period. - HELD THAT: - The proviso to Section 110(2), as amended by the Finance Act, 2018, casts a duty on the Principal Commissioner/Commissioner to record reasons in writing for any extension and to inform the person from whom goods were seized before the expiry of the original six month period. The intimation of extension must, in the court's view, be accompanied by the reasons that justify the extension; mere post fact communication is contrary to the language and scheme of the provision. While earlier case law under the unamended provision had imported a requirement of notice, the amendment replaced the earlier phraseology and requires recording reasons and timely intimation, which together constitute the procedural safeguard. The court accepted that the intimation of extension will suffice as proper opportunity to the assessee in regard to the extension provided the intimation and reasons are communicated within the first six months. The principles of natural justice apply to extension proceedings and the authority cannot rely on subsequent filings or the respondent's counter to cure an otherwise defective intimation. [Paras 12, 14, 19]

Extension is valid only if reasons are recorded in writing and the intimation (with those reasons) is communicated to the person from whom goods were seized before expiry of the six month period; mere after the fact service does not satisfy the proviso.

Effect of Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 - requirement of providing reasons with intimation - Whether the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 could validate the impugned intimation dated 30.09.2020 when the original six month period expired on 05.09.2020 and the reasons were not provided. - HELD THAT: - The Ordinance extended certain statutory time limits falling during the specified period to 30.06.2020 or such other date as notified; the court treated the Ordinance as extending the operative timeline so that an intimation dated 30.09.2020 fell within the extended timeline only if the Ordinance's notified date applied. Notwithstanding the relaxation, the intimation was received by the petitioner on 07.10.2020 and, more critically, the reasons recorded for granting the extension were not supplied with the intimation. A counter filed later by the revenue cannot retrospectively improve the intimation; an order must stand or fall on its own terms. For these reasons the impugned intimation failed to comply with the proviso's requirement for timely intimation coupled with reasons. [Paras 21]

The reliance on the Ordinance does not cure the defect because the intimation (and the reasons) were not furnished to the petitioner within the period as extended; the impugned intimation is therefore invalid.

Principles of natural justice in extension proceedings - requirement of providing reasons with intimation - Consequent right to return/release of seized goods where the extension under Section 110(2) is invalid for failure to comply with the proviso. - HELD THAT: - Section 110(2) provides that in the absence of issuance of a show cause notice within six months of seizure, the goods shall be returned to the person from whose possession they were seized unless a valid extension is effected in accordance with the proviso. Because the impugned extension was defective - intimation not communicated within the statutory/extended period and reasons not supplied - the statutory six month period ran without a valid extension. The petitioner therefore became entitled to return of the consignment upon expiry of the original period. The court directed release of the consignment within two weeks. [Paras 4, 22]

Goods seized on 06.03.2020 became liable to be returned on expiry of the six month period (05.09.2020) as the extension was invalid; respondent directed to release the consignment within two weeks.

Final Conclusion: The proviso to Section 110(2) requires recorded reasons and timely intimation (with those reasons) to the person from whom goods were seized before the expiry of the six month period; the impugned intimation failed that test (receipt after the stipulated/extended date and without reasons) and is invalid, and the consignment is ordered released within two weeks.

Mandamus - suspension or revocation of custodianship approval - Handling of Cargo in Customs Areas Regulations, 2009 - compliance report - show cause notice - administrative action open to challenge

Mandamus - compliance report - Closure of the writ petition where the relief sought has been rendered infructuous by subsequent action of the administrative authority. - HELD THAT: - The Court examined the petitioner's prayer for a mandamus directing the 1st respondent to take action against the 2nd respondent. The Court had earlier directed the 1st respondent to file a report of the action taken on the petitioner's representation. The 1st respondent filed a compliance report stating that a Show Cause Notice had been issued to the 2nd respondent calling upon it to show cause why approval as custodian/CCSP should not be revoked. The Court observed that the relief sought in the writ petition has thus been worked out by the administrative action reflected in the compliance report. In view of that development, continuation of the writ petition was unnecessary and the petition was closed. [Paras 14, 16]

Writ petition closed as the relief sought has been rendered otiose by the action reported by the 1st respondent; no costs.

Show cause notice - administrative action open to challenge - Whether the issuance of the Show Cause Notice by the 1st respondent was justified and determinative in these proceedings. - HELD THAT: - The Court noted that its earlier order had merely called for a report of action taken and did not direct any specific interim measures. The compliance report, however, indicated that the 1st respondent had issued a Show Cause Notice to the 2nd respondent. The Court recorded that it was not apparent on what basis the Show Cause Notice was issued and expressly refrained from adjudicating the legality or merits of that notice. Instead, the Court left the 2nd respondent free to challenge the Show Cause Notice or to participate in the proceedings before the 1st respondent and make all submissions available in law. The Court did not quash or uphold the Show Cause Notice; it confined itself to observing the procedural posture and leaving the matter to be contested in the prescribed forum. [Paras 14, 15, 16]

No adjudication on the propriety of the Show Cause Notice; 2nd respondent permitted to challenge or contest the notice in the manner known to law.

Final Conclusion: The writ petition is closed as the administrative action reported by the 1st respondent has rendered the main prayer infructuous; the legality and merits of the Show Cause Notice are left open for challenge or defence by the 2nd respondent in the appropriate proceedings.

Mandamus to implement appellate order - release on redemption under Section 125 of the Customs Act, 1962 - confiscation and redemption of imported goods - penalty commensurate with the contravention - no stay pending departmental revision

Mandamus to implement appellate order - release on redemption under Section 125 of the Customs Act, 1962 - no stay pending departmental revision - Direction to implement the Commissioner (Appeals) order and release the electronic consumer goods on payment of duty, redemption fine and penalty despite a pending departmental revision in the absence of a stay. - HELD THAT: - The petitioner sought mandamus for release of iPhones/iPads following the Commissioner (Appeals) order which modified absolute confiscation and allowed redemption on payment of an adjudicated fine, appropriate duty and penalty. The respondents conceded that a departmental revision against the appellate order is pending before the Government of India but that no stay has been granted. The court observed that the items in question are electronic consumer goods susceptible to rapid obsolescence and that the appellate order expressly permitted redemption under the discretionary power to levy a fine in lieu of confiscation. In these circumstances, and given the absence of any stay of the appellate order, the court held that respondents were bound to implement the appellate direction; the petitioner having indicated readiness to remit the amounts, the goods were to be released upon such remittance within a short, specified period.

Writ allowed; respondents directed to release the electronic goods within one week of the petitioner remitting the duty, redemption fine and penalty as per the Commissioner (Appeals) order.

Final Conclusion: Writ petition allowed: the respondents must implement the Commissioner (Appeals) order and release the specified electronic goods on payment of duty, the redemption fine and penalty within one week of remittance, there being no stay of the appellate order.

Speaking order under Section 17(5) of the Customs Act, 1962 - Re-assessment under Section 17(4) of the Customs Act, 1962 - Limitation for filing appeal where mandatory speaking order not passed - Authority of Customs House Agent to accept loading of value

Speaking order under Section 17(5) of the Customs Act, 1962 - Limitation for filing appeal where mandatory speaking order not passed - Whether the appeal before the Commissioner (Appeals) is barred by limitation where no speaking order has been passed under Section 17(5) after reassessment by loading of value. - HELD THAT: - The Tribunal examined the statutory mandate in Section 17(5) that where a reassessment under Section 17(4) is accepted by the importer, the proper officer shall pass a speaking order on the reassessment within fifteen days from the date of reassessment. Admittedly no speaking order under Section 17(5) was ever passed in this case. The appellant waited for the statutory speaking order and thereafter raised grievance; the Commissioner (Appeals) treated the appeal as time-barred because the reassessment and original assessment occurred in March 2015 and the appeal was pursued in 2018. The Tribunal held that where the statute mandates a speaking order within a prescribed period and no such order has been passed, the absence of that mandatory order prevents the appellate filing from being treated as barred by limitation. Applying Section 17(5) as enacted, the Tribunal concluded that the appeal before the Commissioner (Appeals) was not barred by limitation. [Paras 8]

The appeal is not barred by limitation because no speaking order under Section 17(5) of the Customs Act, 1962 was passed.

Re-assessment under Section 17(4) of the Customs Act, 1962 - Speaking order under Section 17(5) of the Customs Act, 1962 - Authority of Customs House Agent to accept loading of value - Remedy to be provided in the absence of a mandatory speaking order and the role of the assessing officer in passing such order. - HELD THAT: - The Tribunal observed that the speaking order mandated by Section 17(5) must be passed by the assessing officer. In the absence of any such speaking order to date, the Tribunal directed that the adjudicating authority (assessing officer) shall pass a speaking order in writing in respect of the reassessment. The Tribunal remanded the matter for that limited purpose and left open all other issues, thereby requiring fresh action by the assessing officer consistent with the statutory requirement. The Tribunal's direction contemplates that the adjudicating authority address the question of acceptance of reassessment (including any contention about the CHA's authority) in the speaking order to be recorded. [Paras 9, 11]

Matter remitted to the adjudicating authority to pass a speaking order on the reassessment in writing within fifteen days of receipt of the Tribunal's order; other issues left open.

Final Conclusion: The Tribunal held that because no speaking order under Section 17(5) was ever passed, the appeal is not time-barred and remitted the matter to the assessing/adjudicating authority to pass a speaking order on the reassessment in writing within fifteen days of receipt of this order; all other issues are kept open.

Refund of Special Additional Duty (SAD) under Notification No.102/2007-Cus - requirement of payment of appropriate sales tax/VAT (including NIL rate) for SAD refund - res judicata / issue no more res integra by Tribunal precedents - inapplicability of rescinded Notification No.34/1998-Cus

Refund of Special Additional Duty (SAD) under Notification No.102/2007-Cus - requirement of payment of appropriate sales tax/VAT (including NIL rate) for SAD refund - inapplicability of rescinded Notification No.34/1998-Cus - Appellant entitled to refund of SAD paid under Notification No.102/2007-Cus where appropriate sales tax/VAT was NIL. - HELD THAT: - The Tribunal held that Notification No.102/2007-Cus allows refund of SAD subject to the importer having paid the appropriate sales tax or VAT, and that this condition is satisfied even where the applicable rate of sales tax/VAT is NIL. The reasoning relies on the Tribunal's earlier decisions and the Circular of the Board which clarify that there is no requirement that the rate of sales tax/VAT equal or exceed the SAD rate; payment of appropriate sales tax/VAT (including NIL) fulfils the condition and entitles the importer to full refund of SAD if otherwise eligible. The Tribunal further found that reliance on the Supreme Court decision concerning Notification No.34/1998-Cus was misplaced because that Notification had been rescinded and is therefore not applicable to claims under Notification No.102/2007. In view of binding Tribunal precedents, including the appellant's own earlier allowed appeals, the issue was held to be no longer res integra and the impugned order rejecting part of the refund was set aside.

Impugned order set aside; appeal allowed and refund claim (previously partly rejected) held admissible as condition of payment of appropriate sales tax/VAT was satisfied even at NIL rate.

Final Conclusion: The Tribunal allowed the appeal, holding that under Notification No.102/2007-Cus the appellant is eligible for refund of SAD where appropriate sales tax/VAT was paid (including where the rate was NIL), and that reliance on a rescinded earlier notification was untenable; the impugned order rejecting part of the refund was set aside.

Fulfilment of export obligation - advance authorization exemption under Customs Notification No.96/2009-Cus - duty demand for non-fulfillment of export obligation - redemption certificate issued by JDGFT - delay in issuance of redemption letter - consequential relief

Fulfilment of export obligation - redemption certificate issued by JDGFT - duty demand for non-fulfillment of export obligation - delay in issuance of redemption letter - The appellant had fulfilled the export obligation and the duty demand confirmed for non-fulfilment was unsustainable. - HELD THAT: - The Tribunal examined the record and found that the appellant discharged the export obligation and submitted the relevant documents to the JDGFT within the prescribed period, but the redemption letter was issued by the JDGFT after an inordinate delay. The show-cause notice and consequent confirmation of duty were issued before the delayed redemption letter was furnished. The redemption certificate issued by the JDGFT, now on record, demonstrates compliance with the conditions of the advance authorization granted under the Customs Notification relied upon by the appellant. The Tribunal also noted that the Hon'ble High Court in the appellant's own case accepted the same ground of compliance despite delay in issuance of the discharge certificate by JDGFT. In these circumstances the Tribunal held that confirming the demand was not sustainable in law and that the impugned order required setting aside, with consequential relief where applicable. [Paras 6]

Impugned order rejecting the appeal and confirming the duty demand set aside; consequential relief granted, if any.

Final Conclusion: The appeal is allowed. The order confirming the duty demand for alleged non-fulfilment of export obligation is set aside on the ground that the appellant fulfilled the export obligation and produced the redemption certificate issued by the JDGFT, and consequential relief, if any, shall follow.

Liquidation under Insolvency and Bankruptcy Code, 2016 - Appointment of Liquidator - Closure of Writ Petition on account of Liquidation - Liberty to stake claim before authorities

Liquidation under Insolvency and Bankruptcy Code, 2016 - Closure of Writ Petition on account of Liquidation - Writ petition closed because the petitioner company stands liquidated by NCLT order dated 29.05.2020. - HELD THAT: - The National Company Law Tribunal, Special Bench II, Chennai, by order dated 29.05.2020, directed liquidation of the petitioner company and appointed a Resolution Professional as Liquidator. In view of that conclusive order of liquidation, the High Court found that continuation of the present writ petition was not appropriate and therefore closed the petition. The factual step of the Resolution Professional notifying the JDGFT was noted but did not prevent the court from closing the petition in light of the NCLT's liquidation order.

Writ petition closed on account of the NCLT order of liquidation.

Appointment of Liquidator - Liberty to stake claim before authorities - Respondent DGFT is at liberty to take steps, in accordance with law, to stake any claim before the appropriate authorities. - HELD THAT: - The order records that the Resolution Professional issued notice to the Joint Director General of Foreign Trade on 04.06.2020 but the JDGFT did not appear. The High Court, while closing the writ petition, expressly permitted the DGFT (and by extension any concerned authority) to pursue and assert any claims or rights through the competent authorities and procedures available under law, leaving the quantification or adjudication of such claims to the appropriate fora.

DGFT at liberty to take necessary steps in accordance with law to stake its claim before the authorities.

Final Conclusion: The writ petition is closed pursuant to the NCLT order of liquidation; the DGFT is permitted to pursue any claims through the competent authorities in accordance with law. Connected miscellaneous petition is closed; no costs.

Maintainability of appeal under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 - interlocutory finding that debt is a financial debt not ipso facto amounting to commencement of CIRP - limitation as a question of fact and law - veracity and admissibility of the true extract of statement of accounts - adjudicating authority to decide the main Section 7 application on merits after providing adequate opportunity

Maintainability of appeal under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 - interlocutory finding that debt is a financial debt not ipso facto amounting to commencement of CIRP - whether the Company Appeal (AT) (CH)(Ins) No.13 of 2021 is maintainable in law - HELD THAT: - The Appellate Tribunal held that the instant appeal is ex facie not maintainable under Section 61(1) of the Insolvency and Bankruptcy Code, 2016. The Tribunal relied upon the principle that a mere interlocutory finding on an application that the claim constitutes a financial debt does not itself justify admission of a Section 7 petition or its rejection; default and an order of admission must be recorded before the Corporate Insolvency Resolution Process commences. In that perspective the appeal is premature and not maintainable as an appeal against an interlocutory order which has not finally adjudicated the Section 7 application on merits. [Paras 3, 4]

The appeal is not maintainable in law and is disposed of on that ground.

Limitation as a question of fact and law - veracity and admissibility of the true extract of statement of accounts - adjudicating authority to decide the main Section 7 application on merits after providing adequate opportunity - liberty to raise limitation and challenge the statement of accounts in the main Section 7 application and direction to the Adjudicating Authority to decide the matter on merits - HELD THAT: - Although the appeal was held not maintainable, the Tribunal granted liberty to the corporate debtor to raise the plea of limitation and to challenge the veracity/admissibility of the 'true extract of statement of accounts' in the pending Section 7 application before the Adjudicating Authority. The Tribunal directed that upon filing of a detailed reply/response by the corporate debtor and any rejoinder by the financial creditor, the Adjudicating Authority shall afford adequate opportunity of hearing and pass a reasoned, speaking order on the merits uninfluenced by observations made in the present appeal. The liberty granted is for fresh adjudication as to facts and law in the main proceeding. [Paras 6, 7]

Liberty granted to raise limitation and contest the statement of accounts in the main Section 7 proceedings; the Adjudicating Authority to decide the application on merits after giving adequate opportunity.

Final Conclusion: The appeal was held to be ex facie not maintainable under Section 61(1) and is disposed of on that ground, while the corporate debtor is granted liberty to raise limitation and challenge the statement of accounts before the Adjudicating Authority, which is directed to decide the pending Section 7 application on merits after providing adequate opportunity and a reasoned order.

Independence of offence under the Prevention of Money Laundering Act from the predicate/scheduled offence - requirement of a scheduled/predicate offence only for registration of an ECIR - continuance of Enforcement Directorate investigation despite compounding/closure of predicate offence - power to remand and extension of judicial custody in PMLA investigations - investigation under PMLA to proceed to filing of complaint or closure report under Section 44

Independence of offence under the Prevention of Money Laundering Act from the predicate/scheduled offence - continuance of Enforcement Directorate investigation despite compounding/closure of predicate offence - Whether the investigation and prosecution under the PMLA survive and are independent when the predicate/scheduled offence is compromised, compounded or a closure report in the predicate offence is accepted by the trial court. - HELD THAT: - The Court examined the scheme and objects of the PMLA, the definitions of proceeds of crime and scheduled offence, and the language of Sections 3, 4 and 44. It held that registration of a scheduled/predicate offence is required only to initiate an ECIR under the PMLA, but once a money laundering offence is registered the PMLA investigation stands on its own and does not depend on the ultimate fate of the predicate offence. Consequently, compounding, settlement, filing of a closure report in or acceptance of a C final report in the predicate offence does not wipe out or terminate the ED's independent investigation under the PMLA; the ED may continue investigation and thereafter either file a complaint or submit a closure report under Section 44. The Court rejected the contention that acceptance of the C final report in the predicate offence removes the foundation of the PMLA proceeding and thereby collapses the ED's case, reasoning that such a view would frustrate the legislative intent and permit circumvention of PMLA investigations by compounding the predicate offence. [Paras 11, 12, 13, 14]

The PMLA investigation is independent of the predicate/scheduled offence; compounding or closure of the predicate offence does not abate or terminate the ED's investigation under the PMLA.

Power to remand and extension of judicial custody in PMLA investigations - investigation under PMLA to proceed to filing of complaint or closure report under Section 44 - Whether the Special Court erred in allowing the ED's application and remanding the applicants to further judicial custody by the Order dated 15th February, 2021. - HELD THAT: - The Court reviewed the material placed before the Special Court and the nature of the allegations, including the ED's averments regarding diversion of loan funds, creation of charges on future FSI and non construction of rehab buildings, and the need for systematic investigation involving placement, layering and integration stages. Having regard to the independent object of the PMLA, the complexity and scale of the alleged money laundering, and the ED's detailed remand application, the High Court found no error in the Special Court's exercise of power to remand the applicants to further judicial custody. The Court held that further custodial interrogation/remand was proper and declined to interfere with the impugned order. [Paras 15, 16]

The Special Court did not commit any error in allowing the ED's remand application dated 15th February, 2021 and remanding the applicants to judicial custody; the High Court refused to interfere with that order.

Requirement of a scheduled/predicate offence only for registration of an ECIR - effect of prior remand orders and subsequent approvals by the High Court - Challenge to the remand Order dated 28th January, 2021 (and related remands) and whether the applicants are entitled to release on that ground. - HELD THAT: - The Court noted the sequence of remand orders: remand to ED custody till 30th January, 2021, extension to 2nd February, 2021, and the Special Court's order dated 2nd February, 2021 remanding the applicants to judicial custody till 15th February, 2021. This Court had earlier upheld the 2nd February order in Criminal Revision Application No.22 of 2021. Given those subsequent orders and this Court's prior approval, the present challenge to the 28th January remand did not survive. The High Court therefore found no basis to release the applicants from confinement on that ground. [Paras 5, 17]

The challenge to the remand order dated 28th January, 2021 does not survive in view of subsequent extensions and this Court's earlier order upholding the later remand; the applicants are not entitled to release on that ground.

Final Conclusion: The applications under Sections 482/483 Cr.P.C. and the bail application are dismissed. The High Court holds that PMLA investigations are independent of the predicate/scheduled offence and may continue despite compounding or closure of the predicate offence; the Special Court's remand of the applicants on 15th February, 2021 is unexceptionable and the challenge to earlier remand orders does not entitle the applicants to release.

Manufacture versus business auxiliary service - service tax leviability on contract processing of goods - entitlement to exemption under Notification No. 08/2005 ST - non entitlement to exemption under Notification No. 06/2005 - requirement of payment of appropriate duty of excise for notification benefit

Manufacture versus business auxiliary service - service tax leviability on contract processing of goods - Whether the activities carried out by the appellants amount to "manufacture" or are taxable as "business auxiliary service" attracting service tax. - HELD THAT: - The Tribunal, following the earlier Division Bench decision in Anil Kumar, held that the activities performed by the appellants - processing of tower parts including shearing, punching, cutting, marking, drilling and related operations on inputs supplied by the principal - constitute activities of manufacture rather than business auxiliary services. The Commissioner (Appeals) had treated the work as taxable under the category of business auxiliary service, but the Division Bench in Anil Kumar concluded that the activity is manufacture and set aside orders holding otherwise. Applying that precedent, the present appeals are allowed in part and the impugned orders are set aside to the extent they classified the activity as BAS and imposed service tax on that basis. [Paras 9, 10]

The activity carried out by the appellants is held to be manufacture and not business auxiliary service.

Entitlement to exemption under Notification No. 08/2005 ST - non entitlement to exemption under Notification No. 06/2005 - requirement of payment of appropriate duty of excise for notification benefit - Whether the appellants are entitled to the benefits of Notification No. 08/2005 ST and Notification No. 06/2005. - HELD THAT: - The Tribunal accepted the Division Bench's reasoning that the benefit of Notification No. 08/2005 ST is available only where the resultant goods are cleared on payment of appropriate excise duty, and where the principal has not paid appropriate excise duty (having cleared goods under exemption notifications), the processor cannot claim that exemption. Applying the precedent, the Tribunal confirmed entitlement to Notification No. 08/2005 ST in the circumstances where appropriate duty is paid, but upheld denial of the benefit of Notification No. 06/2005 because the appellants failed to produce evidence of the aggregate value of taxable services as required and the principal cleared goods without payment of appropriate excise duty under exemption notifications. [Paras 5, 10]

Benefit of Notification No. 08/2005 ST is confirmed; benefit of Notification No. 06/2005 is denied.

Final Conclusion: Appeals allowed in part: activity of the appellants is held to be manufacture; benefit of Notification No. 08/2005 ST is confirmed, while benefit of Notification No. 06/2005 is denied; impugned orders set aside to the extent indicated.

Dismissal for low tax effect - liberty to restore on exceeding monetary threshold - monetary threshold for High Court appeals under CBIC circular of 22.8.2019

Dismissal for low tax effect - monetary threshold for High Court appeals under CBIC circular of 22.8.2019 - liberty to restore on exceeding monetary threshold - Civil Miscellaneous Appeal dismissed on the ground of low tax effect in view of the CBIC circular dated 22.8.2019, and substantial questions of law left open with liberty to restore if the tax effect exceeds the prescribed threshold. - HELD THAT: - The appellant/Department sought to withdraw the appeal relying on the CBIC circular dated 22.8.2019 which raises the monetary limit for filing or pursuing matters before the High Court to Rs. 1 Crore and submitted that the tax effect in the present case falls below that threshold. The Court, accepting the departmental concession about the low tax effect, dismissed the Civil Miscellaneous Appeal on that basis and expressly refrained from adjudicating the substantial questions of law raised in the appeal. The Court granted liberty to the Revenue to apply to restore the matter for hearing on merits should the tax effect be shown to exceed the threshold set out in the circular.

Appeal dismissed for low tax effect; substantial questions of law left open; liberty granted to restore if tax effect exceeds the CBIC circular threshold.

Final Conclusion: The High Court dismissed the appeal on the limited ground of low tax effect in light of the CBIC circular dated 22.8.2019, left the substantial questions of law undecided, and granted liberty to the Revenue to seek restoration for adjudication on merits if the tax effect exceeds the prescribed monetary threshold.

Rejection of declared transaction value due to selling below cost - Application of Section 4(1)(a) vis-a -vis Section 4(1)(b) for excise valuation - Extra commercial consideration / market penetration as basis for invoking valuation rules - Requirement of departmental enquiry into reasons for loss making sales - Reliance on precedent: Guru Nanak Refrigeration as authority for accepting transaction value - Limitation - extended period of limitation unavailable in absence of fraud or willful suppression

Rejection of declared transaction value due to selling below cost - Application of Section 4(1)(a) vis-a -vis Section 4(1)(b) for excise valuation - Extra commercial consideration / market penetration as basis for invoking valuation rules - Requirement of departmental enquiry into reasons for loss making sales - Reliance on precedent: Guru Nanak Refrigeration as authority for accepting transaction value - Whether the transaction value declared by the assessee could be rejected merely because the sale price was lower than the cost of manufacture, and whether the valuation provisions under Section 4(1)(b) could be invoked on that ground. - HELD THAT: - The Tribunal held that mere sale below cost does not automatically justify rejection of the declared transaction value under Section 4(1)(a). The Supreme Court's decision in Fiat India was distinguishable because that case involved prolonged loss making sales intended for market penetration and thus constituted extra commercial consideration; by contrast, the Department in the present case made no inquiry into factors identified in the Board's post Fiat circulars (percentage and duration of loss, reasons for loss making price, erosion of capital, or other indicia of extra commercial consideration). The Tribunal relied on the precedent in Guru Nanak Refrigeration where, in identical factual circumstances (sales to unrelated buyers, no allegation or evidence of flow back or other additional consideration), the transaction value was upheld. Because the Department merely applied Fiat mechanically without factual investigation and there was no evidence of extra commercial consideration, the rejection of the transaction value and invocation of valuation under Section 4(1)(b) could not be sustained. [Paras 7]

The transaction value adopted by the assessee under Section 4(1)(a) is not to be rejected on the sole ground that sale price was below cost; the demand based on applying valuation rules is unsustainable and is set aside.

Limitation - extended period of limitation unavailable in absence of fraud or willful suppression - Whether the demand raised by the Department is barred by limitation in the absence of evidence of fraud or willful suppression. - HELD THAT: - The Tribunal found no positive evidence in the record to substantiate allegations of fraud or willful suppression by the assessee. In the absence of such a factual foundation, the Department could not invoke the extended period of limitation. Consequently, the proposed demand, which relies on an extended limitation period without proof of the necessary exceptional circumstances, is time barred. [Paras 8]

The demand is barred by limitation in the absence of any material establishing fraud or willful suppression; the impugned order is set aside on this ground as well.

Final Conclusion: The appeal is allowed: the transaction value declared by the assessee cannot be rejected merely because the sale price was below manufacturing cost in the absence of extra commercial consideration and without departmental inquiry, and the demand is also time barred for want of evidence of fraud or willful suppression; the impugned order is set aside with consequential relief as per law.

Penalty for non-filing of statutory returns - extended period of limitation - penalty under Rule 27 of the Central Excise Rules, 2002 - penalty under Rule 12(6) of the Central Excise Rules, 2002 - penalty under Rule 15A of the Cenvat Credit Rules, 2004 - deletion of Rule 9A(3) without a saving clause - requirement of wilful suppression, concealment or mis-declaration for imposing penalty

Requirement of wilful suppression, concealment or mis-declaration for imposing penalty - extended period of limitation - Whether penalties could be imposed despite absence of explicit allegation of wilful suppression, concealment or mis-declaration in the show cause notice. - HELD THAT: - The Tribunal found that the audit team had raised objections during the audit and the assessee did not accept the audit view nor file the statutory returns. In those circumstances the authorities were justified in invoking the extended period of limitation and proceeding with imposition of penalties even though the show cause notice did not use the words 'wilful suppression' or 'mis-declaration'. The factual finding that the assessee had been put on notice by audit and yet failed to file returns underlies the confirmation of penalties where applicable. [Paras 6, 7]

Penalties are not barred merely because the show cause notice lacks explicit talismanic language of 'wilful suppression' where audit objections were raised and returns were not filed; extended limitation period invocation was justified.

Penalty under Rule 27 of the Central Excise Rules, 2002 - Whether the penalty imposed under Rule 27 for non-filing of ER-4 (Yearly) return for 2013-14 was sustainable and in what quantum. - HELD THAT: - The Tribunal held that while culpability attached for non-filing of the ER-4 yearly return for 2013-14, the amount of penalty originally imposed was excessive. Exercising its appellate power to moderate the penalty, the Tribunal reduced the penalty to a lower sum as a more appropriate sanction for that default. [Paras 7]

Penalty under Rule 27 for ER-4 (2013-14) is reduced; original higher penalty set aside and reduced to a lower amount.

Penalty under Rule 12(6) of the Central Excise Rules, 2002 - penalty for non-filing of ER-4 and ER-7 yearly returns - Whether penalties in terms of Rule 12(6) for non-filing of ER-4 and ER-7 yearly returns for 2014-15 were correctly imposed. - HELD THAT: - After considering the submissions and the audit history, the Tribunal found that penalties under Rule 12(6) for non-filing of ER-4 (2014-15) and ER-7 (2014-15) were lawfully imposed. There was no reason to interfere with the confirmation of the penalties in respect of these yearly returns. [Paras 7]

Penalties under Rule 12(6) for ER-4 (2014-15) and ER-7 (2014-15) are confirmed.

Penalty under Rule 15A of the Cenvat Credit Rules, 2004 - deletion of Rule 9A(3) without a saving clause - penalty for non-filing of ER-5 and ER-6 returns - Whether penalties imposed under Rule 15A for non-filing of returns required by Rule 9A(3) of the Cenvat Credit Rules, 2004 (ER-5 for 2014-15 and ER-6 for Aug 2014 to Mar 2016) were sustainable when Rule 9A(3) had been omitted prior to issuance of the show cause notice without any saving provision. - HELD THAT: - The Tribunal examined the statutory position and observed that Rule 9A(3) had been omitted by notification with effect from 01.04.2016 and that omission contained no saving clause preserving liabilities or penal consequences for periods thereafter. Because Rule 9A(3) was not in force at the time the show cause notice was issued, penalties premised solely on non-compliance with that now-omitted provision could not be sustained. Consequently, the penalties levied under Rule 15A for non-filing of ER-5 (2014-15) and ER-6 (Aug 2014 to Mar 2016) were set aside. [Paras 3, 7]

Penalties under Rule 15A based on Rule 9A(3) are set aside because Rule 9A(3) had been omitted without a saving clause at the time of issuance of the show cause notice.

Final Conclusion: The appeal is allowed in part and dismissed in part: the penalty under Rule 27 for ER-4 (2013-14) is reduced; penalties under Rule 12(6) for ER-4 and ER-7 (2014-15) are confirmed; penalties under Rule 15A premised on the omitted Rule 9A(3) (ER-5 2014-15 and ER-6 Aug 2014-Mar 2016) are set aside. The appeal is disposed accordingly.

Bail under Section 37 of the NDPS Act - Evidentiary value and admissibility of statements recorded under Section 67 of the NDPS Act - Use of confessional or disclosure statements made to investigating officers - Reliance on retracted co-accused statements and circumstantial evidence for bail

Bail under Section 37 of the NDPS Act - Evidentiary value and admissibility of statements recorded under Section 67 of the NDPS Act - Reliance on retracted co-accused statements - Whether the petitioner was entitled to bail despite being implicated by statements under Section 67 and co-accused disclosures in an NDPS prosecution involving commercial quantity recoveries. - HELD THAT: - The Court examined the prosecution case and the materials placed on record, noting that the petitioner's name surfaced from statements of co-accused and that no incriminating recovery was effected from the petitioner or his shop. The judgment considered the majority view in Tofan Singh that statements recorded under Section 67 of the NDPS Act cannot be used as confessional statements in trial, and the dissenting observations that extra-judicial statements may have evidentiary value if voluntary and proved. Applying these authorities, the Court held that where the only or primary incriminating material against an accused is a retracted disclosure or statements under Section 67 (and there is no recovery at the accused's instance), such material cannot alone suffice to keep the accused behind bars at the bail stage. While the prosecution may proceed to prove its case by admissible and corroborative material (for example call detail records or other circumstantial evidence), reliance solely on retracted disclosures made prior to arrest and on Section 67 statements (given the recent authoritative pronouncement) is insufficient to negativate the twin conditions of Section 37(b)(ii). The Court observed that investigation and filing of charge-sheet are complete but, in the peculiar facts, there is no material to show the petitioner is likely to commit an offence if released; accordingly the statutory safeguards of Section 37 were satisfied permitting bail subject to conditions. The Court did not decide the ultimate admissibility or weight of other independent evidence at trial and confined its determination to the bail question on the materials before it. [Paras 32, 33, 35, 36]

Petitioner entitled to bail; directed to be released on furnishing personal bond and surety, subject to conditions restricting tampering with evidence and ensuring availability to the investigating officer.

Final Conclusion: The petition is allowed and the petitioner is granted bail on furnishing bonds and surety and subject to conditions; the Court's order is confined to bail and does not adjudicate the merits of the prosecution's case.

Non-bailable offence involving commercial quantity under NDPS Act - Section 37 NDPS Act - limitations on grant of bail - reasonable grounds for believing accused not guilty - recovery and seizure as circumstantial evidence - CDR evidence linking accused - disclosure statement of co-accused - risk of absconding - parity in grant of bail

Section 37 NDPS Act - limitations on grant of bail - Non-bailable offence involving commercial quantity under NDPS Act - reasonable grounds for believing accused not guilty - Whether the petitioner is entitled to bail when commercial quantity of contraband is involved and the twin conditions of Section 37 NDPS Act are to be satisfied. - HELD THAT: - The Court held that the recovered quantity of heroin (575 grams) constitutes commercial quantity attracting the rigour of Section 37 of the NDPS Act, which renders offences cognizable and non-bailable and permits bail only if (i) the Public Prosecutor is given an opportunity to oppose and (ii) the court is satisfied on reasonable grounds that the accused is not guilty and is not likely to commit an offence while on bail. The Court applied the settled Supreme Court tests that the satisfaction must be based on more than prima facie grounds and requires substantial probable cause to believe non-guilt; it is not required to record a finding of not guilty but must be satisfied for the limited purpose of granting bail. Applying these principles to the materials on record, the Court found the twin conditions of Section 37 were not fulfilled and therefore bail could not be granted to the petitioner at this stage. [Paras 12, 13, 14, 17, 18]

Bail denied: Section 37 applies and the court is not satisfied on reasonable grounds of the petitioner's non-guilt or that he would not offend if released.

Recovery and seizure as circumstantial evidence - disclosure statement of co-accused - CDR evidence linking accused - risk of absconding - parity in grant of bail - Whether the material facts - disclosure by co-accused, recovery at the petitioner's premises, tools and packaging materials, and call detail records - furnish reasonable grounds to believe the petitioner's involvement and risk of absconding, thus precluding bail. - HELD THAT: - The Court considered the disclosure by co-accused Stanley identifying the petitioner as the person who gave him the parcel, the subsequent search of the petitioner's house yielding a rectangular box of the same make as that which contained the seized contraband, broken shock-absorber parts, tools, weighing machines, hologram seals and empty polythene packets, and CDRs showing communication between the petitioner and Stanley. The organized manner of packing and concealment, the recovery of tools and parts capable of facilitating concealment, and CDR linkages cumulatively constitute prima facie material from which reasonable grounds arise to believe the petitioner's involvement. The Court also noted the petitioner is a foreign national and that a co-accused released on interim bail had absconded and been declared a proclaimed offender; these factors weighed on the risk of absconding and likelihood of repetition. The earlier grant of bail to another accused did not entitle the petitioner to parity in the face of distinct material linking him to the offence. [Paras 9, 10, 15, 16, 17]

The available disclosure, recovery and CDR material furnish reasonable grounds to believe the petitioner's involvement and risk of absconding, militating against bail.

Final Conclusion: The application for regular bail is dismissed: the recovery involves commercial quantity attracting Section 37, and the combined disclosure, seizure and CDR evidence furnish reasonable grounds to believe the petitioner is guilty and poses a risk of absconding or re-offending, hence bail is not warranted at this stage.

Regular bail under Section 439 Cr.P.C. - controlled commodity - rigour of Section 37 NDPS Act not applicable - voluntary statement under Section 67 NDPS Act - risk of tampering with evidence and conditional bail

Controlled commodity - rigour of Section 37 NDPS Act not applicable - Applicability of the special rigour of Section 37 of the NDPS Act in respect of the seized commodity (Pseudoephedrine). - HELD THAT: - The Court held that Pseudoephedrine is a controlled commodity and, accordingly, the special rigour of Section 37 of the NDPS Act does not apply to the facts of this case. The Court recorded that it will not at this stage go into the merits of the prosecution's case so as to avoid causing prejudice to the parties, noting the period of custody and absence of antecedents as material for interim consideration. [Paras 6]

Section 37 NDPS Act's heightened rigour is not applicable to Pseudoephedrine in the circumstances of this case.

Regular bail under Section 439 Cr.P.C. - voluntary statement under Section 67 NDPS Act - risk of tampering with evidence and conditional bail - Whether the petitioner should be enlarged on regular bail and on what conditions. - HELD THAT: - Having considered the materials, the custody period of about four months, and the absence of criminal antecedents, the Court was inclined to grant regular bail while refraining from adjudicating contested evidentiary or merit issues. The Court balanced the prosecution's contention regarding the quantity seized and potential risk of re-offending or tampering with evidence against the mitigating factors and imposed specific conditions to address such risks. The order prescribes a personal bond with surety, surrender of passport, making the petitioner's mobile number available and functional, and weekly reporting to the Investigating Officer to mitigate risk of tampering or absconding. [Paras 6, 7]

Petitioner granted regular bail subject to furnishing a personal bond with one surety, surrender of passport to IO, maintaining functional mobile contact and weekly reporting to the IO.

Final Conclusion: The petition for regular bail is allowed; the petitioner is released on bail subject to the stated conditions (personal bond with one surety, surrender of passport, provision and maintenance of mobile contact, and weekly reporting to the Investigating Officer), and the order is transmitted to the Jail Superintendent and Trial Court for compliance.