TaxTMI Updates e-Newsletter
Apr 09,2021

Recovery of interest by adjustment under Section 11A of the Central Excise Act, 1944 - garnishee/recovery by adjustment under Section 79 of the CGST Act, 2017 - requirement of a show cause notice for recovery under a machinery provision - necessity of prior adjudication/quantification of interest liability before coercive recovery

Recovery of interest by adjustment under Section 11A of the Central Excise Act, 1944 - requirement of a show cause notice for recovery under a machinery provision - Validity of adjusting sanctioned rebate amount against interest by invoking Section 11A of the Central Excise Act, 1944 without issuance of a show cause notice. - HELD THAT: - Section 11A of the Central Excise Act, 1944 is a machinery provision prescribing the procedure for recovery of interest. The provision requires issuance of a show cause notice to the assessee before recovery under its mechanism can be effected. In the present case no show cause notice, as mandated by Section 11A, was issued prior to adjusting the rebate amount against the interest; consequently Section 11A could not be validly invoked for recovery. The Tribunal accordingly held that the procedural precondition for recovery under Section 11A was not satisfied and the provision was inapplicable on the facts. [Paras 8]

Adjustment of rebate invoking Section 11A CEA without issuance of a show cause notice is not permissible; Section 11A is inapplicable in the facts.

Garnishee/recovery by adjustment under Section 79 of the CGST Act, 2017 - necessity of prior adjudication/quantification of interest liability before coercive recovery - Whether the Department could adjust the sanctioned rebate against interest for the period September 2017 under Section 79 of the CGST Act, 2017 without prior adjudication of the disputed interest liability. - HELD THAT: - Section 79 empowers garnishee/recovery action where an amount payable to Government is not paid. However, authoritative High Court decisions (cited in the judgment) establish that coercive recovery under garnishee-like provisions requires that the amount sought to be recovered be first determined and quantified; where the assessee disputes the liability of interest, the liability must be adjudicated before recovery. The Tribunal noted that the appellant had disputed the interest liability and no adjudication or quantification of that liability had occurred before the revenue adjusted the rebate against interest. Applying the principle that a 'tax due' must be an ascertained and quantified liability before coercive steps, the Tribunal found recovery under Section 79 to be impermissible in these circumstances. [Paras 9, 10, 11]

Recovery by adjustment under Section 79 of the CGST Act, 2017 without prior adjudication/quantification of the disputed interest liability is unlawful; the adjustment in respect of September 2017 cannot be sustained.

Final Conclusion: The impugned orders sustaining adjustment of the sanctioned rebate against interest for September 2017 are set aside. Appeals allowed with consequential relief, the recoveries made without the required show cause procedure under Section 11A CEA and without adjudication/quantification of disputed interest under Section 79 CGST being held impermissible.

Wilful attempt to evade tax - prosecution under section 276C(1) of the Income Tax Act - prior sanction and authorization to institute prosecution - functus officio of the authorised search officer on handing over search material under section 132(9A) - Special Court's cognizance and trial jurisdiction under section 280B - non-cognizable offences under Chapter XXII and requirement of magistrate's authorisation for investigation - necessity of determination that tax is chargeable before criminal prosecution

Prior sanction and authorization to institute prosecution - prosecution under section 276C(1) of the Income Tax Act - Validity of the complaints filed by the authorized Deputy Director on the basis of sanction and authorization produced - HELD THAT: - The Court found on the materials placed before it (the sanction order and proceedings) that the Principal Director of Income Tax (Investigation), Bengaluru had accorded sanction under the Act and specifically authorised the Deputy Director to institute the criminal complaints. The authorization effected by issuance of the proceedings and the subsequent delegation under the 13.11.2014 notification rendered the complaints not vitiated for lack of authority. Accordingly, the contention that the authorised officer was without power to file the complaints was rejected. [Paras 12, 18]

The complaints filed by the authorised Deputy Director were held to be within the authority conferred by the sanction and authorisation produced.

Special Court's cognizance and trial jurisdiction under section 280B - non-cognizable offences under Chapter XXII and requirement of magistrate's authorisation for investigation - Whether the Special Court could directly entertain the complaints and proceed without committal by a Magistrate - HELD THAT: - The Court held that, by a conjoint reading of the Criminal Procedure Code provisions and section 280B, offences under Chapter XXII are triable by designated Special Courts but a Special Court cannot take original cognizance of such offences absent committal for trial; a complaint seeking prosecution under Chapter XXII ought to be initiated before the jurisdictional Magistrate. Further, since the offences alleged are non-cognizable, the Code precludes investigation without magistrate's authorisation; therefore the procedure adopted by presenting the complaints directly before the Special Court and the Special Court proceeding to take steps without committal was impermissible. For these reasons the Special Court could not properly assume jurisdiction and the order discharging the accused was sustained though on different reasoning. [Paras 23, 25, 26]

The Special Court erred in entertaining the complaints directly; complaints under Chapter XXII must be pursued in the manner prescribed by the Cr.P.C. and the Income Tax Act (i.e., committal/competent forum), and investigation of non-cognizable offences requires appropriate magistrate authorisation.

Wilful attempt to evade tax - necessity of determination that tax is chargeable before criminal prosecution - Whether the material produced at the stage of complaint prima facie established the ingredients of the offence under section 276C(1) - HELD THAT: - The Court analysed the offence in Section 276C(1) as penalising a wilful attempt to evade tax, penalty or interest, which requires demonstration of a positive act with intent to evade tax that is chargeable or imposable. The Court observed that mere discovery of unaccounted transactions and loans during search, without a prior or contemporaneous determination that such transactions give rise to tax/penalty/interest chargeable under the Act, does not prima facie establish the offence. There is no presumption that every unaccounted transaction necessarily results in a tax liability; until it is determined that tax is chargeable on the unearthed transactions, criminal prosecution is premature. On this basis the Court concluded that the materials before the Special Court did not make out a prima facie case under section 276C(1). [Paras 27, 29]

The material produced did not prima facie establish the ingredients of the offence under section 276C(1); prosecution at that stage was premature and could not be sustained.

Final Conclusion: The revision petitions were dismissed. The Court upheld the sanction and authorisation for filing the complaints but held that the Special Court lacked jurisdiction to entertain the complaints without committal and that, on merits, the material did not prima facie disclose the offence under section 276C(1); the prosecution as launched was therefore premature and contrary to the procedural scheme of the Cr.P.C. and the Income Tax Act.

Summary order. Appeal under Section 260A dismissed as withdrawn on account of Low Tax Effect in terms of CBDT Circular No.17/2019; substantial questions of law left open and liberty granted to the Revenue to seek restoration if tax effect exceeds the threshold; no costs.

Dismissal for non-prosecution versus adjudication on merits under Rule 24 - proviso to Rule 24 - setting aside ex parte order and restoration - limitation for restoration applications and applicability of amended Section 254(2)

Dismissal for non-prosecution versus adjudication on merits under Rule 24 - proviso to Rule 24 - setting aside ex parte order and restoration - Validity of ITAT's dismissal of the appeal for non-prosecution instead of deciding it on merits in view of Rule 24 of the ITAT Rules, 1963. - HELD THAT: - The Court held that Rule 24 requires the ITAT to dispose of an appeal on merits after hearing the respondent and that the Tribunal cannot lawfully dismiss an appeal solely on account of the appellant's non-appearance without adjudicating the merits. The ITAT's order dated 10th December, 2015 dismissing the appeal for non-prosecution, rather than deciding it on merits as mandated by Rule 24 and the proviso enabling restoration/set-aside of ex parte orders, was therefore void. The Court found that the ITAT also failed to exercise the power under the proviso to Rule 24 to consider restoration despite the petitioner's applications, and that this failure could not be treated as a mere irregularity but vitiated the dismissal. [Paras 9, 11]

The ITAT's dismissal of the appeal for non-prosecution (10th December, 2015) is void for being contrary to Rule 24 and must be set aside; the appeal is to be restored to its original position for hearing on merits.

Limitation for restoration applications and applicability of amended Section 254(2) - proviso to Rule 24 - setting aside ex parte order and restoration - Competence of the ITAT to reject the petitioner's restoration applications by applying the amended limitation under Section 254(2) and whether the first restoration application was time-barred. - HELD THAT: - The Court observed that no limitation is provided in the Rules for making an application under the proviso to Rule 24 to set aside an ex parte order. The petitioner's first application for restoration, filed in or about March, 2017, was within three years of the impugned dismissal and thus could not lawfully have been dismissed by the ITAT on the basis of the amendment to Section 254(2) (w.e.f. 1st June, 2016) reducing the time to six months. The Court therefore held that the ITAT erred in invoking the amended Section 254(2) limitation to dismiss the petitioner's application without considering the sufficiency of reasons for non-appearance; the question whether the amendment is prospective or retrospective was not decided because the petitioner's application was timely on the facts and Rule 24 was available to him. [Paras 12, 13]

The ITAT erred in dismissing the petitioner's restoration application as time-barred by reference to the amended Section 254(2); the application filed in March, 2017 could not have been rejected on that basis and the ITAT should have considered restoration under Rule 24.

Final Conclusion: The petition is allowed: ITA No. 3844/DEL/2013 (Assessment Year 2008-09) is restored to its position as immediately before 10th December, 2015 and the ITAT is directed to take the appeal up for hearing on merits (to be listed on 15th March, 2021 or any other convenient date).

Additions on account of alleged bogus purchases discovered during search and seizure - burden of proof on assessing officer to establish inexistence of genuine purchases - reliance on supplier's recorded statement and verification to validate transactions - weight of commission reports and service of statutory notices vis-a -vis evidentiary requirements - inadmissibility of untested or un-confronted statements as sole basis for additions

Reliance on supplier's recorded statement and verification to validate transactions - additions on account of alleged bogus purchases discovered during search and seizure - Validity of addition in respect of purchases from M/s Parvati Exports - HELD THAT: - The Tribunal accepted the statement recorded by the partner of M/s Parvati Exports before the first appellate authority, in which the partner admitted the transactions and acknowledged signing the bills and explained the mode of payment. On this verification, the Tribunal found the purchases from Parvati Exports to be duly verified and concluded there was no reason to sustain the addition made by the Assessing Officer. The assessment addition in respect of Parvati Exports was therefore deleted. [Paras 9, 14]

Addition in respect of purchases from M/s Parvati Exports deleted; assessment not sustained on that count.

Burden of proof on assessing officer to establish inexistence of genuine purchases - weight of commission reports and service of statutory notices vis-a -vis evidentiary requirements - inadmissibility of untested or un-confronted statements as sole basis for additions - Validity of addition in respect of purchases from M/s Mukti Exports and reliance on statement of third party from search proceedings - HELD THAT: - The Tribunal noted that the assessee produced flight/air ticket copies to show physical movement and that notices under the statute had been served on M/s Mukti Exports and replied. The Assessing Officer's inference-based on alleged common handwriting on envelopes and on commission reports indicating premises closed-was rejected as insufficient, particularly because the Assessing Officer was not a forensic expert. Further, the entire addition rested on the statement of Shri Bhanwar Lal Jain, which had not been confronted to the assessee nor was the assessee afforded an opportunity for cross-examination. Given these defects in evidentiary foundation and the presence of corroborative materials, the Tribunal found no merit in sustaining the addition relating to Mukti Exports. [Paras 6, 13, 15, 16]

Addition in respect of purchases from M/s Mukti Exports not sustained; addition deleted.

Final Conclusion: For Assessment Year 2012-13 the Tribunal allowed the assessee's appeal and dismissed the revenue's appeal: the additions made by the Assessing Officer in respect of purchases from M/s Parvati Exports and M/s Mukti Exports were deleted for lack of a sufficient and properly tested evidentiary foundation.

Genuineness of sundry creditors and proof by books and bank payments - Related party job work expenses and commercial prudence in inter company transactions - Deduction under Section 80 IC - manufacturing nexus and entitlement

Genuineness of sundry creditors and proof by books and bank payments - Burden of proof where purchases and subsequent payments are recorded in books - Deletion of addition of Rs. 2,22,89,648/- made on account of alleged bogus sundry creditors - HELD THAT: - The Tribunal accepted the finding of the CIT(A) that the Assessing Officer had accepted purchases from the identified parties and that payments in subsequent year were made through proper banking channels. The assessee had furnished ledger accounts, bank statements and confirmations (where available) and the AO had not rejected the books of account or pointed to discrepancies in them. Mere non production of creditors in person did not establish non genuineness where parties were identified, purchases were accepted and payments were recorded and subsequently discharged. On these facts the CIT(A)'s deletion of the addition was sustained and interference was refused. [Paras 7]

Addition disallowing sundry creditors deleted; Revenue's grounds in respect thereof dismissed.

Related party job work expenses and commercial prudence in inter company transactions - Comparability and evidence for variation in job work charges - Deletion of addition of Rs. 74,55,600/- claimed as job work expenses paid to sister concern - HELD THAT: - The Tribunal agreed with the CIT(A) that the Assessing Officer failed to bring comparable evidence to justify disallowing the job work charges and that the assessee had demonstrated increases in labour and electricity costs. In absence of cogent material by the AO to the contrary, the CIT(A)'s deletion was upheld. [Paras 10]

Addition relating to job work charges deleted; Revenue's grounds in respect thereof dismissed.

Deduction under Section 80 IC - manufacturing nexus and entitlement - Remand for verification of manufacturing activity and documentary requisites - Claim of deduction under Section 80 IC (amount disputed by AO) remitted for verification - HELD THAT: - The Tribunal noted the assessee's contention and supporting material (ledgers, Form 10CCB, certificate of commencement) and that similar claims were allowed in subsequent years. Because the AO and CIT(A) reached differing conclusions on whether the assessee's activities satisfy the manufacturing nexus required for Section 80 IC, the Tribunal did not decide the entitlement on merits but remitted the matter to the Assessing Officer to verify whether the assessee was carrying out manufacturing as envisaged by Section 80 IC. The assessee is to be afforded an opportunity of hearing and the question may be reconsidered in view of allowances made in later years. [Paras 13]

Issue of Section 80 IC deduction restored to the file of the Assessing Officer for fresh verification; remand directed and cross objection allowed for statistical purpose.

Final Conclusion: The Revenue's appeal is dismissed: the Tribunal upheld the CIT(A)'s deletion of the addition relating to sundry creditors and the deletion of the job work charge addition; the assessee's claim for deduction under Section 80 IC was remanded to the Assessing Officer for verification of the manufacturing nexus, with opportunity of hearing, and the assessee's cross objection is allowed for statistical purposes.

Revision under section 263 - scope and limits - Reopening of assessment under section 148 for verification versus remedial notice under section 143(2) - Borrowed satisfaction from investigation wing and requirement of independent application of mind by Assessing Officer - Consistency of administrative view and binding effect of analogous tribunal decisions

Revision under section 263 - scope and limits - Consistency of administrative view and binding effect of analogous tribunal decisions - Borrowed satisfaction from investigation wing and requirement of independent application of mind by Assessing Officer - Validity of the Pr. CIT's exercise of power under section 263 in setting aside the reassessment order dated 30.06.2014 for A.Y. 2008-2009 - HELD THAT: - The Tribunal held that the Pr. CIT wrongly assumed jurisdiction under section 263. The Assessing Officer had reopened the assessment on information from DIT(Inv.) but, after detailed enquiry, examined the explanations and documents produced by the assessee and assessed income at NIL by order dated 30.06.2014; thus the AO had taken one of the possible views. A prior ITAT decision quashing identical reopening in respect of the assessee for A.Y. 2009-2010 on the same set of reasons was binding on the facts and showed that the reassessment proceedings were treated as illegal and bad in law. In that factual and legal background the Pr. CIT should not have substituted his view under section 263 to set aside an order where the AO had adopted a permissible view after enquiry. The Tribunal relied on the principle that section 263 cannot be exercised to overturn an order where the Assessing Officer has taken a possible view and where analogous proceedings had already been held invalid by the Tribunal, and therefore concluded that the Pr. CIT's exercise of revisional power was impermissible. The Tribunal accordingly quashed the order passed under section 263 and restored the AO's order. [Paras 6, 7]

Order of the Pr. CIT under section 263 is quashed and the assessment order dated 30.06.2014 is restored.

Final Conclusion: The appeal is allowed: the Pr. CIT's order under section 263 setting aside the reassessment for A.Y. 2008-2009 is quashed and the Assessing Officer's order dated 30.06.2014 is restored.

Estimated additions and imposition of penalty - Penalty under section 271(1)(c) - concealment or furnishing inaccurate particulars - Requirement of definite finding for concealment or inaccurate particulars - Imposition of penalty not sustainable on estimation basis - Precedential weight of High Court decisions on estimate-based additions

Estimated additions and imposition of penalty - Penalty under section 271(1)(c) - concealment or furnishing inaccurate particulars - Requirement of definite finding for concealment or inaccurate particulars - Imposition of penalty not sustainable on estimation basis - Whether penalty under section 271(1)(c) is imposable where additions/disallowances are upheld on an estimated basis. - HELD THAT: - The Tribunal examined the assessment and appellate records and found that the Assessing Officer made disallowances by applying an estimated 50% adjustment and that the CIT(A) upheld disallowance likewise on estimation without recording any categorical finding of concealment of income or furnishing inaccurate particulars. The Tribunal reiterated the principle that penalty under section 271(1)(c) requires a definite finding of concealment or furnishing of inaccurate particulars and cannot be sustained where the addition is essentially based on estimate or guesswork. The Tribunal relied on consistent High Court precedents holding that estimate-based additions do not, without more, attract the penal provision and concluded that since the additions in this case were made and sustained on an estimation basis, the foundational requirement for levy of penalty was absent. For these reasons the levy of penalty was held unsustainable and was set aside. [Paras 8, 9, 10]

Penalty under section 271(1)(c) deleted because additions were made and upheld on an estimation basis without any definite finding of concealment or inaccurate particulars.

Final Conclusion: The appeal is allowed: the penalty levied under section 271(1)(c) for Assessment Year 2011-12 is deleted as the additions were estimated and no definite finding of concealment or furnishing of inaccurate particulars was recorded.

Exemption under section 54 - Long Term Capital Gains reinvested in joint purchase - Investment must be out of capital gains - Joint purchase with close family members not a bar if entire capital gain is invested - Applicability of ratio of Dinesh Verma to section 54 cases

Exemption under section 54 - Joint purchase with close family members - Investment out of capital gains - Whether the assessee is entitled to claim exemption under section 54 for the entire Long Term Capital Gains where the new residential property was purchased jointly with her daughter and son in law and the Assessing Officer restricted the exemption to the assessee's 34% share. - HELD THAT: - The Tribunal affirmed the reasoning of the Commissioner (Appeals). The CIT(A) found, and the Tribunal accepted, that the assessee had invested the entire sale proceeds / Long Term Capital Gains in the purchase of the new residential property within the stipulated time. Nothing in the language of section 54 prohibits the assessee from acquiring the new property jointly with close family members; the statutory requirement is that the capital gain be invested in the purchase of another residential property. The CIT(A) considered the jurisdictional High Court decision in Dinesh Verma (which concerned section 54B) but duly applied its ratio to the facts, noting the factual distinction: in Dinesh Verma the portion claimed as invested by the assessee was actually paid by a third person and the Court limited the exemption to the amount the assessee himself invested. In the present case, by contrast, the assessee demonstrably invested the entire capital gain. On that basis the AO's mechanical restriction of exemption to the assessee's declared 34% legal share in title was not justified and the addition was deleted. [Paras 6]

Exemption under section 54 allowed for the entire Long Term Capital Gains invested in the new residential property; the AO's restriction to 34% was set aside.

Final Conclusion: The Revenue's appeal is dismissed and the order of the Commissioner (Appeals) upholding the assessee's claim of exemption under section 54 for the entire Long Term Capital Gains invested is affirmed.

Comparability of international transactions - application of TNMM and selection of comparables - working capital adjustment in transfer pricing - reliability of comparable financials where fraud alleged - related party transactions filter and functional comparability

Comparability of international transactions - application of TNMM and selection of comparables - functional comparability - Exclusion of Bodhtree Consulting Ltd. (segment) from the final set of comparables - HELD THAT: - The Tribunal examined the annual report and records and found that Bodhtree generated its revenue from software development and had no segmental details indicating ITES activities; it incurred trademark expenses showing intangibles and therefore was functionally a software development company dissimilar to the assessee's ITeS/BPO functions. On that basis the Tribunal directed exclusion of Bodhtree from the final list of comparables as not functionally comparable for TNMM application. [Paras 21]

Bodhtree Consulting Ltd. (Seg.) excluded from the final list of comparables.

Reliability of comparable financials where fraud alleged - comparability of international transactions - Exclusion of Maple eSolutions Ltd. and Triton Corp Ltd. from the final list of comparables - HELD THAT: - Assessee relied on precedents where these companies' promoters were found involved in fraudulent activities, leading coordinate benches to hold that their financial results were distorted and unreliable. Revenue did not controvert those findings. Respectfully following the coordinate bench decisions, the Tribunal concluded that the financials of Maple eSolutions Ltd. and Triton Corp Ltd. for the relevant year could not be relied upon and directed their exclusion from the comparables. [Paras 22]

Maple eSolutions Ltd. and Triton Corp Ltd. excluded from the final list of comparables.

Related party transactions filter and functional comparability - comparability of international transactions - Exclusion of Vishal Information Technologies Ltd. from the final list of comparables - HELD THAT: - On examination of the annual report, the Tribunal noted that Vishal Information Technologies Ltd. had an abnormally high proportion of related party transactions (RPT ~82.92%) and had been characterised in earlier authority as a KPO rather than a BPO provider. Given the functional dissimilarity to the assessee and failure of the RPT filter applied by the TPO, the Tribunal directed exclusion of Vishal from the final comparable set. [Paras 26, 27]

Vishal Information Technologies Ltd. excluded from the final list of comparables.

Related party transactions filter and functional comparability - comparability of international transactions - remand for verification - Remand of Asit C Mehta Financial Services Ltd. for verification by AO/TPO - HELD THAT: - The Tribunal observed that Asit C Mehta Financial Services Ltd. operated in multiple segments (ITES, software, portfolio management) and that segmental details exist but the extent of related party transactions required verification. Because employee cost and outsourcing patterns affect functional comparability and the record showed RPT during the year, the Tribunal remanded this comparable to the AO/TPO to verify the RPT percentage and to decide inclusion or exclusion in accordance with law. [Paras 31]

Asit C Mehta Financial Services Ltd. remitted to AO/TPO for verification; exclude if RPT > 25% or otherwise decide as per verification.

Comparability of international transactions - employee cost and segmental revenue filters - remand for verification - Remand of Spanco Telesystems and Solutions Ltd. (segment) to AO/TPO for verification - HELD THAT: - Assessee challenged Spanco on grounds that ITES revenue constituted only about 8.21% and employee cost was low (7.16%), and that there had been a demerger. Following coordinate bench precedents that required verification of these facts, the Tribunal directed the AO/TPO to verify the employee cost and ITES revenue and, if verified, to exclude the company from the comparable set; accordingly the matter was remitted for factual verification. [Paras 32, 35]

Spanco Ltd. (segment) remanded to AO/TPO for verification of employee cost and ITES revenue and considered for exclusion if verified.

Employee cost and functional comparability - remand for verification - Remand of Accurate Data Converters Pvt. Ltd. to AO/TPO for verification of functions and financial data - HELD THAT: - Assessee contended Accurate Data Converters had very low employee cost (1.61%) and outsourced work, indicating a different business model; the Tribunal noted the TPO had not verified functions and directed that the AO/TPO must verify functional dissimilarities/similarities and available financial data before deciding on its inclusion as a comparable. [Paras 36, 39]

Accurate Data Converters Pvt. Ltd. remanded to AO/TPO for verification of functions and financials and to decide comparability accordingly.

Working capital adjustment in transfer pricing - remand for verification - Remand of the working capital adjustment computation to AO/TPO to consider advances/receipts from customers - HELD THAT: - Assessee claimed advances/receivables from its AE existed and were not considered by the TPO in computing the working capital adjustment; the Tribunal observed that the claim required verification of supporting evidence and therefore remitted the matter to the AO/TPO to reconsider the computation in light of assessee's submissions and evidence, to be decided in accordance with law. [Paras 40, 42]

Working capital adjustment computation remanded to AO/TPO for reconsideration and verification of advances/receivables; assessee to produce relevant evidence.

Final Conclusion: Appeal allowed in part: specific comparables (Bodhtree, Maple eSolutions, Triton Corp, Vishal) excluded from the TPO/DRP final list; other challenged comparables (Asit C Mehta, Spanco (seg.), Accurate Data Converters) and the working-capital adjustment issue remanded to the AO/TPO for verification and fresh consideration in accordance with law; directions given as indicated.

Ad hoc disallowance for unverifiable or self made vouchers - allowability of land development expenses as revenue expenditure - remission to assessing officer for fresh examination under the principle in CIT v. Bharat Hotels Ltd. regarding statutory contribution grace periods - disallowance under section 43B for late payment of statutory employee contributions

Ad hoc disallowance for unverifiable or self made vouchers - allowability of land development expenses as revenue expenditure - Reduction of the ad hoc disallowance made on account of land development charges claimed as revenue expenditure. - HELD THAT: - The assessing officer disallowed 20% of the claimed land development charges on the ground that most vouchers were self made and not in proper order, thereby casting doubt on genuineness. The assessee contended the expenditure was wholly and exclusively for business and recorded in audited accounts. Having considered the facts and the material on record, the Tribunal found the blanket 20% disallowance excessive. In the exercise of its appellate jurisdiction the Tribunal moderated the ad hoc disallowance, directing the AO to restrict the disallowance to 10% of the total claimed land development expenditure instead of 20%, taking into account the totality of facts and the documentary position. [Paras 6]

The disallowance is reduced from 20% to 10% of the claimed land development expenditure and the related grounds are partly allowed.

Disallowance under section 43B for late payment of statutory employee contributions - remission to assessing officer for fresh examination under the principle in CIT v. Bharat Hotels Ltd. regarding statutory contribution grace periods - Whether amounts claimed as contribution to PF and ESI that were paid late are allowable and the consequent treatment of the disallowance under section 43B. - HELD THAT: - The AO disallowed the portion of employee contribution not deposited within the statutory time and the CIT(A) confirmed. The Tribunal referred to the decision of the Hon'ble Delhi High Court in CIT v. Bharat Hotels Ltd., which directs that contributions deposited within the prescribed period together with any applicable notified grace period are to be treated as duly deposited for deduction purposes and that amounts deposited beyond such prescribed period are not allowable. Applying that principle, the Tribunal did not decide the merits on record but remitted the matter to the AO for fresh examination of the dates of actual deposit in the light of the court's guidance, after affording the assessee a reasonable opportunity of hearing. [Paras 8]

The matter is remitted to the assessing officer to decide afresh whether particular contributions qualify for deduction under section 43B having regard to the prescribed periods and any applicable grace periods, and ground is treated as allowed for statistical purposes.

Final Conclusion: Appeal partly allowed for statistical purposes: the ad hoc disallowance in respect of land development charges is reduced to 10% of the claimed expenditure, and the question of disallowance under section 43B in respect of PF/ESI contributions is remitted to the assessing officer for fresh decision in accordance with the cited High Court authority after giving the assessee an opportunity of hearing.

Income from house property - profits and gains of business or profession - commercial asset - taxability of rental income - letting out of business assets - head of income

Commercial asset - profits and gains of business or profession - income from house property - taxability of rental income - Lease rent receipts from the hospital building and equipment leased from 01/11/2015 are taxable as business income and not as income from house property for AY 2016-17. - HELD THAT: - The assessee operated a hospital until 31/10/2015 and thereafter leased the entire hospital building together with equipment and fixtures to a third party under a long-term lease commencing 01/11/2015. The Tribunal found that the leased assets were commercial assets previously used in the assessee's business. Applying the principle that income derived from letting out a commercial asset, which is capable of commercial exploitation and does not cease to be a commercial asset merely because it is let out, is to be treated under the head "profits and gains of business or profession," the Tribunal upheld the findings of the AO and CIT(A). The Tribunal relied on coordinate decisions which apply the tests laid down by higher authorities for determining the appropriate head of income and distinguished the authorities relied upon by the assessee on factual grounds. Consequently, the rental receipts were held to be business receipts and not income from house property.

Appeal dismissed; rental receipts taxed as business income.

Final Conclusion: The Tribunal affirmed the assessment treating the lease rentals from the hospital building and associated equipment as business income for AY 2016-17 and dismissed the assessee's appeal.

Charitable objects - genuineness of activities - proposed activities - distinction between grant of registration under section 12AA and claim of exemption under section 11 - scope of inquiry at registration stage - assessment issues not to be decided at registration stage

Proposed activities - genuineness of activities - charitable objects - Whether absence of actual carried-out activity defeats grant of registration under section 12AA where the objects and proposed activities are charitable - HELD THAT: - The Tribunal held that at the stage of grant of registration the Commissioner is to satisfy himself about the charitable nature of the objects and the genuineness of activities, and that the term "activities" includes proposed activities. Reliance was placed on the Supreme Court decision cited in the order to the effect that proposed activities can be considered in determining whether objects and activities are charitable. Consequently, denial of registration solely because no charitable activity had yet been carried out could not be sustained. [Paras 10, 11, 14]

Registration under section 12AA cannot be refused merely because the appellant had not yet carried out the charitable activities since proposed activities suffice to establish charitable character.

Scope of inquiry at registration stage - assessment issues not to be decided at registration stage - distinction between grant of registration under section 12AA and claim of exemption under section 11 - Whether the Commissioner could deny registration by examining particulars of expenditure, utilisation of funds and treating those as assessment issues - HELD THAT: - The Tribunal concluded that examination of proof of expenditure, utilisation of funds and allied factual matters pertains to assessment or claim for exemption under section 11 and is beyond the scope of proceedings under section 12AA. The Tribunal referred to coordinate bench and High Court precedents recognizing the distinctness of the registration exercise and the assessment/exemption enquiry, and held that calling for evidence of expenditure or treating fund utilisation (e.g., placement in fixed deposits) as a ground to deny registration was impermissible at the registration stage. [Paras 12, 13, 14]

The Commissioner erred in treating assessment-stage matters as grounds to deny registration under section 12AA; such matters are to be examined at assessment/exemption stage under section 11.

Reimbursement to third parties - genuineness of activities - Whether bills issued in the name of third parties fatally undermine the genuineness of the appellant's activities for purposes of registration - HELD THAT: - The Tribunal observed that bills in the name of third parties do not necessarily indicate absence of expenditure by the society and may represent reimbursement to resource persons or speakers. Such factual contentions about the identity of payees and ultimate expenditure are matters relevant to assessment and do not justify refusal of registration under section 12AA. [Paras 12, 14]

Bills in the name of third parties are not a sufficient ground to deny registration; the issue relates to assessment and can be examined later.

Final Conclusion: The order of the Commissioner of Income Tax (Exemption) denying registration under section 12AA was set aside. The Tribunal directed grant of registration under section 12AA, holding that proposed activities suffice to establish charitable character and that examination of expenditures, payees and fund utilisation are matters for assessment/exemption proceedings, not for refusal of registration.

Surrender of undisclosed income before the Income Tax Settlement Commission and its effect on subsequent assessment - prohibition against double taxation by re taxing income already admitted and taxed in the hands of another taxable entity - assessment proceedings under section 153A after search and scope of reassessment where income has been earlier surrendered - allowance of deduction for interest on housing loan under section 24 where co ownership and payment are established - deduction for repayment of housing loan under section 80C where payments are evidenced - deduction under section 80TTA for interest on savings bank account where such interest is admitted and returned

Surrender of undisclosed income before the Income Tax Settlement Commission and its effect on subsequent assessment - prohibition against double taxation by re taxing income already admitted and taxed in the hands of another taxable entity - assessment proceedings under section 153A after search and scope of reassessment where income has been earlier surrendered - Whether the long term capital gains declared and surrendered as undisclosed income of M/s Rohit Traders before the Income Tax Settlement Commission could be taxed again in the hands of the assessee in assessment proceedings under section 153A. - HELD THAT: - The Tribunal found on the record that the impugned long term capital gains were categorically surrendered as undisclosed income of M/s Rohit Traders before the Settlement Commission and the Revenue did not controvert this fact. The Settlement Commission's limited observation that it refrained from commenting on utilization in hands of entities not before it does not negate the admitted surrender and taxation of the same income in the firm's hands. Taxing the identical income again in the assessee's hands would result in double taxation of the same income. Consequently the addition made by the AO and confirmed by the CIT(A) on account of the said LTCG and related expenditure could not be sustained. [Paras 14, 15, 16]

Addition of Rs. 17,19,989 (LTCG) and Rs. 1,34,027 (expenditure related thereto) deleted; grounds allowing deletion upheld.

Allowance of deduction for interest on housing loan under section 24 where co ownership and payment are established - deduction for repayment of housing loan under section 80C where payments are evidenced - deduction under section 80TTA for interest on savings bank account where such interest is admitted and returned - Whether the assessee was entitled to deductions for (a) interest on housing loan under section 24, (b) repayment of housing loan under section 80C, and (c) deduction under section 80TTA for savings bank interest, in view of documentary evidence of co ownership and payments. - HELD THAT: - The Tribunal examined the sale deed showing joint ownership, bank ledger/loan statement and the bank certificate corroborating that the house loan related to the assessee jointly with her husband and that the assessee had been repaying installments and interest. These documents were on record before the lower authorities but were ignored; no infirmity in the documents was pointed out by Revenue. As to savings bank interest, the amount was returned as income by the assessee and accepted; denial of the corresponding deduction under section 80TTA lacked logical basis. On the combined documentary evidence, the Tribunal held that the assessee had established entitlement to the claimed deductions and directed the AO to allow them. [Paras 23, 24, 25, 28, 29]

Deductions allowed: interest under section 24 and repayment under section 80C directed to be admitted by AO; deduction under section 80TTA for savings bank interest also allowed.

Final Conclusion: Both appeals are partly allowed: the additions relating to the disputed long term capital gains and associated expenditure are deleted as those amounts were surrendered and taxed in the hands of M/s Rohit Traders, and the assessee's claims for deductions under section 24, section 80C and section 80TTA are directed to be allowed by the assessing officer.

Estimation of income in reassessment on basis of alleged accommodation entries - Onus of proof and evidentiary requirement in verifying suppliers - Reliance on information from sales tax department for reopening assessment - Adjustment of estimated profit margin on disputed purchases - Validity of ex-parte confirmation of assessment additions

Estimation of income in reassessment on basis of alleged accommodation entries - Onus of proof and evidentiary requirement in verifying suppliers - Adjustment of estimated profit margin on disputed purchases - Whether the addition made by the Assessing Officer of 12.5% of disputed purchases as alleged non genuine purchases was sustainable and, if not, what estimation should be made. - HELD THAT: - The Assessing Officer reopened assessment after receiving information from the Sales Tax Department that the assessee had obtained accommodation entries from ten parties and proceeded to make an estimated addition at 12.5% of disputed purchases, noting that notices issued under the verification provision to the alleged suppliers were returned unserved and that certain documentary evidence such as transport receipts, octroi receipts, weighbridge receipts and goods inward register were not produced by the assessee. The Commissioner (Appeals) confirmed the addition ex parte. Having considered the materials on record and the fact that the suppliers could not be served yet the assessee produced audited financial statements, bank statements, party wise bills and evidence of payment by account payee cheques, the Tribunal found the circumstances required a downward adjustment of the percentage applied for estimation. Applying a fact sensitive evaluative approach rather than sustaining the AO's higher estimate, the Tribunal reduced the rate of deemed profit on the disputed purchases to 6% and directed the Assessing Officer to bring the resulting amount to tax. [Paras 5]

The addition is not sustainable at 12.5%; profit on the disputed purchases of Rs. 46,92,697/- is to be estimated at 6%, and the Assessing Officer is directed to bring the resulting amount to tax.

Final Conclusion: Appeal partly allowed by reducing the estimation of profit on disputed purchases from 12.5% to 6% for AY 2011-12 and directing the Assessing Officer to assess the reduced amount; the CIT(A)'s confirmation is set aside to that extent.

Condonation of delay in filing appeal - bonafide explanation for delay - opportunity of being heard - remand for decision on merits after affording hearing

Condonation of delay in filing appeal - bonafide explanation for delay - Whether the delay of 156 days in filing the appeal before the CIT(A) should be condoned. - HELD THAT: - The assessee filed an affidavit explaining the delay, which the CIT(A) did not dispute. The Tribunal applied the principle that where an explanation for delay does not show mala fides or dilatory intent but is bona fide, delay ought to be condoned. Relying on this approach and the undisputed factual explanation (including alleged non-service timing, attempts to obtain hearing before the AO, and medical incapacity of a partner), the Tribunal held that the CIT(A)'s conclusion of negligence and lack of due diligence was not justified on the record. Consequently, the Tribunal exercised its power to condone the delay and found that the appeal should be admitted for adjudication on merits. [Paras 6]

Delay of 156 days condoned and appeal admitted for consideration on merits.

Opportunity of being heard - remand for decision on merits after affording hearing - Whether the matter should be remitted for fresh consideration and decision on merits after affording the assessee an opportunity of being heard. - HELD THAT: - The Tribunal noted that the AO had purportedly not afforded the assessee the opportunity of being heard as earlier directed by the Tribunal and that the CIT(A) should decide the appeal on its merits only after affording the assessee such hearing. Having condoned the delay, the Tribunal set aside the CIT(A)'s order refusing condonation and directed the CIT(A) to decide the appeal on merits after giving the assessee an opportunity of being heard. This direction constitutes a remand for fresh adjudication on merits. [Paras 7]

Order of the CIT(A) set aside and matter remitted to the CIT(A) to decide the appeal on merits after affording the assessee an opportunity of being heard.

Final Conclusion: Delay in filing the appeal before the CIT(A) is condoned; the CIT(A)'s order refusing condonation is set aside and the matter is remitted to the CIT(A) to decide the appeal on merits after affording the assessee an opportunity of being heard. For statistical purposes the assessee's appeal is treated as allowed.

Refund of redemption fine and penalty - interpretation of Section 27 (limitation on refund) - proof of payment as basis for refund claim - effect of remand on obligation to pass fresh adjudication - departmental retention of sums in absence of a subsisting order

Proof of payment as basis for refund claim - The claim for refund was maintainable despite the absence of original documents because the Commissioner (Appeals) had accepted the copies produced by the respondent as sufficient proof of payment and the Department did not challenge that finding before the Tribunal. - HELD THAT: - The Commissioner of Customs (Appeals) recorded that originals were misplaced but accepted copies of the relevant receipts as sufficient proof of payment for processing the refund claim. The Revenue did not prefer an appeal against that specific finding before the Tribunal. Having failed to challenge the appellate authority's acceptance of the available documents, the contention that the refund claim was unsupported by documents cannot be sustained. The Court therefore upheld the appellate finding that the documentary proof produced by the respondent was adequate for the refund claim. [Paras 7]

The ground that the refund claim lacked supporting documents is rejected; the documents accepted by the Commissioner (Appeals) are sufficient.

Interpretation of Section 27 (limitation on refund) - Section 27, which prescribes limitation for refund of duty or interest, does not apply to claims for refund of redemption fine and penalty under the Customs Act. - HELD THAT: - Section 27 expressly deals with refund of 'duty' or 'interest' and prescribes the time limit for making a claim. The Court examined the definition of 'duty' under the Act and found no indication that 'duty' in Section 27 encompasses redemption fines or penalties. Consequently, the limitation prescribed by Section 27 is not attracted to a claim for refund of redemption fine and penalty; the appellant's reliance on Section 27 to bar the respondent's claim was therefore unsustainable. [Paras 7]

Section 27 is not applicable to refund of redemption fine and penalty; the limitation defence based on Section 27 is rejected.

Effect of remand on obligation to pass fresh adjudication - departmental retention of sums in absence of a subsisting order - Where the Tribunal remitted the matter for fresh adjudication and the authorities thereafter failed to pass any order levying redemption fine or penalty, the Department could not retain the amounts collected; refund was therefore warranted. - HELD THAT: - The Tribunal's remand required the adjudicating authority to reconsider liability afresh. On remand the Department did not pass any subsisting order levying redemption fine or penalty; earlier orders had been set aside. The Court agreed with the Tribunal that absent a continuing adjudicatory order authorising confiscation, redemption fine or penalty, there was no basis for the Department to retain amounts previously collected. The obligation to pass a fresh order upon remand is a prerequisite for continuing to withhold such sums; in its absence retention is not permissible and refund is proper. [Paras 4, 7]

In absence of a fresh order upon remand, the Department cannot retain the redemption fine and penalty; refund is directed.

Final Conclusion: The High Court upheld the Tribunal's allowance of the respondent's appeal and sustained the direction to refund the redemption fine and penalty: the documentary proof accepted by the Commissioner (Appeals) was adequate, Section 27 does not apply to redemption fine and penalty, and in the absence of a fresh adjudicatory order following remand the Department could not retain the sums; the appeal is dismissed.

Summons issued under Section 108 of the Customs Act, 1962 - Quashing of statutory summons - Interference by High Court in investigative summons - exceptional circumstances - Concurrency of investigations and locus for continued examination by another office - Conduct of investigation by video-conference - Videography and installation of CCTV in investigation offices

Summons issued under Section 108 of the Customs Act, 1962 - Quashing of statutory summons - Interference by High Court in investigative summons - exceptional circumstances - Validity of the impugned summons issued by the Senior Intelligence Officer, Kolkata - HELD THAT: - The Court examined the challenge to multiple summons issued under Section 108 of the Customs Act, 1962 and applied the established principle that High Courts should ordinarily refrain from interfering with summons issued for investigation except in exceptional cases. Having considered the factual posture and that investigation is ongoing, the Court found that the matters do not fall within the narrow category of exceptional circumstances warranting quashing of the summons. The petitioners' contentions that once one agency records statements another office cannot summon the same persons, or that earlier statements preclude re-examination, were held not to be persuasive given that the role of the petitioners in the transaction remains to be determined. Consequently, the challenge to the summons in the majority of the writ petitions was rejected and those petitions were dismissed. [Paras 1, 7, 18, 19]

Writ Petitions Nos.15190, 15192, 15193, 15196, 15198 and 17166 of 2020 are dismissed and the challenge to the summons is rejected.

Summons issued under Section 108 of the Customs Act, 1962 - Quashing of statutory summons - Humanitarian considerations in attendance for investigation - Whether the summons issued to the petitioner in W.P. No.15058 of 2020 should be set aside or be required to be complied with at Kolkata - HELD THAT: - The petitioner in W.P. No.15058 (a Director) produced medical evidence and affidavit asserting inability to personally travel and sought that enquiry be conducted from Chennai. The respondent did not oppose the relief sought in respect of this petitioner. Applying a pragmatic and humanitarian approach, the Court set aside the impugned Kolkata summons insofar as W.P. No.15058 is concerned and directed that fresh summons be issued by the authorities in Chennai. The petitioner was directed to cooperate and appear when summoned by the Chennai authorities. [Paras 12, 13]

W.P. No.15058 of 2020 is allowed; the impugned summons is set aside and fresh summons shall be issued by the authorities in Chennai.

Conduct of investigation by video-conference - Videography and installation of CCTV in investigation offices - Recording of investigative proceedings - Whether the investigatory proceedings in these matters should be videographed and whether the earlier order for video-conference attendance required compliance - HELD THAT: - The Court noted an earlier order directing conduct of proceedings by video-conference during the COVID-19 pandemic which the respondents have not complied with and no application for modification was placed before the Court. While recognising that video-conference may not be universally suitable for every investigation and that its desirability depends on circumstances, the Court emphasised the recognised utility of videography and CCTV in investigations as reflected in Supreme Court pronouncements. In light of the absence of information about CCTV/videography facilities at the DRI office in Kolkata and the need to safeguard interests of both investigatory agencies and persons under investigation, the Court directed that the process of investigation in these matters be videographed and that the recorded data be preserved until completion of the proceedings. [Paras 15, 16, 21, 30, 31]

The investigation of the petitioners shall be videographed and the data preserved until completion of the proceedings; earlier video-conference direction was noted as not complied with by respondents.

Final Conclusion: The Court dismissed the challenges to the Kolkata-issued summons in six writ petitions, but allowed the petition in W.P. No.15058 (setting aside the Kolkata summons and directing fresh summons from Chennai). The Court further directed that the investigatory proceedings in these matters be videographed and the recordings preserved until completion of the proceedings.

Eligibility to claim refund under Notification No.102/2007-Cus. - refund of special additional customs duty (SAD) - importer (inclusive definition) including person holding himself out to be the importer - ownership transfer by slump sale and transmission of tax benefits - use/misuse of Import Export Code (IEC)

Eligibility to claim refund under Notification No.102/2007-Cus. - importer (inclusive definition) including person holding himself out to be the importer - ownership transfer by slump sale and transmission of tax benefits - use/misuse of Import Export Code (IEC) - refund of special additional customs duty (SAD) - Whether the appellant, having acquired the Excavator Division by slump sale before clearance for home consumption, qualified as the "importer" and was entitled to refund of 4% SAD under Notification No.102/2007-Cus. despite the ex-bond bill of entry and clearance being effected using the seller's IEC. - HELD THAT: - The Tribunal applied the inclusive statutory definition of "importer" (which, prior to 2017, included any owner or person holding himself out to be the importer between importation and clearance for home consumption) to the facts that the appellant acquired the Excavator Division by slump sale on 01.04.2015, and the slump sale agreement expressly transferred "all tax benefits / receivables relating to inventory being transferred including but not limited to refund of special additional customs duty" to the appellant. The agreement and the attendant facts (identification and reconciliation of imported machines with serial numbers, submission of original bills of entry and duty paid challan, and reimbursement of duty by the appellant to the seller) establish that ownership and the rights to claim tax benefits passed to the appellant before clearance. The Tribunal distinguished authorities cited by the Revenue as addressing misuse of IEC codes, holding that use of the seller's IEC to clear the goods was at most a procedural irregularity and did not negate the appellant's status as importer or rightful owner where the transfer of assets and tax benefits had occurred prior to clearance. Applying these determinations to the conditions of clause 2 of Notification No.102/2007-Cus., the Tribunal held that the appellant satisfied the requirement that the "importer" file the claim for refund of SAD and that denial of refund on the ground that the bill of entry bore the seller's name was not warranted on the facts. [Paras 6, 7, 8, 9]

The sanction of refund to the appellant was legal and the recovery order was set aside; appeal allowed with consequential relief as per law.

Final Conclusion: The Tribunal held that where ownership and the right to tax benefits in imported goods pass to a transferee by slump sale prior to clearance, the transferee qualifies as "importer" under the pre-2017 inclusive definition and is entitled to claim refund of SAD under Notification No.102/2007-Cus.; use of the seller's IEC to clear the goods did not, on these facts, deprive the appellant of entitlement, and the recovery order was set aside.

Bona fide dispute - admission of company petition on inability to pay debts under the Companies Act - prima facie proof of facts on which defence depends - use of supplied goods and inability to return as affecting defence - claim for interest on delayed payments where antecedent agreement is disputed

Bona fide dispute - admission of company petition on inability to pay debts under the Companies Act - prima facie proof of facts on which defence depends - use of supplied goods and inability to return as affecting defence - Whether the Company Petition for winding up was rightly admitted on the ground of inability to pay admitted debts in view of the defence raised by the appellant. - HELD THAT: - The courts below found, on appreciation of the materials, that the defence asserting defective quality of supplied raw material was an afterthought and not bona fide. The statutory notice specified the invoices and the outstanding amount; the appellant's reply to that notice did not substantively contest the claimed particulars and later altered its stand in the written statement (claiming rebate and a different computation). The Company Judge noted absence of documents corroborating alleged defects and that the appellant's own calculations reduced the claim to a negligible sum, inconsistent with earlier replies. The Division Bench affirmed these findings, observing that the respondent's grant of a credit note indicated acknowledgement of only limited defects and that the appellant had used the supplied yarn in manufacture (making return impossible) and had not produced customer complaints or other documentary evidence of consequential loss. Applying settled principles that a petition should not be dismissed where the debt is undisputed and the company's defence is not shown in good faith, of substance, or supported prima facie, the courts held there was no bona fide dispute and admission of the petition was justified. The determinative reasoning rests on (a) inconsistent and after thought pleadings by the appellant, (b) lack of documentary proof of defect or of damage from customers, (c) conduct showing partial acknowledgement by respondent (credit note) rather than admission of a broader liability, and (d) utilisation of the goods by the appellant making rejection/return untenable. [Paras 16, 17, 18, 19, 20]

The admission of the Company Petition was correct; the defence was not bona fide or substantial and the petition deserved to be admitted.

Claim for interest on delayed payments where antecedent agreement is disputed - scope of appellate or clarification proceedings where interest was not considered below - Whether the question of liability to pay interest at the claimed rate was to be adjudicated in the present appeal. - HELD THAT: - The Division Bench declined to enter upon the issue of interest because the learned Company Judge had not considered that question. The Division Bench dismissed the appeal while expressly leaving the respondent's claim to recover interest unaffected and available to be pursued by appropriate proceedings (application for clarification, appeal or other remedy). This Court noted that the Division Bench did not direct payment of interest and that the question remains open for adjudication in the appropriate forum or proceedings; earlier authorities on interest were considered but not applied to decide the point here because it was not decided below. [Paras 25]

The question of the respondent's claim for interest was left open by the Division Bench for separate or further proceedings and is not decided in this appeal.

Final Conclusion: The appeal is dismissed. The admission of the Company Petition was affirmed on the finding that the appellant's defence was not bona fide or supported prima facie; no order as to costs. The respondent's separate claim for interest was left open for determination in appropriate proceedings.

Scheme sanction under Sections 230-232 of the Companies Act, 2013 - Appointed Date - transfer and vesting of the undertaking - transfer of liabilities and continuation of pending proceedings - tax implications subject to final decision of Income Tax Authorities - compliance with FEMA and RBI regulations - RBI compliance regarding overdues towards ESOP, RSU and ESPP - compliance with Section 135 concerning CSR obligations - payment of difference fee on increase of authorised capital under Section 232(3)(i) - sanction not to be construed as exemption from stamp duty, taxes or other charges - order not to preclude action by Registrar of Companies or other authorities

Scheme sanction under Sections 230-232 of the Companies Act, 2013 - Appointed Date - Sanction of the Scheme of Amalgamation between Soha Systems India Pvt. Ltd. and Akamai Technologies Solutions (India) Pvt. Ltd. and fixation of the Appointed Date. - HELD THAT: - The Tribunal considered the petitions, the board approvals, auditors' and valuers' certificates, statutory notices and responses from ROC, RD, Official Liquidator and other authorities. On the material placed on record the Tribunal found that the procedure under sub-sections (1) and (2) of section 232 has been complied with, that the Scheme is fair and reasonable and not detrimental to members or creditors, and that the Scheme would yield operational synergies and other commercial benefits. Accordingly the Scheme is sanctioned and the Appointed Date is fixed as 1st April, 2018.

Scheme sanctioned; Appointed Date 01st April, 2018.

Transfer and vesting of the undertaking - transfer of liabilities and continuation of pending proceedings - Effect of the sanction on transfer/vesting of assets and liabilities and on pending proceedings. - HELD THAT: - Pursuant to the sanction under section 232, the Transferor Company's undertaking, assets and liabilities stand transferred to and vested in the Transferee Company without further act or deed, subject to existing charges. All liabilities including taxes, levies and duties and any proceedings pending by or against the Transferor shall continue by or against the Transferee. The Tribunal recorded these consequences as part of the sanction order.

Undertaking, assets and liabilities transferred to and vested in the Transferee Company; pending proceedings to continue against the Transferee.

Tax implications subject to final decision of Income Tax Authorities - sanction not to be construed as exemption from stamp duty, taxes or other charges - Treatment of tax consequences and stamp duty following sanction of the Scheme. - HELD THAT: - The Tribunal clarified that sanctioning the Scheme does not amount to exemption from payment of stamp duty, taxes or other charges and that such matters shall be governed by the relevant authorities and laws. Any tax implications arising from the Scheme are left to the final decision of the concerned Income Tax Authorities, whose decision will be binding on the Transferee Company. The Transferee is directed to pay any applicable difference in fees on increase of authorised capital pursuant to the Scheme.

Tax and stamp duty matters not determined by this sanction; subject to respective authorities; Transferee to comply with fee and duty obligations.

Compliance with FEMA and RBI regulations - RBI compliance regarding overdues towards ESOP, RSU and ESPP - payment of difference fee on increase of authorised capital under Section 232(3)(i) - Compliance obligations imposed on the parties as conditions of sanction. - HELD THAT: - In view of observations by ROC/RD and RBI, the Tribunal directed the Transferor and Transferee Companies to strictly comply with FEMA and RBI regulations. Specific directions include compliance with RBI regulations concerning outstanding dues related to ESOP/RSU/ESPP and an undertaking to pay any differential fees on authorised capital in accordance with section 232(3)(i). These compliance obligations are made conditions of the sanctioned Scheme.

Petitioner Companies directed to comply strictly with FEMA/RBI rules, to address ESOP/RSU/ESPP overdues and to pay due fees on increased authorised capital.

Compliance with Section 135 concerning CSR obligations - Responsibility for unspent CSR amounts and compliance with Section 135. - HELD THAT: - The Tribunal noted ROC/RD observations regarding unspent CSR amounts and directed that any liability arising from non-compliance with section 135 shall stand transferred to and be the liability of the Transferee Company. The Transferee Company is directed to submit details of compliance with Section 135 to the ROC within 30 days from the date of the order.

Liability for non-compliance with Section 135 transfers to the Transferee; Transferee to submit compliance details to ROC within 30 days.

Order not to preclude action by Registrar of Companies or other authorities - Scope of the Tribunal's sanction vis-a -vis other regulatory action. - HELD THAT: - The Tribunal expressly limited its order to sanctioning the Scheme and noted that the sanction does not preclude the Registrar of Companies or any other authority from taking appropriate action under law for any violations or offences by the companies or their personnel prior to or during approval of the Scheme. Further, the Tribunal granted liberty to any person to apply for directions as may be necessary.

Sanction limited; ROC or other authorities remain free to take lawful action; liberty to apply for further directions preserved.

Final Conclusion: The Tribunal sanctioned the Scheme of Amalgamation between the two petitioner companies with Appointed Date 1 April 2018, directed transfer and vesting of assets and liabilities to the Transferee, imposed specified compliance conditions (including FEMA/RBI, ESOP/RSU/ESPP, CSR and payment of differential fees), left tax and stamp duty questions to the respective authorities, and clarified that the sanction does not bar regulatory action by ROC or other authorities.

Operational Debt - Maintainability under Section 9 of the Insolvency and Bankruptcy Code, 2016 - Limitation - acknowledgement and fresh period under Section 18 of the Limitation Act - Pre-existing dispute - scope and Mobilox Innovations principle

Operational Debt - Maintainability under Section 9 of the Insolvency and Bankruptcy Code, 2016 - The claimed amounts payable by the Corporate Debtor to the Operational Creditor arise out of agency/service transactions and constitute Operational Debt; consequently the Section 9 petition was maintainable on that ground. - HELD THAT: - The Tribunal found that the amounts arose from dealings pursuant to the General Agency Agreement under which the Corporate Debtor acted as agent/service provider for the Operational Creditor, collecting payments and maintaining ledger accounts. The Corporate Debtor itself described the sums as advances and adjusted them towards costs and expenses in its audited accounts and in its reply before the Adjudicating Authority. There being no consideration for the time value of money and the debt arising from provision of services, the claim falls within the definition of Operational Debt under the Code. Given proof of debt and default and absence of a valid prior dispute, the Adjudicating Authority correctly admitted the petition under Section 9. [Paras 1]

Claim held to be an Operational Debt and Section 9 petition was maintainable on that basis.

Limitation - acknowledgement and fresh period under Section 18 of the Limitation Act - The Operational Creditor's claim was not barred by limitation because the Corporate Debtor repeatedly acknowledged the debt in its accounts and communications, thereby restarting limitation under Section 18. - HELD THAT: - The Tribunal relied on the principle that acknowledgement in writing before the expiry of the prescribed period gives rise to a fresh period of limitation under Section 18 of the Limitation Act (as explained by the Supreme Court). The Corporate Debtor's audited balance sheets, yearly reconciliations and specific communications (including an email of 23 October 2018) recorded and acknowledged outstanding sums payable to the Operational Creditor. Those acknowledgements, occurring within the relevant limitation window, operated to extend the limitation period; accordingly, the claim (insofar as admitted/reconciled in the books and communications) could not be rejected as time-barred. [Paras 1]

Debt not barred by limitation due to acknowledged and reconciled running account entries restarting limitation.

Pre-existing dispute - scope and Mobilox Innovations principle - Maintainability under Section 9 of the Insolvency and Bankruptcy Code, 2016 - There was no genuine pre-existing dispute disclosed prior to the demand notice sufficient to defeat admission under Section 9; allegations of fabrication, conflict of interest and mismanagement were neither raised earlier nor suitable for summary adjudication at the admission stage. - HELD THAT: - The Tribunal applied the Mobilox Innovations test that a pre-existing dispute must be real and not a patently feeble or spurious plea. The Corporate Debtor had not raised falsification or fabrication of invoices before receipt of the demand notice, and its reply to the demand notice admitted significant liabilities and proposed repayment arrangements. The Tribunal observed that detailed inquiries into allegations of fabrication, invalid debit notes or director misconduct fall outside the scope of summary admission proceedings under Section 9 and are matters for fuller investigation after admission. In these circumstances, the Adjudicating Authority correctly treated the dispute pleas as not preventing admission. [Paras 1, 6, 7, 8]

Pre-existing dispute plea rejected; petition under Section 9 admissible and correctly admitted.

Final Conclusion: The Appellate Tribunal dismissed the appeal. It upheld the Adjudicating Authority's admission of the Section 9 petition, holding that the claim qualified as Operational Debt, was not time-barred due to acknowledgements and yearly reconciliations, and that the alleged pre-existing disputes were not genuine or antecedent to the demand so as to bar admission.

Relinquishment of security interest to the liquidation estate - distribution of assets under Section 53(1)(b)(ii) of the I&B Code - realisation of security interest under Section 52 - doctrine of election (choice between realisation and relinquishment) - equal ranking of secured creditors who relinquish security - priority of charge (first charge v. second charge) upon enforcement - overriding effect/non-obstante clause of Section 53

Relinquishment of security interest to the liquidation estate - distribution of assets under Section 53(1)(b)(ii) of the I&B Code - equal ranking of secured creditors who relinquish security - Whether secured creditors who relinquish their security interest must be treated as a single class ranking equally for distribution from the sale proceeds under Section 53(1)(b)(ii). - HELD THAT: - Sections 52 and 53 read together give a secured creditor, in liquidation, a statutory option: either to realise its security interest under Section 52 or to relinquish that interest and claim from the liquidation estate under Section 53. Relinquishment divests the secured creditor of enforcement rights qua the secured asset and brings it within the waterfall in Section 53. Section 53(1)(b)(ii) expressly ranks debts owed to secured creditors who have relinquished their security equally among themselves, second only to insolvency resolution process costs and liquidation costs. The non-obstante opening of Section 53 gives it overriding effect over contrary provisions of other laws. Thus once secured creditors elect to relinquish, they rank equally for distribution under Section 53(1)(b)(ii), and the liquidator must distribute proceeds accordingly. [Paras 6, 7, 8, 9]

Secured creditors who relinquish their security interest must be treated as one class ranking equally for distribution under Section 53(1)(b)(ii).

Realisation of security interest under Section 52 - priority of charge (first charge v. second charge) upon enforcement - doctrine of election (choice between realisation and relinquishment) - Whether the prior inter-se priority (first charge v. second charge) survives where a secured creditor elects to relinquish its security, and when priority remains relevant. - HELD THAT: - The distinction between Sections 52 and 53 is pivotal. If a secured creditor elects to realise its security interest, the priority attached to the security (for example first charge over second charge) is material in enforcement against the particular secured asset; the first charge holder will have precedence in realisation. However, if the secured creditor elects to relinquish the security interest to the liquidation estate, the right to enforce the prior charge is foregone and distribution is governed by Section 53. Further, a secured creditor who enforces its security but does not realise the full debt is relegated, for the unpaid part, to a lower priority under Section 53(1)(e)(ii). Thus the doctrine of election determines whether pre-existing charge priority continues to operate in liquidation. [Paras 7, 8]

Pre-existing inter-se priority (first v. second charge) remains relevant only if the secured creditor elects to realise its security; relinquishment causes the creditor to be governed by Section 53 and lose enforcement priority.

Overriding effect/non-obstante clause of Section 53 - distribution of assets under Section 53(1)(b)(ii) of the I&B Code - Whether earlier judicial authority recognizing priority of first charge (pre I&B Code) can control distribution under Section 53 where Section 53 has overriding effect. - HELD THAT: - A pre-IBC decision affirming primacy of a first charge holder under general property law cannot displace the specific distribution scheme enacted by the I&B Code. Section 53 contains a non-obstante clause and an overriding mandate; it therefore governs distribution in liquidation notwithstanding earlier case law to the contrary. The tribunal held that reliance on pre Code precedents to preserve first charge priority in the face of a statutory relinquishment and the Section 53 waterfall is misplaced. [Paras 10, 11]

Section 53's overriding scheme governs distribution in liquidation and supersedes prior judicial pronouncements that would preserve first charge priority contrary to Section 53.

Maintainability of application under I&B Code challenging distribution - Whether the application by the appellant challenging the liquidator's distribution was maintainable. - HELD THAT: - The Adjudicating Authority had held the application non-maintainable on the basis that inter se priorities among secured creditors prevail. Having concluded that secured creditors who relinquish security must be treated as a single class under Section 53(1)(b)(ii), the tribunal held the impugned non maintainability finding unsustainable. I.A. No. 514 of 2019 was therefore held to be maintainable and deserving of relief directing the liquidator to distribute proceeds in accordance with Section 53(1)(b)(ii). [Paras 2, 11, 12]

The application challenging the distribution was maintainable; the impugned order rejecting it is set aside.

Final Conclusion: The appeal is allowed. The impugned order is set aside; I.A. No. 514 of 2019 in CP(IB) No. 04/2017 is held maintainable. The Liquidator is directed to treat secured creditors who relinquished their security interest as one class ranking equally and to distribute the sale proceeds in accordance with Section 53(1)(b)(ii) of the I&B Code.

Corporate Insolvency Resolution Process initiation under Insolvency and Bankruptcy Code - Operational debt and default - Limitation for filing Section 9 application - Jurisdiction of Adjudicating Authority - Appointment of Interim Resolution Professional - Moratorium under Section 14 - Public announcement and claim submission - Duty of ex-management to cooperate - Interim funding by Operational Creditor for IRP expenses

Jurisdiction of Adjudicating Authority - This Adjudicating Authority has jurisdiction to hear the Section 9 application. - HELD THAT: - The registered office of the corporate debtor is situated within the territorial jurisdiction of this Bench and, accordingly, the Tribunal has jurisdiction to adjudicate the Section 9 application filed by the operational creditor. [Paras 1]

Jurisdiction of the Adjudicating Authority upheld.

Limitation for filing Section 9 application - The application is within the period of limitation. - HELD THAT: - The invoices relied upon relate to dates from 11.02.2019 to 16.05.2019 and the petition was filed on 03.02.2020; hence the claim falls within the prescribed limitation period for initiating proceedings under Section 9. [Paras 3]

Application held to be within limitation.

Operational debt and default - Demand notice and absence of pre-existing dispute - Debt and default were established and no pre-existing dispute prevented admission of the petition. - HELD THAT: - The operational creditor produced invoices and statement of accounts and issued demand notices (Forms 3 and 4) which were received by the corporate debtor. The Tribunal found that the outstanding operational debt is due and payable and that there was no pre-existing dispute on the debt which would bar admission. Although the corporate debtor admitted liability in part and relied on extended credit terms and a post-event adverse incident, the Tribunal concluded that default existed. [Paras 4, 6]

Debt and default proved; absence of any valid pre-existing dispute for the purposes of Section 9 recorded.

Corporate Insolvency Resolution Process initiation under Insolvency and Bankruptcy Code - Moratorium under Section 14 - Public announcement and claim submission - The Section 9 application is admitted and CIRP is initiated with moratorium and directions for public announcement and claim submission. - HELD THAT: - Upon finding debt and default, the Tribunal admitted the application under Sections 8 and 9 and ordered initiation of the Corporate Insolvency Resolution Process against the corporate debtor. Consequential directions were issued: declaration of moratorium as per Section 14, instructions to the Interim Resolution Professional to make the public announcement and to invite claims, and clarification that the moratorium will operate until completion of CIRP subject to exceptions prescribed by the Code. [Paras 6, 7]

Application admitted; CIRP initiated and moratorium ordered with directions for public announcement and claim submission.

Appointment of Interim Resolution Professional - An Interim Resolution Professional is appointed. - HELD THAT: - The operational creditor had not proposed an IRP, and the Tribunal appointed Mr. Saradindu Jena (registration details recorded in the order) to perform the functions of IRP including ascertaining particulars of creditors and convening the Committee of Creditors. [Paras 6]

Mr. Saradindu Jena appointed as Interim Resolution Professional.

Interim funding by Operational Creditor for IRP expenses - Operational Creditor directed to deposit interim amount to meet IRP expenses. - HELD THAT: - The Tribunal directed the operational creditor to deposit a specified sum with the IRP within three days to meet expenses of the IRP in discharge of his duties, subject to adjustment by the Committee of Creditors as per accounts maintained by the IRP. [Paras 7]

Operational creditor directed to make interim deposit for IRP expenses.

Duty of ex-management to cooperate - IRP convening Committee of Creditors and reporting - Ex-management directed to cooperate and IRP directed to convene CoC and file progress report. - HELD THAT: - The Tribunal ordered the ex-management to furnish all documents and information in their possession to the IRP within one week, warning of coercive steps in case of non-compliance. The IRP was directed to convene a meeting of the Committee of Creditors, submit resolutions passed by the CoC, and file the first progress report by the date specified by the Tribunal. [Paras 6, 7]

Ex-management obliged to cooperate; IRP to convene CoC and file progress report as directed.

Final Conclusion: The Section 9 petition filed by the operational creditor was admitted, the Corporate Insolvency Resolution Process initiated against the corporate debtor, an Interim Resolution Professional was appointed, moratorium declared with directions for public announcement and claim submission, the operational creditor ordered to provide interim funding for the IRP, ex-management directed to cooperate, and the IRP tasked to convene the Committee of Creditors and file progress reports.

Admission of application under Section 7 of the Insolvency and Bankruptcy Code - existence of debt and default - moratorium under Section 14 of the Insolvency and Bankruptcy Code - appointment of Interim Resolution Professional - public announcement of corporate insolvency resolution process

Admission of application under Section 7 of the Insolvency and Bankruptcy Code - existence of debt and default - Whether the application filed by the financial creditor under Section 7 is maintainable and admits the initiation of corporate insolvency resolution process by reason of proved debt and default. - HELD THAT: - The Tribunal found that the Financial Creditor established the contractual facility, security documents, and the outstanding liability alleged in the petition. The Corporate Debtor did not deny the existence of outstanding dues; its counter stated part payments and contentions regarding allocation of payments and charges but did not successfully dispute that default had occurred. On the material placed, the Tribunal concluded that the Financial Creditor proved existence of debt and default and that the Section 7 application was maintainable. Consequently, the petition was admitted and the Corporate Insolvency Resolution Process was ordered to commence. [Paras 6, 7]

The Section 7 petition was admitted on the ground of proved debt and default and the CIRP was ordered to commence.

Moratorium under Section 14 of the Insolvency and Bankruptcy Code - appointment of Interim Resolution Professional - public announcement of corporate insolvency resolution process - What interim measures and appointments should follow admission of the Section 7 petition. - HELD THAT: - On admission, the Tribunal declared the moratorium prohibiting specified suits, proceedings, transfer or disposal of assets, enforcement of security interests and recovery of property occupied by the corporate debtor. The Tribunal directed continuation of supply of essential goods or services during the moratorium where applicable, noted exceptions as may be notified, and directed immediate public announcement of the CIRP. The Tribunal appointed an Interim Resolution Professional, specifying that his fees shall comply with applicable IBBI regulations and directed communication of the order to the parties and the IRP. [Paras 6]

Moratorium was declared with specified prohibitions; public announcement directed; Mr. Lingumgunta Venkata Shyam Sundar was appointed as Interim Resolution Professional and the Registry was directed to communicate the order.

Final Conclusion: The Tribunal admitted the Section 7 petition on the finding of proved debt and default, appointed an Interim Resolution Professional, declared the moratorium with specified directions and directed immediate public announcement and communication of the order.

Corporate Insolvency Resolution Process - Operational Creditor - Existence of debt and default - Effect of settlement and liberty to file fresh petition - Admission of application under Section 9(5) - Appointment of Interim Resolution Professional - Moratorium under Section 14 - scope and duration - Interim Resolution Professional's fees and expenses

Existence of debt and default - Effect of settlement and liberty to file fresh petition - Operational Creditor - Whether the Section 9 application filed by the operational creditor is maintainable in view of the admitted debt, partial payment under a Joint Memorandum of Settlement and subsequent defaults. - HELD THAT: - The Tribunal recorded that a Joint Memorandum of Settlement entered in earlier proceedings (IBA/981/2019) fixed an instalment schedule for payment by the corporate debtor, of which only the first instalment was paid in full and the second instalment was paid short while the third and fourth instalments remained unpaid. The earlier petition had been dismissed as withdrawn but with liberty to file afresh if the corporate debtor failed to comply with the settlement. There was no appearance by the corporate debtor in the present proceedings and the admitted outstanding dues and the default in payment of instalments constituted a debt and default by the corporate debtor. On these findings the Tribunal treated the present petition as a sequel to the earlier proceeding and proceeded to adjudicate the application under Section 9(5). [Paras 3, 4, 5, 6, 7]

The Section 9 application by the operational creditor was admitted on the ground of existence of debt and default despite the earlier settlement and the liberty to file afresh.

Appointment of Interim Resolution Professional - Interim Resolution Professional's fees and expenses - Appointment of an Interim Resolution Professional and the conditions of appointment. - HELD THAT: - The Tribunal noted that the operational creditor had not nominated a resolution professional. Applying the IBBI list for January-June 2021, the Tribunal appointed a named resolution professional as Interim Resolution Professional subject to the condition that no disciplinary proceedings be pending and that required disclosures under the IBBI Regulations be made within one week of the order. The Tribunal also directed payment by the operational creditor to the Interim Resolution Professional to meet expenses once the requisite declaration is filed. [Paras 8, 11]

An Interim Resolution Professional was appointed subject to the stated conditions and the operational creditor was directed to pay the specified sum toward the Interim Resolution Professional's expenses upon filing of the declaration.

Moratorium under Section 14 - scope and duration - Admission of application under Section 9(5) - Imposition, scope and duration of the moratorium consequent to admission under Section 9(5). - HELD THAT: - Upon admission of the Section 9 application, the Tribunal directed that the moratorium under Section 14(1) would follow. The order set out the prohibitions on institution or continuation of suits, transfer or disposal of assets, enforcement of security interests and recovery of property, and reproduced the statutory exceptions and clarifications including supply of essential goods/services and the temporal effect of the moratorium, which continues until completion of the CIRP or earlier approval of a resolution plan or liquidation order. [Paras 8, 9, 10, 12]

The moratorium under Section 14 was imposed with the statutory scope and duration effective from the date of the order until completion of the CIRP or cessation as provided by statute.

Communication to Registrar, IBBI and parties - Admission of application under Section 9(5) - Directions regarding communication of the order and ancillary administrative steps following admission. - HELD THAT: - The Tribunal directed the Registry to communicate the order to the operational creditor, the corporate debtor and to forward a copy to the IBBI. It further directed that the Interim Resolution Professional be furnished with a copy of the order and that the Interim Resolution Professional communicate initiation of the CIRP to the Registrar of Companies concerned. These administrative directions flow from the admission and are necessary to give effect to the CIRP and the moratorium. [Paras 12]

The Registry was directed to communicate the order to the parties and IBBI and to furnish the Interim Resolution Professional with the order so that the CIRP may be notified to the Registrar of Companies.

Final Conclusion: The Tribunal admitted the Section 9 petition filed by the operational creditor against the corporate debtor on the basis of admitted debt and defaults under a prior settlement, appointed an Interim Resolution Professional subject to conditions, imposed the statutory moratorium with its consequential prohibitions and directed payment to and communication with the Interim Resolution Professional, IBBI and Registrar of Companies to give effect to initiation of the CIRP.

Limitation under the Limitation Act, 1963 - acknowledgement under Section 18 of the Limitation Act - application of the Limitation Act to IBC proceedings (Section 238A) - SARFAESI/DRT proceedings and computation of limitation - admission of an application under Section 7 of the IBC

Limitation under the Limitation Act, 1963 - acknowledgement under Section 18 of the Limitation Act - SARFAESI/DRT proceedings and computation of limitation - admission of an application under Section 7 of the IBC - Whether the Section 7 application filed by the Financial Creditor on 06.01.2020 was barred by limitation - HELD THAT: - The Tribunal accepted the respondent bank's contention that documents on record (including OTS proposals, settlement requests and the balance-sheet entry showing admission of debt by the Board of Directors on 18.01.2017) constituted acknowledgements of liability which, under Section 18 of the Limitation Act, operate to commence a fresh period of limitation provided the acknowledgement is made before the expiry of the earlier period. The Tribunal applied the principle that the Limitation Act applies mutatis mutandis to proceedings under the IBC in view of Section 238A and relied on the Supreme Court's reasoning in Sesh Nath Singh that periods spent pursuing remedies such as SARFAESI and proceedings before the DRT can be relevant in computing limitation and that a court/tribunal may condone delay even in the absence of a formal application under Section 5 where sufficient cause is shown. In the factual matrix, the series of acknowledgments and settlement communications, together with the recorded admission in the 2014-15 financial statement filed/approved in January 2017, led the Tribunal to conclude that the Section 7 petition filed on 06.01.2020 could not be treated as time-barred. [Paras 7, 8]

Application under Section 7 was not barred by limitation; appeal dismissed.

Final Conclusion: The Tribunal upheld admission of the Section 7 petition, finding the Limitation Act (including Section 18 acknowledgements and the application of limitation principles to IBC proceedings) applicable and that the documents on record extended or restarted limitation; the appeal was dismissed with no order as to costs.

Consolidation of connected writ petitions - common questions of law requiring joint consideration - listing before a Division Bench for joint adjudication - jurisdictional and applicability issues under the PML Act in Jammu and Kashmir

Consolidation of connected writ petitions - common questions of law requiring joint consideration - listing before a Division Bench for joint adjudication - Petitions raising common questions arising from the same criminal proceedings should be placed for joint consideration by a Division Bench and listed together with WP (C) 2780/2019. - HELD THAT: - The court observed that the proceedings against the petitioner and those in WP (C) 2780/2019 originate from the same criminal trial and involve issues which are substantially common, including challenges concerning jurisdiction and the applicability of the PML Act to the erstwhile State of Jammu and Kashmir. Having noted that some issues raised in the present petition overlap with matters already considered by a Coordinate Bench and are pending further consideration before a Division Bench in the related petition, the court concluded that the two matters ought to be heard together. Both senior counsel raised no objection to the proposal. In view of these considerations, the court directed administrative steps to enable joint adjudication by the Division Bench so that the common questions can be considered together.

The matter is to be placed before a Division Bench and listed along with WP (C) 2780/2019; the Registrar Judicial is directed to list the matter with the records of WP (C) 2780/2019 after obtaining the Chief Justice's permission.

Final Conclusion: Writ petition not decided on merits; case directed to be listed for joint hearing before a Division Bench together with WP (C) 2780/2019, and Registrar Judicial directed to place the matter on the appropriate Board after seeking the Chief Justice's permission.

Custodial interrogation - remand to judicial custody - necessity for further custody - confrontation with electronic evidence - sufficiency of investigative custody period - revision under Section 401 of the Code of Criminal Procedure, 1973

Custodial interrogation - necessity for further custody - confrontation with electronic evidence - Whether further custodial interrogation of the accused (respondent Nos.2 and 3) was necessary and whether the Trial Court erred in remanding them to judicial custody instead of granting further police custody. - HELD THAT: - The Court found that respondent Nos.2 and 3 had been in police custody from 6:00 pm on 27th January 2021 until 2nd February 2021 and had undergone five full days of custodial interrogation. The investigating agency had seized various electronic devices prior to 27th January 2021 and filed a remand report describing voluminous digital data said to require confrontation. The High Court accepted the Trial Court's assessment that five days' custody was sufficient to confront the accused with the seized devices. The Court further noted that, even if the accused were remanded to judicial custody, the Investigating Agency could confront them with documents and seized electronic material in jail after obtaining the necessary permission from the Trial Court. On this basis the Trial Court's conclusion that further custodial interrogation was not necessary was upheld. The Court rejected the submission that the quantity of digital data alone mandated additional custodial interrogation, observing that the material was already in the agency's possession and that confrontation for investigatory purposes could lawfully be effected without continued police custody. [Paras 5, 6, 7]

The Trial Court did not commit any error or illegality in refusing further police custody; further custodial interrogation was unnecessary and the order remanding the accused to judicial custody is sustained.

Final Conclusion: Revision under Section 401 Cr.P.C. dismissed; the impugned order dated 2nd February 2021 refusing further custodial interrogation and remanding respondent Nos.2 and 3 to judicial custody is upheld.

Money laundering under Section 3 of PMLA - proceeds of crime - continuing nature of money laundering offences - effect of compounding/acceptance of 'C' report on consequent PMLA proceedings - power to take cognizance/commit under Section 44 of PMLA - extension of judicial custody under Section 167 Cr.P.C. - prima facie satisfaction for remand

Money laundering under Section 3 of PMLA - proceeds of crime - continuing nature of money laundering offences - effect of compounding/acceptance of 'C' report on consequent PMLA proceedings - Whether acceptance of a 'C' closure report/compounding of the scheduled offence necessarily vitiates or precludes continuation of investigation and prosecution for money laundering under the PMLA in the present ECIR. - HELD THAT: - The Court held that compounding or acceptance of a 'C' final report in respect of the scheduled offence does not automatically nullify or deracinate the offence under Section 3 of the PMLA. The offence under PMLA is distinct and deals with activities in relation to proceeds of crime (concealment, possession, acquisition, use, or projecting as untainted property), and is of a continuing character until the proceeds are no longer enjoyed or concealed. The Finance Act, 2019 amendment and Section 44(c) permit Special Courts/authorised authorities to proceed in respect of money laundering even where proceedings in respect of the scheduled offence have been disposed of by the Magistrate. Given that material documentary evidence has been collected and the investigation is ongoing to trace proceeds and end use, the court found adequate grounds to treat the accusation as prima facie well founded and to allow continued investigation and prosecution under PMLA despite compounding of the FIR. [Paras 9, 11, 12, 13, 14]

Compounding/acceptance of the 'C' report in the scheduled offence does not automatically bar continuation of investigation or prosecution under PMLA; prima facie grounds exist to continue the PMLA investigation.

Extension of judicial custody under Section 167 Cr.P.C. - prima facie satisfaction for remand - Whether judicial custody of the accused should be extended and whether they should be released forthwith on execution of bond. - HELD THAT: - Applying the standard under Section 167 Cr.P.C., the Court recorded that there exist grounds to believe the accusation is well founded and that further custodial interrogation and detention are necessary to prevent tampering with evidence and to enable the investigation into proceeds of crime to proceed. The Court noted earlier orders including the High Court's consideration of remand but concluded that, on the material before it and the continuing nature of the alleged money laundering activities, extension of judicial custody was warranted for a limited period to permit completion of the investigation and filing of final report by the Enforcement Directorate. Consequently, the prayer for immediate release on bond was rejected. [Paras 11, 14, 15, 16]

Judicial custody of both accused extended; application for release on bond rejected.

Final Conclusion: The Court extended the judicial custody of the accused to enable the ongoing PMLA investigation into proceeds of crime to continue and rejected the accused's prayer for immediate release on bond; custody was remanded for the period directed by the Court.

CENVAT credit on towers and prefabricated shelters - capital goods - inputs - eligibility of CENVAT credit determined at time of receipt - binding effect of Larger Bench precedents - extended period of limitation

CENVAT credit on towers and prefabricated shelters - capital goods - inputs - eligibility of CENVAT credit determined at time of receipt - binding effect of Larger Bench precedents - Cenvat credit on angles, channels, beams, tower parts and prefabricated shelters is not admissible to the appellants. - HELD THAT: - The Tribunal examined conflicting authorities and noted that the Bombay High Court has held such items to be neither capital goods under Rule 2(a)(A) nor inputs under Rule 2(k) of the Cenvat Credit Rules. The Bench observed that two High Courts have taken contrary views, and that the matter had been referred to and answered by the Larger Bench of the Tribunal. Following judicial discipline and the Larger Bench decision in Tower Vision India Pvt. Ltd., this Bench considered itself bound by that Larger Bench precedent and therefore upheld the Revenue's stand on merits. The Tribunal also recorded the Revenue's contentions that the towers become attached to earth and are not directly used in provision of the output service and that the goods do not fall within the specified chapters/headings qualifying as capital goods. [Paras 8]

On merits, the appellants are not entitled to Cenvat credit on the specified tower materials and prefabricated shelters.

Extended period of limitation - time-bar/limitation - entitlement of CENVAT credit determined at time of receipt - The revenue demand for the period 10.09.2004 to 30.09.2006 is barred by limitation and the appeals are allowed on that ground. - HELD THAT: - The Tribunal found that the show-cause notice was issued on 06.07.2009, beyond the normal limitation period for the tax period in question. Relying on precedents that mere continuation of credit without any positive act of suppression is insufficient to invoke the extended period, and noting that the question involved a debatable point of law (as evidenced by conflicting High Court decisions and reference to a Larger Bench), the Bench concluded that mala fides or deliberate suppression was not established. The Tribunal observed that earlier authorities have held that where the issue is interpretational or referred to a Larger Bench, extended period cannot be invoked. Applying those principles to the present facts, the demand was held to be time-barred. [Paras 10, 11]

The appeals are allowed on the ground of limitation; the demand is barred by time.

Final Conclusion: The Tribunal, while upholding the Revenue's view on the merits that the specified tower materials and prefabricated shelters do not qualify for Cenvat credit, allowed the appeals because the demand relating to 10.09.2004 to 30.09.2006 was held to be time-barred; accordingly the appeals succeed on limitation.

Amount in arrears - ineligibility for declaration under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - show cause notice for erroneous refund

Amount in arrears - definition of amount in arrears under Section 121(c) of the Finance Act, 2019 - Whether the refund amount sought to be recovered as erroneous refund qualifies as an "amount in arrears" within the meaning of Section 121(c) of the Finance Act, 2019 so as to entitle the petitioner to relief under the Scheme of 2019. - HELD THAT: - The Court held that Section 121(c) defines "amount in arrears" as duty recoverable as arrears in the specific situations enumerated therein (no appeal filed within time; order in appeal attaining finality; admitted tax liability in a return). That definition does not encompass amounts characterised as erroneous refunds recoverable by the revenue. The statutory language and scheme therefore do not treat an erroneously granted refund, or a demand for recovery thereof following a challenge, as an "amount in arrears" within Section 121(c). Accordingly, the petitioner could not rely on Section 121(c) to convert the erroneously refunded amount into an "amount in arrears" for the purpose of obtaining relief under the Scheme. [Paras 6, 7]

The refund amount recoverable as an erroneous refund does not fall within the definition of "amount in arrears" in Section 121(c) and thus cannot be the basis for relief under the Scheme of 2019.

Ineligibility for declaration under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - show cause notice for erroneous refund - Section 125(1)(d) of the Finance Act, 2019 - Whether issuance of a show cause notice (and subsequent proceedings culminating in an order) for recovery of an erroneous refund renders the petitioner ineligible to make a declaration under the Scheme by virtue of Section 125(1)(d). - HELD THAT: - The Court interpreted Section 125(1)(d) as excluding from eligibility any person who has been issued a show cause notice under an indirect tax enactment for an erroneous refund or refund. The court rejected the submission that ineligibility would cease where the show cause notice proceedings have concluded in an order and the demand has attained finality; the statutory disqualification applies where such a notice has been issued, irrespective of subsequent adjudication. In the present case a show cause notice was issued calling for recovery of the erroneously granted refund and proceedings culminated in an order creating the demand which attained finality; hence the petitioner falls squarely within the disqualification in Section 125(1)(d). [Paras 7]

Issuance of a show cause notice for an erroneous refund (even if proceedings culminate in a final demand) renders the person ineligible to make a declaration under the Scheme under Section 125(1)(d).

Final Conclusion: The petition is dismissed: the refund sought to be recovered as an erroneous refund does not qualify as an "amount in arrears" under Section 121(c), and the petitioner is disqualified from making a declaration under the Sabka Vishwas Scheme by virtue of the show cause notice for erroneous refund under Section 125(1)(d) of the Finance Act, 2019.

Prima facie review under Section 11(6A) of the Arbitration and Conciliation Act, 1996 - existence and validity of an arbitration agreement at the referral stage - kompetenz kompetenz and allocation of jurisdiction between court and arbitral tribunal - novation/novation by subsequent agreement and its effect on an embedded arbitration clause - entire agreement/merger clause and its bearing on prior family arrangement

Prima facie review under Section 11(6A) of the Arbitration and Conciliation Act, 1996 - existence and validity of an arbitration agreement at the referral stage - kompetenz kompetenz and allocation of jurisdiction between court and arbitral tribunal - Scope of judicial scrutiny under Section 11(6A) when a party challenges the continued existence/validity of an arbitration agreement. - HELD THAT: - The Court held that post the 2015 Amendment and as explained in Vidya Drolia, the court at the Section 11 stage conducts a limited prima facie review to determine whether an arbitration agreement exists; this review includes, to a limited extent, aspects of validity where the arbitration agreement is manifestly nonexistent or invalid. However, detailed contested questions of contract formation, novation, or disputed factual matters are ordinarily for the arbitral tribunal. The Court emphasised that only in rare and clear cases - for example where an arbitration agreement is ex facie void, non existent, or the dispute is plainly non arbitrable - should the court decline reference. Where the question requires detailed examination of documents and surrounding circumstances, the matter should be referred so as not to usurp the arbitral tribunal's primary jurisdiction (competence competence). Applying these principles, the Court found that the present dispute about whether the MoU survives or was novated by the SHA involves complex and disputed facts and contractual construction unsuited to resolution at the prima facie Section 11 stage. [Paras 6, 7, 9]

The High Court erred in dismissing the Section 11 petition on the ground that the MoU had been novated; the limited prima facie standard under Section 11(6A) favours referring complex and disputed questions of novation and validity to the arbitral tribunal.

Novation/novation by subsequent agreement and its effect on an embedded arbitration clause - entire agreement/merger clause and its bearing on prior family arrangement - Whether the arbitration clause in the family MoU had been extinguished by the subsequent Shareholders' Agreement (SHA) and related agreements, or whether that contested question must be decided by an arbitral tribunal. - HELD THAT: - The Court analysed the competing contentions and the documents but concluded that the issue whether the MoU was superseded or novated by the SHA involves detailed construction of clauses (including the "entire agreement" clause), assessment of surrounding circumstances and facts (such as incorporation of MoU terms into Articles and subsequent amendments), and is therefore not amenable to resolution at the prima facie referral stage. Reliance upon authorities about novation and merger was noted, but the Court held that those matters raise debatable and disputable questions of fact and law which should be determined by the arbitral tribunal under the principle of kompetenz kompetenz rather than resolved finally by a Section 11 court. [Paras 9, 10, 11]

The question whether the MoU was novated by the SHA was not finally decided by the Court but left to the arbitral tribunal for determination; the High Court's conclusion that the MoU had been superseded was set aside.

Final Conclusion: The judgment of the Delhi High Court is set aside and the parties are directed to proceed to arbitration before a sole arbitrator, Justice Aftab Alam (Retd.), who will determine the disputes (including the contested question of novation) without being influenced by the Court's prima facie observations; specified Board agenda items shall remain deferred pending interim orders or final award.

Transfer under Article 139A(1) of the Constitution - settling law of general public importance - conflicting High Court judgments and multiplicity of proceedings - guidelines limiting acceptance of tax audit assignments as regulatory measure - disciplinary consequences for contravention treated as professional misconduct - continuation of interim orders pending transfer

Transfer under Article 139A(1) of the Constitution - settling law of general public importance - conflicting High Court judgments and multiplicity of proceedings - guidelines limiting acceptance of tax audit assignments as regulatory measure - disciplinary consequences for contravention treated as professional misconduct - Whether the writ petitions challenging Chapter VI of the Guidelines dated 08.08.2008 and related disciplinary proceedings should be transferred to this Court for authoritative determination. - HELD THAT: - The Court found that the impugned Guidelines, which prescribe a cap on the number of tax-audit assignments a member may accept and render contravention actionable as professional misconduct, raise questions of law of public importance affecting both the profession and persons subject to compulsory tax audits. Conflicting decisions of different High Courts on the validity of earlier notifications and the Guidelines have created uncertainty and the potential for multiplicity of proceedings. In the interest of settling the law authoritatively and removing conflicting views, the Court concluded that transfer under Article 139A(1) is appropriate in the present batch of matters and allowed the transfer of the listed writ petitions to this Court for final determination. [Paras 16, 18]

Transfer petitions allowed and the specified writ petitions are withdrawn to this Court for final and conclusive adjudication.

Continuation of interim orders pending transfer - Whether interim orders operating in the writ petitions sought to be transferred should be permitted to continue until this Court passes further orders. - HELD THAT: - Recognising that several writ petitions carried interim orders in favour of petitioners, the Court accepted the submission that such interim reliefs should remain undisturbed while the transferred matters are before this Court. The Court therefore directed that existing interim orders in the transferred writ petitions shall continue to operate until this Court directs otherwise. [Paras 17, 19]

Existing interim orders in the transferred writ petitions shall continue until further orders of this Court.

Final Conclusion: Transfer petitions are allowed; the listed writ petitions challenging the Guidelines dated 08.08.2008 and related disciplinary proceedings are withdrawn to and transferred to this Court for authoritative determination, and the interim orders in those writ petitions shall continue until further orders.