TaxTMI Updates e-Newsletter
Mar 31,2021

Detention and confiscation under section 129 of the CGST Act - compliance with section 68 of the CGST Act and rule 138A of the Central Goods and Services Tax Rules - interim release on filing of an undertaking - challenge by departmental appeal under Section 107 of the Act

Interim release on filing of an undertaking - detention and confiscation under section 129 of the CGST Act - Effect of the earlier interim order releasing the truck and goods and consequent disposition of the writ petition. - HELD THAT: - The Court recorded that a Coordinate Bench had earlier granted ad interim relief directing immediate release of the truck and goods upon the petitioners filing an undertaking to pay any liability if ultimately unsuccessful. Having regard to that operative interim order and the relief already furnished to the petitioners, the present writ-application required no further adjudication and was treated as virtually allowed. The Court therefore disposed of the petition subject to the consequences of the undertaking previously filed by the petitioners. [Paras 3, 6]

Writ-application disposed of as virtually allowed in view of the earlier interim order releasing the truck and goods on undertaking.

Detention and confiscation under section 129 of the CGST Act - challenge by departmental appeal under Section 107 of the Act - Remedy and procedure where a final order of confiscation has subsequently been passed. - HELD THAT: - The Court noted that a final order of confiscation in Form MOV-11 may have been passed after the interim order. In such an event, the petitioners were informed that they remain free to challenge that final confiscation by availing the statutory appellate remedy under Section 107 of the Act. Meanwhile the authority was directed to proceed in accordance with the undertaking filed by the petitioners, subject to any order that the appellate authority may pass upon hearing an appeal. [Paras 4, 5]

If a final confiscation order has been passed, the petitioners may challenge it by appeal under Section 107; the authority shall proceed in terms of the undertaking, subject to any appellate order.

Final Conclusion: The petition is disposed of as virtually allowed in view of the earlier interim release on undertaking; if a final confiscation order exists, the petitioner may pursue the statutory appeal under Section 107 and the authority shall act in terms of the undertaking subject to any appellate orders.

Provisional attachment under the CGST Act - security by bank guarantee to protect revenue - exercise of discretionary power sparingly and on weighty grounds - protection against irreversible detrimental effect on business - undertaking to preserve assets during pendency

Provisional attachment under the CGST Act - security by bank guarantee to protect revenue - exercise of discretionary power sparingly and on weighty grounds - protection against irreversible detrimental effect on business - Validity of the order directing the petitioner to furnish a bank guarantee and bond as a condition for release/modification of provisional attachment under Section 83 of the CGST Act. - HELD THAT: - The Court examined whether the modifying order requiring a bank guarantee and bond was supported by reasons showing a reasonable apprehension that the assessee would frustrate ultimate collection of revenue. Having regard to precedents emphasising that provisional attachment under Section 83 is a drastic power to be exercised sparingly, on substantive and weighty grounds, the Court found that neither the provisional attachment orders nor the modification order recorded the requisite material or reasonable apprehension justifying the imposition of such a security. The consequence of the direction - blocking a substantial portion of the assessee's funds and likely causing irreversible detriment to business - militated against allowing unfettered enforcement of the bank guarantee condition in the absence of demonstrable reasons. In light of these considerations and the authorities placed before it, the Court concluded that the direction to furnish the bank guarantee could not be permitted to operate pending adjudication of the petition.

The direction in Clause 2(a) of Ext.P9 requiring the petitioner to furnish a bank guarantee is stayed till disposal of the writ petition.

Undertaking to preserve assets during pendency - protection against irreversible detrimental effect on business - Appropriate interim safeguard to balance revenue protection and the assessee's commercial interests while staying the bank guarantee requirement. - HELD THAT: - Recognising the need to protect the revenue while preventing irreparable harm to the petitioner, the Court directed an interim, less intrusive measure. Instead of enforcing the bank guarantee, the petitioner was ordered to furnish an affidavit undertaking not to alienate or deal with the fixed assets, plant and equipment reflected in the balance sheet produced (Ext.P16) during the pendency of the petition. This measure was accepted as a proportionate alternative to immobilising the petitioner's bank funds in the absence of cogent reasons for the guarantee.

Petitioner to file an affidavit undertaking not to alienate the specified fixed assets; parties to act on authenticated copy of the order.

Final Conclusion: The petition succeeds in part: the Court stayed the direction to furnish a bank guarantee under the modifying order pending disposal of the writ petition and allowed a protective affidavit undertaking concerning specified fixed assets as an interim measure to safeguard both revenue interests and the petitioner's business.

Notice under Section 122(1) of the CGST Act - enforcement inspection report - advisory observations not amounting to adjudication or creation of legal demand - status of enforcement authority closed upon submission of report - writ petition challenging demand notice

Notice under Section 122(1) of the CGST Act - advisory observations not amounting to adjudication or creation of legal demand - status of enforcement authority closed upon submission of report - Whether the writ petition challenging the notice issued under Section 122(1) of the CGST Act called for adjudication in view of the respondents' assurance that the notice and enforcement report were advisory and would not initiate adjudication or create a legal demand. - HELD THAT: - The respondents filed a memo stating that the notice dated 01.12.2020 under Section 122(1) was issued to appraise the taxpayer of observations made during enforcement inspection and that the enforcement report, submitted with advisory observations after verification of books, closed the enforcement authority's proceedings. The memo expressly asserted that no adjudication proceedings to create a legal demand had been and would be initiated. On receipt of that assurance the petitioner accepted that the grievance was addressed. In those circumstances the writ petition did not call for substantive adjudication on the merits and the court declined to adjudicate further while keeping open the petitioner's contentions for future adjudicatory proceedings if initiated. [Paras 3]

Writ petition dismissed as not calling for adjudication in light of the respondents' assurance that the notice and enforcement report were advisory and no adjudication or creation of legal demand would be initiated; contentions kept open.

Final Conclusion: The petition was dismissed without adjudication on merits because the respondents represented that the impugned notice and enforcement report were advisory, the enforcement proceedings stood closed on submission of the report, and no adjudication or demand would be initiated; the petitioner's legal contentions remain available if adjudicatory proceedings are later commenced.

Reason to believe - reopening/re-assessment under Section 147 of the Income Tax Act - sanction under Section 151(1) of the Income Tax Act - reasons must disclose nexus between material and formation of belief - non-application of mind / rubber-stamping - jurisdictional error - limitation for issuance of notice under Section 149 of the Income Tax Act - principles of natural justice

Reason to believe - reasons must disclose nexus between material and formation of belief - Validity of the reasons recorded by the Assessing Officer for issuance of notice under Section 148 (reopening for AY 2011-2012). - HELD THAT: - The Court examined the order recording reasons and found that the assessing officer failed to correlate the information received from the investigation wing with material in the assessee's returns and balance sheet. The recorded reasons contained factual errors (authorised capital, paid-up capital, share premium and year of incorporation) and inconsistent quantifications of the purported unexplained credits (different figures appearing in the reasons, endorsements and returns). The order recording reasons asserted accommodation entries as "share capital/share premium" but the assessee's books reflected unsecured loans; the discrepancies demonstrate absence of a rational nexus between the underlying material and the formation of belief. On this basis the Court held that the formation of belief was arbitrary and irrational and amounted to non-application of mind, thereby constituting a jurisdictional error permitting judicial interference under Article 226. [Paras 9]

The reasons recorded by the Assessing Officer are vitiated by non-application of mind and do not furnish a valid basis for reopening; the initiation of reassessment was unreasonable and irrational.

Sanction under Section 151(1) of the Income Tax Act - non-application of mind / rubber-stamping - jurisdictional error - Validity of the sanction accorded by the Principal Commissioner (and the endorsement by the ACIT) for issuance of notice under Section 148. - HELD THAT: - The sanction-order contained only the word "approved" and an endorsement by the ACIT stating escaped income, without any recorded reasons showing satisfaction by the sanctioning authority. The Court applied precedents holding that the sanctioning authority must indicate the exercise of mind and disclose reasons linking the material to the satisfaction reached. The impugned sanction was a mechanical rubber-stamp incapable of sustaining the reopening because it did not demonstrate that the sanctioning authority was satisfied on the basis of the recorded material or that any independent application of mind occurred; further, inconsistencies in the quantified figures should have alerted the sanctioning authority but were not addressed. [Paras 9, 10]

The sanction granted by the Principal Commissioner (and the ACIT endorsement) is vitiated by mechanical approval/rubber-stamping and is quashed.

Limitation for issuance of notice under Section 149 of the Income Tax Act - Whether the notice dated 31.03.2018 was time barred. - HELD THAT: - The Court observed that limitation for issuance of a notice under the relevant provision commences from the date of issuance, not service. The record showed the notice was issued on 31.03.2018, the last day of limitation; consequently, the plea that the notice was barred by limitation was rejected. [Paras 10]

The limitation objection is rejected; the notice was not time barred.

Non-application of mind / rubber-stamping - Whether the delay between issuance of the notice and service of the reasons established ante dating of the reasons or improper conduct justifying quashing on that ground. - HELD THAT: - The Court noted that a substantial time lag, if proved, could indicate ante dating of the reasons, but a definitive conclusion required inspection of the original file. The revenue denied ante dating and the assessee did not press the point at hearing; accordingly the Court refrained from a final determination on this aspect and indicated that a conclusive view could be taken only after examination of the original record. [Paras 10]

No final finding; the Court did not decide conclusively on the allegation of ante dating/delay for lack of original record and non pursuit by the assessee.

Final Conclusion: The High Court quashed the notice dated 31.03.2018 issued under Section 148 for AY 2011-2012 and the sanction accorded by the Principal Commissioner (and ACIT endorsement) on the ground that the reasons and the sanction suffered from non-application of mind and lacked the requisite nexus with the material; the limitation plea was rejected and no conclusive finding was recorded on the alleged delay/ante-dating for want of original record. Parties to bear their own costs.

Benefit of exemption under Section 11 - Registration under Section 12A/12AA - E-filing requirement to quote registration number - Onus of proof to show non-registration - Judicial direction for administrative verification and opportunity of hearing

E-filing requirement to quote registration number - Benefit of exemption under Section 11 - Whether the benefit of exemption under Section 11 can be denied solely because the assessee did not quote the registration number while filing returns online from AY 2013-14 onwards. - HELD THAT: - The Court accepted the practical position that, from AY 2013-14, returns had to be filed online and the e-filing utility required quoting the registration number; in that technical sense the department could not grant exemption where the registration number was not furnished during e-filing. However, the Court rejected the proposition that absence of departmental records permits a conclusive presumption that no registration was ever granted. The Court noted historic acceptance of exemption in earlier assessment years and observed that denial of exemption solely on account of the assessee's inability to produce a lost certificate (destroyed in 1978 floods) is not tenable without the department undertaking verification. The legal stance that technical non-quoting on e-filing may bar automated acceptance was therefore recognized, but not as permitting the department to foreclose substantive inquiry into whether registration had in fact existed. [Paras 14]

E-filing requirement to quote the registration number may prevent automated grant of exemption, but absence of such number does not justify a departmental presumption of non-registration without proper verification.

Registration under Section 12A/12AA - Onus of proof to show non-registration - Judicial direction for administrative verification and opportunity of hearing - Whether the department must verify available contemporaneous records and give the Trust an opportunity of hearing to ascertain if registration under Section 12A had been granted, when original registration certificate is unavailable. - HELD THAT: - The Court directed that the Trust should produce all records available with it and the department must closely and threadbare scrutinise those records to ascertain whether registration under Section 12A had been issued and whether exemption under Section 11 was rightly availed in the relevant years. The Court observed that registration once granted is of a permanent character and that where past assessments have accepted exemption, a presumption of registration arises unless the Revenue adduces contrary documentary evidence. Given the destruction of original records and the department's admitted lack of older records, the Court mandated practical administrative verification rather than an adverse presumption against the Trust. The department was also required to provide the Trust an opportunity of hearing before taking a final decision. [Paras 15, 16, 17]

The department must examine the Trust's available records, afford an opportunity of hearing, and determine whether registration under Section 12A existed; the matter is remitted to the department for that verification and decision within a limited time.

Final Conclusion: Writ disposed directing the Trust to produce all available records and directing the department to verify those records, give the Trust an opportunity of hearing and take an appropriate decision on registration/exemption within four weeks; the interim order dated 30.09.2019 shall continue until such decision is taken.

Reopening of assessment - reason to believe - tangible material requirement for reopening under Section 147 - intimation under Section 143(1) - Section 10(10D) exemption for life insurance - Section 80CCC(2) applicability to annuity plans

Tangible material requirement for reopening under Section 147 - intimation under Section 143(1) - reason to believe - Validity of reassessment notice under Section 148/147 where original return was processed under Section 143(1) without scrutiny. - HELD THAT: - The Court held that reopening an assessment accepted under Section 143(1) requires the same statutory ingredient of a "reason to believe" that income chargeable to tax has escaped assessment and, therefore, tangible material coming into possession of the Assessing Officer subsequent to the intimation is necessary. The authorities and CBDT explanatory notes cited establish that no distinction is to be drawn between cases originally assessed under Section 143(1) and those assessed after scrutiny; consequently, mere issuance of a notice without any new tangible material or a live link to the formation of belief is insufficient to sustain reassessment. Applying these principles to the facts, the reasons recorded by the AO did not demonstrate any fresh tangible material post the Section 143(1) intimation to form a reason to believe that income had escaped assessment. [Paras 27, 28, 29]

Reopening of the assessment was unsustainable for want of tangible material and valid "reason to believe", and the reassessment notice was quashed.

Section 10(10D) exemption for life insurance - Whether the Revenue's reasons prima facie negatived entitlement to exemption under Section 10(10D). - HELD THAT: - The Court observed that Section 10(10D) exempts any sum received under a life insurance policy (including bonus) unless a specified exception applies, and that for the Revenue to prima facie treat the benefit as non-exempt it must indicate which statutory condition for exemption is not fulfilled. In the present case the reasons recorded merely noted non-disclosure of the accretion/bonus but did not indicate which of the statutory criteria for denial of exemption under Section 10(10D) were unmet; consequently the recorded reasons failed to show a prima facie case that the exemption did not apply. [Paras 21]

The reasons recorded did not sufficiently indicate that the conditions for exemption under Section 10(10D) were not fulfilled.

Section 80CCC(2) applicability to annuity plans - Whether Section 80CCC(2) could be invoked by Revenue when no deduction under Section 80CCC(1) was claimed or allowed. - HELD THAT: - The Court held that reference to Section 80CCC(2) was misconceived because Section 80CCC relates to annuity plans and only applies where a deduction under Section 80CCC(1) has been claimed and allowed; Section 80CCC(2) deems amounts standing to the credit of a fund in respect of which such a deduction was allowed to be income when received. In the facts of the case there was no finding or averment that the assessee had claimed or been allowed any deduction under Section 80CCC(1), hence Section 80CCC(2) could not be the basis for treating the surrender proceeds as taxable. [Paras 25]

Invocation of Section 80CCC(2) was legally misplaced in absence of any deduction under Section 80CCC(1).

Final Conclusion: Writ petitions allowed; impugned notices reopening assessment for AY 2012-13 quashed for lack of tangible material to form a valid reason to believe and for other legal infirmities in the reasons recorded.

Service of notice under Section 148 is a jurisdictional requirement - validity of reassessment under Section 147 depends on service of notice - onus on the Revenue to prove service of notice - Section 292BB deeming provision inapplicable where objection is raised before completion

Service of notice under Section 148 is a jurisdictional requirement - onus on the Revenue to prove service of notice - Section 292BB deeming provision inapplicable where objection is raised before completion - Reopening under Section 147 cannot proceed in the absence of a notice under Section 148 actually served on the assessee. - HELD THAT: - The Court held that service of notice under Section 148 is a condition precedent to the validity of any reassessment under Section 147 and thus a jurisdictional requirement. The scheme of Sections 147, 148 and 149 and the mandate of Section 148(1) require that no reassessment be made until service of notice has been effected. The Court observed that earlier authorities construing the corresponding provisions under the pre-1961 law and subsequent decisions under the 1961 Act uniformly treat valid service as foundational to jurisdiction; reliance placed in the judgment upon R. K. Upadhyaya and decisions such as Y. Narayana Chetty , C. N. Nataraj , Hotline International and others was noted in support of this proposition. The Court further recorded that the burden to establish that service was effected rests on the Revenue, and that a deeming provision like Section 292BB cannot be invoked where the assessee has raised an objection before completion of the assessment; accordingly the Revenue did not and could not rely on Section 292BB in the facts of this case. Applying these principles to the present facts, the Court found that the Department had dispatched the notice to an address where the assessee no longer resided (the agricultural land at Kalol) instead of the residential address at Khorsam, and there was no valid service of the Section 148 notice upon the assessee. In those circumstances the reassessment proceedings initiated under Section 147 were without jurisdiction and liable to be quashed. [Paras 7, 11, 12, 26, 27]

The reassessment proceedings under Section 147 initiated without valid service of a Section 148 notice are void; the objection order dated 1st November 2018 is quashed and set aside.

Final Conclusion: Writ petition allowed; the order disposing of objections dated 1st November 2018 is quashed and set aside and the reopening under Section 147 in respect of Assessment Year 2011-12 is held invalid for want of service of the Section 148 notice.

Validity of notices under Section 153A in case of delay in handing over seized materials - Mandatory or directory nature of time limit in Section 132(9A) - Effect of non-compliance with procedural time-limits on jurisdiction to initiate block assessments - Right to obtain copies of seized documents following search and seizure

Validity of notices under Section 153A in case of delay in handing over seized materials - Effect of non-compliance with procedural time-limits on jurisdiction to initiate block assessments - Notices issued under Section 153A initiating block assessments were not vitiated by the admitted delay in handing over seized materials beyond the period specified in Section 132(9A). - HELD THAT: - The court addressed whether the AO's jurisdiction to issue notices under Section 153A is invalidated by the investigating officer's delay in handing over seized assets beyond 60 days under Section 132(9A). The admitted facts show the last authorisation dated 04.09.2018 and handover beyond the statutory period. The court examined precedent (K.V. Krishnaswamy Naidu) and subsequent amendments to Section 132, noting changes in scheme since 2002. While recognising that strict compliance with procedural formalities is desirable to facilitate assessment, the court held that the sixty-day period in Section 132(9A) is not critical to the legality of notices under Section 153A in the present circumstances. Although the delay constituted a gross procedural irregularity, it did not oust jurisdiction or render the initiation of block assessments void; assessments may therefore continue subject to applicable limitation extensions and observance of principles of natural justice. [Paras 15, 26, 28, 33, 34]

Notices under Section 153A for AY 2013-14 to 2018-19 sustained; writ petitions challenging those notices dismissed and assessments to proceed.

Mandatory or directory nature of time limit in Section 132(9A) - The sixty-day handing-over period under Section 132(9A) was held not to be critical to invalidate the Section 153A notices; non-compliance is a procedural lapse but not fatal to the assessments in these cases. - HELD THAT: - The court reviewed divergent authorities (including K.V. Krishnaswamy Naidu and subsequent High Court decisions) and the post-2002 amendments to Section 132. It observed that though Section 132(9A) imposes a time-frame to aid orderly completion of assessment and to protect interests of parties, the admitted delay here did not render the AO's subsequent exercise of jurisdiction under Section 153A illegal. The court treated the time limit as not determinative of jurisdiction in the circumstances before it, distinguishing the earlier authorities which addressed different factual and legislative contexts. [Paras 23, 28, 31, 32, 33]

Section 132(9A)'s time-limit non-compliance is a serious procedural irregularity but not a jurisdictional infirmity that vitiates the impugned Section 153A notices in this matter.

Right to obtain copies of seized documents following search and seizure - The petitioners' request for supply of copies of seized documents was ordered to be complied with by the revenue within the time specified by the court and that aspect of the dispute was closed on the stated terms. - HELD THAT: - Earlier interlocutory directions (recorded at the earlier listing) required the respondents to furnish copies of statements and seized materials that would be used in assessment, upon request and payment of copying charges. Subsequent exchanges showed disagreement over whether documents had been dispatched and returned unclaimed; parties thereafter agreed to amicably resolve outstanding supply. The court directed the respondent to furnish the list of documents required and to supply the same to the petitioner within four days from receipt of the petitioner's request, and closed that writ petition on these terms. [Paras 4, 5]

Respondents directed to furnish requested seized materials to petitioners within four days of the petitioner's request; related writ petition closed on that basis.

Adjudication limited to legal issues; disputed allegations of coercion and human-rights violations not decided - Allegations of illegal detention, coercion, ill-treatment, and irregular conduct of search were not adjudicated on merits and the petition seeking declaration on those factual contentions was closed without finding. - HELD THAT: - The court noted serious and contested allegations concerning the conduct of the search and recording of statements. However, counsel for petitioners did not press these factual contentions at hearing. The court therefore declined to determine the disputed factual matters and confined its order to legal issues, closing the writ petition seeking declaratory relief on those grounds. [Paras 3]

Writ petition seeking declaration on alleged human-rights violations and coercion closed without adjudication of those factual allegations.

Final Conclusion: Writ petitions challenging issuance of Section 153A notices for AY 2013-14 to 2018-19 dismissed; the court held that the admitted delay in handing over seized materials beyond Section 132(9A) is a procedural irregularity that does not vitiate the notices, assessments may proceed and the respondents were directed to furnish requested seized materials to petitioners within the timeframe ordered; some factual complaints were not decided.

Reopening of assessment under Section 147 - failure to disclose fully and truly all material facts - reasons recorded under Section 148(2) - sanction under Section 151 - reopening based on third party information / borrowed satisfaction - true and full disclosure

Reopening of assessment under Section 147 - failure to disclose fully and truly all material facts - Validity of reopening the assessment beyond four years under Section 147 in view of alleged non disclosure of material facts by the assessee - HELD THAT: - The Court examined the reasons recorded and materials placed before the Assessing Officer which originated from investigation reports indicating that transactions with certain entities (including M/s. Agni Gems Pvt. Ltd.) were accommodation/ bogus entries used for routing funds abroad. The Court applied settled principle that, where subsequent specific and reliable information exposes the falsity of earlier disclosures, mere prior disclosure of a transaction does not amount to true and full disclosure. On perusal of the investigation material and the enquiries made by the AO, the Court held that tangible fresh material came to the AO's hands after the original assessment, which could lead to a belief that income had escaped assessment because the entries were not genuine. Reliance was placed on precedents recognizing that fresh information revealing a transaction to be bogus justifies reopening under Section 147.

Reopening beyond four years under Section 147 was valid on the ground of failure to disclose fully and truly material facts as subsequent investigation revealed the purchases to be bogus.

Reasons recorded under Section 148(2) - reopening of assessment under Section 147 - Whether the reasons for issuing notice under Section 148(2) were valid and demonstrated application of mind by the Assessing Officer - HELD THAT: - The Court inspected the reasons recorded which incorporated the investigation report, fund trail analysis and AO's own inquiries. The reasons linked the information received from the investigation wing to the assessee's recorded purchases and explained why the AO believed those entries were accommodation transactions. The Court found that the AO had not acted mechanically; he verified the information and applied his mind before forming the belief that income had escaped assessment. The Court reiterated that sufficiency of reasons is not to be tested in writ at the threshold if relevant material exists to form a bona fide belief.

Reasons recorded under Section 148(2) were adequate; the AO applied his mind and formed a bona fide belief justifying issuance of the notice.

Reopening based on third party information / borrowed satisfaction - reasons recorded under Section 148(2) - Whether reliance on information received from investigating agencies rendered the reassessment proceedings invalid as 'borrowed satisfaction' - HELD THAT: - The Court considered whether the AO merely acted on third party material without independent satisfaction. It noted that the AO perused the investigation material, conducted independent enquiries and took into account statements and fund trail evidence before reaching a conclusion. Drawing upon authorities that permit use of departmental or other government reports as a basis for forming a belief, the Court held that reliance on such information does not invalidate reopening provided the AO applies his mind to the material and forms his own belief.

Reopening was not vitiated by borrowed satisfaction; reliance on third party information was permissible as the AO made independent inquiries and applied his mind.

Sanction under Section 151 - reopening of assessment under Section 147 - Validity of sanction under Section 151 for issuing the notice where more than four years had lapsed - HELD THAT: - The Court examined the sanction papers and observed that the competent authority had recorded satisfaction (in handwriting) with the reasons and accorded approval for issuance of the notice on the date the notice was issued. The Court rejected the contention that sanction was not obtained prior to issuance or was given mechanically, finding documentary support that satisfaction was recorded and sanction accorded in accordance with statutory requirement.

Sanction under Section 151 was validly accorded and the requirement was satisfied prior to/at the time of issuance of the notice.

Final Conclusion: The reassessment notice and the order rejecting objections were upheld; the writ petition was dismissed for lack of merit.

Intra-court appeal under Clause 15 of the Letters Patent - appeal under Section 19 of the Contempt of Courts Act, 1971 - informant/relator not an aggrieved party - discretionary and summary jurisdiction in contempt proceedings

Intra-court appeal under Clause 15 of the Letters Patent - appeal under Section 19 of the Contempt of Courts Act, 1971 - informant/relator not an aggrieved party - discretionary and summary jurisdiction in contempt proceedings - Maintainability of the intra-court appeal filed by the private informant against the Contempt Court's order dismissing the contempt petition - HELD THAT: - The Court held that when a private party merely acts as an informant or relator by inviting the Court's attention to alleged contempt, such person does not become an aggrieved party entitled to appeal under Section 19 of the Contempt of Courts Act, 1971. The jurisdiction to initiate and to punish for contempt is summary and discretionary; an informant's role ordinarily ends once the facts are placed before the Court and the Court may, in its discretion, decline to proceed. Reliance placed on earlier authorities in the judgment (including Om Prakash Jaiswal and J.S. Parihar ) establishes that an informant cannot maintain an appeal against an order refusing to initiate or disposing of contempt proceedings. Permitting an intra-court appeal under Clause 15 of the Letters Patent in such circumstances would enable a private informant to indirectly obtain the appellate remedy denied by the statutory scheme of the Contempt Act and would be contrary to the established principle that only a person on whom punishment has been imposed by the Contempt Court is entitled to appeal under Section 19. On the facts, the Contempt Court found no wilful disobedience and no merit in the contempt petition; accordingly the appellant, being only the informant, had no right to maintain the intra-court appeal and the appeal was not maintainable. [Paras 13, 15]

The intra-court appeal under Clause 15 of the Letters Patent is not maintainable by the private informant and is dismissed.

Final Conclusion: The appeal is dismissed at the Registrar (SR) stage as not maintainable: a private informant who filed the contempt petition is not an aggrieved person entitled to appellate remedy under Section 19 of the Contempt of Courts Act, 1971, and therefore cannot sustain an intra-court appeal under Clause 15 of the Letters Patent.

Exemption under section 10(38) - unexplained cash credit under section 68 - onus of proof under section 68 - addition as unexplained expenditure under section 69C - reliance on interim SEBI orders and effect of revocation - duty of Assessing Officer to make independent enquiry under section 142(1) - preponderance of probability and circumstantial evidence - treatment under section 115BBE

Exemption under section 10(38) - unexplained cash credit under section 68 - onus of proof under section 68 - Long term capital gain on sale of shares held for more than twelve months was accepted as genuine and eligible for exemption under section 10(38); corresponding addition treating the receipt as unexplained cash credit under section 68 was deleted. - HELD THAT: - The Tribunal found that the assessee produced documentary evidence of purchase and sale through recognized stock exchange, payment and receipt through banking channels, delivery into Demat account and payment of STT; consequently the initial onus under section 68 was discharged. The Assessing Officer had primarily relied upon interim findings of SEBI and investigation reports without conducting independent enquiries or confronting/supplying statements to the assessee; such reliance on third party investigative material without further verification was held to be insufficient to treat the receipts as unexplained cash credits. In the absence of any adverse material placed by the revenue specifically implicating the assessee, and in view of the SEBI final order revoking interim directions in respect of the assessee, the Tribunal directed acceptance of the declared LTCG and allowed exemption under section 10(38). [Paras 5]

Declared long term capital gain of Rs. 5,76,90,819/- accepted; exemption under section 10(38) allowed and addition under section 68 deleted.

Reliance on interim SEBI orders and effect of revocation - preponderance of probability and circumstantial evidence - Interim SEBI orders relied upon by revenue could not sustain adverse tax consequences once SEBI issued a final order revoking interim directions against the assessee. - HELD THAT: - The Tribunal noted that the AO and CIT(A) relied upon SEBI's interim orders to draw adverse inferences. However, SEBI subsequently completed its investigation and by final order dated 20.9.2017 revoked interim directions in respect of the assessee, recording no adverse findings against him. Given the revocation and absence of other incriminating material confronted to the assessee, reliance on the earlier interim orders was held misplaced; an isolated rise in scrip price, without evidence of the assessee's involvement, could not justify treating the transactions as sham. [Paras 5]

Interim SEBI findings could not be used to sustain additions after SEBI's final revocation of directions in respect of the assessee; revenue's reliance on such interim material rejected.

Duty of Assessing Officer to make independent enquiry under section 142(1) - addition as unexplained expenditure under section 69C - Assessing Officer failed to conduct requisite independent enquiries under section 142(1) and erred in making consequential addition under section 69C; the consequential addition was deleted. - HELD THAT: - The Tribunal emphasised that information received from investigation wings or third parties must be corroborated by independent enquiries; AO should have invoked inquiry powers and confronted or produced statements used against the assessee and afforded opportunity of cross examination. The AO did not undertake such verification and merely reproduced investigative reports. As the principal addition under section 68 was deleted on merits, the consequential addition under section 69C (commission) also had no footing and was therefore deleted. [Paras 5]

AO's failure to make independent enquiries under section 142(1) noted; consequential addition under section 69C deleted.

Final Conclusion: Appeal allowed: the Tribunal accepted the assessee's claim of long term capital gain for AY 2014 15 as eligible for exemption under section 10(38), deleted the additions treating receipts as unexplained credits under section 68 and the consequential addition under section 69C, and dismissed the stay application as infructuous.

Revisionary jurisdiction under Section 263 - Explanation 1(c) to Section 263(1) - matters already considered and decided in appeal - Order giving effect to appellate order (order passed under Section 154) not an independent AO order for revision - Doctrine of merger - Borrowed satisfaction / proposal by Assessing Officer and requirement of independent application of mind by Commissioner - Explanation 2 to Section 263 - power where enquiries/verification not made by AO - Binding nature of ITAT orders and requirement of judicial hierarchy/discipline

Revisionary jurisdiction under Section 263 - Explanation 1(c) to Section 263(1) - matters already considered and decided in appeal - Order giving effect to appellate order (order passed under Section 154) not an independent AO order for revision - Doctrine of merger - Binding nature of ITAT orders and requirement of judicial hierarchy/discipline - Validity of the Principal Commissioner's exercise of revisionary jurisdiction under Section 263 in respect of the AO's order dated 02/05/2018 (an order giving effect to CIT(A)'s order) which had been considered and decided by appellate authorities including ITAT. - HELD THAT: - The Tribunal held that Section 263 is confined to orders independently passed by the Assessing Officer and that Explanation 1(c) limits the Commissioner's revisional power to matters not considered and decided in the appeal. The order dated 02/05/2018 was, in substance, an order giving effect to the CIT(A)'s directions and the subject issues had been considered by the CIT(A) and subsequently by the Tribunal which, by its order dated 14/01/2019, quashed the assessment and adjudicated the issues on merits. Applying the doctrine of merger and the binding nature of ITAT orders on subordinate authorities, the PCIT could not validly exercise revisionary jurisdiction over an order whose subject-matter had already been considered and decided in appeal, and which was effectively rendered non existent by the Tribunal's subsequent quashing of the assessment. The Tribunal also noted that the PCIT dismissed the binding effect of the ITAT order merely because the department had filed appeals, despite no stay of the Tribunal's order being shown. [Paras 3]

The invocation of Section 263 by the PCIT against the AO's 02/05/2018 order was unsustainable and the revision order was quashed on this ground.

Borrowed satisfaction / proposal by Assessing Officer and requirement of independent application of mind by Commissioner - Revisionary jurisdiction under Section 263 - Whether initiation of revision proceedings under Section 263 at the instance of a proposal from the Assessing Officer (i.e. without independent application of mind by the Commissioner) vitiates the revision order. - HELD THAT: - The Tribunal accepted the assessee's submission and precedents that the Commissioner must exercise an independent application of mind before invoking Section 263. Where the record shows that the PCIT initiated revision on the basis of the AO's proposal (a 'borrowed satisfaction'), the exercise of revisional power is invalid. The impugned order itself admitted receipt of a proposal from the AO and relied upon it, indicating lack of independent satisfaction by the PCIT. The Tribunal treated initiation on the AO's proposal as a separate legal infirmity justifying quashing of the revision. [Paras 3]

The revision was improperly initiated on the AO's proposal/borrowed satisfaction; the PCIT failed to apply independent mind and the revision order is quashed on this ground.

Explanation 2 to Section 263 - power where enquiries/verification not made by AO - Revisionary jurisdiction under Section 263 - Whether PCIT was justified in holding the AO's order erroneous and prejudicial on the ground that requisite enquiries or verifications were not carried out and in invoking Explanation 2 to Section 263 to withdraw reliefs. - HELD THAT: - The Tribunal examined the material and found that the AO had, in fact, carried out extensive verification before passing the order dated 02/05/2018 giving effect to the CIT(A)'s directions - including paper books filed, third party verifications, affidavits and admissions made before the Special Court and the AO's own recorded conclusions that verification was completed. Reliance on Explanation 2 requires the Commissioner to specify what enquiries were omitted and how non examination resulted in under assessment; the PCIT did not do so and instead directed withdrawal of reliefs without identifying the specific verifications that ought to have been done. Consequently, the Tribunal held that the PCIT's use of Explanation 2 was improper where the AO had in fact conducted the requisite enquiries. [Paras 3]

The PCIT's conclusion that the AO failed to verify and the consequent revision under Explanation 2 was unsustainable; the revision order is quashed on this ground.

Final Conclusion: The Tribunal held that the PCIT erred in invoking revisionary jurisdiction under Section 263: the impugned revision order dated 22/01/2020 was quashed because (i) the AO's 02/05/2018 order was an order giving effect to appellate directions and the matters had been considered by CIT(A) and ITAT, (ii) the PCIT acted on a proposal from the AO without independent application of mind, and (iii) the PCIT failed to show that requisite verifications were omitted by the AO; appeal accordingly partly allowed.

Furnishing of corporate guarantee as an international transaction - scope of international transaction under section 92B - Explanation (c) (capital financing including guarantee) - shareholder activity (OECD Guidelines) not covering guarantees given for operational obligations - performance guarantee is a species of corporate guarantee - arm's length guarantee fee - 0.50% plus actual out of pocket expenses - safe harbour rules are optional and inapplicable unless expressly availed - TNMM - effect of assessee's suo motu disallowance in revised return on operating cost base - entity level transfer pricing adjustments must be restricted to international transactions

Furnishing of corporate guarantee as an international transaction - scope of international transaction under section 92B - Explanation (c) (capital financing including guarantee) - shareholder activity (OECD Guidelines) not covering guarantees given for operational obligations - Furnishing of corporate guarantee by the assessee is an international transaction. - HELD THAT: - The Tribunal examined clause (c) of the Explanation to section 92B, which includes capital financing and expressly refers to guarantees. Having regard to that statutory insertion (with retrospective effect from 01-04-2002) and the inclusion of guarantees in the list of eligible transactions in Rule 10TD(2), the furnishing of corporate guarantees falls within the expression "international transaction." The contention that such guarantees are merely "shareholder activities" under OECD Guidelines was rejected because shareholder activities are acts performed solely due to shareholding and do not encompass guarantees that directly affect the principal debtor (the AE). The Tribunal also relied on the jurisdictional High Court decision in Redington (India) Ltd. restoring a transfer pricing addition for guarantees and observed no contrary binding precedent was placed before it. The plea that certain guarantees were performance guarantees, and therefore not corporate guarantees, was examined on the terms of the agreements: where a guarantee exposes the guarantor to payment liability upon the principal debtor's default, it is in substance a corporate guarantee; accordingly the two transactions claimed as performance guarantees were held to be species of corporate guarantee and not to be treated differently. [Paras 5, 6]

The furnishing of corporate guarantees by the assessee is an international transaction; the two contested performance guarantees are treated as corporate guarantees.

Arm's length guarantee fee - 0.50% plus actual out of pocket expenses - safe harbour rules are optional and inapplicable unless expressly availed - distinction between bank guarantees and corporate guarantees for pricing - The ALP of the guarantee transactions should be determined at 0.50% as compensation for furnishing guarantee plus actual out of pocket expenses incurred by the guarantor; the TPO's uniform adoption of 2% (invoking safe harbour and internal data) was set aside. - HELD THAT: - The Tribunal held that the safe harbour rules (Rules 10TA-10TG) operate only if an assessee has elected to opt for them under the prescribed procedure; as the assessee had not opted for safe harbour, Rule 10TD could not be relied upon to fix ALP. The TPO's reliance on the internal instance of the assessee being charged 1.75% by a bank as a CUP was also rejected as determinative. Relying on the jurisdictional Bombay High Court precedent in Everest Kento Cylinders Ltd., which distinguished bank guarantees from corporate guarantees and accepted 0.5% as an arm's length rate for corporate guarantee fee, the Tribunal held that 0.50% is the appropriate baseline ALP for corporate guarantees. Where the guarantor has incurred out of pocket expenses (e.g., bank charges or SBLC fees), those actual expenses are to be added to the 0.50% baseline (so effective ALP = 0.50% + actual expenses). The Tribunal set aside the TPO's uniform 2% rate and remitted the matter to the AO to compute ALP on this basis, allowing the assessee an opportunity of hearing. [Paras 7]

TPO's uniform 2% rate set aside; ALP to be fixed at 0.50% plus actual out of pocket expenses, matter restored to AO for computation.

TNMM - effect of assessee's suo motu disallowance in revised return on operating cost base - For TNMM ALP determination, the operating cost base must reflect the depreciation figure as actually claimed in the revised return (i.e., the assessee's suo motu disallowance), not the higher figure from the original return. - HELD THAT: - The Tribunal noted that the assessee filed a revised return making a suo motu disallowance of depreciation which the AO accepted for computation of total income. Under TNMM, operating profits are computed after deducting operating costs actually incurred or treated as incurred for tax purposes; where an assessee has voluntarily foregone a deduction in the revised return, that foregone claim cannot be revived for ALP computation. Treating the higher depreciation from the original return in ALP determination would be inconsistent with the accepted revised return and would distort operating profit. The Tribunal clarified this conclusion does not apply where the AO, by invoking statutory provisions (e.g., Explanation 5 to section 32), independently allows the higher depreciation despite the revised return; in such a case the operating cost base would follow the AO's allowance. [Paras 10]

Only the reduced depreciation as per the revised return is to be included in the operating cost base for ALP determination under TNMM.

Treatment of bank charges and commission/brokerage as part of finance cost (non operating) for TNMM - Bank charges and commission/brokerage amounting to Rs. 743.48 lakh are part of finance cost and properly excluded from operating cost base for ALP determination. - HELD THAT: - The Tribunal examined the detailed breakup of the bank charges and commission/brokerage and found them to be components of overall finance cost (including brokerage on fixed deposits, bank charges, loan processing fees, SBLC commission). On that basis these items are an extension of finance cost and are non operating in nature for the purpose of computing operating costs under TNMM. The Tribunal sustained the CIT(A)'s exclusion of the sum from operating costs. [Paras 11]

The CIT(A) was correct in excluding the bank charges and commission/brokerage from the operating cost base; Revenue's ground fails.

Entity level transfer pricing adjustments must be restricted to international transactions - Transfer pricing adjustment computed at entity level must be proportionately restricted to the international transactions with AEs; the CIT(A)'s restriction of adjustment to AE transactions was upheld. - HELD THAT: - The Tribunal followed the jurisdictional High Court precedent in Phoenix Mecano (India) Pvt. Ltd., which holds that entity level adjustments cannot be mechanically applied unless restricted to the specific international transactions; the Tribunal noted the Supreme Court has dismissed SLP against that decision. Similar High Court authorities were noted. Accordingly, the CIT(A)'s direction to confine the TP adjustment to transactions with AEs was affirmed. [Paras 12]

The proportionate restriction of entity level TP adjustment to international transactions with AEs is upheld.

Final Conclusion: The Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal: (i) corporate guarantees constitute international transactions and the two disputed performance guarantees are corporate guarantees; (ii) ALP for guarantee transactions fixed at 0.50% plus actual out of pocket expenses, matter remitted to AO for computation; (iii) for TNMM the reduced depreciation as per the revised return must be used in the operating cost base; (iv) bank charges/commission are non operating finance costs and excluded from operating cost base; and (v) entity level TP adjustments must be restricted to international transactions with AEs.

Explanation of agricultural income as source of bank deposits - rectification deed as admissible evidence to correct sale deed - addition as unexplained cash credit under section 68 read with section 115BBE - onus on assessing officer to verify and examine corroborative witnesses/vendors - disbelief based on assumption or suspicion without enquiry

Explanation of agricultural income as source of bank deposits - addition as unexplained cash credit under section 68 read with section 115BBE - onus on assessing officer to verify and examine corroborative witnesses/vendors - disbelief based on assumption or suspicion without enquiry - Deletion of addition of Rs. 5,00,000 treated as unexplained cash credit - HELD THAT: - The assessee explained that the cash deposit arose from sale proceeds of mango crop produced on about 16 acres of agricultural land held by the assessee and family members, produced pattadar passbooks and stated that he managed the agricultural operations and deposited receipts in his bank account. The Assessing Officer did not question the existence of the agricultural land or the yield, nor did he examine the family members or other corroborative witnesses, and proceeded to treat the deposit as unexplained on the basis of suspicion that the amounts should have been transferred to family members. The Tribunal held that where the assessee furnishes a plausible source and documentary proof of land-holdings and the AO fails to discharge the obligation to verify by examination or other enquiry, mere suspicion or assumption is insufficient to sustain an addition under section 68 read with section 115BBE. For these reasons the Tribunal accepted the explanation and set aside the additions confirmed by lower authorities. [Paras 8]

Addition of Rs. 5,00,000 deleted and appeal allowed on this ground.

Rectification deed as admissible evidence to correct sale deed - addition as unexplained cash credit under section 68 read with section 115BBE - onus on assessing officer to verify and examine corroborative witnesses/vendors - disbelief based on assumption or suspicion without enquiry - Deletion of additions aggregating Rs. 37,50,000 treated as unexplained cash credit in relation to sale proceeds - HELD THAT: - The assessee furnished the sale deed, vendor's confirmation and a registered rectification (corrigendum) deed which corrected dates of payment to show advances paid on the dates on which the deposits occurred; the assessee also offered the whole consideration for capital gains in the return. The AO relied on mismatches in dates and on the vendor's earlier bank withdrawals to disbelieve the payments, but did not examine the vendor and treated the rectification as an afterthought. The Tribunal held that a registered rectification deed before the Sub-Registrar is valid evidence and that where the assessee produces documentary evidence and pays tax on the consideration, the AO must make enquiries to controvert the claim; mere suspicion, without such enquiry, cannot sustain additions under section 68. In view of the vendor's confirmation and the registered corrigendum, the Tribunal accepted the assessee's explanation and set aside the additions confirmed by the lower authorities. [Paras 13]

Additions aggregating to Rs. 37,50,000 deleted and appeal allowed on these grounds.

Addition as unexplained cash credit under section 68 read with section 115BBE - Whether to decide legal challenge to validity of invoking section 68 - HELD THAT: - The assessee raised a legal ground challenging invocation of section 68 as inapplicable to bank deposits; however, having allowed the appeal on merits by accepting the explanations and documentary evidence, the Tribunal declined to adjudicate the separate legal question as it was rendered unnecessary by the merits decision.

Legal ground on validity of invoking section 68 not adjudicated as unnecessary in view of the merits decision.

Final Conclusion: The Tribunal condoned delay, admitted the appeal and, on merits, set aside the additions made by the AO and confirmed by the CIT(A) - deleting the addition of Rs. 5,00,000 (agricultural receipts) and the additions aggregating Rs. 37,50,000 (sale proceeds) - and allowed the assessee's appeal for A.Y.2014-15; the procedural legal challenge to invocation of section 68 was not decided as unnecessary.

Characterisation of government incentives as capital receipt - treatment of capital receipts in computation of book profit under section 115JB - admissibility of employee provident fund/ESI contribution paid before due date - deductibility of interest paid on delayed statutory dues - allowability of prior period expenses accounted for in the year under consideration - admission of new grounds under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963

Characterisation of government incentives as capital receipt - treatment of capital receipts in computation of book profit under section 115JB - Whether sales tax incentives/incentives under State schemes received by the assessee are capital receipts not chargeable to tax and excluded from book profit under section 115JB for the assessment years in issue. - HELD THAT: - The Tribunal followed the earlier decision in the assessee's own case for A.Y. 2011-12 and considered precedent distinguishing subsidies given to enable setting up or expansion of industry from subsidies that are compensatory for business operations. Having examined the object and terms of the West Bengal Incentive Scheme, 2004 (and similarly the Andhra Pradesh scheme as claimed), the Tribunal held the incentive was linked to fixed capital investment and intended to promote expansion of the existing industrial undertaking. Reliance was placed on authoritative principles that character of a subsidy is determined by its purpose and that post-production payment does not preclude capital character where the subsidy is intended to meet capital cost. The Tribunal also noted consistent decisions holding that capital receipts excluded from taxable income cannot be included in book profit under section 115JB. In view of no change of facts or law urged by Revenue, the Tribunal confirmed the CIT(A)'s deletion of the addition and exclusion of the subsidy while computing book profit. [Paras 8]

The sales tax incentives/incentives under the State schemes are capital receipts and are not taxable; they are to be excluded while computing book profit under section 115JB; Revenue's grounds on this issue are dismissed.

Admissibility of employee provident fund/ESI contribution paid before due date - Whether employee's contributions to PF/ESI, paid on or before the due date of filing the return though not paid before the due date of payment, are allowable. - HELD THAT: - The CIT(A) allowed the claim following the decision of the jurisdictional High Court in Vijay Shree Ltd. The Tribunal, on review of submissions and in absence of any change in law or fact pointed out by Revenue, accepted that employee contributions paid by the due date of filing are allowable. The Tribunal found the CIT(A)'s reliance on the authoritative High Court decision to be appropriate and confirmed the relief. [Paras 10]

Employee contribution to PF/ESI paid on or before the due date of filing the return is allowable; Revenue's ground is dismissed.

Deductibility of interest paid on delayed statutory dues - Whether interest on delayed payment of excise duty and service tax is disallowable. - HELD THAT: - The CIT(A) granted relief to the assessee by applying Tribunal precedent in Narayani Ispat Pvt. Ltd. The Revenue did not demonstrate any contrary precedent or change in law persuading a different view. The Tribunal found the CIT(A)'s reliance on existing coordinate-bench decisions to be correct and confirmed deletion of additions made by the assessing officer in respect of interest on delayed excise duty and service tax. [Paras 12, 14]

Interest on delayed payment of excise duty and service tax as adjudicated by the CIT(A) is allowable; Revenue's grounds are dismissed.

Deductibility of interest on delayed lease rent - Whether interest on delayed payment of lease rent is in the nature of penalty (and therefore disallowable) or allowable as business expenditure. - HELD THAT: - The CIT(A) treated the interest as interest for delayed payment of contractual lease rent and not as a penalty or infraction of law. Revenue failed to demonstrate that the amount was punitive or non-business in nature. The Tribunal regarded the CIT(A)'s view as a plausible one and, in absence of contrary material, confirmed the allowance. [Paras 19]

Interest on delayed lease rent is allowable and not a penalty; Revenue's ground is dismissed.

Allowability of prior period expenses accounted for in the year under consideration - Whether prior period expenses crystallised and accounted for in the relevant year are allowable deductions. - HELD THAT: - The assessee explained that the prior period charges arose from late bills, settlement of disputes and short provisioning, and none were found to be bogus or non-business in nature. The CIT(A) directed their allowance in the year claimed. The Tribunal noted authorities that prior period expenses should not be summarily disallowed absent deliberate deferment to manipulate tax liability; it observed that the assessee had paid tax under MAT for both years and would not gain tax advantage by deferral. In these circumstances, the Tribunal found no infirmity in allowing the prior period expenses. [Paras 23]

Prior period expenses accounted for and claimed in the year under consideration are allowable; Revenue's ground is dismissed.

Admission of new grounds under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 - Whether the assessee, by application under Rule 27, may raise for the first time claims that waiver of electricity duty is a capital receipt and that disallowance under section 14A be limited to exempt dividend income. - HELD THAT: - Rule 27 permits a respondent to support the order appealed against on grounds decided against him, but it does not entitle the respondent to raise new mixed questions of fact and law which were not presented to the CIT(A) and which would amount to an appeal/cross-objection in substance. The Tribunal observed its statutory and rule based limits and that the assessee had not pursued the matters before the CIT(A) despite relevant High Court decisions being available before the CIT(A)'s order. Consequently, the Tribunal held it could not admit these new grounds under Rule 27 and dismissed the Rule 27 applications for both years. [Paras 29]

Rule 27 applications to admit the new grounds are dismissed; the Tribunal will not entertain those new grounds raised for the first time under Rule 27.

Final Conclusion: The Tribunal confirmed the CIT(A)'s orders in all contested respects for A.Y. 2013-14 and A.Y. 2014-15: sales tax incentives under the State schemes are capital receipts and excluded from income and from book profit under section 115JB; employee PF/ESI contributions paid by the due date of filing, interest on delayed excise and service tax (and on lease rent), and prior period expenses as claimed are allowable; applications under Rule 27 seeking admission of new grounds were dismissed. Appeals of the Revenue are therefore dismissed.

No incriminating material found during search - statement recorded under Section 132(4) not constituting incriminating material unless corroborated by seized evidence - nexus between statement and evidence seized during search - assessment under Section 153A valid only where assessment pending as on date of search or incriminating material is found during search - addition under Section 68 requires proof of identity, genuineness and creditworthiness of creditors

Statement recorded under Section 132(4) not constituting incriminating material unless corroborated by seized evidence - nexus between statement and evidence seized during search - no incriminating material found during search - assessment under Section 153A valid only where assessment pending as on date of search or incriminating material is found during search - Validity of additions made in assessments completed prior to search relying on statements recorded under Section 132(4) where no incriminating material was found during search and no assessment was pending on date of search. - HELD THAT: - The Tribunal applied the jurisprudence of the Delhi High Court and held that a statement recorded under Section 132(4) cannot by itself be treated as incriminating material for the purpose of framing or sustaining additions in proceedings under Section 153A unless there is corroborating incriminating material found during the search and a nexus exists between the statement and such material. The Tribunal noted that the assessee's assessments for the relevant years were completed and no proceedings were pending as on the date of search, and that the assessment orders did not rely upon any seized or incriminating material discovered during the search. In these circumstances, following the decisions cited from the Delhi High Court, the Tribunal found no error in the CIT(A)'s conclusion that additions sustained solely on third party statements recorded under Section 132(4) were unsustainable where no corroborative seized material existed. [Paras 9, 11]

The additions were unsustainable; the Tribunal upheld the CIT(A)'s deletion and dismissed the Revenue's grounds challenging that deletion.

Addition under Section 68 requires proof of identity, genuineness and creditworthiness of creditors - Whether the Assessing Officer's findings on the substantive merits of the addition under Section 68 were adjudicated. - HELD THAT: - The Tribunal recorded that because no addition could be sustained in view of the absence of incriminating seized material and the assessments having been completed prior to search, it did not decide the Revenue's rival contentions on the merits of the addition. The Tribunal treated grounds relating to the substantive merit of the addition as infructuous and therefore did not examine or rule upon the Assessing Officer's factual and documentary assessments of identity, genuineness or creditworthiness. [Paras 10]

Merits of the addition were not adjudicated and grounds on merit were dismissed as infructuous.

Final Conclusion: All three Revenue appeals for AYs 2009-10, 2011-12 and 2013-14 are dismissed; deletions made by the CIT(A) are upheld because additions were based solely on statements recorded under Section 132(4) without corroborating incriminating material and no assessments were pending on the date of search, and the Tribunal did not decide the substantive merits of the additions.

Classification of composite receipts as income from house property or income from business or profession - standard deduction under Section 24 - doctrine of consistency and precedential effect of a coordinate bench - requirement of notice under Section 251 for appellate reclassification - overlapping deductions and prohibition against double allowance - assessment year specific determination of head of income

Classification of composite receipts as income from house property or income from business or profession - classification of composite receipts - Whether maintenance, reimbursement and allied receipts in respect of the properties should be taxed as income from house property or as income from business or profession. - HELD THAT: - The Tribunal examined the contracts and recurring practice and held that the maintenance and service receipts arose under separate maintenance agreements which are over and above tenancy agreements and that those services (lift operation, cleaning, housekeeping, A/C maintenance etc.) are distinct from rent. The Tribunal noted that identical facts in earlier assessment years were decided in favour of the assessee by a coordinate bench and that there was no material change in facts or law warranting departure. In the absence of cogent reasons showing overlap of specific expenditures or change of circumstances, the appellate authority was not justified in reclassifying the assessee's maintenance receipts as property income. The Tribunal therefore concluded that the receipts were correctly offered as business income for the impugned year and reversed the reclassification made by the CIT(A). [Paras 9, 10, 11]

Maintenance and allied receipts are not to be reclassified as income from business or composite income of owned property; they remain income from business and profession as offered by the assessee.

Standard deduction under Section 24 - overlapping deductions and prohibition against double allowance - Whether the assessee is entitled to claim the standard deduction under Section 24 in respect of income shown as income from house property and whether expenses claimed against maintenance receipts could be disallowed on account of alleged overlap. - HELD THAT: - The Tribunal held that the CIT(A)'s denial of the standard deduction and the Assessing Officer's large-scale disallowance, predicated on a theoretical apportionment between owned and sold area, lacked cogent identification of overlapping expenses. Because the maintenance and service receipts arise under separate agreements and have consistently been treated as business income in earlier years, there was no basis to disallow the standard deduction or to disallow the claimed expenses without specific demonstration of overlap or changed facts. Consequently the re-computation by the lower authorities which restricted the deduction was reversed. [Paras 10, 11]

Assessee entitled to claim standard deduction under Section 24 for the income correctly classified as house property and the Assessing Officer's wholesale disallowance of expenses on account of alleged overlap is not sustainable.

Doctrine of consistency and precedential effect of a coordinate bench - assessment year specific determination of head of income - Whether the Tribunal should follow the coordinate bench decisions in the assessee's own earlier years or permit departure by the assessing authorities/CIT(A) in the absence of change in facts or law. - HELD THAT: - The Tribunal observed that the identical issue had been decided in the assessee's favour by a coordinate bench for earlier assessment years and that Revenue had not challenged those decisions before a higher forum. The Tribunal applied the principle that departure from an earlier accepted view requires a change in facts, situation or law and, in the absence of such change or cogent reasons, the appellate authority must follow the coordinate bench. The CIT(A)'s deviation without demonstrating incorrectness of the earlier decisions or identifying changed circumstances was held to be impermissible. [Paras 9, 10]

Coordinate-bench decisions in assessee's earlier years must be followed in the absence of change in facts or law; CIT(A)'s departure was not justified.

Requirement of notice under Section 251 for appellate reclassification - Whether the CIT(A) validly reclassified the income without issuing a notice under Section 251. - HELD THAT: - The Tribunal noted that the CIT(A) altered the characterisation of income without issuing the statutory notice under Section 251 and observed that such reclassification without following the prescribed procedure was not in accordance with law. This procedural infirmity reinforced the conclusion that the lower authorities' reclassification was unsustainable. [Paras 10]

Reclassification by the CIT(A) without issuing notice under Section 251 is not in accordance with law and cannot be sustained.

Final Conclusion: The appeal is allowed: the Tribunal reverses the reclassification and disallowances made by the lower authorities, holds maintenance and allied receipts to be business income as returned, upholds entitlement to deductions where correctly claimed, finds no justification to depart from coordinate-bench precedent in the absence of changed facts or law, and records that the CIT(A)'s reclassification without statutory notice under Section 251 is not sustainable.

Notwithstanding provision of Section 43B: deduction only on actual payment - Applicability of Section 43B to interest payable to State Government and Government Corporations - Provision for interest versus crystallisation for deduction - Tribunal may adopt findings of lower appellate authority where it concurs

Notwithstanding provision of Section 43B: deduction only on actual payment - Applicability of Section 43B to interest payable to State Government and Government Corporations - Provision for interest versus crystallisation for deduction - Deletion of the Assessing Officer's Section 43B disallowance of interest relating to loans from State Government and specified Government corporations - HELD THAT: - The Tribunal examined whether Section 43B mandates disallowance of interest provisions unless actually paid and whether that provision extends to interest payable to the State Government and Government corporations such as APRDC and APCSC. The Tribunal followed the CIT(A)'s conclusion and relevant coordinate-bench jurisprudence that Section 43B(d) applies to interest on loans from public financial institutions, State Financial Corporations or State Industrial Investment Corporations and does not, by its plain terms, extend to interest payable to the State Government or certain Government corporations. Where the recipient entities fall outside the statutory categories in Section 43B(d)/(e), the statutory provision for deduction only on actual payment is not attracted. The Tribunal therefore agreed with the CIT(A)'s deletion of the impugned 43B disallowance to the extent the payees were State Government or Government corporations, and held that the Assessing Officer's blanket disallowance was not sustainable on that ground. The Tribunal also noted the contention that interest recorded as a provision in the books could be disallowed if not crystallised, but on the facts where the recipients were within the exempt category under Section 43B the CIT(A)'s relief was justified. [Paras 3]

The CIT(A)'s deletion of the Section 43B interest disallowance in respect of interest payable to the State Government and the specified Government corporations is upheld.

Provision for interest versus crystallisation for deduction - Verification by Assessing Officer regarding interest on certain items not clearly shown to which payee they relate and related TDS/deduction issues - HELD THAT: - The Tribunal noted that for some items (notably the purchase tax loan interest and interest relating to Binny Ltd.) the identity of the payee and the factual matrix required verification. Consistent with the CIT(A)'s directions in the earlier assessment year, the Tribunal directed the Assessing Officer to verify which loans were from the State Government and to examine ledger details and TDS/deduction circumstances (including whether amounts recovered by the Income Tax Department precluded a TDS deduction) before finalising any addition. This constitutes a remand for factual verification and consequential adjustment rather than an adjudication on merits of those specific items. [Paras 3]

Matter remitted to the Assessing Officer for verification of payees, ledger particulars and TDS/deduction consequences in respect of the specified items; further addition, if any, to be determined after verification.

Final Conclusion: The Revenue's appeal is dismissed insofar as the CIT(A)'s deletion of the Section 43B disallowance relating to interest payable to the State Government and the identified Government corporations is concerned; limited factual verification is remitted to the Assessing Officer for certain items before any further adjustment.

Collection of late fee for delayed presentation of Bill of Entry - proper officer's satisfaction as condition for imposition of late fee - high sea sale purchaser not being the first importer - post-import amendment of IGM and change of consignee - bona fides and sufficient cause for delay

Collection of late fee for delayed presentation of Bill of Entry - proper officer's satisfaction as condition for imposition of late fee - high sea sale purchaser not being the first importer - post-import amendment of IGM and change of consignee - bona fides and sufficient cause for delay - Whether the late fee/penal charges for delayed presentation of Bill of Entry could be sustained against the appellant who purchased the consignment on high sea sale and was not the first importer, where the IGM was subsequently amended and no mala fide or dissatisfaction with the cause for delay was recorded by the Revenue. - HELD THAT: - The Tribunal observed that Section 46 (as applied) permits collection of late fee only where the proper officer is not satisfied with the cause shown; there is no intermediate standard. The appellant was not the first importer but a subsequent high sea sale purchaser who stepped in later. The facts show an application for amendment of the IGM to change the consignee name was filed by the liner and was approved by the Department, and there was no finding of mala fide or any recorded dissatisfaction with the appellant's explanation. Those post-import developments, permitted by the Revenue after collecting requisite fees, demonstrate that the Revenue was otherwise satisfied with the cause shown. In that factual background, it was unsustainable to charge the late fee against the appellant, especially when the Commissioner (Appeals) had directed charging from a date or on a basis not supported by law or the record. For these reasons the impugned order charging penal late fee was set aside. [Paras 7, 8]

Impugned order rejecting the appellant's challenge to the levy of penal charges is set aside; appeal allowed.

Final Conclusion: The appeal is allowed; the impugned order sustaining the penal late fee is set aside and consequential relief, if any, shall follow as per law.

Penal charges for late presentation of Bill-of-Entry - late fee under Section 46 - sufficient cause / non-satisfaction test - bona fides of the importer - post-import amendment of IGM and Bill-of-Lading - charging late fee from a subsequent importer

Penal charges for late presentation of Bill-of-Entry - late fee under Section 46 - sufficient cause / non-satisfaction test - charging late fee from a subsequent importer - Validity of levy of penal late fee on the appellant for late presentation of Bill-of-Entry where the appellant acquired the consignment post-import and amendments to consignee and quantity in the IGM/Bill-of-Lading were permitted by the Department. - HELD THAT: - The Tribunal applied its earlier reasoning that where a subsequent buyer/assignee (not the first importer) comes forward and the Department allows post-import amendments in IGM/Bill-of-Lading, the proper officer may levy late fee under the statutory provision only upon being dissatisfied with the cause shown. In the present facts there was no finding of mala fide or of non-satisfaction by the Revenue; the Department had permitted amendment and collected requisite fees, and the appellant acted as a later-stage purchaser who sought regularisation. In those circumstances the levy of penal charges was not sustainable and the impugned order directing collection of late fee could not be upheld. The Tribunal set aside the impugned order and allowed the appeal. [Paras 7, 8, 9]

Impugned order rejecting the waiver of penal charges is set aside and the appeal is allowed; penal late fee not sustained against the appellant.

Final Conclusion: The Tribunal allowed the appeal, set aside the order directing levy of penal charges for late presentation of the Bill-of-Entry against the appellant, and granted consequential reliefs as per law.

Redemption fine for re-export - confiscation with option of redemption - penalty under Section 112(a) of the Customs Act, 1962 - application of precedent on redemption fine - proportionality in penalty reduction

Redemption fine for re-export - application of precedent on redemption fine - Whether the redemption fine imposed under Section 125(1) of the Customs Act, 1962 for direction of re-export is sustainable. - HELD THAT: - The Tribunal applied its earlier decisions and the ratio of the jurisdictional High Court and the Supreme Court as followed in prior orders, holding that redemption fine imposed in cases where goods are directed to be re-exported is not sustainable. In light of those precedents and consistent Tribunal practice, the redemption fine under Section 125(1) was held to be liable for deletion. The Tribunal therefore set aside the redemption fine charged for re-export of the imported consignment. [Paras 6, 8]

Redemption fine under Section 125(1) is set aside.

Penalty under Section 112(a) of the Customs Act, 1962 - proportionality in penalty reduction - Whether the penalty imposed under Section 112(a) should be sustained and, if so, whether it should be moderated. - HELD THAT: - Applying the same line of reasoning and precedents that led to deletion of the redemption fine, the Tribunal examined the penalty imposed under Section 112(a). While upholding the imposition of penalty on merits, the Tribunal found it appropriate to moderate the quantum and confirmed a proportionate reduced penalty in lieu of the higher amount imposed by the Adjudicating Authority, thereby giving effect to the principle of proportionality in penalty assessment. [Paras 7, 8]

Penalty under Section 112(a) is modified and confirmed at a reduced amount.

Final Conclusion: The appeal is partly allowed: the redemption fine under Section 125(1) is set aside and the penalty under Section 112(a) is reduced and confirmed at the moderated amount.

Obligations of Customs Broker under CBLR including duty to transact through authorised representative, to advise clients and report non compliance, to exercise due diligence and to verify IEC/GSTIN/identity/KYC - Admission under Section 108 of the Customs Act as sufficient proof for disciplinary action - Revocation of Customs Broker licence and forfeiture of security for misconduct/non compliance with CBLR obligations - Concealment or complicity in diversion of warehoused goods to domestic market amounts to misconduct - Regulation 20(1) CBLR time limit is mandatory and 'issue' does not include 'serve' (applied)

Obligations of Customs Broker under CBLR including duty to transact through authorised representative, to advise clients and report non compliance, to exercise due diligence and to verify IEC/GSTIN/identity/KYC - Whether the appellant/CHA complied with the obligations imposed by the Customs Broker Licensing Regulations (CBLR). - HELD THAT: - The Tribunal found on the basis of the record and the appellant's own statement that the appellant allowed an unauthorised person to transact business at the customs station, concealed material irregularities, failed to advise or report non compliance by importers, and did not exercise due diligence in verifying KYC/IEC/GSTIN and the functioning of clients at declared addresses. The appellant admitted that the four importer firms were effectively controlled and operated by others and that he did not furnish KYC documents as required. Those admissions were held sufficient to establish breaches of the duties embodied in sub regulations (corresponding to Regulation 10(b), (d), (e) and (n) of CBLR 2018 / Regulation 11 of CBLR 2013). [Paras 3, 5, 6, 7]

The appellant did not comply with the obligations under the CBLR; violations of the relevant sub regulations are established.

Admission under Section 108 of the Customs Act as sufficient proof for disciplinary action - Whether the appellant's recorded statement under Section 108 of the Customs Act could be relied upon as proof for imposing disciplinary measures. - HELD THAT: - The Tribunal accepted the statement recorded under Section 108 as a voluntary admission which need not be further proved, noting there was no retraction or suggestion of inducement, threat or promise. Reliance on that admission supported the finding of non compliance and concealment of material facts from Customs authorities. [Paras 5, 7]

The Section 108 statement is admissible and constituted sufficient proof to establish the appellant's misconduct.

Revocation of Customs Broker licence and forfeiture of security for misconduct/non compliance with CBLR obligations - Concealment or complicity in diversion of warehoused goods to domestic market amounts to misconduct - Whether revocation of the appellant's Customs Broker licence, forfeiture of security and imposition of penalty were justified or disproportionate. - HELD THAT: - Given the established admissions and breaches of the CBLR duties - including concealment of diversion of warehoused goods and failure to perform due diligence - the Tribunal held that disciplinary action by the Commissioner, including revocation of licence and forfeiture, fell within the disciplinary authority's powers. Reliance was placed on precedents recognizing the serious trust reposed in CHAs and the need for discipline; interference by the Tribunal is warranted only if punishment is shockingly disproportionate or mala fide, which was not shown here. [Paras 8, 9]

The revocation, forfeiture and penalty were justified and not interfered with; the adjudicating authority's order is upheld.

Regulation 20(1) CBLR time limit is mandatory and 'issue' does not include 'serve' (applied) - Application of the Larger Bench/President's interim ruling on Regulation 20(1) CBLR to the appeal. - HELD THAT: - The Tribunal noted the earlier Larger Bench/President's interim order holding that the word 'issue' in Regulation 20(1) does not include 'serve' and that the 90 day time limit is mandatory. Relying on that decision, the Tribunal proceeded to decide the appeal on merits and disposed of the matter finally after hearing both parties. [Paras 1]

The Larger Bench/President's conclusion regarding Regulation 20(1) was applied and did not prevent final adjudication on merits.

Final Conclusion: The appeal is dismissed: the Tribunal upheld the revocation of the Customs Broker licence, forfeiture of security and penalty, holding that the appellant breached CBLR obligations, his admission under Section 108 established the misconduct, and the disciplinary measures taken by the Commissioner were justified.

Oppression and mismanagement under Sections 241-242 - just and equitable winding up - remedies under Section 242(2) - power to reinstate directors - contract of personal service not specifically enforceable - Article 75 as an exit/transfer mechanism in the Articles of Association - affirmative voting rights of nominee directors - proportionate representation on the Board - conversion between public and private company and Registrar of Companies' certificate

Oppression and mismanagement under Sections 241-242 - just and equitable winding up - Whether the Appellate Tribunal (NCLAT) was justified in holding that Tata Sons' affairs were conducted in a manner prejudicial or oppressive warranting relief under Sections 241-242 and that the facts otherwise justified winding up on just and equitable grounds. - HELD THAT: - The Supreme Court held that NCLAT erred in reaching its conclusion of oppressive/prejudicial conduct and in invoking the just and equitable ground for winding up, because NCLAT did not specifically and individually overturn the detailed factual findings recorded by the NCLT on the numerous allegations (transactions with Siva/Sterling, AirAsia, transactions with Mehli Mistry, Nano project, Corus acquisition) which stood final. The Court emphasised that the statutory scheme requires the Tribunal to form an opinion based on proven present or continuing conduct that would justify relief and that mere removal of a chairman or business errors do not, by themselves, constitute oppression or justify winding up. The Court also noted that the "just and equitable" principle is to be applied with caution (derived from partnership jurisprudence) and was not made out on the facts: there was no quasi partnership or functional deadlock nor lack of probity warranting winding up. Accordingly NCLAT's generalized paragraph holding oppression/prejudice was held unsustainable. [Paras 16]

NCLAT's finding of oppression/prejudice and that the facts would otherwise justify winding up on just and equitable grounds was set aside.

Remedies under Section 242(2) - power to reinstate directors - contract of personal service not specifically enforceable - Whether NCLAT could lawfully direct reinstatement of Mr Cyrus P. Mistry as Executive Chairman/Director of Tata Sons and of other Tata companies as part of relief under Section 242. - HELD THAT: - The Court held that NCLAT exceeded its jurisdiction in directing reinstatement. Sections 241-242 do not expressly confer a power to reinstate a person in office where the office involves personal service; general words in Section 242(1) cannot be read to imply a remedial power contrary to the long standing principle that specific performance of contracts for personal service is ordinarily not available. The Court noted that reinstatement was not a pleaded or viable relief in the petitions as ultimately prosecuted, that CPM's tenure in any event had a temporal limit, and that NCLAT's direction reinstating him 'for the rest of the tenure' was legally and practically unsustainable. The Court further observed that even wrongful or mala fide removal is effective in law and usually gives rise to damages rather than a mandatorily enforceable right to continue in office. [Paras 17]

The reinstatement directions issued by NCLAT were held to be impermissible and were set aside.

Article 75 as an exit/transfer mechanism in the Articles of Association - remedies under Section 242(2) - Whether NCLAT could injunctively neutralise the operation of Article 75 (power of company by special resolution to require transfer of ordinary shares) without striking down the Article and whether such restraint was permissible where misuse was speculative. - HELD THAT: - The Court held that the challenge to Article 75 was not properly pleaded as a matter of existing oppressive conduct; the amendment application pleaded only a fear of future misuse. Section 241 remedies are directed to past or present conduct; they are not intended to restrain the mere possibility of future misuse. Article 75 forms part of the contractual constitution of the company and had existed for decades to which the SP group (and CPM or his father) had been party; NCLAT could not make Article 75 ineffective on the basis of a speculative likelihood of misuse. An order that effectively muzzles Article 75 without setting it aside was therefore unsustainable. [Paras 18]

The injunctional limitation placed by NCLAT on the operation of Article 75 was held unsustainable and set aside.

Affirmative voting rights of nominee directors - proportionate representation on the Board - oppression and mismanagement under Sections 241-242 - Whether NCLAT was justified in characterising the affirmative voting rights enjoyed by nominee directors (Articles 104B/121) as oppressive and in directing that the majority (Tata Trusts/Ratan Tata/nominee directors) desist from taking decisions in advance; and whether SP Group was entitled to proportionate representation on the Tata Sons Board. - HELD THAT: - The Court rejected NCLAT's characterisation. It held that the Articles (allowing one third nominee directors with an affirmative vote on certain matters) were contractual arrangements, long accepted by CPM and his predecessors, suited to the nature of Tata Sons as a principal investment holding company controlled by philanthropic trusts. Nominee directors appointed by majority shareholders, particularly where the majority are charitable trusts, can legitimately carry fiduciary duties both to nominator and to beneficiaries; affirmative voting rights limited to board decision making are not per se oppressive when embedded in valid Articles. The Court also rejected any statutory right of proportionate board representation for SP Group: neither the Companies Act nor the Articles gave SP Group a statutory or contractual right to proportionate representation (Section 151 and related provisions concern small shareholders, not a minority like SP Group). The Court noted shifting pleadings by SP group and that the reliefs sought did not extend to the directions NCLAT issued. [Paras 19]

NCLAT's characterisation of affirmative voting rights as oppressive and its directions against the nominee directors were set aside; the claim for proportionate representation was rejected.

Conversion between public and private company and Registrar of Companies' certificate - Whether the reconversion of Tata Sons from a public (or deemed public) company to a private company and the Registrar of Companies' amendment of the certificate of incorporation were lawful and whether NCLAT was justified in holding the Registrar's action illegal. - HELD THAT: - The Court analysed the legislative history (Section 43A of the 1956 Act, Act 53 of 2000, and Section 2(68) of the 2013 Act) and concluded that on the law as in force from 12 09 2013 (when section 2(68) came into force) Tata Sons satisfied the definition of a private company. The Court held that the procedure adopted in 2018 to amend the certificate by the Registrar was appropriate and that NCLAT erred in censuring the Registrar. The Court explained that the prior deeming provisions were superseded and that the RoC's amendment of the certificate recognizing Tata Sons as a private company was in order; NCLAT's adverse observations against the RoC were set aside. [Paras 20]

The Registrar of Companies' action and the reconversion to private company were held lawful; the adverse observations of NCLAT on this score were set aside.

Final Conclusion: The appeals filed by the Tata group are allowed; the NCLAT order dated 18 12 2019 is set aside. The company petition C.P. No.82 of 2016 filed by the SP group is dismissed and the cross appeal by SP group (C.A. No.1802 of 2020) is dismissed. All interim applications, including the application for separation of ownership interests, are dismissed; there will be no order as to costs.

Consent order - deposit of 80% of the termination debt due in Escrow - scope of financial audit by the Comptroller and Auditor General - definition of debt due in the Concession Agreement - Escrow Account obligations and appropriation mechanism - enforcement of consent decrees/orders - arbitration clause as exclusive forum for contractual disputes - exercise of writ jurisdiction in public interest

Deposit of 80% of the termination debt due in Escrow - definition of debt due in the Concession Agreement - Escrow Account obligations and appropriation mechanism - enforcement of consent decrees/orders - HMRTC/HSVP are obliged to deposit 80% of the debt due in the Escrow Account as determined by the auditors and in terms of the High Court consent order and the Concession Agreements. - HELD THAT: - The High Court's order dated 20 September 2019 (as modified) was a consensual, time bound arrangement reached after arm's length negotiations between HMRTC/HSVP and the concessionaires and recorded the parties' commitment that the CAG would determine the debt due and that HSVP would deposit 80% of that amount into the Escrow Account within the stipulated period. The Concession Agreements themselves (Article 24.4, Article 24.7 and Article 18) embody the obligation to make termination payments and to maintain specified appropriation priorities in the Escrow Account. Having accepted the scope and mechanics of audit and deposit before the High Court, HMRTC/HSVP cannot resile from the obligation now; the monies are to remain in Escrow subject to orders of NCLAT or other competent authorities and are not to be appropriated by the Escrow Bank without specific permission. The Court therefore upheld the consent order's consequence that HSVP must deposit 80% of the debt due, and directed compliance within the timeline specified in this Court's order. [Paras 44, 45, 56, 60]

HSVP shall deposit 80% of the debt due as determined in the auditors' reports into the Escrow Account within three months; the deposit shall remain in Escrow and not be appropriated without specific permission.

Scope of financial audit by the Comptroller and Auditor General - consent order - arbitration clause as exclusive forum for contractual disputes - The CAG appointed financial audit, conducted within the scope determined by CAG and the consent order, is sufficient for triggering the escrow deposit obligation; objections to the audit do not absolve HSVP/HMRTC from depositing 80% pending arbitration of disputes arising from the report. - HELD THAT: - The High Court authorised the CAG to appoint auditors to conduct a financial audit of the debt due in terms of the Concession Agreements and to examine the scope suggested by the parties. CAG explained and the Court accepted that the audit was limited to matters relevant to computation of debt due, that draft reports were shared and parties had opportunities to respond, and that issues outside that scope (forensic, criminal, or other investigations) were not part of the financial audit. The consent order also provided that any residual disputes arising out of the CAG report, the validity of termination notices or inter se claims would be agitated in arbitration. Accordingly, while parties remain free to raise disputes in arbitration (or other appropriate fora), those objections do not justify withholding the escrow deposit mandated by the consent order and the Concession Agreements. [Paras 45, 53, 54, 60]

The CAG audit, within its prescribed scope, is adequate to trigger the deposit obligation; parties may pursue disputes arising from the report in arbitration but may not evade the escrow deposit requirement.

Final Conclusion: The appeals are allowed in part: HSVP shall deposit 80% of the debt due as determined by the auditors' reports into the Escrow Account within three months; the funds shall remain in Escrow subject to orders of NCLAT or other competent authorities and shall not be appropriated without specific permission; the parties are at liberty to pursue arbitration or other remedies in respect of disputes arising out of the audit report and termination notices; the writ petitions are disposed of.

Arbitrability of disputes pending under insolvency proceedings - action in rem and non-arbitrability - adjudicating authority's duty to ascertain default under Section 7 - admission under Section 7 converts proceeding into proceeding in rem with erga omnes effect - priority of the Insolvency and Bankruptcy Code over other laws - appointment of arbitral tribunal under Section 11 - composite arbitration and single arbitral tribunal for related agreements

Adjudicating authority's duty to ascertain default under Section 7 - admission under Section 7 converts proceeding into proceeding in rem with erga omnes effect - arbitrability of disputes pending under insolvency proceedings - Whether, when a petition under Section 7 of the IBC is pending but not yet admitted, the Adjudicating Authority must decide the Section 7 application (i.e. record satisfaction as to default) before entertaining or finally disposing an application under Section 8 of the Arbitration and Conciliation Act. - HELD THAT: - The Court held that the mere filing of a Section 7 petition does not convert the matter into a proceeding in rem; admission under Section 7 is the trigger that converts the petition into a proceeding in rem with erga omnes effect. Consequently, where a Section 7 petition is yet to be admitted, the Adjudicating Authority must first advert to and decide the Section 7 application by applying the statutory tests and record satisfaction as to whether a default has occurred, even if an application under Section 8 (seeking reference to arbitration) is filed and kept along for consideration. If the Adjudicating Authority is satisfied that a default has occurred and admits the Section 7 petition, subsequent arbitration applications would not be maintainable; if it is not satisfied, the Section 7 petition is to be rejected and the field is left open for arbitration. This procedure preserves the primacy of the IBC while preventing a corporate debtor from defeating the insolvency timeline by invoking arbitration as a device for delay. [Paras 25, 27, 28]

Adjudicating Authority must first decide the Section 7 application by recording whether default has occurred before finally dealing with any Section 8 application; admission under Section 7 alone converts the petition into an action in rem that precludes reference to arbitration.

Action in rem and non-arbitrability - arbitrability of disputes pending under insolvency proceedings - Whether the NCLT erred in declining to treat the Kotak investors' claim as a default and in allowing the application under Section 8 thereby dismissing the Section 7 petition at that stage. - HELD THAT: - On the facts, the Court found that NCLT examined the materials placed before it under the Section 7 petition and recorded that the matter had not reached a stage where a default had occurred. The NCLT noted that conversion of OCRPS into equity and the conversion formula (affecting the amount payable) were still under discussion and that the corporate debtor was solvent and profit making. Given those findings, it was not inappropriate for the Adjudicating Authority to hold that arbitration invocation was justified and that the Section 7 petition could be dismissed. The Court emphasised that such factual determination at the pre admission stage is permissible and necessary, and does not amount to a jurisdictional error. [Paras 28, 29, 32, 33]

The NCLT did not commit a grave error in concluding that no default had occurred on the material before it; dismissal of the Section 7 petition and allowance of the Section 8 application in those circumstances was justified.

Appointment of arbitral tribunal under Section 11 - composite arbitration and single arbitral tribunal for related agreements - Whether the disputes arising under four related shareholders/share subscription agreements could be referred to arbitration by a common Arbitral Tribunal and whether the tribunal should be constituted as prayed. - HELD THAT: - The Court observed that although four separate agreements existed, the arbitration clause (clause 20.4 / 20.4.1) was materially similar across them and the disputes concerned closely related issues arising from the same transaction-primarily conversion of OCRPS into equity and the conversion formula. The Court held that it would be efficient for the arbitrations to be resolved by Tribunals consisting of the same members, with the Arbitral Tribunal free to conduct proceedings separately for international arbitration and club domestic matters as appropriate. On the specific appointments, Indus Biotech had proposed Mr. Justice V. N. Khare (treated as jointly proposed by the Company and the promoters); the respondents had failed to nominate their arbitrator, and the Court appointed Mr. Justice R. M. Lodha as the second arbitrator; the two appointed arbitrators are to jointly nominate the third arbitrator to act as Chairperson. All other issues as to conduct and merits were left to the Arbitral Tribunal. [Paras 35, 36, 37]

Arbitration petition allowed; Arbitral Tribunal to be constituted: Mr. Justice V. N. Khare treated as jointly proposed, Mr. Justice R. M. Lodha appointed as the second arbitrator, and the two appointed arbitrators to jointly nominate the presiding arbitrator.

Final Conclusion: The Special Leave Petition is dismissed; the Arbitration Petition is allowed. The Supreme Court held that where a Section 7 IBC petition is yet to be admitted the NCLT must first determine default under Section 7 before finally dealing with any Section 8 arbitration application; on the facts NCLT rightly found no default and allowed reference to arbitration, and this Court directed constitution of the Arbitral Tribunal as indicated, parties to bear their own costs.

Eligibility of input tax credit on tour operator services provided as incentives to dealers - liability of Input Service Distributor for wrongful availment of credit - precedential value of earlier order in appellant's own case

Eligibility of input tax credit on tour operator services provided as incentives to dealers - liability of Input Service Distributor for wrongful availment of credit - Denial of credit on input services in the nature of tour operator services provided as incentives to dealers and the sustainment of demand against an Input Service Distributor who only distributed the credit. - HELD THAT: - The Bench applied its earlier decision in the appellant's own case, where after hearing both sides it was held that credits availed on tour operator services given as incentives to dealers could not be disallowed on the basis that the Input Service Distributor (ISD) merely distributed credit and the demand against the ISD could not be sustained. The Tribunal noted that the present facts are almost identical to those earlier adjudicated matters and that other Benches have reached consonant conclusions. Having found that the appellant is only an ISD and only distributed the credit, the Bench declined to deviate from the precedent and set aside the impugned demand, allowing the appeal with consequential relief, if any. [Paras 3, 4]

Appeal allowed; demand against the Input Service Distributor in respect of credit on tour operator services given as dealer incentives set aside, with consequential reliefs.

Final Conclusion: Following the Tribunal's earlier decision in the appellant's own case and consistent precedents, the appeal is allowed and the demand raised against the assessee as an Input Service Distributor in respect of credit on tour operator services provided to dealers is set aside with consequential benefits, if any.

Reversal of proportionate input service credit - requirement of furnishing workings for reversal - procedural non-intimation under Rule 6(3A) of CENVAT Credit Rules - burden to prove incorrectness of reversed amount - demand cannot be sustained solely for non-furnishing of workings

Reversal of proportionate input service credit - requirement of furnishing workings for reversal - burden to prove incorrectness of reversed amount - procedural non-intimation under Rule 6(3A) of CENVAT Credit Rules - demand cannot be sustained solely for non-furnishing of workings - Whether the demand confirmed for the period April 2016 to June 2017 on the ground that the assessee did not furnish workings for reversal of proportionate input service credit is sustainable. - HELD THAT: - The only allegation in the Show Cause Notice was that the assessee did not furnish the workings or identify the rule under which the reversal of Rs. 43,979/- was effected; there was no allegation that the amount reversed was incorrect or that reversal was otherwise not made. The department did not contend that a different amount ought to have been reversed. In these circumstances the department bears the burden to show that the amount reversed by the assessee was incorrect. Mere absence of workings, without any positive case that the reversal quantum is wrong, does not sustain a demand. Although the lower orders also discussed non-intimation to the department, the Show Cause Notice did not charge non-compliance with the intimation procedure under Rule 6(3A); non-intimation, where relied upon, is a procedural lapse and, following the Tribunal's precedent cited in the order, cannot by itself sustain a demand. On this basis the confirmation of demand is without merit.

The demand confirmed for the period April 2016 to June 2017 is set aside and the appeal is allowed.

Final Conclusion: The impugned order confirming demand is quashed; the appeal is allowed and consequential relief, if any, shall follow.

Entitlement to Declaration in 'C' forms for inter state purchase of High Speed Diesel - Concessional rate of tax on inter state purchases - Applicability of precedent and binding effect of High Court decisions - Registration and rights of purchasing dealers under the Central Sales Tax Act - Amendment to definition of 'goods' and non derogation of Section 8(3)(b)

Entitlement to Declaration in 'C' forms for inter state purchase of High Speed Diesel - Concessional rate of tax on inter state purchases - Applicability of precedent and binding effect of High Court decisions - Petitioner is entitled to obtain 'C' forms under the Central Sales Tax Act, 1956 for purchase of High Speed Diesel from suppliers in other States and to claim the concessional rate of tax, and the departmental restriction limiting relief only to parties to earlier writs is untenable. - HELD THAT: - The writ petition was allowed on the same grounds as earlier decisions of this Court in M/s Ramco Cements Ltd. (and subsequent Division Bench confirmation) which hold that dealers purchasing High Speed Diesel by inter state sales are entitled to the concessional rate against Declaration in 'C' forms. The court applied those precedents and observed that until they are stayed or reversed, Assessing Authorities within the State must extend the rationale to all pending assessments. The department's stance that benefit can be extended only to parties to the earlier decision was rejected: the earlier High Court decisions operate in rem and are applicable to all dealers entitled to the benefit under law. The judgment notes that the State's further challenges were dismissed by higher benches and that the Special Leave Petitions were dismissed by the Supreme Court, affirming finality of the precedent. Consequently, administrative measures (including permitting online downloading of 'C' forms) must be taken to enable the concession.

Writ petition allowed; petitioner entitled to 'C' forms and concessional rate for inter state purchase of High Speed Diesel and department directed to extend and implement the relief in accordance with the binding precedents.

Final Conclusion: The writ petition is allowed; the petitioner is entitled to obtain Declaration in 'C' forms and claim the concessional rate for inter state purchases of High Speed Diesel in accordance with the binding High Court decisions (affirmed on appeal and by dismissal of Special Leave Petitions), and the Revenue is directed to implement necessary steps forthwith.

Corporate insolvency resolution process (CIRP) - financial creditor - corporate debtor - financial debt - default - coextensive liability of guarantor and principal borrower - application under Section 7 of the Insolvency and Bankruptcy Code, 2016 - effect of acknowledgment under Section 18 of the Limitation Act, 1963 - applicability of the Limitation Act to proceedings under the Code (Section 238A)

Financial creditor - corporate debtor - financial debt - default - coextensive liability of guarantor and principal borrower - application under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Whether a financial creditor can initiate CIRP under Section 7 against a corporate person who had given guarantee for a loan taken by a principal borrower who is not a corporate person. - HELD THAT: - The Court held that Section 7 is an enabling provision permitting a financial creditor to initiate CIRP against a corporate debtor when a default is committed by it. The statutory definitions of "financial debt", "debt", "claim" and "corporate debtor" together encompass liability arising from a guarantee: a liability in respect of a guarantee is a "financial debt" under the Code. The obligation of a guarantor is coextensive and coterminous with that of the principal borrower as per Section 128 of the Contract Act; consequently, when the principal borrower defaults, the corporate guarantor (if a corporate person) assumes the status of a corporate debtor within the meaning of the Code. The definition of "corporate guarantor" inserted by amendment is intended to address jurisdictional and procedural consolidation under Part II (not to exclude corporate guarantors from Section 7). There is no legislative provision excluding corporate persons who stood as guarantors for loans to non-corporate borrowers from the ambit of "corporate debtor"; therefore, an action under Section 7 can be validly initiated against such corporate guarantor-corporate debtor upon default by the principal borrower. [Paras 21, 22, 26, 27, 28]

An application under Section 7 of the Code can be initiated by a financial creditor against a corporate person who had given guarantee for a loan to a principal borrower who is not a corporate person; the corporate guarantor, upon default by the principal borrower, may be proceeded against as a corporate debtor.

Effect of acknowledgment under Section 18 of the Limitation Act, 1963 - applicability of the Limitation Act to proceedings under the Code (Section 238A) - date of default / reckoning of limitation - fresh period of limitation on acknowledgment - Whether the Section 7 application filed on 13.02.2019 was barred by limitation when the loan accounts were declared NPA on 30.01.2010. - HELD THAT: - The Court observed that the Limitation Act applies to proceedings under the Code "as far as may be" (Section 238A), and that Section 18 of the Limitation Act - which provides that a written acknowledgment of liability restarts the limitation period - can apply to applications under Section 7 where facts warrant. The trigger for the right to apply under the Code is default by the corporate debtor; ordinarily the NPA declaration marks the date of default. However, where the principal borrower and/or the corporate guarantor acknowledge liability in writing within the limitation period, a fresh period of limitation runs from the date of such acknowledgment. The NCLT and NCLAT relied on multiple acknowledgments, including the corporate debtor's communication dated 08.12.2018 (albeit marked "without prejudice"), which admitted the loan and the corporate guarantee; such acknowledgments operate to renew the limitation period under Section 18 so as to make the application filed on 13.02.2019 within limitation. The Court rejected the submission that acknowledgments by the principal borrower alone cannot affect the guarantor, noting the coextensive liability of the guarantor and that an acknowledgment by the principal borrower or guarantor can trigger the fresh limitation period provided the acknowledgment is of the liability in respect of which the financial creditor may initiate Section 7 proceedings. [Paras 29, 36, 37, 40, 42]

The Section 7 application filed on 13.02.2019 is within limitation because written acknowledgments of liability (including the communication dated 08.12.2018) operated to compute a fresh period of limitation under Section 18 of the Limitation Act; therefore the limitation objection is rejected.

Final Conclusion: The appeal is dismissed: (i) a financial creditor can initiate CIRP under Section 7 against a corporate person who has given guarantee for a loan to a non-corporate principal borrower, and (ii) the Section 7 application filed on 13.02.2019 was within limitation by reason of written acknowledgments (including 08.12.2018) which restarted the limitation period under Section 18 of the Limitation Act; all other grounds are left open for decision by the NCLT.